John M. Morphy - Senior Vice President, Chief Financial Officer, and Secretary Jonathan J. Judge - President and Chief Executive Officer of Paychex, Inc.

Analyst for Adam Frisch – UBS Liz Grausam - Goldman Sachs Rod Bourgeois - Bernstein James Kissane - Bear Stearns David Grossman - Thomas Weisel Partners Rod Bourgeois - Bernstein Brandt Sakakeeny - Deutsche Bank Mark Marcon - R.W. Baird Gary Bisbee – Lehman Brothers Tien-Tsin Huang - JP Morgan Shardik Methpa - FTN Midwest Pat Burton - Citi Charlie Murphy - Morgan Stanley TC Robillard - Banc of America Securities

Good day, ladies and gentlemen and thank you for standing by. (Operator Instructions) I would now like to turn the call over to Mr. John Morphy, Senior Vice President and Chief Financial Officer for Paychex. Sir, you may begin.

John M. Morphy: Thank you for joining us today for our second quarter earnings release. Also with us is Jon Judge, our President and CEO. The teleconference call will be comprised of three sections: a review of our second quarter 2008 financial results including comments and updated guidance, for full year fiscal 2008, an overview from Jon Judge, and lastly, a Q&A session. Yesterday afternoon after the market closed we released our financial results for the second quarter ended November 30, 2007 and we have filed our Form 10-Q with the SEC which provides additional discussion and analysis of the results for the quarter. These are available by accessing our Investor Relations page at www.paychex.com. In addition, this teleconference is being broadcast over the internet and will be archived and available on our website until January 21, 2008. Fiscal 2008 is off to an excellent start. We are on track to achieving our eighteenth consecutive year of record revenue and earnings. We achieved record net income of $147.1 million or $0.40 diluted earnings per share in the second quarter and look forward to continue to set records in the future. Total revenue increased 12% generated by payroll service revenue growth of 9%, human resource services revenue growth of 24%, and interest on funds held for clients growth of 4%. Service revenues growth of 12% continues to be in line with our expectations. Operating income, excluding interest on funds held for clients, increased 17% to $178.7 million. On December 14th, 2007, we completed a stock repurchase program we announced in July of 2007 and have repurchased 23.7 million common shares for a total of $1 billion. We will now look at the consolidated income statement. Payroll service revenue increased 9% to $361.6 million and 8% to $723.1 million for the three and six months ending November 30, 2007. This growth was again driven primarily by client-based growth, higher check volume, price increases, and increased utilization of our ancillary payroll services. As of November 20, 2007, nearly all of our clients utilized our payroll taxes administration services and 72% of our clients utilized our employee payment services. Human resource services revenue increased 24% to $115.5 million and 22% to $228.8 million for the three and six months ended November 30, 2007. The acquisition of BeneTrac contributed approximately $2.5 million to the growth during the three months ended November 30, 2007. The following factors also contributed to human resource services revenue growth: retirement services client base increased 17% to 46,000 clients; our comprehensive human resource outsourcing services client employees increased 22% to 401,000 client employees served; the workers compensation insurance client base increased 19% to 67,000 clients; and the asset value of the retirement services client employees funds increased 24% to $8.9 billion. For the three and six months ended November 30, 2007, interest on funds held for clients increased 4% and 6% respectively. The funds held for clients average balances increased 6% during the second quarter and 5% for the six months of fiscal 2008. The average interest rates earned on the fund held for clients were 4.0% and 4.1% for the three and six months ended November 30, 2007 as compared to 4.0% for both of the respective periods last year. Recent Federal funds rate reductions will negatively impact fiscal 2008. Based upon current and expected attributes of our investment portfolio, we estimate an additional 25 basis point reduction in the Federal funds rate at this point in time will reduce interest on funds held per client by approximately $4.5 million over the next twelve month period. Our guidance disclosed herein is based upon the current Federal funds rate of 4.25%. Please refer to our form 10-Q for further information on the effect of changing interest rates on funds held for clients. Consolidated operating and selling general and administrative expenses increased 9% for both the three months and six months ended November 30, 2007 to $298 million and $595 million respectively. The increase is primarily related to our continued investment in personnel related to selling new clients, retaining clients, and promoting new services. As of November 30, 2007, our employees increased 6.1% from the same time a year ago to 12,200 employees. Operating income increased 15% to $209.5 million and 14% to $420.1 million for the three and six months ended November 30, 2007. Operating income excluding interest on funds held for clients increased 17% to $178.7 million and 15% to $357.0 million for the three and six months ended November 30, 2007. We expect the year over year growth and operating income, excluding interest on funds held for clients, for the year ending May 31, 2008 will be approximately 15%, consistent with our long-term growth objectives. Investment income decreased 25% for the three months ended November 30, 2007 to $7.5 million and increased 2% for the six months ended November 20, 2007 to $19.7 million. The changes in investment income reflect the funding of the stock repurchase program completed on December 14th. Based upon current interest rate levels, we expect fiscal 2008 corporate investment income will decrease by 35 to 40% compared to fiscal 2007. This is primarily due to the $1 billion stock repurchase program which reduced investment income yet is expect ed to yield slightly higher earnings per share results for fiscal 2008 due to fewer common shares outstanding. Effective income tax rate was 32.3% for both the three and six months ended November 30, 2007 compared with 31.0% for the same period a year ago. The in crease in our effective income tax was primarily the result of lower expected levels of tax exempt income to the funding of the stock repurchase program as well as recent decreases in market rates of interest. The rate also increased as a result of adopting FIN 48, the new tax accounting pronouncement related to uncertain tax positions. Moving on to the balance sheet, cash and\ total corporate investments were $476.1 million as of November 30, 2007. Our cash flows from operations were again strong at $358.2 million for the six months and an increase of 28% to $278.8 million in the same period a year ago. Our total available for sale investments, including corporate investments and funds held for clients, reflected a net realized gain of $13.9 million as of November 30, 2007 compared with a net unrealized loss of $114.9 million as of May 31, 2007. The three-year AAA municipal securities yield decreased to 3.2% ended November 30, 2007 from 3.7% at May 31, 2007. Our net property and equipment balances activity during the first six months of fiscal 2008 reflected capital expenditures of approximately $40 million and depreciation expense of approximately $30 million. Client fund deposits as of November 30, 2007 decreased to $3.5 billion from $4.0 billion as of May 31. Client fund deposits vary widely on a day-to-day basis and averaged $3.1 billion during the six months ended November 30, 2007. Client fund deposit balances continue to grow at a lower rate due to continued wage inflation, accompanied by no index changes in the Federal deposit rule since 1993 means more and more clients are required to pay their taxes weekly versus monthly. The fund balances benefit from ReadyChex was not as great as in prior years as the growth of this product is now much closer to that of direct deposit. Total stockholders equity was $1.2 billion as of November 30, 2007, reflecting $226 million in dividends paid in the first six months and $865 million in stock repurchases. A return in equity for the past twelve months was an excellent 30%. The current outlook for the full fiscal year ending May 31, 2008 has been revised from that provided in our quarterly report and form 10-Q for the quarter ended August 31, 2007 to reflect slightly lower payroll service revenue growth and the decreases in the Federal funds rate subsequent to September 26, 2007, the day we had filed that form 10-Q. Rejected revenue, net income growth, and other financial results are summarized as follows: payroll service revenue growth is projected to be in the range of 8-9%. Human resource service revenue growth is projected to be in the range of 20-23%. Total service revenue growth is projected to be in the range of 11-13%. Interest on funds held for clients is expected to be in the range of a decrease of 5% to flat year over year. Total revenue growth is projected to be in the range of 9-11%. Corporate investment income is projected to decrease by approximately 35-40%. Effective income tax rate is expected to approximate 32%, and net income growth is projected to be in the range of 11-13%. A weighted average of outstanding shares for fiscal 2008 are expected to be approximately 370 million. Again, our quarterly earnings release process accompanied by the simultaneous filing of our form 10-Q and your early analyst reports gives us a pretty good indication of what you would like us to comment on during this teleconference call. To provide additional comments related to the economy, payroll revenue growth, and our investment of funds held for clients and corporate investments, we provide the following: obviously an excellent first question would be why was second quarter payroll revenue growth stronger than the first? As we have discussed previously, each fiscal quarter has a little of its own identity for seasonality but does not necessarily carry over to the next quarter. Examples include the number of business days in the quarter, which are usually consistent year over year and quarter over quarter, but not between sequential quarters. Seasonal employment, such as summer hires and the other one, client payroll year end at December 31st which generates many year end reports in the January time frame et cetera. Payroll revenue growth in the first and second quarter was consistent with our expectations. The confidence we expressed that the second quarter growth would be better than the first quarter materialized. We did not categorize the first quarter as a de-acceleration nor at the same time do we see the second quarter as an acceleration. It only takes approximately $4 million in a quarter to move the payroll revenue growth number about 1% and based upon all of our revenue variables, it is not unusual for our quarterly payroll revenue growth to be somewhat in consistent during the year. These variables tend to even out on an annual basis and our guidance is annualized guidance and not quarterly guidance. Another good question: if payroll growth met expectations in the first half of fiscal 2008, why did we lower our payroll revenue growth guidance to 8-9% for fiscal 2008? At the end of our first quarter, our projections for fiscal 2008 payroll revenue growth were near the low end of our 9-10% guidance range. Many variables effect payroll revenue growth, some of which have nothing to do with the economy, such as frequency of payroll and other factors that year over year comparisons and things similar to that. Based upon our second quarter forecast process, we came to the conclusion that our most probable forecast for fiscal 2008 payroll revenue growth is between 8-9%. There is no general cause for the slight reduction in revenue reduction. To put this in perspective, one-half a percent of annual payroll revenue growth is less than $2 million per quarter. Regarding the economy, we are seeing little if any change in economic conditions and we believe the small business economy remains in a relatively constant state. Our lowered guidance on that income was totally related to the effect of lower interest rates and being able to more exactly project the effects of our stock repurchase program. Our investment portfolio does not have the same exposure as many others related to the subprime credit crisis. We currently have no exposure to the following investment types: asset-backed commercial paper or asset-backed securities, auction rate securities, collateralized debt obligations or CDOs, enhanced cash or cash plus mutual funds, structured investment vehicles or SIVs, subprime mortgage securities, and as many of you are probably aware, yesterday the S&P downgraded and/or put a negative watch on many of the municipal bond issuers. While approximately 40% of our portfolio is insured, our purchase in bonds is not based on insurance but the strength of the issuers. Our average bond rating is AA with nothing below an A rating. Accordingly, we do not believe the S&P action will have any significant impact upon us. You should be aware that certain written and oral statements made by management constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements should be evaluated in light of certain risk factors which could cause actual results to differ materially from anticipated results. Please review our Safe Harbor Statement on page 3 of the press release for our discussion of forward-looking statements and related risk factors. At this time I turn the meeting over to Jon Judge who will provide comments and then we’ll open for questions. John M. Morphy: Jonathan J. Judge: John, thanks, and just a quick comment. John, when you said that the S&P downgraded municipal bond issuers, he meant insurers. But thanks for joining us this snowy December morning in Rochester. Happy holidays to everyone. I’m just going to add a few comments to John’s and then open the phone lines up for dialogue. I’ll focus my remarks on three areas: the quarter that just closed and some additional color on that, provide some color on the guidance adjustment that John just talked about, and then give you a quick update on some of the things that we’re doing to ensure a strong finish for this year and position us well for growth beyond the year. First, our second quarter results. As you can imagine, we feel very good about the quarter. As you saw in the earnings release and then reiterated by John in his comments, our second quarter was very strong in most areas. Payroll service revenue bounced back to 9% up from 8% in the prior quarter, HRS revenue growth was very strong at 24%, up from 20% the quarter before, expenses were very well managed at 9% growth with much of that growth focused on areas that will help us grow future revenue and profits like more salespeople and investments in IT systems and service projects for customer consumption and so on, our client losses are on track to yet again set a new low watermark. You remember last year we sort of broke through the 20% rate for the first time and we’re exceeding that rate right now in this current year and I expect it will finish this year better than we did last year. Our customer sat is remarkably strong, it’s in the low 90s, and at new record levels. We’re very proud of what’s happening on the customer sat side. Our operating income excluding interest was up a very strong 17% and total revenue growth at 12% with expense growth at 9% yielded another good quarter of financial leverage. All of that led up to a second quarter diluted earnings per share of 40% above the street consensus and as an added bonus for stockholders we completed the $1 billion stock repurchase in December as John mentioned less than six months after we announced that we were going to do the repurchase and increased our dividend payments 43% in the second quarter and 62% for the six months just ended. I can tell you I wish my personal portfolio was doing that well. Put it all together and you can see why we’re proud of our results for the second quarter and the first half and well on our way to posting our eighteenth consecutive year of record revenue and earnings. So very, very good quarter. We feel very good about the performance that was put forth by our people across the country and again very proud of that quarter. Now let me spend a minute on our guidance adjustment and provide you with some of my color on the decision. John talked about it and I wanted to do so also. As you can imagine, there was lots of discussion internally about whether or not to adjust guidance on the payroll services revenue growth line and I can tell you it was a very close call because our current modeling which consists of six months actual results and six months forecast results ended up being a coin toss about whether or not we were going to finish inside or outside of guidance. Now I know this isn’t a surprise to many of you since many of your forecasts that have been published on payroll services revenue growth or conversations that we’ve had with you were around the 8.8% level. Just as a point of reference, if we saw the year ending at 8.8%, even though it would round to 9%, in our way of providing guidance, that would be outside the 9-10% range provided and would cause us to adjust our guidance, but in the final analysis it came down to one simple thought. We provide ourselves on our transparency and on our commitment to communicate any changes to our outlook as soon as we see them. For the first time this year, we now see the possibility that we could finish the year slightly below a true 9% on payroll service revenue and therefore decided to adjust our guidance down one percentage point. I hope it turns out that we’re wrong but that’s how we see it right now and we felt the responsible thing was to adjust it down. In reality, it’s a few million dollars on a $2 billion plus revenue plan but we felt you should know about where we were at this point in time. I hope this color was helpful for you. To close out my comments, I’d like to spend a couple of minutes on what we’re doing to insure a strong finish to this year and position us for growth beyond the year. The activities cluster into four main areas, and the first one, as you have probably guessed given the history of our company, is to continue our execution focus. Let me talk about sales first and then talk a little bit about operations. Now sales, obviously, the first thing that we’re doing is staying very, very focused on this current selling season. December and January are extremely important months for us from a sales cycle standpoint and I’m proud to tell you that we feel like we’re in very good shape going into the December-January period. Time will tell how it will finish out but as we look across all of our different sales divisions, we feel very good about how we’re entering into this very important sales season. Now in more general conversation, the other things that we’re focused on are things like attrition. We’ve been talking about this for many years, excuse me, for the three years that I’ve been here. Our coverage efficiency that really talks about where are we in terms of territory coverage, where are we in terms of the strength of our sales reps in the field, and we’re spending time on our channel effectiveness, what are we doing to make sure that we have superior relationships with our CPAs and banks, the AICPA which we have a very strong partnership with, what are we doing in the area of national telesales, what are we doing in the area of web sales and web marketing and our whole web presence, lots of focus on that area and we’ll continue to keep that focus there. On the operations side, it’s all about customer satisfaction and I told you about the results there. It’s on client retention. We focus on attrition in that area as well. Back office productivity, back office effectiveness, especially important as we get into some of the new areas like insurance. Some of the new 401(k) offerings that we brought to the marketplace. Obviously discounting is important both on the sales side and on the op side and it’s got lots of activity in that area as well. Finally on the IT area, there’s a lot of work going on in terms of adding new technology, improving our field productivity by introducing things like tablets and new form factors that make our sales reps much more efficient drive the efficiency of the movement of data between our clients and our company as well. Then obviously filling in gaps in our operating base which sort of brings me to the second area, and that’s the focus that we have on adding products, adding capabilities, and adding clients. We’ve got a lot of activity on this area. Client acquisition, do you know that we do client acquisitions year in and year out, typically small payroll companies. We’re having one of our busiest years in terms of volume and client acquisitions and that will continue as we’ve talked to you in the past. On the new offerings side, we’re doing things both on the generic side, organic growth from inside the company as well as partnering and buying capability outside. We’ve talked to you about the 401(k) open architecture, that’s going very well. You know about the investments that we’re making in the insurance area. We’ve purchased a company that provides us with an offering called BeneTrac which is a very exciting offering on the tracking of benefits for particularly our MMS customers. We’ve just started to release for sales to our sales force something called TLO, time/labor management online and the whole labor management area, we’ve had a good offering, a solid offering, on the low end of that which is called Time In A Box. We have a very strong offering on the high end of that which is Stromberg which comes from a Stromberg which is an acquisition we did a few years ago. Now this whole online labor management is an offering that goes right in the middle, again, very strong in terms of its ability to both generate revenue on its own but also to enable MMS sales that in the past would not be enabled because the client needed time and labor management tracking. We did a partnership with a company called Taleo which gives us applicant tracking capabilities and so on, so there’s a lot of focus that we have on our offerings and our capabilities area and obviously adding new clients. The third area that we’re focused on is adding manpower and investing resources to help grow our business. On the manpower side, sales, you know that we continue to add sales manpower both across the board but more specifically in selected areas like insurance where we’re gearing up all of our activities and particularly our sales activities to drive that business. On the payroll side of the house, on the payroll specialist side of the house, we’re both adding new and growing the percent of our payroll specialists that are senior payroll specialists which gives them the ability to both handle more accounts and perhaps more importantly, drive higher levels of customer satisfaction. Tenure and experience is something that’s very important in our business in all areas but particularly in sales and payroll specialists. Finally, staying committed to the strategies that we’ve been on and the investments that we’re making and being patient. In this business there are not very many overnight successes. It’s a slow and a steady growth business and it’s extremely important that you make the right investments and that you be patient to allow those investments to take root and grow. All those things combined put us in a position where we feel like we’re in the middle of a good year. Clearly it‘s going to be another record year for us and I think we’re doing the right things both to ensure that we’re successful in the second half and more importantly that we’re successful in the years going forward. I’ll end my comments there and open the lines up for your questions and comments.

Analyst for Adam Frisch – UBS: How is it that total service revenue guidance was unchanged but the payroll component -- John M. Morphy: The change in payroll revenue wasn’t big enough to effect the change in service revenue. John M. Morphy: Analyst for Adam Frisch – UBS: As simple as that? John M. Morphy: The change in the revenue wasn’t big enough to effect the change in service revenue. Understood? John M. Morphy: Analyst for Adam Frisch – UBS: Okay, and then in HR and benefits, we’re seeing average revenue per client grow year over year. Can you talk about what’s driving this positive trend and do you expect it continue? John M. Morphy: You say average revenue per client. How are you calculating that? John M. Morphy: Analyst for Adam Frisch – UBS: Annualizing the total revenue in a quarter -- John M. Morphy: Into the 560 some odd thousand clients? Analyst for Adam Frisch – UBS: Exactly. John M. Morphy: I have never even done that, so you just gave me a statistic I’ve never looked at. What I think the key factor is, we keep driving human resource revenue growth with all the areas around and that business is growing at 20% plus and we keep pushing it. I wouldn’t have an answer for why it changed the first time in eight quarters because we’ve actually never looked at the calculation that way. John M. Morphy: Jonathan J. Judge: Well the penetration in HRS to begin with across the entire client base goes from an extremely penetrated in some to no penetration in others. Some of our clients that are in that number might have two, three, four, five employees. Analyst for Adam Frisch – UBS: Okay and you have current sales force growth plans of about 9% out there and I don’t see that has changed. Has the components between the different verticals that you’re adding sales force to changed at all or are you still on track with your guidance? Jonathan J. Judge: We’re on track with our guidance but again that’s a number that’s not across the board. There will be years where we’ll be increasing our sales head count into specific targeted areas like the build up that we’re doing in insurance right now. There will be years where we might shift that to putting more people in the computer world. There will be years when we’ll have more or less in core and more or less in MMS so it’s a number that works itself up from the bottom and it will... The components will change but because the penetration rates in the United States are not yet anywhere near saturation levels and because we continue to try to find new offerings which would drive the requirement for new salespeople, we don’t see anything that tells us in the future that we’re going to significantly decrease the addition of sales people. The market is still that good for us and the results that we get by putting new sales people into play are that good for us that it appears that we will continue to be adding sales people for the foreseeable future. Analyst for Adam Frisch – UBS: Okay, thanks, I appreciate it.

Our next question comes from Liz Grausam with Goldman Sachs.

Liz Grausam - Goldman Sachs: Great. Thanks for your prepared comments on the payroll services revenue growth, but I wanted to dig in there a little bit more there today given how many questions we’re getting about it. You said your retention is strong or strengthening. It sounds like your new sales program going into the selling season is strong, so execution seems across the board in line or better than expectations and certainly the second quarter was. In bringing down the revenue growth expectations, are you hedging a little bit on the economic out look and if you could just give us a little bit more granularity on what changed in your thinking specifically in your guidance change. John M. Morphy: Thanks for the question, Liz. It was a lot of things but the most important thing I’d like you to get out of it is that it was a very small number, but part of it is our philosophy and our commitment in what guidance is all about and we’ve been very clear I think certainly from the time I’ve been here and my understanding is before I got here that when we post guidance, we’re very clear about if that changes, the minute we think it’ll change, we’ll let you know. On the specific question on that, the change was minor but it was for the first time as I mentioned, it was the first time that we felt like there was a possibility that we could finish outside or below the 9% which was the basement of where we had posted that number and so we made the change. In terms of looking at it, the things that you’re trying to get out of it, if you look at the different factors that could change, there could be things like the size of the client that you’re bringing in or the size of the client that you’re losing. Is one smaller or bigger than what you’ve planned and spent some time looking at that and there’s nothing that that we see that would suggest that that’s part of the problem. You could talk about whether or not there’s movements inside the existing clients? Are they losing, are they not hiring as much as they were in the past and so we looked at new hire reports that we do for the majority of our clients and there’s really nothing that we see there. We do see a slight diminution of checks per client, I mean very slight. It turns out that when we did the analysis on this to try to put our finger on exactly where it was. It’s one of these things where there’s no clear thing that’s jumping out at us, so it’s more likely than not a small change to a lot of different factors. The economy is an interesting question because we keep getting asked that and the reality is that the macro economic environment at least to this point appears to be something that will affect large clients much more than small clients; in other words, when we look at our clients, we don’t see anything that tells us that the economy is slowing down our clients’ world. We don’t see bankruptcies accelerating in the small clients. We see some minor changes in some of the things that we look at but the economy still to this point does not appear to be affecting our world and while we’re aware of what’s happening on the macro level and in the retail markets and the real estate markets, what’s happening in subprime and so on, to this point we can’t say that the economy is really having any effect on our business. John M. Morphy: Liz Grausam - Goldman Sachs: Great, thank you, that was very helpful and then I just saw your M&A program with BeneTrac this quarter and am just wondering, obviously great returns on equity in the business or returns on capital, are there a lot of opportunities out there to make small acquisitions? Are you seeing pretty reasonable valuations on those acquisitions? John M. Morphy: If you think about it in the general sense, there are clearly lots of things out there that could be purchased and we clearly have dramatically strong purchasing power, given the fact that we have no debt, the strength of the currency of our stock and so on. The difficult part is, it’s not so much what’s the volume of stuff that’s out there, it’s what’s out there that fits into our strategy and is something that we feel that we have a very good chance of integrating into our company in a way where it makes sense strategically, financially, culturally, and so on, and when we put that limitation on it as well as the fact that our current strategy is one that says that we’re going to stick to our knitting, we’re going to stay around our core competencies, as opposed to buying things that could take advantage of our distribution network in the small business, and when we put all that around, it turns out that there are lots of things out there but there aren’t that many quality things out there, at least we haven’t seen that there are that many quality things out there, that we feel strongly enough about buying. We’ve got a small group of people that that’s all they do day in and day out. We have, as we mentioned in the past, if we were a venture capital firm or private equity capital firm, we have extraordinary deal flow because anybody who’s trying to sell anything to small business will ultimately come to talk to us because of both the number of the clients that we have and the extraordinary distribution capability that we have to small business, so we see lots of things and in terms of are we going to go buy fifty new small companies in the next twelve to eighteen months? Probably not, although we have the financial capability to do so. If we found fifty, we would buy them. John M. Morphy: Liz Grausam - Goldman Sachs: Great. Thanks, John. John M. Morphy: Pleasure. John M. Morphy:

Our next question comes from James Kissane with Bear Stearns. Your line is open.

James Kissane - Bear Stearns: Thanks. John, given that you’ve used up the buybacks, the billion dollar buyback pretty quickly, any thoughts on a new authorization? Jonathan J. Judge: Basically where I am, you’ve got to understand what I’m saying here, we’ve not discussed anything with the Board so it’s strictly... I think John and I are in the same place, is we will again now go back and look at our cash flows. Ideally I would like to have something we’d be doing all the time. I’m not sure what the size would be. I don’t think we’ve reached the period where we would borrow money to buy stock back, but I think we’re still going to be cash flow positive so we’ll be looking at that again over the next six months and take a look at obviously whether the stock price will matter. When you look at it, if we did another program, we’ll be much more opportunistic in what we’re buying. This last program we watched the stock price, we watched the activity daily. We had rules on how much we could buy but our goal was really to buy the stock back in a reasonable period of time but to fulfill the commitment that we said we were going to buy it back and then do it. We did not want to be the kind of company that announces a buy back and then doesn’t do anything. James Kissane - Bear Stearns: Can you just review your internal accretion analysis? John M. Morphy: Recently do it? James Kissane - Bear Stearns: Yeah, I think you used to talk about it being accretive up to around 44, 45. John M. Morphy: That’s about the range it is and it varies on factors but we don’t think we bought any that wasn’t accretive but I don’t think it had a dramatic effect. We look at the earnings per share guidance that we changed. You go back to the beginning of the year basically we’re down about three pennies in my mind and the three pennies are three items. About a penny reduction due to FIN 48 being a little harsher than we thought. About a penny coming from the stock repurchase program, and $0.03 from interest rates. James Kissane - Bear Stearns: Okay, and Jon Judge, any update on your insurance initiatives? Jonathan J. Judge: Before I do that, do you have an opinion on the question you asked? James Kissane - Bear Stearns: Well, you’d like it at 44, stock’s at 37, so I assume you should have an appetite for buying back stock. Jonathan J. Judge: Okay. Just curious about your opinion. On insurance, one thing I will add to John’s, on your question about the accretiveness, if you were talking about in the future, he answered appropriately. If you were trying to get at how did our final purchase finish out, we were well below the 44 number. On insurance, the insurance program is going very, very well. The sales volumes for the year are dramatically up year to year, several hundred percent rise on a year to year basis in terms of the success that we’re seeing in the marketplace. We’re getting more mature in a lot of areas that are important. We’re getting more mature in understanding the profile of the types of people that would be successful, us selling insurance in our environment and to our client base which is very helpful to us in terms of recruiting the right people that have a good opportunity or a good chance of finding great success in our business. We’re making great strides in terms of what’s happening in our back office maturity, our ability to effectively and efficiently process all the business that we’re booking, we’ve made good strides in terms of our relationships with the providers that are in the marketplace, there’s over 100 providers that we’re dealing with today, we’re on our way to 200 providers, but luckily for us from an effectiveness and efficiency standpoint, there is an 80-20 rule that looks like it will materialize which is great because the reality is at least in one man’s opinion, I would prefer not to be in a business where I had to have relationships with 200 or 300 providers. I’d like that number to be a smaller number. The work that we did getting prepared to go into the marketplace, the market analysis, all looks like it was very well done and the results that we’re seeing or the things that we’re seeing in the marketplace are holding true to what we though we would see, so we still remain extremely bullish on what this program could be for our company in the short and medium timeframe and if we’re right about that in the long-term timeframe, it’s going to be extraordinary, so we’re still very, very... I’m happy with where we are. We’re moving as fast as we can. We’re bringing on as many people as we can bring on under control and I feel very good about where we are. James Kissane - Bear Stearns: That’s great. Thank you very much. Jonathan J. Judge: Pleasure.

Our next question comes from David Grossman with Thomas Weisel Partners. David Grossman - Thomas Weisel Partners: Hi, thanks. You know, John, I think in an earlier question you had indicated that when you looked at the imperial numbers, you tried to really look at a more granular level to see if you saw any particular trends and I’m assuming that would include the new client growth, the check growth, the pricing, and retention. Is it fair to say that you’re really haven’t seen any real material changes in any of those items? John M. Morphy: If you saw the microscope we went under, we actually did it in the first quarter too because we know that we have a view on what the economy may or may not be doing and at the same time we don’t want to say something that we don’t believe is true. We looked at this very hard. We looked at all the components that changed and actually not many of them changed very much and came to the conclusion that we had a small projection change that was small enough that you almost can’t come up with a real general purpose of it and when you look at the economy, when you look at new hire reporting and you look at all those aspects, there might be some that are off a little bit. There’s others that are up a little bit. We really haven’t seen any change in what I would call small business America. David Grossman - Thomas Weisel Partners: And so as you look into last year when you were full on your target as well, so there was nothing that when you looked back then, that there’s any kind of changes in the business at all that we should think about that would change kind of the components of how we think about growth for Paychex going foward? John M. Morphy: N o, we didn’t look at comparing the last year, things are relatively stable. If you look at elements in last year that could have affected this year, we factored all those in. I mean, we had a lot to debate here. Some were little heated at times, but we like to make sure we’re challenging each other right to the limit and at the end of the day we thought the best thing to do was what Jon and I talked about earlier with the guidance and we feel very comfortable with it and we feel very comfortable with that process. John M. Morphy: David Grossman - Thomas Weisel Partners: All right and one other question I had is on the client fund balances. Do we get to a point sometime or do you have any visibility on a time period when you anniversary that kind of phenomenon if you will? John M. Morphy: Some of the phenomenon is not going to totally go away, okay. One thing we’ve looked at is we probably haven’t been... We’ve been probably a little bit too conservative on some of our coating for tax filing and so we’re going to change that so we will abate some of this diminishment, but the issue of inflation on wages affecting deposit frequency, that’s not going away and I don’t think the government is going to change the rules because they’re benefiting from it. So we’ll have to fight that but I think one thing we’ll be able to get some of this back is we’re going to look at how often we’re depositing. I think we’ve been a little too conservative to making sure we’re avoiding all the penalties but we’ve got a great penalty abatement group here. The best penalty abatement is never to have the penalty so when I talk about abatement, that’s usually not where they are. They’re usually preventing the penalties and they’ve gotten so good that we feel we don’t have to be quite as conservative as we’ve been and we’re in the process of putting those changes in, but they’re not going to go into until after we get through the client busy season which we’re right in the midst of right now. We don’t want to do anything that disrupts any client service. John M. Morphy: David Grossman - Thomas Weisel Partners: So I guess as I’m thinking into fiscal ’09 then, is it still reasonable to think that the client fund balances would grow slower than the overall payroll revenue growth again? John M. Morphy: Oh yes. I don’t think that’s going to go away and the worry I have when you go forward and we haven’t seen anything but you get people to predict is those balances will get affected a little by the economy eventually. It’s kind of interesting, somebody’s going to ask you eventually, but we’re in the bonus season. The bonus season is funny. The bonus season, I’m driving my treasury people crazy. The bonus season runs from December 15th to January 4th. Unfortunately about 85% of the bonus season is during the last two days of the year. I’ve looked at this and come to the conclusion that I can’t predict anything because I look at a trend and say, “Well that night be negative” and then they tell me, “That same trend was there the last two years and we wound up with a great bonus season” so it’s too early for me to tell. I just don’t know. John M. Morphy: David Grossman - Thomas Weisel Partners: I got cha and then one other thing I guess. . Looking at the portfolio at large, given where we are in the ridge cycle, do you have any thoughts on whether it’ll change the structure of the portfolio now in terms of duration or do you think you’re pretty comfortable where you are now given -- John M. Morphy: Pretty comfortable with where we are right now. We might do a little repositioning but when you look at the size of the portfolio, the amount of repositioning we’re doing will be relatively immaterial. We are looking into, we don’t have Board approval yet, more than that we want to do something ADP has been doing for years which is right now with the stock repurchase chasing our cash, we might have to borrow money on four days of the year. We’re looking at if we took that up to 20 or 25, how much of a better yield can we get on moving more money into long term? So you’ll see us doing some things but I don’t think it’s going to change too dramatically. We will do some things to try to improve this at least a little bit without taking any extra risk. John M. Morphy: David Grossman - Thomas Weisel Partners: I got it. All right guys, thanks a lot and have a great holiday. John M. Morphy: Thank you. John M. Morphy:

Next is Rod Bourgeois with Bernstein.

Rod Bourgeois - Bernstein: Hey guys. I’m calculating that your year over year operating margin expansion excluding float was about 157 basis points. It seems that that’s a pretty high number, maybe even above what you were planning it at the beginning of the year when I look at your guidance targets. I guess the question I have is, is that level of margin expansion higher than where you were originally planning and is there any growth trade off at all in the level of margin expansion that you’re putting up right now? Jonathan J. Judge: I would say there’s no growth trade off because we’re not postponing any investment in anything that relates to the future. Obviously when you go into a period like this and just like on this call all of you have concerns about where the economy is, while we haven’t seen these things, that doesn’t mean we don’t have any concerns. So we’re managing our expenses very tight right now in such areas as payroll specialist per client and other areas. We’re making sure we’re not hiring people ahead of time, we’re really working these people well, we get better and better at everything we do. The human resource side matures in areas like 401(k). We keep getting very good performance improvements on what we’re doing so the goal is still there, but the thing that helps that margin is basically the management team is pretty well focused on making the 15% operating income without float target and if that means we have to suck up some of those expenses that don’t affect the future, we’re going to do it, and when you look at the beginning of the year it might be slightly ahead but it’s not significantly different. We had pretty good productivity goals built in. You also have to be careful, these quarters don’t all even out, you can get to the third quarter and it can be a little bit different, so you really have to look and say, “What will the year wind up?” I think it will be pretty close to what we expected. Rod Bourgeois - Bernstein: Okay and John when you look at the futures markets et cetera related to the interest rate environment, are you thinking there’s a reasonable probability that the float out may need to be reduced again or are you feeling fairly comfortable with the current level of guidance on the float? John M. Morphy: Our float guidance and that’s a great question because it’s good that we reaffirm this, I’ve learned I can’t make estimates on interest rates because what happens is we estimate what’s going to happen and then you don’t quite know what we estimate unless they articulate it perfectly which is probably impossible, and then you do something in interest rates and now we wind up with a situation that we don’t know where we are. Several year ago everybody believed rates were going to, and I forget if the change was up or down, I think it was up, was imminent and we were absolutely crazy not to forecast improvement. We sat there and said, “We don’t know.” So basically the guidance we gave you is based upon the last Federal funds rate adjustment. We don’t estimate any changes in interest rates and obviously if interest rates change the guidance has to change, so if the Fed does another 25 basis points in January, that’ll affect us. Now to give you some help on that, we’ve disclosed that 25 points would cost about $4.5 million pre-tax, as opposed to tax exempt, about 80% tax exempt, so it would cost us $4.5 million over the next twelve months. That isn’t $4.5 million for the rest of this year, it’s $4.5 million for the next twelve months, so I think that’s the best way we can deal with this. It’s worked real well in the past because we actually avoided a lot of volatility in estimates because we said, “Look, this is where we are today. Did you want any models, did you want to put something in, you can put it in, but then you know you’re just putting in what you think the change is. Don’t have a change on top of my change.” John M. Morphy: Rod Bourgeois - Bernstein: All right, great, and just one other question on the health insurance sales process. Are you feeling better about the progress in that business with another sort of three months into the belt or things on track or are there any obstacles that you’re starting to face as that business ramps up? John M. Morphy: I would say it’s somewhere between untracked and feeling better. I mean, we’re on track with where we wanted to be. I guess the only reason I would tell you that would make you feel a little bit better is the comment I made about the fact that what we’re seeing in the market is very close to the market analysis that we did. So it sort of says, “What we thought was going to happen and the plans we laid in place are a little bit stronger than they were before because the actual, what we’re actually finding in the marketplace, is what we thought we were going to find.” That, coupled with the fact that we continue to make progress on strengthening the back office and we continue to make progress on refining the profile of the types of people that we hire that we know will be successful in the business. So those things added together make us feel a little bit stronger. On the market itself, I’ve talked about this in the past, I don’t know that we will find anytime soon a more natural market for where we are as a business. With our existing infrastructure, the fact that we’ve been in insurance businesses before, that there’s a natural weakness in the coverage model for the insurance business as we see it, the independent agents might not agree with that statement but that’s as we see it, it’s a natural market for us and that’s why we’re so excited about it. John M. Morphy: Rod Bourgeois - Bernstein: Great. Those are all helpful answers. Thanks, guys.

Next is Brandt Sakakeeny -Deutsche Bank. Brandt Sakakeeny - Deutsche Bank: Thanks. I had a question just around the payroll services sales force growth. Can you give us that number? Was that your whole services businesses or was that just a payroll only sales force growth? John M. Morphy: Payroll only was less than that. I think payroll only was around 5 or 6. The best place to go to look at that is in the Investor Relations page. The sales force is listed there with comparisons to prior years. Now one thing to go over again quickly is we basically assign new territories effective June 1st. We very rarely, and it would only be on something would be a brand new product line, probably like insurance, that we increase territories during the year because obviously when you increase people, you’re revising territories and you want to keep people highly motivated. We have a great sales force. They’re very good at knowing what their territories are, what they’re responsible for, so we don’t change those things during the year. Now you could get something like health insurance where the territories are so big and the thing got so good that we could add something but most of the time we live with the territory assignments right off of June 1st and you’ll always see us disclose that in the Investor Relations page right there on the website. John M. Morphy: Brandt Sakakeeny - Deutsche Bank: Great and so I guess just given that figure and if you assume maybe pricing of 2-3% and new client growth of 1-2%, it seems like you haven’t really certainly seen any negative change in sales force productivity in that figure, correct? John M. Morphy: We wouldn’t use those numbers that you use on either price increase or on client growth. John M. Morphy: Brandt Sakakeeny - Deutsche Bank: But to get to a 9% figure with a 5-6% payroll sales force growth? John M. Morphy: We feel comfortable at that productivity. We have not seen any erosion. We measure it more in par and revenue. We feel very comfortable with what the sales force is doing. John M. Morphy: Brandt Sakakeeny - Deutsche Bank: Okay, but I guess then to get to 9%, Jon Judge, what figures would you use for pricing and new client growth? Jonathan J. Judge: Only on payroll revenue? Brandt Sakakeeny - Deutsche Bank: Yeah. Jonathan J. Judge: I’m not sure I know because we do the model on the whole business. Brandt Sakakeeny - Deutsche Bank: Okay. Thank you.

Next is Mark Marcon -R.W. Baird.

Mark Marcon - R.W. Baird: Good morning, John and Jon. Just going back to the margins, if we took a look at your incremental EBITDA margin explode, it’s picked up significantly here. We’re now at 50.4% with your fee margin in total at 37.5%. Do you think you can keep this incremental margin up, because if so, that implies that long term your fee margin could continue to go up quite materially. John M. Morphy: Basically we’re right back to the formula. Revenue growth, 15% operating float. Now you have to be careful and I couldn’t tell or not Mark, I would never calculate any of that with float in it. I can’t control float, it is what it is. That’s the motivation. So right now if we wind up with revenue growth a little bit low, then we’re going to push on the margins as long as we’re making sure we’re making all of the investments we need to make. It isn’t a matter that we sit down and calculate... The numbers you guys kind of look at is different. We’re trying to make the 15%. All the incentive systems are there for us to make it and that’s what we keep pushing. I agree, margins can’t increase forever but I have to tell you, the hardest part of our equation in this formula is not the leveraging point. The hardest part is making sure we get the revenue. If we get the revenue, we get the leveraging. Now again, you get the 100% gross margins and then you can’t go any higher but right now we don’t feel under any undue pressure and I don’t see any over the next few years. I think we still have opportunity. John M. Morphy: Jonathan J. Judge: Let me add something to that if I could. It’s just some philosophy, Mark, but it might help you with the way you think about it. When we think about things like margins which by the way in the way that we think about, and especially in our end year execution, I wouldn’t say that it’s the altar but it’s in the church. It ‘s pretty important to us and we have a general philosophy in the company about improving everything. We would never enter into a year thinking it was okay to slide someplace, so in general you should assume that we just wouldn’t allow a backsliding on margin. With that said and it tied us into the question that was asked earlier and one of John’s comments, the thing that slows us down or would preclude us from making an investment really is not the formula, because we’re as financially stable a company as you’re probably going to find out there. The thing that slows us down is that we have a philosophy that says that if we can’t get a business proposal or pro forma on a suggested investment that we believe and that is a credo to our business, it’s very hard for us to say yes. So the things that will hold the margins in place is more the management philosophy about improving and making only sensible investments that will improve our business, that will keep us in line from a margin standpoint. Mark Marcon - R.W. Baird: Great. It certainly looks like you still have a lot of upside based on the way the model seems to be running right now. Jonathan J. Judge: We sure hope so. Mark Marcon - R.W. Baird: So in terms of the net income growth, if we strip out like the adjustments from a year ago, it looks like net income growth is slowing in the second half of this fiscal year due primarily to the change in interest rates plus the change in the tax rates. As we think about longer term, where do you think the tax rates could end up moving? John M. Morphy: The tax rate of 32% is pretty consistent. The only thing that changes this is that rate I don’t think will move other than how much tax exempt income you have and as we clearly stated, tax exempt income or float income is not going to grow at the same level as the rest of the company because of the products. Most of the float income, the growth in those products can’t match the rest of the company. So when you take a look at the metrics, you’re going to see operating growth like we talked about without float. The float growth is going to be a little bit less and that’s going to somewhat impact tax rate. It’s all tied back to the interest rate. Mark Marcon - R.W. Baird: Got it. Okay, great and then finally with regards to your share count, how are you thinking about your options policy for next year because it looks from our perspective as if your share count on a fully diluted basis is probably around 361 or 362 million at this point in time. John M. Morphy: The 370 we gave you is this year. We didn’t give you next year yet. Mark Marcon - R.W. Baird: Right. I’m just talking about -- John M. Morphy: Options -- John M. Morphy: Mark Marcon - R.W. Baird: Right here right now. John M. Morphy: On options though, last year we changed the philosophy. We gave most of the RSUs and then we gave some stock options. I think they only went to officers. So the amount of shares we’re granting is probably going to be down compared to what we used to. Stock option expense may stay the same but the amount of shares issued is down. We will continue to look at that but I don’t think you’re going to see significant dilution of options. Now when we talked about a stock repurchase program just a few minutes ago, and the first place I would go to talk with the Board about it and Jon I think agrees, is to talk about trying to keep the dilution from stock options and not be there. So we’re looking at share counts but I don’t think the options program is going to be material.

Your next question comes from Gary Bisbee – Lehman Brothers. Gary Bisbee – Lehman Brothers: Good morning, guys. Two questions I guess. First of all it looks like Florida has lowered the minimum premium pretty dramatically as of January 1. You haven’t disclosed the size of the PEO revenue base in a while, but how material do you expect that to be in the next couple of quarters in terms of impacting growth? John M. Morphy: This number is probably less than $5 million. It ‘s significant. I don’t know if it’s as significant as the last two. It ‘s something we have to work our way through and it’s something that won’t affect us until fiscal ’09 but it’s a way of life. It happens and then we have to go dig it from someplace else and that’s what we’ve done in the past so it’s there. Hopefully this thing is somewhat stabilized but the State of Florida has its issues and I’ll make a little kind of prediction [inaudible] workers comp rates fluctuate. They’ll chase them too low and then they’ll bring them back someday, but usually you chase them low at the worst possible time because workers comp claims really do mirror image the economy. Gary Bisbee – Lehman Brothers: Is it still safe to assume that Florida and the Premier product is still the one that’s selling much better outside the State of Florida? John M. Morphy: It’s actually a little bit better than that because virtually all the PEOs in Florida, we’ve also made a move lately where everything we grown in Florida no longer goes to the PEO. I’d say we crossed over this year for the first time where the number of ads in Florida [inaudible] PEO is becoming more significant even in Florida. Jonathan J. Judge: We like the PEO model but we prefer the premier one and how it affects what we do business isn’t really much different except in the service model is pretty much the same. We will continue to service Florida the same way, the only difference is we’re not taking risk on workers comp and as we stated before, we don’t take risk on health care. Gary Bisbee – Lehman Brothers: Okay, and then the second question, can you give us a sense, now that you, a couple quarters into the new multimanager 401(k) product and you talked about the light product, we haven’t really seen the number of client additions accelerated. It’s been sort of this thousand a quarter or so. Would it be reasonable to expect that or do these new products more just something that you think is going to allow it to continue to grow? John M. Morphy: We’re in a ... 401(k) is in a moving period now. You’ve got a lot of people talking about what the funds should look like, a lot of people talking about what the fees should look like, and we’re a leader. We think we’re world class in this, we’re a leader, and we’re moving our fund choices consistent hopefully ahead of the markets but I don’t think you’re going to see an acceleration until something was to change. For one thing, 401(k) isn’t a new product, so a lot of companies, especially in the 50 and above, have looked at that product and kind of made a decision whether they’re going to have one, so most of our 401(k) growth is down in the 1500. It doesn’t mean that we don’t get any in the 50 and above, we do, but it’s not as accelerate. I think 401(k) growth is going to stay about the same, but I’m not looking for it to accelerate nor did we when we put the products in. I think the only way we’re going to get acceleration is if we can get a conversion program into the clients that have a 401(k) that don’t use ours but that is always a difficult thing to do and as we get better and better at these guided choices and multi funds, we’ll increase our programs in that area, but we can’t do that until we can handle those a little better than we do today. We do it fine but to switch over and convert 10,000 clients suddenly, that would not be easy to do. John M. Morphy: Gary Bisbee – Lehman Brothers: Okay, thanks a lot.

Next is Tien-Tsin Huang with JP Morgan.

Tien-Tsin Huang - JP Morgan: Thanks. First I had a follow up question on the client fund balance growth. I can fully appreciate that the visibility is tough but is there a way we can look back to prior bad bonus seasons and apply that to the second half of this year and what that might look like? John M. Morphy: We believe that the funds held for clients should increase about 4% a year. That’s the inflationary part of it. Wage inflation and the smaller than people realize. I think even in the bad economy back in 2002, I don’t know that balance has ever decreased on a per client basis, you might have fewer clients than some of those products - that probably didn’t happen either now that I think about it, but I don’t think it’s going to be significant. The bigger impact on float is not the balances, it’s the rates. Jonathan J. Judge: We’ll know more about this as John said in a month because the bonus season is on us. I’m not so sure though that I would make the assumption that the bonuses are going to be bad. The macro environment is really hitting specific industry sectors and large enterprise clients way more than it’s hitting small. John M. Morphy: Yeah, we have... I want to be careful. We’ve seen nothing that’s going to stay the bonus season is going to be bad. Tien-Tsin Huang - JP Morgan: Agreed. I’m just trying to think about the standard deviation. John M. Morphy: I think you get some affect but most of it’s off the rates. You look at floating can bell dramatically but that’s because it went from 5% plus on the Federal funds rate to 1. I don’t think that’s going to happen again. Tien-Tsin Huang - JP Morgan: Okay. Maybe I’m just assuming something in the mid single digit range makes it good for now until we -- John M. Morphy: Yes. If I was... I probably, if I thought it was going to down market which I haven’t seen yet, I’d say the float income balance might grow between 4 and 6%. Tien-Tsin Huang - JP Morgan: Okay. Second question. I get this question all the time so I thought I’d just go ahead and ask you guys. John M. Morphy: That’s okay. Tien-Tsin Huang - JP Morgan: What percentage of your client base is tied to home construction, mortgage lending, some of the weaker areas of the US that we read about all the time? My gut tells me that it’s below average exposure for you but just wanted to be sure. John M. Morphy: Well, here’s my... When anybody asks me about exposure to various segments, we replicate small business America.. When you think of small business, as much as we all think of small business, we are really small. You think of 17 employees, 40% of the client base is four or below. There probably aren’t many restaurants in Manhattan that have less than 25 or 50 employees. But basically we are way at the low end, so if there was a predominance of that stuff at the low end, which I don’t believe there is, then we would be over weighted. But basically we mirror small business America. We don’t have too much in manufacturing and we don’t have too much where the companies would be larger and we have our fair share of MMS when you talk about the distribution going across, so I don’t think believe we’re over weighted on anything. John M. Morphy: Jonathan J. Judge: But if you go to that analysis, you think about that analysis, and I appreciate the way you asked the question is kind of like, “This person I know has this problem” but because we’re a utility product, then the only real issue is whether or not the clients go out of business and everything that we’ve seen to this point tells us that we have seen nothing out of the ordinary in terms of bankruptcies, in terms of business closures, in terms of business shrinkages. I know that might sound a little odd to you with all the headlines that we are all reading but the anomaly so far is that we have been relatively unaffected by the concerns about the macro economic environment. Tien-Tsin Huang - JP Morgan: Gotcha. I think I’ll go ahead and ask just one more question on the payroll guidance. I know in the past I think you guys have called that normal payroll service revenue growth to be 8.5 to 9 ¼ or 9 ½. John M. Morphy: It ‘s at 8 ½ but 9 ¼ I’m satisfied in that zone but outside that zone generally you’ve got some other condition going. It doesn’t mean it will always be that way but generally you get above 9 ¼ and you need wind from the economy and generally, you don’t grow from 8 ½ with the wind in your face. Tien-Tsin Huang - JP Morgan: Now I know we’re talking about basis points here, so I just want to make sure that it’s not trumping more than just conservatism and that’s what it feels like to me at least. John M. Morphy: I would say that your conclusion is that if you’re conclusion is that it’s conservatism and that we’re talking about tenths of a point, you’d probably be accurate. Tien-Tsin Huang - JP Morgan: Very good. Thanks a lot. Enjoy the holidays. John M. Morphy: You as well.

Next is Shardik Methpa - FTN Midwest.

Shardik Methpa - FTN Midwest: Hey, good morning John. I just wanted to get your thinking. You said earlier that you don’t want to use debt to buy back shares and I can appreciate that based on the strong balance sheet you’ve always had. You’ve always also said share repurchase up to $44 is a credo. It looks like there’s really no acquisition opportunities out there. You have a strong free cash model. So I’m just trying to think about why or why you would not recommend using debt to buy back shares. John M. Morphy: I said at the moment I don’t think based on our being conservative with the balance sheet, I won’t say that would never happen, but if when you talk about $44, there’s between $44 and $40 earnings per share is so small, I don’t think I would change my capital structure to gain that. Now I also said that if we went into a stock repurchase program in the future we’d be a lot more opportunistic meaning that you’d want something in place if the stock had for some reason a real weakness you could take advantage of it, but I think for us to go take on debt and restructure the balance sheet where I have no maneuverability left to change earnings per share by a very small number, that wouldn’t make sense to me. Shardik Methpa - FTN Midwest: Okay. So I guess in the long run right now, it really isn’t... wouldn’t have the impact you’d want and why take on the extra added interest cost and debt for the balance sheet -- Jonathan J. Judge: One other thing. We’re not even two weeks finished with $1 billion repurchase, so maybe we should breathe for a minute. Shardik Methpa - FTN Midwest: Thank you very much. John M. Morphy: Thanks.

Your next question comes from Pat Burton from Citi. Pat Burton - Citi: My question is as follows. John, you made comments about the structure of the portfolio perhaps changing. When I think of Paychex, I think short liability, short assets, and when I think of your competitor, I think short liability and much longer duration assets and that helps when rates go down but it creates its own new set of risks. Could you just amplify in your comment there about the portfolio structure? John M. Morphy: I’m talking very minor, I’m not talking -- what you just talked about, that would be a major change. Jonathan J. Judge: We know where they are and we don’t want to... I’m not saying what they did is right, wrong, or different, it’s just we’re not going that zone. We have really adopted a philosophy that return in the portfolio is not our highest requirement. We’d like it to earn something reasonable but we’re not going to try to differentiate ourselves in that portfolio and I’ve also... It kind of ties into your comment. I think people understand a whole lot better when my income statement moves with the rates as opposed to when it kind of moderates and sometimes that’s good and sometimes that’s bad. Pat Burton - Citi: Yeah, I mean my personal view is you probably don’t get the credit when the rates go up and you get hammered when the rates go down. I know you’re not a big fan of looking at hedges. How about variable rate debt? Again this will tie to the buy back question, so if you want to pass, that’s fine, but some sort of a structure where perhaps if rates come down, the cost of your interest goes down along with earning less on your float. John M. Morphy: I’d like to pass on this for now but I what I want you to understand, we think that we made a significant capital structure change when we took the dividend up to what we did and we did a $1 billion stock buy back. That was a big thing for Paychex to do and I think the commitment that Jon and I would say is we’re going to continue to look at these things and do what we believe is best but I don’t think where in the past we were kind of, “We’re not going to do that.” I’d say we’re more open, we’ll look at them, and what makes sense we’ll strongly consider doing, but at the moment I think Jon’s comment about “Let’s breathe a little bit” that’s okay too. We got the Board to agree to those things. It was a good discussion on it from all ends and you can expect that we’ll continue to be looking at these things but it’s too early to say we’ll do one or the other right now. Jonathan J. Judge: The [inaudible] I put on that by the way is as we were thinking through the changes that we wanted to make, we got some extraordinary help and guidance and recommendations from your community and we are very open to that, so to the extent that you guys have ideas that you think would be helpful to our shareholders and our capital structure, shoot a note to John or myself. We would be very happy to receive it and I promise you we’ll think it through. John M. Morphy: I echo that. Pat Burton - Citi: Hey, one last question. You made a comment about the model line insurance and to my understanding only one of them was downgraded and the other ones were put on watch for what that’s worth, but the question there is, I know the fundamentals of the munis, the issuers, are super solid, right? John M. Morphy: We never bought instruments based on whether there was insurance. We buy based on the underlying assets and where the munis are. Forty percent of the portfolios just happen to be insured but again we average double AA and if it goes below A we sell it. Pat Burton - Citi: And you’ve got no issues with delinquencies or defaults or anything like that in the portfolio? John M. Morphy: No. Pat Burton - Citi: Okay, thanks for clearing it up. Appreciate it. Good quarter.

Next is Charlie Murphy from Morgan Stanley.

Charlie Murphy - Morgan Stanley: Thank you. John and Jon, is it fair to extrapolate BeneTrac revenues from this quarter through the rest of the year and if that’s true, did you modestly reduce the organic growth guidance for HR benefits? John M. Morphy: I’m not... You would be getting more technical about it. We look at it as we’re in the range and leave it there. The range we still believe is 20 to 23. Throw BeneTrac in for $10 million on that side, it’s still inside the guidance. Charlie Murphy - Morgan Stanley: Okay. John M. Morphy: Our goal is not to change guidance to be herky jerky, our goal is we’re still inside the guidance, we don’t change it. Charlie Murphy - Morgan Stanley: Okay, and on the last call and on this call you said operating managers have identified expenses to reduce in a tougher environment. Just to be clear, are they reducing those right now? Have they not started? Jonathan J. Judge: What that refers to is more again of the management philosophy. We do two types of planning. We do budgetary planning and we do strategic planning. On the budgetary side, when we release our budget for the year, one of the things that we do and you can sort of put it in the “just in case” bucket, is we require all of the senior management team to identify areas where they would cut expenses if required in the course of the year. Another way of saying that is we’ve essentially put into the planning process a concept that said that we want to be able to buffer our expense world in the event that we need to deal with that. That’s what the reference is to. Where we are right now, we have not forced any reductions in our expense lines in the course of the current year but if things started to soften on us, we were just really trying to communicate to you that we’ve got a pretty good control over the things that we can manage and we do it in a proactive way. Charlie Murphy - Morgan Stanley: Thank you very much. Jonathan J. Judge: Pleasure.

And our last question comes from TC Robillard from Banc of America Securities. TC Robillard - Banc of America Securities: Great, thanks. John Morphy, just a quick question. If we look at the Paychecks Premier and PEO, the client base growth, is that a pretty decent proxy to assume that that’s what that revenue base is growing or is that just -- John M. Morphy: Are you interested in like a decline in employee growth? Worksite employees? TC Robillard - Banc of America Securities: I’m sorry, that’s what I meant, if we look at the growth rate there, is that a decent ballpark to -- John M. Morphy: Decent ballpark can vary because we do price increases there. We also, we get into a situation where the client died in the PEO and the premier isn’t always as consistent as what we get in our regular businesses. Sometimes it might jump up and it can vary so it’s going to be pretty close to that but not exactly on it. Let me give you an example. I’ve had times when the revenue growth has been greater than the worksite employees and I’ve had times when the reverse has happened. John M. Morphy: TC Robillard - Banc of America Securities: Okay, great. Thanks for the color. Enjoy the holidays, guys. John M. Morphy: You as well.

There are no further questions. ‘

John M. Morphy: I want to thank everybody and again at the same time really appreciate your interest in Paychex and all the help you give us in this process which I think works extremely well and I want to hope you and your families and everybody close to you has a wonderful and safe holiday season, so thanks a lot. John M. Morphy:

That concludes today’s call. Please disconnect your line at this time.