Elena Charles - Vice President of Investor Relations Gary Butler - President and Chief Executive Officer Chris Reidy - Chief Financial Officer

Steve Fordham - UBS Kartik Mehta - North Coast Research Jim MacDonald - First Analysis Corp. Rod Bourgeois – Sanford Bernstein David Grossman - Thomas Weisel Partners Gary Bisbee - Barclays Capital Mark Marcon - Robert W. Baird & Co., Inc. Kelly Flynn - Credit Suisse First Boston

Good morning. My name is [Ray] and I will be your conference operator. At this time, I would like to welcome everyone to the Automatic Data Processing, Inc. fiscal 2009 earnings conference call. (Operator Instructions) I will now turn the conference over to Elena Charles, Vice President of Investor Relations. Ms. Charles, please go ahead.

Thank you. Good morning. I'm here today 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 2009 earnings call and webcast. A slide presentation accompanies today's call and webcast and is available for you to print from the Investor Relations homepage of our website at ADP.com. Just to remind you, the quarterly history of revenue and pre-tax earnings for our reportable segments has been posted to the IR section of our website. These schedules have been updated to include the fourth quarter of fiscal 2009. During today's conference call we will make some forward-looking statements that refer to future events and, as such, involve some risks and these are discussed on Page 2 of the slide presentation and in our periodic filings with the SEC. With that, I'll now turn the call over to Gary for his opening remarks.

Thank you, Elena. Good morning, everyone and thank you for joining us. I'll begin today's call with some opening remarks about our fourth quarter and our fiscal year '09 results. I'll then turn the call over to Chris Reidy to take you through the detailed results, and I'll return to provide you with our forecast for fiscal '10 and before we take your questions I'll provide some concluding remarks. To begin, ADP's results this year were clearly impacted by the severe economic conditions. Just to highlight a few, rising unemployment, frozen credit markets impacting companies' buying decisions and consumers' ability to purchase new cars, record low interest rates, volatile financial markets and the list goes on. This year has clearly not been business as usual not just for ADP but for most companies. Toward the end of fiscal '08 we saw a lengthening of the sales cycle at the high end of the market, particularly in Employer Services, indicating a slowdown and then early on in fiscal '09 the financial market volatility led to the most challenging economic environment that any of us has ever seen. Revenues for the '09 fourth quarter declined 5% year-over-year as foreign exchange rates continued to work against us, auto dealerships continued to cut discretionary spending, and new business sales growth and client retention continued to be under pressure. While in line with our forecast, we are not used to reporting such declines here at ADP; having said that, I am pleased that ADP reported both top and bottom line growth for the year despite the very challenging economy. Revenues grew 1%, pre-tax earnings grew 6%, and net earnings grew 5% excluding certain one-time items from both the current and prior fiscal years as were detailed in this morning's press release. Revenues were also negatively impacted about 2% by unfavorable foreign exchange rates. Earnings per share from continuing operations grew 10%, also excluding certain one-time items from both the current and the prior fiscal years. However, as we ended fiscal '09, our key business metrics were further weakened by the recession. You saw in the release this morning that new business sales declined 29% in the fourth quarter. As I indicated on our last earnings call, there were several large deals that occurred in May and June of last year which in part impacted the grow-over comparison. When we spoke to you last quarter we had seen an increase in the sales pipeline with large companies. This is still the case; however, it remains very difficult to close these transactions and as a result we did not get the same level of those large transactions in fiscal 2009. For the full year new business sales of $982 million were down 15% year-over-year compared with our forecast to be down around 13%, which clearly speaks to the continued difficult selling environment. Still, the addition of over $980 million of new recurring revenue is a great achievement given the weak economic backdrop. Client revenue retention in Employer Services for the year was down 1.2 percentage points, pretty much where we expected the year to end. Losses due to pricing pressures and out of business losses continue to be up significantly from a year ago as a result of the stressed economy. The number of employees on our clients' payrolls on a same-store sales basis also declined in the quarter from a year ago. The 5.7% decline in the quarter was anticipated given the continued rise in U.S. unemployment. This metric did grow 0.4% in our first fiscal quarter, then declined each subsequent quarter during the year, resulting in the full year fiscal year decline of 2.5%. Keep in mind that with this declining trend we anticipate tough year-over-year comparisons through the first half of fiscal 2010, but a lot more on that later in our discussion. Moving on to Dealer Services, as all of you know, both GM and Chrysler declared and have emerged from bankruptcy since we last spoke with you. In analyzing the data provided, Chrysler was specific as to dealership closings, but GM has still not provided specific data dealership by dealership. We believe the impact to Dealer Services is much more likely to be at the low end of our initial estimate of a $50 to $75 million annualized loss of revenue; however, as a result of the acceleration of dealership closings, we currently anticipate the impact will occur over the next 12 to 18 months compared with our previous forecast of about two years. Having said all that, the lost revenues and accelerated timing does not change our positive outlook for Dealer Services longer term. We still believe that what will emerge is an overall healthier automotive industry in which Dealer Services is well positioned to compete very successfully. You've heard me say this before, but it's worth repeating: Dealer Services' results in fiscal 2009 have been quite remarkable considering the extreme difficult automotive environment. Our Dealer Services associates have truly done a stellar job in executing against very tough economic circumstances. With that, let me turn it over to Chris to provide the details of our results.

Thanks, Gary, and good morning, everyone. We're on Slide 4. Total revenues increased 1% to $8.9 billion. Revenues were negatively impacted by the continued severe economic conditions and about 2 percentage points from unfavorable foreign exchange rates due to a stronger U.S. dollar. As you saw in our press release this morning, ADP's fourth quarter income tax provision included favorable tax settlements of $120 million relating to federal and state tax matters. I'd also like to remind you that we had a gain on the sale of a building in last year's fourth quarter, so on the slide we've shown both reported results as well as the results excluding this year's tax settlements and last year's building gain. Excluding these items pre-tax earnings increased 6% and net earnings grew 5% compared with a year ago. EPS from continuing operations increased 10% to $2.39 a share on fewer shares outstanding. Throughout the fourth quarter we temporarily halted our open market share repurchases though for the year we bought back 13.8 million shares for about $550 million. Just to pause on this for a moment, we take many factors into account when deciding the pace of our share repurchases, including cash balances, share price and overall market environment. I'd like to remind you that over the last four years we have repurchased 20% of ADP's outstanding shares for $5 billion and in addition we have increased our cash dividend for 34 consecutive years and paid nearly $630 million in cash dividends in fiscal 2009. These actions are consistent with our long-standing commitment to return excess cash to shareholders and as a result the level of excess cash is down significantly from several years ago. However, with the combination of extreme market volatility and uncertainty regarding the depth and duration of the global recession, we believed it was prudent to enhance our cash balances during '09's fourth quarter. Cash is king, especially in this economic environment, therefore our cash balance target given the weak economy is $1.5 billion and we ended this year just above that amount at $1.7 billion. That excludes the assets related to the commercial paper borrowing related to our extended investment strategy for the client funds portfolio. Thinking now about cash in fiscal 2010, we anticipate that operating cash flows will again be strong at about the same level as fiscal 2009, in the $1.5 billion range. CapEx requirements are low. We spent about $170 million this fiscal year and anticipate less than $150 million in fiscal 2010. We'd also like to spend $300 to $400 million on acquisitions in fiscal 2010. And the net of all these items and the payment of dividends leaves us with $300 to $400 million available for share buybacks in fiscal 2010, and we think that it's quite good given the weak economy. Now let's turn to Slide 5. Employer Services, as anticipated, revenues grew 4%, with flat revenues in our payroll and tax filing business in the United States. Our beyond payroll revenues in the U.S. grew 8%, led by growth in our time and labor management solutions and HR benefits, which is the employee's platform that we acquired early in fiscal 2007. Cobra administration and tax credit services, our smaller revenue base businesses, also contributed to beyond payroll growth. These increases were partially offset by a decline in retirement service revenues, which have been negatively impacted by the stock market contraction, with longer retirement asset values on which a portion of our fees are based. ES's pre-tax margin expanded 160 basis points from execution on margin expansion initiatives, continued expense control, and lower selling and implementation expenses from lower new business sales. However, I want to make it clear that we continued to make client-facing investments in areas such as product and service, unlike the last economic downturn where we cut these types of investments. As you saw in our press release, service-related expenses for the fiscal year increased about 9% from a year ago. In line with our expectations, pays per control, our same-store sales employment metric, declined 2.5% for the year. The number of pays in Europe also declined during the second half of fiscal 2009, resulting in a slight full year decline compared with last year on a same-store sales basis. Client retention declined 1.2 percentage points for the year. This is a revenue retention stat and continues to be impacted by increased out of businesses and price sensitivity, both related to the weak economy. Despite these negative items, we ended the year with over 89% retention, which is still at historically strong levels. Moving to new business sales, as Gary said in his opening remarks, the dollar value of new business sold was $982 million for the year, which was a decline of 15% for ES and PEO services combined as a result of the continued uncertain economic landscape and its impact on the sales cycle. Turning to Slide 6, PEO grew revenues 12% for the year, all organic. Pre-tax margin expanded over 10 basis points, with operating leverage and continued expense control being partially offset by higher benefit pass-through revenues and expenses. Year-over-year average worksite employees increased 10% to 193,000. Let's turn to Slide 7. Moving on to Dealer Services, as you know, Dealer Services results continue to be under pressure with the difficult state of the automotive industry. Dealer Services revenues declined sequentially throughout the year, ending with a 3% decline for the year, which included about $10 million in revenues from the January 2009 acquisition of Automaster. Revenues were negatively impacted by dealership consolidations and closings and cuts in discretionary spending. In North America, core DMS and transaction-related revenues declined for the year while beyond the core DMS revenues grew slightly, led by growth in CRM and front office solutions. Internationally, significant growth in Asia partially offset the decline in the U.K. market and softness in other countries across Continental Europe. Pre-tax margin declined just 20 basis points on lower revenues due in large part to Dealer's great job reducing expenses. Dealer Services continued to gain market share compared with a year ago while the overall market is consolidating. Let's turn now to our review of the fourth quarter results on Slide 8. Total revenues declined 5% to $2.1 billion in the quarter. This decline reflects the impact of the severe economic recession and about a 4% negative impact from unfavorable foreign exchange rates due to a stronger U.S. dollar. And we expect that FX will continue to work against us in the first quarter of fiscal 2010. Similar to the earlier slide for the full year, we've shown both the reported results as well as the results excluding this year's fourth quarter tax benefit and last year's fourth quarter building gain. Excluding these items, pre-tax earnings were up 7%, net earnings were up 5%, and earnings per share from continuing operations increased 7% to $0.45 a share on fewer shares outstanding. As stated in this morning's earnings release, we have taken steps necessary to reduce our expense structure as a result of continued near-term pressures on revenues. We recorded an incremental $40 million of restructuring charges in the fourth quarter compared to last year's fourth quarter. I wanted to point this out because it may not be obvious to you because at the same time management incentive compensation was reduced and lower stock compensation expense for the most part offset the restructuring charge. Let's turn to Slide 9. Employer Services total revenues were about flat for the quarter. Revenue in our payroll and tax filing business in the United States declined 4% in the quarter from continued economic-related pressures, primarily lower client fund balances from slower sales, lower wage growth, fewer employees on our clients' payrolls, and lower client retention. Our beyond payroll revenues in the U.S. continued to grow, with 4% growth in the quarter. ES's pre-tax margin expanded 275 basis points, primarily from lower selling and implementation expenses and from reduced management incentive compensation expense. As anticipated, pays per control, which is our same-store sales employment metric, declined 5.7% in the quarter compared to the fourth quarter last year as unemployment continued to rise. The number of pays in Europe declined in the quarter compared with a year ago on a same-store sales basis. The dollar value of new business sold declined 29% in the quarter for ES and PEO services on the continued weak economy and its impact on the sales cycle. Larger companies continued to delay outsourcing decisions, while other companies already in backlog are delaying their implementation. To remind you, new business sales represent the expected new annual recurring dollar value of these sales and our incremental recurring revenues to our existing recurring revenue base. Keeping in mind the revenue waterfall chart we shared with you back on our Q1 earnings call, pressures on growing new business sales will stretch revenue growth as we look ahead to the next fiscal year. We will share more on fiscal 2010 with you in a few moments. Let's continue with the quarter's results. Turning to Slide 10, PEO reported 7% revenue growth for the quarter, all organic. Revenue growth slowed in the fourth quarter compared with previous quarters, impacted by slower growth in worksite employees. Pre-tax margin was flat with a year ago as operating leverage and continued expense control was offset by higher pass-through revenues and expenses as well as the impact I just mentioned from slower growth in worksite employees. Year-over-year for the fourth quarter, average worksite employees increased 4% to over 194,000. Moving on the Dealer Services, Dealer Services results for the fourth quarter were clearly impacted by the weak automotive environment, with ongoing dealership consolidations and closings, lower transaction revenues, and dealerships cutting discretionary spending. Revenues for Dealer Services declined 9% in the quarter, with declines in both core and beyond the core DMS revenues. Revenues across Continental Europe and Asia were also down year-over-year. Additionally, project-related consulting revenues and software license fees recorded in last year's fourth quarter relating to an international non-core business resulted in a more difficult year-over-year comparison. Dealer's pre-tax margin declined 120 basis points on lower revenues, the impact of the Automaster acquisition and an increase in the provision for doubtful accounts for automotive bankruptcies. Strict cost-reduction measures partially offset these items. Let's turn now to Slide 12. This schedule should be familiar to you. Our disclosure of the client funds portfolio extended investment strategy includes the breakdown of the client funds portfolio into the short, extended and long components which you can see in orange on this slide. At the top of the slide you see the breakdown of both the average balances as well as the average interest yields. The orange section at the bottom of the slide gives you the corresponding pre-tax P&L impact, with the total representing the interest on funds held for clients' P&L revenue line item. The purpose of this slide is to provide a clear and succinct view of the overall impact of our extended investment strategy. With the ongoing state of the financial markets, I want to again remind you that the safety and liquidity of our clients' funds continue to be the foremost objectives of our investment strategy. Client funds are invested primarily in fixed-income securities in accordance with ADP's prudent and conservative investment guidelines. Heading back to the details for the year, the results were in line with our forecast. Near the top right of the slide you can see that the average client fund balances were down $500 million compared with the year ago period. Lower wage growth, fewer pays, lower bonus payments, slower sales and the negative impact of the Canadian foreign exchange rates compared with a year ago all contributed to the decline in average client fund balances. In addition to the client and average client fund balances, the average yield on the client funds portfolio declined 40 basis points to 4% this year, resulting in a decline of $75 million in interest on funds held for clients on the P&L. The impact from lower new purchase rates was most pronounced in the client short portfolio, where the average yield earned was 250 basis points lower than last year as the fed funds rate declined. The average corporate extended balances, the purple section on the slide, were up about $500 million compared to last year. The average yield on the corporate extended declined slightly, about 10 basis points. At the bottom of the slide you see a $21 million positive impact to the P&L as a result of the increased balance partially offset by the lower yield. As I just stated, average borrowings were up this year; however, the average interest rate paid on those borrowings dropped significantly, 290 basis points, to a blended average borrowing rate of 1.1%. The result was a $48 million positive impact to the P&L as the lower rate was only partially offset by higher borrowing. So when you take into consideration the entire extended strategy presented here, the result was a $6 million P&L decrease before tax or a decline of only 1%. The bottom line - $685 million of pre-tax dollars generated by this strategy in fiscal 2009 resulted in an overall yield of 4.5% compared with 4.4% last year. This shows the benefit in a declining interest rate environment of the extended laddering strategy which is enabled by ADP's triple A credit rating as the bottom line yield improved 10 basis points compared with the precipitous decline in market rates over the same time period. Now let's turn to Slide 13, where I'll take you through the results of the fourth quarter, which is important to help frame the step off into fiscal 2010. This schedule for the quarter is presented in the same format. For the quarter, average client fund balances were down $1.2 billion compared with the year ago period and the average yield on the client funds portfolio declined 30 basis points to 3.9% this year's fourth quarter, resulting in a decline of $23 million in interest on funds held for clients on the P&L. You can see that the impact from lower new purchase rates was most pronounced in the client short portfolio, where the average yield earned for the quarter was 230 basis points lower than last year. Average borrowings were up in the quarter; however, the average interest rate paid on these borrowings dropped significantly - 190 basis points - to a blended average borrowing rate of 0.3%. The result was a $9 million positive impact to the P&L as the lower rate was only partially offset by higher borrowing. Focusing your attention on the net P&L impact on the lower portion of this slide, taking into consideration the entire extended strategy presented here, the result is a $13 million P&L decrease before tax, a decline of 7%. The overall yield of the bottom line impact when calculated is flat with the '08 overall yield of 4.5% for the quarter. Now let's turn to Slide 14, where I'll take you through the extended investment strategy forecast for fiscal 2010. Before I get into discussing the detailed forecast, I'd like to update you on the credit quality of the portfolio. As was the case when we last showed you the details at our March analyst conference, currently over 80% of the portfolio remains triple A or double A rated. Net unrealized gains at the end of last week totaled $500 million, which is up from the net gain of $429 million as of June 30th reported in this morning's earnings release. While the level of unrealized gains will change as the interest rate environment changes, the way to think about this is that the unrealized gains indicate we are holding securities yielding higher rates than current market rates. As part of our extended investment strategy, our intent is to hold these securities to maturity and earn these higher than current market yields. I'd also like to point out that this $500 million net unrealized gain includes a net unrealized loss of about $20 million in commercial mortgage-backed securities, which is down considerably from an unrealized loss from CMBS of $121 million at the time of our March analyst conference due to improved liquidity in this market as a result of recent government actions. Now to the fiscal 2010 forecast. This slide summarizes the anticipated pre-tax earnings impact of the extended investment strategy for the client funds investment portfolio for fiscal 2010. 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. It's important to keep in mind about 20% of the investments are subject to reinvestment each year. We're anticipating a decline in average client fund balances of 4% to 6%, which represents pressures on the level of new business sales, continued pressures on wage growth, as well as on the number of employees on our clients' payrolls. We are forecasting pays per control to be down 5% to 6% for the year. We anticipate that the year-over-year comparisons will be much tougher early in fiscal 2010, when there was still some growth in the prior year's first quarter in the number of employees on our clients' payrolls, and get easier as we move into the second half of the year. We are anticipating a yield on the client funds portfolio of about 3.8%, down about 20 basis points from fiscal 2009. We're anticipating a decline of $60 to $70 million in client funds interest and lower balances and lower interest yield. We are anticipating that average corporate extended balances will decline about $300 to $400 million and the average yield on the corporate extended will be about flat. We are anticipating average borrowings will also decline about $300 to $400 million and the average interest rate paid on those borrowings will be down again in fiscal 2010 about 60 basis points to a blended average borrowing rate of 0.5%. Looking now at the lower right of the chart, you see that the anticipated lower interest expense offsets the anticipated lower corporate extended interest income. And taking into consideration the overall extended investment strategy, including lower borrowing costs, we anticipate a $55 to $70 million decline in pre-tax earnings for fiscal 2010. In fiscal 2010 we anticipate a decline of about 20 basis points from fiscal 2009's overall yield of 4.5% from the net impact of the strategy. Now I'll turn it back to Gary to take you through the remainder of the forecast for fiscal 2010.

Thank you, Chris. For those of you following along, we're now on Slide 15. We are assuming in our fiscal 2010 outlook that the severe negative economic conditions continue. And as you read in our press release this morning, we anticipate a worsening of our business metrics in the first half of fiscal 2010 when compared to fiscal 2009. I'd like to particularly emphasize the difficulty we anticipate in the first quarter year-over-year comparisons for the following reasons: As you may recall, ADP posted excellent results in the first quarter of fiscal 2009 - 9.5% revenue growth, with pre-tax margin expansion of 100 basis points and 20% earnings per share growth. However, the end of '09 first quarter is when the economy slowed significantly on the distress surrounding the overall financial markets and the credit markets in particular. As you know, we don't provide quarterly guidance, but I want to leave you this morning with a very clear understanding of the challenges we anticipate early in fiscal 2010. Revenues across the board will be negatively impacted by what we have been sharing with you all year - rising unemployment, stress from the economy as evidenced in pricing pressures, out of businesses and companies looking to save money by reducing the number of applications they buy from ADP, and record low interest rates. For Employer Services, fiscal 2009 saw the largest year-over-year quarterly decline in pays per control, our same-store sales metric, as well as the most precipitous quarter to quarter drop we've seen since we've been tracking it. When you think about the impact year-over-year, pays per control actually increased 0.4% in the first quarter of '09, and while we anticipate a decline of 5% to 6% on average for the year ahead, fiscal 2010, we anticipate that pays per control comparisons through the first half of the year may worsen slightly from our recent fourth quarter decline of 5.7%. This year-over-year swing in Q1 could easily be negative 7%. As we move into the second half of '10 we anticipate a flattening out of the year-over-year comparisons as we anniversary the steep declines in the third and fourth quarter of '09. The revenue sensitivity we've provided to you many times on this metric is that a 1 percentage point change is about $20 million in annual revenues. You can do the math. Fiscal 2010 revenues are anticipated to be negatively impacted over $100 million, with more of the impact expected earlier in the year than later in the year. Client revenue retention was under pressure during '09 from increased out of businesses and pricing from the economic pressures, and I anticipate continued pressures as we enter fiscal 2010. Revenues related to employment and retention are high-margin revenues, so the bottom line impact is anticipated to also be significant, especially early in fiscal 2010. As you know, while achieving over $980 million in new business sales growth for '09, this represented a decline of 15% from the new recurring revenues sold in fiscal '08. So with clients delaying implementations and less recurring revenues being added to the base, it's difficult to grow revenues near term. The PEO is also impacted in the same way in terms of employment slowing and slower sales growth. Additionally, cost of benefits has been increasing faster than the administrative fees charged for PEO services, putting pressure on the pre-tax margin, and we don't anticipate that that will abate in the near term. Similar pricing pressures impact Dealer Services, pressures from stress in the economy impacting the auto industry, dealership closing and consolidations and dealerships looking to save money by reducing the number of applications they use from ADP. Now let me take you through the forecast that you see here on this slide: We anticipate a decline of 1% to 4% for total revenues and diluted earnings per share from continuing operations of $2.29 to $2.39, which represents flat to a 4% decline from the $2.39 in fiscal '09 which, as mentioned earlier, excludes favorable income tax settlements in the fourth quarter. As is our normal practice, no further share buybacks are contemplated in the forecast, though it is our intent to clearly continue to return excess cash to our shareholders, obviously depending upon the market conditions. For our reportable segments we anticipate a decline in Employer Services revenues of 1% to 3%, which reflects a decline in pays per control of negative 5% to 6% and flat to down 1 percentage point in client revenue retention. We anticipate PEO services revenues will be flat to up 4% and a decline in Dealer Services revenues of minus 4% to 8%. We anticipate the annual dollar value of ES and PEO worldwide new business sales will be about flat compared to the $982 million sold in fiscal 2009. As is evident from the earnings per share forecast, we anticipate no improvement in pre-tax margins given the continued difficult economic environment anticipated for fiscal 2010. Turning to Slide 16, I'd like to leave you with some closing remarks before we open it up for your questions. Slide 16. Clearly, ADP's growth is under pressure from the difficult economic scene that we have; however, relative to the pressures on the global economy, ADP is performing well and our business model remains intact. ADP's return on equity this year is about 25%, including 2 percentage points from the favorable tax settlement, and we anticipate another year of 20% plus ROE in fiscal 2010, which is strong relative to the challenging economy. Our revenues are highly recurring and client lifecycles are just under 10 years. While pre-tax margins are under pressure from the weak economy, longer term I remain confident that once the economy begins to stabilize and organic revenue growth returns we will once again be able to achieve consistent pre-tax margin expansion. Cash flows are strong and consistent, and our capital requirements are low. As you heard from Chris earlier, we anticipate the level of fiscal 2010 operating cash flows to be similar to the $1.5 billion in fiscal 2009, which I think is pretty darn good in this economy. ADP's triple A credit rating reflects the strength of our business model and our important financial stability, which is particularly valuable in these difficult economic times. I want to be clear that for the reasons that Chris and I have articulated we anticipate that the year-over-year comparisons for both the top and bottom line during the first half of fiscal 2010 will be under significant pressures, particularly in the first quarter. ADP is a highly disciplined company and is focused on proper alignment of expenses and revenues, and as such we have appropriately reduced our expense structure to the forecasted lower revenue growth. Again, I think it is worth repeating that while we have reduced our expense structure, we are continuing to invest in new products and client-facing resources that will help drive our strategic growth initiatives. Our prudent and conservative client funds extended investment strategy, coupled with the strength of our triple A credit rating, has served us quite well, and I remain committed long-term to returning excess cash to our shareholders, including ongoing share repurchases, obviously depending on market conditions. With regard to the dividend, ADP has a 34-year record of consecutive dividend increases, a track record which we believe is important to our shareholders. Our recommendations to the Board regarding dividends are based on our longer-term business expectations rather than any one fiscal year's mathematical formula. Despite the strong headwinds we are facing today, ADP remains focused on executing against our five-point strategic growth program and I believe ADP is well positioned to leverage an inevitable recovery in the economy. Now let me turn it over back to the operator to take your questions.

Thank you. (Operator Instructions) Your first question comes from Steve Fordham - UBS. Steve Fordham - UBS: Looking beyond the current recession, what do you guys think is a reasonable medium term top and bottom line growth rate that investors [inaudible] ADP?

We clearly believe that longer term we can grow organic revenues in the 8% to 10% range. I would remind you, however, that in our business, with selling clients one at a time, that organic revenue growth takes several years to get up to that speed considering where we are today. And clearly with margin improvement on that kind of organic revenue growth you should expect mid-teens growth in earnings per share over the longer term. But it's going to take us a couple of years to get back there. I think importantly this time versus in '02 and '03, we have not cut back on the kind of expenses that we need to return to that kind of growth to anywhere near the order of magnitude that we did in '02 and '03 in our efforts to protect the 160 plus consecutive quarters of double-digit earnings per share growth. Steve Fordham - UBS: What kind of pricing assumptions are underlying your fiscal 2010 guidance?

A little less than 1%. Normally we would have been in the 1.5% to 2% in a given year. Obviously, this is a much more sensitive environment. We're seeing a lot more pushback from clients and those kinds of things, so we took a relatively conservative approach this year in terms of the price increases we expected.

Your next question comes from Kartik Mehta - North Coast Research. Kartik Mehta - North Coast Research: Chris, I was trying to better understand the fourth quarter margin at ES. I think you said you took a restructuring charge of $40 million, but I'm assuming there was an offset because of lower selling expenses because of lower sales. Did you say those two offset each other? I just wanted to make sure I understood exactly the drivers of margin for the quarter.

Yes, a couple of things. The $40 million incremental is both Dealer and ES, so it affects both, and it's taken on the corporate other line. So traditionally our restructuring charges across the last few years, whenever we take them - and we always take something - are recorded in other to keep the segment comparable year-over-year, and so we have that in the corporate other line. And what we're saying is that $40 million was offset by reductions in management compensation-type spending. So you wouldn't normally see it; we offset it. But it was there. It was significant actions and it was significant actions to prepare ourselves and kind of right-size the expense structure before the coming year. Kartik Mehta - North Coast Research: You talked a little bit about acquisitions, Gary, and I was trying to figure out, would these acquisitions be focused on the Employer Services side or would you even look at Dealer Services considering the environment and there might be some good opportunities for that business as well?

Actually, our Dealer Services acquisition backlog is quite good and their execution in fiscal 2009 was also quite good. The acquisition activity in '09 for ES was relatively low, but our backlog there is picking up and I would hope that that would improve significantly as we go into fiscal 2010. As a general statement, we try to buy somewhere between 1% and 2% of recurring revenue in acquisitions each and every year. Obviously, in a year where you have a big transaction that number could be a little higher, but we see pretty good activity in the backlog and are pretty focused on chasing some good opportunities. Kartik Mehta - North Coast Research: Chris, on the [float] portfolio, it sounds like you're assuming a couple of fed fund rate increases. If those don't happen, is there a way to look at what a 25 basis point change would mean to the portfolio or to the EBIT line?

Yes, I think it's consistent. If you remember, we've given those kinds of sensitivities in the past. So an impact of 25 basis points on all rates is about $6 million and the impact of 25 basis points just on the overnight rates is about half that.

Your next question comes from Jim MacDonald - First Analysis Corp. Jim MacDonald - First Analysis Corp.: I'm trying to get a feel for the trends that you're expecting and you've seen in clients and also in pays per control. If you're looking for kind of minus 7% pays per control in the first quarter next year, can you see that getting close to flat by the end of the year?

Yes, that's kind of the ongoing assumption here. If you look at the year we've just concluded, our average on pays per control was positive 0.4% in the first quarter, negative 0.6% in the second, negative 4.2% in the third, and negative 5.7% in the fourth. Our plan for the year ahead, I think, contemplates a 5% to 6% decline on average, so you can see as you anniversary against those numbers the decline lessens to basically a flat comparison in the fourth quarter. Jim MacDonald - First Analysis Corp.: I think you said clients were - I can't remember the number you used - down a couple percent, but could you also talk that way about your number of clients trending? Do you expect that to be able to pick up because that would imply improving sales productivity, I guess?

You have to be careful about the client metric because we could sell one client in GlobalView for $20 million a year and we could do a CPA payroll for a two-man payroll at $500 a year. So we're not seeing client growth on the low end of the market because we're really not expanding there in terms of headcount and our losses are heaviest there because you have the most churn. So the way to think about it would be a slight decline in overall clients, as well, but driven more by smaller, less profitable clients on the low end. Our retention rate and client growth in the mid and high end of the market is still pretty remarkable.

Your next question comes from Rod Bourgeois – Sanford Bernstein. Rod Bourgeois – Sanford Bernstein: I wanted to inquire a little bit, not about the sort of pricing but the discounting and promotion activity that goes on in the market. Is discounting activity at this point today better, worse or in line with the discounting activity that was occurring three months ago given the tougher bookings environment and the client retention situation?

I would give you just kind of anecdotal feedback there, Rod. I don't think it's really significantly different than what we've seen and shared with you in the last quarter. I would say it's flat to slightly better in the environment we're in today. Rod Bourgeois - Sanford Bernstein: And then in terms of the expenses, it's impressive that you're planning to keep margins flat despite the weakening in a lot of your revenue driver metrics, but can you specify what expenses you're cutting to keep margins flat despite the negative operating leverage you must be facing? I know you're getting some benefit from lower sales commissions, but are there other cost savings initiatives that are beyond what you did last year that you can specify for us?

Yes. Clearly, as we went into the third quarter - and one of the beauties of ADP is our visibility of revenues as we look out - we began an increased effort on expense control in the third quarter. And as we began to get closer to what was happening in the auto industry, particularly with GM and Chrysler, just in terms of pure headcount, for example, in Dealer kind of across the board our headcount as we exited '09 versus as we exited '08 is probably down 15%. So we've appropriately sized the headcount expenses as well as any kind of variable costs we can control in Dealer in that regard. In terms of Employer Services, we've just completed in the fourth quarter a span and layering kind of activity where we took out a considerable reduction in mid-level management costs as well as we have appropriately sized our implementation and other G&A expenses to reflect the revenue environment that we're in. R&D expenditures are down slightly; nothing to get concerned about. Headcount in sales is down around 4% year-to-year between exit rates in '08 versus exit rates in '09; most of that is skewed toward the lower end of the market. So that would give you some kind of idea. Obviously, our management bonus comps are down because we have fewer managers today than what we had, but in total we appropriately sized headcount and other expenses to match the revenue forecast.

Additional, Rod, the restructuring charge that we took in the fourth quarter, as Gary said, was in both Dealer and Employer Services, and essentially the benefit of that going into next year is $200 million of lower costs. So we've taken those actions. Now if you think about the other pressures that we have for next year, we talked about the interest on client funds being down $60 to $70 million. We have health care benefit increases; that's probably $25 million. We froze merit increases, but we have increases that kick in in the fourth quarter of next year. So when you put all those things together you've got about a $90 million expense benefit in fiscal 2010, which is 1% of revenue is down $90 million, so that's how you kind of get to the flat. Obviously, there's a lot of other puts and takes that you could go into, but they tend to offset each other. Those are the big items as to how you get to flat at 1% down and obviously with additional increases in the decline in revenue it puts more pressure on you where you start seeing at the low end an $80 million drop in NOI or $0.10 a share. So that kind of gives you how we're thinking about the range. Rod Bourgeois - Sanford Bernstein: You're clearly on top of the costs. That's a very helpful update. Just one other quick question on the buybacks. I'm assuming you're sticking with the practice of excluding buybacks from your guidance and, if so, is there any reason to expect a change in the pace or the magnitude of buybacks in fiscal 2010?

We have excluded it from our guidance, as I think Gary had mentioned, but in terms of pace we said $300 to $400 million. I think we also talked about the fact that that is kind of in line with the pace with the second half of '09, where we bought about $300 million back on an annualized basis. It all depends on the market conditions and everything else, so it's hard to say that it'll be backend loaded or ratably; I think you're better thinking ratably, but we reserve the right to move it to the back end.

Rod, the other way to think about it, I think, depends also we put aside some cash to deal with acquisitions should they present themselves, but that being said we've also kind of raised the floor of cash on hand that we want to have from $1 billion to $1.5 billion. So you have to look at all those things in the aggregate to really reflect that and that coupled with market conditions. But you shouldn't hear anything from us that longer term, you know, we're in the game of share buybacks and raising our dividends over time. Rod Bourgeois - Sanford Bernstein: And just real quick on that, the need to raise cash on hand from $1 billion to $1.5 billion, is that just being prudent given the uncertain environment or is there a portfolio?

Absolutely. You know, cash is king and I think that was the desire, that with the economy the way it was it was prudent to do that at this time.

Your next question comes from David Grossman - Thomas Weisel Partners. David Grossman - Thomas Weisel Partners: Maybe if I could just follow up that last question on the share repurchases and the cash, with what looks like things not getting worse I'm just wondering is there something that we should think differently about how you're managing the business? Perhaps it's your appetite for acquisitions? Perhaps you could explain in a little more detail about why you've decided to raise or the decision to raise the cash on hand, which appears to be about 50% from where you were?

I think it's a combination of things - should a decent-size acquisition present itself; clearly, we're focused on maintaining the triple A and very low debt with a very strong cash position is certainly an important component in that; and also the instability in the marketplace in general in terms of the stock market. So we're kind of looking at all those things in the aggregate and basically just made a decision that a little bit of a pause is not a bad thing until we get more clarity on the go forward environment.

I think I'd add two things. That $1.5 billion is not a line in the sand once we start coming out of the economy. And secondly, Gary referred to the triple A rating; we have met with the rating agencies recently and came away from that with our triple A rating intact. David Grossman - Thomas Weisel Partners: So is it fair to assume that the agencies are placing a higher priority on cash to maintain that rating?

I think they are for every company, so there's certainly an element of that. David Grossman - Thomas Weisel Partners: And then secondly, Gary, you obviously sound very cautious about the near-term outlook but if history is a good parameter your results are typically a lagging indicator, so with that said do you expect the time lag for your recovery to be any different to the prior cycles? Because your business is different than it was obviously in the last cycle and this is a much different cycle than it was previously? And then second, if I look at your sales guidance for next year, it's flat year-over-year. Is that just a function of the comparisons or is there something that you're seeing that's at least giving you some confidence that things are starting to kind of look like they're bottoming out here as we exit fiscal 2009?

In terms of sales, the most difficult comparisons we've had have been in the mid and the high end of the market, and I think guys sitting in my chair or Chris's chair around the world are reluctant to make decisions until they know they're standing on some kind of a solid footing, even if that's a down footing from where they've been in the past. And so the uncertainty of where the global economy and the U.S. economy specifically has been has caused people to just defer decisions. My sense - and that's all it is, a gut reaction from being in the business for over 30 years - is that we're approaching the bottom of that and we're seeing pretty good activity in the PBRs. And if past is prologue you should start to see more of an acceleration as we move through the year in terms of sales activity. That certainly would be my gut call. If that weren't the case I probably would have downsized the sales investment, which we've only marginally trimmed back and really at the margins as opposed to at the core. Elena was pointing out to me that PBR means prospective business report in terms of our activity of future prospects. And, again, the decline in terms of same-store sales should hit the trough here if all the economic indicators are correct some time in the late fall, in which I would expect that metric to start increasing as we exit there. David Grossman - Thomas Weisel Partners: So would you expect the large-scale market to come back before the medium and small?

Well, you know, if you look at small, medium and large, our sales declines on the small end of the market are in the high single digits. In the middle part of the market it's kind of in the middle teens. And at the high end of the market [break in audio] it's well over 20%. So certainly when you start doing comparisons as everything gets back to normal you're going to see a lot larger increases at the high end and the mid part of the market. And my gut would tell me that's what's going to happen. David Grossman - Thomas Weisel Partners: Obviously, you went out of your way several times to mention the difficulty of the comparisons and the impact of the declining metrics on the first half of the year and particularly in the first quarter. I don't know, Chris, if you can give us any - I know you don't like to give quarterly guidance and I respect that, but is there anything you can do to kind of perhaps better direct us in terms of what we should expect in terms of the first quarter performance?

Well, we're glad you picked up on that; we certainly went out of our way to mention it a few times. And I think it really is tough in terms of the metrics, the year-over-year compare, particularly in the first quarter. So I think you can expect, if you're looking at it at the year and we're saying zero to 4% down, you can expect the first quarter to be much worse than the worst case of the 4%, and then get better as the year progresses. So, again, we don't like to give quarterly guidance, but that's the way to think about it.

But clearly, I mean, revenues were up 9% in the first quarter of last year; we're forecasting zero to minus 4% for the facility in '10, so you can do the math. And on top of that we had very strong earnings in that particular quarter as well. That being said, we're being very tight on expenses as we enter into the first quarter and generally we do pretty well in the first quarter, but time will tell. So hopefully that helps.

Your next question comes from Gary Bisbee - Barclays Capital. Gary Bisbee - Barclays Capital: I just wanted to I guess get a little better sense how you're thinking about the new business sales. Is it a realistic target to assume flat next year? I guess I'm trying to understand the first half versus the back half assumption.

You know, the sales started really falling last year in the September quarter, I mean, particularly in September and as we went through October, I think, as I articulated at the second quarter earnings call. I've never seen anything like the freeze in new business activity that we saw in late September and October as the credit markets were frozen, etc. The other thing that kind of exacerbates the fourth quarter of this past year is the big deals that we got in the fourth quarter of '08. We couldn't get them across the finish line. On top of that, all of our sales incentive systems and compensation system are all based on how you sell and they have accelerating incentives, so the more you sell the better you're going to do. In the current environment that we had in the fourth quarter we had more people, so to speak, that were out of the hunt in terms of getting to those kind of levels, so it's difficult to say how much of that was, quote-unquote, held back by some of the sales force, particularly on the high end. We'll see. Our sales results in July were quite encouraging - strong double digits - so that felt good, but it's hard to say after only one month. Is that just because business got pushed from June to July or have we truly turned the corner on the sales scene? But we obviously feel like we're at the trough or I would have cut back on sales expense more than I did, but it takes too long to build it back up and get competent people and so we're making the bet that we'll get through the trough early in '10 and come out of '10 in a strong way. Gary Bisbee - Barclays Capital: Just to clarify that, you said new sales were up double digits in July?

That's correct. But one month does not a year make, let me be clear.

And I would reemphasize the comment that Gary made about there is some potential for slippage from June into July. The sales people are compensated on compensation plans and if they're kind of out of the hunt then, you know, saving it for the next year is a natural inclination, so there might be some of that. So one month doesn't make the trend, as Gary said. Gary Bisbee - Barclays Capital: Okay. And then you made a comment earlier that based solely on organic revenue growth given the weak sales last year and maybe potential for flattish sales this year that it could take a couple of years to get ramped back up to hit that 8% to 10% sort of longer-term bogey. And I understand that that's sort of the math of how it works. Is that the kind of thing where if we were to return to robust employment and get some of these cyclical factors other than new sales turning in the right direction, do you still think it could be, I don't know, a two-year or three-year time period to get back there or if we start to get at some point growing employment, some increases in interest rates, that maybe that would help?

I would expect that as you go into '10 you start getting back into positive but in a kind of mid single digits kind of way, to think about it. And then as you go into '12 and beyond you can start thinking about approaching double digits. So your retention improves, your sales results improve, your balances grow, your number of pays grow. The stock market hopefully goes back to more normal levels, so you get increases in things like our 401(k) business. But it doesn't happen overnight like you're making widgets and all of a sudden it jumps 10% and you have 10% more revenue for widgets. The unemployment levels, if they stay at high levels and don't improve, don't make it worse, but it doesn't give you the shot that you need to get additional revenue growth. If things were to turn around at the end of fiscal year '10 and we started going in the other direction that would have a different impact on '11, but I don't think anybody's predicting that to happen. I think unemployment levels will be with us for an extended period of time. Having said that, the sales activity can start hopping much faster than unemployment coming back, so it depends on how that plays out as to what '11 would look like. Gary Bisbee - Barclays Capital: In regards to M&A potential for Employer, obviously you had a couple of the deals you did two years ago that were really successful, like the Employees deal. Are there any holes in the product offering or any places where you think you might be able to find similar successes or would it be much more just focusing on finding smaller competitors that are in tough shape given the economy where you could lock on some incremental business?

I think it's kind of all of the above. Clearly, beyond payroll we have more kind of opportunities in Europe because the product suite is not as broad there. There's clearly some areas around performance management and succession planning and HR extensions and benefit extensions that will help us particularly in our ASO and COS offerings at the high end of the market. And there's certainly a number of regional core payroll and other kinds of providers that are obviously seeing the same kind of stress that we're seeing. So I think it's a combination of all of the above.

Your next question comes from Mark Marcon - Robert W. Baird & Co., Inc. Mark Marcon - Robert W. Baird & Co., Inc.: I was wondering on the Employer Services side if you could give us some color with regards to the differentiation that you would expect in terms of core payroll versus beyond payroll. Even this last quarter, as bad as things were, it looks like your revenue was up 4% in beyond payroll. How are you thinking about that as the year goes along? Where do you think that the mix shakes out between beyond payroll and core by the time we get out towards the end of next year?

Clearly the impact is going to be, as you've seen, in terms of payroll being the bigger decline of the two, so it depends on where you are on the down 1% to down 4% on revenue. But you could probably expecting the skewing to look a lot like it has in the fourth quarter and in fact the full year.

But we expect beyond payroll would still remain positive in fiscal 2010. Mark Marcon - Robert W. Baird & Co., Inc.: Can you talk about the areas in beyond payroll where, despite the environment, you expect to see the strongest growth?

We're seeing great activity in our benefits outsourcing, great activity in the ASO product, where we're selling the bigger bundle, sales in our time and labor management are still positive because the return on investment there is pretty good. So in the broader ranges of the bigger bundles is where we're seeing the best growth there. And our insurance services products, both workers’ comp and medical or health care are growing quite nicely. Mark Marcon - Robert W. Baird & Co., Inc.: Could you also differentiate between U.S. versus international? Obviously, it's a global recession, but international seems like a great long-term opportunity for you.

Yes, international would be stronger than U.S. today. They've certainly been impacted by the economy but not to the degree that we have in the U.S. Our headcount international in sales is up mid single digits year-over-year as we go into '10. There's a good bit of other opportunities beyond payroll there. The big wild card there is what happens with GlobalView on an international basis but, again, we're seeing better activity but activity and bookings still are not 100% correlated. Mark Marcon - Robert W. Baird & Co., Inc.: And you are seeing a pickup with regards to activity just in general. You obviously have a great view into the labor markets. Are you seeing any signs of stability in the last few weeks in terms of just looking at your core payroll data?

The same-store sales were still not overly encouraging in the fourth quarter, and in July we didn't see any improvement there; you can't forecast a quarter on one month. But it's certainly not going up, but I would concur that I think we're nearing the bottom of the trough. As we look at the year ahead, kind of our down the middle is an unemployment scene of 10.2% to 10.5%. There's only 140 million working Americans in the private sector and when you're losing 300,000 to 400,000 jobs a month it doesn't take long to get to another 1.4 million, which would be 1% on top of our 9.6%. So I think it's going to continue to move down through the first half and hit the trough as we turn into the Christmas season and then the third quarter. Mark Marcon - Robert W. Baird & Co., Inc.: And then two other questions, maybe hard to answer but obviously a lot of news around changes in health care. How do you think that that would end up impacting you? It sounds fairly certain that we're going to have some revisions; obviously, the final shape is hard to say. But how do you think that impacts you?

If I were to take a bet I think it's much more of a positive than a negative. Clearly, a negative would be a single-payer government system with no employer-provided health care would be an extreme on the other side. The extreme on the right-hand side of that would be clearly an employer-delivered health care scene with private but mandates and penalties that have to be collected as you pay people over time. My guess is you're going to have a mixture of both, but that with even the recent compromises that came out of the committees as recently as yesterday it appears they're going to move the employer mandate much lower into small business, with some kind of a cap before the 8% penalty starts picking up, around $750,000 a year in terms of payroll. And that being said, whatever burden they put on employees to participate in health care and whatever they pay, somebody's going to have to collect that money and they're going to likely collect it ratably over the year through payroll deductions. So how all that sorts out is kind of the wild card, but as a betting man I'd say it's more of a plus than it is a minus. Mark Marcon - Robert W. Baird & Co., Inc.: It sounds that way to me, too. I'm assuming you didn't factor that into guidance or longer-term expectations.

If you could factor anything that the boys in Washington are doing or the boys and ladies in Washington are doing, I think you'd be a lot better man than me. Mark Marcon - Robert W. Baird & Co., Inc.: How strategically important is having a triple A rating? I mean, there's such a small number of companies at this point that actually have that. How much of a diminution in your status would it be just to go to double A and take advantage of the current environment to buyback even more stock?

You couldn't borrow enough between the difference between triple A and double A to make it worth your while and it's a one-year opportunity. So really to get a substantive multi-billion dollar kind of leveraging to do that would likely take you to triple A - I mean, to single A, which clearly means you couldn't borrow at the rates that we're borrowing at and you would have to have other kinds of offsetting assets as you moved the $1.3 trillion that we move through the money market system. Some days, as we discussed earlier, we may have a negative balance at our lead bank - minus $6, $7, $8 billion - and we have to tie up no assets in order to do that because it closes out at the end of the day. So from that standpoint and the ability to sell our tax filing services versus our competition and as we move that money movement into Europe, which we're clearly doing, it's clearly a big plus on the sales side.

I think I would just add to that that with the experience of the last year and particularly with the frozen credit markets, having that triple A was never more important and never apparent as to how important that was than it was, particularly during a few months in the fall. So that was absolutely important to us to have that. When you're moving as much money of our clients' funds as we are, it becomes a discussion with the clients as to the safety of those funds, and that triple A really helps in those conversations.

Your final question comes from Kelly Flynn - Credit Suisse First Boston. Kelly Flynn - Credit Suisse First Boston: I was hoping you could drill down a bit on any divergence you're seeing between small/mid-size businesses and then your larger business clients on any of the key metrics that you think are relevant? And then specifically as it relates to the small/mid-size, is the CIT situation having any impact or do you have any views on that overall, potential impact?

Well, CIT's a client so certainly that's a concern. On the high end of the market our metrics other than sales are pretty darn good. We have great service quality, almost mid-90s kind of retention rate; our beyond payroll sales, the results are good. On the small end of the market we're seeing better sales results than on the high end, but clearly more of a diminution around out of businesses and people canceling services and those kind of things around price sensitivity. And in the mid-size you're kind of a combination of both. So I think the biggest swing back earliest is going to be once the big companies start loosening up capital spending as we go into fiscal 2010.

I don't think this was the point of your question but I'll just take the opportunity to mention that we don't have any exposure in our investment exposure to CIT. Kelly Flynn - Credit Suisse First Boston: And the small business trends that you're seeing, how does this compare with what you've observed in prior cycles? I know you said just kind of based on your gut overall and your years of experience you were feeling like things were bottoming overall. Using that gut instinct, do you have any views on how small business trends that impact your business will lag potentially relative to the larger trends?

I think they'll come back the fastest in terms of retention and pay growth and those kind of things. The place where we've seen the most sluggishness is in that mid part of the marketplace above the really small guys but below the mid-size to bigger guys. And typically, since those people are mostly payroll and tax and maybe one other application, that activity should come back fairly quickly once it swings. Kelly Flynn - Credit Suisse First Boston: And just finally, just to clarify, you said with respect to the smaller clients you're seeing better new sales results but more cancels?

In fiscal 2009 we're seeing less of a decline in terms of new bookings.

If you think about 15% decline for the year, it was in the high single-digit decline comparatively to the 15% overall decline.

So thanks, again, for calling in today. I think we obviously are doing our best to keep our expenses in line and clearly appreciate all the great questions. My basic posture really hasn't changed. We've got a great business model; we've got a great product set. We've protected our strategic investments in sales and service and product, and I expect that we'll be well positioned once the economy turns. So with that we'll close down and thank you for listening.

Thank you. This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.