John Morphy - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Secretary and Member of Executive Committee Martin Mucci - Chief Executive Officer, President, Director and Member of Executive Committee

Adam Frisch - Morgan Stanley Joseph Foresi - Janney Montgomery Scott LLC Julio Quinteros - Goldman Sachs Group Inc. David Parker - Lazard Capital Markets LLC Tien-Tsin Huang - JP Morgan Chase & Co Giridhar Krishnan - Crédit Suisse AG Rod Bourgeois - Sanford C. Bernstein & Co., Inc. Vishnu Lekraj Grant Keeney Ashwin Shirvaikar - Citigroup Inc James Macdonald - First Analysis Securities Corporation Mark Marcon - Robert W. Baird & Co. Incorporated Gary Bisbee - Barclays Capital James Kissane - BofA Merrill Lynch David Grossman - Stifel, Nicolaus & Co., Inc. Glenn Greene - Oppenheimer & Co. Inc.

Welcome, and thank you for standing by. [Operator Instructions] Now I will turn the meeting over to Mr. John Morphy, Senior Vice President and Chief Financial Officer.

Thank you for joining us today for our third quarter earnings release. Also with us is Marty Mucci, our President and CEO. During the call, we will review our third quarter 2011 financial results and guidance for full year fiscal 2011. Marty will then provide an overview, and we will conclude with a Q&A session. Yesterday afternoon after the market closed, we released our financial results for the third quarter ended February 28, 2011. We have also filed our Form 10-Q with the SEC, which provides additional discussion and analysis of 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 for approximately one month. The favorable results we experienced in the first half of this fiscal year have continued in the third quarter. Some of the key indicators are as follows: Checks per client, the number of checks issued during the period divided by our average client base, represents our most meaningful barometer of how the economy is doing. Our checks per client reflected increase of 2.8% for the third quarter and 2.1% for the nine months compared to the same periods last year. This compares to declines of 2.2% and 3.6% for the same period in the prior year. If you recall over the fourth quarter of last year when we experienced our first increase, 1.1% since February of 2007. On the bonus season, it was a good year-end, as double-digit growth was seen in both bonus, checks and dollars. That compares to a year ago when checks were basically flat. As of February 28, 2011, excluding SurePayroll, our client base declined 1.6% compared to February 28, 2010. This compares to a decrease of 3.6% for the comparable period a year ago. This is our first meaningful quarter-over-quarter improvement since the start of the recession, and we anticipate continued improvement in the fourth quarter. The improvement relates primarily to better retention as weak new business starts continue to negatively affect selling new clients. Sales of new units for the third quarter were close to the prior year. On February 8, 2011, we completed the acquisition of SurePayroll, Inc., a leading provider of software-as a-service payroll processing for small businesses. The purchase price was approximately $115 million in cash. SurePayroll serves approximately 30,000 small businesses, and revenue for SurePayroll for the 2010 calendar year was approximately $23 million. Our financial results for the quarter include SurePayroll from the date of acquisition. We do not anticipate that SurePayroll will have a material impact on our financial results for the fiscal year. In summary, our third quarter was a good quarter, consistent with the first half of the year and consistent with our expectations for achieving fiscal 2011 results. Looking forward to the remaining quarter of fiscal 2011, we expected to trend lower, which is consistent with what we have experienced in recent years. Some comments on the fourth quarter, which were considered when we developed our financial guidance last spring, are as follows: Human Resource Services revenue growth is expected to be lower in the fourth quarter than what we have experienced in the first nine months. PEO [professional employer organization] net service revenue is not as predictive as other revenue streams and tends to vary quarter-to-quarter, with the fluctuations in adding and retaining client employees served and in workers' compensation revenue. We expect fiscal 2011 PEO revenues will be stronger for the first nine months compared to the last three months due to timing of some of these fluctuations. We'll review our guidance for the full year in a few moments. Operating income, net of certain items, is expected to grow at a lower rate in the fourth quarter, bringing the full-year growth rate down slightly from what we have experienced for the first nine months. It is normal for our operating margins to be lower in the second half of the year due to the timing of price increases, timing of additions to our sales force, year-end payroll revenue and expense in our third fiscal quarter and higher levels of selling expense in the second half of the fiscal year. Sequential earnings per share is not as applicable to our business as it may be for others. While we do not experience significant seasonality, our quarters tend to match up better with the prior quarter versus the sequential quarter. We now move on to talking about the third quarter and the nine months ended February 28, 2011. Payroll service revenue increased 2% for both the third quarter and the nine months to $366 million and $1.1 billion. The primary reason for the payroll service revenue growth is the aforementioned increase in checks per client. Offsetting some of these positive factors was our lower client base compared to a year ago, with the decrease primarily occurring in the last quarter of fiscal 2010. As I mentioned earlier, the client base is down 1.6% from a year ago, compared to an overall decline of 3.6% last year at this time. The payroll client base as of February 28, 2011, excludes SurePayroll clients. Human Resource Services revenue increased 13% for the third quarter and 11% for the nine months to $153 million and $444 million. HRS revenue growth reflects modest improvements in economic conditions, client growth and our annual price increase. Some additional highlights of contributions to HRS revenue growth were: Paychex HR Solutions client employees served increased 14% to 536,000 employees as of February 28, 2011. We have seen positive results from increases in both clients and client employees. Contributing to this growth, in the clients and client employees, is our new product offering, Paychex HR Essentials. HR Essentials is an ASO [administrative services organization] product that provides support to our clients over the phone or online, to help manage employee related topics. HRS revenue was also positively impacted by growth in certain products that primarily support MMS clients. Health and benefit services revenue increased 27% to $10 million for the third quarter and 32% to $30 million for the nine months of fiscal 2011, driven primarily by a 26% increase in the number of applicants as of February 28, 2011, compared to a year ago. Fluctuations in PEO workers' compensation positively impacted PEO net service revenue in the quarter, as we mentioned, our workers' compensation costs frequently fluctuate from quarter-to-quarter. Combined interest on funds held for clients and investment income decreased 13% for the third quarter and 10% year-to-date. Yields available on high-quality securities continue to remain low. Expenses decreased 2% for the quarter and were flat for the nine months. However, during the prior year of third quarter, we recognized an expense charge of approximately $19 million to increase our litigation reserve. Excluding this expense charge, expenses would have increased 4% for the quarter and 2% for the nine months, due to costs related to continued investment in our sales force, customer service and technological infrastructure. Improvements in operation productivity with related lower headcount have somewhat offset these increases. Operating income increased 18% for the third quarter and 10% for the nine months to $199 million and $604 million. Operating income, excluding interest on funds held for clients and the expense charge to increase the litigation reserve, increased 8% for the third quarter and 7% for the nine months to $187 million and $568 million. We continue to manage expenses contributing to this growth. We do anticipate that expenses in the last quarter of fiscal 2011 will be slightly higher, bringing our operating income net of certain items, as a percent of service revenue, down somewhat from the 37.2% seen during the first nine months of the year. Net income increased 17% to $131 million for the third quarter, while diluted earnings per share increased 16% to $0.36 per share. Net income increased 10% to $396 million for the nine months, while diluted earnings per share increased 9% to $1.09 per share. We have maintained our conservative investment strategy and not recognized or realized any impairment losses on our investments. Our investments are high credit quality securities with AAA and AA ratings and short-term securities with A-1/P-1 ratings, with more than 90% of our portfolio rated AA or better. We limit the amounts that can be invested in any single issuer. Our priority has been, and would be, to ensure we can meet all of our cash commitments to clients that took place as we transfer cash balances from their accounts. We refer you to our SEC filings for a more detailed disclosure on our investments. Our financial position remains strong, with cash and total corporate investments of $652 million as of February 28, 2011, and no debt. Our cash flow from operations were $553 million for the nine months of 2011, up 10% from a year ago. Funds held for clients as of the end of the quarter were $4.2 billion compared to $3.5 billion as of May 31, 2010. Funds held for clients vary widely on a day-to-day basis and averaged $3.7 billion during the third quarter and $3.2 billion year-to-date. This represents an increase of 6% and 4% over the prior year periods. This growth in balances were due to increases in state unemployment insurance rates and increases in checks per client, offset somewhat by the lingering effects of the difficult economic conditions. Our total available-for-sale investments, including corporate investments and funds held for clients, reflected net unrealized gains of $46 million as of February 28, 2011, compared with net unrealized gains of $67 million as of May 31, 2010. Our stockholders' equity increased to $1.5 billion as of February 28, 2011. Our return on equity for the last 12 months is 35%. Moving on to guidance. Our outlook for fiscal 2011 is based upon current economic and interest rate conditions, continue with no significant changes. Consistent with our policy regarding guidance, our projections do not anticipate or speculate on future changes to interest rates. Our fiscal 2011 guidance reflects anticipated results from SurePayroll subsequent to the acquisition. The anticipated revenue impact is less than 1%, and the earnings dilution is expected to be less than $0.01 per share, partly due to amortization on acquired intangible assets. As previously discussed, we expect Human Resource Services revenue growth to be less than the growth for the first nine months, due to fluctuations in PEO revenues. Our 2011 guidance is as follows: We project Payroll Service revenue to increase in the range of 1% to 2% compared to fiscal 2010. Human Resource Services revenue growth is expected to be in the range of 10% to 11%. Total service revenue is expected to be in the range of 3% to 5%. Interest on funds held for clients is expected to decrease by 12% to 17%. Investment income net is projected to increase by 29% to 32%. Net income is expected to improve 4% to 6% over fiscal 2010. Operating income, net of certain items, as a percentage of total service revenue is expected to be approximately 36% for fiscal 2011. The effective income tax rate is expected to approximate 35% for fiscal 2011. Growth in interest on funds held for clients and investment income for fiscal 2011 is impacted by the low interest rate environment. The average rate of return on our combined funds held for clients and corporate investment portfolios is expected to be 1.3% for fiscal 2011. As of February 28, 2011, the long-term investment portfolio, which excludes variable rate demand notes, had an average yield to maturity of 2.7% and an average duration of 2.4 years. In the next 12 months, approximately 20% of this portfolio will mature, and it's currently anticipated that these proceeds will be reinvested at a lower average interest rate of approximately 1.1%. Investment income is expected to benefit from ongoing investment of cash generated from operations. To help you on looking at '12 and knowing that interest rate calculations are difficult, we expect combined interest on funds held for clients and investment income in total to decrease approximately 8% for fiscal 2012, subject to future changes in investment rates of return. On a normal financial market conditions, the impact to our earnings from a 25-basis-point increase or decrease in short-term interest rates would be approximately $3.5 million after taxes for a 12-month period. Such a basis point change may or may not be tied to changes in the federal funds rate. It's not possible to quantify the after-tax effect of a 25-basis-point change in the current investment environment. Purchases of property and equipment for fiscal 2011 are expected to be in the range of $95 million to $100 million, as we continue to invest in technology and infrastructure. Fiscal 2011 depreciation expense is projected to be in the range of $65 million to $70 million. And we project amortization of intangible assets for fiscal 2011 to be approximately $20 million. You should be aware that certain written and oral statements made by management, constitute forward-looking statements as defined in the Private Securities 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 in the press release for a discussion of forward-looking statements and the related risk factors. At this time, I'll turn the meeting over to Marty Mucci.

Things, John. I'm pleased to join you today and talk about our results for third quarter. Thank you for joining us. Our focus continues to be on driving growth, growth in terms of clients, revenues and profits, by continuing to provide great service and value to our clients and their employees. As John has said, we're pleased with some of the major financial indicators in the first nine months of 2011. Checks per client, revenue per check, client retention, all demonstrated consistent and continued improvement. Checks per client has improved now for four quarters and client retention for six. Our improving client metrics and benefits from implementing our new core advanced payroll platform enable us to continue to drive productivity, which is helping our profitability, and we take that many of those savings and pour it back in to investing in our employees, our products and our services. I'm also pleased with the efforts of our employees on many fronts. Our sales team, over 2,500 reps strong, selling at very tough environment. As John mentioned, in January, we were roughly consistent with last year's performance. And it's a tough environment for new business formation, as I think John has mentioned before. In many ways, we're showing improvement, but overall, with the new business formations about flat, it is keeping our sales flat in the core payroll side, at least where there's growth in other fronts. Our client satisfaction results continue to be at the highest levels ever, in both core and major market payroll services. Our employees remain dedicated to our client satisfaction and being an essential partner with our clients. And we have completed another successful year-end for our clients, processing, printing and distributing over 9,500,000 W-2s in a very short time frame, beginning the end of December through the middle of January. So I want to thank our employees in the sales and operations front for terrific performance in a continued tough environment, and we look forward to the work they continue to provide for us. They're very dedicated to the Paychex mission. For technology releases, with new enhancements continue about every six months, ever since getting done with the conversion to the core advanced platform, we are on the new Paychex next generation, and we continue to have releases about every six months with new product and functionality. In November, we released the online W-2s and pay stubs. And we've also introduced a product enhancement with our new Smart Time clocks for our clients with less than 20 employees, and we're off to a great selling start with those clocks. We just started selling really in the December time frame. Our Major Market business, now adding to our $400 million in annual revenue, offers a complete one source solution for our midsize clients including online HR, time and attendance and benefit enrollment. And we are very competitive, we feel, in this space, having better integrated our user experience and the navigation between the applications. And we continue to make major investments in this product. On the HR side, John mentioned already, we introduced our HR Essentials product. We're off to a very good start. We introduced that just about a year ago, and it has had better growth than we expected. This is where not only you have the HR support, it is telephonic, instead of our online -- or actual person comes and visit you. And as John mentioned, we completed the acquisition of SurePayroll. With over 30,000 clients, we have a entry into the new segment of the payroll online market. That's a segment where we think it's positioned to grow, as the 5 million small businesses who calculate their payroll annually move to the web. Paychex already had an online input, with over 40,000 clients using that, but SurePayroll with its software-as-a-service model really offers another alternative for clients looking for more self-service alternative. Both companies offer great service. And from a client control standpoint, we now offer a full range, so clients who want more control have SurePayroll, clients who have a higher level of personal interaction will have a dedicated payroll specialist under the Paychex model. So we're excited that SurePayroll -- the deal closed, the employee team at SurePayroll and talent and leadership in this marketplace now joining Paychex, and the leadership team that led SurePayroll really since its start back in 2000, essentially remain in place and focused on growing the business now within the Paychex family. We're excited to have them. During the first quarter call, we discussed some of our core sales initiatives. I wanted to give you an update on some of those. At the time, we introduced the new pricing and packaging of our core payroll products. And we have since also introduced new training programs to expand the knowledge and selling skills of our sales reps, particularly our new ones. And we have also made a number of changes to bolster the field sales management teams, and we are fully staffed in all sales positions and have completed the deployment of the latest technology in tablets, for it to support our sales team and improve their efficiency and productivity. So we have a number of things that we started and talked about a few quarters ago that are well under way. We are also in the final stages of the new compensation plans for fiscal '12 that have been designed with our sales leadership team to attract and retain the best sales candidates, simplify the calculation in payment of commissions and focus on driving more revenue, so we feel very good about where we are. As expected, we had planned to finish those, start communicating them to the reps for the start of our new fiscal year on June 1. I have also completed the hiring of two of the three initial executive positions that I've talked about on the last call. Andy Childs started in the role of Vice President of Marketing approximately a month ago. And Laurie Zaucha has started in the role of Vice President of HR and Organizational Development. Both are experienced, seasoned executives that have joined the team and are already adding value to the group. And I'm pleased to have them. I continue to actively interview for the top sales executive position and expect to fill this shortly. In the meantime, as I've described, all of our initiatives are under way with the vice presidents on that team involved with John and myself. And by separating the marketing function from sales and getting Andy started in his role and reporting directly to me, has allowed us to build on initiatives that capitalize on our brand strength and also accelerate the work with our channel partners and lead generation, which is a critical component for our sales team. So I'm very pleased in the first five to six months that I've been in the role, with the great team I have, the frontline and folks in both sales and ops that are working hard to get us to our goals. And we look forward to your questions. This group has started to take Paychex to the next level of performance, and I'm proud to be with them. So with that, John, I think we'll open it up for any questions or comments.

[Operator Instructions] Our first question comes from David Grossman of Stifel, Nicolaus. David Grossman - Stifel, Nicolaus & Co., Inc.: I was wondering, given the transformation over the past six months, and we're running at probably elevated expense levels. And we've got flattish bookings in the selling season. And when you bottle that with pricing, does that kind of roll out to, kind of at least in the current environment, flattish growth as we go into next year and a similar margin profile? Or is it should we think differently about the headwinds, tailwinds, if you will, as we go into next year?

No. We expect growth next year. We do not expect to be where we are. I think the -- no matter [ph] this year is we've gotten off to going backwards, and we've got to going forward. So I think HRS revenues, well, we got a little bit of a blip here, which we talked about. We expect they will come right back. Payroll revenue gross should be stronger next year, and while we still got some headwinds, they're not all headwinds. David Grossman - Stifel, Nicolaus & Co., Inc.: So if you look at the sales for the selling season and all the changes that you're in the process of making, if the environment stays flattish, do you still think that you can drive sales growth next year?

Yes, we are. We're up... David Grossman - Stifel, Nicolaus & Co., Inc.: Actually, I'm sorry, client growth.

We're hoping to get client growth next year, positive. And we were down 1.6 at the end of the third quarter. I think it would be down approximately one-ish when we go look at the year-over-year. We did a little bit less acquisition this year, but not that much. And we're optimistic these changes will help us. But again, when you look at the following year for our client growth, it's important, it's going to be more important for the year after that, so.

Yes. And the 1.6 decrease that we show this quarter is really an improvement. It's turning around. That's the best it's been in two years. So we definitely think that with the client growth coming back and turning positive, as well as all the checks per client and the revenue per check now pretty consistent, that we certainly will have growth next year. David Grossman - Stifel, Nicolaus & Co., Inc.: And just on that last point, Marty, in terms of the revenue per client, should we -- some of the things that, again, you've been working on over the next six months, how do you expect that to play out in terms of impacting revenue per client over the next 12 to 24 months?

Well, the key things we're working at right now would impact the sales. A lot of the sales initiatives for the training, the compensation plans, the hiring and recruiting and so forth, for the management team, I think, will help on the sales. On the revenue, we continue to see that we're getting more revenue per check. We're adding some product functionality, which I think adds value for our clients. And so I think they're also willing to pay a little bit more for that. And so I think the revenue per check, while it changes not all that dramatically, I certainly think it will come up some. But you got the checks per client going up as well, so that drives revenue, obviously per client, not on average client. David Grossman - Stifel, Nicolaus & Co., Inc.: Great. And just one last question on the portfolio. John, was there something sequentially in terms of roll-off that we saw bigger than, I guess, what I least expected in sequential decline in yields on the client monitor [indiscernible].

A little bit more. And the reason I gave you guidance on next year is, I think that these numbers are almost impossible to calculate. And rather than have you try to calculate and then be wrong, we made the decision we would give the guidance on '12, some interest rates don't change and we're using a pretty accurate -- I mean, floating comp compared to our budget is very close to what we thought it was going to be. It might even be a little bit better, but things bounce off sometimes one period, but it moves around, and floating can be somewhat seasonal.

Joseph Foresi of Janney Montgomery Scott. Joseph Foresi - Janney Montgomery Scott LLC: Hi. I was wondering what was the -- if you could help us quantify, what the impact on revenue from the bonus values being up 10%? Is there any way to quantify that?

That's not that big. We got some checks, it's not a big thing. It's more reason we disclosed that is to give you an indicator what's going on out there. I mean, two years ago, checks were down 10%, money was down 5%. And last year, they were flat. And this year, they're up double-digits. Now the good news is, when they're both up the same, that means these owners are willing to spread this money throughout the organization, but they didn't do a year ago. And it also means that their business were doing quite well, and they're making more money again. So those are all good signs. But actual dollars don't affect us that much. Joseph Foresi - Janney Montgomery Scott LLC: And then on the pricing, can you give us some idea of just what kind of order of magnitude the price increases were this year, maybe beginning of the year?

About 3%. Joseph Foresi - Janney Montgomery Scott LLC: And how do that compare to sort of past years?

We use the historical before all the time, but we didn't try to get 4%. And you got to remember, pricing is in two places. It's in the base, it's in new sales. New sales can be different from the base only because you have competition on the sale. And once you have a client in the base that they're happy with the service, they very rarely redo the price. Joseph Foresi - Janney Montgomery Scott LLC: And any change in one of those pricing methods?

No, none anticipated. Joseph Foresi - Janney Montgomery Scott LLC: Okay. I know you talked about the sales force and you're kind of progressing in some of the changes you made there. I wonder if you could get, maybe as much as you could, a little bit more specific on any change in comps structure? And what do you hope to kind of achieve for the organization?

I think the biggest thing there is, it was very complicated. We had a number of levels over the years that we built in for good reasons to drive incentives. But it ends up so complicated that a lot of times, the reps don't know exactly what they're going to get paid for, for what they're selling and when -- and then they're checking on it and so forth. We tried to simplify it a great deal. We also wanted to raise it some, to attract candidates coming in with a little bit more experience. And I think those are probably the biggest changes. But it's just it's really important that you make it very simple and be able to drive up kind of the percentage of the real revenue that they bring in. They're going to get paid for it. It's going to be very simple and clean for them. They're going to know what they're getting paid. And they're going to be very clear on what their total compensation can be when they succeed. And I think, probably the biggest things are making sure we're at a good base rate for how to bring people in and then simplifying on it on a go-forward basis.

Overall, we expect to be slightly higher than we've been paying, but not significantly. Joseph Foresi - Janney Montgomery Scott LLC: Okay. So no impact from margins or things like that?

No. Joseph Foresi - Janney Montgomery Scott LLC: Okay. And then just lastly, I think, it sounds like the changes are mostly behind you guys. I think is this fair to say that the swing factor now would be a general improvement in the economy? Because I know prior to this, it was sort of half-and-half sort of situation.

Really, it's a general improvement in one area of the economy, new business. If you speak of probably what we have today, is that the businesses that have weathered this recession, for the most part, are doing well, even on it's small end. It's large corporate America's doing, but you need to get to where people are confident enough to start some new businesses and they've got an access to capital to do it. That still remains a little mixed. I think it's just because the environment is a little scary, and it isn't as easy as it was five, six, seven years ago.

Rod Bourgeois of Bernstein [Sanford C. Bernstein & Co., Inc.]. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: Hi, guys. Just wanted to talk on the pricing front real quick. Did your year-over-year payroll revenue growth in the February quarter, benefit from any net pricing increase? It's just not clear in the revenue growth numbers whether there's a net price increase that's showing up in the growth rate.

Revenue per check went up. That's normal. I don't know that revenue per check has ever gone down, except when you lose enough checks and were down some, but not related to pricing. And discounting is still in the new sales environment, about like it was. It hasn't gotten any worse, but ADP is still there. And discounting in the base and the recovery of discounts, given at the time of purchases, improved. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: Okay. And then, you rolled out some new pricing strategies in recent months. And I guess, if you can give an update on how that's being received in the market? And to what extent that's helping you sort of avoid the discounting activity, and possibly, even help on the sales front at all?

I think it's helped us. This is what we introduced back in the October-November time frame. And then we looked at tweaking it. When you introduce anything, we're looking at adjusting things here and there, which I wouldn't get into too much detail, but I think it helps us from the standpoint if it was what's simpler to sell. Before, I think what we talked about two quarters ago, John probably described where discounting was kind of quite variable all over and there were bundles. And I think sometimes, a lot of product in the bundle that clients didn't understand or salespeople had a hard time selling, we tried to clean that up a little bit. And we made the bundle simpler and then sold à la carte. And I think that's been positive and negative. I think it's been positive in this fact that some clients, it's easier to sell. Other clients when you sell à la carte, you have to sell a lot more to get to the full bundle of what the client needs. So we've been tweaking some of that. I think it's been good. Obviously, it didn't drive as much of the increase in growth of new clients that we wanted. But we still think a lot of that is the environment of new business starts. But one thing is, we just don't see yet as the new business formation, and that seems to be what's holding us back. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: And then, just real quickly on that front, on the bookings front, do you see anything now starting to turn in your favor on the bookings front? I mean, are there any recent signs very lately that new business formation is improving? Or now that you've had your new pricing sort of approach out there in the market, I mean, you kind of indicated there's some positives and some negatives attached to that. Now that you've honed that process, will that start to help you in the bookings process at all, for things to turn in your favor now?

We should certainly hope it's going to improve it, I can't say we've seen yet.

Yes. We're just making some of those changes. So I think that could help. The new business formation, I don't think we've seen a lot that we'd say -- and there's always lagging indicators there. I haven't seen a great indicator of that. But it's hard to see that, that has improved much. Mostly, it still appears to be getting cash to start up their businesses. And the cash is still tight for brand-new businesses. Those who are existing seem to be getting the cash. Those who are new are not. And they don't have home equity that they used to use to start up some small businesses well, because a lot of that is still upside down. So we haven't seen that indicator yet, but sometimes you see that later after it's already happened.

Adam Frisch of Morgan Stanley. Adam Frisch - Morgan Stanley: Marty, you gave some details of the sales reorganization, but because I think that is really the key swing factor going forward outside of the back row backdrop. Maybe just give us your top two or three things that you're working on, that you think we should be tracking sequentially in the next couple of quarters to show the progress there in your initiatives? And how long you expect them to ultimately have an impact on sales results?

Yes, Adam, I think the ultimate result that you want to track are actually, obviously, the sales. I think that the initiatives that we've been putting in place was first to revise some of the training, to give -- to tighten up some of the training and give more selling skills as well as product knowledge, basically on the products that we're selling. We've tightened that up and already have been running that since November-December time frame. We completed deployment of new tablets, which gives them the tools that they need, a faster tablet that allows them to connect with salesforce.com, which is all their -- lead generation and customer relationship management tools, that has been completed now, just in the month of February. And then we're going to the comp plans, which we won't introduce until fiscal '12, which is June 1. And that was always the goal, so that we are starting on a kind of fresh year and introduce those. And then of course, there's leadership changes, which most have been made, the final one being the top executive that I'm interviewing for, and hope to fill very shortly. So you kind of put that all together. And obviously, the final scorecard is better improved sales. And you always got the economic environment that you have to always kind of judge how much of that is that, how much is execution. So a lot of things going. Everything pretty much on schedule as we wanted it to be, and now just putting it all together. Adam Frisch - Morgan Stanley: Okay. I guess if there was a time for the sales reorg to be going through some changes and upgrades, improvements, however you want to call it, now would be probably the best time as you could imagine, given the weakness in the macro scene. But going forward, how much do you think the improvement in sales will be related to Paychex-specific initiatives? And how much to the macro backdrop, primarily, the new business formations?

I think it's hard to say. I mean I feel good about the initiatives that we've put in place and that they're all on track. So what I think some of the pay off from some of that, when you have new comp plans and aren't starting till June, obviously, that hasn't. If that's going to kick in some improvement in execution, that hasn't done it yet, because they're not out there. I don't know. It's hard to say. I think whether you want to say 50-50 or more at 60-40 now, the macroenvironment, because we're moving on these initiatives, maybe that's a... Adam Frisch - Morgan Stanley: Okay. And last question I had is -- given your focus on growth, would you consider making acquisitions or investment with some maybe with ancillary businesses that may not be directly in your current footprint, but somehow tangentially related?

Well, I think we're always looking for whatever will drive growth. And right now, we've tied -- the acquisitions in the past, the time and attendance and benefit enrollment, everything's tied to payroll. And we're continuing to look outside that circle as well. If there's things that we can benefit from because of our sales, having over 2,500 reps on the street, if there's something that we can drive with those reps by acquiring something that fits small business between that employer and employee and is not directly to tie it to payroll, we're still very interested in it. Whatever can drive growth that ties to our small and medium-size businesses and getting more value, we're looking at it.

Ashwin Shirvaikar of Citi [Citigroup Inc.]. Ashwin Shirvaikar - Citigroup Inc: Hello. So my question was -- the bonuses being up, is that historically a good forward indicator of checks per client going through the year?

Really isn't indicator of check per client. It really is an indicator of how well small business is doing. I mean... Ashwin Shirvaikar - Citigroup Inc: The business that are doing well, would they go and hire more. Is that how you look at it?

We still think most hiring comes off new businesses. We don't think it comes out of small business per se, but we're seeing 2.6% range increase in checks per client. We know a little bit of that increase is because we're not selling as many new small clients, so you don't get tremendous hiring. When you start talking about creating jobs, most of it is in the slow end, it's going to come on a new business formation. A lot of these companies don't add employees. They're successful, and they learned to live without them. And when they get rid of them, they don't bring them back quickly. But only time will tell, I hope we would change in that. But the reason I say that is checks per client is usually pretty stable. It has been the best over the last four quarters that we've probably seen in 15 or 16 years. I think that's a combination of things got so bad and a combination of the new markets. New business starts not coming quite back yet. Ashwin Shirvaikar - Citigroup Inc: Okay. And as you see new business formation down the road, do you think it's more likely to come to on the SurePayroll platform or is it more likely to come on the traditional payroll or?

On both. On both, but the SurePayroll platform is a side we haven't been able to participate in. And if you've got more do-it-yourselfers, there's really small stuff that might happen. But on the other side, when people don't want to spend time doing payroll, they want to focus on growing their business and getting started, they're going to outsource. Ashwin Shirvaikar - Citigroup Inc: Okay. And I just had a last question on PEO. If you could just sort of explain the PEO impact? And why it is a day, one-quarter impact only?

Well, basically, most of the PEO impact is one-quarter only. We had two things happen. Workers' comp is something we have to look at every quarter. If we look at the actuarial accidents, more people has to make the cost as it going to be. And going into a year, we're usually favorable for the year, but we don't know which quarter it's always going to get booked in. And this time we got a little bit extra in the third quarter, which made the growth a little bit higher. And we believe that, that a little bit of extra we got, we're not going to get in the fourth quarter. Maybe we will, but we don't think we're going to. And another factor, that was to some extent but not as big as that one, is the fact that healthcare rates in the PEO environment were raised substantially going into January, and we did lose some customers who were extremely sensitive healthcare. One of the problems of the PEO, it's an advantage and a problem, is PEOs -- first, their other full outsourcing channel are very interested in healthcare. And a lot of times, they're simply shopping for the lowest healthcare they can get. And rates went up, so we had some clients who decided to go elsewhere. That part would carry over, but we're back selling the works, that employee number went up strong still in the period, despite those losses. So we don't think that's going to be significant going forward.

Grant Keeney of Northcoast Research.

Good morning. Going forward, how much, if any, cannibalization do you anticipate in your current business due to the acquisition of SurePayroll?

Don't really anticipate too much. We've always seen in the marketplace that there is those who want full control of their payroll and there's those who don't. They want the responsibility given to someone else, and like us. And so when we look at SurePayroll, we felt that, that was a market that was really for those who want full control. They want to do it themselves, take the full responsibility. And so we don't see a lot of overlap there at all. And we think that, that's a pretty big untapped market when you have the businesses that are out there doing it on pen and paper, and maybe spreadsheets, move in more to the web. They'll go to SurePayroll. Those who always want to outsource and just be out of it because it's not worth it to them to follow the rules and the changes and so forth or import it themselves, come to us.

Okay. So since the close on February 8, you haven't met this too much overlap in terms of the clients that are targeted?

No, no.

Okay. And then, just given the recent changes that you mentioned for the sales force, has there been any impact on attrition, for better or worse, that you guys have noticed or anticipate?

Well, attrition is up a little bit from historical trends. It's been pretty consistent in the past, and so it's been up a little bit. I think that's a combination of just being a tough selling environment right now for a period of time, it's probably worse on some, and so that's up a little bit. And then having some management changes drives it up. It's not -- we think it will start to come back down now, back to the normal levels, but it was -- it's been up a little bit, slightly up from the past.

And then last question here, just in terms of the client acquisition in the past, and correct me if I'm wrong, within the company it usually stays about 1/3 are from cold calls, 1/3 from the CPA referrals, about 1/3 from the customer referrals. Has there been any change in how you're acquiring clients just from a distribution standpoint?

Actually, it's 1/3 CPAs, but 1/3 clients. And the other third is, I wouldn't necessarily call it cold calling, it's what they call the scramble, telemarketing, all kinds of stuff, bank channels, those things. The only change we're seeing a little bit of is more people go to the Internet to buy, as opposed to talking to their friend or somebody in business, which is why we've had to switch more of our marketing money into Google. So I think we're a -- basically, Google is picking up the parts that's missing there.

Julio Quinteros of Goldman Sachs. Julio Quinteros - Goldman Sachs Group Inc.: Just real quickly, John, on the metrics, what was the clients' attrition metric for the quarter?

We didn't give it. Julio Quinteros - Goldman Sachs Group Inc.: Okay, got it.

Give us till the end of the year. Julio Quinteros - Goldman Sachs Group Inc.: And then, the flat new sales number that you guys reported for the quarter, how did that compare to your plan for the February quarter?

Well, the only guys we work for, the guy who used to run this place, he doesn't accept flat in the plan. So obviously, we're not sure it's realistic, but we're not happy with where we are. We'd rather be up. At least we're moving in the right direction. But I can't imagine Paychex ever having a plan that has negative client growth.

And it won't. Julio Quinteros - Goldman Sachs Group Inc.: Got it. And then looking at the margin guidance that you guys gave for fiscal 2011, there was a buildup that included some benefits from platform efficiencies, et cetera. As you guys begin to think about fiscal 2012, thinking about the puts and the takes for the margin profile of fiscal 2012, other than some of getting the revenue growth to give you guys a lot more leverage, are there any other plans like platform efficiency that you guys are thinking about that should be an additional driver to margins, as we start thinking about fiscal '12?

We're working on things all the time. That platform efficiency is far from done. And basically, our overall commitment is that whenever service revenue goes up, operating income, excluding floats, got to go up more. And we're trying to get to two to three points difference. And right now, two is probably more realistic, only because you don't create as much revenue growth, but that's our culture. A day when revenue growth and operating income growth are the same, would be a day that we're not very happy.

And at the same time, I think it's important that -- and John has mentioned this before, as we get that productivity, we drive a lot of it, a lot of the savings back into the development, the IT development and so forth. So we're very focused, particularly over the last couple of years at driving some of the productivity, drive some of the margin, but much goes back into investing in new products and new development.

Yes. Our investment in IT is up double digits. Julio Quinteros - Goldman Sachs Group Inc.: And then lastly, I realize that the fiscal '12 guidance around the interest, I’m sorry, the combined interest on fund, et cetera. Some of that has to do with the yield, but what is the expectation for the actual growth of funds held for clients in the down 8% number you talked about for fiscal '12?

Let's say, 4% to 5%. It's inflation and some other stuff, but that number doesn't generally change it too much. Julio Quinteros - Goldman Sachs Group Inc.: So you are expecting growth in that number.

Minor, not big. When we estimate this float number, I tell you that those two bits were down 8%. We won't be off much. We estimate it this year, I think what the estimate was it's almost dead-on what we thought it would be. Joseph Foresi - Janney Montgomery Scott LLC: Understood. Sorry, since you guys mentioned tablets. My hardware guy would kill me if I didn't ask you guys, how many tablets deployed are there? And how much further would you have to go in your sales force?

The payroll sales force is basically complete. And so that 2,500 reps in total, the payroll sales force just under 2,000. So we've done over just under 2,000 at least. And then the other sales force has continued to have it. We rotate so many. We push so many each year, but we made a concentrated effort this year to probably put close to 2,000 out, here in the last four, five months. Julio Quinteros - Goldman Sachs Group Inc.: Got it. And I think, if I heard you correctly, you guys said you integrate that with your salesforce.com platform, any information?

That's correct. Well, it's an online order taking. So with these faster tablets, it's easier to -- We basically now, over the last six to 12 months, can go out to a client, take the order and put all their information on the tablet. And turn it around, have them sign it, and then send it right to operations, which has given us some productivity as well and improve the sales process.

Jim Kissane of Bank of America Merrill Lynch. James Kissane - BofA Merrill Lynch: Hi, John and Marty. If you guys look out over the next few years, on terms of retention, do you think the retention rates will exceed your previous peaks, given when you said about client satisfaction being an all-time high and also the fact that MMS...

I would say there's a chance they can get better.

Yes. James Kissane - BofA Merrill Lynch: I meant, I think your previous peaks were maybe a little over 80%?

81%.

Yes. James Kissane - BofA Merrill Lynch: So when you throw in MMS, I think John, you have this $400 million business now?

MMS is better than that. But when you do it on revenue, the 81% would be better, too. If you did it on revenue, number gets down around, it's up to about 84%, 85%. But I don't think now, while I think it could get better than 19%, so I think it's going to 15? No.

Yes. But you still got a big percentage of that being out of business. So the ones we can focus on are the ones with client satisfaction, price, things like that, product feature functionality. But there's a big piece of that. So it's not the business nonpayment, because they don't have employees. James Kissane - BofA Merrill Lynch: Any sense on your market share during the busy selling season? Do you maintain, do you -- I think some feel that you lost share during the quarter?

I don't think we lost share. But ADP, probably, we don't steal as much from ADP as we used to, because they just gotten so aggressive on pricing, but that seems to have calmed down, so I think this is starting to abate.

I guess really even. I think we take -- we used to be a little ahead on the net from what we could see. And now I'd say, it's, pretty even.

We still take more from them, but it used to be bigger. James Kissane - BofA Merrill Lynch: Okay. And how about the local and regional prices?

The local and regional have gotten better. The new pricing method work on that now. There'll be some specific ones that might not be better. But overall, we are doing better against the local prices.

Yes. James Kissane - BofA Merrill Lynch: Okay, just one last one. On SurePayroll, what was the revenue contribution? And just the early read on the performance of the business?

The early read is -- I mean, there are 23 million. And I think the only number we gave was their 2010 calendar was 23 million, which was very close to what we expected. And the early read on the business is very good. No surprises, they run a very good business. It doesn't seem to be a lot of overlap. We've got a lot of talent there on the marketing side and a number of sides and their sales, their inside selling force. And so, we're very pleased.

Gary Bisbee of Barclays Capital. Gary Bisbee - Barclays Capital: Hi, guys. Good morning. I guess you said that MMS is approaching $400 million. I think you last broke this out in fiscal '06. And if I look at that and sort of back into it, the growth has been in the core payroll x MMS, it looks like it's basically been zero [indiscernible].

You can't look at it that way. Over a third of MMS comes from core. Gary Bisbee - Barclays Capital: Okay. And is that on how much on any given year, is there any way to...

Almost a third every year. $400 million is not an exact number. So if you're going to try to look at that and determine the exact core number, it's really like throwing a dart.

We've also added a number of products and functionality in there that we included in that. So you got the HR, the time and attendance, a lot of things were on that MMS space.

See, the other problem, the MMS, when you want to look at it this way is while we say MMS is 50 and above, it really isn't just 50 and above. It's a platform that requires more complication, more features. And some of it is because it wasn't in the core platforms. And now what we're starting to do is, core will now start to take some away from the MMS platform, new core platform more features in it. So while we can say that's kind of what we're doing up market, we kind of look at them together more and more now as they're going together more and more. Gary Bisbee - Barclays Capital: Okay. And then on the HRS revenue, it sounds like there was a little bit of a benefit this quarter from the PEO that reverses next quarter. But when we look at the whole year and try and to think trend line, is this business, is the more normalized growth now at 10% or 13%, I mean which is a better proxy?

Of the year, it's going to be between 10% and 11%, so the 13% isn't the right proxy, but... Gary Bisbee - Barclays Capital: I thought in the first half of the year, you lost money from having sold Stromberg last year. And you talked about...

I'm factoring Stromberg out of that. I don't put Stromberg in, so if we're setting 10% to 11%, and you're in an environment that's it's got to be better than that. I think the longer-term goal for HRS is still in the 13% to 15% range. But this is an environment where we get double-digit in, but we haven't proven we'll get a lot more. A lot's going to depend on how healthcare does. Gary Bisbee - Barclays Capital: Okay. And then just on the operating expenses, you said it would likely be up in the fourth quarter, despite the revenue being a little lower. I guess, full quarter of ops for SurePayroll is one thing, but anything else in particular?

It really relates to the selling costs are higher in the second half. We also look at the second half, and you got all the year-end third quarter stuff. The lowest-margin quarter is almost always the fourth quarter. We add salespeople. We do other investments. It's just the way the year runs. See, what happens is, we start off the year and you get a price increase. All the operating people sit on that adding people, eventually do add some of them. And it just, it's how it's worked. It's worked that way for a long time. Gary Bisbee - Barclays Capital: Okay. And then, just one last one. And you're probably going to tell me, I'm getting too cute with the question, but when I think about the revenue commentary for the fourth quarter and think that you got a full quarter of SurePayroll, it seems to me it's a percent or so contribution for the quarter. It feels like you're calling for the payroll revenue to decelerate quite a bit. Is there anything that would cause that or is that...

It would take quite a bit. I mean, SurePayroll is going to be less than a percent of revenue for the year, so I mean, it's... Gary Bisbee - Barclays Capital: Well, I guess, if you divide the 23 million by four quarters, right, and so...

5 million. Gary Bisbee - Barclays Capital: Yes. It's 5 million or 6 million, divide that by last year's revenue number in the fourth quarter, you get 1.2%. So it's less than 1% for the year, and maybe 1.2% is insignificant to you, but the guidance seems to -- if you sort of back that out, it seems like after a 2.3% growth in payroll revenue, that's got to fall to 1% to get to the service revenue.

But Payroll revenue will fall sequentially in the quarter. It will happen. Gary Bisbee - Barclays Capital: Okay. And then, is SurePayroll, is that all in the payroll line or is any of that revenue in...

They all go in payroll line.

Giri Krishnan of Crédit Suisse. Giridhar Krishnan - Crédit Suisse AG: Hi. A question for Marty. I know you've spoken in the recent past about this heightened focus on marketing and you made a few couple of key hires. Could you maybe speak what's been contemplated in terms of changes in your strategy or what we should keep an eye out for?

Yes, I think that the focus on the marketing is a number of things. One, lead generation is the most critical thing that the team is focused on now. I think we've done a pretty good job, but I think we could always do better by bringing some professional marketing experience, like Andy has, both in the payroll and a number of other industries. How are we with lead generations? Are we getting the most out of them? We have a great sales force out there. But you can always give them more leads, and are we capitalizing enough out of the CPA market, out of the banking community, out of current clients and off the web. And so we're spending a lot of this initial time, we're just in the last three or four weeks focused on that. The next would be the brand. We have a strong brand, but it's not always known. It's much other than payroll. It's very strong on payroll. But outside of payroll, when we have this full suite of products to complete HR outsourcing, we've been doing for many years, and I think we need to capitalize more on that brand and he will be focused on that. In addition to that, it will be focused a lot on more competitive intelligence, I think it's something that we have not had a sound a process in before doing what competitors are doing, where the best new opportunities are coming over the next few years, and Andy's spending time on that. So Andy has his hands full, but he's got a very good team there. And I think, that would be some of the things that we'll focus on right out of the gate. Giridhar Krishnan - Crédit Suisse AG: Okay. And then a quick follow-up on the new business starts outlook. At this point, is this, based on speaking with clients, what do you think has the changes? Is better access to credit relatively, fewer concerns about macro? Or what is your sense, based on what you've heard about just the outlook on?

It's hard to say, because the guy who starts a new business, we're not talking to him, and we don't see him. We see our existing clients but they're not the ones who would start -- someone who'd add an idea or something, so it's hard to tell who would tell you that.

Vishnu Lekraj of Morningstar.

Good morning, gentlemen. A quick question here on your returns on capital for your payroll service, with the focus on growth and the acquisition of SurePayroll and your pricing and your product mix changing a little bit, how should we think about returns on capital and free cash flow growth moving out beyond this year and next year?

Not much change. I don't see anything our net income or -- it's almost everything falls in line with cash. I don't see any accumulation on the balance sheet, SurePayroll won't change that. All the characteristics are the same as ours, so I don't think any of that is going to change.

Even with the greater investment in infrastructure and maybe training of sales force, stuff like that.

It's there. But it doesn't distort it enough to change those numbers very much.

Got you. Given the modest decline in -- just back to some market share things, given the modest decline in your customer base, there's been some talk from some of your competitors, not necessarily ADP, but some other smaller folks that are taking share, and you said there's nothing to be concerned about. But moving forward with the acquisition of SurePayroll, maybe some businesses wanted to do things more online, they do it themselves. Do you see if the situation is changing a little bit in terms of what clients may need or want.

Well, we definitely acquired SurePayroll to get at a market we can't get it in. I mean, the do-it-yourself market, which is about 5 million businesses in the U.S. that do payroll with a pencil or a pen and a memo of basically from the government how to do it, and we couldn't get at that market. I mean, they want to do it themselves and we don't have anything to offer them. So that's where SurePayroll will focus on that -- the small outsourcers that, I don't know how small outsourcers can actually know whether they're getting their share. I mean, most of them are local and regional, there's only about two or three payroll providers. There are more than 50,000 clients. They can look at what they're doing, but that can be all over the map. Some of our, when we had the advantage licensees, some of our best licensees actually didn't sell a lot of new accounts each year, but they didn't lose hardly any. They just had a business that was more stable, but when we had some licensees, they were pretty profitable.

I think, as far as product and functionality changes. I don't think I've ever felt better about our product set. At the low end, we're on the new platform now, it's working extremely well. It's driving productivity, it's giving -- we just introduced online W-2s and pay stubs in November. We revised the online reports. More clients are using our online reports and the flexibility in web interface. The midmarket has got more functionality and integration than it's ever had. And we're continuing to invest quite a bit in that. And we're seeing changes come out about every six months, and the functionality and value. We've introduced new time clocks. And I think, actually, it's tougher and tougher for the local providers to compete with us. And that's where John said, I think we've seen some wins there. So I've never been more pleased with the products that we have and the road map for where it's going.

Mark Marcon of Robert W. Baird. Mark Marcon - Robert W. Baird & Co. Incorporated: All the questions have been around new sales. I wanted to take another look at that. What are you seeing in terms of salesperson efficiency. When you take a look at the number of closes on legitimate leads, are you seeing any variance there, relative to the historic metrics?

I think the closing rate, actually, is up a little bit, so we're feeling better about that. I think it's -- as we've said, without the new business formation, you have fewer leads then to go on. But we are feeling that from the day that we have, that the closing ratio is moving up and that's a positive thing. So when we have referrals from CPAs or recurring clients or even going into a competitive situation from a Google-leader-something, the closing ratio is generally up. So we're seeing that their productivity, the tools and training that we're giving them is starting to improve and are starting to help them improve, and that was -- if they had more leads, we should be doing better because they'd be closing more. Mark Marcon - Robert W. Baird & Co. Incorporated: Great. And then can you talk a little bit about when you take a look at the new clients, can you talk a little bit about their relative size to prior year? So it sounds like this year in this quarter, we probably closed fewer new clients ever so slightly than we did a year ago. Are they roughly the same sizes a year ago or are they slightly bigger?

Slightly bigger. Mark Marcon - Robert W. Baird & Co. Incorporated: Okay, which is a positive. And then are there any other regional differences that you're seeing? We're seeing a few small differences, but in new business formations by state, are you seeing those?

No, we don't look at it too much of that way. But when you go talk to branch-by-branch, unless you really get to some of the place in the country which are hurt worse, but even Detroit is doing about the same as everybody else. Mark Marcon - Robert W. Baird & Co. Incorporated: Really? So you're not seeing that much of a difference?

No.

Not too much. I think the states where the housing growth was hit so hard, I think that's still slower to come back, because -- but even there, you're starting to see more building going on in homes and so forth, from the day that we see. And so, we do think hopefully that will start driving those contractors, landscapers, painters, to start up more business, restaurants. And so that looks like that's starting to come back. But generally, those were still the states, and the regional areas hurt the worst. When the housing got hurt, the small businesses stopped because there was no demand and it hasn't really come back yet. Although the building does seem to be starting to come slow. Mark Marcon - Robert W. Baird & Co. Incorporated: And did SurePayroll end up growing their number of clients?

Yes. They grow it every year. A little pretty close to...

Yes. Mark Marcon - Robert W. Baird & Co. Incorporated: How much?

Well, historically, they've grown around 20%. And I don't see any reason why they wouldn't continue to do that. Mark Marcon - Robert W. Baird & Co. Incorporated: Is their client profile different? Are they less dependent on new business starts?

Well, they're in that market that's trying to get people that do it with the pen and pencil to switch to a computer, so it's probably not as dependent on new business starts.

Right. I don't they are. I think, as John said, there is some who's usually doing it one way and wants to go online. I don't think they're quite as dependent on new business starts as we would be.

It's also different when you only got 30,000 clients and you got 550,000. Mark Marcon - Robert W. Baird & Co. Incorporated: Sure. And then with regards to the new clients that you sold, exclusive of the ones that were brand-new business starts, I recognize that's a big portion of the clients that you sign every year. But exclusive of that, did that number improve year-over-year?

I don't know. I think they all stayed about the same. We really didn't see any big difference in anything.

Glenn Greene in Oppenheimer. Glenn Greene - Oppenheimer & Co. Inc.: First question, just wanted to talk about, I think part of your sort of sales changes you made in September might have been tightening discounting that might have been available to your sales force. I was wondering as you went through the sales season, the February sales season and sort of start the new business formation being tough, and maybe still pretty aggressive competitive pricing, did you have to give a little bit more latitude on the discounting?

We give them a little bit more flexibility. I have to say, it was probably more regionally that we saw issues like that, but there was a little bit more flexibility given. Yes. Glenn Greene - Oppenheimer & Co. Inc.: Okay. And then on the customer attrition, is it fair it's still -- I know it improved, but is it still sort of a 22%, 23% range. And maybe you could help us with the composition of that, like how much is bankruptcies versus what's the competitive?

Bankruptcies are still a big portion, I think it's rated around the 22%, might be down to 21% or something.

Yes. Glenn Greene - Oppenheimer & Co. Inc.: And bankruptcy is what, 60%, 70% of that maybe?

I would still say it's 60%. That's improved quite a bit. That's the one where that is you expect would improve with the economy. So what is the composition and total losses, pretty much still the same, like that about 60%. Glenn Greene - Oppenheimer & Co. Inc.: And then, I know you sort of talked about -- we know that you had the 3% price increase heading into this year. Any reason to think that, that's not a realistic range for the existing base heading into next year?

No. Glenn Greene - Oppenheimer & Co. Inc.: Just still sort of the same?

Yes. Glenn Greene - Oppenheimer & Co. Inc.: And then maybe, John, just for final question, just help me understand, let's reconcile this, if the new sales is -- sounds like it was relatively flat to slightly down and the customer attrition improved. I'm just trying to conceptually sort of reconcile to the 1.6% down client number.

I didn't sell as many as I lost. And last year, I didn't -- I sold fewer than I did than the loss, the losses came down. Next thing is when you talk about revenue for payroll in the fourth quarter, the comparisons, year-over-year starts to get a little bit more difficult as checks per client made its first positive move in the fourth quarter a year ago.

Jim MacDonald of First Analysis. James Macdonald - First Analysis Securities Corporation: Most of my questions have been answered, but on checks per client, your growth rate is much higher than the general economic growth rate. Just give us some thoughts on how high can that get as the economy improves here?

Well, we've said in prior calls, normally it's flat, except for downturns. So this is kind of a new territory we're in. I think some of it is because the job losses got so severe and we don't have new business starts coming in, which will be small business, which would take my number down. I don't do this on same store sales because I can't do. I mean I could do it, but not very well, I get too much churn. We basically take the number of checks who were written during the period and divide it into the average client base. That's how we do it. James Macdonald - First Analysis Securities Corporation: And just a quick follow-up...

You also got to remember, we're in the down market. So if you take the total employees that we're in the market of, it's about 30 to 35 million. So we're not -- when you start talking about the whole U.S. economy, we're at the bottom. So when they do all those other numbers, there's a lot of stuff in there that we don't even see. James Macdonald - First Analysis Securities Corporation: Could you just talk a little bit about the impact of increasing MMS, which should help the number, but also maybe -- will SurePayroll, as that factors in, start to hurt the checks per client number?

It could, but again, they've got more clients, they've got more checks, I don't really care. And it's also when we give this checks per client we give this when the economy is bad and through these changing times. Eventually, we'll stop giving that number because people analyze it and read things into it that it may not mean. We've done that before. I mean, we gave it in 2002 and '03, I can remember when we stopped. And then we returned to giving it when we got into this recession. So when it's an indicator, and we think we got a measurement that you can look and make some sense out of, we give it to you. But once it starts getting all over the map, because everybody wants to hang in this number and they overreact in the world, sometimes moves on something that is -- something it doesn't want.

Tien-Tsin Huang of JPMorgan. Tien-Tsin Huang - JP Morgan Chase & Co: Just a couple of clarification questions. You discussed new unit sales, I think in the press release, is that different from the new dollar sales or bookings in dollars, I'm just curious.

[indiscernible] dollars instead units are about the same. Tien-Tsin Huang - JP Morgan Chase & Co: Right. But you haven't given a dollar number, it was units in terms of client units?

Correct. I don't remember giving out dollar numbers [ph] . Tien-Tsin Huang - JP Morgan Chase & Co: Okay. Is there a way for the -- think about, is there inflation in terms of the dollar value of the units sold?

You got price increases, you got all things going, but you've got to remember that the base is a different place sometimes in this business so. Tien-Tsin Huang - JP Morgan Chase & Co: I appreciated that. It was more just a question I raised, it's in the layering on some of the higher incremental margin things like 401(k), et cetera, that's kind of where I was going.

Well, that stuff still happens. I mean, if we do that and we continue -- but not a lot has changed very much and not a lot usually change in this business. Now the other thing, we haven't talked about this in a while, and when you look at new business sales one of the reasons you look at this, is how much impact is it going to be. And we're still in the situation where what we sell during the year is not a significant part of revenue. [indiscernible] But we can look out and people ask us, what do we see next year and somebody is worried about we're going to be [ph] flat. We're not going to be sitting on flat. And we have a pretty good luck, I mean, both the good news and the bad news for us all the time as we look out 12 months we know about what it’s going to be and sometimes, we'd like to be better, not easy to do that and so is not likely to be much worse. Tien-Tsin Huang - JP Morgan Chase & Co: Got it. Just another clarification on asset value of retirement services, I think you said in the release it was up 25%, is the revenue you're getting in line with that growth in assets and in management, are you seeing some price compression there?

It would be accepted if more and more people are shifting off that payment method. They're not [indiscernible], all the assets and there's legislation going on, that's going to be a big change. Now we've evolved their products towards these other choices, deliberately, and we get fees differently, so we don't feel at risk on this. We're still getting revenue from these things, but we've moved around, so we don't believe it’s going to be a big change. Tien-Tsin Huang - JP Morgan Chase & Co: Okay. So maybe we should focus less on that, more on a blend of that in the years that you gave.

Yes. Yes, and that's been a gradual change over the last three to four years. Tien-Tsin Huang - JP Morgan Chase & Co: All right, last one from me, I promise, just PEO. What's happening on the PEO market share, I know ADP’s been pretty consistent in talking about going in the mid-teens.

Well, the problem is that, you can't compare the two because their PEO is their primary way of going to market on full outsourcing. Our primary method is our full outsource product. The thing that you have to look at is, how many work site employees are we servicing, they won't tell you. I mean, that's what they tell you. And more of there is on the PEO than minor. And they push the PEO more outside Florida, than I do. But we were the first ones to get to these products. We were the first want to offer it outside the PEO environment, and as a result, we still think we have as many work site employees as almost as many as the next three combined.

And it's if we rolled it out nationally a few years ago, really, and between the ASO model, the PEO model and the new HR Essentials, it's continued to grow pretty strong and 14%, 15%.

I think they do a good job of running their PEO, and I think sometimes the other two have issues, I'm not going into detail about them. But ADP does not seem to have those issues, so I think we've got a well-run PEO. We're just in the PEO environment a little more than we are.

And the final question comes from David Parker of Lazard Capital Markets. David Parker - Lazard Capital Markets LLC: Good morning. You talked about the decline base decreasing 1.6% but showing some improvement, can you talk about the visibility of when you anticipate the crossover to occur and when you start showing positive growth? Should it be next quarter, should it be early in fiscal year '12?

I didn't say we'd get to positive growth. I guess, basically, I said when I measure year-over-year at the end of the fourth quarter, I think the decrease, and it will probably be a decrease, would be less than 1.6%. Okay? When you get to a crossover this gets a little bit complicated because we have gotten over the crossover the first six months of the fiscal year, client growth is usually relatively stable. And for the last couple of years, we've actually had slight increase, very slight. But the big season is the selling season in the third quarter; it's also the big loss season. And with new business starts up there, it makes it a little more challenging, but it's getting better. And then in the fourth quarter, it's important to us because that's when our normal selling season hits again, with people being at the end of the year, which because of new business starts that's also been a little more difficult. So it's a little bit seasonal, but we expect to see improvement, I'm sure we're going to have a financial plan that's going to go for positive. And we do all those things we can to get it to be positive, but I wish I could tell when I thought I was going to go positive, but I don't know. But I do know that whenever the client growth you build into the plan is, our goal is to make the plan. And in this fiscal year, we obviously will be below our planning client growth, but when it comes to making the profit, we'll make it. David Parker - Lazard Capital Markets LLC: Okay, thanks for that color. Just looking at that checks per client, you did mention that the comps get more difficult going forward. Do you still anticipate trending into that 2% to 3% range?

No. I would expect it will be something less, but again, that's -- we're already I'm in areas where it's better than I thought it would be, but sometimes you get too pessimistic about it. So we're still optimistic it's going to go up, but you going to go against the tougher comps. I don't think it will be at the levels as that, but I still think it will be positive and more positive than we generally see. So we'll see what happens. That's where really start to change a little bit, when new business starts come back, I will be so happy for that, we won't care about the comps. Care about them, but it won't be at the same degree. David Parker - Lazard Capital Markets LLC: And then just final question, Marty, I don't remember if you provided any update on just partnerships on the merchant processing side?

No, I actually didn't. We're moving along and something there that we should be able to announce here in the next couple of months. But we're continuing to move down that path and we think it's going to be a nice product then for our sales folks, if they take it out on the street. But I have more to say on that probably in the next 60 days.

This concludes the question-and-answer portion. I'd like to turn it back to you gentlemen for closing comments.

Okay. I want to thank everybody, again, for their interest in Paychex. I thought we had a good discussion here and a lot of discussions on -- we're real happy with. And obviously, we've got some things we're working on. And the only thing we'd like all of you to work on, when I look out this window on Rochester right now, I played golf a week ago on the weekend. But right now, we've got about half a foot of snow on the ground. So hopefully by the next call, that won't be here. So thanks a lot, and hope you all have a great day.

Thank you very much for joining.

This concludes today's conference. Thank you for your participation and you may now disconnect at this time.