Elena Charles - VP of IR Gary Butler - President and CEO Chris Reidy - CFO

Charles Murphy - Morgan Stanley Liz Grausam - Goldman Sachs James Kissane - Banc Of America Gary Bisbee - Lehman Brothers Rod Bourgeois - Bernstein Jason Kupferberg - UBS Kartik Mehta - FTN Midwest Glenn Greene - Oppenheimer David Grossman - Thomas Weisel David Cohen - JPMorgan Mark Marcon - Robert W. Baird

Good morning. My name is Carol, and I will your conference operator today. At this time I would like to welcome everyone to the Automatic Data Processing Incorporated 2008 earnings conference call. I would like to inform you that this conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I will now turn the call over to Ms. Elena Charles, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you. Good morning, everyone. I am here this morning with Gary Butler, ADP's President and CEO; and Chris Reidy, ADP's Chief Financial Officer. Thank you for joining us this morning for our fiscal 2008 earnings call and webcast. A slide presentation accompanies today's call and webcast, and it is available for you to print from the Investor Relations home page of our website at adp.com. Just to remind you, the quarterly history of revenue and pretax earnings for our reportable segments has been updated for the fourth quarter of fiscal 2008, and has been posted in the IR section of our website. During today's conference call, we will discuss some forward-looking statements that involve some risk and these are discussed on Page 2 of the slide presentation and in our periodic filings with the SEC. With that I will now turn the call over to Gary for his opening remarks.

Thank you, Elena, and good morning, everyone. I will begin today's call with some opening remarks about the fiscal year and our fourth quarter. Then I will turn the call over to Chris to take you through the detailed results, and I will return to provide you with our guidance for fiscal 2009. We have also included this morning, in Chris's comments, a way for you to think about client funds investment strategy, not just in fiscal '09, but for 2010 as well. Then I will give some concluding remarks before we take your questions in the normal manner. Let me begin, ADP posted strong results for fiscal 2008, double-digit growth in revenue, pretax earnings, and earnings per share, with 12.5% revenue growth for the year, pretax grew 13% and earnings per share grew 21%. All in all, these are very strong results for the year, and across the board. I am also very pleased with our solid fourth quarter results with 10% revenue growth and 20% earnings per share growth, which does exclude and does not include the gain on the sale of a building in that quarter. Some brief highlights of the year include Employer Services client retention improved 20 basis point. Despite the current economic environment that we are in, I am quite pleased with our execution on new business sales growth in both Employer Services and Dealer Services. ES including the PEO; grew sales 7% for the quarter and 8% for the year. Additionally, Dealer Services new business sales growth were strong double-digit in the quarter and for the full year. It is quite remarkable when you consider what is happening in the auto sector today. Now I would like to comment on where growth metrics slowed. As you may recall, we had indicated some softness in certain metrics for the quarter and the full year in our third quarter call on May 1. The number of employees on our client's payrolls, our pays per control metric grew 1.3% for the year, but growth for the fourth quarter was 0 8%, still growth, but slower. The last time we saw less than 1% growth in this metric was when it started to decline back at the end of fiscal 2001, and we saw it again on the return to positive growth after the first half of fiscal 2004. As a reminder, the same-store-sales metric is at measure of employment across our major accounts AutoPay client base. Both the fourth quarter and year-to-date growth in pays per control for small business and national accounts has slowed as well. However, both metrics continue to be stronger than the ones I just quoted to you regarding our major accounts segment. We are continuing to see large prospects taking more time with outsourcing decision, and in some cases, deferring the decision. As a result, we are being more conservative with our sales forecast for fiscal 2009. The forecast is for mid-single digits growth. We will provide more on the forecast later in the presentation, so despite the economic headwinds, we achieved very strong results in the fiscal 2008, and we are looking forward to a very solid 2009. With that backdrop, I will turn it over the Chris to provide more details on our results.

Thanks, Gary, and good morning, everyone. As Gary said earlier, total revenues grew 12.5% to $8.8 billion assisted by favorable foreign exchange rates due to the weak dollar. I would like to highlight to you that we had a gain on the sale of a building in this year's fourth quarter, and remind you that we had gain in last year's first quarter from the sale of a non-core Dealer Services business. So, on the slide, we've shown both recorded results as well as the results excluding the gain, Excluding these gains, pre-tax earnings grew 13%, and earnings per share from continuing operations increased 21% to $2.18 a share, driven largely by revenue growth and margin expansion in all of the segments and lower average shares outstanding. Consistent with what we have said in the past, we have continued to repurchase shares at higher than our historical pace, excluding one-time infusions of cash from the sale of Claims and the spin-off of Broadridge. We have repurchased 33 million shares during the fiscal year for almost $1.5 billion. We remain committed to return excess cash to our shareholders. Now let's turn to Slide 5. You may recall seeing this information at our March Analysts Conference. Here we show the impact of the extended investment strategy for the client funds portfolio. As shown in the slide, this includes interest on funds held for clients, corporate extended interest income, and corporate interest expense on our short-term financing. To lower borrowing costs are an important part of this strategy. We borrow short-term on lower balance days to satisfy client obligations. In a declining interest rate environment, ADP benefits immediately from lower rates on these borrowings. Average client fund balances grew 6.6% for the year to $15.7 billion. The yield on the client fund portfolio was nearly 4.4%, down less than 10 basis points from last year. However, when you take in to consideration the entire extended strategy, which includes the lower borrowing cost, the result was a $55 billion P&L increase before tax or a 9% increase over last year. I want to take a minute to point out that the $691 million generated from this strategy resulted in an overall yield of 4.4% for fiscal 2008, compared with 4.3% last year. This yield is calculated by taking the $691 million and dividing it by the $15.7 billion of average client funds. Bottom line is, we earned 10 basis points more than last year which is terrific in a declining interest rate environment, where the Fed Funds rate dropped from 5.25% to 2% as we exited fiscal 2008. If you recall from this Slide from the March analysts' conference, we had projected a $45 million increase in fiscal 2008 over 2007. We ended up beating this by $10 million due to more favorable rates in the fourth quarter. Let's move to the next slide where I will take you through the segment results. Employer Services had a strong fiscal 2008. Revenues grew 9%, organic revenue growth was 8%. Revenues on our traditional payroll and tax filing business in the United States grew 7%, and our beyond payroll revenues grew 16% in the US. To remind you, this excludes the PEO Services revenue, which we will discuss in a moment. Employees acquired last year as well as comprehensive outsourcing services and time and attendance continued to grow at strong double-digit rates. ES's pretax margin expanded 90 basis points on increased operating leverage, primarily from scaling the business, as well as from the margin expansion initiatives we have spoken about with you in the last several quarters. As Gary mentioned earlier, pays per control growth, the same-store-sales metric was up 1.3% for the year, and growth on number of pays in Europe remains positive. We continue to be pleased with our excellent retention rates, which improved 20 basis points from a year ago to a new record level. We achieved new business sales growth of 8% for the year from Employer Services and PEO services combined. Just to remind you, new business sales represent the annual reoccurring dollar value of new bookings, and become future reoccurring revenues that are incremental to our existing reoccurring revenue base. This sales performance coupled with improved retention will continue to drive solid revenue growth going forward, all-in-all, a good year for Employer Services. Now let's turn to Slide 7. PEO had a terrific year with 20% revenue growth, all organic, pretax margins increased 80 basis points and average worksite employees increased 18% in the quarter. Now let's turn to Slide 8. Dealer Services has a strong year as well. Total revenues grew 8.5% with 6% organic revenue growth. This 6% organic revenue growth represents an increase of about .0.5 percentage point from a year ago. Dealer Services pretax margin expanded 75 basis points from operating leverage, including the benefits from smart shoring activities, partially offset by costs relating to the acquisition of three Autoline distributors made earlier in the year. As Gary said earlier, Dealer achieved double-digit new business sales growth for the year, which is terrific in this economy. Now let's turn to Slide 8, where I will take you through the fourth quarter results. You see we are showing the fourth quarter in the same format as we did earlier for the full year on a reported basis with the building sales gain as well as on an apples-to-apples basis excluding the gain. In the fourth quarter, total revenues grew 10% to $2.2 billion, assisted in the quarter by favorable foreign exchange rates due to the weak dollar. Excluding the gain, pretax earnings grew 10% and the pretax margin was flat to a year-ago due to a lower contribution from the extended investment strategy. I will take you through the impact of the investment strategy for the quarter on the next slide. Earnings per share from continuing operations increased 20% to $0.42 a share. Now turning to Slide 10. For the quarter, we are showing the same information you saw just a few moments ago for the full year. Remember there is a seasonality to our client balances and then our forth fiscal quarter is the second highest balance quarter following our third fiscal quarter. Average client fund balances grew 4.2% for the quarter to $16.1 billion. As expected, this growth was slower due to lower wage growth driven by lower bonuses, and a decline in the growth in the number of employees on our client’s payrolls. The yield for the quarter on the client funds portfolio was 4.2%, down just $8 million or less than 40 basis points from last year, again, showing the benefit of our laddering strategy in a declining interest rate environment. Considering the entire extended strategy, including a lower borrowing costs result was a $6 million increase though P&L before tax, or 4% growth. The yield for the overall strategy in the quarter was 4.5%, which was flat to last year, which, again, is terrific in the current interest rate environment. Let's move to the next slide where I will take you through the segment results for the quarter. Employer Services revenues grew 7%, all organic, and last year's acquisitions for the growth in the fourth quarter reflects that. Revenues in our traditional payroll and tax filing business in the United States did slow a bit compared with earlier in the year, growing 4% due to slower balance growth and lower pay growth, and our beyond payroll revenues grew 12% in the US. ES's pretax margin expanded 150 basis points on increasing operating leverage primarily from scaling the business, as well as the benefits from margin expansion initiatives compared with a year ago. As Gary mentioned earlier, pays per control growth also slowed in the quarter, up 0.8%, and growth in the number of pays in Europe remained positive. Client retention rates did decline 40 basis points in the quarter, but remains at excellent levels. Now as I stated a few moments ago, it was up 20 basis points for the year. Additionally, we are forecasting further improvements in retention for fiscal 2009. New business sales growth was solid at 7% in the quarter for ES and PEO services. Now let's turn to Slide 12. The PEO continues to grow with 16.5% revenue growth, all organic, pretax margin increased 30 basis points, and average worksite employees increased 17% in the quarter. Let's turn to Slide 13. Moving on to Dealer Services, total revenues grew 9%, 6% organically. Dealer Services pretax margin expanded 100 basis points from operating leverage, partially offset by costs relating to the acquisition of the three Autoline distributors made earlier in the year. As you heard earlier, new business sales growth was strong double-digit in the quarter. Now I will turn it back to Gary to take you through the forecast for fiscal 2009.

Thank you, Chris. We are on Slide 14 where I will take you through our fiscal 2009 forecast. Before I get in to the numbers, I would want to let you know that we are assuming no change in the current economic environment in this forecast, so no better or no worse. We expect that fiscal 2009 will be challenging and have forecasted accordingly. Now let me give you some more detail. We anticipate 7% to 8% revenue growth for overall ADP next year in '09. For segment revenue growth, we are forecasting 6% to 7% growth for Employer Services, 16% to 17% growth for PEO Services, and 6% to 8% for Dealer Services. This total revenue growth forecast also includes an anticipated decline of $25 million to $30 million, or about 4% in client funds interest revenues. Chris will discuss this in a little more detail in a moment within the total context of the extended investment strategy that you will see on the next slide. We do anticipate continued pretax margin expansion across all segments and are forecasting at least 50 basis points of improvement in each segment next year. Our earnings per share forecast are for 10% to 14%, up from this year's $2.18 per share from continuing operations. It's, again, reminding you, excluding the gain on the sale of a building in the fourth quarter. There is no share buybacks contemplated in the fiscal '09 guidance, though it is clearly our intent to continue to buyback shares at higher than our historical pace, obviously depending on market conditions. In order to frame the weighted average shares for fiscal '09, we are providing you with a June 30, '08 share count, and the estimated additional share dilution for fiscal 2009. We ended the year with 509.5 million shares outstanding, and we estimate approximately 10 million additional diluted shares, which is based on estimated impact of option dilution and the timing of when shares are issued during the year for stock compensation plan. Now, I would like Chris to take you through 2009 first, and then review with you a way to think about the impact of the client funds investment strategy on fiscal 2010 as well, before I come back with some concluding remarks, and then we will take your questions as normal.

Thanks, Gary. Once again, this slide summarizes the anticipated pre-tax earnings impact of the extended investment strategy for the client funds investment portfolio for fiscal 2009. And to remind you, this includes interest on funds held for clients, corporate extended interest income, and corporate interest expense on our short-term financing. Again, you can see that the lower borrowing costs are an important part of this strategy. With average borrowings of about $2 billion in a declining interest rate environment, the benefit from lower borrowing cost is immediate. At the same time, no more than 20% of the investments are subject to reinvestment each year. We are anticipating average client fund balance growth of 1% to 2%, which represents continued pressure on wage growth predominantly from lower bonuses, as well as no increase in the number of employees on our client's payrolls. We are forecasting pays per control to be flat for the year, compared with 1.3% growth in fiscal 2008. We are anticipating a yield on the client funds portfolio of 4.2%, down about 20 basis points from fiscal 2008. As Gary just mentioned, we are anticipating a decline of about $25 million to $30 million in client funds interest. However, when you take in to consideration the overall extended investment strategy, including lower borrowing costs, we anticipate a $5 million to $10 million increase to the P&L for fiscal 2009. In addition, we expect to maintain fiscal 2008's overall yield of 4.4% for fiscal 2009. Now let's move to the next slide to walk through a scenario on fiscal 2010. We have included this slide to give you a way to think about fiscal 2010 as it relates to the extended investment strategy. What we have shown here assumes that the anticipated fiscal 2009 exit rates hold for fiscal 2010, suggesting a higher interest rate environment than fiscal 2010. As interest rates move up, the corporate interest expense on short-term borrowings is immediately impacted as it was when rates were on the way down. What you see here is an increase in interest expense in fiscal 2010. With no more than 20% of the portfolio subject to reinvestment risks each year as a result of the laddering of maturities, interest income increases just not as fast as interest expense. Taking in to account the overall extended investment strategy with higher borrowing cost, we would anticipate a $5 million increase to the P&L for fiscal 2010. Under this scenario, we again maintain a 4.4% yield. For purposes of the calculations, so you can see the impact truly from rates, we have assumed no growth in client fund balances, keeping them flat with the estimated fiscal 2009 balances, and we provided sensitivity for a 1% change. Remember, the purpose of the extended strategy is to enable us to average our way through an interest rate cycle. What you will find is that for each fiscal year from 2007 and 2008, to what we anticipate for 2009 and 2010 where interest rates have fluctuated significantly, the yields from the overall extended strategy is at a tight range from 4.3% to 4.5%. So the strategy is working. Now, I will turn it back to Gary for some concluding remarks.

So in summary, I am pleased with ADP's results for fiscal 2008. ADP is doing quite well, despite the challenging economy. Our fiscal 2009 forecast calls for very solid growth, and is appropriately conservative given the current economic environment. As you have also heard me say many times before, we are continuing to invest in the business as we focus on executing against our five-point strategic growth program, and we are not in any way cutting sales of other client-facing aspects of the business to 'make the numbers'. Additionally, you have seen that we remain committed to returning excess cash to our shareholders, as clearly evidenced by the significant level of share repurchases, as well as the 26% increase in the dividend for calendar 2008. As matter of record, we have repurchased nearly 18% of outstanding shares since the start of fiscal '06 at a cost of $4.7 billion. Although, our forecast excludes future share repurchases, it is our intent, depending on market conditions to continue repurchasing shares at these higher than historical levels. I would also like to remind you before I close that ADP is a great company with a great business model, 90% recurring revenues, client life cycles of 10-plus years, excellent margins with strong and consistent cash flows, very low capital requirement, a true AAA credit, and the markets we participate in are under-penetrated and growing. My belief in ADP's ability to generate at least 10% revenue growth and 15% earnings per share growth on average, long-term, over various economic cycles is unchanged. So, despite the challenging economic environment, I remain highly optimistic regarding ADP's ability to deliver continued strong results in '09, and for many years to come. Now let's turn it back over to the operator to take your questions.

(Operator Instructions) Our first question will come from the line of Charles Murphy with Morgan Stanley. Charles Murphy - Morgan Stanley: Thanks very much. Gary and Chris, I was wondering if you could discuss your level of confidence in the at least 50 basis point improvement, forecasting margins in Employer and Dealer, particularly if the US economy does get worse from current level?

I would say it is very high. We have very consistently over a number of years delivered what we forecasted in terms of margin improvement. I do not expect that to change. We do have levers that we can pull to reduce spending if we need to. So, I would be very optimistic that we can deliver.

I would add that we are optimistic that we can deliver that improvement while still continuing to invest in sales, service and implementation.

Okay. As a quick follow-up, could you help us understand what might drive an acceleration in organic growth in Dealer in fiscal '09? Morgan Stanley: Okay. As a quick follow-up, could you help us understand what might drive an acceleration in organic growth in Dealer in fiscal '09?

A couple of things. First of all, we are doing quite well in terms of taking market share in North America regardless of the economy. It certainly does not help in the auto sector these days, but we are continuing to take share, and I would expect us to continue to take care in '09. We got a lot of good traction in our Voice over IP integration products, our front end BZ Results, which is internet marketing and lead-gathering optimization. These are really money savers and cost savers of different type and efficiency ways for dealers to get more productive. So we get good traction even in tight times with those endeavors. We continue to do great internationally. We are looking at expanding in to some new big markets, and I am pretty optimistic about the outlook for International.

Thanks very much. It is much appreciated. Morgan Stanley: Thanks very much. It is much appreciated.

Thanks Charles.

Our next question will come from the line of Liz Grausam with Goldman Sachs. Liz Grausam - Goldman Sachs: Great. I wanted to ask you a question on the Employer Services new sales growth. You made some comments that larger deals are taking a bit longer to sign, but can you give us a little bit of perspective on how you look in to a mid-single digit new sales growth number into 2009? What you are hearing from our clients, and how much sales cycles you are really expanding at this point?

As we exited the third quarter, we have had a very soft March which caused us to really under deliver on the sales equation in the third quarter, which was one of the reasons why we became more cautious in our comments at the end of the third quarter. I was actually quite pleased at the results of the fourth quarter, not just in the 7%, but we also saw great execution on our sales force part in both global view as well as the high-end of national accounts. So, despite the tough environment, because of the strength of our product line and the uniqueness of the GlobalView offering, we were still able to get a lot of big clients over the goal line before the year concluded. So, I do not think the environment has changed a lot. I have a lot of confidence in our ability to execute, and so we are building plans that we have high confidence in that we can execute against as opposed to trying to stretch the envelope a little bit until the economy gets a little bit more positive. Liz Grausam - Goldman Sachs: How much of your new sales pipeline, Gary, in the GlobalView product is International and not US based? Is that giving you a little bit more of a lift than you might normally get?

Yes, the majority of it is International. Liz Grausam - Goldman Sachs: Okay.

We have signed some other large deals that include big pieces of North America. We just signed one of the major manufacturing companies out of Europe, we just signed up all of their North American operations on GlobalView, and it just so happens they are going in North America first before they go in other places around the world. Again, it is still predominantly international in nature. Liz Grausam - Goldman Sachs: Great. Thank you.

Our next question will come from the line of James Kissane with Banc Of America. James Kissane - Banc Of America: Thanks and good job. Are you seeing any change in the pricing environment as sales and pays per control have softened?

Nothing that is material or that I would deem worthy of reporting. Obviously, you have listen to the competitors' calls as well, and, we have got pressure in certain sectors, but in general, we are going along, pretty much business as usual, as it relates to pricing. We have put out our normal levels of price increase this year. We were able to get a little less lift on increasing prices in delivery. Obviously that affects us, with the price of gas, just like anybody else. It is going along pretty much as usual. We put out our price increases July, the 1st, and kind of the feedback is pretty much the same. James Kissane - Banc of America: Great. Gary, what portion of your new sales pay are national accounts in GlobalView, and how would that compare with three or four years ago?

It is certainly larger. We have been very fortunate. International to grow sales double digits three or four years in a row now. The great thing about International is that it is not just GlobalView. It is also our best-of-breed products. Particularly in Europe, we are doing quite well, and in Australia So, International accounts have grown double digits, pretty much over the same period of time. So, it is growing faster at the high end of the markets than it is the low and the middle. But, PEO on the low end has gone drastic. That has been growing 15% to 20% three to four years in a row. James Kissane - Banc of America: But, small and majors are still growing positive, right?

Yes. James Kissane - Banc of America: Okay, great. Thank you.

Our next question will come from the line of Gary Bisbee with Lehman Brothers.

Hi, guys. My congratulations on the good quarter. One macro question to start with, I am just struggling to understand how the pays per control metric remains positive after six months of employment declines. Any sense on how your customer base is different from the overall? Lehman Brothers: Hi, guys. My congratulations on the good quarter. One macro question to start with, I am just struggling to understand how the pays per control metric remains positive after six months of employment declines. Any sense on how your customer base is different from the overall?

Gary, if you talk to Joel Prakken with the NER, we try to at least on a monthly basis because of the NER outlook. He would tell you that ADP's clients grow faster than the economy at large. So, basically, people who are outsourcing are trying to address other issues in their company and leave payroll and HR to us. So he would tell you that we grow faster. Plus in the high end of the market, National Account, COS and GlobalView, these are people that are expanding internationally, and growing which is why they are having issues in their payroll department of whatever, they outsourcer it to us. So, I do not expect that to change, plus, in the NER which we put out on Wednesday, small business and services sectors were both up again even though you saw, still continued declines in manufacturing and housing. So I think that, probably, it more than anything else, we probably have a larger proportion of services than the population at large, and we have a much lower high-end, big heavy manufacturing as a percent of our business. So it is a skewing of outsourcing and the skewing of the distribution by industries that would be my view aided by International expansions.

Okay. Thanks. Then, can you give us an update where you are in terms of the move to profitability and in GlobalView and comprehensive outsourcing? I think you said that COS may have broken even or start to turn to a profit. And is GlobalView still likely to do that at the end of '09? Lehman Brothers: Okay. Thanks. Then, can you give us an update where you are in terms of the move to profitability and in GlobalView and comprehensive outsourcing? I think you said that COS may have broken even or start to turn to a profit. And is GlobalView still likely to do that at the end of '09?

COS made a profit in the fourth quarter, and will continue to make good margins as we go into '09. I suspect it is going to be further into 2010 before we actually turn the corner in GlobalView.

Which is consistent with we have said?

Yes, which was what we have been saying, but the numbers are coming down. So, if you go from $25 million or $30 million loss to a $10 million to $15 million loss, you still are make a lot of progress, but we have got our ways to go, because we got still heavy implementations sales expense, which I am happy to spend if I am getting the organic growth rate on the top line.

Okay. Both of them will either be profitable or have a declining year-over-year losses and that may be one reason for your confidence around the margin? Lehman Brothers: Okay. Both of them will either be profitable or have a declining year-over-year losses and that may be one reason for your confidence around the margin?

Yes. Without question.

That is right.

The other thing that’s happening there is, regrettably, I would like to have made a few more acquisition in’08 than we did. So you are not going to have any increases in intangible expense until we do other acquisition, which will certainly help margins as well.

Okay, great. Lehman Brothers: Okay, great.

Not to mention, all the other programs that we have been pushing.

Can you give us any sense what you are expecting for sales headcount growth in ’09 and where will that be that be focused on, which product area? Lehman Brothers: Can you give us any sense what you are expecting for sales headcount growth in ’09 and where will that be that be focused on, which product area?

Sure, we clearly are growing a headcount; I think the plans for this year is actually higher than it was for '08. We are forecasting 6% to 7% headcount growth. It is probably 5% or 6% in traditional areas. It is over 20% and our telesales place, where we have got more cost efficiency, and we can sell our add-on products more effectively. So again, consistent with everything we have been telling you, we are continuing to invest in growing the business. I am being more conservative this year because of the economic environment is not relying on productivity improvements in these tight times as opposed to more predictable headcount growth.

Okay. Thanks. Just wanted one follow-up to clarify, you said the share count was $509.5 million at June 30. Is that the basic share count, or does that include dilution from existing options? Lehman Brothers: Okay. Thanks. Just wanted one follow-up to clarify, you said the share count was $509.5 million at June 30. Is that the basic share count, or does that include dilution from existing options?

That is the basic.

That is the basic. So then the $10 million on top of that, how much is just outstanding options today versus options that you are expect will be new options issued in '09? Thanks? Lehman Brothers: That is the basic. So then the $10 million on top of that, how much is just outstanding options today versus options that you are expect will be new options issued in '09? Thanks?

Mostly the options existing with a little bit of new issuances planned for next year.

Okay. Thanks a lot. Lehman Brothers: Okay. Thanks a lot.

Our next question comes from the line of Rod Bourgeois with Bernstein. Rod Bourgeois - Bernstein: Hello. I know in your fiscal '09 guidance you are assuming that the economic outlook stays unchanged, but I wanted to probe and see if you could give us more specificity on the specific assumptions that are supporting your fiscal '09 guidance range. The list of things that I would ask for a little more detail on would be, what are you assuming about pays per control, your payroll and tax revenue growth rate, your beyond-payroll revenue growth rate, your retention and also your base client growth. If that list can be addressed in any way to give us more specificity, that would be very helpful.

Yes, the one that we did mention in our remarks was pays per control, which we are assuming is flat. Rod Bourgeois - Bernstein: Flat means zero or does it mean 0.8%?

Zero.

No, flat.

Flat growth. Rod Bourgeois - Bernstein: Okay.

In terms of the split between payroll and beyond payroll, we do not typically give that as guidance, but I think given what we are seeing around the growth, it is probably consistent with what you are seeing in the fourth quarter. Rod Bourgeois - Bernstein: Okay.

And the run rate that we are seeing in the fourth quarter. Rod Bourgeois - Bernstein: Okay.

Retention we are actually anticipating to be up a tick as we planned last year, and we delivered the 20 basis points. We would expect that to be up slightly in '09. I am sorry what was the rest of your. Rod Bourgeois - Bernstein: Yes, base client growth? Can you keep that in a 3% range?

We do not really give that level of detail, because of a lot of that depends on where you are deploying your resources. So if you are growing a lot faster in GlobalView, and COS, and National accounts, the client growth count really is not material in the way you think about the business. Rod Bourgeois - Bernstein: Okay.

The only other one that we did not mention, Rod, was the growth in client fund balances, which as I went through in my remarks are projected to be 1% to 2% growth. Rod Bourgeois - Bernstein: Got it. That is helpful. Then on the client retention, you are assuming that improves, and that is a huge assumption, because I know that is also probably enhancing your margins when retention is going up. The question is, how secure is your forecast that client retention will go up? I mean, are you highly confident that that will play out?

I think the answer to that question is yes. We are not in the practice of planning things we do not expect to execute on. Rod Bourgeois - Bernstein: Okay.

But that being said, if the economy really went in the toilet, or we had some bigger problems, that might not hold true, but I expect that we will be in the range of where we are this year, or slightly up, and even if we are down, it would be a tick, 0.1 or 0.2. It is not going to be 3 points of retention. So, again, I think if I were you building the models, I would be using the same kind of results that we have had this year. We are seeing no major differences in [out of] businesses in terms of our losses. Our receivables over 60 are inline with traditional metrics and we are pretty much poking along business as usual. Rod Bourgeois - Bernstein: Got it.

Rod, if I can just interrupt, and just to remember, back in the '01, '02, '03 timeframe into '04, during that tough economic time then we were continuing to pick up retention each and every year during that period. Rod Bourgeois - Bernstein: Yes, that is right. Finally, Chris, on the float outlook side, you are assuming the futures market in forecasting your float earnings. The question I would have is, if you were to assume that the Fed's Funds rate stays unchanged, in other words, you forget about futures market and the fact that it's forecasting an uptick in the short-term interest rate. If you were to keep short-term rates flat, how big of a difference does that create in your float earnings outlook? Can you quantify that in any way for us?

Yes, I can give you some ways to think about that, Rod. First of all, you should see that, because of that interplay of the interest on float, offset by the interest expense, you see we are able to keep that in a very tight range. That is the first thing I would say. Then I would take you back to the overall sensitivities that we have given you in the past, which if we update that, 25 basis points in the Fed Funds rate is about $3 million of sensitivity. If the entire spectrum changed by 25 basis points across all rates, it is about $7 million, so it is not a huge sensitivity to flat to what we have been expecting. I think we have found that to give you our guidance based on the futures and the forward contracts, add some value in showing you what we are considering, and given that guidance will give you a better sense of what we are looking at.

A different way to think about that is, prior to this past year, we have either had a flat or inverted yield curve before the Fed's started dropping Fed Funds rate. Now sitting at 2%, you have got a traditional yield curve, where we are investing most of our extended portfolio, which is $15 billion, $16 billion out in the 3, 4, 5, 6 year range. Therefore, we are investing almost at the same rates as the current yield because of where we are investing in the shape of the yield curve. Rod Bourgeois - Bernstein: Right. The increased disclosure on the float earnings has been really helpful. Thanks for that.

Great.

Our next question comes from the line of Adam Frisch with UBS. Jason Kupferberg -UBS: Good morning, this is Jason Kupferberg for Adam. How are you?

Good morning, Jason. Jason Kupferberg -UBS: So, taking a look at the fiscal '09 guidance, and understanding that it assumes no change in the economy and 75 basis points of the Fed Funds rate increase, it is fair to say that on a relative basis that there would be more risk to the revenue component of the guidance than the EPS, given that you probably have better visibility on the margin drivers than you do on the top-line?

I think, we take into consideration risks on a number of different drivers. Clearly, I would say it is about equal. I mean, as we look at it, retention certainly is a driver, pays per control, which would equally impact revenue and NOI; daily balances, the swing in average daily balances would impact both. So no, I would say its equal risk for the sensitivities to the drivers that we track. Jason Kupferberg -UBS: Okay. So, would it also be fair to say, then, that there is some interrelationship obviously between the two. If you were to come up a little light, let's say in our revenue growth outlook, it would be harder for you to achieve the 50 basis points of margin improvement for each segment, because I know that there are also some pure cost-based initiatives that might be somewhat independent of revenue growth.

There is a lot that goes in to that, and certainly the way we report the impact on the units, which drives the margin growth by units, is at the flat 4.5%. So, margin is not directly impacted as much by that metric, and I think the bottom-line is that, we are comfortable with the ranges that we have. So, if you wanted to say, if we are at the low-end of the revenue guidance range of 7%, will that translate to the low-end of our EPS guidance? Probably. That is probably a good way of thinking about it. We are pretty comfortable with the ranges on both that we gave. Jason Kupferberg -UBS: Okay. That color is helpful. And then, one of your competitors mentioned on their last earnings call about a month ago that there was a sharper than expected increase in client bankruptcies among small businesses. Have you experienced any of that in your small business segment?

I think if you were to look at the metrics coming out of the Federal Bankruptcy Courts, they are talking about, out-of-businesses at a rate of around 9% to 10%. I think that is what we are seeing. That is up a tick from what we have seen in the past, but not significantly. Jason Kupferberg -UBS: Okay. Then the last question, have you assumed any FX impact in your fiscal '09 revenue growth guidance?

No. Jason Kupferberg -UBS: Okay. So that is a constant currency growth.

Yes. Jason Kupferberg -UBS: Okay. Thanks.

Our next question comes from the line of Kartik Mehta with FTN Midwest. Kartik Mehta - FTN Midwest: Hi, good morning. Gary, I wanted to get your thoughts. You said in 2001, I believe you said that, pays per control for the first time went below one. I was just trying to figure out, in your past experience, what happened to pays per control, did they gradually go down in the business, or is there a [steep][46-39] deep decline once the economy really takes a bad turn?

In '01, post 9/11, we started to see a decline and it did go below 1% as we exited '01. In '02, we saw the sharpest decrease that we have seen, and it went down to 2.8% negative. Came back to 0.7% negative in '03, and became 1% positive as we exited '04. So, '02 would have been the sharpest decrease that we have ever seen, but again, it was a different time. Kartik Mehta - FTN Midwest: Yes, and I think Gary you talked about this in the past. What is a good way to think about if there is a 1% change in pays per control, what type of impact it might have on operating margins for ES?

Well, what we typically discuss is that 1% growth is worth around $15 million to $20 million in revenue. It is certainly, in most cases higher-margin revenue than the trailing revenue. So, I think you ought to think about, $10 million to $15 million worth of bottom line impact. Kartik Mehta - FTN Midwest: Then, just a question on the Employer Services, is there a minimum amount of revenue you would need to generate that 50 basis points in margin improvement? I realize the revenue mix could be different and that might have an impact, but is there a general way you could say that you need X amount of revenue so you can achieve at least the 50 basis points?

No, there is not a minimum. Obviously the more revenue you have organic, the easier it is to grow. So if organic revenue is up 12 rather than 8, it is easier. However, we still very much expect margin improvement in offer of 7% to 8% organic growth rate in the range that we put in the forecast. Kartik Mehta - FTN Midwest: And just one last question on the Dealer Services business, what has been the impact on the business because of what has happened in the automobile industry? Has it given you an opportunity to gain even more market share than you would have thought of or have there been other potential impacts that you have seen on the business?

Well, clearly, the issues for us are dealers' willingness to invest and new capital expenses. I think what has helped us there is that our product set is very strong. The consolidation of the two other major players there has certainly given us an opportunity in some dealers where we did not use to be. Clearly, a lot of things like I mentioned earlier in my commentary was that, things like the internet optimization and around leads in marketing as well as Voice-over-IP savings and integration or efficiency measures for the dealers. So, we are seeing some downtick obviously in things that are related to pure volume, like our vehicle registration efforts, or some of our credit check revenues, but those are very small percentage of the total revenue even though we are seeing some decline

That’s decline in the growth rate.

Decline in the growth rate. Kartik Mehta - FTN Midwest: Sorry, they are still growing. Yes.

However, the other thing that is helping us is that, well over 50% of our new sales are delivered in an ASP model, where you do not have to come up with a big capital expense. So this is helping us as well. Kartik Mehta - FTN Midwest: Thank you very much.

Our next question comes from the line of Glenn Greene with Oppenheimer. Glenn Greene - Oppenheimer: Thank you, good morning. Just a couple of quick questions remaining, one, I just want to go back to the retention in the quarter, why it down ticked a little bit and triangulate that with your confidence that it will up tick a little bit for fiscal '09? Did anything unusual happened quarter or just some color around that?

A quarter is more helpful than month, but even quarters vary. So, if you went back and look at our second fiscal quarter, we actually had down retention in the second fiscal quarter, but we had great improvement in retention in the third quarter. So, I think you really need to look at the year as a whole and 20 or 30 basis points give or take on a quarter should not get you alarmed as opposed to a year-to-date metric, as it gets multiple quarters included. Glenn Greene - Oppenheimer: Did it have anything to do with the macro environment, the economy or is it just normal quarterly noise?

It is quarterly noise. I mean it was a little worse than the small business. It was a little better in National Accounts and major accounts, so it just depends. You can have a big deal loss in one particular month or one particular quarter which can affect it. However, in general, I think the way I would say to you is, it is business as usual. Glenn Greene - Oppenheimer: Okay, and just an update on GlobalView, any way you would size the backlog to install?

Give me just a second here. Let's see. We have closed almost 80 clients or a million employees in 46 different countries. The total contract to date, which is multiple years is around $700 million now, and we expect the reoccurring revenue in '09 to be over $100 million. So, we still have got a pretty darn big backlog. I am just not sure it is a something I want to get in to the habit of talking about every quarter. Glenn Greene - Oppenheimer: What is your breakeven revenue level?.

I think when you think about these businesses, the issue is not the operating margins in the business, it is the sales expense. It is the sales and implementation building out all of the different support structures for the different countries So, the operating margins are pretty decent today. It is just being offset by a lot of sales cost and implementation expense, so if I stopped selling, I could give you profit tomorrow. However, that is not the reason we are in this business. We are in this business to grow revenue as fast as we can over a longer period of time. So, I am happy to spend this kind of sales and implementation. It is a good return on our investment. It is the right thing to do to grow the business long-term. Glenn Greene - Oppenheimer: I agree. Thank you very much.

Our next question comes from the line of David Grossman with Thomas Weisel. David Grossman - Thomas Weisel: Thanks. Perhaps this is an extension of some of the questions asked earlier, but there are several elements that go into your '09 guidance. Can you give us a sense or insights into at least those elements you have the most confidence and visibility on versus those that you have less visibility and confidence?

Well, again, I can not control what happens with interest rates. We have tried to be very conservative. I think the extended strategy that Chris has taken you through is certainly designed to insulate us from things that we do not control. Obviously, if pays per control dropped to the '03 levels minus 2%, that is $30 million or $40 million of revenue. I wish I would have had that I would not have; but again, it is not going to break the bank, so to speak in terms of the forecast. I have pretty high confidence in the retention rate. I have 90% reoccurring revenue, so we feel pretty good as we go in to that year. So, I think the things I can not control are the things that keep me up at night, and those things I can control, I think we are doing a pretty good job of managing them. David Grossman - Thomas Weisel: Great, and just one other question. I think it maybe comes out in the K, but do you happen to have the actual dollar bookings for fiscal '08?

Dollar bookings? I am not sure. David Grossman - Thomas Weisel: Perhaps, I thought on an annual basis you actually disclose the dollar bookings.

You mean in terms of new sales? David Grossman - Thomas Weisel: Yes.

Yes, about $1.150 billion in recurring revenue. So we recognized sales. So, if we sell a client today $100 a month, we recognize that sales as $1,200 when we book it. So we will book this year about $1.150 billion in new 12-month forward reoccurring revenue. David Grossman - Thomas Weisel: Great, thank you.

Our next question comes from the line of line Tien-tsin Huang with JPMorgan David Cohen - JPMorgan: Hey, is David Cohen for Tien-tsin.

Good morning, David. David Cohen - JPMorgan: I wanted to ask about the PEO business, it looks like you are expecting the growth to slow. Any thoughts, is it just macro? What are the dynamics that are going on in that segment?

Well, the business is doing great. The business is growing very strong, and is growing, quite strong again in '09. We had the benefit of A, the law of small numbers, versus big numbers in a few years past. We also were very aggressively expanding into new states such as California where we were literally adding 50 to 100 sales folks at a time year-to-year. So, we are more mature in terms of our deployment at this point in time, but I do not want to in any way tell you that I think we are close to being penetrated because that market is highly unpenetrated. We think there is a lot of double-digit growth in front of us. So, I think it is a combination of big numbers, and the fact that we had some really big new markets that helped us over the last two or three years.

I'll just add that, the dollar amount of the new business is still growing year-over-year, which points to the fact that it is a bit of a law of large numbers. David Cohen - JPMorgan: Okay. Then, one of your competitors in PEO space, yesterday announced that they received some expressions of interest, and I was wondering what your appetite is for acquisitions in the PEO space?

I think the particular acquisition or the particular company that you have talked to has some things that are not necessarily a positive for ADP. We are certainly not interested in new platform overtime, and clearly, they have struggled with new business sales growth in terms of driving that growth. So, in the case of someone like that, it is strictly a margin play as opposed to a growth play over a two or three-year period, which certainly is less appealing to ADP as opposed to a growth play like we have with employees or we have with GlobalView or some other type initiatives. So again, depending upon price and everything else, it is always worthy of a discussion, but I would not want to encourage you too much that's a likelihood for ADP. David Cohen - JPMorgan: Then, what about more broadly in the PEO space as far as organic growth?

I am not sure I understand the question. In organic growth? David Cohen - JPMorgan: In organic. Not the specific opportunity, but would you look to do acquisitions in the PEO space or more acquisitions are going to come?

Less so in the PEO space than other spaces. We have worked very hard at building a book of business that has very tight underwriting, and is much more white-collar as opposed to blue-collar, which insulates us from particularly the worker's comp arbitrage and the risk when you have got overcapacity in the marketplace. Regrettably, most of the acquisition candidates, whether they are small or large, do not have that same approach to underwriting and the portfolio. So, it is very difficult for us to integrate into our product platforms and ADP's is conservative underwriting practices, when they are selling high worker's comp premium companies. It is much tougher for us to do because that is not the strategy here in terms of the long-term growth of the business.

I think a big part of the growth in the future I just reiterated is the up-selling of existing ADP clients in our small business area. David Cohen - JPMorgan: Okay. Within Employer, could you talk a little bit of what you are seeing in terms of both the sales and implementation cycles by the different parts of the business?

Well, we do not disclose actual growth rates in terms of sales in all of our different businesses. In all of the major segments, we had good positive growth in last year. Some areas were better than others, like I mentioned earlier, GlobalView and the PEO were good strong double-digit growth. International was strong double-digit growth, whereas the others were single-digit, obviously because we grew 8% in total. So, I think, by implication you can figure out where it is a little bit slower as contrasted to where it is a little bit faster. Implementation cycles really have not changed. In fact, if anything, our install rates, I think actually in the year we are in, we installed more than we sold. So that is always a good thing because backlogs are coming down. David Cohen - JPMorgan: Okay. Then last question on Dealer. Can you remind us the mix of US or North America versus the outside?

The forecast for this year, Dealer is about a billion

$1.360 billion and about $350 million of that is International. David Cohen - JPMorgan: Great. Thank you very much.

We have time for one or two more questions. Our next question will come from the line of Mark Marcon with Robert W. Baird. Mark Marcon - Robert W. Baird: Good morning and congratulations on a great year.

Thanks, Rob. Mark Marcon - Robert W. Baird: I wanted to ask first, just on potential areas of positive swings on the ES side. You mentioned what your expectations are in GlobalView. In terms of COS, for the full year you ended up having a loss this year, right?

It was pretty close to a push. Mark Marcon - Robert W. Baird: Okay.

However, we had actually pretty good margins in the fourth quarter. Mark Marcon - Robert W. Baird: So what does that imply for full year fiscal '09 in terms of.

Much better. Mark Marcon - Robert W. Baird: I am just trying to get a sense for the delta.

We are not going to be giving bottom lines by product. It was breakeven. It is going to better, and we do give you where we are in revenue growth; a lot goes in to that.

Yes. There is so much Mark, a lot goes in to the margin growth and the profitability of any one particular part of the business, and it is just one factor in our overall thought process around margin growth.

However, as you think about that, Mark, though, the biggest unknown for us is sales. So, if we oversell in that capacity, we book that sales expense implementation expense against that P&L. Mark Marcon - Robert W. Baird: Sure.

So the bad news is, if we do not sell anything, margins will go up a lot. Mark Marcon - Robert W. Baird: But that's not the reason why you ended up hitting profitability in the fourth quarter, is it?

No, we had a very strong year and it is scaling very nicely. It is strictly scale and we have done some things to get our house in order around servicing, and how much we have to grow the variable direct labor that supports those accounts. So we have figured out how to optimize the service equation now, and that is beginning to pay dividends in terms of the operating margins and they are going up very nicely. So it is not in the 10s of millions, but it is a in the $5 million, $10 million, $15 million, number in a way if you think about it. Mark Marcon - Robert W. Baird: Okay. Obviously there is some concern about the economy, and it seems to me there are underlying dynamics that are going to lead to margin improvement regardless.

The thing that is really interesting this year is, if you go back and look at what happened in '01 and '02 National Accounts lead the way down on shrinkage in terms of pays per control. This time they are the highest, because a lot of it is the mix of new business that we are selling in COS, and the high end of the market, the companies we are serving, to my earlier comments, are growing, not shrinking and we have very little high end manufacturing automotive base to Midwest kind of high-end manufacturers in that mix of business. So it is doing pretty well, which feels pretty good. Mark Marcon - Robert W. Baird: Great. Then it seems like you also would benefit from your continuing efforts on the near-shoring, and offshoring in fiscal '09 relative to fiscal '08, is that correct?

Yes, absolutely. We continue to do more in that by adding more people in the offshore sites. We are doing some smart shoring in the US in El Paso and Augusta, and in Jackson. So all of those things do have a positive impact on margin growth.

Mark, as you think about that, we entered '08 with a little over 2,000 people in India. We will exit '08 with almost 3,000. We entered '08 with about, I think 1,000 people in El Paso, and really nobody in Augusta. We will exit this next year at about 1300 in El Paso, and around 400 or 500 in Augusta. So we are making some big commitments here in terms of moving to lower cost labor, lower taxes, lower building costs etcetera and it is paying off. Mark Marcon - Robert W. Baird: The service quality has remained constant?

Absolutely. I mean, you always have a few blips in the beginning when you are staffing up, but our service quality out of India as well as El Paso is terrific. Mark Marcon - Robert W. Baird: Great. Then, can you talk a little bit about what your expectations are for D&A and CapEx? What I am trying to get towards is, based on your expectations for revenues and earnings growth, what does that imply for free cash flow? Then, what level of cash do you feel you need to maintain, so that we can get a sense for what is going to get invested in the business, and how much is probably also going to be used for future buybacks?

I will give you a couple of things, first of all on CapEx, you would expect to see CapEx, perhaps up a little bit next year from this year as we do more smart shoring, but just a tick as opposed to be a tick under 200, it will be a tick over 200. So, CapEx is not driving too much of a variance in '09, same with D&A. So, in terms of operating cash flow for '09, we would be in the $1.7 billion plus range. As we said, we would continue to buyback shares at a rate higher than historical averages when you pull out the Broadridge and Claims cash infusions. So I think that gives you a sense. Now, in terms of the ultimate cash balance, the ultimate goal over the next year or so is to begin to move that cash balance down. I think we can operate at the billion dollar level between working capital requirements, between restricted cash, as well as the International cash that we have. We have done a good job of getting a lot of that International cash back and repatriating it in a very tax efficient manner. We are through a bulk of that. We still have a little bit more to go in '09. So that gives you a sense of the cash flow equation. Mark Marcon - Robert W. Baird: Perfect. Thank you very much.

At this time, there are no further questions. I will now turn the conference back to Mr. Butler.

Thank you. We appreciate everyone attending. Lot of great questions, and again, to reiterate, we are very pleased with '08. We are very optimistic about a good, solid, strong '09. So we appreciate your attendance. Have a good day.

This concludes today's Automatic Data Processing Incorporated 2008 earnings conference call. Thank you for participating. You may now disconnect.