Good day, ladies and gentlemen, and welcome to the Administaff fourth quarter 2006 earnings conference call. (Operator Instructions) Joining us on the call today are Mr. Paul Sarvadi, Chairman and Chief Executive Officer; Mr. Richard Rawson, President; and Mr. Douglas Sharp, Chief Financial Officer. I would now like to turn the call over to Mr. Doug Sharp. 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'll discuss our fourth quarter and 2006 full year financial results. Paul will recap the 2006 year and comment on our outlook for 2007. Richard will then discuss recent and projected trends in our direct costs, including: benefits, workers' compensation, and payroll taxes, and how these trends impact pricing and gross profit. I will return to provide 2007 financial guidance. We will then end the call with a question-and-answer session. Now, let me begin by mentioning a few financial highlights. We reported fourth quarter earnings of $13.4 million or $0.47 per share, our highest ever quarterly earnings as we completed a record-setting year. Full-year 2006 earnings per share increased 46% over 2005 on 19%…

Thank you, Doug. In my part of the call today, I'll discuss three separate topics: First I'll comment on the outstanding results we achieved in 2006; Secondly I'll provide details surrounding the growth challenges we faced in the fourth quarter and the start of 2007 and our resulting plan of action; Then I will conclude with the discussion of our long-term plans for growth profitability and capital utilization. 2006 was simply an outstanding year for Administaff. We continued double-digit unit growth and achieved the 100,000 worksite employee milestone. We were effective in each of the critical success factors in our business that produce growth and profitability. We exceeded internal targets and set records in sales of new accounts, sales efficiency and pricing of new business, validating the demand for our premium service offering and the effectiveness of our core sales system. We made substantial progress on each of the two most important sales metrics for future growth of the company: the number of trained sales personnel and the sales efficiency. This year, we accelerated hiring and training of sales staff, which resulted in an 11% increase in the average number of trained sales reps from 219 in 2005 to 244 in 2006. Total sales increased 16% over 2005 on this 11% increase in trained sales reps, as sales efficiency reached a record level for the company. For 2006, our census to First Call rate was over 48% and our closing rate on accounts we bid was over 27%. The sales per sales person per month efficiency rate at our standard client size of 13 employees was 1.29, exceeding our 2005 record level of 1.24, in spite of growing the sales staff. Our fall campaign sales results were certainly a big part of the year's sales success. For the campaign period…

(Operator Instructions) Your first question comes from Tobey Sommer - SunTrust Robinson Humphrey.

I was wondering if we could dig into the middle market clients who left in November and December? Was there any additional color you could give us in terms of any industry concentration or geographic concentration that would give us a little bit more insight into what happened? Paul Sarvadi: Well Tobey, thanks for your question. there's really nothing further geographically. There were only seven accounts, but they totaled the 2,000 worksite employees and it was just basically companies making a decision to move, as I said, just mostly taking it in-house at year end. Tobey Sommer - SunTrust Robinson Humphrey: In taking a look at the 10% to 11% growth in worksite employees in '07, if you look at the core traditional customer base, what sort of growth rate is implied in that 10% to 11% for the core smaller customers? Paul Sarvadi: I don't have that specifically, but it's higher than that because we basically want to be conservative about giving ourselves time for the mid market to develop. I think it's prudent at this point to factor in what we just saw, so that's what we did. We want to be conservative about the going-forward growth and then put people on to both the mid-market game plan and accelerate the core market selling program and see things accelerate as we move on later in the year. Tobey Sommer - SunTrust Robinson Humphrey: Okay. Another question for you regarding not necessarily the service fee, but markup or the surplus, over time we've talked about you finding other areas that can contribute both profit to that gross profit per worksite employee per month. Do you have any comments on what sort of expectations we should have for that expanding over time? Paul Sarvadi: We really didn't break that out…

Your next question comes from Mark Marcon - Robert W. Baird. Mark Marcon - Robert W. Baird: How big is the mid-market segment for you right now just in terms of percentage of worksite employees? Paul Sarvadi: Yes, that's a good question. The mid-market for us at this stage of the game, after we've seen some deterioration over the past quarter in that market, is down to 39 accounts and a total of right around 11,000 worksite employees, kind of the good news and bad news. The bad news is it's down to that, the good news is it shouldn't be able to affect us too much more going forward before we start to grow that segment again. Mark Marcon - Robert W. Baird: Is the fee in the GP per worksite employee lower for those clients than it is for your average client? Paul Sarvadi: Yes, it is. If you'll recall our gross profit per employees runs about 10%, a little over that. Maybe 10% or 11% lower than the rest of the book of business. But the operating income per worksite employee we think is probably just a little better than our core business. Mark Marcon - Robert W. Baird: And that 11,000 worksite employees, how much is that down year over year? Paul Sarvadi: Well, the peak I think was around 14,000 worksite employees at one point, so that kind of gives you a framework of where that is over that period of time. Mark Marcon - Robert W. Baird: Okay. Why are these mid-market employees bringing it in-house? When you talk to them, what's the primary driver? Paul Sarvadi: I think it varies from account to account. But what I pointed out in our script that you have a new person involved, either a CFO or…

Your next question comes from Jim Macdonald - First Analysis. Jim Macdonald - First Analysis: Yes, good morning, guys. Paul Sarvadi: Hey, Jim. Richard Rawson: Morning, Jim. Jim Macdonald - First Analysis: I just wanted to follow-up on a couple things here. In terms of your metrics, do they exclude the mid-market or how do you handle that in your metrics? When you said 80% retention, was that a number of customers or of worksite employees? Paul Sarvadi: The 80% client retention is number of customers. We had more employees go away at that level than we did before, of course, because first of all the customer base is bigger, but also the fact that the average sized client that went away was higher than last year. That's the answer to that question. Now what was the first question again? Jim Macdonald - First Analysis: The first question was when you give your metrics that you're selling X percent of budget, do you somehow exclude mid-market there or are those included in that sales? Paul Sarvadi: No, it's all included. Jim Macdonald - First Analysis: Going back to the metrics question, so what would be retention be for a worksite, not a worksite employee level? Paul Sarvadi: I didn't really work out the numbers that way. But again, this is what we're digging into kind of by segment. Obviously we just discussed the fact that you're actually down in the mid-market segment and grew faster than our average rate in the rest of the business. This is really what we feel like is a very isolated incident related to this particular year end and that 2,500 employee difference, but we will be digging in on that going forward. Richard Rawson: Well, I think the other thing to remember is that…

Your next question comes from Cynthia Houlton - RBC Capital. Cynthia Houlton - RBC Capital: You said the 30% attrition that you're seeing in your sales force over five months that is an analyzed number, right? So in the last quarter you mentioned it was in the high 30s. This quarter it's gone down that much? Is that correct? Paul Sarvadi: Right. It's an annual turnover rate that's down to around 30% from what was running at high 30s, near 40%. In historical perspective, the highest we've ever been is in the low 40s, and the lowest we've ever been is where we are right now. Cynthia Houlton - RBC Capital: And in terms of annual bonuses, is that something that's paid out in the March quarter? I want to get a sense of timing if that's somewhat due to timing of bonus payments. Paul Sarvadi: Good question. From a compensation standpoint, we really don't have a big bonus program for the sales people that has people hanging on until a certain time. In fact it's quite the reverse. By this time of the new year, we usually have a culling related to sales staff that maybe were not successful in the fall campaign. In other words they actually get their increase in compensation by selling more through the fall campaign. Then if they didn't make it through that period, that's when our managers would say, look if they can't make it during our peak selling period, they're not going to make it in the rest of the selling period. Things look really good right now. We don't have what we've seen in historical periods of a significant number of sales staff that we're terminating for lack of production from the fall campaign. That further validates that in the core…

Your next question comes from Michael Baker - Raymond James. Michael Baker - Raymond James: Yes. I was wondering if you could comment in general on the slowdown in growth in the west region. Is that primarily related to a concentration of these mid-market defections in that area? Paul Sarvadi: No, actually it wasn't. It's really more related to the number of trained rep count by region as that compares to the base of our customer base in each region. And that continues to be the main driver of our regional results. In other words, where we put the sales staff is where you get the sales, and you've got to keep the number of sales people up high enough for the size of the base. What happened is we grew the west coast very quickly, especially down in southern California. But we had some offices that weren't producing like they should. When you have 42 offices, you always have one or two or three district managers that maybe aren't getting the job done. We had some of that happen both in Phoenix and San Francisco. So we replaced those managers and even replaced the regional manager, so you actually had a reduction in the number of trained reps, did a little housecleaning out there. Over the course of last year, you went down from in the mid 50s to mid 40s the number of trained reps on the west coast. That kind of ultimately flows through the model and you see a little slower growth out there. Michael Baker - Raymond James: Were there any competitive factors that have changed, particularly in the California market that's influenced anything or is it pretty much just what you talked about? Paul Sarvadi: It's just what I just said. Michael Baker -…

Your next question comes from Thomas Giovine - Giovine Capital Group. Thomas Giovine - Giovine Capital Group: I think you do yourself a little bit of a disservice is the attrition due to middle-market clients that were as a result of M&A, how much was that? I guess my point was that you should probably break that out, because it's really completely under the control of if IBM buys one of your bigger clients. Paul Sarvadi: Yes, and we have. We have a success penalty, if you will, in a couple of different ways. Companies grow and they're successful and then they get purchased. Thomas Giovine - Giovine Capital Group: But what was the actual number this quarter? Paul Sarvadi: I don't have the exact number. I'll get that for you, but I know of two for sure that were sales without researching it. But I'd have to go back and get you a hard number. Thomas Giovine - Giovine Capital Group: That was what, at least 200 employees, 300? Paul Sarvadi: One was 500. Thomas Giovine - Giovine Capital Group: Right. Maybe an amount of what folks are sort of concerned about I'm assuming at this point? Paul Sarvadi: Yes, and I think that's fair. I can go back and get that information. Remember, the first goal of our whole initiative was to have big enough pipeline to kind of offset those because they're going to happen. Thomas Giovine - Giovine Capital Group: Okay. And then I have a couple of quick mini questions here. First thing if I look at cash, restricted cash and marketable securities, it comes out to be about $9 a share. What of that is sort of temporary and what exactly is restricted cash? In other words of that $9.25 per share, what as…

Sir, that will conclude the question and answer portion of our conference call. I will turn it over to you for any closing remarks. Paul Sarvadi: Once again we want to thank everyone for being on the call today. We look forward to seeing you out at the many conferences that we'll be involved in this spring and then back with you next time around. Thank you again.