Good day, ladies and gentlemen, and welcome to the Administaff third quarter 2008 earnings conference call. (Operator Instructions) Speaking on today’s call we have Paul Sarvadi, Chairman and Chief Executive Officer; Richard Rawson, President; and Douglas Sharp, Chief Financial Officer. I would now like to turn the presentation over to your host for today’s call, Mr. Doug Sharp. Please proceed.

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 third quarter financial results. Richard will discuss trends in our direct costs, including benefits, workers’ compensation, and payroll taxes, and the impact of such trends on our pricing. Then Paul will add his comments about the quarter and our outlook for the remainder of the year. I will return to provide financial guidance for the fourth quarter of 2008. We will then end the call with a question-and-answer session. Now, let me begin today’s call by summarizing the financial highlights from the third quarter. As most of you are aware, we reported preliminary third quarter results on October 17th to provide early commentary on our solid results in current market conditions. Additionally, early reporting allowed us to resume our share repurchase activity at attractive price levels. Today we reported third quarter earnings per share of $0.46, the same as that reported in our preliminary release. As for the year over year comparison, Q3 EPS of $0.46 increased from $0.45 in the 2007 period. However, bear…

Thank you, Doug. This morning, I am going to share the details of our strong third quarter gross profit results. Then I will update you on the pricing and direct cost trends we are seeing and how they will affect gross profit per worksite employee for the fourth quarter and into 2009. 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 work site employee per month was $239 which is above the top end of our forecasted range. These results came from achieving $197 per worksite employee per month of service fees and generating a surplus of $42 per work site employee per month or 4.3% of our total direct cost allocations. The pricing on our service fee for new business increased $11 per worksite employee per month over the third quarter of last year, while renewal pricing increased $5. These facts continue to support the value proposition that we bring to prospects and current clients. This quarter’s better-than-expected surplus of $5 per worksite employee per month came primarily from better than expected results from our payroll tax and benefits direct cost centers. Additionally, our workers’ compensation cost center surplus contributed slightly to the better than expected results. Let’s begin with payroll taxes. Our better-than-expected surplus in this cost center came as a result of having a spread between our allocation and the actual payroll tax expense applied to a larger amount of taxable payroll than what we had forecasted. This spread is consistent with what we saw in the second quarter’s positive results and continued to contribute almost $2.00 of additional surplus to the gross profit per worksite…

Thank you, Richard. Today I will provide information on our growth drivers and key initiatives in the third quarter. I will also discuss our fall selling campaign and the important year-end transition which becomes the foundation for our 2009 plan. I will wrap up my comments with some detail regarding our target market client base and our expectations as our clients react to the current economic climate. Our unit growth in the third quarter was driven by strong client retention and sales continuing at the same pace of the first half of the year. This growth was offset by some layoffs experienced in the client base toward the end of the third quarter. Our average client worksite employee retention percentage for the quarter was excellent at 98.6%. The average number of employees lost per month due to client attrition in the third quarter was 1.4% of the worksite employee base. This is considerably better than the same period last year at 1.7% and lower than the historical average for this period of 1.5%. As I mentioned earlier in the year, we have a company-wide initiative surrounding improvement in client retention throughout 2008 and into 2009. This includes established retention improvement targets as part of the annual incentive compensation plan for all employees in the company. Since the initiative began in February of this year, we have experienced a 21% improvement in client retention over the same period last year. Of course the highest concentration of renewing accounts and year end terminations are still ahead of us but if we can extend these results through the next few months, this will contribute substantially to the starting point for paid worksite employees in 2009. The sales effort throughout 2008 has reflected lower closing rates indicative of uncertainty and a sluggish economy. Sales…

Thanks, Paul. We are essentially reiterating our full year and Q4 implied earnings per share ranges, with some adjustments among the key metrics. As for the details of our fourth quarter guidance: we expect average paid worksite employees per month to be in a range of 120,500 to 121,000. As a reminder, clients sold during the fourth quarter of any year, and in particular during our fall sales campaign, are typically converted to paid worksite employees during the first quarter of the following year. As for gross profit per worksite employee per month, we expect to be in a range of $246 to $249 for Q4. An expected sequential increase in this metric over Q3 is associated primarily with the benefits area. Benefit plan design changes have positively impacted costs, while we have passed through appropriate price increases over the course of this year. Fourth quarter operating expenses are expected to be in a range of $74 million to $74.5 million. This is sequentially up from the third quarter operating expenses by approximately $5.3 million, and includes approximately $3.3 million of additional advertising costs focused around our fall sales campaign, $1 million in higher G&A costs primarily associated with fall sales campaign travel and HR Tools development, and $700,000 in compensation expense, primarily associated with additional sales personnel. We expect Q4 net interest income to be between $1.4 million and $1.6 million and are forecasting an effective income tax rate of 36.2%. We are also forecasting 25 million average diluted outstanding shares for the fourth quarter and 25.6 million shares for the full year 2008. In summary, we believe our business model has performed exceptionally well in the face of a weakening economy. In fact, if not for an $0.18 per share negative impact of lower interest rates on our…

(Operator Instructions) Your first question comes from the line of Tobey Sommer of SunTrust Robinson Humphrey. Please proceed.

Thank you. A lot of good detail on your prepared remarks. I am interested in asking you a question about the commissions that you are seeing in the customer base. They did come under a little bit of pressure in the quarter. I was wondering if you saw a noticeable trend within the quarter, whether that decline that you quoted was kind of more material in September when the overall economy seemed to grind to a halt with the credit crisis.

Yes, it was. It did deteriorate throughout the quarter and ended up in the 8.3% range for the quarter.

Paul, from your perspective when you look at things historically, you mentioned that being perhaps one of the better indicators that you can look at for your customers’ kind of health, or at least near-term. How does that rate of decline compare to what you have seen in previous slow-downs?

You know, it’s unfortunate we don’t have as good data back historically. You know, our information is so much better today that we are able to see things in a very granular level. Unfortunately, we really don’t have a good comparative back during that period. But I would also like to just say that that is one factor -- to me it’s a big one -- that affects the mindset of the business decision maker. But it is one data point that we use against several others and fortunately most recently, we had our annual large hospitality event where we are able to really sit face-to-face with many of our clients and get a direct feel for their attitudes and their actual actions that they are taking, their plans. And we found our client-base’s attitude to be inspiring in terms of how they were upbeat and opportunistic, even though they were recognizing some real economic turbulence.

Thanks. One last housekeeping question and I’ll get back in the queue -- the press release says you repurchased 1.5 million shares I think year-to-date, if I’m correct, and your guidance implies I think continued share repurchase. How much will you have repurchased if you get to a 25 million outstanding share count by the end of the year?

The 25 million just assumes what we have repurchased to date, so it doesn’t assume any further repurchases.

Okay. Thank you very much. I’ll get back in the queue.

(Operator Instructions) Your next question comes from the line of James Macdonald of First Analysis. Please proceed.

You talked about some flexibility going forward on expenses. Have you taken any actions currently given the situation?

Well, Jim, no, we have not, simply -- well first of all, we have clearly developed a range of possibilities but it’s not time to pull the trigger on anything until we see how things go. You know, we are right in the middle of the point of where things could -- we could actually end up with accelerating unit growth in the next year or we could see growth that’s a little slower than this year, so we are in that point where we are going to see what happens and then -- but we’ve got a variety of plans in place, ready to take action if necessary.

Okay, and could you talk -- so you’ve seen something in October so far. Obviously October has been a pretty different kind of a month. What can you tell us about October lay-offs and what you are seeing currently?

Well, consistent with what I’ve been saying about our client base and the distinction from the rest of the marketplace, we did not see lay-offs continuing dramatically into October. And obviously we are still evaluating that because the month just ended and we are digging down in the weed and peeling the onion back a little bit but it’s a little bit in conflict with the commission level being off that much. So that’s why we say we want to be cautious but we are also optimistic.

And just one more -- in the last couple of weeks, there have been some dislocations in a lot of the interest rate type of things. Did you do anything to take advantage of that or do you stay totally kind of safe in treasuries?

We had a little bit of a mix but I would say for the most part, we are staying safe in treasury up to this point. But it’s something that we will revisit going forward.

You didn’t look at some of the high-yielding munis during that period?

We still have some of our investments in the tax exempt money market funds but the majority are in the government-backed funds.

Okay. Thanks very much.

Your next question comes from the line of Michael Baker of Raymond James. Please proceed.

Thanks. I was wondering if you could give us a little bit of color on what you are seeing in the mid-market versus the core PEO business.

Sure. We continue to make good progress in the mid-markets. Our focus this year has been converting more and more clients to the mid-market service model and at the end of the quarter, we had 60 clients in that model. We’re having great results there with service satisfaction and also with our stewardship meetings, where we are going in and laying out the detail of the economics of the relationship. That’s all going well. As we move into this fourth quarter, we still have a good percentage, like we do even on our core business, of customers that are in the renewal process. I think we have much better visibility there than we have had in previous periods. And then also -- so that’s on the renewal side. On the sales side, we have a pipeline that has ramped up throughout the third quarter and we have some good opportunities there for new business. But in the current economic climate, those types of decisions are pretty significant for these companies, so it’s kind of hard to tell. You know, it’s part of this equation that we have of a wide range of possibilities here for year-end.

Okay, and then I had a question for Richard -- any early read on uptake of the health benefit as you get towards the renewal process?

Are you talking about trends for next year?

Well, I’m talking about actual signing up for the benefit in light of all the other constraints that a consumer might feel at this point.

Oh, okay. Yeah, no -- you know, I mean, we are obviously starting the renewal process and the ones that we’ve renewed so far, you know, some customers will increase the deductibles and go to a higher deductible plan within our current range of opportunities. But over the last two quarters, we have seen kind of the migration flatten out in terms of the richer plans and so you know, we are expecting to see just kind of a steady as you go from 2009. I would expect to see some people migrate into the higher deductible plans just from a cost side but we don’t see any crisis going on there and certainly we are starting -- January we’ll start the second year of a three-year contract with UnitedHealthcare and as I mentioned in my remarks, we will be getting an additional reduction in the administrative fee component of the cost for 2009 over 2008. So we have already gotten the renewals for the non-UnitedHealthcare plans. We’ve already baked those into kind of our early forecasts for 2009 in our pricing. All of those increases seem to be pretty nominal, so I think we are set to go.

And then just one final question on the health benefit -- in terms of the high deductible option, are you seeing any difference in seasonal utilization? In other words, utilization kind of being more back-ended in the year, once they hit the deductible?

No, you know what? I mean, our -- with the 2% year over year trend increase, we have seen utilization at kind of a normal rate, what we would have expected. We haven’t seen any huge step-up in the utilization and so -- I mean, we’re forecasting about a 3% year-over-year cost to contemplate a little bit of that in the fourth quarter. But we haven’t seen a huge step up, no.

That’s helpful. Thank you.

Your next question or comment comes from the line of Mark Marcon of Robert W. Baird.

Good morning. Can you mention the specific impact of the UnitedHealthcare reduction in terms of the administrative cost?

Yeah, each -- you know, we renewed that contract in 2007 and it began January of ’08, then ’09, and then through 2010. And as part of that agreement, we got a reduction in the administrative fee component of that contract each year and it declined from -- or it’s gone down and will go down in ’09 from ’08 and it will go down a little bit further in 2010 from ’09.

Right, and I was -- what I was wondering was if you could remind us what that actual reduction is in ’09 relative to ’08?

Well, I would submit to you that I am not allowed to do that, but thanks for asking.

It’s all factored into the total benefit increases.

Right, yeah.

Okay. I mean, when we go back and re-look at that 8K, I mean, you did talk about what the total benefits would be. Can you -- is there a much bigger benefit in ’09 relative to ’08 than --

Well, I think if you go back to the press release that when we released this in ’07, we talked about the benefit over three years being $17 million plus, so there will be some benefit and we have factored that into our pricing for ’09.

Okay, and what percentage, Richard, of the client employees ended up using the benefits?

It’s right at when you -- well, it’s actually all -- it’s over 90% of the eligible but in terms of just the raw math, it’s about 73% of the total covered employees on a plan at any given time.

Got it. And the -- in terms of looking towards next year when we think about the sales efficiency ratio, you mentioned earlier that the 1.2 to 1.7 as kind of being the range. I’m assuming that was for the fourth quarter, right?

Right, that was for the fall campaign sales periods in the past.

Okay, and what would you anticipate on a full-year basis, given the macro environment? Or how should we think about that as being a range for a full year?

I think if you look at years that were more difficult, we ended up in the 0.90 to 0.93, 4, somewhere in there. And in the best years we’ve had, you’re in the 1.2 to 1.25 range.

Okay, great. And then what are you seeing actually in terms of like bankruptcies or things of that nature? It doesn’t sound like you have seen much changes yet.

Up through this point, we haven’t seen a lot of that yet, Mark, as far as the financial defaults related to a bankruptcy.

Have you heard anything from any of your clients just in terms of having a tougher time accessing capital or anything of that nature?

I wouldn’t say to a large extent. There’s been a few cases but not to a large extent up through this point.

You know, I think that actually, Mark, another distinction in our target base, they are more profitable and they actually are less debt capacity related in terms of their operating plan, so we haven’t heard any outcry about oh my gosh, you know, the credit markets seized up and you know, we can’t operate.

Great, and then in the west you ended up having an acceleration with regard to your growth rate. Can you talk a little bit about what you are seeing there? Is it just that you are going up against easy comps or have things actually improved?

I’m sorry, what was the first part of that question?

Just in the west, your revenue growth.

Oh, in the west, I’m sorry. You know, no, nothing dramatic there. This always goes back to more of where we put the sales staff, where you grow, where you add markets and all that kind of thing. That’s usually what dictates more one area of working better than another, other than at times we’ll have a particular market or a particular sales office with a manager changeover, something like that, but we haven’t seen anything on a regional basis that gives us any pause or that would direct any particular attention to.

Okay, great. I’ll jump back in the queue.

And due to time constraints, this concludes the Q&A session. I will now turn it back to Paul Sarvadi for closing remarks.

Okay, well, we just want to thank everyone for your interest and participation and we look forward to a strong year-end performance and once we go through that, we’ll provide information about our plans for 2009. Thank you very much.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.