Good day, ladies and gentlemen, and welcome to the Administaff fourth quarter 2008 earnings conference call. My name is Shawnel, and I will be your coordinator for today. (Operator instructions) I would now like to turn the presentation over to, Mr. Paul Sarvadi, Chairman of the Board and Chief Executive Officer; Mr. Richard Rawson, the President; and Mr. Douglas Sharp, Financial Officer. Please proceed.

Good morning. This is Doug Sharp. Thank you. We appreciate you joining us this morning. Before we begin, I would like to remind you that any statements made by Mr. Sarvadi, Mr. Rawson, or myself that are not historical facts are considered to be forward-looking statements within the meaning of the Federal Securities Laws. Words such as expects, intends, projects, believes, likely, probably, goal, objective, outlook, guidance, appears, target, and similar expressions are used to identify such forward-looking statements and involve a number of risks and uncertainties that have been described in detail in the company’s filings with the SEC. These risks and uncertainties may cause actual results to differ materially from those stated in such forward-looking statements. Now, let me take a minute to outline our plan for this morning’s call. First, I’m going to discuss the details of our fourth quarter and full year 2008 financial results. Richard will discuss expected trends in our direct costs, including benefits, workers’ compensation, and payroll taxes, and the impact of such trends on our pricing. Paul will recap the 2008 year and then discuss our 2009 operating plan. Then I will provide our financial guidance for the first quarter and full year of 2009. We will then end the call with a question-and-answer session. Now, let me begin today’s call by discussing our fourth quarter results. Today, we reported fourth quarter earnings per share of $0.39. These results were below expectations set forth in our Q4 key metrics guidance due to the continued deterioration in the macroeconomic environment, which went from bad to worse over the course of the quarter. As for the Q4 year over year comparison, EPS was negatively impacted by $0.06 due to the declining interest rate environment and its effect on our investment income, discounting of workers’…

Thank you, Doug. This morning, I am going to share the details of our fourth quarter gross profit results. Then I will update you on the pricing and direct cost trends we are now seeing and how we believe they will affect gross profit per worksite employee per month for 2009. As you know, our gross profit comes from the mark-up that we earn on our HR services combined with the surplus that is generated when our direct cost pricing allocations exceed the corresponding direct costs. Doug just reported that our gross profit per worksite employee per month was $246 for the fourth quarter, and was within our forecasted range. These results came from achieving $199 per worksite employee per month of service fees and generating a surplus of $47 per worksite employee per month or 4.7% of our total direct cost allocations. The pricing on our service fee for both new and renewing accounts increased $3 per worksite employee per month over the fourth quarter of last year. Now these results continue to demonstrate the value proposition that prospects and current clients see in our service. In fact, our average markup was $1 per worksite employee per month above our forecast; however, this increase was more than offset by a $2 per worksite employee lower surplus and our workers' compensation cost center due to lower interest rate not higher clients. The total number of claims reported for this quarter was 16% lower than the fourth quarter of 2007. This incident rate is very meaningful when you consider that we had over a 3% growth in the number of worksite employees that incurred those claims. While the average cost of these claims is 30% higher than last year’s average claims cost it was driven primarily by one large claim. However,…

Thank you, Richard. I will begin my comments today with a few thoughts about our overall results for 2008. I will also discuss the economic conditions and the labor market deterioration we witnessed in the fourth quarter, and the affect on our small business client business base. I will finish by providing details on our outlook for 2009 and the conservative approach we're taking to planning and operating our business in this environment. (inaudible) bottom line of $1.79 in earnings per share was just under the low end of our $1.80 to $2.00 range provided at this time last year, when the world was quite different than it is today. However, with all the turmoil last year, the single most significant factor affecting our financial results was lower interest rates, which reduced our interest income and increased workers compensation reserves and tax rate. This factor alone reduced EPS by $0.19. Otherwise, we would have come in at $1.98, near the top end of our original range. Our financial performance was exceptional, as we grew revenues, gross profit, operating income, and EPS in the face of some daunting circumstances. Our operational achievements were equally impressive as we improved client retention, set record level client satisfaction rates, and grew our sales staff substantially. We invested in new products and services and improved our offering to mid-market clients, extending our competitive advantage; and we returned over $50 million to shareholders, while maintaining nearly $100 million in working capital. These results against the backdrop of one economic crisis after another throughout 2008 are truly remarkable. Administaff had an outstanding year by any measure. It is a testimony to our exceptional clients, our amazing employees, our valuable service offering, and our proven business model. Last quarter, I highlighted the resiliency of our client base, representing…

Thanks, Paul. Now before we open up the call for questions, I would like to provide our financial guidance for the first quarter and full-year 2009. As Paul discussed earlier, our forecasted unit growth takes into account an expected range of possibilities from the impact of a weak economy on our sales efficiency, client retention, and layoffs within our client base. We are forecasting a level of worksite employees in Q1 flat with our January starting point, then sequential growth between 1% and 3% for the remaining quarters of 2009. This results in expected average paid worksite employees in a range of 113,400 to 113,800 for the first quarter; and 115,500 to 118,000 for the full year. As for gross profit per worksite employee per month, based upon Richard’s earlier comments, we expect to be in a range of $245 to $249 for the first quarter and $232 to $236 for the full year. As for the quarterly pattern in this key metric, it is typically higher in Q1 because of the surplus we generate on a higher level of payroll taxes prior to the worksite employees reaching their wage limits. Thereafter, new business coming on creates a drag on the payroll tax surplus. When combined with pricing increases rolling in throughout the year, we typically see a decline in this metric from Q1 to Q2, sequentially flat from Q2 to Q3, and a sequential increase in Q4 over Q3. Now as Paul mentioned earlier, we have made adjustments to our initial 2009 operating plan based upon continued deterioration in the economy and its impact on our January starting point of worksite employees and unit growth outlook for the remainder of the year. We are forecasting operating expenses to be in the range of $273 million to $276 million for…

Ladies and gentlemen, if you wish to ask a question (Operator instructions). Your first question comes from the line of Tobey Sommer of SunTrust Robinson Humphrey. Please proceed. Tobey Sommer – SunTrust Robinson Humphrey: Thank you very much. Thank you for all the detail, very helpful prepared remarks. I wanted to ask a question about the sales force. You had a tremendous amount of growth in the trained salespeople. I wanted to see if in the course of the fall campaign or maybe in 2009, how you think about the mix of advertising versus kind of feet on the street, what has been successful for you and maybe any changes you would have looking at how you would allocate that kind of effort in 2009 versus kind of more stable growing years in the economy.

Thank you Toby, appreciate the question. Really, I'm very enthused about what is in front of us in 2009 from a sales standpoint, because as you know we grew the sales staff dramatically, a 20% increase last year; and the fall campaign, although the closer rates were not good, the activity remained high, which means all the new sales staff got a lot of good experience through the fall campaign. And that is what you really look for, those sales opportunities so they can hone their skills through that time period. Now on the advertising front, even though we are lowering our advertising spend and some of our business promotion expenses, we actually think we are going to be able to buy the same or maybe even higher number of gross rating points through this period because you don't have an election year and really the economy has dramatically lowered advertising rates. So we think we are positioned well to support our sales staff in the lead process of providing qualified leads and although and again more experience than they were last year, we are still going to be conservative and actually estimate a lower efficiency rate even than we experienced last year. Tobey Sommer – SunTrust Robinson Humphrey: Thanks. And let me ask a follow-up of perhaps Richard, if you could help. Several of the things that you discussed in terms of the markup and the difference variance of surplus, sounds like you built in some conservatism. If you were to net those different metrics out in terms of the opportunity for continued development, how would you quantify that looking forward in 2009?

Well, Toby, to your point, we did build in what I would call a little bit more conservatism. You know, as we think about in the payroll tax cost center, we had already built in the beginning allocation rates in the very end of last year for 2009, and then we got in the state unemployment tax rates. So that would seem to match with what our expectations were, the only difference as I said in my prepared remarks was the $1.5 million credit that we won't be getting in 2009 from the state of Texas. So that surplus I believe we just kind of nailed. I don’t think it is liberal or conservative, I think it is just kind of where we expect to be. Obviously, on the workers compensation cost center, our expense there were forecast in some increase over 2008 at this point. But in the very first quarter of this policy year, which starts in October and runs through September, the first quarter's results were really pretty strong. I mean, we had a 16% reduction in clients. Now that should translate into a lot lower cost. But we just can't tell how much that could be. It could be quite a bit over the next three quarters. On the healthcare side, the migration we believe can produce some upside there. You know, we are raking in the lower allocation right now and usually what happens is it takes a few months for the cost to decline. So we can see quite a few dollars per worksite employee per month additional surplus coming from both the workers compensation and the healthcare cost centers for the year. And actually, instead of them being a drain, they could actually become a contributor. It is just hard to pin the number right now, so that is why we said we just got to go with what we know. Tobey Sommer – SunTrust Robinson Humphrey: Thank you very much. I will get back in the queue.

Your next question comes from the line of Jim MacDonald of First Analysis. Jim MacDonald – First Analysis: Hey guys. Continuing on the workers comp discussion, if interest rates were to rise, how quickly would that impact your discount rate decisions (inaudible) October?

No, it is actually readjusted every quarter. So if they went up this quarter, we would start to see the effect of that next quarter. Jim MacDonald – First Analysis: Okay. And then you mentioned that there was a big claim that increased your severity by 30%. Presumably, if it was that big, it tripped over your $1 million cap. So is 30% the right number to think about or was it capped out really?

No, I mean the reserve hadn't hit the cap yet, but it was pretty close in the total reserve. Obviously if it goes over $1 million it is not our issue to deal with, so we are only responsible up to $1 million. So yes, the 30% is abnormally high for us in a given quarter. Certainly is and this was just one of those unfortunate incidents. But then it is actually comparing the first quarter of two different policy periods, so that one claim would have an inordinate effect but it can't have that effect on both. Jim MacDonald – First Analysis: Thanks. And then just one more quick one on interest rates, could you talk about kind of where you are invested now and kind of a similar question, how quickly, if interest rates were to rise would that impact you, have you been able to invest in a longer term higher rate type of instruments or kind of what is your total sensitivity on interest rates?

Well, currently, e have apportioned our investments between taxable and tax-exempt, although over the course of the past two years, it has been much more highly concentrated in the taxable government-backed, the Treasury, the agency funds and it has been very short term based on the yield curve. But it is something that we will be looking at very closely over the course of this year and figuring out whether it makes sense to take a little bit more risk, but a measured risk to earn a higher yield depending upon the environment. So I would say at this point, we are fairly heavily into the Treasury and the agency funds which are earning, as you know, very little at this point in time. But I think there – again, depends on the economy and the climate out there but I think at this point there is only room for upside in the yield based upon where we are. So we have kept things very short term for the moment. Jim MacDonald – First Analysis: So you don't even have 10% or 20% in kind of any long-term estimates?

No. For the current moment, we have kept things fairly short term rather than clatter into the long term.

That is an item, Jim, that our Finance Risk Management Audit Committee is going to review in our next meeting and make a new assessment based on where we are today compared to where we were a quarter ago, when the crisis was a little bit more severe. Jim MacDonald – First Analysis: Okay, thanks very much.

Your next question comes from the line of Michael Baker of Raymond James. Please proceed. Michael Baker – Raymond James: Thanks a lot. I was wondering if there is any potential change to your pricing approach, that being the bundling, or if you are finding ways to convey information to your prospects and existing customers around somehow – how some of the components are changing.

Yes Michael first of all, the bundled approach is still our approach to explaining the pricing of our service being, in our point of view, you either have an HR department or you don't and so we are really showing the cost of adding a sophisticated HR function to a company's business. But we have over the last – I think I mentioned a quarter or two ago that with our mid-market customers, we are able to provide some information about the components of our service needs, indicating how much our cost is for the payroll side of the business, how much our cost is for benefits administration or safety services, basically all the kind of break out of the markup component of our service. The $198 that Richard talked about, when you break that out as to how much we spent for the different aspects of the HR function, that information is really providing some insight for our clients to be able to see that wow, if you add up all those components, what a great bargain, because you can go compare those components to other payroll services or benefits administration services or those kind of things and I think that is giving some help to clients who are digging in in a tougher economic environment and really want to watch every penny. Michael Baker – Raymond James: Okay, that is helpful. Another question I had was over the years you’ve broadened your service offerings so that if you did have a client decided on some given point that they may not want the full offering that there were some potential trade down opportunity, and I'm just wondering given the attrition that you’ve seen, can you give us some sense to how many have traded down to a lower fee element?

We have not had a lot of that yet. We are getting a little more in our retirement services area. But the bigger impact on that front will come when we complete the HRTools rewrite which will be at the end of the summer or so. In the fall of this year, we will be testing and probably doing the beta test. And when that happens, then there will be a layer of technology functionality that operates as a software to the service component that I think will be very sticky for keeping customers, but also when they leave, you know, we should be able to have a fairly significant portion of our operating income per worksite employee that stays in place.

Michael, this is Richard. I was also going to add that in terms of what we've seen customers do this year, especially as they come in to the renewal cycle we are seeing them look at the total cost of the service, and saying, while I still want the total package that you have we are going to change our benefits plan for this next year. We are going to increase the deductibles, that and go to a plan with a higher deductible and a lower cost to meet the business owner. And so we expect to continue to see that trend taking place to the scale that it is right now kind of throughout 2009 because it does help the business owner make the decision to stay with us even though they are not going to have quite as rich of a health plan.

Actually, that’s part of a broader program to help our customer control cost through the down turn. And we are able to actually consult with them. This is when you need HR consultant. If you're doing a layoff, you need to make sure you keep the right folks and have the others – the right ones leave. Sometimes, you will need to look at your organization design and figure out new ways to do things, we have folks that can do that. Also it’s very – some practical things that you can do, you can lower your actual base pay level but introduce a variable pay component with incentives around key metrics of your business that will drive your growth and profitability and actually create some upside for employees even though you're reducing the base pay levels. So there's ways to keep people aligned, or even energize employees around cost savings environment. And there is other things that we kind of preparing to go do with our customers as they renew that help them think through being in a cost-saving mentality.

But those are all kinds of the things that you get when you have a bundled service offering. If you are buying the payroll from here and buying the benefits from there and buying this, that, and everything else separately you wouldn't get this kind of a cohesive game plan like we provide.

Yes, you just have to figure it out on your own.

Right. Michael Baker – Raymond James: That's helpful. I just had one other question for you, Richard; given the impact of the economy I was wondering if you have a sense of how that's impacting utilization on the healthcare side, or is it still too early to assess that given normal claims like lags?

Sure, actually I do have an answer to that question. We were looking at it from several perspectives, and one of the ways that we talked about it was in terms of higher health care kinds of activities, where their planned surgeries and stuff like that. So we went back and asked UnitedHealthcare to give us a little bit of history since they’ve been doing this for a long, long time. And I don't remember exactly but I think it was about 40 years they went back and looked to kind of their results, and certainly in an economic downturn the incident rate of health claims goes down because people postpone activities, postpone surgeries. That also works on the workers’ compensation site as well; we found that out when we had a report in December from our company that manages all of the workers’ compensation claims. So, we do see a potential reduction in the cost, because of a lack of incidents. Michael Baker – Raymond James: Thanks for the updates.

Your next question comes from the line of Mark Marcon from R.W. Baird. Mark Marcon – Robert W. Baird: Good morning. Obviously a really difficult economic environment. I was wondering if you could talk a little bit about the client retention rate that you saw, if you could split it out for the fourth quarter in terms of what you ended up seeing between your traditional smaller clients relative to your midmarket clients. And then I have some follow-ups.

Sure. First of all, we had for the year, a dramatic improvement in our midmarket retention, driven by the investment we made in our midmarket services. And we actually had over 30% improvement in our retention over that period. So, those were pretty dramatic results. Mark Marcon – Robert W. Baird: It went from what to what?

I’ll see if I got that number right in front of me, but for the full year, I think from between 4,000 and 5,000 employees the year before, and we lost 35 or 600 over year. So, you know, we really saw some great results there. We had, in the fourth quarter, though we saw in the midmarket customers some decline in employment, from layoffs and new hires, and we had one large customer go away, the bank that was taken over by the FDIC. So that is one we kind of couldn’t do much about. But in the small business community as well we just across the board had some clearly great results last year, to have a 12.6% improvement in client retention in a year that we were experiencing last year, I think it's pretty amazing. Even in the month of January we had a 1,000 fewer go away on 11,000 base, so 9% or whatever improvement in the month of January. Those are outstanding results, and I really think we have quite a bit of upside going forward because a lot of the changes that we made, we made as the year progressed more towards the latter part of the year. And we are going to be able to extend those things across the base this year and hopefully continue to make some improvement. This year, we will have our incentive compensation plan focused on three items at the corporate level, and that would be our normal operating income per worksite employee. So, we will have another component tied to client retention, like we did last year because we think there is more room to gain, to leverage the changes we made last year. And then we will probably have about 25% of our incentive comp plan focused on meeting operating expense budgets and improving on those targets. Mark Marcon – Robert W. Baird: Okay. And so were you running at kind of 80% kind of retention rate for Q4 or –?

We don't usually look at it as a rate within the quarter, but we had – in the quarter, we had let's say – Mark Marcon – Robert W. Baird: I meant just year over year?

Year-over-year rate? I didn’t look at that yet. But I would say it was a little lower than that, but not much, and it was a great year. Mark Marcon – Robert W. Baird: Okay. And then in terms of the assumptions going forward, would you expect your client retention rate to stay steady relative to the ’08 with improvements in servicing, offsetting the weakness that we are seeing economically or given the magnitude of this downturn, would you expect that may be the client retention ends up dropping a little bit in ’09 just because of unprecedented –

To be conservative, Mark, we actually budget in a little worse retention than what we’ve experienced last year. Mark Marcon – Robert W. Baird: Yes, that sounds wise.

Factor in some potential for business values, etc. And we've also factored in layoffs exceeding new hires more considerably as we finish off this first quarter and then still maintaining a headwind, but not quite as much as we've seen in the last few months. Mark Marcon – Robert W. Baird: So are you assuming that as we look out towards Q2 and Q3, you are assuming lower layoff rates?

Yes, we are still assuming layoffs exceeding new hires, but not as much as they did over this past three months in the next or in February, March in our forecast. Mark Marcon – Robert W. Baird: And what are you seeing out of the commissions – out of the commission payments out of your clients?

Yes, we haven't released our quarterly survey information yet. But I can't comment on that component. If you recall, in the third quarter last year, we saw a dramatic decline, over 8% reduction in commissions paid year-over-year on our base. And I look back at the dialog we had last quarter, we were talking about whether that would produce a round of layoffs, well, it did, as we are certainly seeing. Now in the fourth quarter the commissions were not off as bad, nearly as severe as they were in third. They were down a little over 2%, between 2% and 3% for the quarter, which is still down, it may have been a little closer to 3%. I don't have that number in front of me, but it was around 3%, and obviously better than the 8% decline. But I'm not sure if it is enough to encourage a lot of folks. Mark Marcon – Robert W. Baird: And I will jump back in queue. Can you talk a little bit about just the pricing environment that you are currently seeing out there. There is one large player in the space that has admittedly become just a little bit more aggressive. And so I'm wondering if you can just talk a little bit about what's happening from a pricing perspective? And what percentage of your new sales, would you say are state kind of the missionary single bit situations as opposed to you kind of a more competitive situation?

Yes, it is still pretty significant that we are still mostly Greenfield, but there has been more of what I call price based competition. We have to focus more on the value proposition that we provide. This reality is most of the players out there when they come in and compete on price, are really just talking about a base rate, and then when customers need services, or need more services than what's in that base rate, they end up paying, they get nickel and dimed, and cost goes up a lot. So, we just have to demonstrate that and be able to level that playing field with the facts.

But in terms of just our overall strategy for this year, in the market component, we are just planning on kind of a steady state, we did see an increase in the mark-up from new business in 2008 over 2007, because we put some pricing increases there. We're not putting any pricing increase for the markup component for 2009. And we are going, the game plan is to renew existing customers at similar rates that they currently have. Of course some will get an increase, some will get a decrease. So the game plan is to try to maintain that $198 per worksite employee per month average for the whole book of business every month throughout the year. Mark Marcon – Robert W. Baird: Great. Thank you for the color.

I would now like to turn the call back over to Mr. Paul Sarvadi.

Thank all very much for participating today, and we look forward to getting back together next quarter after we hopefully see some improvement in the marketplace. Thank you very much.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.