##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




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FORM 10-K



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Annual Report Pursuant to Section 13
or 15(d)

of the Securities Exchange Act of 1934


For the fiscal year ended December 31, 2002

Commission File Number 1-15168

CERIDIAN CORPORATION

(Exact name of Registrant as specified in its
charter)


|                                                                           |  |                                               
|-------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction of
    incorporation or organization) |  | 41-1981625(I.R.S. Employer Identification No.)

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)




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Securities Registered Pursuant to
Section 12(b) of the Act:

|                                                                                                                                       |  |                                                                                                      
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------
|Title of each class:Common stock, par value $.01 per
    share
    Rights to Purchase Class A Junior Participating
    Preferred Stock |  | Name of each exchange on which registered:The New York Stock Exchange
    The New York Stock Exchange

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. [X] Yes [ ] 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. [X]

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). [X] Yes [ ] No

The aggregate market value of the voting stock of
Ceridian held by non-affiliates of Ceridian on June 28,
2002 was $2,814,985,352, based on the closing sales price of
Ceridian common stock as reported on The New York Stock
Exchange on June 28, 2002.

The number of shares of Ceridian common stock
outstanding as of March 20, 2003 was 148,150,587.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Annual
Meeting of Stockholders to be held on May 21, 2003:
Part III



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TABLE OF CONTENTS



|                                                                        |                                                                                                   |  |  |  |  |  |  | 
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                 
|                                                                        | Item 1A. Executive Officers of the Registrant                                                    
|                                                                        | Item 2. Properties                                                                               
|                                                                        | Item 3. Legal Proceedings                                                                        
|                                                                        | Item 4. Submission of Matters to a Vote of Security Holders                                      
|PART II                                                                
|                                                                        | Item 5. Market For Registrants Common Equity and Related Stockholder Matters                    
|                                                                        | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations    
|                                                                        | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                              
|CERIDIAN CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
|                                                                        | Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure     
|PART III                                                               
|                                                                        | Item 10. Directors and Executive Officers of the Registrant                                      
|                                                                        | Item 11. Executive Compensation                                                                  
|                                                                        | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters
|                                                                        | Item 13. Certain Relationships and Related Transactions                                          
|                                                                        | Item 14. Controls and Procedures                                                                 
|PART IV                                                                
|                                                                        | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                         
|SIGNATURES                                                             
|CERIDIAN CORPORATION ANNUAL REPORT ON FORM 10-K                        
|EX-10.09 Amendment to Employment Agreement-Turner                      
|EX-10.11 Amendment to Employment Agmt-Eickhoff                         
|EX-10.13 Amendment to Employment Agreement-Krow                        
|EX-10.15 Amendment to Employment Agreement-Nelson                      
|EX-10.16 Employment Agreement-Thew                                     
|EX-10.38 2001 Savings-Related Share Option Plan                        
|EX-10.39 UK Compensation Share Option Plan                             
|EX-10.40 Amended Savings-Related Share Option Plan                     
|EX-21.01 Subsidiaries                                                  
|EX-23.01 Consent of KPMG LLP                                           
|EX-24.01 Power of Attorney                                             
|EX-99.01 Certification Pursuant to 18 USC Sec 1350                     



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CERIDIAN CORPORATION




PART I





This Annual Report on Form 10-K contains
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 SEC.

We own or have the rights to various trademarks,
trade names or service marks, including the following:
BusinessLinkTM, Ceridian
Corporation® and logo, Ceridian®,
CobraServ®, Comchek®, Comchek
eCash®, Comdata Corporation® and logo,
Comdata®, HR/Comply®,
LifeWorks®, Powerpay®,
Signature®, SourceWebTM, Stored
Value Systems® and logo, and
TrendarTM. The trademarks American
Express®, Discover®, Maestro®,
MasterCard®, Microsoft®,
UltiPro®, Visa® and Windows®
referred to in this report are the registered trademarks of
others.

Item 1. Business

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 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 Old Ceridian or Ceridians
predecessor). On March 30, 2001, we became an
independent public company when Old Ceridian 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 Old Ceridian, we are considered the divesting entity and
treated as the accounting successor to Old Ceridian
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 Old Ceridian prior to the
spin-off, as well as the continuing operations of the operations
that were transferred to us by Old Ceridian 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.

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





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principally in the United States, Canada and the
United Kingdom. HRS revenue for the years 2002, 2001 and
2000 was as follows:


|     |                |      |  |      |                |  |  |   |                | 
|---- | -------------- | ---- |  | ---- | -------------- |  |  | - | -------------- | 
|2002 |                | 2001 |  | 2000
|     |                |      |  |     
|$    | 878.1  million |      |  | $    | 873.8  million |  |  | $ | 873.1  million | 

Payroll processing and tax filing services
accounted for about 73 percent of the $878.1 million
of revenue in 2002, with about 70 percent of 2002 payroll
processing and tax filing revenue derived from the United States.

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 11 percent of the
$878.1 million of revenue in 2002 was attributable to this
investment income, including income from interest rate
derivative contracts. 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 securities such as
interest rate collars and swaps to manage interest rate risk on
customer deposits on a global basis as further described in
Part II, Item 7A of this report. Because the volume of
payroll items processed increases in the first and fourth
quarters 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.

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 is
expected to 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 expect 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 scope and complexity
of laws and regulations governing businesses and increasingly
complicated work-life issues faced by employers and employees.

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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 Characteristics                                                                                                                                                                                                                                                                                                                                                                                                                            
|                 |  |                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Small            |  | 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 another                                                                                                                                                                                                                                                          
|                
|Medium           |  | 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
    services                                                                                                                                                                                 
|                
|Large            |  | 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, 401(k)
retirement plan administration, COBRA notification, flexible
spending account administration, employee self-service, benefits
eligibility and enrollment, and employee assistance and
work-life services. 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.

Products
and Services

Our human resource management solutions include:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | payroll processing and integrated human resource
    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

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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 Source 500 product suite provides an
integrated HR/payroll and benefits solution with outsourced
payroll and tax filing services to customers primarily in the
medium and large employee range. 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.

We recently introduced eSource, a web-enabled,
fully hosted integrated payroll and human resource
administration solution, designed specifically for the medium
and large customer market. 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.

Additionally, we have a license agreement with
Ultimate Software Group, Inc. to allow us to use that
companys UltiPro software as part of an on-line payroll
service offering. In January 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 small
to smaller medium employee size companies.

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.

We hold our customers tax filing deposits
in a trust. This trust invests primarily in high quality
collateralized short-term investments, money market funds, U.S.
Treasury and Agency securities, AAA rated asset-backed
securities and corporate securities rated A3/ A or better. The
duration of these investments is carefully managed to meet the
liquidity needs of the trust.

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.

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Our qualified plan administration services
include 401(k) plan administration, profit sharing
administration, defined benefit plan administration, ESOP
administration and Qualified Domestic Relations Order
administration.

In 2002, we made three acquisitions to enhance
our ability to provide human resource compliance and enrollment
and benefit management services. We acquired substantially all
of the assets of HR Comply to enhance our ability to provide
human resource compliance services, and SYLINQ Corporation and
substantially all of the assets of Great Lakes Strategies, LLC
to further our capabilities in enrollment and benefits
management through leading edge software platform technologies.

Work-Life Effectiveness and Employee
Assistance Programs.We are a
leader in providing 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.

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

Approximately 22 percent of HRS 2002
revenue was obtained from customers outside of the United
States. Our international HRS operations are primarily conducted
in the United Kingdom, through Centrefile Limited, and Canada,
through Ceridian Canada Ltd. Centrefile Limited provides human
resource services, payroll processing services and HRIS software
in the United Kingdom. Centrefiles services generally do
not involve the handling or transmission of customer funds. In a
very few instances, Centrefile holds client funds for a short
period of time in non-interest bearing segregated, accounts
prior to disbursement pursuant to 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. About
23 percent of the 2002 revenue of this Canadian business
was attributable to this investment income. The Canadian trust
invests in securities issued by the government and provinces of
Canada, highly rated Canadian banks and corporations, asset
backed trusts and mortgages. We earn income from the trust and
charge fees for services similar to those provided in the United
States. We also provide for interest rate risk management in
Canada as further described in Item 7A of this report.

We are expanding our international payroll
services into other countries in Europe, including Belgium,
France, Germany, the Netherlands, the Republic of Ireland, Spain
and Switzerland, by engaging partners within each country to
provide us with payroll administration and processing services
for that

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country. We in turn have contracted with
multinational customers for their international requirements,
and deliver a fully outsourced payroll service to these
customers.


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 have
established marketing relationships with banks, accounting
firms, insurance companies and others pursuant to which these
products and services are offered to the business clients of
these entities. 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 and internally developed and
operated systems and software.

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., Ceridian and ProBusiness
Services, Inc. comprising the other three large, national
providers in terms of revenue. ADP serves all sizes of
employers, while Paychex generally focuses on small employers
and ProBusiness generally focuses on large employers. On
January 8, 2003, ADP and ProBusiness announced that they
had entered into a merger agreement providing for the
acquisition of ProBusiness by ADP. 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
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

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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 HRS 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 software applications with customers
other in-house applications and the ability to provide client/
server-based solutions and solutions delivered through the
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 new technology, particularly
that which incorporates industry standard architecture and
client/ server 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. For
example, we are developing several products that are
Internet-based. In addition, we expect to introduce additional
enhancements to our Source 500 product.

The table below reflects the amount of research
and development expenses for our HRS businesses for the periods
indicated.

|                         |  |                       |      |      |  |      |      |   |  |   |      |  
|------------------------ |  | --------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                         |  |                      
|                         |  | Years Ended          
|                         |  | December 31,         
|                         |  |                      
|                         |  | 2002                  |      | 2001 |  | 2000
|                         |  |                       |      |      |  |     
|                         |  |                      
|                         |  | (dollars in millions)
|Research and development |  | $                     | 56.9 |      |  | $    | 54.7 |   |  | $ | 54.8 |  
|Percent of revenue       |  |                       | 6.5  | %    |  |      | 6.3  | % |  |   | 6.3  | %

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Comdata

Our Comdata subsidiary provides transaction
processing and regulatory compliance services to the
transportation and other industries. Comdatas revenue from
products and services for the years 2002, 2001 and 2000 was as
follows:

|     |                |      |  |      |                |  |  |   |                | 
|---- | -------------- | ---- |  | ---- | -------------- |  |  | - | -------------- | 
|2002 |                | 2001 |  | 2000
|     |                |      |  |     
|$    | 314.6  million |      |  | $    | 316.0  million |  |  | $ | 308.8  million | 

Approximately 79 percent of Comdatas
revenue for 2002 was attributable to its transportation 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 by large capital requirements and a relatively
high degree of consolidation. The truckload component, which
involves the transportation of full loads directly from shipper
to final destination without going through any sorting
terminals, is highly fragmented.

The majority of Comdatas trucking company
customers are common carriers serving the truckload component of
the long haul segment. Many of these carriers do not employ
their drivers, but instead contract 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 and oil companies
through gas stations, 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 promotions. SVS markets its private label cash card to
these merchants, namely major retailers and gas stations, for
use with their customers. 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 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 provides
assistance in obtaining regulatory permits and other compliance
services, 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

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customers outside of the transportation industry.
Comdata operates primarily in the United States and Canada and
is expanding its business into Mexico.


BusinessLink.Comdata recently introduced
BusinessLink, a 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, provide payroll to employees and positively
identify employees. Through BusinessLink a business can review
reports of transactions made by its employees over the Internet.
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 primary markets,
transportation and retail. Comdata believes that the
BusinessLink card has application to businesses in other
industries.

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 2002, Comdata processed
approximately 82.1 million funds transfer transactions
involving approximately $13.0 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 interactive reporting
capabilities, the latest diesel fuel prices and related
information.

Use of a Comdata card, 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 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 has been minimal compared to the aggregate dollar
amount of funds Comdata has transferred annually. Comdata is
licensed by 39 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.

Approximately 12 percent of Comdatas
funds transfer revenue is derived from transactions that do not
involve the Comdata card. 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.

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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
determines 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, UPC scanning devices
and truck stop management software. These systems accept many
types of fuel purchase cards currently used by drivers.

Local Fueling.Comdata is a provider of fuel
management and payment systems for local transportation fleets.
Comdata provides local fleet operators with Comchek MasterCard
fleet cards that offer the fleet operators transaction control
and trip-related information gathering features similar to those
of the Comdata card.

Retail Services.SVS provides, among other services,
debit card programs to major retailers that are used as gift
cards, gift certificates, credits for returned product 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. Card programs and other services available through SVS
may potentially have benefits in e-commerce, facilitating
transactions between on-line merchants and their customers.

Comchek eCash is a card-based service allowing
employers to post or load payment of wages and other payments,
such as expense reimbursements, to Comchek 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 to several industries, the largest of which
is the transportation industry. Comdata markets its services to
the transportation industry through a direct sales force
domiciled at its headquarters in Brentwood, Tennessee, and
operating throughout the United States and Canada. Comdata
provides services to more than 18,000 over-the-road and local
trucking fleets with approximately 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 and
operating throughout the country. SVS has recently begun sales
and marketing efforts in Canada and Europe, most notably in the
United Kingdom. SVS has contracts with approximately
130 retailers and oil companies to provide cash cards
and/or payroll services. These contracts are generally three
years in duration.

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Competition

The principal competitive factors relevant to
funds transfers are marketing efforts, pricing, reliability of
computer and communications systems and time required to effect
transactions. The major credit and debit card associations and
companies, such as Visa, MasterCard, American Express and
Discover, are significant competitors of Comdata in that 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 Concord EFS, Inc., 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 TCH, 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, Xerofax, 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 one of its competitive
weaknesses is that its information technology infrastructure is,
in many instances, a mainframe based, legacy system built over
many years. This legacy system makes innovation cumbersome. Many
of Comdatas competitors are either web-born or
web-enabled and, thus, able to take better advantage
of transaction and information delivery available through the
Internet and information technology systems architectures which
are more open than that of Comdatas. Another one of
Comdatas competitive weaknesses is that unlike competitors
with a brand relationship with a credit card association, such
as Visa and MasterCard, Comdatas proprietary card does not
possess ubiquitous acceptance. Finally, some of Comdatas
competitors possess greater financial and other resources than
Comdata.

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;                                                                                                                
|
| |  | product design innovation; and                                                                                                                   
|
| |  | long-time reputation in the transportation
    industry.                                                                                         

Comdatas retail services division (which
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

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whom they have established relationships. Another
competitive weakness of Comdatas retail services division
is that their 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 near its headquarters
in Brentwood, Tennessee, with a secondary center located in
suburban Dallas, Texas and an SVS facility in Louisville,
Kentucky. Comdata receives telecommunications services from MCI
WORLDCOM Network Services, Inc. and Sprint Corporation.
Substantially all of Comdatas internal data processing
functions for its transportation business, including its payment
processing systems, are conducted in a facility located near
Nashville, 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.

|                         |  |                       |     |      |  |      |     |   |  |   |     |  
|------------------------ |  | --------------------- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                         |  |                      
|                         |  | Years Ended          
|                         |  | December 31,         
|                         |  |                      
|                         |  | 2002                  |     | 2001 |  | 2000
|                         |  |                       |     |      |  |     
|                         |  |                      
|                         |  | (dollars in millions)
|Research and development |  | $                     | 2.4 |      |  | $    | 4.4 |   |  | $ | 8.0 |  
|Percent of revenue       |  |                       | 0.8 | %    |  |      | 1.4 | % |  |   | 2.6 | %

The decrease in the amount of research and
development expense in 2002 and 2001 was due largely to
development cost savings resulting from the termination of an
outsourced transaction processing contract.

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Additional Financial Information About
Segments

We refer you to Note D, Segment Data, to
our consolidated financial statements for additional financial
information about our business segments. This information may be
found in Part II, Item 8 of this report.

Other Investments and Divestitures

In addition to the spin-off transaction described
previously under the heading General, we refer you
to Note F, 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, 2003, we employed
approximately 9,411 people on a full- or part-time basis,
including 7,187 full-time and 533 part-time employees of HRS and
1,496 full-time and 102 part-time employees of Comdata. None of
our employees is covered by a collective bargaining agreement.

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, 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 believe that meaningful backlog
information can be provided for our businesses.

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
us on this site. In the future, we anticipate disclosing various
information relating to our corporate governance policies and
practices, charters of our committees, codes of conduct and
other corporate governance matters as is required by the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the
SEC and The New York Stock

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Exchange. 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, 2003:

|                       |  |                                                                                                                                             
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Name (Age)             |  | Current Position                                                                                                                            
|                       |  |                                                                                                                                             
|Ronald L. Turner (56)  |  | Chairman, President and Chief Executive Officer                                                                                             
|John R. Eickhoff (62)  |  | Executive Vice President and Chief Financial
    Officer                                                                                    
|Loren D. Gross (57)    |  | Vice President and Corporate Controller                                                                                                     
|Shirley J. Hughes (57) |  | Senior Vice President of Human Resources                                                                                                    
|Gary A. Krow (48)      |  | Executive Vice President and President of Comdata                                                                                           
|Gary M. Nelson (51)    |  | Executive Vice President, General Counsel and
    Corporate Secretary                                                                       
|Bruce J. Thew (44)     |  | Executive Vice President; President, Ceridian
    International Human Resource Services; and Group Managing
    Director, Centrefile Limited

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, each of our
executive officers resigned from Ceridians predecessor and
was thereafter reappointed to the equivalent position within
Ceridian. Our executive officers have held the following
positions with Ceridian, Ceridians predecessor and certain
other entities since March 1998:

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.

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-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.

Bruce J. Thew has served as Executive Vice
President and President, Ceridian International Human Resource
Services since July 2002. Mr. Thew has served as Group
Managing Director, Centrefile Limited since 1997.

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Item 2. Properties


Our principal executive offices are located at
3311 East Old Shakopee Road, Minneapolis, Minnesota 55425.
As of March 1, 2003, 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, 2003:

Facilities

(In thousands of square feet)


|                                |       |      |       |          |  |       |     |     |  |  |       |       | 
|------------------------------- | ----- | ---- | ----- | -------- |  | ----- | --- | --- |  |  | ----- | ----- | 
|                                |       | U.S. |       | Non-U.S. |  | Total
|                                |       |      |       |          |  |      
|Type of Property Interest       |       |      |       |          |  |       |     |     |  |  |       |      
|Owned                           |       |      | 393   |          |  |       |    |     |  |  | 393   |      
|Leased                          |       |      | 2,024 |          |  |       | 389 |     |  |  | 2,413 |      
|                                |       |      |       |          |  |       |     |     |  |  |       |      
|                                | Total |      |       | 2,417    |  |       |     | 389 |  |  |       | 2,806 | 
|Property Interest by Segment    |       |      |       |          |  |       |     |     |  |  |       |      
|HRS                             |       |      | 1,583 |          |  |       | 375 |     |  |  | 1,958 |      
|Comdata                         |       |      | 447   |          |  |       | 14  |     |  |  | 461   |      
|Corporate                       |       |      | 387   |          |  |       |    |     |  |  | 387   |      
|                                |       |      |       |          |  |       |     |     |  |  |       |      
|                                | Total |      |       | 2,417    |  |       |     | 389 |  |  |       | 2,806 | 
|Utilization of Property         |       |      |       |          |  |       |     |     |  |  |       |      
|Office, Computer Center & Other |       |      | 2,217 |          |  |       | 389 |     |  |  | 2,606 |      
|Leased or Subleased to Others   |       |      | 200   |          |  |       |    |     |  |  | 200   |      
|                                |       |      |       |          |  |       |     |     |  |  |       |      
|                                | Total |      |       | 2,417    |  |       |     | 389 |  |  |       | 2,806 | 

We conduct a substantial portion of our
operations in leased facilities, including our 207,000 square
feet Minneapolis headquarters complex in Minneapolis, Minnesota.
Most of these leases contain renewal options and require payment
for taxes, insurance and maintenance. Space subject to assigned
leases is not included in the table above, and we remain
secondarily liable under all of those leases. As of
March 1, 2003, the assigned leases consisted of 45,483
square feet of space and future rental obligations
totaled $1.3 million. We do not anticipate any material
non-performance by the assignees of those leases.

Our owned facility in St. Petersburg,
Florida is not 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

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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, have a material adverse effect on our
financial position or results of operations.







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 2002.






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, 2003
was 11,280. 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 since the spin-off and
ending December 31, 2002.

|     |  |    |       |    |  |    |       |    |  |   |       |  |  |   |       | 
|---- |  | -- | ----- | -- |  | -- | ----- | -- |  | - | ----- |  |  | - | ----- | 
|2002 |  | 1Q |       | 2Q |  | 3Q |       | 4Q
|     |  |    |       |    |  |    |       |   
|High |  | $  | 22.50 |    |  | $  | 23.05 |    |  | $ | 19.02 |  |  | $ | 16.26 | 
|Low  |  |    | 17.00 |    |  |    | 18.05 |    |  |   | 13.10 |  |  |   | 11.40 | 

|     |  |  |  |    |  |    |       |    |  |   |       |  |  |   |       | 
|---- |  |  |  | -- |  | -- | ----- | -- |  | - | ----- |  |  | - | ----- | 
|2001 |  |  |  | 2Q |  | 3Q |       | 4Q
|     |  |  |  |    |  |    |       |   
|High |  |  |  |    |  | $  | 20.55 |    |  | $ | 19.95 |  |  | $ | 19.43 | 
|Low  |  |  |  |    |  |    | 13.99 |    |  |   | 13.65 |  |  |   | 13.90 | 

For informational purposes, the high and low
sales price of Ceridians predecessors common stock
as reported on the NYSE Composite Tape for the quarterly period
beginning on January 1, 2001 and ending at the time of the
spin-off was $21.85 and $14.00, respectively.

16



---



##### Table of Contents



Item 6. Selected Financial
Data

|                                                            |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      | 
|----------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | 
|                                                            |                                                |                                             
|                                                            |                                                | (Dollars in millions, except per share data)
|                                                            |                                                | 2002                                         |         | 2001 |         | 2000 |         | 1999 |         | 1998
|                                                            |                                                |                                              |         |      |         |      |         |      |         |     
|Revenue(1)                                                  |                                                | $                                            | 1,192.7 |      |         | $    | 1,189.8 |      |         | $    | 1,181.9 |      |         | $    | 1,127.0 |      |         | $    | 967.6   |     
|                                                           
|Earnings from continuing operations(2)                      |                                                | $                                            | 93.7    |      |         | $    | 49.5    |      |         | $    | 79.5    |      |         | $    | 104.4   |      |         | $    | 125.3   |     
|Discontinued operations                                     |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |     
|                                                            | Arbitron(3)                                    |                                              |         |     |         |      |         | 5.2  |         |      |         | 20.7 |         |      |         | 40.9 |         |      |         | 36.6 |        
|                                                            | Computing Devices International(4)             |                                              |         |     |         |      |         |     |         |      |         |     |         |      |         |     |         |      |         | 25.4 |        
|                                                            |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |     
|                                                            |                                                |                                              | Total   |      |         |     |         |      |         | 5.2  |         |      |         | 20.7 |         |      |         | 40.9 |         |      |         | 62.0 | 
|                                                            |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |     
|Net earnings                                                |                                                | $                                            | 93.7    |      |         | $    | 54.7    |      |         | $    | 100.2   |      |         | $    | 145.3   |      |         | $    | 187.3   |     
|                                                            |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |     
|                                                           
|Earnings Per Common Share                                   |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |     
|                                                            | Basic                                          |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |        
|                                                            |                                                | Continuing operations                        |         | $    | 0.63    |      |         | $    | 0.34    |      |         | $    | 0.55    |      |         | $    | 0.72    |      |         | $    | 0.87    |     
|                                                            |                                                | Net earnings                                 |         | $    | 0.63    |      |         | $    | 0.37    |      |         | $    | 0.69    |      |         | $    | 1.01    |      |         | $    | 1.30    |     
|                                                            | Diluted                                        |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |        
|                                                            |                                                | Continuing operations                        |         | $    | 0.62    |      |         | $    | 0.33    |      |         | $    | 0.54    |      |         | $    | 0.71    |      |         | $    | 0.85    |     
|                                                            |                                                | Net earnings                                 |         | $    | 0.62    |      |         | $    | 0.37    |      |         | $    | 0.68    |      |         | $    | 0.98    |      |         | $    | 1.27    |     
|                                                            | Shares used in calculations (in
    thousands) |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |        
|                                                            |                                                | Basic                                        |         |      | 148,029 |      |         |      | 146,069 |      |         |      | 145,229 |      |         |      | 144,524 |      |         |      | 144,070 |     
|                                                            |                                                | Diluted                                      |         |      | 150,562 |      |         |      | 148,596 |      |         |      | 146,734 |      |         |      | 147,964 |      |         |      | 147,597 |     
|                                                           
|Balance Sheet Data                                          |                                                |                                              |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |     
|Working capital                                             |                                                | $                                            | 261.2   |      |         | $    | 198.6   |      |         | $    | 241.5   |      |         | $    | 174.7   |      |         | $    | 186.9   |     
|Total assets before payroll and tax filing funds            |                                                | $                                            | 2,077.9 |      |         | $    | 1,910.6 |      |         | $    | 2,088.0 |      |         | $    | 1,988.5 |      |         | $    | 1,216.9 |     
|Payroll and tax filing funds                                |                                                | $                                            | 2,380.5 |      |         | $    | 2,126.4 |      |         | $    | 2,945.0 |      |         | $    | 2,271.7 |      |         | $    | 2,705.0 |     
|Total assets                                                |                                                | $                                            | 4,458.4 |      |         | $    | 4,037.0 |      |         | $    | 5,033.0 |      |         | $    | 4,260.2 |      |         | $    | 3,921.9 |     
|Debt obligations                                            |                                                | $                                            | 193.5   |      |         | $    | 237.9   |      |         | $    | 500.6   |      |         | $    | 611.3   |      |         | $    | 54.5    |     
|Stockholders equity                                        |                                                | $                                            | 1,126.8 |      |         | $    | 1,061.1 |      |         | $    | 936.2   |      |         | $    | 812.2   |      |         | $    | 623.7   |     
|                                                           
|Equity Per Common Share                                     |                                                | $                                            | 7.59    |      |         | $    | 7.24    |      |         | $    | 6.42    |      |         | $    | 5.61    |      |         | $    | 4.35    |     
|Common shares outstanding at end of year
    (in thousands) |                                                |                                              | 148,541 |      |         |      | 146,485 |      |         |      | 145,754 |      |         |      | 144,734 |      |         |      | 143,514 |     
|                                                           
|Number of Employees at End of
    Year(5)                   |                                                |                                              | 9,400   |      |         |      | 9,500   |      |         |      | 9,700   |      |         |      | 9,500   |      |         |      | 8,200   |     
|                                                           



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | A change in the classification of customer
    freight billings and costs is described in Note A to the
    consolidated financial statements under the heading
    Changes in Presentation.                                                                                                                                                                                                                                                                                                        
|   
|(2) | Earnings from continuing operations include
    unusual losses of $34.8 ($22.2 after-tax) in 2002, $48.3 ($31.7
    after-tax) in 2001, and $30.5 ($18.7 after-tax) in 2000.
    Earnings from continuing operations for 1998 included unusual
    gains of $27.7 ($24.3 after-tax). The unusual losses in 2002,
    2001 and 2000 and the recovery in 2000 of a portion of an amount
    accrued for exit costs in 1997 are further described in Note C
    to the consolidated financial statements.
|   
|(3) | Includes earnings, net of costs related to the
    spin-off, as further described in Note C to the consolidated
    financial statements.                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) | Represents an adjustment to the gain from the
    December 1997 sale of Computing Devices International.                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(5) | Continuing operations only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

17



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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 of this report.

Overview

Ceridian Corporation provides human resource
solutions to employers through our HRS business segment
operations 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 in the United States.
Our businesses are more fully described in Part I,
Item 1 of this report and in a note to our consolidated
financial statements entitled Segment Data.

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 address our earnings performance in a section
    entitled Results of Operations, which includes
    comparisons of 2002 to 2001 and 2001 to 2000 for the whole
    company as well as for our HRS and Comdata business segments.
    Transactions affecting earnings that we consider unusual or
    nonrecurring are discussed in a subsection entitled
    Unusual Items.                                                                                                                              
|
| |  | We discuss our financial condition and cash flow
    performance in a following section entitled Financial
    Condition. There we describe the impact on our cash
    balances of our operating, investing and financing activities.
    In a subsection entitled Liquidity and Capital
    Resources, we also discuss our plans for funding future
    major expenditures and any financial commitments, including
    those that are not reported in our 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.                                                                                                                                                                                                                                                    

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.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Arbitron
    spin-off:On March 30, 2001, we
    separated our HRS division and subsidiaries and Comdata
    subsidiaries from our former media information business,
    Arbitron, to form two independent, publicly-traded companies.
    Due to the beneficial use of a reverse spin-off approach, we
    briefly became New Ceridian Corporation before resuming the use
    of the name of Ceridian Corporation. Because of the greater size
    of HRS and Comdata businesses compared to the Arbitron business
    at the time of the spin-off, we are considered to be the
    divesting entity and are treated as the accounting
    successor for financial reporting purposes. Therefore, we
    present Arbitron as a discontinued operation in the accompanying
    consolidated financial statements of Ceridian. We discuss this
    event in a note to our consolidated financial statements
    entitled Supplementary Data to Statements of
    Operations under the heading Discontinued
    Operations.
|
| |  | A new rule on goodwill
    accounting:Beginning in 2002,
    goodwill is no longer amortized as a charge against earnings
    over a specific period of time. Instead, the value of recorded
    goodwill is reassessed annually and written down against
    earnings when impairment is evident. Since this accounting rule
    does not permit restatement of prior periods in the financial
    statements, this change results in a lack of comparability
    between the earnings results in 2002 and those for 2001 and
    2000. You will see in this discussion that we have eliminated
    goodwill amortization expense for 2001 and 2000 in the
    consolidated and segment earnings performance tables and the
    related discussion in order to improve comparability. We also
    discuss this event in a note to our                                                                                                                                                                                              

18



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | consolidated financial statements entitled
    Accounting Policies under the heading Goodwill
    and Other Intangibles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Unusual or nonrecurring gains and
    losses:During the past three years,
    we have recorded a variety of gains and losses that are not
    expected to regularly occur in our normal operations. These
    include the results of securities sales, exit activities related
    to consolidation of operations, settlements of litigation,
    contract terminations and asset write-downs. The net results of
    these transactions were losses of $34.8 million in 2002,
    $48.3 million in 2001 and $30.5 million in 2000. You
    will find these matters discussed in a subsection of this
    discussion entitled Unusual Items.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Our software development arrangement with
    Ultimate Software:We contracted with
    Ultimate Software Group, Inc. 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 to March 2008. As of December 31,
    2002, we have capitalized $13.6 million of additional costs
    to prepare the resulting product offering for release in early
    2003. Effective January 1, 2003, we also entered into an
    agreement with Ultimate for extended technical support that
    requires quarterly payments during 2003 totaling
    $2.3 million. We discuss this development in the
    Liquidity and Capital Resources subsection of this
    discussion.                                                                                  
|
| |  | Our principal defined benefit pension
    plan:As is the case with the defined
    benefit pension plans of many companies, recent declines in
    equity securities market values and in interest rates have
    resulted in turning a plan that had been over-funded for many
    years into an under-funded plan. This change in funded status
    required that the former pension asset be reclassified as a
    combined reduction of our equity and an increase in our
    liabilities. In addition, we anticipate that there will be a
    negative effect on our pre-tax earnings in 2003 of about
    $15 million compared to 2002 and a prospect that we will
    begin to make cash contributions before the end of 2003. We
    discuss our pension plans in a note to our consolidated
    financial statements entitled Retirement Plans.                                                                                                                                                                                                                                                                                  
|
| |  | Invested customer funds and interest rate
    collars or swaps:We receive earnings
    from investment of customer funds held temporarily for
    remittance to taxing authorities, customer employees and others
    and record these amounts as revenue in lieu of fees for services
    performed. A substantial portion of these invested funds are
    subject to short-term interest rate risk. We manage this risk in
    part by the use of interest rate contracts that establish
    ceiling and floor interest rates for a sizeable portion of our
    annual average short-term investment portfolio. In recent
    periods, these contracts have preserved a significant amount of
    revenue and cash flows. We describe this strategy and its
    results within this discussion as well as in notes to our
    consolidated financial statements entitled Commitments and
    Contingencies and Accounting Policies under
    the heading Cash and Investments, including
    Derivatives and in Part II, Item 7A,
    Quantitative and Qualitative Disclosures about Market
    Risk that follows this discussion.

19



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##### Table of Contents



Results of Operations

Comparison
of Annual Periods Ended December 31, 2002, 2001 and
2000

Consolidated Statements of Operations
Highlights As Reported

(Dollars in millions, except per share data)


|                                                                       |  |                          |         |      |  |      |         |  |  |   |         | 
|---------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                       |  |                         
|                                                                       |  | Years ended December 31,
|                                                                       |  |                         
|                                                                       |  | 2002                     |         | 2001 |  | 2000
|                                                                       |  |                          |         |      |  |     
|Revenue                                                                |  | $                        | 1,192.7 |      |  | $    | 1,189.8 |  |  | $ | 1,181.9 | 
|Net earnings                                                           |  | $                        | 93.7    |      |  | $    | 54.7    |  |  | $ | 100.2   | 
|Earnings from continuing operations                                    |  | $                        | 93.7    |      |  | $    | 49.5    |  |  | $ | 79.5    | 
|Earnings and gain/loss from disposition of
    discontinued operations |  | $                        |        |      |  | $    | 5.2     |  |  | $ | 20.7    | 
|Diluted shares used in calculations
    (in thousands)                 |  |                          | 150,562 |      |  |      | 148,596 |  |  |   | 146,734 | 
|Net earnings per diluted share                                         |  | $                        | 0.62    |      |  | $    | 0.37    |  |  | $ | 0.68    | 
|Earnings from continuing operations per diluted
    share              |  | $                        | 0.62    |      |  | $    | 0.33    |  |  | $ | 0.54    | 

Revenue for 2002 of $1,192.7 million showed
an increase of $2.9 million over the comparable 2001
amount. We have increased the previously reported revenue and
cost of revenue by $7.5 million for 2001 and
$6.2 million for 2000 due to a change in accounting for
customer freight billings in 2002. This change is further
discussed in a note to our consolidated financial statements
entitled Accounting Policies under the heading
Changes in Presentation. Earnings from continuing
operations increased from $49.5 million, or
33¢ per diluted share, in 2001 to $93.7 million,
or 62¢ in 2002. If we eliminate 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 $79.8 million, or 53¢ per diluted
share. The earnings and gain/ loss from discontinued operations
included in net earnings in 2001 and 2000 related to Arbitron.

Revenue for 2001 of $1,189.8 million was up
$7.9 million over 2000. Earnings from continuing operations
in 2001 of $49.5 million, or 33¢ per diluted
share, were down $30.0 million from $79.5 million, or
54¢ per diluted share, for 2000. If we eliminate
goodwill amortization and related income taxes from the 2000
amount, as we have done in the 2002 and 2001 comparison,
earnings from continuing operations for 2000 would have been
$109.1 million, or 74¢ per diluted share.

Operational and economic factors affecting these
results are further discussed in the annual comparisons sections
entitled Consolidated Results  Overview
and Business Segment Results that appear later in
this discussion.

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                                                                             
|
| |  | EBIT represents earnings before
    interest and taxes                                                                                  
|
| |  | 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                                                        
|
| |  | UK represents the United Kingdom                                                                                                        
|
| |  | U.S. represents the United States                                                                                                       

20



---



##### Table of Contents



2002
Compared to 2001

Statements of Operations Comparisons

(Dollars in millions, except per share data)


|                                        |  |        |         |            |  |              |         |   |  |      |       |      |  |  |       |   |  |  |       |   |  |  |       |  
|--------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------- | - |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                        |  |        |         |            |  |              |         |   |  |     
|                                        |  |        |         | Increase   |  |             
|                                        |  | Amount |         | (Decrease) |  | % of Revenue
|                                        |  |        |         |            |  |             
|                                        |  | 2002   |         | 2001       |  | $            |         | % |  | 2002 |       | 2001
|                                        |  |        |         |            |  |              |         |   |  |      |       |     
|Revenue                                 |  | $      | 1,192.7 |            |  | $            | 1,189.8 |   |  |      | 2.9   |      |  |  | 0.2   |   |  |  | 100.0 |   |  |  | 100.0 |  
|Cost of revenue                         |  |        | 574.5   |            |  |              | 581.1   |   |  |      | (6.6  | )    |  |  | (1.1  | ) |  |  | 48.2  |   |  |  | 48.8  |  
|SG&A expense*                           |  |        | 375.3   |            |  |              | 369.5   |   |  |      | 5.8   |      |  |  | 1.6   |   |  |  | 31.5  |   |  |  | 31.1  |  
|R&D expense                             |  |        | 59.3    |            |  |              | 59.0    |   |  |      | 0.3   |      |  |  | 0.5   |   |  |  | 5.0   |   |  |  | 5.0   |  
|Other expense (income)                  |  |        | 34.3    |            |  |              | 48.2    |   |  |      | (13.9 | )    |  |  | (28.9 | ) |  |  | 2.9   |   |  |  | 4.1   |  
|Total costs and expenses*               |  |        | 1,043.4 |            |  |              | 1,057.8 |   |  |      | (14.4 | )    |  |  | (1.4  | ) |  |  | 87.5  |   |  |  | 88.9  |  
|EBIT*                                   |  |        | 149.3   |            |  |              | 132.0   |   |  |      | 17.3  |      |  |  | 13.2  |   |  |  | 12.5  |   |  |  | 11.1  |  
|Interest income                         |  |        | 2.1     |            |  |              | 6.5     |   |  |      | (4.4  | )    |  |  | (67.7 | ) |  |  | 0.2   |   |  |  | 0.5   |  
|Interest expense                        |  |        | (6.6    | )          |  |              | (19.0   | ) |  |      | 12.4  |      |  |  | (65.2 | ) |  |  | (0.6  | ) |  |  | (1.6  | )
|Earnings before income taxes*           |  |        | 144.8   |            |  |              | 119.5   |   |  |      | 25.3  |      |  |  | 21.2  |   |  |  | 12.1  |   |  |  | 10.0  |  
|Income taxes*                           |  |        | 51.1    |            |  |              | 39.7    |   |  |      | 11.4  |      |  |  | 28.9  |   |  |  | 4.3   |   |  |  | 3.3   |  
|Earnings from continuing operations*    |  | $      | 93.7    |            |  | $            | 79.8    |   |  |      | 13.9  |      |  |  | 17.4  |   |  |  | 7.9   |   |  |  | 6.7   |  
|Diluted EPS from continuing operations* |  | $      | 0.62    |            |  | $            | 0.53    |   |  |      | 0.09  |      |  |  | 17.0  |   |  |  | NM    |   |  |  | NM    |  
|Earnings from cont. ops. as reported    |  | $      | 93.7    |            |  | $            | 49.5    |   |  |      | 44.2  |      |  |  | 89.1  |   |  |  | 7.9   |   |  |  | 4.2   |  
|Diluted EPS from cont. ops. as reported |  | $      | 0.62    |            |  | $            | 0.33    |   |  |      | 0.29  |      |  |  | 87.9  |   |  |  | NM    |   |  |  | NM    |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | We eliminated goodwill amortization from reported
    2001 amounts in order to compare with the required treatment for
    2002. Its elimination reduced SG&A expense by
    $35.1 million and increased income taxes by
    $4.8 million. In turn, this increased earnings from
    continuing operations by $30.3 million and earnings per
    diluted share by 20¢.

Consolidated
Results  Overview

The following factors significantly influenced
our revenue and profitability performances in 2002:



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | Lower employment levels of our HRS customers                                   
|
| |  | The impact of lower interest rates on our
    investments of HRS customer funds
|
| |  | Higher level of HRS payroll and tax filing
    installations                   
|
| |  | Acquisitions and dispositions of businesses in HRS                             
|
| |  | Variability in Comdata retail card and point of
    sale terminal sales        
|
| |  | 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. Our strategy of investing a portion
of customer funds in long-term securities and using interest
rate contracts to reduce the variability in investment yields
limited the adverse effect of lower rates. While we continued 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 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.

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An uncertain retail environment and tighter card
inventory controls by Comdatas retail card customers
increased the variability and reduced the growth rate of revenue
in that business in 2002. 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 entitled Business
Segment Results.

Our total costs and expenses (without goodwill
amortization) for 2002 decreased by $14.4 million from the
2001 amount. Cost of revenue declined by $6.6 million while
SG&A expense increased by $5.8 million. R&D expense
changed little between the two years. Other expense
(income) amounted to $34.3 million in 2002 compared to
$48.2 million in 2001, down $13.9 million. The
principal contributors to other expense (income) in 2002
included unusual items consisting of asset write-downs of
$24.6 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
$18.2 million from marketable and derivative 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 interest expense declined by
$12.4 million compared to 2001 as a result of a lower level
of outstanding debt and lower interest rates. 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, including the goodwill adjustment,
increased by $11.4 million from 2001 to 2002 due largely to
the increase in earnings before income taxes. The reported
effective tax rate decreased from 41.3% for 2001 to 35.3% for
2002 largely due to the elimination of goodwill amortization for
financial reporting purposes in 2002. Much of the goodwill
amortization was not tax deductible.

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Business
Segment Results

Segment Comparisons

(Dollars in millions)


|        |       |        |       |            |  |              |       |         |  |      |       |      |  |  |       |      |  |  |      |       |  |  |      |       | 
|------- | ----- | ------ | ----- | ---------- |  | ------------ | ----- | ------- |  | ---- | ----- | ---- |  |  | ----- | ---- |  |  | ---- | ----- |  |  | ---- | ----- | 
|        |       |        |       |            |  |              |       |         |  |     
|        |       |        |       | Increase   |  |             
|        |       | Amount |       | (Decrease) |  | % of Revenue
|        |       |        |       |            |  |             
|        |       | 2002   |       | 2001       |  | $            |       | %       |  | 2002 |       | 2001
|        |       |        |       |            |  |              |       |         |  |      |       |     
|Revenue |       |        |       |            |  |              |       |         |  |      |       |      |  |  |       |      |  |  |      |       |  |  |      |      
|HRS     |       | $      | 878.1 |            |  | $            | 873.8 |         |  |      | 4.3   |      |  |  | 0.5   |      |  |  | 73.6 |       |  |  | 73.4 |      
|Comdata |       |        | 314.6 |            |  |              | 316.0 |         |  |      | (1.4  | )    |  |  | (0.3  | )    |  |  | 26.4 |       |  |  | 26.6 |      
|        | Total |        | $     | 1,192.7    |  |              | $     | 1,189.8 |  |      |       | 2.9  |  |  |       | 0.2  |  |  |      | 100.0 |  |  |      | 100.0 | 
|EBIT*   |       |        |       |            |  |              |       |         |  |      |       |      |  |  |       |      |  |  |      |       |  |  |      |      
|HRS     |       | $      | 50.6  |            |  | $            | 74.9  |         |  |      | (24.3 | )    |  |  | (32.5 | )    |  |  | 5.8  |       |  |  | 8.6  |      
|Comdata |       |        | 94.6  |            |  |              | 42.8  |         |  |      | 51.8  |      |  |  | 121.2 |      |  |  | 30.0 |       |  |  | 13.5 |      
|Other   |       |        | 4.1   |            |  |              | 14.3  |         |  |      | (10.2 | )    |  |  | (71.0 | )    |  |  | NM   |       |  |  | NM   |      
|        | Total |        | $     | 149.3      |  |              | $     | 132.0   |  |      |       | 17.3 |  |  |       | 13.2 |  |  |      | 12.5  |  |  |      | 11.1  | 



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | 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
increase in HRS revenue in 2002 compared to 2001 reflected
increases of $3.6 million from ongoing U.S. operations and
$7.8 million from HRS operations in Canada and the United
Kingdom. The sale of our Usertech employee training business in
August 2001 adversely affected the comparison by
$7.1 million, reducing the net increase over 2001 to
$4.3 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.

Revenue from U.S. operations benefited from
increases of $8.3 million in benefits services revenue and
$4.3 million from LifeWorks employee assistance services,
due primarily to acquisitions. Payroll and tax filing services
in the U.S. experienced a $9.0 million reduction in revenue
compared to 2001. The reduced revenue largely reflected lower
customer employment levels and lower investment yields. The
decline in customer employment levels stood at approximately
1.5% at the end of 2002 compared to approximately 3% at the end
of 2001. We estimate that 1.5% decline represents approximately
$20.6 million of lost revenue in 2002. Interest income from
investment of payroll and tax filing funds and benefits services
customer deposits included in HRS revenue decreased by
$13.0 million as the average yield fell from 5.50% for the
2001 period to 4.83% 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.

Revenue performance for 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. Centrefile operations in the UK
produced $7.8 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 benefited
the international operations revenue comparison by
$1.6 million in 2002.

During 2002, we had in place active interest rate
contracts covering an average of $800.0 million of
short-term customer funds investments that, at December 31,
2002, had an average floor of 5.08% and cap of 5.91%. These
contracts, along with longer term investments and floating rate
debt, reduced the impact of the decline in interest rates during
2002. During 2002, use of these interest rate contracts benefited

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revenue cash flows by $26.9 million and is
expected to benefit 2003 revenue cash flows by
$29.0 million based on expected future interest rates.
Interest rate contracts are further discussed in notes to our
consolidated financial statements entitled, Accounting
Policies, under the heading Cash and Investments,
including Derivatives, and Commitments and
Contingencies and in Part II, Item 7A of this
report.


HRS costs and expenses (without 2001 goodwill
amortization of $26.2 million in SG&A expense)
increased by $28.6 million from 2001 to 2002. An increase
in other expense (income) of $22.5 million represented
the largest part of the increase. 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 (without Usertech) increased by
$5.3 million in 2002 compared to 2001. The consolidation of
25 district processing centers into 4 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 depreciation and amortization and increased royalties added
$3.2 million to payroll and tax filing cost of revenue in
2002.

In 2002, we benefited from a full year of cost of
revenue savings of $4.0 million from the 2001 consolidation
of our Boston LifeWorks operation into our Philadelphia
LifeWorks 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.

Cost of revenue in benefits services operations
increased by $17.1 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 $7.0 million in 2002
related primarily to a higher volume of activity and
reassignment of duties to administrative functions.

Cost of revenue in Canada operations increased by
$2.6 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 UK
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 and Usertech) for HRS amounted to
$7.3 million over the 2001 amount. Selling expense in HRS
grew by $11.9 million in comparison to 2001 reflecting
increased marketing efforts in the U.S. and UK 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 $4.6 million,
primarily in U.S. operations, due to the elimination of 2001
Usertech expenses of $2.4 million from the comparison. Cost
savings from facility consolidations and reduced provisions for
incentive compensation further reduced these costs. R&D
expense increased by $2.2 million over 2001, reflecting
additional U.S. payroll, benefit services and tax filing
services product development efforts. The increase in other
expense (income) from $3.7 million in 2001 to
$26.1 million in 2002 is further discussed in the section
below entitled Unusual Items.

Comdata.Comdata revenue decreased by $1.4 million in 2002 compared
to 2001 as general economic conditions restrained revenue
performance. Transaction volume in the over-the-road
transportation business rose less than 1% for the full year 2002
compared to 2001, although in the fourth quarter of 2002 volume
rose about 3% over the prior year quarter. A lower average fuel
price for 2002 reduced revenue by $2.4 million compared to
2001, although fuel prices rose above the prior year level in

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##### Table of Contents



late 2002. Revenue from retail card sales and
transaction processing for 2002 increased by $1.6 million.
An increase of $3.8 million in card transaction revenue was
reduced by a decrease of $2.2 million in card sales
revenue. We believe that uncertainty about the retail
environment and stricter inventory management by retail card
customers restrained the volume of card sales until the fourth
quarter of 2002, when card revenue rose above the prior year
quarter. Revenue from sales of point of sale terminals decreased
by $4.5 million in 2002 as customers limited 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 as Comdata
continues to furnish these low margin services to complement
other offerings. 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 and revenue from growth in non-transportation
card use increased by $1.7 million in 2002.


Comdata reduced costs and expenses (without 2001
goodwill amortization of $8.9 million) by
$53.2 million in 2002 compared to 2001. Costs and expenses
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. We further described the
factoring receivables loss and litigation costs later in this
discussion in the section entitled Unusual Items.
Without regard to those nonrecurring items, Comdatas costs
and expenses in 2002 decreased by $10.6 million compared to
2001. Comdata increased its provision for doubtful accounts in
cost of revenue by $1.3 million in 2002 over 2001 due
largely to a bankruptcy filing by a major customer. Reductions
in cost of revenue included $1.4 million of lower costs
associated with lower retail cash card sales and
$1.5 million of lower phone services costs, both of which
have a relatively low profit margin. The lower levels of sales
of point of sale terminals and regulatory compliance services
and renegotiated telecommunications rates also contributed
$2.5 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. 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 costs are further described in the section below entitled
Unusual Items.

Other.The
reported EBIT 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 EBIT 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 entitled Unusual
Items.

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##### Table of Contents



2001
Compared to 2000

Statements of Operations Comparisons

(Dollars in millions, except per share data)


|                                        |  |        |         |            |  |              |         |   |  |      |       |      |  |  |       |   |  |  |       |   |  |  |       |  
|--------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------- | - |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                        |  |        |         |            |  |              |         |   |  |     
|                                        |  |        |         | Increase   |  |             
|                                        |  | Amount |         | (Decrease) |  | % of Revenue
|                                        |  |        |         |            |  |             
|                                        |  | 2001   |         | 2000       |  | $            |         | % |  | 2001 |       | 2000
|                                        |  |        |         |            |  |              |         |   |  |      |       |     
|Revenue                                 |  | $      | 1,189.8 |            |  | $            | 1,181.9 |   |  |      | 7.9   |      |  |  | 0.7   |   |  |  | 100.0 |   |  |  | 100.0 |  
|Cost of revenue                         |  |        | 581.1   |            |  |              | 565.2   |   |  |      | 15.9  |      |  |  | 2.8   |   |  |  | 48.8  |   |  |  | 47.8  |  
|SG&A expense*                           |  |        | 369.5   |            |  |              | 324.9   |   |  |      | 44.6  |      |  |  | 13.8  |   |  |  | 31.1  |   |  |  | 27.5  |  
|R&D expense                             |  |        | 59.0    |            |  |              | 62.8    |   |  |      | (3.8  | )    |  |  | (6.0  | ) |  |  | 5.0   |   |  |  | 5.3   |  
|Other expense (income)                  |  |        | 48.2    |            |  |              | 31.7    |   |  |      | 16.5  |      |  |  | 52.2  |   |  |  | 4.1   |   |  |  | 2.7   |  
|Total costs and expenses*               |  |        | 1,057.8 |            |  |              | 984.6   |   |  |      | 73.2  |      |  |  | 7.4   |   |  |  | 88.9  |   |  |  | 83.3  |  
|EBIT*                                   |  |        | 132.0   |            |  |              | 197.3   |   |  |      | (65.3 | )    |  |  | (33.2 | ) |  |  | 11.1  |   |  |  | 16.7  |  
|Interest income                         |  |        | 6.5     |            |  |              | 4.7     |   |  |      | 1.8   |      |  |  | 39.0  |   |  |  | 0.5   |   |  |  | 0.4   |  
|Interest expense                        |  |        | (19.0   | )          |  |              | (39.8   | ) |  |      | 20.8  |      |  |  | (52.3 | ) |  |  | (1.6  | ) |  |  | (3.4  | )
|Earnings before income taxes*           |  |        | 119.5   |            |  |              | 162.2   |   |  |      | (42.7 | )    |  |  | (26.4 | ) |  |  | 10.0  |   |  |  | 13.7  |  
|Income taxes                            |  |        | 39.7    |            |  |              | 53.1    |   |  |      | (13.4 | )    |  |  | (25.3 | ) |  |  | 3.3   |   |  |  | 4.5   |  
|Earnings from continuing operations*    |  | $      | 79.8    |            |  | $            | 109.1   |   |  |      | (29.3 | )    |  |  | (26.9 | ) |  |  | 6.7   |   |  |  | 9.2   |  
|Diluted EPS from continuing operations* |  | $      | 0.53    |            |  | $            | 0.74    |   |  |      | (0.21 | )    |  |  | (27.0 | ) |  |  | NM    |   |  |  | NM    |  
|Earnings from cont. ops. as reported    |  | $      | 49.5    |            |  | $            | 79.5    |   |  |      | (30.0 | )    |  |  | (37.7 | ) |  |  | 4.2   |   |  |  | 6.8   |  
|Diluted EPS from cont. ops. as reported |  | $      | 0.33    |            |  | $            | 0.54    |   |  |      | (0.21 | )    |  |  | (38.9 | ) |  |  | NM    |   |  |  | NM    |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Goodwill amortization has been eliminated from
    reported results in this table in order to compare with the
    required treatment for 2002. Its elimination reduced SG&A
    expense by $35.1 million in 2001 and $34.4 million in
    2000 and increased income taxes by $4.8 million in each
    year. In turn, this increased earnings from continuing
    operations by $30.3 million for 2001 and $29.6 million
    for 2000, or 20¢ per diluted share in each year.

Consolidated
Results  Overview

Comparing 2001 to 2000, our consolidated revenue
increased by $7.9 million while HRS revenue increased by
0.1% and Comdata revenue increased by 2.3%. Revenue comparisons
are further discussed in the following section entitled
Business Segment Results. The following factors
significantly affected our revenue performance in 2001.



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lower employment levels of our HRS customers and
    a lower volume of card transactions for Comdata due to the
    general economic slowdown in the U.S.
|
| |  | The impact of lower interest rates on our
    investments of HRS customer funds                                                                          
|
| |  | Increased utilization of Comdatas retail
    cash cards                                                                                                 
|
| |  | Falling diesel fuel prices on price-related
    Comdata transaction revenue                                                                              
|
| |  | Dispositions of the HRS Usertech and the Comdata
    phone resale businesses                                                                             
|
| |  | Strength of the U.S. dollar against HRS Canada
    and UK local currencies                                                                               

Our total costs and expenses for 2001 increased
by $73.2 million over the comparable 2000 amount. HRS costs
and expenses increased by $24.7 million from 2000 to 2001
with an increase of $44.1 million in selling expense offset
in part by a $33.4 million decrease in net unusual losses.
Comdatas costs and expenses increased by
$53.7 million from 2000 to 2001 including a first quarter
2001 unusual charge of $6.6 million for termination of an
outsourced transaction processing contract (which this
discussion refers to as the outsourced contract) and
a second quarter 2001 unusual charge of $52.4 million
related to settlement of litigation. These charges were offset
in part by estimated savings of $10.8 million from the

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##### Table of Contents



outsourced contract termination including
$4.0 million in cost of revenue, $3.1 million in
SG&A expense and $3.7 million in R&D expense.
Comdata unusual charges recorded in 2000 were $2.6 million.
The increase in total costs and expenses for our business
segments was reduced by a net increase of $5.2 million in
unusual gains not allocated to the business segments.
Comparative costs and expenses are further discussed in the
following sections entitled Business Segment Results
and Unusual Items.


Our 2001 interest income increased by
$1.8 million over the 2000 amount, even though interest
rates declined. The increase was largely due to interest on a
state tax refund received during 2001 and an accumulation of
cash in the first quarter of 2001 in preparation for the
spin-off. Interest expense decreased by $20.8 million due
primarily to the refinancing of our debt in connection with the
spin-off, which is further described in a note to our
consolidated financial statements entitled
Financing, and lower interest rates. The average
interest rates on borrowings under the revolving credit
agreements of our Canadian subsidiary decreased from 6.14% in
2000 to 5.49% in 2001 and on our U.S. revolving credit facility
from 6.79% in 2000 to 4.73% in 2001. Our income taxes decreased
by $13.4 million in comparison with 2000 due primarily to
the decrease in pre-tax earnings. Our reported effective tax
rate for 2001, including the effect of goodwill amortization,
increased to 41.3% compared to 37.8% for 2000, as the ratio of
nondeductible goodwill expense to pre-tax income increased.
Without regard to the goodwill amortization effect, our
effective tax rate would have been about 36% for both years.

Business
Segment Results

Segment Comparisons

(Dollars in millions)


|        |       |        |       |            |  |              |       |         |  |      |       |       |   |  |       |       |   |  |      |       |  |  |      |       | 
|------- | ----- | ------ | ----- | ---------- |  | ------------ | ----- | ------- |  | ---- | ----- | ----- | - |  | ----- | ----- | - |  | ---- | ----- |  |  | ---- | ----- | 
|        |       |        |       |            |  |              |       |         |  |     
|        |       |        |       | Increase   |  |             
|        |       | Amount |       | (Decrease) |  | % of Revenue
|        |       |        |       |            |  |             
|        |       | 2001   |       | 2000       |  | $            |       | %       |  | 2001 |       | 2000 
|        |       |        |       |            |  |              |       |         |  |      |       |      
|Revenue |       |        |       |            |  |              |       |         |  |      |       |       |   |  |       |       |   |  |      |       |  |  |      |      
|HRS     |       | $      | 873.8 |            |  | $            | 873.1 |         |  |      | 0.7   |       |   |  | 0.1   |       |   |  | 73.4 |       |  |  | 73.9 |      
|Comdata |       |        | 316.0 |            |  |              | 308.8 |         |  |      | 7.2   |       |   |  | 2.3   |       |   |  | 26.6 |       |  |  | 26.1 |      
|        | Total |        | $     | 1,189.8    |  |              | $     | 1,181.9 |  |      |       | 7.9   |   |  |       | 0.7   |   |  |      | 100.0 |  |  |      | 100.0 | 
|EBIT    |       |        |       |            |  |              |       |         |  |      |       |       |   |  |       |       |   |  |      |       |  |  |      |      
|HRS     |       | $      | 74.9  |            |  | $            | 98.9  |         |  |      | (24.0 | )     |   |  | (24.3 | )     |   |  | 8.6  |       |  |  | 11.3 |      
|Comdata |       |        | 42.8  |            |  |              | 89.3  |         |  |      | (46.5 | )     |   |  | (52.1 | )     |   |  | 13.5 |       |  |  | 28.9 |      
|Other   |       |        | 14.3  |            |  |              | 9.1   |         |  |      | 5.2   |       |   |  | NM    |       |   |  | NM   |       |  |  | NM   |      
|        | Total |        | $     | 132.0      |  |              | $     | 197.3   |  |      |       | (65.3 | ) |  |       | (33.2 | ) |  |      | 11.1  |  |  |      | 16.7  | 




|  |                                                                                                                                                                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | We eliminated goodwill amortization from costs
    and expenses in this presentation in order to compare with the
    required treatment for 2002. Its elimination increased 2001 and
    2000 EBIT, respectively, by $26.2 million and
    $26.4 million for HRS and by $8.9 million and
    $8.0 million for Comdata for a total of $35.1 million
    and $34.4 million.

HRS.Our HRS
revenue in 2001 increased by $0.7 million compared to 2000.
Increases totaling $13.5 million in our LifeWorks employee
effectiveness services and benefits services businesses and
$16.2 million in HRS operations in Canada and the United
Kingdom largely offset a decrease of $29.0 million in the
U.S. payroll and training businesses. We sold our Usertech
training business during the third quarter of 2001, which
reduced the revenue comparison by $7.4 million. The
reduction in U.S. payroll services revenue related primarily to
the impact of a general economic slowdown on customer employment
levels, a significant decrease in interest rates, and, to a
lesser extent, customer-requested installation delays,
particularly in late 2001. This reduction was offset in part by
a targeted price increase in the first quarter of 2001. Revenue
performance for our Canada and UK operations was reduced by
$7.7 million in the annual comparison due to the weakness
of the Canadian dollar and British pound sterling against the
U.S. dollar in 2001. Interest income from investment of payroll
and tax filing funds and benefits services customer deposits
included in HRS revenue decreased by $13.4 million as the
average

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yield fell from 6.07% for the 2000 period to
5.50% for the 2001 period. The average balance of these
investments was down by 2.0% in comparison with 2000 largely due
to a decrease in the number of employees of our existing
customers and reduced U.S. Federal income tax withholding
resulting from tax legislation effective in July 2001.


During 2001, we had in place interest rate
contracts with an average floor of 5.23% covering an average of
$758.3 million of short-term payroll and tax filing fund
investments that, along with longer term investments and
floating rate debt, reduced the impact of the decline in
interest rates during the year.

HRS costs and expenses (without goodwill
amortization) increased by $24.7 million from 2000 to 2001.
Cost of revenue for 2001 increased by $13.1 million over
2000 as direct costs rose in line with revenue increases in the
LifeWorks, benefits services and non-U.S. HRS businesses. Also
included in the increase of cost of revenue for HRS were
$1.2 million of incremental costs associated with increased
volume in the employee assistance services of the work-life
services business related to the 9/11 event, and generally
higher compensation costs. The increase in HRS SG&A expense
in 2001 amounted to $46.2 million over the 2000 amount. The
increase was due largely to an increase in selling expense of
$44.1 million, reflecting the addition of approximately 160
sales personnel in U.S. operations in late 2000 and early 2001,
reorganization costs and higher compensation levels. General and
administrative expense (without goodwill amortization) increased
by $2.1 million as improved organizational efficiency and
reduced provisions for incentive payouts largely offset the
impact of management reorganization costs and higher
compensation levels in 2001. R&D expense, reflecting U.S.
payroll, benefit services and tax filing services product
development efforts, changed little from the 2000 level. The
decrease from $37.0 million in 2000 to $3.6 million in
2001 in net unusual losses is further discussed in the section
below entitled Unusual Items.

Comdata.Comdata revenue for 2001 increased by $7.2 million compared
to 2000. The comparison was negatively affected by the
divestiture of a phone resale business that recorded
$8.9 million of 2000 revenue before its sale in July 2000.
The revenue comparison was positively impacted by an increase of
$15.7 million in the retail cash card business. The revenue
comparison was adversely affected by the impact of the economic
slowdown on the over-the-road trucking market, which resulted in
a reduction in the number of customer fueling transactions.
Revenue was also adversely affected by lower diesel fuel prices,
particularly in late 2001, and lower revenue from permitting
services.

Comdatas costs and expenses (without
goodwill amortization) increased by $53.7 million from 2000
to 2001 due largely to the litigation costs of
$52.4 million recorded in the second quarter of 2001.
Without regard to these litigation costs, total costs and
expenses would have increased by $1.3 million in comparison
with 2000. Cost of revenue increased by $2.8 million in
2001, as increased costs associated with higher revenue from the
retail cash card business were largely offset by the effect of
the sale of the phone resale business in July 2000 and cost
reduction efforts. The divested business reported
$6.8 million in cost of revenue in 2000. The cost reduction
efforts saved $5.4 million of which $4.0 million
related to bringing an outsourced transaction processing service
in-house and $1.4 million related to other cost reduction
efforts. The bad debt provision of $12.9 million for 2001
increased by $1.0 million over the 2000 amount as Comdata
continued its efforts to improve the quality of customer
accounts in the face of the general economic slowdown. Selling,
general and administrative expenses (without goodwill
amortization) decreased by $0.9 million in comparison with
2000 as additional amortization costs for software and
intangibles other than goodwill was more than offset by
$3.1 million of administrative expense savings from the
termination of the outsourced contract. R&D expense
decreased by $3.7 million due largely to development cost
savings resulting from the outsourced contract termination.
Other expense (income) in 2001 included litigation costs of
$52.4 million and a first quarter $6.6 million charge
resulting from the outsourced contract termination. Other
expense (income) in 2000 included $2.6 million of first
quarter unusual charges for severance and other exit costs
related primarily to facility closures. These unusual charges
are further described in the section below entitled
Unusual Items.

Other.The
reported EBIT for 2001 related to gains of $15.6 million
from the sale of marketable securities described in a note to
our consolidated financial statements entitled Investing
Activity, and a

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provision for legal costs of $1.3 million.
The reported EBIT for 2000 relates to the recovery of accruals
in the amount of $10.0 million from unusual charges
recorded in 1997, reduced by $0.9 million of severance
costs included in the first quarter 2000 unusual charges.
Further details on unusual charges and recoveries are provided
in the section below entitled Unusual Items.


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)


|                                                            |  |             |      |      |  |      |       |   |  |   |      |  
|----------------------------------------------------------- |  | ----------- | ---- | ---- |  | ---- | ----- | - |  | - | ---- | -
|                                                            |  |            
|                                                            |  | December 31
|                                                            |  | Years Ended
|                                                            |  |            
|                                                            |  | 2002        |      | 2001 |  | 2000
|                                                            |  |             |      |      |  |     
|Accrued exit costs, net of recoveries                       |  | $           | 13.5 |      |  | $    | 6.7   |   |  | $ | 12.2 |  
|Factoring receivables loss                                  |  |             | 9.8  |      |  |      |      |   |  |   |     |  
|Asset write-downs                                           |  |             | 6.7  |      |  |      | 6.1   |   |  |   | 18.3 |  
|Loss (gain) on sale of marketable securities                |  |             | 6.3  |      |  |      | (15.6 | ) |  |   |     |  
|Loss (gain) on derivative securities                        |  |             | 1.8  |      |  |      | (2.6  | ) |  |   |     |  
|Litigation costs                                            |  |             | 0.8  |      |  |      | 53.7  |   |  |   |     |  
|Reduction in environmental accrual                          |  |             | (4.1 | )    |  |      |      |   |  |   |     |  
|                                                            |  |             |      |      |  |      |       |   |  |   |      |  
|Total unusual losses reported in other expense
    (income) |  | $           | 34.8 |      |  | $    | 48.3  |   |  | $ | 30.5 |  
|                                                            |  |             |      |      |  |      |       |   |  |   |      |  
|HRS                                                         |  | $           | 26.1 |      |  | $    | 3.6   |   |  | $ | 37.0 |  
|Comdata                                                     |  |             | 12.8 |      |  |      | 59.0  |   |  |   | 2.6  |  
|Other                                                       |  |             | (4.1 | )    |  |      | (14.3 | ) |  |   | (9.1 | )
|                                                            |  |             |      |      |  |      |       |   |  |   |      |  
|Total unusual losses reported in other expense
    (income) |  | $           | 34.8 |      |  | $    | 48.3  |   |  | $ | 30.5 |  
|                                                            |  |             |      |      |  |      |       |   |  |   |      |  

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 4 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 costs of $1.0 million for 76 employees, including
67 terminated by December 31, 2002, 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.
Also during the first quarter of 2002, we conducted a periodic
reassessment of our environmental obligations, which revealed a
reduced requirement for certain of these obligations that were
previously established. As a result, we credited
$4.1 million to other expense (income) and removed that
amount from other noncurrent liabilities.

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 notified the appropriate authorities in efforts
to have appropriate inquiries made with respect to this matter
and have initiated a number of civil actions and discovery
efforts. We have also made certain

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modifications to our policies and procedures
related to the factoring business. We are seeking to identify
and recover assets to cover all or some of the amount owed and
to obtain any recovery available under the terms of our
insurance coverage. Since the amount of potential recovery
cannot be determined at this time, we have 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. At December 31,
2002, we remained obligated for 2002 accrued exit costs of
$5.0 million of which $0.8 million represented
severance costs and $4.2 million other exit costs.

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, recorded a
$1.8 million loss related to derivatives 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 U.S.I. Holdings preferred
stock in connection with a joint marketing agreement, which was
converted to common stock as a result of an initial public
offering in October 2002. The $1.8 million loss on
derivatives represented the amortization of a portion of the
previously deferred $2.6 million gain on derivatives
recorded in the first quarter of 2001. The remaining
$0.8 million will be charged to operations during 2003 as
the derivatives to which the deferred gain relates expire. 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 a note to the
consolidated financial statements entitled Investing
Activity. The first quarter 2001 gain on derivative
securities of $2.6 million resulted from the application of
Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended
and interpreted at that date. 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 the business segments.

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 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 decided to terminate an
outsourced contract for transaction processing and software
development and bring 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

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severance costs for approximately 250 employees
and $1.0 million of excess facility costs to operations and
recorded 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
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.


On January 25, 2000, we announced actions to
improve customer service and the quality of operations,
particularly in the U.S. payroll business. The principal actions
taken to achieve these objectives included decentralization of
the U.S. payroll business customer service operations,
termination of certain product development efforts, and
realignment of certain management responsibilities and
consolidation of similar operations. Decentralization of U.S.
payroll customer service operations involved the downsizing of
staff and space usage in a centralized facility in St. Louis,
Missouri and the transfer of these responsibilities to district
offices. The termination of certain product development efforts
required a reassessment of the recoverability of goodwill and
other intangibles and capitalized development costs, which
resulted in a reduction in the carrying values of those assets
and staff reductions. Realignment of certain management
responsibilities involved staffing changes in a number of senior
management positions. The consolidation of similar operations
led to staff reductions as well as the identification of excess
space and furnishings and related charges for asset write-downs
and future rental obligations.

In March 2000, we approved plans to execute these
actions and recorded as other expense (income) charges of
$44.7 million in first quarter 2000. These charges included
$26.4 million of accrued exit costs and $18.3 million
for asset write-downs. Exit costs for severance involved
involuntary termination notices for approximately 500 employment
positions, primarily in HRS, of which approximately 466 had been
eliminated by December 31, 2000 with the remainder in early
2001. The other exit costs were primarily the lease cost for
idled facilities and contract termination fees. By
December 31, 2002, those accrued exit costs had been paid
in full. Asset write-downs included the write-off of capitalized
software amounts related to a software development contract that
was terminated in the first quarter 2000, certain property and
equipment abandoned at a number of idled facilities, and certain
goodwill and intangible asset balances with respect to two
previous acquisitions.

With respect to accrued amounts related to
certain actions we had taken in 1997, we paid the remaining
$6.4 million of accrued costs during the year ended
December 31, 2000. Additionally, during the first quarter
of 2000, we credited other expense (income) with a recovery of
$14.2 million of unused accruals established in connection
with these 1997 actions. This recovery relates to the reversal
of the amount accrued in excess of the settlement amount for a
securities litigation matter that was finalized on
March 31, 2000.

Financial Condition

Consolidated Statements of Cash Flows
Highlights

(Dollars in millions)


|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|----------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                    |  |                         
|                                    |  | Years ended December 31,
|                                    |  |                         
|                                    |  | 2002                     |        | 2001 |  | 2000
|                                    |  |                          |        |      |  |     
|Operating activities                |  | $                        | 165.0  |      |  | $    | 183.0  |   |  | $ | 269.2  |  
|Investing activities                |  |                          | (120.9 | )    |  |      | (106.7 | ) |  |   | (107.9 | )
|Financing activities                |  |                          | (15.1  | )    |  |      | (56.1  | ) |  |   | (101.3 | )
|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|Net cash flows provided (used)      |  | $                        | 29.0   |      |  | $    | 20.2   |   |  | $ | 60.0   |  
|                                    |  |                          |        |      |  |      |        |   |  |   |        |  
|Cash and equivalents at end of year |  | $                        | 167.7  |      |  | $    | 138.7  |   |  | $ | 118.5  |  

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Reconciliation of Earnings to Cash Inflows
(Outflows) from Operating Activities

(Dollars in millions)


|                                                          |  |                          |       |      |  |      |       |   |  |   |       |  
|--------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                          |  |                         
|                                                          |  | Years ended December 31,
|                                                          |  |                         
|                                                          |  | 2002                     |       | 2001 |  | 2000
|                                                          |  |                          |       |      |  |     
|Earnings from continuing operations                       |  | $                        | 93.7  |      |  | $    | 49.5  |   |  | $ | 79.5  |  
|Deferred income tax provision                             |  |                          | 14.0  |      |  |      | 30.7  |   |  |   | 45.4  |  
|Depreciation and amortization                             |  |                          | 75.9  |      |  |      | 105.4 |   |  |   | 97.2  |  
|Provision for doubtful accounts                           |  |                          | 17.0  |      |  |      | 15.8  |   |  |   | 14.8  |  
|Asset write-downs                                         |  |                          | 6.7   |      |  |      | 6.1   |   |  |   | 18.3  |  
|Loss (gain) on marketable and derivative
    securities   |  |                          | 8.1   |      |  |      | (19.2 | ) |  |   |      |  
|Other reconciling items                                   |  |                          | (13.8 | )    |  |      | (9.0  | ) |  |   | (6.8  | )
|                                                          |  |                          |       |      |  |      |       |   |  |   |       |  
|From continuing operations earnings                       |  |                          | 201.6 |      |  |      | 179.3 |   |  |   | 248.4 |  
|From continuing operations working capital
    activities |  |                          | (36.6 | )    |  |      | 4.5   |   |  |   | (4.0  | )
|                                                          |  |                          |       |      |  |      |       |   |  |   |       |  
|Operating cash flows from continuing operations           |  |                          | 165.0 |      |  |      | 183.8 |   |  |   | 244.4 |  
|From discontinued operations                              |  |                          |      |      |  |      | (0.8  | ) |  |   | 24.8  |  
|                                                          |  |                          |       |      |  |      |       |   |  |   |       |  
|Cash flows provided by operating activities               |  | $                        | 165.0 |      |  | $    | 183.0 |   |  | $ | 269.2 |  
|                                                          |  |                          |       |      |  |      |       |   |  |   |       |  

Cash
Flows

Cash
Balances and Operations

Our cash and equivalents increased by
$29.0 million to $167.7 million during 2002 as we used
operating cash flows and cash balances to fund investing
activities and repay debt. In 2001, our cash and equivalents
increased by $20.2 million to $138.7 million as operating
cash flows provided funds for investing, primarily for capital
assets at a level comparable to 2000, and to reduce debt. During
2000, cash and equivalents increased by $60.0 million to $118.5
million as strong operating cash flows fully funded investing
activities and provided funding for debt reduction.

Our operating cash flows from continuing
operations decreased by $18.8 million during 2002 as
compared to 2001 primarily due to a buildup of receivables at
the end of 2002. Cash provided by earnings from continuing
operations grew by $22.3 million while cash outflows from
continuing operations working capital activities reduced
operating cash flows by $41.1 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 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
$20.8 million compared to a $58.6 million net cash
inflow from liquidation of receivables in 2001. When comparing
the working capital cash flows for 2002 to 2001, the total
$79.4 million increase in cash utilized by receivables
related substantially to Comdata receivables activity and was
offset in part by a increase of $26.4 million in cash
provided by Comdata drafts payable in those periods. Comdata
receivables increased by $26.2 million during 2002 compared
to a decrease of $55.5 million during 2001. The increase
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 as described in the following
paragraph.

Our operating cash flows for 2001 decreased by
$86.2 million from the 2000 level due primarily to lower
cash flows from earnings, which in 2001 were reduced by the
$34.1 million after-tax effect payment of the Comdata
litigation costs. Without regard to the effect of these
litigation costs, 2001 operating cash flows from continuing
operations of $183.8 million would have been
$217.9 million and operating cash flows from continuing
operations earnings of $179.3 million would have been
$213.4 million. Working capital activities of continuing
operations provided $8.5 million more cash during 2001 than
in 2000. This change reflected a net cash inflow of
$42.8 million from liquidation of receivables in 2001,
compared to a

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net cash outflow from a build-up of receivables
of $55.0 million in 2000. When comparing the working
capital cash flows for 2001 to 2000, the total $97.8 million
increase in cash provided by receivables related substantially
to Comdata receivables activity and was offset in part by a
decrease of $54.6 million in cash provided by Comdata
drafts payable in those periods. The relationship of the
period-end date and the timing of weekly draft clearing
operations at Comdata significantly affected the amount of
drafts payable and receivables outstanding at the end of 2001.
The year 2001 ended on a Monday rather than on a weekend as it
had in 2000, which permitted the weekly settlement of an
additional amount of receivables and drafts payable in the year
2001 reporting period compared to 2000.


Investing

During 2002, our investment in capital
expenditures included $31.1 million for property and
equipment and $35.0 million for software and development
costs. The software development costs included
$10.0 million for SourceWeb, a web-enabled payroll/
HR/self-service offering that HRS is rolling out in 2003. 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 $50.8 million for software and development
costs, of which $23.6 million of software and development
spending took place during the first quarter. Investing cash
flows also included a payment of $10.0 million to Ultimate
to acquire a non-exclusive software license. Cash expended for
acquisitions during 2001 also included $20.2 million for
minority investments intended to expand product offerings in HRS
as further discussed in the Investing Activity note.
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.

Investing cash flows in 2000 included $65.1
million expended for investments in and advances to businesses,
including the May acquisition of the remaining ownership
interest in Stored Value Systems by Comdata and payments related
to purchase acquisitions made during the second quarter of 2000
and in prior years. Our capital expenditures during 2000
amounted to $97.0 million, including software development costs
of $30.5 million. Capital expenditures in 2000 also
involved $28.5 million, including furnishings and capitalized
interest, for our newly constructed headquarters facility and
the renovation of an office facility for use by our HRS benefits
services business. In November 2000, we sold and leased back
real property in Bloomington, Minnesota, constituting our
headquarters facility, for $41.0 million in cash. The
annual rental cost under the lease is approximately
$4.2 million over a 20-year period. In September 2000, we
also sold property in Palm Harbor, Florida, formerly used in HRS
benefits services operations, for cash proceeds of
$12.8 million.

Financing

In June 2002, Comdata entered into a
$150.0 million receivables securitization facility. The
facility has up to a three-year term and used 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, leave
us with unused borrowing capacity of $307.7 million, of
which we have designated $150.0 million as backup to the
receivables securitization facility. Proceeds from exercises of
stock options and employee stock purchase plans 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 $182.9 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

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tax asset by $5.7 million based on the
filing of 2001 tax returns for the entities involved in the
Arbitron spin-off.


Our financing activities in 2001 largely involved
transactions related to the spin-off. At the time of the
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 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.

Our financing cash outflows in 2000 included the
repurchase on the open market of $20.0 million face amount of
our outstanding senior notes, a reduction of the amount
outstanding under the U.S. revolving credit agreement of $75.0
million, and payments of $19.6 million under the Canadian
revolving credit facilities. Financing cash inflows included
$15.8 million of cash proceeds 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.

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 entitled
Financial Condition above. 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 expenditures for capital assets and software
presently planned for 2003 total approximately
$53.0 million with an estimated allocation of
$45.0 million to HRS and $8.0 million to Comdata.
Ceridian also plans to continue to grow its business through
strategic acquisitions.

As of December 31, 2002, we have unused
borrowing capacity under the $350.0 million revolving
credit facility amounting to $307.7 million of which we
have designated $150.0 million as backup to the
securitization of Comdata receivables. We are also in compliance
with all covenants related to these facilities.

We have entered into lease and other contractual
commitments that are not reflected on our balance sheet at
December 31, 2002, 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.

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Financial Commitments at December 31,
2002

(Dollars in millions)


|                          |  |      |      |      |  |      |       |      |  |      |      |            |  |       |      |  |  |  |      |  |  |  |       |  |  |   |       | 
|------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | ---- |  | ---- | ---- | ---------- |  | ----- | ---- |  |  |  | ---- |  |  |  | ----- |  |  | - | ----- | 
|                          |  | 2003 |      | 2004 |  | 2005 |       | 2006 |  | 2007 |      | Thereafter |  | Total
|                          |  |      |      |      |  |      |       |      |  |      |      |            |  |      
|Debt payments             |  | $    | 2.0  |      |  |      | 151.5 |      |  |      |     |            |  |       | 40.0 |  |  |  |     |  |  |  |      |  |  | $ | 193.5 | 
|Lease payments            |  | $    | 44.1 |      |  |      | 37.9  |      |  |      | 30.7 |            |  |       | 24.2 |  |  |  | 22.6 |  |  |  | 111.8 |  |  | $ | 271.3 | 
|Minimum contract payments |  | $    | 4.5  |      |  |      | 8.2   |      |  |      | 8.2  |            |  |       | 6.3  |  |  |  | 6.9  |  |  |  | 1.5   |  |  | $ | 35.6  | 

Our debt obligations are described above under
the heading Financing 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 agreement until June 2004
and our revolving credit facility until the facility matures in
2006, the outstanding balances are treated as due on those
maturity dates.

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 remain secondarily liable for future obligations
related to assigned leases totaling $1.3 million at
December 31, 2002. We do not anticipate any material
non-performance by the assignees of these leases.

In March 2001, we entered into an agreement,
amended in early 2002, with Ultimate in which Ultimate granted
us a non-exclusive license to use Ultimates software as
part of a Web-enabled integrated ASP offering to our middle
market customers. The agreement provided for an immediate
payment of $10.0 million for the license and additional
payments based on the number of our customers employees
paid by using the software, subject to minimum and maximum
amounts. The future minimum monthly payments amount to
$0.5 million per month from January 2004 until
January 1, 2006, when the minimum monthly payment will
escalate at a rate of 5% per annum.

Under amendments effective during the first
quarter of 2002, we paid $6.0 million in advance
representing the minimum obligation for use of the license in
2003 in consideration for a one-year delay in the onset of this
obligation. In August 2002, we paid $0.5 million
representing an incentive payment for the early delivery of a
software upgrade. The noncancelable term of the contract extends
until March 2008 at which time either party may terminate the
agreement, provided that at least two years prior written notice
has been provided to the other party.

In 2003, HRS expects to place in service software
that, in connection with this agreement, will enable HRS to roll
out a new payroll service offering for small business customers
called SourceWeb. In addition to expenditures made under the
agreement, we invested an additional $13.6 million in
adapting the licensed software to meet the needs of this market.
We expect that operational and marketing costs will be higher in
the first year of offering this service, including quarterly
payments totaling $2.3 million to Ultimate under a services
agreement effective January 1, 2003. In addition, we will
be amortizing the capitalized and prepaid costs related to the
agreement over a 84-month period. As a result, we expect that
the launch of SourceWeb will reduce pre-tax earnings for 2003 by
approximately $15.0 million.

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 2003, 2004
and 2005.

Critical Accounting Policies

Ceridians significant accounting policies
are described in a note to our consolidated financial statements
entitled Accounting Policies. We consider the most
critical of those policies to be revenue recognition and
software and development costs recoverability.

Revenue recognition is primarily affected by the
timing of transaction processing and the terms and life of our
specific customer contracts. When the fair value of each element
of a sales arrangement containing a software product,
installation and conversion, and transaction processing elements
can be

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objectively determined, the amounts and timing of
revenue recognition from this arrangement are determined for
each of the elements in the arrangement. When the fair values of
the elements of this arrangement are not determinable, all
revenue from the arrangement is recognized equally over the
transaction processing term.


HRS revenue is generated by service fees, income
from investment of customer funds, software licenses or
subscription fees, and installation and data conversion
services. Generally, transaction processing contracts are for a
period of one year and service fees for these contracts are
recognized as revenue when services have been completed and the
amount is billable. Fees for LifeWorks employee effectiveness
services are generally contract-based and involve prepayments
for services based on the number of customer employees served
and the level of service. Revenue from prepayments on these
contracts is deferred and recognized as the services are
performed. Investment income is recognized as earned. Software
license revenue is recognized when the software is delivered, a
signed contract exists, the sale price is fixed and
collectibility is probable. Revenue from installation and
conversion services is non-refundable; is determined on a time
and materials basis; and, along with related costs, is deferred
and recognized over the installation and conversion period,
generally two to four months.

Comdata revenue is generated from funds transfer,
regulatory permit, and retail cash card transaction services as
well as sales of point of sale terminals and retail cash cards.
Revenue from funds transfer is recognized at the time these
transactions take place. Revenue from regulatory permit services
is recognized as the services are performed. Revenue related to
retail cash cards sales and processing are generally recognized
over the life of the card as those services are performed.
Revenue from sales of terminals is recognized upon delivery
where a signed contract exists, the sale price is fixed and
collectibility is probable.

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 amount of these costs shown on our balance sheet at
December 31, 2002 was $113.5 million. The elements of
software and development costs were purchased software of
$32.8 million and internally developed software of
$80.7 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. The projections of future cash flows, which
are determined by management, 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 assets. The amount of the write-down, if any, is
largely dependent on managements estimates of future cash
flows and the selection of an appropriate discount rate. As a
result of software recoverability testing during the past three
years, we recorded asset write-down losses of $5.2 million
in 2002, $3.1 million in 2001 and $9.0 million in 2000.

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.

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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 services, particularly
HRS services, 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, 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 planned introduction of new or enhanced
    products and services in our businesses
|
| |  | the selling of products and services to new
    customers                              
|
| |  | 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:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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                                                     

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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 business.

Economic factors and litigation 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 79 percent of
Comdatas revenue for 2002 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
effect wage and bonus payments, orders and the timing of product
installations, and negatively impact the operating results of
our HRS business.

Our future operating results may also 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.

Any problems or delays we may experience in
effecting 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 the 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. For example, in 1997, we
terminated a payroll processing development project and incurred
an unusual loss of $150.0 million.

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 intends to
focus on developing and fully implementing a strategy 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
projected 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

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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 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        

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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.

We have international operations in Canada and
the United Kingdom, which in 2002 provided about 22 percent
of the revenue from our HRS division and subsidiaries. Our
Centrefile Limited subsidiary provides human resource services,
payroll processing services and human resource information
systems software in the United Kingdom. Centrefile is expanding
its payroll services into other countries 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
in Canada and is expanding into Mexico. 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
    in Europe          
|
| |  | reduced protection for intellectual property
    rights in some countries
|
| |  | longer sales and payment cycles                                          
|
| |  | the burdens of complying with a wide variety of
    foreign law          
|
| |  | 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                                                               

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| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continuing product enhancements                                                                                                                     
|
| |  | investing in our Six Sigma program, an effort
    that focuses on helping organizations 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 this
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 this lost investment income.

In addition, changes in interest rates will
affect our revenue and earnings from this source. The average
yield on our investment of customer deposits was
4.83 percent in 2002. 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 securities 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 securities 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
securities. If we were unable to secure derivative securities 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.

As a result of the benefits 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

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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 and
employer and employee contributions to qualified retirement
plans. 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 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 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 customers 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
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 HRS business experiences generally
higher revenues during first and fourth quarters which may cause
our operating results to fluctuate significantly.

Our HRS business experiences generally higher
revenues during the first quarter as a result of higher payroll
funds being processed due to year-end bonuses being paid and
additional year-end services required, such as the preparation
and distribution of W-2s, and during the fourth quarter as
result of special reporting requirements. We expect this trend
to continue, which could cause our quarterly operating results
to fluctuate significantly.

The business and results of operations of
our Comdata subsidiary are heavily dependent on several of its
vendors and suppliers, the loss of whom could adversely affect
our consolidated results of operations.

Comdatas business is dependent on several
significant vendors and suppliers, the loss of whom could
adversely affect not only Comdatas results of operations
but our consolidated results of operations as well. For example,
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

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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 interest
rate risk related to revenue derived from investments of
customer funds. This risk exposure is partially offset by
interest expense on floating rate debt obligations and by
investments in longer-term securities. This investment income
included in revenue varies as a function of short-term U.S. and
Canadian interest rates. We use interest rate collars or swaps
to hedge the risk of falling interest rates. The table below
indicates the hypothetical change in our after-tax investment
income, net of interest expense, over a one-year period due to
an immediate and sustained change in the annual average interest
rate. The base scenario utilizes a federal funds rate of 1.25%
at December 31, 2002.

|                                 |  |                                    
|-------------------------------- |  | -----------------------------------
|Percent Change in Interest Rates |  | Hypothetical Change in Net Interest
|Expressed in Basis Points        |  | Income from Base Scenario          
|                                 |  |                                    
|                                 |  | (in millions of dollars)           
|300 Rise                         |  | 4.4                                
|200 Rise                         |  | 2.9                                
|100 Rise                         |  | 1.4                                
|50 Rise                          |  | 0.7                                
|25 Rise                          |  | 0.4                                
|Base Scenario                    |  |                                    
|25 Decline                       |  | (0.4)                              
|50 Decline                       |  | (0.7)                              
|100 Decline                      |  | (1.4)                              

Computations in the table above are based on
assumptions about the amounts of customer funds and the relative
levels of short-term market interest rates within U.S. and
Canadian markets and should not be relied on as precise
indicators of future expected results. Included in the
computations are the effects of interest rate changes on income
and expense related to all short-term and floating rate assets
and liabilities owned or issued by Ceridian or its subsidiaries,
including interest rate contracts. The interest rate contracts
that are or will be effective for 2003 cover an average of
$800.0 million of payroll and tax filing investments with
an average floor strike rate of 5.08% and an average cap strike
rate of 5.91%. In addition, we have entered into forward
contracts with floors ranging from 5.50% to 6.00% in order to
continue coverage at the current level through 2004 and with
various maturity dates ranging out to December 2007. We intend
to obtain additional contracts when market conditions are
favorable to replace maturing contracts. We refer you to a note
to our consolidated financial statements entitled
Commitments and Contingencies, found in
Part II, Item 8 of this report, for additional
information on interest rate contracts.

Our exposure to foreign exchange market risk
related to our payroll and human resource operations in Canada
and the UK is not considered material to our financial condition
or results of operations. These foreign operations serve their
respective domestic markets, with all revenues 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 comprehensive income and are not hedged.

Our Comdata transportation services business
receives a portion of its revenue from card transactions that
are related to fuel prices. On an annualized basis, a change of
10¢ per gallon in fuel prices would impact Comdata
revenue and earnings before income taxes by approximately
$2.0 million.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

1. Index to Consolidated Financial
Statements.

The following financial statements and reports
are filed as part of this report:

|                                                                                                         |  |      |       | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                                         |  | Page
|                                                                                                         |  |     
|Independent Auditors Report                                                                             |  |      | 45    | 
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000           |  |      | 46    | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                         |  |      | 47    | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000           |  |      | 48    | 
|Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2002, 2001 and 2000 |  |      | 49    | 
|Notes to Consolidated Financial Statements for
    the three years ended December 31, 2002               |  |      | 50-70 | 

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:

|                                                                 |  |  |    | 
|---------------------------------------------------------------- |  |  | -- | 
|Schedule II. Valuation and Qualifying
    Accounts               |  |  | 71 | 
|Independent Auditors Report on Financial
    Statement Schedule |  |  | 72 | 

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Independent Auditors Report

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, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted in the United States
of America. 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, 2002 and
2001, and the results of their operations and their cash flows
for each of the years in the three-year period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note A to the
consolidated financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets,
on January 1, 2002.

-s- KPMG LLP

Minneapolis, Minnesota

January 22, 2003


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|                                      |                                             
|------------------------------------- | --------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS | (Dollars in millions, except per share data)




|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |         |         | 
|---------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                               |                                     |                         
|                                               |                                     | Years Ended December 31,
|                                               |                                     |                         
|                                               |                                     | 2002                     |         | 2001    |         | 2000
|                                              
|                                              
|Revenue                                        |                                     | $                        | 1,192.7 |         |         | $    | 1,189.8 |         |         | $ | 1,181.9 |        
|Costs and Expenses                             |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               | Cost of revenue                     |                          |         | 574.5   |         |      |         | 581.1   |         |   |         | 565.2   |        
|                                               | Selling, general and administrative |                          |         | 375.3   |         |      |         | 404.6   |         |   |         | 359.3   |        
|                                               | Research and development            |                          |         | 59.3    |         |      |         | 59.0    |         |   |         | 62.8    |        
|                                               | Other expense (income)              |                          |         | 34.3    |         |      |         | 48.2    |         |   |         | 31.7    |        
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               |                                     | Total costs and expenses |         |         | 1,043.4 |      |         |         | 1,092.9 |   |         |         | 1,019.0 | 
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Earnings before interest and taxes             |                                     |                          | 149.3   |         |         |      | 96.9    |         |         |   | 162.9   |        
|                                              
|                                               | Interest income                     |                          |         | 2.1     |         |      |         | 6.5     |         |   |         | 4.7     |        
|                                               | Interest expense                    |                          |         | (6.6    | )       |      |         | (19.0   | )       |   |         | (39.8   | )      
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Earnings before income taxes                   |                                     |                          | 144.8   |         |         |      | 84.4    |         |         |   | 127.8   |        
|Income tax provision                           |                                     |                          | 51.1    |         |         |      | 34.9    |         |         |   | 48.3    |        
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Earnings from continuing operations            |                                     |                          | 93.7    |         |         |      | 49.5    |         |         |   | 79.5    |        
|                                              
|Discontinued operations                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               | Gain (loss) on disposition          |                          |         |        |         |      |         | 5.2     |         |   |         | (6.9    | )      
|                                               | Earnings from operations            |                          |         |        |         |      |         |        |         |   |         | 27.6    |        
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Net earnings                                   |                                     | $                        | 93.7    |         |         | $    | 54.7    |         |         | $ | 100.2   |        
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Basic earnings per share                       |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               | Continuing operations               |                          | $       | 0.63    |         |      | $       | 0.34    |         |   | $       | 0.55    |        
|                                               | Net earnings                        |                          | $       | 0.63    |         |      | $       | 0.37    |         |   | $       | 0.69    |        
|Diluted earnings per share                     |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               | Continuing operations               |                          | $       | 0.62    |         |      | $       | 0.33    |         |   | $       | 0.54    |        
|                                               | Net earnings                        |                          | $       | 0.62    |         |      | $       | 0.37    |         |   | $       | 0.68    |        
|Shares used in calculations (in
    thousands) |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               | Weighted average shares (basic)     |                          |         | 148,029 |         |      |         | 146,069 |         |   |         | 145,229 |        
|                                               | Dilutive securities                 |                          |         | 2,533   |         |      |         | 2,527   |         |   |         | 1,505   |        
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                               | Weighted average shares (diluted)   |                          |         | 150,562 |         |      |         | 148,596 |         |   |         | 146,734 |        
|                                               |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                              

See notes to consolidated financial statements.

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|                            |                                             
|--------------------------- | --------------------------------------------
|CONSOLIDATED BALANCE SHEETS | (Dollars in millions, except per share data)




|                                                                                              |                                          |              |                                                                 |       |       |         |         |       |       |         | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------ | --------------------------------------------------------------- | ----- | ----- | ------- | ------- | ----- | ----- | ------- | 
|                                                                                              |                                          |             
|                                                                                              |                                          | December 31,
|                                                                                              |                                          |             
|                                                                                              |                                          | 2002         |                                                                 | 2001 
|                                                                                             
|                                                                                             
|ASSETS                                                                                        |                                          |              |                                                                 |       |       |         |         |      
|Current assets                                                                                |                                          |              |                                                                 |       |       |         |         |      
|Cash and equivalents                                                                          |                                          | $            | 167.7                                                           |       |       | $       | 138.7   |      
|Short-term investments                                                                        |                                          |              | 27.0                                                            |       |       |         | 22.0    |      
|Trade and other receivables                                                                   |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              | Trade, less allowance of $18.4 and $16.2 |              |                                                                 | 393.1 |       |         |         | 376.4 |      
|                                                                                              | Other                                    |              |                                                                 | 27.5  |       |         |         | 21.8  |      
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          | Total        |                                                                 |       | 420.6 |         |         |       | 398.2 |        
|Current portion of deferred income taxes                                                      |                                          |              | 28.4                                                            |       |       |         | 31.7    |      
|Other current assets                                                                          |                                          |              | 38.2                                                            |       |       |         | 25.0    |      
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          |              | Total current assets                                            |       |       | 681.9   |         |       |       | 615.6   | 
|                                                                                             
|Property, plant and equipment, net                                                            |                                          |              | 149.1                                                           |       |       |         | 159.3   |      
|Goodwill                                                                                      |                                          |              | 890.3                                                           |       |       |         | 860.8   |      
|Other intangible assets, net                                                                  |                                          |              | 114.5                                                           |       |       |         | 115.0   |      
|Software and development costs, net                                                           |                                          |              | 113.5                                                           |       |       |         | 92.9    |      
|Prepaid pension cost                                                                          |                                          |              | 11.7                                                            |       |       |         | 10.7    |      
|Deferred income taxes, less current portion                                                   |                                          |              | 18.2                                                            |       |       |         | 4.3     |      
|Investments                                                                                   |                                          |              | 17.5                                                            |       |       |         | 26.9    |      
|Derivative securities                                                                         |                                          |              | 71.4                                                            |       |       |         | 24.3    |      
|Other noncurrent assets                                                                       |                                          |              | 9.8                                                             |       |       |         | 0.8     |      
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          |              | Total assets before payroll and tax filing funds                |       |       | 2,077.9 |         |       |       | 1,910.6 | 
|Payroll and tax filing funds                                                                  |                                          |              | 2,380.5                                                         |       |       |         | 2,126.4 |      
|                                                                                             
|                                                                                              |                                          |              | Total assets                                                    |       | $     | 4,458.4 |         |       | $     | 4,037.0 | 
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                             
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                      |                                          |              |                                                                 |       |       |         |         |      
|Current liabilities                                                                           |                                          |              |                                                                 |       |       |         |         |      
|Short-term debt and current portion of long-term
    obligations                              |                                          | $            | 2.0                                                             |       |       | $       | 1.5     |      
|Accounts payable                                                                              |                                          |              | 35.3                                                            |       |       |         | 31.2    |      
|Drafts and customer funds payable                                                             |                                          |              | 181.2                                                           |       |       |         | 160.1   |      
|Customer advances                                                                             |                                          |              | 13.2                                                            |       |       |         | 11.8    |      
|Deferred income                                                                               |                                          |              | 29.2                                                            |       |       |         | 35.9    |      
|Accrued taxes                                                                                 |                                          |              | 61.1                                                            |       |       |         | 66.2    |      
|Employee compensation and benefits                                                            |                                          |              | 55.9                                                            |       |       |         | 64.0    |      
|Other accrued expenses                                                                        |                                          |              | 42.8                                                            |       |       |         | 46.3    |      
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          |              | Total current liabilities                                       |       |       | 420.7   |         |       |       | 417.0   | 
|                                                                                             
|Long-term obligations, less current portion                                                   |                                          |              | 191.5                                                           |       |       |         | 236.4   |      
|Deferred income taxes                                                                         |                                          |              | 25.4                                                            |       |       |         | 24.8    |      
|Employee benefit plans                                                                        |                                          |              | 278.3                                                           |       |       |         | 140.1   |      
|Deferred income and other noncurrent liabilities                                              |                                          |              | 35.2                                                            |       |       |         | 31.2    |      
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          |              | Total liabilities before payroll and tax filing
    obligations |       |       | 951.1   |         |       |       | 849.5   | 
|Payroll and tax filing obligations                                                            |                                          |              | 2,380.5                                                         |       |       |         | 2,126.4 |      
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          |              | Total liabilities                                               |       |       | 3,331.6 |         |       |       | 2,975.9 | 
|                                                                                             
|Stockholders equity                                                                          |                                          |              |                                                                 |       |       |         |         |      
|Common stock, $.01 par, authorized 500,000,000
    shares, issued 148,657,541 and 146,487,624 |                                          |              | 1.5                                                             |       |       |         | 1.5     |      
|Additional paid-in capital                                                                    |                                          |              | 906.3                                                           |       |       |         | 870.1   |      
|Retained earnings                                                                             |                                          |              | 407.4                                                           |       |       |         | 319.4   |      
|Treasury common stock, 117,001 and 2,662 shares                                               |                                          |              | (1.6                                                            | )     |       |         |        |      
|Accumulated other comprehensive income                                                        |                                          |              | (186.8                                                          | )     |       |         | (129.9  | )    
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                              |                                          |              | Total stockholders equity                                      |       |       | 1,126.8 |         |       |       | 1,061.1 | 
|                                                                                             
|                                                                                              |                                          |              | Total liabilities and stockholders equity                      |       | $     | 4,458.4 |         |       | $     | 4,037.0 | 
|                                                                                              |                                          |              |                                                                 |       |       |         |         |      
|                                                                                             

See notes to consolidated financial statements.


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|                                      |                      
|------------------------------------- | ---------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS | (Dollars in millions)




|                                                                                        |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |       |        |  
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------------- | ----- | ----- | ------ | ---- | ------ | ----- | ------ | - | ----- | ----- | ------ | -
|                                                                                        |                                                                                 |                                                         
|                                                                                        |                                                                                 | Years Ended December 31,                                
|                                                                                        |                                                                                 |                                                         
|                                                                                        |                                                                                 | 2002                                                     |       | 2001  |        | 2000
|                                                                                       
|                                                                                       
|Cash Flows from Operating Activities                                                    |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|Net earnings                                                                            |                                                                                 | $                                                        | 93.7  |       |        | $    | 54.7   |       |        | $ | 100.2 |      
|Adjustments to reconcile net earnings to net cash
    provided by operating activities: |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|                                                                                        | Discontinued operations                                                         |                                                          |       |      |        |      |        | (5.2  | )      |   |       | (20.7 | )     
|                                                                                        | Deferred income tax provision                                                   |                                                          |       | 14.0  |        |      |        | 30.7  |        |   |       | 45.4  |       
|                                                                                        | Depreciation and amortization                                                   |                                                          |       | 75.9  |        |      |        | 105.4 |        |   |       | 97.2  |       
|                                                                                        | Provision for doubtful accounts                                                 |                                                          |       | 17.0  |        |      |        | 15.8  |        |   |       | 14.8  |       
|                                                                                        | Asset write-downs                                                               |                                                          |       | 6.7   |        |      |        | 6.1   |        |   |       | 18.3  |       
|                                                                                        | Loss (gain) on marketable and derivative
    securities                         |                                                          |       | 8.1   |        |      |        | (19.2 | )      |   |       |      |       
|                                                                                        | Reduction of environmental accrual                                              |                                                          |       | (4.1  | )      |      |        |      |        |   |       |      |       
|                                                                                        | Contribution to supplemental retirement plan trust                              |                                                          |       | (3.3  | )      |      |        |      |        |   |       |      |       
|                                                                                        | Other                                                                           |                                                          |       | (6.4  | )      |      |        | (9.0  | )      |   |       | (6.8  | )     
|                                                                                        | Decrease (increase) in trade and other
    receivables                          |                                                          |       | (37.9 | )      |      |        | 42.8  |        |   |       | (55.0 | )     
|                                                                                        | Increase (decrease) in accounts payable                                         |                                                          |       | 2.7   |        |      |        | (0.7  | )      |   |       | (8.2  | )     
|                                                                                        | Increase (decrease) in drafts and customer
    funds payable                    |                                                          |       | 21.1  |        |      |        | (12.0 | )      |   |       | 33.5  |       
|                                                                                        | Increase (decrease) in employee compensation
    and benefits                   |                                                          |       | (9.1  | )      |      |        | (1.6  | )      |   |       | 4.0   |       
|                                                                                        | Increase (decrease) in accrued taxes                                            |                                                          |       | 6.0   |        |      |        | (3.9  | )      |   |       | 25.1  |       
|                                                                                        | Increase (decrease) in other current assets
    and liabilities                 |                                                          |       | (19.4 | )      |      |        | (20.1 | )      |   |       | (3.4  | )     
|                                                                                        | Cash provided by (used for) operating activities
    of discontinued operations |                                                          |       |      |        |      |        | (0.8  | )      |   |       | 24.8  |       
|                                                                                        |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|                                                                                        |                                                                                 | Net cash provided by operating activities                |       |       | 165.0  |      |        |       | 183.0  |   |       |       | 269.2  |  
|                                                                                       
|Cash Flows from Investing Activities                                                    |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|Expended for property, plant and equipment                                              |                                                                                 |                                                          | (31.1 | )     |        |      | (43.2  | )     |        |   | (66.5 | )    
|Expended for software and development costs                                             |                                                                                 |                                                          | (35.0 | )     |        |      | (50.8  | )     |        |   | (30.5 | )    
|Proceeds from sales of businesses and assets                                            |                                                                                 |                                                          | 0.5   |       |        |      | 18.7   |       |        |   | 56.3  |      
|Expended for short-term investments                                                     |                                                                                 |                                                          | (5.0  | )     |        |      |       |       |        |   |      |      
|Expended for investments and business
    acquisitions, less cash acquired              |                                                                                 |                                                          | (50.3 | )     |        |      | (30.2  | )     |        |   | (65.1 | )    
|Cash used by investing activities of discontinued
    operations                        |                                                                                 |                                                          |      |       |        |      | (1.2   | )     |        |   | (2.1  | )    
|                                                                                        |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|                                                                                        |                                                                                 | Net cash provided by (used for) investing
    activities |       |       | (120.9 | )    |        |       | (106.7 | ) |       |       | (107.9 | )
|                                                                                       
|Cash Flows from Financing Activities                                                    |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|Revolving credit and overdrafts, net                                                    |                                                                                 |                                                          | (44.6 | )     |        |      | 166.4  |       |        |   | (95.1 | )    
|Repayment of other debt                                                                 |                                                                                 |                                                          |      |       |        |      | (456.6 | )     |        |   | (20.6 | )    
|Repurchase of common stock                                                              |                                                                                 |                                                          | (5.4  | )     |        |      |       |       |        |   | (1.4  | )    
|Proceeds from exercise of stock options and other                                       |                                                                                 |                                                          | 34.9  |       |        |      | 9.1    |       |        |   | 15.8  |      
|Cash provided by financing activities of
    discontinued operations                    |                                                                                 |                                                          |      |       |        |      | 225.0  |       |        |   |      |      
|                                                                                        |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|                                                                                        |                                                                                 | Net cash provided by (used for) financing
    activities |       |       | (15.1  | )    |        |       | (56.1  | ) |       |       | (101.3 | )
|                                                                                       
|Net Cash Flows Provided (Used)                                                          |                                                                                 |                                                          | 29.0  |       |        |      | 20.2   |       |        |   | 60.0  |      
|Cash and equivalents at beginning of year                                               |                                                                                 |                                                          | 138.7 |       |        |      | 118.5  |       |        |   | 58.5  |      
|                                                                                        |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|Cash and equivalents at end of year                                                     |                                                                                 | $                                                        | 167.7 |       |        | $    | 138.7  |       |        | $ | 118.5 |      
|                                                                                        |                                                                                 |                                                          |       |       |        |      |        |       |        |   |       |      
|                                                                                       

|                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|----------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                          |  |                         
|                                          |  | Years Ended December 31,
|                                          |  |                         
|Interest and Income Taxes Paid (Refunded) |  | 2002                     |      | 2001 |  | 2000
|                                         
|                                         
|Interest paid                             |  | $                        | 7.0  |      |  | $    | 16.6 |   |  | $ | 40.3 |  
|Income taxes paid                         |  | $                        | 32.0 |      |  | $    | 15.3 |   |  | $ | 10.6 |  
|Income taxes refunded                     |  | $                        | (1.1 | )    |  | $    | (1.3 | ) |  | $ | (5.4 | )
|                                         

See notes to consolidated financial statements.


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|                                                |                      
|----------------------------------------------- | ---------------------
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY | (Dollars in millions)




|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------------------- |  | ------ | ------- | ------ |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | --------------------------- | ----------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                                                    |  |        |         |       
|                                                                                    |  | Amount |         | Shares
|                                                                                    |  |       
|                                                                                    |  |       
|                                                                                    |  | 2002   |         | 2001   |  | 2000 |         | 2002 |  | 2001 |         | 2000
|                                                                                   
|                                                                                   
|Common Shares Issued                                                                |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Beginning balance                                                                   |  | $      | 1.5     |        |  | $    | 80.8    |      |  | $    | 80.8    |      |  |                             | 146,487,624 |   |  |   | 161,685,596 |   |  |   | 161,685,596 |  
|Exercises of stock options                                                          |  |        |        |        |  |      |        |      |  |      |        |      |  |                             | 2,008,932   |   |  |   | 411,376     |   |  |   |            |  
|Restricted stock awards, net                                                        |  |        |        |        |  |      |        |      |  |      |        |      |  |                             | 27,184      |   |  |   | 60,555      |   |  |   |            |  
|Employee stock purchase plans                                                       |  |        |        |        |  |      |        |      |  |      |        |      |  |                             | 133,801     |   |  |   | 195,984     |   |  |   |            |  
|Spin-off adjustments (Note C)                                                       |  |        |        |        |  |      | (79.3   | )    |  |      |        |      |  |                             |            |   |  |   | (15,865,887 | ) |  |   |            |  
|                                                                                    |  |       
|Ending balance  issued                                                             |  | $      | 1.5     |        |  | $    | 1.5     |      |  | $    | 80.8    |      |  |                             | 148,657,541 |   |  |   | 146,487,624 |   |  |   | 161,685,596 |  
|                                                                                   
|Treasury Stock  Common
    Shares                                                  |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Beginning balance                                                                   |  | $      |        |        |  | $    | (342.9  | )    |  | $    | (364.6  | )    |  |                             | (2,662      | ) |  |   | (15,931,215 | ) |  |   | (16,951,228 | )
|Repurchases                                                                         |  |        | (5.4    | )      |  |      |        |      |  |      | (1.4    | )    |  |                             | (393,000    | ) |  |   |            |   |  |   | (54,953     | )
|Exercises of stock options                                                          |  |        | 1.6     |        |  |      | 1.1     |      |  |      | 16.4    |      |  |                             | 113,206     |   |  |   | 51,571      |   |  |   | 762,875     |  
|Restricted stock awards, net                                                        |  |        | (0.1    | )      |  |      | 0.2     |      |  |      |        |      |  |                             | (1,790      | ) |  |   | 8,782       |   |  |   | 1,350       |  
|Employee stock purchase plans                                                       |  |        | 2.3     |        |  |      | 0.1     |      |  |      | 6.7     |      |  |                             | 167,245     |   |  |   | 2,313       |   |  |   | 310,741     |  
|Spin-off adjustments (Note C)                                                       |  |        |        |        |  |      | 341.5   |      |  |      |        |      |  |                             |            |   |  |   | 15,865,887  |   |  |   |            |  
|                                                                                    |  |        |         |       
|Ending balance  treasury                                                           |  | $      | (1.6    | )      |  | $    |        |      |  | $    | (342.9  | )    |  |                             | (117,001    | ) |  |   | (2,662      | ) |  |   | (15,931,215 | )
|                                                                                    |  |       
|Common Shares Outstanding                                                           |  |        |         |        |  |      |         |      |  |      |         |      |  |                             | 148,540,540 |   |  |   | 146,484,962 |   |  |   | 145,754,381 |  
|                                                                                    |  |       
|Additional Paid-In Capital                                                          |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Beginning balance                                                                   |  | $      | 870.1   |        |  | $    | 1,122.7 |      |  | $    | 1,126.2 |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Exercises of stock options                                                          |  |        | 28.8    |        |  |      | 5.1     |      |  |      | (6.0    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|Tax benefit from stock options                                                      |  |        | 4.6     |        |  |      | 0.9     |      |  |      | 3.3     |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Restricted stock awards, net                                                        |  |        | 0.6     |        |  |      | 0.7     |      |  |      | 0.6     |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Employee stock purchase plans                                                       |  |        | 2.2     |        |  |      | 2.9     |      |  |      | (1.4    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|Spin-off adjustments (Note C)                                                       |  |        |        |        |  |      | (262.2  | )    |  |      |        |      |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |       
|Ending balance                                                                      |  | $      | 906.3   |        |  | $    | 870.1   |      |  | $    | 1,122.7 |      |  | Comprehensive Income (Loss)
|                                                                                    |  |       
|Retained Earnings (Deficit)                                                         |  |        |         |        |  |      |         |      |  |      |         |      |  |                             | 2002        |   |  |   | 2001        |   |  |   | 2000        |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Beginning balance                                                                   |  | $      | 319.4   |        |  | $    | 81.8    |      |  | $    | (18.4   | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|Net earnings                                                                        |  |        | 93.7    |        |  |      | 54.7    |      |  |      | 100.2   |      |  | $                           | 93.7        |   |  | $ | 54.7        |   |  | $ | 100.2       |  
|Spin-off adjustments (Note C)                                                       |  |        | (5.7    | )      |  |      | 182.9   |      |  |      |        |      |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Ending balance                                                                      |  | $      | 407.4   |        |  | $    | 319.4   |      |  | $    | 81.8    |      |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |     
|Accumulated Other Comprehensive Income
    (Loss)                                   |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Foreign currency translation                                                        |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Beginning balance                                                                   |  | $      | (10.3   | )      |  | $    | (8.7    | )    |  | $    | (3.2    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|Rate changes, net                                                                   |  |        | 2.8     |        |  |      | (1.6    | )    |  |      | (5.5    | )    |  |                             | 2.8         |   |  |   | (1.6        | ) |  |   | (5.5        | )
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Ending balance                                                                      |  |        | (7.5    | )      |  |      | (10.3   | )    |  |      | (8.7    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Unrealized gain on securities                                                       |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Beginning balance                                                                   |  | $      | 13.8    |        |  | $    | 11.7    |      |  | $    |        |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Change in unrealized gain, net of income taxes of
    $26.8, $10.2 and $6.4         |  |        | 50.0    |        |  |      | 18.9    |      |  |      | 11.7    |      |  |                             | 50.0        |   |  |   | 18.9        |   |  |   | 11.7        |  
|Less realized net gain, net of income taxes of
    $9.0, $9.1 and none              |  |        | (16.9   | )      |  |      | (16.8   | )    |  |      |        |      |  |                             | (16.9       | ) |  |   | (16.8       | ) |  |   |            |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Ending balance                                                                      |  |        | 46.9    |        |  |      | 13.8    |      |  |      | 11.7    |      |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Pension liability adjustment                                                        |  |        |         |        |  |      |         |      |  |      |         |      |  |                             |             |   |  |   |             |   |  |   |             |  
|Beginning balance                                                                   |  | $      | (133.4  | )      |  | $    | (9.2    | )    |  | $    | (8.6    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|Pension liability change, net of income taxes of
    $55.0, $65.8 and none (Note G) |  |        | (92.8   | )      |  |      | (124.2  | )    |  |      | (0.6    | )    |  |                             | (92.8       | ) |  |   | (124.2      | ) |  |   | (0.6        | )
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Ending balance                                                                      |  |        | (226.2  | )      |  |      | (133.4  | )    |  |      | (9.2    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Total ending balance                                                                |  | $      | (186.8  | )      |  | $    | (129.9  | )    |  | $    | (6.2    | )    |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|Total Stockholders Equity                                                          |  | $      | 1,126.8 |        |  | $    | 1,061.1 |      |  | $    | 936.2   |      |  |                             |             |   |  |   |             |   |  |   |             |  
|                                                                                    |  |        |         |       
|Total Comprehensive Income
    (Loss)                                               |  |        |         |        |  |      |         |      |  |      |         |      |  | $                           | 36.8        |   |  | $ | (69.0       | ) |  | $ | 105.8       |  
|                                                                                    |  |        |         |        |  |      |         |      |  |      |         |      |  |                            
|                                                                                   

See notes to consolidated financial statements.


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(Dollars in millions, except per share data)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(For the three years ended December 31, 2002)

INDEX TO NOTES

|   |  |    |  |                                               
|-- |  | -- |  | ----------------------------------------------
|50 |  | A. |  | Accounting Policies                           
|54 |  | B. |  | Income Taxes                                  
|55 |  | C. |  | Supplementary Data to Statements of Operations
|58 |  | D. |  | Segment Data                                  
|60 |  | E. |  | Capital Assets                                
|61 |  | F. |  | Investing Activity                            
|62 |  | G. |  | Retirement Plans                              
|64 |  | H. |  | Stock Plans                                   
|66 |  | I. |  | Financing                                     
|67 |  | J. |  | Commitments and Contingencies                 
|68 |  | K. |  | Legal Matters                                 
|69 |  | L. |  | Customer Funds                                
|70 |  | M. |  | Supplementary Quarterly Data (Unaudited)      

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 HRS business segment operations 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 in the United States. Our products
and services and business segments are more fully described in
Note D.

Investments in other affiliated
companies where we have significant influence over the
management of these companies are accounted for by the equity
method. Our other investments are accounted for by the cost
method.

All material intercompany
transactions have been eliminated from our consolidated
financial statements.

Recently Issued Accounting
Pronouncements

In June 2002, the Financial Accounting Standards
Board (FASB) issued Financial Accounting Standard
No. (FAS) 146, Accounting for Costs
Associated with Exit or Disposal Activities
(FAS 146), which nullifies Emerging Issues Task Force Issue
No. 94-3 (EITF 94-3), Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). FAS 146 requires that a liability for
a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF 94-3,
a liability for an exit cost was recognized at the date of an
entitys commitment to an exit plan. The provisions of
FAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. We do not expect
that FAS 146 will have a material effect on our financial
condition or results of operations.

In November 2002, the FASB issued
Interpretation No. 45 Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45).
FIN 45 will change current practice in the accounting for,
and disclosure of, guarantees. FIN 45 requires certain
guarantees to be recorded at fair value. Previously guarantees
were recorded as a liability only when a loss was probable and
could be reasonably estimated, as those terms defined in
FAS 5, Accounting for Contingencies.
FIN 45 also requires a guarantor to make new disclosures,
even when the likelihood of making any payments under the
guarantee is remote. FIN 45 disclosure requirements are
effective for financial statements of interim or annual periods
ending after December 15, 2002, including these financial
statements. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002.
Adoption of FIN 45 is not anticipated to have a material
impact on our consolidated financial position or results of
operations.

In December 2002, the FASB issued
FAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. FAS 148
amends FAS 123, Accounting for Stock-Based
Compensation. FAS 148 provides 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 amends the disclosure provisions
of Statement 123 and Accounting Principles Board Opinion
No. 28 Interim Financial Reporting
(APB 28) to require disclosure in the summary of
significant accounting policies 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

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(Dollars in millions, except per share data)


does not amend FAS 123 to require accounting
for employee stock options by the fair value method. Under
FAS 148 and the amendment to APB 28, we will provide
in our quarterly report on Form 10-Q for the quarter ended
March 31, 2003 and subsequent interim periods 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 H of this report.

EITF 00-21, Revenue
Arrangements with Multiple Deliverables, issued in
December 2002, addresses certain aspects of the accounting by a
vendor for arrangements under which it will perform 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. EITF 00-21 will
apply to arrangements that we enter into after June 30,
2003. Since some of our arrangements with customers involve a
combination of deliverables such as tangible products, software
products, licenses or services, we are studying the effect of
EITF 00-21 on our billing practices and accounting for
revenue. This issue could have an impact on revenue recognition
of future transactions.

Stock-Based Compensation

We account for stock-based compensation under
APB 25 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.

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 include the capitalization, amortization and
write-down of capital assets, 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 to consolidated financial
statements.

Changes in Presentation

During 2002, we made a change in our accounting
for customer freight billings to ensure consistent treatment
throughout the company. Prior to the change certain freight
billings, primarily in our Canadian operations, had been netted
against the corresponding freight charges in cost of revenue.
Freight billings are now included in revenue and freight charges
are included in cost of revenue, in accordance with
EITF 00-10, Accounting for Shipping and Handling Fees
and Costs. Amounts for 2001 and 2000 have been conformed
to the current presentation, which increased both revenue and
cost of revenue by $7.5 and $6.2.

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 balance sheet. Our investments of payroll and
tax filing 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 L. Our other investments in equity securities or debt
securities with longer maturities are considered
available-for-sale and reported in the balance sheet as
short-term investments.

We account for derivatives under
FAS 133, Accounting for Derivative Instruments and
Hedging Activities as amended and interpreted.
FAS 133 requires that derivative securities be measured at
fair value and reflected as assets or liabilities on the balance
sheet. Changes in the carrying value of a derivative are
included in earnings unless the derivative serves as a fully
effective hedge against a related gain or loss. We hold
derivative securities only for the purpose of hedging interest
rate risk and not for speculative activity. Our hedging
activities may include the use of interest rate contracts such
as swaps, collars, caps and floors, designated as hedges of
variable income from investments of payroll and tax filing funds
and corporate cash. These derivative securities typically
function as cash flow hedges of the designated item. We further
discuss derivatives in Note J.

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

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(Dollars in millions, except per share data)


the estimated lives of the assets, which are
generally as follows:

|                        |  |           
|----------------------- |  | ----------
|                       
|Buildings               |  | 40 years  
|Building improvements   |  | 5-15 years
|Machinery and equipment |  | 3-8 years 
|Computer 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
included $2.4 of interest costs in 2000 in capitalized costs
related to the construction of a headquarters facility in
Bloomington, Minnesota and the renovation of an office facility
in St. Petersburg, Florida used by certain HRS benefits
services operations.

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 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 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 9,847,000 for 2002, 5,691,000 for
2001 and 5,747,000 for 2000.

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, new accounting
rules for business combinations and accounting for goodwill and
other intangibles (FAS 141 and 142) became effective for
us. 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
20¢ per diluted common share, and for the year 2000 by
$29.6, or 20¢ per diluted common share.

Compliant with the transitional
requirements of the new accounting rules, we, assisted by an
independent business valuation firm, completed an impairment
review in June 2002 and 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, our HRS
subsidiary in Canada, the HRS operations of Centrefile in the
UK, 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, 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        |  | 10-15 years
|Trademarks            |  | 30 years   
|Technology            |  | 7-8 years  
|Non-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

We capitalize purchased software that is ready
for service and development costs for marketable software
incurred from the time of technological feasibility until the
software is ready for use. Under the provisions of current
accounting rules (SOP 98-1), 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.

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(Dollars in millions, except per share data)


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 and recognize a loss
when the value of estimated undiscounted cash flow benefit
related to the asset 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, we intend to reinvest the unremitted earnings of our
non-U.S. subsidiaries and postpone their remittance
indefinitely. Accordingly, we have not provided for U.S. income
taxes on our non-U.S. earnings during the three years ended
December 31, 2002.

Revenue Recognition

The way that we recognize revenue is primarily
affected by the timing of transaction processing and the terms
and life of the specific contract with our customer. When we can
objectively determine the fair value of each element of a
particular sales arrangement containing a software product,
installation and conversion, and transaction processing, the
amounts and timing of revenue recognition from that arrangement
are determined for each of the elements in the arrangement. When
we cannot objectively determine the fair value of each element,
all revenue from the arrangement is recognized equally over the
transaction processing term.

HRS revenue is generated by service
fees, income from investment of customer funds (as further
described in Note L), software licenses or subscription
fees, and installation and data conversion services. Generally,
HRS transaction processing contracts are for a period of one
year and service fees for these contracts are recognized as
revenue when services have been completed and the amount is
billable. Fees for LifeWorks employee effectiveness services are
generally contract-based and involve prepayments for services
based on the number of customer employees served and the level
of service. Revenue from prepayments on these contracts is
deferred and recognized as the services are performed.
Investment income is recognized as earned. Software license
revenue is recognized when the software is delivered, a signed
contract exists, the sale price is fixed and collectibility is
probable. Revenue from installation and conversion services is
non-refundable; is determined on a time and materials basis;
and, along with related costs, is deferred and recognized over
the installation and conversion period, generally two to four
months.

Comdata revenue is generated from
funds transfer, regulatory permit, and retail cash card
transaction services as well as sales of point of sale terminals
and retail cash cards. Revenue from funds transfer is recognized
at the time these transactions take place. Revenue from
regulatory permit services is recognized as the services are
performed. Revenue related to retail cash card sales and
processing are generally recognized over the life of the card as
those services are performed. Revenue from sales of terminals is
recognized upon delivery where a signed contract exists, the
sale price is fixed and collectibility is probable.

Comdata revenue does not include the
costs of goods and services for which funds are advanced by
Comdata (such as fuel purchased, permit provided or face amount
of the Comchek purchased and cashed). However, Comdata pays the
issuing agent (such as a truck stop or state agency) for the
full cost of the goods and services provided and, accordingly,
bills the customer for such cost as well as the transaction fee.
As a result, our accounts receivable includes both the cost of
the goods and services purchased and the transaction fees. Our
drafts and customer funds payable includes the amount due to the
issuing agent for the cost of the goods and services.

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).

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B. INCOME TAXES

At December 31, 2002, we had U.S. net
operating loss carryforwards of $3.2 and future tax deductions
of $310.4. If we do not utilize the net operating loss by 2010,
it will expire.

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.

Under the terms of the spin-off
described in Note C, deferred tax assets related to net
operating loss carryforwards, tax credit carryforwards, timing
differences and accrued income taxes attributable to the former
parent corporation and its subsidiaries remained with the
predecessor company, now known as Arbitron Inc. The final amount
to be retained by Arbitron Inc. was determined during the third
quarter of 2002 by the filing of income tax returns for the old
consolidated group for periods ended December 31, 2001 and
prior. As a result, we transferred a net additional deferred tax
asset of $5.7 to Arbitron Inc. and reduced our deferred income
tax asset and retained earnings by an equal amount at that time.

|                                      |               |                 |       |       |      |       |      |      |      |      |      |       |      |       | 
|------------------------------------- | ------------- | --------------- | ----- | ----- | ---- | ----- | ---- | ---- | ---- | ---- | ---- | ----- | ---- | ----- | 
|                                     
|                                     
|Components of Earnings and Taxes from
|Continuing Operations                 |               | 2002            |       | 2001  |      | 2000 
|                                     
|                                     
|Earnings Before Income Taxes          |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      | U.S.          |                 | $     | 113.3 |      |       | $    | 57.8 |      |      | $    | 107.4 |     
|                                      | International |                 |       | 31.5  |      |       |      | 26.6 |      |      |      | 20.4  |     
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      |               |                 | Total |       | $    | 144.8 |      |      | $    | 84.4 |      |       | $    | 127.8 | 
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|Income Tax Provision                  |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      | Current       |                 |       |       |      |       |      |      |      |      |      |       |     
|                                      |               | U.S.            |       | $     | 21.6 |       |      | $    | 0.6  |      |      | $     | 0.8  |      
|                                      |               | State and other |       |       | 3.0  |       |      |      | 0.4  |      |      |       | 2.4  |      
|                                      |               | International   |       |       | 12.5 |       |      |      | 3.2  |      |      |       | (0.3 | )    
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      |               |                 | 37.1  |       |      |       | 4.2  |      |      |      | 2.9  |      
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      | Deferred      |                 |       |       |      |       |      |      |      |      |      |       |     
|                                      |               | U.S.            |       |       | 16.9 |       |      |      | 22.3 |      |      |       | 35.0 |      
|                                      |               | State and other |       |       | (0.2 | )     |      |      |     |      |      |       |     |      
|                                      |               | International   |       |       | (2.7 | )     |      |      | 8.4  |      |      |       | 10.4 |      
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      |               |                 | 14.0  |       |      |       | 30.7 |      |      |      | 45.4 |      
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|                                      |               |                 | Total |       | $    | 51.1  |      |      | $    | 34.9 |      |       | $    | 48.3  | 
|                                      |               |                 |       |       |      |       |      |      |      |      |      |      
|                                     

|                                            |                      |      |      |      |  |      |      |      |  |   |      |      | 
|------------------------------------------- | -------------------- | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                                           
|                                           
|Effective Rate Reconciliation               |                      | 2002 |      | 2001 |  | 2000
|                                           
|                                           
|U.S. statutory rate                         |                      |      | 35   | %    |  |      | 35   | %    |  |   | 35   | %   
|                                            |                      |      |      |      |  |      |      |      |  |   |      |     
|Income tax provision at U.S. statutory rate |                      | $    | 50.7 |      |  | $    | 29.5 |      |  | $ | 44.8 |     
|State income taxes, net                     |                      |      | 2.0  |      |  |      | (0.1 | )    |  |   | 1.6  |     
|Goodwill                                    |                      |      |     |      |  |      | 8.9  |      |  |   | 8.5  |     
|Other                                       |                      |      | (1.6 | )    |  |      | (3.4 | )    |  |   | (6.6 | )   
|                                           
|                                            | Income tax provision |      | $    | 51.1 |  |      | $    | 34.9 |  |   | $    | 48.3 | 
|                                            |                      |      |      |      |  |      |      |      |  |   |      |     
|                                           

|                                                                            |  |              |       |      |  |   |        |  
|--------------------------------------------------------------------------- |  | ------------ | ----- | ---- |  | - | ------ | -
|                                                                           
|                                                                           
|                                                                           
|Tax Effect of Items That Comprise a Significant Portion of the Net Deferred
|Tax Asset and Deferred Tax Liability                                       
|                                                                           
|                                                                            |  |             
|                                                                            |  | December 31,
|                                                                            |  |             
|                                                                            |  | 2002         |       | 2001
|                                                                           
|                                                                           
|Deferred Tax Asset                                                          |  |              |       |      |  |   |        |  
|Employment related accruals                                                 |  | $            | 85.0  |      |  | $ | 34.9   |  
|Restructuring and other accruals                                            |  |              | 38.4  |      |  |   | 41.7   |  
|Intangibles                                                                 |  |              | (54.3 | )    |  |   |       |  
|Other                                                                       |  |              | (22.5 | )    |  |   | 42.1   |  
|                                                                            |  |              |       |      |  |   |        |  
|Total                                                                       |  |              | 46.6  |      |  |   | 118.7  |  
|                                                                            |  |              |       |      |  |   |        |  
|Deferred Tax Liability                                                      |  |              |       |      |  |   |        |  
|Intangibles                                                                 |  |              | (17.8 | )    |  |   | (67.6  | )
|Other                                                                       |  |              | (7.6  | )    |  |   | (40.1  | )
|                                                                            |  |              |       |      |  |   |        |  
|Total                                                                       |  |              | (25.4 | )    |  |   | (107.7 | )
|                                                                            |  |              |       |      |  |   |        |  
|Net Deferred Tax Asset                                                      |  | $            | 21.2  |      |  | $ | 11.0   |  
|                                                                            |  |              |       |      |  |   |        |  
|Net Deferred Tax Asset                                                      |  |              |       |      |  |   |        |  
|Current portion                                                             |  | $            | 28.4  |      |  | $ | 31.7   |  
|Noncurrent portion                                                          |  |              | 18.2  |      |  |   | 4.3    |  
|                                                                            |  |              |       |      |  |   |        |  
|Total                                                                       |  | $            | 46.6  |      |  | $ | 36.0   |  
|                                                                            |  |              |       |      |  |   |        |  
|Deferred Tax Liability                                                      |  |              |       |      |  |   |        |  
|Current portion                                                             |  | $            |      |      |  | $ | 0.2    |  
|Noncurrent portion                                                          |  |              | 25.4  |      |  |   | 24.8   |  
|                                                                            |  |              |       |      |  |   |        |  
|Total                                                                       |  | $            | 25.4  |      |  | $ | 25.0   |  
|                                                                            |  |              |       |      |  |   |        |  
|Net Deferred Tax Asset by Geography                                         |  |              |       |      |  |   |        |  
|United States                                                               |  | $            | 42.3  |      |  | $ | 34.9   |  
|International                                                               |  |              | (21.1 | )    |  |   | (23.9  | )
|                                                                            |  |              |       |      |  |   |        |  
|Total                                                                       |  | $            | 21.2  |      |  | $ | 11.0   |  
|                                                                            |  |              |       |      |  |   |        |  
|                                                                           

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(Dollars in millions, except per share data)


C. SUPPLEMENTARY DATA TO STATEMENTS OF
OPERATIONS

Unusual Losses (Gains)

During the first quarter of 2002, we announced a
series of actions intended to consolidate certain operations in
both of our business segments and recorded accrued exit costs of
$9.0. A plan to consolidate certain HRS payroll and tax filing
processing services, previously conducted in 25 district
offices, into 4 regional processing centers resulted in the
accrual of $7.5 for exit costs. Of the $7.5 accrual, $5.3
related to severance costs for 317 employees all of whom were
terminated by December 31, 2002, and $2.2 represented other
exit costs, primarily related to lease terminations.
Consolidation of certain Comdata facilities resulted in accrued
severance costs of $1.0 for 76 employees, including 67
terminated by December 31, 2002, 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 J. Also during the first quarter of 2002,
we conducted a periodic reassessment of our environmental
obligations, which revealed a reduced requirement for certain of
these obligations that were previously established. As a result,
we credited $4.1 to other expense (income) and removed that
amount from other noncurrent liabilities.

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 notified the appropriate
authorities in efforts to have appropriate inquiries made with
respect to this matter and have initiated a number of civil
actions and discovery efforts. We have also made certain
modifications to our policies and procedures related to the
factoring business. We are seeking to identify and recover
assets to cover all or some of the amount owed. Since the amount
of potential recovery cannot be determined at this time, we have
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. At December 31,
2002, we remained obligated for 2002 accrued exit costs of $5.0
of which $0.8 represented severance costs and $4.2 other exit
costs.

Also in the fourth quarter of 2002,
HRS recorded a $7.8 write-down of the carrying values of certain
marketable equity and cost-based investments, further described
in

|                                              |  |                          |      |      |  |      |       |   |  |   |      | 
|--------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ----- | - |  | - | ---- | 
|                                             
|                                             
|                                              |  |                         
|                                              |  | Years Ended December 31,
|                                              |  |                         
|Other Expense (Income)                        |  | 2002                     |      | 2001 |  | 2000
|                                             
|                                             
|Accrued exit costs, net of recoveries         |  | $                        | 13.5 |      |  | $    | 6.7   |   |  | $ | 12.2 | 
|Factoring receivables loss                    |  |                          | 9.8  |      |  |      |      |   |  |   |     | 
|Asset write-downs                             |  |                          | 6.7  |      |  |      | 6.1   |   |  |   | 18.3 | 
|Loss (gain) on marketable securities          |  |                          | 6.3  |      |  |      | (15.6 | ) |  |   |     | 
|Loss (gain) on derivative securities          |  |                          | 1.8  |      |  |      | (2.6  | ) |  |   |     | 
|Litigation costs                              |  |                          | 0.8  |      |  |      | 53.7  |   |  |   |     | 
|Foreign currency translation expense (income) |  |                          | (0.6 | )    |  |      | 1.0   |   |  |   | 0.5  | 
|Reduction in environmental accrual            |  |                          | (4.1 | )    |  |      |      |   |  |   |     | 
|Other expense (income)                        |  |                          | 0.1  |      |  |      | (1.1  | ) |  |   | 0.7  | 
|                                              |  |                          |      |      |  |      |       |   |  |   |      | 
|Total                                         |  | $                        | 34.3 |      |  | $    | 48.2  |   |  | $ | 31.7 | 
|                                              |  |                          |      |      |  |      |       |   |  |   |      | 
|                                             

|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |       |  
|------------------------------ | ------------------ | ------------------ | ----- | --------- |  | --------- | ---- | ----------- | - | ----- | --- | ---- | - | - | --- | ---- | - | - | ----- | ----- | -
|                              
|                              
|                               |                    |                   
|                               |                    | Accrued Exit Costs
|                               |                    |                   
|                               |                    | Asset              |       |           |  | Occupancy |      | Contract    |   |      
|                               |                    | Write-down         |       | Severance |  | Costs     |      | Termination |   | Total
|                              
|                              
|2000                           |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Total initial charges          |                    | $                  | 18.3  |           |  | $         | 16.4 |             |   | $     | 8.7 |      |   | $ | 1.3 |      |   | $ | 44.7  |      
|Less non-cash asset write-offs |                    |                    | (18.3 | )         |  |           |     |             |   |       |    |      |   |   |    |      |   |   | (18.3 | )    
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Total accrued costs            |                    | $                  |      |           |  |           | 16.4 |             |   |       | 8.7 |      |   |   | 1.3 |      |   |   | 26.4  |      
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Utilization:                   |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|                               | 2000 cash payments |                    |       |           |  |           |      | (9.2        | ) |       |     | (5.1 | ) |   |     | (1.3 | ) |   |       | (15.6 | )
|                               | 2001 cash payments |                    |       |           |  |           |      | (3.5        | ) |       |     | (2.8 | ) |   |     |     |   |   |       | (6.3  | )
|                               | 2001 recoveries    |                    |       |           |  |           |      | (3.2        | ) |       |     |     |   |   |     |     |   |   |       | (3.2  | )
|                               | 2002 cash payments |                    |       |           |  |           |      | (0.2        | ) |       |     | (0.8 | ) |   |     |     |   |   |       | (1.0  | )
|                               | 2002 recoveries    |                    |       |           |  |           |      | (0.3        | ) |       |     |     |   |   |     |     |   |   |       | (0.3  | )
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Balance at December 31, 2002   |                    |                    |       |           |  | $         |     |             |   | $     |    |      |   | $ |    |      |   | $ |      |      
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|2002                           |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Total initial charges          |                    | $                  | 6.7   |           |  | $         | 8.2  |             |   | $     | 6.7 |      |   | $ |    |      |   | $ | 21.6  |      
|Less non-cash asset write-offs |                    |                    | (6.7  | )         |  |           |     |             |   |       |    |      |   |   |    |      |   |   | (6.7  | )    
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Total accrued costs            |                    | $                  |      |           |  |           | 8.2  |             |   |       | 6.7 |      |   |   |    |      |   |   | 14.9  |      
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Utilization:                   |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|                               | 2002 cash payments |                    |       |           |  |           |      | (6.3        | ) |       |     | (2.5 | ) |   |     |     |   |   |       | (8.8  | )
|                               | 2002 recoveries    |                    |       |           |  |           |      | (1.1        | ) |       |     |     |   |   |     |     |   |   |       | (1.1  | )
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      
|Balance at December 31, 2002   |                    |                    |       |           |  | $         | 0.8  |             |   | $     | 4.2 |      |   | $ |    |      |   | $ | 5.0   |      
|                               |                    |                    |       |           |  |           |      |             |   |       |     |      |   |   |     |      |   |   |       |      

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Note F, recorded a $1.8 loss related to
derivatives 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 U.S.I. Holdings Corporation, which was
converted to common stock as a result of an initial public
offering in October 2002. The $1.8 loss on derivatives
represented the amortization of a portion of the $2.6 gain on
derivatives recorded in the first quarter of 2001. The remaining
$0.8 will be charged to operations during 2003 as the
derivatives to which the deferred gain relates expire. 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 F. The gain
on derivative securities of $2.6 resulted from the application
of FAS 133 as amended and interpreted at that date. The second
quarter 2001 litigation costs include a 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.

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 decided to
terminate an outsourced contract for transaction processing and
software development and bring 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.

On January 25, 2000, we
announced actions to improve customer service and the quality of
operations, particularly in the U.S. payroll business. The
principal actions taken to achieve these objectives included
decentralization of the U.S. payroll business customer service
operations, termination of certain product development efforts,
and realignment of certain management responsibilities and
consolidation of similar operations. Decentralization of U.S.
payroll customer service operations involved the downsizing of
staff and space usage in a centralized facility in St. Louis,
Missouri and the transfer of these responsibilities to district
offices. The termination of certain product development efforts
required a reassessment of the recoverability of goodwill and
other intangibles and capitalized development costs, which
resulted in a reduction in the carrying values of those assets
and staff reductions. Realignment of certain management
responsibilities involved staffing changes in a number of senior
management positions. The consolidation of similar operations
led to staff reductions as well as the identification of excess
space and furnishings and related charges for asset write-downs
and future rental obligations.

In March 2000, we approved plans to
execute these actions and recorded as other expense
(income) charges of $44.7 in first quarter 2000. These
charges included $26.4 of accrued exit costs and $18.3 for asset
write-downs. Exit costs for severance involved involuntary
termination notices for approximately 500 employment positions,
primarily in HRS, of which approximately 466 had been eliminated
by December 31, 2000 with the remainder in early 2001. The
other exit costs were primarily the lease cost for idled
facilities and contract termination fees. At December 31,
2002, those accrued exit costs had been paid in full. Asset
write-downs included the write-off of capitalized software
amounts related to a software development contract that was
terminated in the first quarter 2000, certain property and
equipment abandoned at a number of idled facilities, and certain
goodwill and intangible asset balances with respect to two
previous acquisitions.

With respect to accrued amounts
related to certain actions we had taken in 1997, we paid the
remaining $6.4 of accrued costs during the year ended
December 31, 2000. Additionally, during the first quarter
of 2000, we credited other expense (income) with a recovery
of $14.2 of unused accruals established in connection with these
1997 actions. This recovery relates to the reversal of the
amount accrued in excess of the settlement amount for a

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securities litigation matter that was finalized
on March 31, 2000.

Discontinued Operations

On March 30, 2001, we separated our HRS
division and subsidiaries and Comdata subsidiaries from our
former media information business, Arbitron, to form two
independent, publicly-traded companies (which this report refers
to as the spin-off).

The spin-off required that we
establish new financing arrangements further described in
Note I. 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 $182.9 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.

Summarized operating results and the
gain (loss) on disposition of Arbitron as a discontinued
operation are presented in the accompanying table.




Summarized Operating Results and Gain (Loss)
on Disposition


of Discontinued Operations





|                                                                                                            |  |              |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                                                                            |  |             
|                                                                                                            |  | Years Ended 
|                                                                                                            |  | December 31,
|                                                                                                            |  |             
|                                                                                                            |  | 2001         |         | 2000
|                                                                                                           
|Earnings from Operations                                                                                    |  |              |         |      |  |   |         |  
|Revenue of Arbitron                                                                                         |  | $            | 60.2    |      |  | $ | 206.8   |  
|Earnings before income taxes of Arbitron                                                                    |  | $            | 9.0     |      |  | $ | 77.3    |  
|Net earnings of Arbitron                                                                                    |  | $            | 5.2     |      |  | $ | 47.6    |  
|Less net earnings after measurement date of
    July 18, 2000 applied against loss on disposition           |  |              | (5.2    | )    |  |   | (20.0   | )
|                                                                                                            |  |              |         |      |  |   |         |  
|Earnings from discontinued operations of Arbitron                                                           |  | $            |        |      |  | $ | 27.6    |  
|                                                                                                            |  |              |         |      |  |   |         |  
|Gain (Loss) on Disposition                                                                                  |  |              |         |      |  |   |         |  
|Spin-off charges (net of income taxes of $11.0)                                                             |  | $            |        |      |  | $ | (39.4   | )
|2000 earnings after measurement date applied
    against loss on disposition (net of income taxes of $12.5) |  |              |        |      |  |   | 20.0    |  
|2001 earnings until spin-off date (net of income
    taxes of $3.8 and $7.5)                                |  |              | 5.2     |      |  |   | 12.5    |  
|                                                                                                            |  |              |         |      |  |   |         |  
|Gain (loss) on disposition of Arbitron                                                                      |  | $            | 5.2     |      |  | $ | (6.9    | )
|                                                                                                            |  |              |         |      |  |   |         |  
|Discontinued Operations Per Share
    Results                                                               |  |              |         |      |  |   |         |  
|Earnings from operations per basic share                                                                    |  | $            |        |      |  | $ | 0.19    |  
|Earnings from operations per diluted share                                                                  |  | $            |        |      |  | $ | 0.19    |  
|Gain (loss) from disposition per basic share                                                                |  | $            | 0.04    |      |  | $ | (0.05   | )
|Gain (loss) from disposition per diluted
    share                                                          |  | $            | 0.04    |      |  | $ | (0.05   | )
|Shares used in basic calculation (in thousands)                                                             |  |              | 146,069 |      |  |   | 145,229 |  
|Shares used in diluted calculation (in thousands)                                                           |  |              | 148,596 |      |  |   | 146,734 |  
|                                                                                                           

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|                                             |  |                          |         |      |  |      |         |  |  |   |         | 
|-------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                             |  |                         
|                                             |  |                         
|GEOGRAPHIC SEGMENT DATA                      |  | Years Ended December 31,
|                                             |  |                         
|                                             |  | 2002                     |         | 2001 |  | 2000
|                                            
|                                            
|U.S. Operations                              |  |                          |         |      |  |      |         |  |  |   |         | 
|Revenue                                      |  | $                        | 1,000.6 |      |  | $    | 1,005.5 |  |  | $ | 1,013.8 | 
|Property, plant and equipment at December 31 |  |                          | 138.0   |      |  |      | 147.6   |  |  |   | 147.5   | 
|Non-U.S. Operations                          |  |                          |         |      |  |      |         |  |  |   |         | 
|United Kingdom Operations                    |  |                          |         |      |  |      |         |  |  |   |         | 
|Revenue                                      |  | $                        | 79.2    |      |  | $    | 71.4    |  |  | $ | 63.4    | 
|Property, plant and equipment at December 31 |  |                          | 4.0     |      |  |      | 3.4     |  |  |   | 4.1     | 
|Canadian Operations                          |  |                          |         |      |  |      |         |  |  |   |         | 
|Revenue                                      |  |                          | 112.9   |      |  |      | 112.9   |  |  |   | 104.7   | 
|Property, plant and equipment at December 31 |  |                          | 7.1     |      |  |      | 8.3     |  |  |   | 8.8     | 
|                                             |  |                          |         |      |  |      |         |  |  |   |         | 
|Total
    Non-U.S. Operations                |  |                          |         |      |  |      |         |  |  |   |         | 
|Revenue                                      |  | $                        | 192.1   |      |  | $    | 184.3   |  |  | $ | 168.1   | 
|Property, plant and equipment at December 31 |  |                          | 11.1    |      |  |      | 11.7    |  |  |   | 12.9    | 
|                                             |  |                          |         |      |  |      |         |  |  |   |         | 
|Total Worldwide                              |  |                          |         |      |  |      |         |  |  |   |         | 
|Revenue                                      |  | $                        | 1,192.7 |      |  | $    | 1,189.8 |  |  | $ | 1,181.9 | 
|Property, plant and equipment at December 31 |  |                          | 149.1   |      |  |      | 159.3   |  |  |   | 160.4   | 
|                                            

D. SEGMENT DATA

We operate in the information services industry
principally in the U.S. and provide products and services
primarily to the human resource and transportation 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 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 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 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, as well as
management support software and services in areas such as human
resource administration, regulatory compliance, work-life
effectiveness and employee assistance programs. Revenue from
payroll and tax filing services also includes investment income
we earn from deposits temporarily held pending remittance on
behalf of customers to taxing authorities and customers
employees. These activities are conducted primarily in the U.S.
and, to a lesser extent, through subsidiaries in the United
Kingdom (UK) and Canada.

Comdata provides transaction
processing and decision support services to the transportation
industry, primarily trucking companies, truck stops and truck
drivers, in both the long haul and local markets in the U.S.
These services primarily involve the use of a proprietary funds
transfer card which facilitates truck driver transactions and
provides transaction control and trip information for trucking
firms. Additionally, Comdata provides assistance in obtaining
regulatory permits and other compliance services, driver
relations services, local fueling services and discounted
telecommunications services in its markets. With the acquisition
of a majority interest in Stored Value Systems, Inc. (which this
report refers to as SVS) in 1999 (the remaining
interest was acquired in 2000), Comdata extended its transaction
processing activities by providing card-based services primarily
to retailers in the form of gift cards and certificates, credits
for product returns and retail promotions.

The Other segment 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.

We measure business segment results
by reference to earnings before interest and taxes
(EBIT), adjusted for unusual gains and losses.
Unusual gains and losses during the three-year period ended
December 31, 2002 are discussed in Note C. Expenses
incurred by corporate center operations are charged or allocated
to the business segments except for certain unusual gains and
losses, which are reported in the Other segment.

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 UK relate
largely to the HRS segment. Geographic data for or at the end of
each of the last three years, presented in the table above, is
determined by reference to the location of operation.

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BUSINESS SEGMENTS




|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                   |  |                         
|                                                                   |  | Years Ended December 31,
|                                                                   |  |                         
|                                                                   |  | 2002                     |         | 2001 |  | 2000
|                                                                   |  |                          |         |      |  |     
|HRS                                                                |  |                          |         |      |  |      |         |   |  |   |         |  
|Revenue                                                            |  | $                        | 878.1   |      |  | $    | 873.8   |   |  | $ | 873.1   |  
|EBIT before unusual losses and gains and goodwill
    amortization |  | $                        | 76.7    |      |  | $    | 78.5    |   |  | $ | 135.9   |  
|Unusual (losses) gains                                             |  |                          | (26.1   | )    |  |      | (3.6    | ) |  |   | (37.0   | )
|Goodwill amortization                                              |  |                          |        |      |  |      | (26.2   | ) |  |   | (26.4   | )
|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|EBIT                                                               |  | $                        | 50.6    |      |  | $    | 48.7    |   |  | $ | 72.5    |  
|Total assets before payroll and tax filing funds                   |  | $                        | 1,443.8 |      |  | $    | 1,302.7 |   |  | $ | 1,264.7 |  
|Payroll and tax filing funds                                       |  |                          | 2,380.5 |      |  |      | 2,126.4 |   |  |   | 2,945.0 |  
|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|Total assets at December 31                                        |  | $                        | 3,824.3 |      |  | $    | 3,429.1 |   |  | $ | 4,209.7 |  
|Goodwill                                                           |  | $                        | 773.3   |      |  | $    | 743.8   |   |  | $ | 772.1   |  
|Depreciation and amortization                                      |  | $                        | 62.2    |      |  | $    | 82.7    |   |  | $ | 78.1    |  
|Expended for property, plant and equipment                         |  | $                        | 25.2    |      |  | $    | 34.1    |   |  | $ | 43.3    |  
|                                                                  
|Comdata                                                            |  |                          |         |      |  |      |         |   |  |   |         |  
|Revenue                                                            |  | $                        | 314.6   |      |  | $    | 316.0   |   |  | $ | 308.8   |  
|EBIT before unusual losses and gains and goodwill
    amortization |  | $                        | 107.4   |      |  | $    | 101.8   |   |  | $ | 91.9    |  
|Unusual (losses) gains                                             |  |                          | (12.8   | )    |  |      | (59.0   | ) |  |   | (2.6    | )
|Goodwill amortization                                              |  |                          |        |      |  |      | (8.9    | ) |  |   | (8.0    | )
|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|EBIT                                                               |  | $                        | 94.6    |      |  | $    | 33.9    |   |  | $ | 81.3    |  
|Total assets at December 31                                        |  | $                        | 557.7   |      |  | $    | 520.1   |   |  | $ | 572.6   |  
|Goodwill                                                           |  | $                        | 117.0   |      |  | $    | 117.0   |   |  | $ | 125.8   |  
|Depreciation and amortization                                      |  | $                        | 12.8    |      |  | $    | 21.7    |   |  | $ | 18.5    |  
|Expended for property, plant and equipment                         |  | $                        | 5.8     |      |  | $    | 8.9     |   |  | $ | 7.9     |  
|                                                                  
|Other                                                              |  |                          |         |      |  |      |         |   |  |   |         |  
|EBIT before unusual losses and gains                               |  | $                        |        |      |  | $    |        |   |  | $ |        |  
|Unusual (losses) gains                                             |  |                          | 4.1     |      |  |      | 14.3    |   |  |   | 9.1     |  
|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|EBIT                                                               |  | $                        | 4.1     |      |  | $    | 14.3    |   |  | $ | 9.1     |  
|Total assets at December 31                                        |  | $                        | 76.4    |      |  | $    | 87.8    |   |  | $ | 250.7   |  
|Depreciation and amortization                                      |  | $                        | 0.9     |      |  | $    | 1.0     |   |  | $ | 0.6     |  
|Expended for property, plant and equipment                         |  | $                        | 0.1     |      |  | $    | 0.2     |   |  | $ | 15.3    |  
|                                                                  
|Total Ceridian                                                     |  |                          |         |      |  |      |         |   |  |   |         |  
|Revenue                                                            |  | $                        | 1,192.7 |      |  | $    | 1,189.8 |   |  | $ | 1,181.9 |  
|EBIT before unusual losses and gains and goodwill
    amortization |  | $                        | 184.1   |      |  | $    | 180.3   |   |  | $ | 227.8   |  
|Unusual (losses) gains                                             |  |                          | (34.8   | )    |  |      | (48.3   | ) |  |   | (30.5   | )
|Goodwill amortization                                              |  |                          |        |      |  |      | (35.1   | ) |  |   | (34.4   | )
|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|EBIT                                                               |  | $                        | 149.3   |      |  | $    | 96.9    |   |  | $ | 162.9   |  
|Total assets before payroll and tax filing funds                   |  | $                        | 2,077.9 |      |  | $    | 1,910.6 |   |  | $ | 2,088.0 |  
|Payroll and tax filing funds                                       |  |                          | 2,380.5 |      |  |      | 2,126.4 |   |  |   | 2,945.0 |  
|                                                                   |  |                          |         |      |  |      |         |   |  |   |         |  
|Total assets at December 31                                        |  | $                        | 4,458.4 |      |  | $    | 4,037.0 |   |  | $ | 5,033.0 |  
|Goodwill                                                           |  | $                        | 890.3   |      |  | $    | 860.8   |   |  | $ | 897.9   |  
|Depreciation and amortization                                      |  | $                        | 75.9    |      |  | $    | 105.4   |   |  | $ | 97.2    |  
|Expended for property, plant and equipment                         |  | $                        | 31.1    |      |  | $    | 43.2    |   |  | $ | 66.5    |  
|                                                                  

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(Dollars in millions, except per share data)


E. CAPITAL ASSETS




|                                                                             |  |              |        |      |  |   |        |  
|---------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                                                             |  |             
|                                                                             |  | December 31,
|                                                                             |  |             
|                                                                             |  | 2002         |        | 2001
|                                                                            
|                                                                            
|Property, Plant and Equipment                                                |  |              |        |      |  |   |        |  
|Land                                                                         |  | $            | 12.4   |      |  | $ | 12.4   |  
|Machinery and equipment (accumulated depreciation
    of $197.7 and $172.5)  |  |              | 276.3  |      |  |   | 264.2  |  
|Buildings and improvements (accumulated
    depreciation of $33.9 and $29.0) |  |              | 92.0   |      |  |   | 84.2   |  
|                                                                             |  |              |        |      |  |   |        |  
|Total property, plant and equipment                                          |  |              | 380.7  |      |  |   | 360.8  |  
|Accumulated depreciation                                                     |  |              | (231.6 | )    |  |   | (201.5 | )
|                                                                             |  |              |        |      |  |   |        |  
|Property, plant and equipment, net                                           |  | $            | 149.1  |      |  | $ | 159.3  |  
|                                                                             |  |              |        |      |  |   |        |  
|                                                                            
|Goodwill, net of amortization                                                |  |              |        |      |  |   |        |  
|At beginning of year                                                         |  | $            | 860.8  |      |  | $ | 897.9  |  
|Acquired (Note F)                                                            |  |              | 28.2   |      |  |   | 0.5    |  
|Translation and other adjustments                                            |  |              | 1.3    |      |  |   | (2.5   | )
|Amortization                                                                 |  |              |        |      |  |   | (35.1  | )
|                                                                             |  |              |        |      |  |   |        |  
|At end of year                                                               |  | $            | 890.3  |      |  | $ | 860.8  |  
|                                                                             |  |              |        |      |  |   |        |  
|Tax-deductible goodwill at end of year                                       |  | $            | 236.3  |      |  | $ | 219.2  |  
|                                                                            
|Other Intangibles                                                            |  |              |        |      |  |   |        |  
|Customer lists (accumulated amortization of $21.3
    and $15.2)             |  | $            | 45.5   |      |  | $ | 39.2   |  
|Trademarks (accumulated amortization of $16.1 and
    $13.1)                 |  |              | 73.2   |      |  |   | 74.8   |  
|Technology (accumulated amortization of $23.4 and
    $16.9)                 |  |              | 51.8   |      |  |   | 43.4   |  
|Non-compete agreements (accumulated amortization
    of $7.0 and $4.7)       |  |              | 11.8   |      |  |   | 7.5    |  
|                                                                             |  |              |        |      |  |   |        |  
|Total other intangible assets                                                |  |              | 182.3  |      |  |   | 164.9  |  
|Accumulated amortization                                                     |  |              | (67.8  | )    |  |   | (49.9  | )
|                                                                             |  |              |        |      |  |   |        |  
|Other intangible assets, net                                                 |  | $            | 114.5  |      |  | $ | 115.0  |  
|                                                                             |  |              |        |      |  |   |        |  
|                                                                            
|Software and Development Costs                                               |  |              |        |      |  |   |        |  
|Purchased software (accumulated amortization of
    $31.2 and $24.5)         |  | $            | 64.0   |      |  | $ | 51.9   |  
|Software development costs (accumulated
    amortization of $29.2 and $20.1) |  |              | 109.9  |      |  |   | 85.6   |  
|                                                                             |  |              |        |      |  |   |        |  
|Total software and development costs                                         |  |              | 173.9  |      |  |   | 137.5  |  
|Accumulated amortization                                                     |  |              | (60.4  | )    |  |   | (44.6  | )
|                                                                             |  |              |        |      |  |   |        |  
|Software and development costs, net                                          |  | $            | 113.5  |      |  | $ | 92.9   |  
|                                                                             |  |              |        |      |  |   |        |  
|                                                                            

|                                                                   |       |                          |      |      |  |      |      |       |  |   |      |      | 
|------------------------------------------------------------------ | ----- | ------------------------ | ---- | ---- |  | ---- | ---- | ----- |  | - | ---- | ---- | 
|                                                                   |       |                         
|                                                                   |       | Years Ended December 31,
|                                                                   |       |                         
|Depreciation and Amortization                                      |       | 2002                     |      | 2001 |  | 2000
|                                                                  
|                                                                  
|Depreciation and amortization of property, plant
    and equipment |       | $                        | 43.3 |      |  | $    | 42.6 |       |  | $ | 39.2 |     
|Amortization of goodwill                                           |       |                          |     |      |  |      | 35.1 |       |  |   | 34.5 |     
|Amortization of other intangible assets                            |       |                          | 15.7 |      |  |      | 15.2 |       |  |   | 14.4 |     
|Amortization of software and development costs                     |       |                          | 16.9 |      |  |      | 12.5 |       |  |   | 9.1  |     
|                                                                   |       |                          |      |      |  |      |      |       |  |   |      |     
|                                                                   | Total |                          | $    | 75.9 |  |      | $    | 105.4 |  |   | $    | 97.2 | 
|                                                                   |       |                          |      |      |  |      |      |       |  |   |      |     
|                                                                  

We estimate that amortization of other intangible
assets held at December 31, 2002 will be $17.0 for 2003,
$16.7 for 2004, $14.5 for 2005, $12.2 for 2006 and $9.6 for 2007.

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(Dollars in millions, except per share data)


F. INVESTING ACTIVITY

During 2002, our investment in capital
expenditures included $31.1 for property and equipment and $35.0
for software and development costs. The software development
costs included $10.0 for SourceWeb, a web-enabled payroll/
HR/self-service offering that HRS is rolling out in 2003.

In March 2002, we acquired
outstanding stock of SYLINQ Corporation, a national employee
benefits administration outsourcer specializing in automated
enrollment and eligibility management (which this report refers
to as 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. SYLINQs
revenue for its most recent fiscal year was $3.3.

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 will be associated with our benefits services operations.
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. HR Complys revenue for its previous fiscal year was
$6.2.

In December 2002, we acquired
selected assets of GLS Benefit Services LLC, a benefits
administration outsourcing firm (which this report refers to as
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 any
deficiency below a stated amount in the actual net value of
assets acquired. The $2.8 escrow deposit represents an estimate
of an additional amount that could be paid to the sellers in
February 2004 under a revenue sharing arrangement that applies
when revenue earned from the acquired business during 2003 rises
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. Great
Lakes Strategies revenue for its previous fiscal year was $10.1.

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 U.S.I. Holdings, a leading
distributor of insurance and financial services for middle
market organizations, in connection with a marketing
arrangement. In October 2002, U.S.I. Holdings 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.

In May 2000, Comdata completed the
acquisition of SVS by exercising an option to purchase the
remaining interest and paying $50.9. Comdata had acquired a
majority interest in SVS in March 1999 for $20.3. As a result of
the acquisition, Comdata recorded goodwill of $52.4 and
intangibles of $11.0 to be amortized over periods of 2 to
10 years. Other business acquisitions during 2000 resulted
in payments of $14.2, principally for a payroll service that
operates primarily in the UK.

Proceeds from sales of assets during
2000 primarily involved the November sale and leaseback of the
real property constituting our headquarters facility for $41.0.
The gain of $1.2 from this transaction will be recognized over
the 20-year term of the lease. The September sale of property in
Palm Harbor, Florida, formerly used in our benefits services
operations, provided proceeds of $12.8 and the excess of the
proceeds over the carrying value of the property reduced
goodwill related to the 1999 acquisition of ABR Information
Services, Inc.

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(Dollars in millions, except per share data)


G. RETIREMENT PLANS

Pension Benefits

We provide retirement income benefits to our
employees through a combination of defined benefit and defined
contribution plans. Our principal 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 90% 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 pension benefit
plan for our employees in the United Kingdom and a nonqualified
supplemental defined benefit plan for selected
U.S. employees. The UK plan contains both defined benefit
and defined contribution elements. 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.

We account for our defined benefit
pension plans using actuarial models required by present
accounting rules (FAS No. 87). 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

|                                                             |  |               |        |      |  |   |        |  
|------------------------------------------------------------ |  | ------------- | ------ | ---- |  | - | ------ | -
|                                                            
|                                                            
|                                                             |  |              
|                                                             |  | September 30,
|Funded Status of Defined Benefit                             |  |              
|Retirement Plans at Measurement Date                         |  | 2002          |        | 2001
|                                                            
|                                                            
|Change in Projected Benefit Obligation During
    the Period |  |               |        |      |  |   |        |  
|At beginning of period                                       |  | $             | 588.8  |      |  | $ | 587.2  |  
|Service cost                                                 |  |               | 3.0    |      |  |   | 2.7    |  
|Interest cost                                                |  |               | 43.9   |      |  |   | 44.2   |  
|Employee contributions                                       |  |               | 0.2    |      |  |   | 0.2    |  
|Arbitron spin-off                                            |  |               |       |      |  |   | (15.0  | )
|Amendments and currency translation                          |  |               | 2.2    |      |  |   |       |  
|Actuarial (gain) loss                                        |  |               | 48.1   |      |  |   | 17.3   |  
|Benefits paid                                                |  |               | (46.8  | )    |  |   | (47.8  | )
|                                                             |  |               |        |      |  |   |        |  
|At end of period                                             |  | $             | 639.4  |      |  | $ | 588.8  |  
|                                                             |  |               |        |      |  |   |        |  
|Change in Fair Value of Plan Assets During the
    Period    |  |               |        |      |  |   |        |  
|At beginning of period                                       |  | $             | 485.5  |      |  | $ | 639.7  |  
|Actual return on plan assets                                 |  |               | (44.1  | )    |  |   | (96.7  | )
|Arbitron spin-off                                            |  |               |       |      |  |   | (13.4  | )
|Currency translation                                         |  |               | 1.6    |      |  |   |       |  
|Employee contributions                                       |  |               | 0.2    |      |  |   | 0.2    |  
|Employer contributions                                       |  |               | 3.8    |      |  |   | 3.5    |  
|Benefits paid                                                |  |               | (46.8  | )    |  |   | (47.8  | )
|                                                             |  |               |        |      |  |   |        |  
|At end of period                                             |  | $             | 400.2  |      |  | $ | 485.5  |  
|                                                             |  |               |        |      |  |   |        |  
|Funded Status of Plan                                        |  | $             | (239.2 | )    |  | $ | (103.3 | )
|Unrecognized net loss                                        |  |               | 358.2  |      |  |   | 214.4  |  
|Unrecognized prior service cost                              |  |               | 0.1    |      |  |   | 2.2    |  
|                                                             |  |               |        |      |  |   |        |  
|Total                                                        |  | $             | 119.1  |      |  | $ | 113.3  |  
|                                                             |  |               |        |      |  |   |        |  
|Balance Sheet Presentation                                   |  |               |        |      |  |   |        |  
|Intangible pension asset                                     |  | $             | 0.4    |      |  | $ | 3.1    |  
|Accrued benefit liability                                    |  |               | (228.3 | )    |  |   | (89.0  | )
|Accumulated other comprehensive income, net of tax           |  |               | 226.2  |      |  |   | 133.4  |  
|Deferred income tax asset                                    |  |               | 120.8  |      |  |   | 65.8   |  
|                                                             |  |               |        |      |  |   |        |  
|Total                                                        |  | $             | 119.1  |      |  | $ | 113.3  |  
|                                                             |  |               |        |      |  |   |        |  



---

|                                 |  |      |       |      |  |      |       |  |  |  |      |  
|-------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ---- | -
|Assumptions Used in Calculations |  | 2002 |       | 2001 |  | 2000
|                                
|                                
|Discount rate                    |  |      | 6.71% |      |  |      | 7.43% |  |  |  | 7.70 | %
|Rate of compensation increase    |  |      | 4.01% |      |  |      | 4.01% |  |  |  | 4.02 | %
|Expected return on plan assets   |  |      | 9.43% |      |  |      | 9.44% |  |  |  | 9.47 | %
|                                



---

|                                   |       |      |       |      |   |      |       |      |   |   |       |      |  
|---------------------------------- | ----- | ---- | ----- | ---- | - | ---- | ----- | ---- | - | - | ----- | ---- | -
|Net Periodic Pension Cost (Credit) |       | 2002 |       | 2001 |   | 2000
|                                  
|                                  
|Service cost                       |       | $    | 3.0   |      |   | $    | 2.8   |      |   | $ | 3.0   |     
|Interest cost                      |       |      | 43.9  |      |   |      | 44.3  |      |   |   | 44.6  |     
|Expected return on plan assets     |       |      | (54.9 | )    |   |      | (57.4 | )    |   |   | (58.5 | )   
|Net amortization and deferral      |       |      | 6.1   |      |   |      | 4.6   |      |   |   | 4.8   |     
|                                   |       |      |       |      |   |      |       |      |   |   |       |     
|                                   | Total |      | $     | (1.9 | ) |      | $     | (5.7 | ) |   | $     | (6.1 | )
|                                   |       |      |       |      |   |      |       |      |   |   |       |     
|                                  

62



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(Dollars in millions, except per share data)


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. For 2003, this rate will be
8.75%.

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 recent 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 $189.4 at
December 31, 2002 and $56.9 at December 31, 2001.
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.

At December 31, 2002 and 2001,
our prepaid pension cost asset included $11.3 and $7.6 held in
benefit protection trusts for certain nonqualified plan
participants and an intangible pension asset of $0.4 and $3.1.

We recognized expense of $13.4 in
2002, $9.7 in 2001 and $9.2 in 2000 with respect to employer
contributions to our defined contribution retirement plans.

|                                     |       |               |      |      |  |   |      |      | 
|------------------------------------ | ----- | ------------- | ---- | ---- |  | - | ---- | ---- | 
|                                    
|                                    
|                                    
|Funded Status of Postretirement     
|Health Care and Life Insurance Plans
|                                    
|                                     |       |              
|                                     |       | September 30,
|                                     |       | 2002          |      | 2001
|                                     |       |               |      |     
|Change in Benefit Obligation         |       |               |      |      |  |   |      |     
|At beginning of period               |       | $             | 42.4 |      |  | $ | 37.6 |     
|Service cost                         |       |               | 0.1  |      |  |   | 0.1  |     
|Interest cost                        |       |               | 3.0  |      |  |   | 2.7  |     
|Participant contributions            |       |               | 1.2  |      |  |   | 1.3  |     
|Arbitron spin-off                    |       |               |     |      |  |   | (0.3 | )   
|Actuarial loss (gain)                |       |               | 11.9 |      |  |   | 7.8  |     
|Benefits paid                        |       |               | (4.4 | )    |  |   | (6.8 | )   
|                                     |       |               |      |      |  |   |      |     
|At end of period                     |       | $             | 54.2 |      |  | $ | 42.4 |     
|                                     |       |               |      |      |  |   |      |     
|Change in Plan Assets                |       |               |      |      |  |   |      |     
|At beginning of period               |       | $             |     |      |  | $ |     |     
|Company contributions                |       |               | 3.2  |      |  |   | 5.5  |     
|Participant contributions            |       |               | 1.2  |      |  |   | 1.3  |     
|Benefits paid                        |       |               | (4.4 | )    |  |   | (6.8 | )   
|                                     |       |               |      |      |  |   |      |     
|At end of period                     |       | $             |     |      |  | $ |     |     
|                                     |       |               |      |      |  |   |      |     
|Funded Status of Plan                |       |               |      |      |  |   |      |     
|Benefit obligation, net              |       | $             | 54.2 |      |  | $ | 42.4 |     
|Unrecognized actuarial gain (loss)   |       |               | (6.1 | )    |  |   | 6.0  |     
|                                     |       |               |      |      |  |   |      |     
|At end of period                     |       | $             | 48.1 |      |  | $ | 48.4 |     
|                                     |       |               |      |      |  |   |      |     
|                                    
|Current portion                      |       | $             | 6.0  |      |  | $ | 6.0  |     
|Noncurrent portion                   |       |               | 42.1 |      |  |   | 42.4 |     
|                                     |       |               |      |      |  |   |      |     
|                                     | Total |               | $    | 48.1 |  |   | $    | 48.4 | 
|                                     |       |               |      |      |  |   |      |     
|                                    

|                                         |                           |      |      |      |  |      |      |     |  |   |      |     | 
|---------------------------------------- | ------------------------- | ---- | ---- | ---- |  | ---- | ---- | --- |  | - | ---- | --- | 
|                                        
|                                        
|                                        
|Net Periodic Postretirement Benefit Cost
|                                        
|                                         |                           | 2002 |      | 2001 |  | 2000
|                                         |                           |      |      |      |  |     
|Service cost                             |                           | $    | 0.1  |      |  | $    | 0.1  |     |  | $ | 0.2  |    
|Interest cost                            |                           |      | 3.0  |      |  |      | 2.7  |     |  |   | 3.0  |    
|Actuarial gain amortization              |                           |      | (0.1 | )    |  |      | (0.9 | )   |  |   | (0.5 | )  
|                                         |                           |      |      |      |  |      |      |     |  |   |      |    
|                                         | Net periodic benefit cost |      | $    | 3.0  |  |      | $    | 1.9 |  |   | $    | 2.7 | 
|                                         |                           |      |      |      |  |      |      |     |  |   |      |    
|                                        

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. Employees hired on or after January 1, 1992 may
enroll at retirement in company-sponsored plans with no company
subsidy. Employees hired before and retiring after
January 1, 1992 may enroll in plans that subsidize pre-age
65 coverage only. Employees who retired prior to January 1,
1992 are subject to various cost-sharing policies depending on
when retirement began and eligibility for Medicare. This is a
closed group. Most retirees outside the U.S. are covered by
governmental health care programs, and our cost is not
significant.

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.

The assumed health care cost trend
rate used in measuring the benefit obligation is 12% in 2002
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, 2002 by
$3.4 and the aggregate service and interest cost for the 2002
measurement period by $0.2. A one percent decrease in this rate
would decrease the benefit obligation at September 30, 2002
by $3.2 and the aggregate service and interest cost for the 2002
measurement period by $0.2. The weighted average discount rates
used in determining the benefit obligation at the measurement
dates were 6.75% for 2002 and 7.5% for 2001.

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(Dollars in millions, except per share data)


H. STOCK PLANS

During the three-year period ended
December 31, 2002, 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.

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
table above. Other terms of the options were not changed.

Eligible participants in the 2001
LTSIP include our employees and non-employee directors,
consultants and independent contractors.

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 of directors 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

|                                                                                     |  |              |                |             |  |             |            |                |  |            |            |   |  |  |             |   |  |   |       | 
|------------------------------------------------------------------------------------ |  | ------------ | -------------- | ----------- |  | ----------- | ---------- | -------------- |  | ---------- | ---------- | - |  |  | ----------- | - |  | - | ----- | 
|                                                                                    
|                                                                                    
|Stock Plans                                                                          |  | Weighted-   
|                                                                                     |  | Average     
|                                                                                     |  | Option Price |                |             |  | Available   |            | Exercise Price
|                                                                                     |  | Per Share    |                | Outstanding |  | Exercisable |            | for Grant      |  | of Options
|                                                                                    
|At December 31, 1999                                                                 |  |              | $3.09 - $42.64 |             |  |             | 15,929,406 |                |  |            | 6,490,210  |   |  |  | 11,771,029  |   |  | $ | 22.26 | 
|                                                                                    
|Authorized                                                                           |  |              |                |             |  |             |            |                |  |            |            |   |  |  | 333,834     |   |  |   |       | 
|Granted                                                                              |  |              | 16.00 - 27.88  |             |  |             | 1,466,653  |                |  |            |            |   |  |  | (1,466,653  | ) |  |   | 22.55 | 
|Became exercisable                                                                   |  |              | 10.53 - 38.97  |             |  |             |            |                |  |            | 3,116,997  |   |  |  |             |   |  |   |       | 
|Exercised                                                                            |  |              | 3.09 - 27.41   |             |  |             | (762,875   | )              |  |            | (762,875   | ) |  |  |             |   |  |   | 13.70 | 
|Canceled                                                                             |  |              | 11.82 - 38.97  |             |  |             | (2,990,630 | )              |  |            | (672,055   | ) |  |  | 884,531     |   |  |   | 24.99 | 
|Expired                                                                              |  |              | 7.15           |             |  |             | (4,000     | )              |  |            | (4,000     | ) |  |  |             |   |  |   | 7.15  | 
|ESPP purchases                                                                       |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (310,379    | ) |  |   |       | 
|UK Plans                                                                             |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (362        | ) |  |   |       | 
|Restricted stock, net                                                                |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (17,366     | ) |  |   |       | 
|                                                                                    
|At December 31, 2000                                                                 |  |              | $3.76 - $42.64 |             |  |             | 13,638,554 |                |  |            | 8,168,277  |   |  |  | 11,194,634  |   |  | $ | 22.18 | 
|                                                                                    
|Granted                                                                              |  |              | 18.46 - 22.50  |             |  |             | 4,814,250  |                |  |            |            |   |  |  | (4,814,250  | ) |  |   | 18.52 | 
|Became exercisable                                                                   |  |              | 16.00 - 38.97  |             |  |             |            |                |  |            | 896,345    |   |  |  |             |   |  |   |       | 
|Exercised                                                                            |  |              | 3.76 - 21.19   |             |  |             | (51,571    | )              |  |            | (51,571    | ) |  |  |             |   |  |   | 17.51 | 
|Canceled                                                                             |  |              | 16.00 - 35.63  |             |  |             | (274,188   | )              |  |            | (83,008    | ) |  |  | 163,210     |   |  |   | 23.05 | 
|ESPP 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   |   |  | $ | 21.20 | 
|                                                                                    
|Authorized under new plans                                                           |  |              |                |             |  |             |            |                |  |            |            |   |  |  | 29,075,495  |   |  |   |       | 
|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  |   |  |  | 7,468,174   |   |  | $ | 15.81 | 
|                                                                                    
|Granted                                                                              |  |              | 13.71 - 20.42  |             |  |             | 530,541    |                |  |            |            |   |  |  | (530,541    | ) |  |   | 17.55 | 
|Became exercisable                                                                   |  |              | 14.25 - 27.29  |             |  |             |            |                |  |            | 2,338,476  |   |  |  |             |   |  |   |       | 
|Exercised                                                                            |  |              | 2.79 - 18.61   |             |  |             | (411,376   | )              |  |            | (411,376   | ) |  |  |             |   |  |   | 12.94 | 
|Canceled                                                                             |  |              | 2.87 - 27.29   |             |  |             | (1,263,536 | )              |  |            | (361,801   | ) |  |  | 1,263,536   |   |  |   | 16.40 | 
|Expired                                                                              |  |              | 2.87           |             |  |             | (714       | )              |  |            | (714       | ) |  |  | 714         |   |  |   | 2.87  | 
|ESPP purchases                                                                       |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (167,925    | ) |  |   |       | 
|UK Plans                                                                             |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (28,059     | ) |  |   |       | 
|Restricted stock, net                                                                |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (48,180     | ) |  |   |       | 
|                                                                                    
|At December 31, 2001                                                                 |  |              | $3.71 - $31.66 |             |  |             | 20,392,653 |                |  |            | 11,173,363 |   |  |  | 7,957,719   |   |  | $ | 15.88 | 
|                                                                                    
|Authorized                                                                           |  |              |                |             |  |             |            |                |  |            |            |   |  |  | 4,000,000   |   |  |   |       | 
|Granted                                                                              |  |              | 13.97 - 22.25  |             |  |             | 4,978,925  |                |  |            |            |   |  |  | (4,978,925  | ) |  |   | 18.11 | 
|Became exercisable                                                                   |  |              | 11.88 - 28.94  |             |  |             |            |                |  |            | 4,419,513  |   |  |  |             |   |  |   |       | 
|Exercised                                                                            |  |              | 3.71 - 21.16   |             |  |             | (2,122,138 | )              |  |            | (2,122,138 | ) |  |  |             |   |  |   | 14.34 | 
|Canceled                                                                             |  |              | 8.96 - 26.68   |             |  |             | (2,141,341 | )              |  |            | (734,811   | ) |  |  | 2,141,341   |   |  |   | 16.73 | 
|ESPP purchases                                                                       |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (297,830    | ) |  |   |       | 
|UK Plans                                                                             |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (3,216      | ) |  |   |       | 
|Restricted stock, net                                                                |  |              |                |             |  |             |            |                |  |            |            |   |  |  | (25,665     | ) |  |   |       | 
|                                                                                    
|At December 31, 2002                                                                 |  |              | $4.80 - $31.66 |             |  |             | 21,108,099 |                |  |            | 12,735,927 |   |  |  | 8,793,424   |   |  | $ | 16.43 | 
|                                                                                    
|Common shares reserved for future issuance at
    December 31, 2002 were 29,901,523.
|                                                                                    

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(Dollars in millions, except per share data)


plans for our employees in the United Kingdom
(the UK 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.

As reported in Note A, we
adopted the disclosure-only provisions of FAS 123 and
continue to account for stock-based compensation as in prior
years. 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 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, 2002, 2001 and 2000 are
included in the Stock Plans table.

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. The application of the fair
value method would have resulted in the determination of
compensation cost for grants of stock options and purchases
under the ESPP. This compensation cost would then be allocated
to the related period of service. The results of this
calculation and the assumptions used appear in the accompanying
pro forma table.

Stock Rights Plan

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, 2002, no
such event had occurred.

|                                                 |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 
|------------------------------------------------ |  | ------------------- | ---------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                                                
|                                                
|                                                
|Stock Option Information as of December 31, 2002
|                                                
|                                                 |  |                     |            |                    
|                                                 |  | Options Outstanding |            | Options Exercisable
|                                                 |  |                     |            |                    
|                                                 |  |                     |            | Weighted            |  |          |      |            
|                                                 |  |                     |            | Average             |  | Weighted |      |             |  | Weighted
|                                                 |  |                     |            | Remaining           |  | Average  |      |             |  | Average 
|Range of                                         |  | Number              |            | Contractual         |  | Exercise |      | Number      |  | Exercise
|Exercise Prices                                  |  | Outstanding         |            | Life                |  | Price    |      | Exercisable |  | Price   
|                                                 |  |                     |            |                     |  |          |      |             |  |         
|$4.80  $13.71                                   |  |                     | 5,465,514  |                     |  |          | 2.95 |             |  | $        | 12.99 |  |  |  | 2,243,359  |  |  | $ | 11.97 | 
|$13.74  $14.80                                  |  |                     | 2,926,909  |                     |  |          | 6.43 |             |  | $        | 14.66 |  |  |  | 2,700,422  |  |  | $ | 14.69 | 
|$14.81  $15.78                                  |  |                     | 2,495,311  |                     |  |          | 4.37 |             |  | $        | 15.34 |  |  |  | 2,281,341  |  |  | $ | 15.34 | 
|$15.82  $17.63                                  |  |                     | 1,042,858  |                     |  |          | 5.16 |             |  | $        | 16.66 |  |  |  | 860,901    |  |  | $ | 16.60 | 
|$17.68  $18.11                                  |  |                     | 4,033,587  |                     |  |          | 4.10 |             |  | $        | 18.09 |  |  |  | 204,096    |  |  | $ | 17.99 | 
|$18.19  $20.29                                  |  |                     | 1,701,192  |                     |  |          | 4.76 |             |  | $        | 18.93 |  |  |  | 1,307,751  |  |  | $ | 18.87 | 
|$20.35  $20.35                                  |  |                     | 2,249,126  |                     |  |          | 5.81 |             |  | $        | 20.35 |  |  |  | 2,249,126  |  |  | $ | 20.35 | 
|$20.42  $31.66                                  |  |                     | 1,193,602  |                     |  |          | 5.57 |             |  | $        | 22.79 |  |  |  | 888,931    |  |  | $ | 23.15 | 
|                                                
|                                                 |  |                     | 21,108,099 |                     |  |          |      |             |  |          |       |  |  |  | 12,735,927 |  |  |   |       | 
|                                                

|                                          |  |      |      |      |  |      |      |   |  |   |       |  
|----------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ----- | -
|                                         
|                                         
|Pro Forma Effect of Fair Value Accounting |  | 2002 |      | 2001 |  | 2000
|                                         
|Net earnings as reported                  |  | $    | 93.7 |      |  | $    | 54.7 |   |  | $ | 100.2 |  
|Pro forma net earnings                    |  | $    | 78.1 |      |  | $    | 35.7 |   |  | $ | 87.1  |  
|Diluted earnings per share as reported    |  | $    | 0.62 |      |  | $    | 0.37 |   |  | $ | 0.68  |  
|Pro forma diluted earnings per share      |  | $    | 0.52 |      |  | $    | 0.24 |   |  | $ | 0.59  |  
|                                         
|Weighted-Average Assumptions              |  |      |      |      |  |      |      |   |  |   |       |  
|Expected lives in years                   |  |      | 4-8  |      |  |      | 4-8  |   |  |   | 4-8   |  
|Expected volatility                       |  |      | 44.8 | %    |  |      | 38.7 | % |  |   | 40.4  | %
|Expected dividend rate                    |  |      |     |      |  |      |     |   |  |   |      |  
|Risk-free interest rate                   |  |      | 4.5  | %    |  |      | 4.0  | % |  |   | 5.0   | %
|                                         

|                                                             |  |        |           |            |  |        |      |            |  |        |           |            |  |   |      |  |  |  |           |  |  |   |      | 
|------------------------------------------------------------ |  | ------ | --------- | ---------- |  | ------ | ---- | ---------- |  | ------ | --------- | ---------- |  | - | ---- |  |  |  | --------- |  |  | - | ---- | 
|                                                            
|                                                            
|                                                            
|Weighted Average Fair Values of Grants, Awards and Purchases
|                                                            
|                                                             |  |        |           |            |  |       
|                                                             |  | 2002   |           | 2001       |  | 2000  
|                                                             |  |        |           |            |  |       
|                                                             |  | Shares |           | Fair Value |  | Shares |      | Fair Value |  | Shares |           | Fair Value
|                                                            
|Stock options                                                |  |        | 4,978,925 |            |  | $      | 6.26 |            |  |        | 6,956,793 |            |  | $ | 5.39 |  |  |  | 1,466,653 |  |  | $ | 7.65 | 
|ESPP                                                         |  |        | 297,830   |            |  | $      | 2.14 |            |  |        | 167,925   |            |  | $ | 4.10 |  |  |  | 310,379   |  |  | $ | 4.95 | 
|                                                            

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(Dollars in millions, except per share data)


I. FINANCING

In June 2002, our subsidiary, Comdata Network,
Inc., entered into a $150.0 receivables securitization facility
with up to a three-year term involving certain of its trade
receivables (which this report refers to as the
Receivables) and drew an advance of $100.0. 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 (which this report refers to as 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 (which this
report refers to as the Conduit) or its liquidity
banks (together with the Conduit, which this report refers to as
the Purchasers) in transactions reported as secured
loans.

Although title to the Receivables
passes to CFC under the first step of the facility and the
Receivables are no longer available to satisfy claims of
Comdatas creditors, Comdata has agreed to act as the
servicing agent for the Receivables acquired by CFC in exchange
for a servicing fee of 1% per annum on the average outstanding
balance of the Receivables. 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 1.45% at December 31, 2002), or, in the
event the Conduit is unable to issue commercial paper, at
CFCs choice of the prime rate or LIBOR plus 1.5% per
annum. In addition, CFC must pay a monthly program fee of 0.125%
per annum on the average invested amount outstanding during the
preceding month and a monthly facility fee equal to 0.25% per
annum on 102% of the average facility size (whether used or
unused) during the preceding month. Both of these fees are
included in interest expense.

The invested amount outstanding under
the securitization facility increased from $100.0 to $150.0
during third quarter 2002, and the aggregate amount of
Receivables encumbered by the Purchasers at December 31,
2002 was $173.3. 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.

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. The interest rate on
borrowings under this facility was 2.44% as of December 31,
2002. 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. At
December 31, 2000, advances of $50.0 and $1.7 of letters of
credit were outstanding under the July 1997 credit facility.

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, 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 1999. During first quarter 2000, Ceridian
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

|                                                 |                                                                 |              |       |      |  |   |       |     | 
|------------------------------------------------ | --------------------------------------------------------------- | ------------ | ----- | ---- |  | - | ----- | --- | 
|                                                
|                                                
|                                                 |                                                                 |             
|                                                 |                                                                 | December 31,
|                                                 |                                                                 |             
|Debt Obligations                                 |                                                                 | 2002         |       | 2001
|                                                
|U.S. revolving credit facility                   |                                                                 | $            | 40.0  |      |  | $ | 235.0 |    
|Comdata receivable securitization                |                                                                 |              | 150.0 |      |  |   |      |    
|UK overdraft facility                            |                                                                 |              | 2.0   |      |  |   | 1.4   |    
|                                                 |                                                                 |              |       |      |  |   |       |    
|Total revolving credit agreements and overdrafts |                                                                 |              | 192.0 |      |  |   | 236.4 |    
|Other long-term debt obligations                 |                                                                 |              | 1.5   |      |  |   | 1.5   |    
|                                                 |                                                                 |              |       |      |  |   |       |    
|Total debt obligations                           |                                                                 |              | 193.5 |      |  |   | 237.9 |    
|                                                 | Less short-term debt and current portions of
    long-term debt |              |       | 2.0  |  |   |       | 1.5 | 
|                                                 |                                                                 |              |       |      |  |   |       |    
|Long-term obligations, less current portions     |                                                                 | $            | 191.5 |      |  | $ | 236.4 |    
|                                                 |                                                                 |              |       |      |  |   |       |    
|                                                

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(Dollars in millions, except per share data)


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 C.

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
January 2001 credit facility to $40.0 at December 31, 2002.
These advances, along with a letter of credit in the amount of
$2.3, leave us with unused borrowing capacity under the $350.0
revolving credit facility of $307.7, of which we have designated
$150.0 as backup to the receivables securitization facility.

In addition, 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 our Canadian subsidiary, leaving only a letter of
credit valued at $0.8 and $0.9 at December 31, 2002 and
2001 outstanding under those agreements. During 2000, the
balance on the Canadian revolving credit agreements had been
reduced by payments of $19.6. Other indebtedness at
December 31, 2002 and 2001 of $3.5 and $3.0 included an
overdraft facility of a subsidiary in the UK and acquisition
indebtedness.

J. COMMITMENTS AND CONTINGENCIES

Interest Rate Contracts

In accordance with our risk management policy, we
hedge a substantial portion of our interest rate exposure
related to our investment of customer funds, as further
described in Note L, 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 securities such as interest rate contracts to manage
interest rate risk.

During the three-year period ended
December 31, 2002, we maintained in effect interest rate
contracts that function as cash flow hedges of the designated
item for the purpose of hedging 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 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.

Until FAS 133, neither these hedging
arrangements nor the related investments and offsetting
liability to customers were required to be reflected in our
balance sheet. At the effective date of FAS 133 in January 2001,
we recorded our interest rate contracts with a negligible effect
on our accounts, except for a $2.6 gain required under the
interpretation of FAS 133 in effect at that time. A
subsequent interpretation of FAS 133 resulted in a reversal
of $1.8 of that gain in the fourth quarter of 2002. The
remainder of the gain will be reversed over the remaining term
of the contracts involved.

At December 31, 2002 and 2001,
we had interest rate contracts in effect with an aggregate
notional amount of $800.0. The active contracts at the end of
2002 had remaining terms of 5 to 35 months, floor strike
levels ranging from 4.50% to 6.07% (averaging 5.05%) and cap
strike levels ranging from 4.54% to 7.32% (averaging 5.95%). We
report the carrying value of our derivative securities as a
noncurrent asset on our balance sheet and any changes in the
carrying value of these securities in other comprehensive income
in our statement of stockholders equity. We recognize
derivative gains and losses as cash settlements occur and
include these amounts in revenue from HRS operations, along with
the investment income hedged by these instruments. The gross
unrealized gains from our derivative securities amounted to
$75.8 in 2002 and $32.0 in 2001, and realized gains of $26.9 in
2002 and $10.3 in 2001 were included in HRS revenue. The gross
unrealized gains result largely from a decline 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, 2002, we expect to collect an
additional $29.0 during the next twelve months.

Contracts

In March 2001, we entered into an agreement with
Ultimate Software Group, Inc. (which this report refers to as
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. We made an immediate payment of $10.0, of
which $5.0 was contingent upon successful transfer of the
technology to us. We also agreed to make additional payments
commencing upon transfer of

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(Dollars in millions, except per share data)


technology, based on the number of our
customers employees paid by using the software and subject
to minimum and maximum amounts.

The transfer of technology was
accomplished in February 2002. At that time and as a result of
amendments to the agreement, the requirement for minimum monthly
payments in 2002 was eliminated in consideration for an advance
payment of $6.0, representing the minimum monthly payments for
the year 2003. We remained obligated to future minimum monthly
payments of $0.5 per month from January 2004 until
January 1, 2006, when the minimum monthly payment will
escalate at a rate of 5% per annum.

The noncancelable term of the
contract extends for seven years until March 2008 at which time
either party may terminate the agreement, provided that at least
two years prior written notice has been provided to the other
party. Under the agreement, we may not, without Ultimate board
approval, acquire an equity interest in Ultimate greater than
14.99% through purchases in the open market or from third
parties.

Effective January 1, 2003, we
entered into a services agreement with Ultimate under which we
will make quarterly payments totaling $2.3 during 2003 for
extended technical support in connection with the introduction
of our SourceWeb payroll services offering.

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. We remain secondarily liable for future obligations
related to assigned leases totaling $1.3 at December 31,
2002. We do not anticipate any material non-performance by the
assignees of these leases.

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 assigned leases or obligations recorded as
liabilities.

Our rental expense and sublease
income for each of the three years ended December 31, 2002
appear in the accompanying Rental Expense table.

|                       |  |      |      |      |  |      |      |   |  |   |      |  
|---------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                      
|                      
|Rental Expense         |  | 2002 |      | 2001 |  | 2000
|                      
|                      
|Rental expense         |  | $    | 49.5 |      |  | $    | 44.2 |   |  | $ | 39.8 |  
|Sublease rental income |  |      | (0.6 | )    |  |      | (0.5 | ) |  |   | (0.3 | )
|                       |  |      |      |      |  |      |      |   |  |   |      |  
|Net rental expense     |  | $    | 48.9 |      |  | $    | 43.7 |   |  | $ | 39.5 |  
|                       |  |      |      |      |  |      |      |   |  |   |      |  
|                      

Our future minimum noncancelable
lease payments on existing operating leases at December 31,
2002, which have an initial term of more than one year, are
presented in the accompanying Future Minimum Lease Payments
table.

|                              |  |   |       | 
|----------------------------- |  | - | ----- | 
|                             
|                             
|                             
|Future Minimum Lease Payments |  |  
|                             
|                             
|2003                          |  | $ | 44.1  | 
|2004                          |  |   | 37.9  | 
|2005                          |  |   | 30.7  | 
|2006                          |  |   | 24.2  | 
|2007                          |  |   | 22.6  | 
|Thereafter                    |  |   | 111.8 | 
|                             

K. 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, have a material
adverse effect on our financial position or results of
operations.

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(Dollars in millions, except per share data)


L. CUSTOMER FUNDS

Payroll and Tax Filing Funds

In connection with our U.S. and Canadian payroll
and tax filing services, we collect funds for payment of payroll
and taxes; 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.

We invest the U.S. trust 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.

For these services, we derive payroll
and tax filing revenue from fees charged and from investment
income received on payroll and tax filing deposits temporarily
held pending remittance on behalf of customers to
customers employees and taxing authorities.

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. 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.

As identified on the consolidated
balance sheet, payroll and tax filing funds and the offsetting
obligations amounted to $2,380.5 and $2,126.4 at
December 31, 2002 and 2001. This amount varies
significantly during the year and averaged $1,846.5 and $1,867.7
for the years 2002 and 2001. The accompanying tables provide
cost and market price information for various classifications of
payroll and tax filing fund investments and amounts by maturity
date.

Benefits Services Funds

In connection with our HRS benefits services
operations, we receive funds on behalf of our customers for
remittance to employees, insurance providers and others. These
funds are not held in trust. At December 31, 2002, the
amount of customer funds held for this purpose was $60.4 of
which $33.4 was included in cash and equivalents and $27.0 in
short-term investments. At December 31, 2001, the amount of
customer funds held for this purpose was $44.5 of which $22.5
was included in cash and equivalents and $22.0 in short-term
investments. The liability related to these funds is equal to
the asset amount and is reported in Drafts and customer
funds payable in our balance sheet. Investment income
earned on these funds constitutes fees under agreements with
customers and is included in revenue.

|                                                   |  |                   |         |                   |  |      |         |        |  |   |         |  |  |   |         | 
|-------------------------------------------------- |  | ----------------- | ------- | ----------------- |  | ---- | ------- | ------ |  | - | ------- |  |  | - | ------- | 
|                                                  
|                                                  
|                                                  
|Investments of Payroll and Tax Filing Funds       
|                                                  
|                                                   |  |                   |         |                  
|                                                   |  | December 31, 2002 |         | December 31, 2001
|                                                   |  |                  
|                                                   |  |                  
|                                                   |  | Cost              |         | Market            |  | Cost |         | Market
|                                                  
|Money market securities and other cash equivalents |  | $                 | 1,562.0 |                   |  | $    | 1,562.0 |        |  | $ | 1,491.0 |  |  | $ | 1,491.0 | 
|Held-to-maturity investments:                      |  |                   |         |                   |  |      |         |        |  |   |         |  |  |   |         | 
|U.S. government and agency securities              |  |                   | 187.6   |                   |  |      | 196.6   |        |  |   | 100.1   |  |  |   | 103.5   | 
|Canadian and provincial government securities      |  |                   | 124.8   |                   |  |      | 130.5   |        |  |   | 87.3    |  |  |   | 90.2    | 
|Corporate debt securities                          |  |                   | 211.7   |                   |  |      | 217.8   |        |  |   | 166.2   |  |  |   | 170.4   | 
|Asset-backed securities                            |  |                   | 212.7   |                   |  |      | 223.0   |        |  |   | 184.1   |  |  |   | 194.3   | 
|Mortgage-backed and other securities               |  |                   | 81.7    |                   |  |      | 84.4    |        |  |   | 97.7    |  |  |   | 101.0   | 
|                                                   |  |                   |         |                   |  |      |         |        |  |   |         |  |  |   |         | 
|Total held-to-maturity investments                 |  |                   | 818.5   |                   |  |      | 852.3   |        |  |   | 635.4   |  |  |   | 659.4   | 
|                                                   |  |                   |         |                   |  |      |         |        |  |   |         |  |  |   |         | 
|Payroll and tax filing funds                       |  | $                 | 2,380.5 |                   |  | $    | 2,414.3 |        |  | $ | 2,126.4 |  |  | $ | 2,150.4 | 
|                                                   |  |                   |         |                   |  |      |         |        |  |   |         |  |  |   |         | 

|                                                             |       |                   |         |         |  |   |         |         | 
|------------------------------------------------------------ | ----- | ----------------- | ------- | ------- |  | - | ------- | ------- | 
|                                                            
|                                                            
|                                                            
|Investments of Payroll and Tax Filing Funds by Maturity Date
|                                                            
|                                                             |       |                  
|                                                             |       | December 31, 2002
|                                                             |       |                  
|                                                             |       | Cost              |         | Market 
|                                                            
|Due in one year or less                                      |       | $                 | 1,719.7 |         |  | $ | 1,724.7 |        
|Due in one to three years                                    |       |                   | 253.7   |         |  |   | 263.8   |        
|Due in three to five years                                   |       |                   | 407.1   |         |  |   | 425.8   |        
|                                                             |       |                   |         |         |  |   |         |        
|                                                             | Total |                   | $       | 2,380.5 |  |   | $       | 2,414.3 | 
|                                                             |       |                   |         |         |  |   |         |        
|                                                            

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(Dollars in millions, except per share data)


M. SUPPLEMENTARY QUARTERLY DATA (Unaudited)




|                                               |                                     |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       | 
|---------------------------------------------- | ----------------------------------- | ------------------------ | ----- | ------- | ----- | ------- | ----- | ------- | ----- | ------- | ----- | ------- | ----- | ------- | ----- | ------- | ----- | - | ----- | ------- | ----- | - | ----- | ------- | ----- | - | ----- | ------- | ----- | - | ----- | ------- | ----- | 
|                                               |                                     |                          |       |        
|                                               |                                     | 2002                     |       | 2001   
|                                               |                                     |                          |       |        
|                                               |                                     | 4th                      |       | 3rd     |       | 2nd     |       | 1st     |       | 4th     |       | 3rd     |       | 2nd     |       | 1st    
|                                               |                                     | Quarter                  |       | Quarter |       | Quarter |       | Quarter |       | Quarter |       | Quarter |       | Quarter |       | Quarter
|                                              
|                                              
|Revenue                                        |                                     | $                        | 314.5 |         |       | $       | 288.6 |         |       | $       | 287.8 |         |       | $       | 301.8 |         |       | $ | 303.6 |         |       | $ | 282.6 |         |       | $ | 291.9 |         |       | $ | 311.7 |        
|Costs and Expenses                             |                                     |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |        
|                                               | Cost of revenue                     |                          |       | 150.1   |       |         |       | 141.6   |       |         |       | 139.5   |       |         |       | 143.3   |       |   |       | 146.7   |       |   |       | 142.7   |       |   |       | 143.9   |       |   |       | 147.8   |      
|                                               | Selling, general and administrative |                          |       | 90.9    |       |         |       | 87.2    |       |         |       | 94.4    |       |         |       | 102.8   |       |   |       | 102.2   |       |   |       | 92.2    |       |   |       | 97.3    |       |   |       | 112.9   |      
|                                               | Research and development            |                          |       | 14.5    |       |         |       | 15.1    |       |         |       | 14.4    |       |         |       | 15.3    |       |   |       | 13.9    |       |   |       | 14.0    |       |   |       | 15.2    |       |   |       | 15.9    |      
|                                               | Other expense (income)(1)           |                          |       | 14.9    |       |         |       | 9.7     |       |         |       | (0.1    | )     |         |       | 9.8     |       |   |       |        |       |   |       | (1.9    | )     |   |       | 52.5    |       |   |       | (2.4    | )    
|                                               |                                     |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |        
|                                               |                                     | Total costs and expenses |       |         | 270.4 |         |       |         | 253.6 |         |       |         | 248.2 |         |       |         | 271.2 |   |       |         | 262.8 |   |       |         | 247.0 |   |       |         | 308.9 |   |       |         | 274.2 | 
|                                              
|Earnings (loss) before interest and
    taxes  |                                     |                          | 44.1  |         |       |         | 35.0  |         |       |         | 39.6  |         |       |         | 30.6  |         |       |   | 40.8  |         |       |   | 35.6  |         |       |   | (17.0 | )       |       |   | 37.5  |        
|Interest income                                |                                     |                          | 0.6   |         |       |         | 0.6   |         |       |         | 0.6   |         |       |         | 0.3   |         |       |   | 0.5   |         |       |   | 2.5   |         |       |   | 1.7   |         |       |   | 1.8   |        
|Interest expense                               |                                     |                          | (1.3  | )       |       |         | (1.5  | )       |       |         | (1.9  | )       |       |         | (1.9  | )       |       |   | (2.5  | )       |       |   | (3.5  | )       |       |   | (4.0  | )       |       |   | (9.0  | )      
|                                              
|Earnings (loss) before income
    taxes        |                                     |                          | 43.4  |         |       |         | 34.1  |         |       |         | 38.3  |         |       |         | 29.0  |         |       |   | 38.8  |         |       |   | 34.6  |         |       |   | (19.3 | )       |       |   | 30.3  |        
|Income tax provision (benefit)                 |                                     |                          | 14.6  |         |       |         | 12.3  |         |       |         | 13.8  |         |       |         | 10.4  |         |       |   | 16.0  |         |       |   | 14.0  |         |       |   | (7.5  | )       |       |   | 12.4  |        
|                                              
|Earnings (loss) from continuing
    operations |                                     |                          | 28.8  |         |       |         | 21.8  |         |       |         | 24.5  |         |       |         | 18.6  |         |       |   | 22.8  |         |       |   | 20.6  |         |       |   | (11.8 | )       |       |   | 17.9  |        
|Discontinued operations(2)                     |                                     |                          |      |         |       |         |      |         |       |         |      |         |       |         |      |         |       |   |      |         |       |   |      |         |       |   |      |         |       |   | 5.2   |        
|                                              
|Net earnings (loss)                            |                                     | $                        | 28.8  |         |       | $       | 21.8  |         |       | $       | 24.5  |         |       | $       | 18.6  |         |       | $ | 22.8  |         |       | $ | 20.6  |         |       | $ | (11.8 | )       |       | $ | 23.1  |        
|                                               |                                     |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |        
|                                              
|Earnings (loss) per share(3)                   |                                     |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |        
|                                               | Basic                               |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |         |      
|                                               |                                     | Continuing operations    |       | $       | 0.19  |         |       | $       | 0.15  |         |       | $       | 0.17  |         |       | $       | 0.13  |   |       | $       | 0.16  |   |       | $       | 0.14  |   |       | $       | (0.08 | ) |       | $       | 0.12  | 
|                                               |                                     | Net earnings             |       | $       | 0.19  |         |       | $       | 0.15  |         |       | $       | 0.17  |         |       | $       | 0.13  |   |       | $       | 0.16  |   |       | $       | 0.14  |   |       | $       | (0.08 | ) |       | $       | 0.16  | 
|                                               | Diluted                             |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |         |      
|                                               |                                     | Continuing operations    |       | $       | 0.19  |         |       | $       | 0.15  |         |       | $       | 0.16  |         |       | $       | 0.12  |   |       | $       | 0.15  |   |       | $       | 0.14  |   |       | $       | (0.08 | ) |       | $       | 0.12  | 
|                                               |                                     | Net earnings             |       | $       | 0.19  |         |       | $       | 0.15  |         |       | $       | 0.16  |         |       | $       | 0.12  |   |       | $       | 0.15  |   |       | $       | 0.14  |   |       | $       | (0.08 | ) |       | $       | 0.16  | 
|Shares used in calculations (in
    thousands) |                                     |                          |       |         |       |         |       |         |       |         |       |         |       |         |       |         |       |   |       |         |       |   |       |         |       |   |       |         |       |   |       |        
|                                               | Weighted average shares (basic)     |                          |       | 148,467 |       |         |       | 148,526 |       |         |       | 148,246 |       |         |       | 146,875 |       |   |       | 146,376 |       |   |       | 146,149 |       |   |       | 145,950 |       |   |       | 145,790 |      
|                                               | Dilutive securities                 |                          |       | 401     |       |         |       | 1,407   |       |         |       | 5,467   |       |         |       | 4,057   |       |   |       | 2,903   |       |   |       | 3,207   |       |   |       |        |       |   |       | 766     |      
|                                               | Weighted average shares (diluted)   |                          |       | 148,868 |       |         |       | 149,933 |       |         |       | 153,713 |       |         |       | 150,932 |       |   |       | 149,279 |       |   |       | 149,356 |       |   |       | 145,950 |       |   |       | 146,556 |      
|                                              



|    |                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 2002 unusual losses of $9.8 for the
    first quarter, $9.8 for the third quarter and $15.2 for the
    fourth quarter and 2001 unusual losses (gains) of $(2.1)
    for the first quarter, $52.4 for second quarter, and $(2.0) for
    the third quarter as described in Note C to the consolidated
    financial statements.
|   
|   
|(2) | For information on discontinued operations, see
    Note C to the consolidated financial statements.                                                                                                                                                                                                                                    
|   
|   
|(3) | For information on the calculation of earnings
    per share, see Note A to the consolidated financial statements.                                                                                                                                                                                                                      

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SCHEDULE II




CERIDIAN CORPORATION AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS


(Dollars in millions)


|                                           |  |                         |       |      |  |      |       |   |  |   |       |  
|------------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                           |  |                        
|                                           |  | Year Ended December 31,
|                                           |  |                        
|                                           |  | 2002                    |       | 2001 |  | 2000
|Allowance for Doubtful Accounts Receivable |  |                         |       |      |  |     
|Balance at beginning of year               |  | $                       | 16.2  |      |  | $    | 17.4  |   |  | $ | 17.5  |  
|Additions charged to costs and expenses    |  |                         | 17.0  |      |  |      | 15.8  |   |  |   | 14.8  |  
|Write-offs and other adjustments(1)        |  |                         | (14.8 | )    |  |      | (17.0 | ) |  |   | (14.9 | )
|                                           |  |                         |       |      |  |      |       |   |  |   |       |  
|Balance at end of year                     |  | $                       | 18.4  |      |  | $    | 16.2  |   |  | $ | 17.4  |  
|                                           |  |                         |       |      |  |      |       |   |  |   |       |  



---



|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(1) | Other adjustments include the effect of
    acquisitions and dispositions of businesses.

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INDEPENDENT AUDITORS REPORT ON FINANCIAL
STATEMENT SCHEDULE

THE BOARD OF DIRECTORS AND STOCKHOLDERS

CERIDIAN CORPORATION:


Under date of January 22, 2003, we reported
on the consolidated balance sheets of Ceridian Corporation and
subsidiaries as of December 31, 2002 and 2001, 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, 2002, as contained in
Ceridians 2002 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.



| |                 
| | ----------------
| | (KPMG SIGNATURE)

Minneapolis, Minnesota

January 22, 2003


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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with Accountants
    on Accounting and Financial Disclosure

None.






PART III







|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

We refer you to our Proxy Statement for our 2003
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.

We refer you to our Proxy Statement for our 2003
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.

Information regarding our executive officers is
found in Item 1A of this report under the heading
Executive Officers of the Registrant.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

We refer you to our Proxy Statement for our 2003
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 2003
Annual Meeting of Stockholders and the heading Share
Ownership Information. This information is incorporated by
reference into this item of the report.

Equity Compensation Plan Information

The following table and accompanying notes
provide information about our common stock that may be issued
upon the exercise of options and other incentive awards under
all of our existing equity compensation plans as of
December 31, 2002.

|                                                               |  |                      |            |                   |  |                         |       |  |  |  |           |    
|-------------------------------------------------------------- |  | -------------------- | ---------- | ----------------- |  | ----------------------- | ----- |  |  |  | --------- | ---
|                                                               |  | (a)                  |            | (b)               |  | (c)                    
|                                                               |  |                      |            |                   |  | Number of securities   
|                                                               |  |                      |            |                   |  | remaining available for
|                                                               |  | Number of securities |            | Weighted-average  |  | future issuance under  
|                                                               |  | to be issued upon    |            | exercise price of |  | equity compensation    
|                                                               |  | exercise of          |            | outstanding       |  | plans (excluding       
|                                                               |  | outstanding options, |            | options, warrants |  | securities reflected   
|Plan Category                                                  |  | warrants and rights  |            | and rights        |  | in Column(a))          
|                                                               |  |                      |            |                   |  |                        
|Equity compensation plans approved by security
    holders     |  |                      | 17,286,774 | (1)               |  | $                       | 16.12 |  |  |  | 7,920,529 | (2)
|Equity compensation plans not approved by
    security holders |  |                      | 3,821,325  |                   |  | $                       | 18.07 |  |  |  | 872,895   | (3)
|                                                               |  |                      |            |                   |  |                         |       |  |  |  |           |    
|Total                                                          |  |                      | 17,726,404 |                   |  |                         |       |  |  |  | 8,793,424 |    
|                                                               |  |                      |            |                   |  |                         |       |  |  |  |           |    




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Ceridian Corporation Deferred Compensation
    Plan allows executive officers the opportunity to invest in
    various book accounts, including one that tracks the performance
    of our common stock (which this section of the report refers to
    as Phantom Stock). Upon distribution, such
    participants will receive the amounts invested in Phantom Stock
    in the form of shares of Ceridian common stock.

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|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Column (a) includes the number of shares
    that are currently credited to participants Phantom Stock
    accounts and would be issued as Ceridian common stock upon a
    complete distribution of all amounts in the Phantom Stock
    account as of December 31, 2002.
|   
|(2) | The following number of shares remained available
    for issuance under each of our equity compensation plans that
    have been approved by our stockholders. Grants under these plans
    may be in the form of any of the listed types of awards:                      

|                                                                  |  |                  |           |                 |  |                                                   
|----------------------------------------------------------------- |  | ---------------- | --------- | --------------- |  | --------------------------------------------------
|Plan                                                              |  | Number of Shares |           | Types of Awards
|                                                                  |  |                  |           |                
|Amended and Restated 2001 Long-Term Stock
    Incentive Plan      |  |                  | 7,098,460 |                 |  | Stock options, restricted stock, performance units
|Amended and Restated 2001 Director Performance
    Incentive Plan |  |                  | 287,824   |                 |  | Non-statutory stock options, restricted stock     



| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Also, 534,245 shares remained available under the
    Ceridian Corporation Employee Stock Purchase Plan, an
    employee stock purchase plan under Section 423
    of the Internal Revenue Code of 1986, as amended.



|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The following number of shares remained available
    for issuance under each of our equity compensation plans that
    have not been approved by our stockholders.



| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under our 2002 Employee Stock Incentive Plan,
    178,675 shares remained available for issuance. Grants under
    this plan may be in the form of non-statutory stock options,
    restricted stock or performance units.                                
|
| | In addition, the following plans for employees in
    the United Kingdom that have been approved by Inland Revenue
    under a save-as-you-earn (SAYE) plan
    design and have the following number of shares that remain
    available for issuance:

|                                          |  |                  |         | 
|----------------------------------------- |  | ---------------- | ------- | 
|Plan                                      |  | Number of Shares
|                                          |  |                 
|2001 Savings-Related Share Option Plan    |  |                  | 500,000 | 
|UK Compensation Share Option Plan         |  |                  | 79,633  | 
|Amended Savings-Related Share Option Plan |  |                  | 114,587 | 

Ceridian Corporation 2002 Employee Stock
Incentive Plan.On
January 29, 2002, our board of directors approved the
Ceridian Corporation 2002 Employee Stock Incentive Plan,
pursuant to which incentive awards may be granted to our
employees who are not executive officers or directors of the
company. The plan authorizes the granting of non-statutory stock
options, restricted stock and performance units. Only
non-statutory stock options have been awarded under the plan.
The non-statutory stock options have an exercise price equal to
the closing price of Ceridians common stock on the date of
grant, vest ratably over three years and expire in five years
from the date of grant. As of December 31, 2002,
non-statutory options to acquire 3,821,325 shares were
outstanding under this plan, out of the 4,000,000 shares
originally reserved for issuance.

Ceridian Corporation 2001 Savings-Related
Share Option Plan, Ceridian Corporation UK Compensation Share
Option Plan and Ceridian Corporation Amended Savings-Related
Share Option Plan (which this section of the report collectively
refers to as the SAYE Plans).The SAYE Plans have been adopted
by our Board of Directors. The SAYE Plans have been approved by
Inland Revenue in the United Kingdom under the
save-as-you-earn plan design and are available to
employees of Ceridians subsidiaries in the United Kingdom.

In 2001, the Board adopted the Ceridian
Corporation 2001 Savings-Related Share Option Plan (2001
SAYE). Under the 2001 SAYE, employee-participants can
commit to save a specified amount from after-tax pay for a fixed
period (either three, five or seven years). At the end of the
period chosen, participants have

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the choice to receive the savings amount and
accumulated tax-free interest credits either in cash or to use
the amount to purchase common stock from Ceridian at an exercise
price equal to the market price of the stock as of the beginning
of the savings contract period, less a 15% discount. Under the
2001 SAYE Plan, an aggregate of 500,000 shares of Ceridian
common stock has been reserved for issuance.


In connection with the spin-off, Ceridians
predecessor amended the Ceridian Corporation Amended
Savings-Related Share Option Plan (the Rollover
Plan) and transferred the Rollover Plan to Ceridian. As a
result of the spin-off and transfer of the Rollover Plan to
Ceridian, the savings contracts held by employee-participants
lost their tax-favored status. To make employee-participants
whole for the income tax and national insurance liability
resulting from the spin-off, employees were awarded additional
savings contracts under the Ceridian Corporation UK Compensation
Share Option Plan (Compensation Plan). Under the
Rollover Plan and Compensation Plan, at the end of the contract
period chosen (three, five or seven years), participants have
the choice to receive the savings amount and accumulated
interest credits either in cash or to use the amount to purchase
common stock from Ceridian at an exercise price equal to the
spin-adjusted market price of the stock as of the original date
of joining the Rollover Plan, less a 20% discount. No new
contributions are permitted under the Rollover Plan and the
Compensation Plan. As of December 31, 2002, 114,587 and
79,633 shares of common stock, respectively, are eligible to be
purchased from outstanding options under the Rollover Plan and
Compensation Plan.

For additional information concerning our equity
compensation plans, we refer you to Note H, Stock
Plans, to our consolidated financial statements. This
information may be found in Part II, Item 8 of this
report.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

None.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a)Evaluation of Disclosure Controls and
Procedures.

Within 90 days prior to the filing of this
report, we carried out an 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 pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as amended. Based upon and as of the date
of that evaluation, our President and Chief Executive Officer
and our Executive Vice President and Chief Financial Officer
concluded that our disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Exchange
Act) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms.

(b)Changes in Internal Controls.

There were no significant changes in our internal
controls or in other factors that could significantly affect
these controls subsequent to the evaluation referenced in
paragraph (a) above. There were no significant deficiencies
or material weaknesses, and therefore there were no corrective
actions taken.




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 of Consolidated
Financial Statements included in Part II, Item 8
of this report.

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(a)2. Financial Statement Schedules of
Registrant

We refer you to the Index of 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 |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.01    |  | 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)).                                                                                                                                                                           
|       
|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 (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)).                                                                                                                                                                                                         

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|        |  |                                                                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                       
|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.                                                                                                                                                                             
|       
|10.10*  |  | Executive Employment Agreement between Ceridian
    Corporation and John R. Eickhoff, dated April 22, 2002
    (incorporated by reference to Exhibit 10.01 to
    Ceridian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.                                                                                                                                                                             
|       
|10.12*  |  | 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)).                                                 
|       
|10.13*  |  | Amendment No. 1 to the Executive Employment
    Agreement between Ceridian Corporation and Gary A. Krow,
    dated November 21, 2002.                                                                                                                                                                                 
|       
|10.14*  |  | 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)).                                               
|       
|10.15*  |  | Amendment No. 1 to the Executive Employment
    Agreement between Ceridian Corporation and Gary M. Nelson, dated
    November 21, 2002.                                                                                                                                                                               
|       
|10.16*  |  | Executive Employment Agreement between Ceridian
    Corporation and Bruce J. Thew, dated March 24, 2003.                                                                                                                                                                                                              
|       
|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*  |  | Form of Ceridian Corporation Non-Statutory Stock
    Option Award Agreement (under the Amended and Restated 2001
    Long-Term Stock Incentive Plan) (incorporated by reference to
    Exhibit 10.14 to Ceridians Annual Report on
    Form 10-K for the year ended December 31, 2001 (File
    No. 001-15168)).     
|       
|10.19*  |  | Form of Ceridian Corporation Restricted Stock
    Award Agreement (under the Amended and Restated 2001 Long-Term
    Stock Incentive Plan) (incorporated by reference to
    Exhibit 10.15 to Ceridians Annual Report on
    Form 10-K for the year ended December 31, 2001 (File
    No. 001-15168)).               
|       
|10.20*  |  | 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)).                                                                                                                                       
|       
|10.21*  |  | 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)).                                                                    
|       
|10.22*  |  | Form of Ceridian Corporation Non-Statutory Stock
    Option Award Agreement (under the Amended and Restated 2001
    Director Performance Incentive Plan) (incorporated by reference
    to Exhibit 10.18 to Ceridians Annual Report on
    Form 10-K for the year ended December 31, 2001 (File
    No. 001-15168)).

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.23*  |  | Form of Ceridian Corporation Restricted Stock
    Award Agreement (under the Amended and Restated 2001 Director
    Performance Incentive Plan) (incorporated by reference to
    Exhibit 10.19 to Ceridians Annual Report on
    Form 10-K for the year ended December 31, 2001 (File
    No. 001-15168))                                                                             
|       
|10.24*  |  | 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)).                                                                                                                                                                    
|       
|10.25*  |  | Form of Ceridian Corporation Non-Qualified Stock
    Option Award Agreement (under the 2002 Employee Stock Incentive
    Plan) (incorporated by reference to Exhibit 10.21 to
    Ceridians Annual Report on Form 10-K for the year
    ended December 31, 2001 (File No. 001-15168)).                                                                                                 
|       
|10.26*  |  | Form of Ceridian Corporation Restricted Stock
    Award Agreement (under the 2002 Employee Stock Incentive Plan)
    (incorporated by reference to Exhibit 10.22 to
    Ceridians Annual Report on Form 10-K for the year
    ended December 31, 2001 (File No. 001-15168)).                                                                                                           
|       
|10.27*  |  | 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)).                                                                                                                  
|       
|10.28*  |  | 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)).                                                                                                                                         
|       
|10.29*  |  | 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)).                                                                                                                                        
|       
|10.30*  |  | 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)).                                                                                                                                         
|       
|10.31*  |  | 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)). 
|       
|10.32*  |  | 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)).           
|       
|10.33*  |  | 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)).               
|       
|10.34*  |  | 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)).
|       
|10.35*  |  | 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)).                                                                                                                                        
|       
|10.36*  |  | 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)).                                                                                                                                    

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.37*  |  | Form of Indemnification Agreement between
    Ceridian Corporation and its Directors (incorporated by
    reference to Exhibit 10.27 to Ceridians Annual Report
    on Form 10-K for the year ended December 31, 2000
    (File No. 001-16149)).                                                                                                                                                                                                                                                
|       
|10.38*  |  | Ceridian Corporation 2001 Savings-Related Share
    Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|10.39*  |  | Ceridian Corporation UK Compensation Share Option
    Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|10.40*  |  | Ceridian Corporation Amended Savings-Related
    Share Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|10.41   |  | 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)).                                                  
|       
|10.42   |  | 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)).
|       
|10.43   |  | 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)).                                                                                                                                                                                             
|       
|10.44   |  | 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 10.02 to Ceridians Quarterly
    Report on Form 10-Q for the quarterly period ended
    June 30, 2002 (File No. 001-15168)).                                                                                          
|       
|10.45   |  | 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 Auditors  KPMG
    LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|24.01   |  | Power of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|99.01   |  | Written statements of our Chief Executive Officer
    and 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.

We will provide you 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.

79



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##### Table of Contents



(b) Reports on Form 8-K

On October 17, 2002, we filed a Current
Report on Form 8-K, dated October 17, 2002, containing
a press release reporting our third quarter 2002 earnings
results.

On November 14, 2002, we filed a Current
Report on Form 8-K, dated November 14, 2002,
containing the Statements of Chief Executive Officer and Chief
Financial Officer of Ceridian Corporation dated
November 14, 2002 required pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, which accompanied the filing of
Ceridian Corporations Quarterly Report on form 10-Q
for the quarterly period ended September 30, 2002.

On January 23, 2003, we filed a Current
Report on Form 8-K, dated January 23, 2003, containing
a press release reporting our fourth quarter and full year 2002
earnings results.

80



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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 report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of March 27,
2003.



| |                     
| | --------------------
| | CERIDIAN CORPORATION



| |    |                     
| | -- | --------------------
| | By | /s/ Ronald L. Turner

| |                                                
| | -----------------------------------------------
| |                                                
| | Ronald L. Turner                               
| | Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities indicated as of March 27, 2003.

|                                                                                                                           |  |                         
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|                                                                                                                          
|/s/ RONALD L. TURNERRonald L. Turner
    Chairman, President and Chief Executive Officer (Principal
    Executive Officer) |  | /s/ JOHN R. EICKHOFF    
|                                                                                                                          
|/s/ LOREN D. GROSSLoren D. Gross
    Vice President and Corporate Controller (Principal Accounting
    Officer)            |  |                         
|                                                                                                                          
|/s/ WILLIAM J. CADOGANWilliam J. Cadogan, Director                                                                         |  | /s/ NICHOLAS D. CHABRAJA
|                                                                                                                          
|/s/ ROBERT H. EWALDRobert H. Ewald, Director                                                                               |  | /s/ RONALD T. LEMAY     
|                                                                                                                          
|/s/ GEORGE R. LEWISGeorge R. Lewis, Director                                                                               |  | /s/ CAROLE J. UHRICH    

81



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##### Table of Contents



I, Ronald L. Turner, certify that:

1. I have reviewed this annual report on
Form 10-K of Ceridian Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                                
| | -----------------------------------------------
| | /s/ RONALD L. TURNER                           
| |                                                
| | Ronald L. Turner                               
| | Chairman, President and Chief Executive Officer

Date: March 27, 2003

82



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##### Table of Contents



I, John R. Eickhoff, certify that:

1. I have reviewed this annual report on
Form 10-K of Ceridian Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                                         
| | --------------------------------------------------------
| | /s/ JOHN R. EICKHOFF                                    
| |                                                         
| | John R. Eickhoff                                        
| | Executive Vice President and Chief Financial
    Officer

Date: March 27, 2003

83



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##### Table of Contents








CERIDIAN CORPORATION


ANNUAL REPORT ON FORM 10-K


EXHIBIT INDEX

|        |        |                        |  |                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ------ | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                       
|No.     |        | Description of Exhibit
|        |        |                       
|        | 3.01*  |                        |  | 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.                                                                                                                                                                           
|        | 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.                                                                                                                                                                                      
|        | 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 Gary A. Krow, dated January 29, 2002,                                                                                                                                                                                                                                                                         
|        | 10.13  |                        |  | Amendment No. 1 to the Executive Employment
    Agreement between Ceridian Corporation and Gary A. Krow,
    dated November 21, 2002.                                                                                                                                                                                                                                             
|        | 10.14* |                        |  | Executive Employment Agreement between Ceridian
    Corporation and Gary M. Nelson, dated January 29, 2002.                                                                                                                                                                                                                                                                       



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##### Table of Contents



|        |        |                        |  |                                                                                                                                                                                                                                               
|------- | ------ | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                       
|No.     |        | Description of Exhibit
|        |        |                       
|        | 10.15  |                        |  | Amendment No. 1 to the Executive Employment
    Agreement between Ceridian Corporation and Gary M. Nelson,
    dated November 21, 2002.                                                                                                       
|        | 10.16  |                        |  | Executive Employment Agreement between Ceridian
    Corporation and Bruce J. Thew, dated March 24, 2003.                                                                                                                                      
|        | 10.17* |                        |  | Ceridian Corporation Amended and Restated 2001
    Long-Term Stock Incentive Plan.                                                                                                                                                            
|        | 10.18* |                        |  | Form of Ceridian Corporation Non-Statutory Stock
    Option Award Agreement (under the Amended and Restated 2001
    Long-Term Stock Incentive Plan).                                                                                         
|        | 10.19* |                        |  | Form of Ceridian Corporation Restricted Stock
    Award Agreement (under the Amended and Restated 2001 Long-Term
    Stock Incentive Plan).                                                                                                   
|        | 10.20* |                        |  | Ceridian Corporation Employee Stock Purchase Plan.                                                                                                                                                                                            
|        | 10.21* |                        |  | Ceridian Corporation Amended and Restated 2001
    Director Performance Incentive Plan.                                                                                                                                                       
|        | 10.22* |                        |  | Form of Ceridian Corporation Non-Statutory Stock
    Option Award Agreement (under the Amended and Restated 2001
    Director Performance Incentive Plan).                                                                                    
|        | 10.23* |                        |  | Form of Ceridian Corporation Restricted Stock
    Award Agreement (under the Amended and Restated 2001 Director
    Performance Incentive Plan).                                                                                              
|        | 10.24* |                        |  | Ceridian Corporation 2002 Employee Stock
    Incentive Plan.                                                                                                                                                                                  
|        | 10.25* |                        |  | Form of Ceridian Corporation Non-Qualified Stock
    Option Award Agreement (under the 2002 Employee Stock Incentive
    Plan).                                                                                                               
|        | 10.26* |                        |  | Form of Ceridian Corporation Restricted Stock
    Award Agreement (under the 2002 Employee Stock Incentive Plan).                                                                                                                             
|        | 10.27* |                        |  | Ceridian Corporation Benefit Equalization Plan,
    as amended.                                                                                                                                                                               
|        | 10.28* |                        |  | Ceridian Corporation Benefit Equalization Plan,
    First Declaration of Amendment.                                                                                                                                                           
|        | 10.29* |                        |  | Ceridian Corporation Benefit Equalization Plan,
    Second Declaration of Amendment.                                                                                                                                                          
|        | 10.30* |                        |  | Ceridian Corporation Benefit Equalization Plan,
    Third Declaration of Amendment.                                                                                                                                                           
|        | 10.31* |                        |  | Ceridian Corporation Employees Benefit
    Protection Trust Agreement, dated as of December 1, 1994,
    between Ceridian Corporation and First Trust National
    Association.                                                              
|        | 10.32* |                        |  | 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.                             
|        | 10.33* |                        |  | 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.                                 
|        | 10.34* |                        |  | 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.                                  
|        | 10.35* |                        |  | Ceridian Corporation Deferred Compensation Plan
    (2002 Revision).                                                                                                                                                                          
|        | 10.36* |                        |  | Split Dollar Agreement between Ronald L. Turner
    and Ceridian Corporation.                                                                                                                                                                 
|        | 10.37* |                        |  | Form of Indemnification Agreement between
    Ceridian Corporation and its Directors.                                                                                                                                                         
|        | 10.38  |                        |  | Ceridian Corporation 2001 Savings-Related Share
    Option Plan.                                                                                                                                                                              
|        | 10.39  |                        |  | Ceridian Corporation UK Compensation Share Option
    Plan.                                                                                                                                                                                   
|        | 10.40  |                        |  | Ceridian Corporation Amended Savings-Related
    Share Option Plan.                                                                                                                                                                           
|        | 10.41* |                        |  | 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.



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##### Table of Contents



|        |        |                        |  |                                                                                                                                                                                                                                                                                                                      
|------- | ------ | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                       
|No.     |        | Description of Exhibit
|        |        |                       
|        | 10.42* |                        |  | 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.
|        | 10.43* |                        |  | Receivable Sales Agreement, dated as of June 24,
    2002, between Comdata Network, Inc. and Comdata Funding
    Corporation.                                                                                                                                                                                        
|        | 10.44* |                        |  | 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.                                                                                      
|        | 10.45* |                        |  | 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 Auditors - KPMG LLP.                                                                                                                                                                                                                                                                          
|        | 24.01  |                        |  | Power of Attorney.                                                                                                                                                                                                                                                                                                   
|        | 99.01  |                        |  | Written statements of our Chief Executive Officer
    and 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