UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
 SECURITIES EXCHANGE ACT OF 1934 
 For the fiscal year ended June 30, 20072008 
 OR 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
 SECURITIES EXCHANGE ACT OF 1934 
 Commission file number 1-5397 
 
 AUTOMATIC DATA PROCESSING, INC. 
 (Exact name of registrant as specified in its charter) 

Delaware22-1467904 
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 
 
One ADP Boulevard, Roseland, New Jersey07068
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code:973-974-5000 
 
Securities registered pursuant to Section 12(b) of the Act: 
  Name of each exchange on
Title of each class which registered
 
Common Stock, $.10 Par Value New York Stock Exchange
(voting) Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x]     No [ ]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ]     No [x]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [x]  No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [x]          Accelerated filer [ ]          Non-accelerated filer [ ]          Smaller reporting company [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $26,988,612,698.$23,216,032,643. On August22 2007, 2008 there were 531,060,120508,864,299 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for Annual Meeting of Stockholders to be held on November 13, 2007.11, 2008.

Part III               


Part I

Item 1. Business

     Automatic Data Processing, Inc., incorporated in Delaware in 1961 (together with its subsidiaries “ADP” or the “Company”), is one of the world’s largest providers of business outsourcing solutions. Leveraging more than 55nearly 60 years of experience, ADP offers a wide range of HR, payroll, tax and benefits administration solutions from a single source. ADP is also a leading provider of integrated computing solutions to automotive, heavy truck, motorcycle, marine and recreational vehicle dealers throughout the world. For financial information by segment and by geographic area, see Note 1918 of the “Notes to Consolidated Financial Statements” contained in this Form 10-K.The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, the Proxy Statement for its Annual Meeting of Stockholders and its Annual Report to Stockholders are made available, free of charge, on its website atwww.adp.comas soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission.The following summary describes ADP’s activities.

Employer Services

Employer Services offers a comprehensive range of human resource (HR) information, payroll processing, tax and benefits administration products and services, including traditional and Web-based outsourcing solutions, that assist approximately 560,000 employers in the United States, Canada, Europe, South America (primarily Brazil), Australia and Asia to staff, manage, pay and retain their employees. Employer Services markets these products and services through its direct marketing salesforce and, on a limited basis, through indirect sales channels, such as marketing relationships with banks and accountants, among others. In fiscal 2007, 83%2008, 82% of Employer Services’ revenues were from the United States, 11% were from Europe, 5% were from Canada and 1%2% were from South America (primarily Brazil), Australia and Asia.

United States

Employer Services’ approach to the market is to match a client’s needs with the productsservices and servicesproducts that will best meet expectations. To facilitate this approach, in the United States, Employer Services is comprised of the following groups: Small Business Services (SBS) (serving primarily organizations with fewer than 50 employees); Major Account Services (serving primarily organizations with between 50 and 999 employees); and National Account Services (serving primarily organizations with 1,000 or more employees).

SBS processes payroll for smaller clients and provides them with market leading solutions, including a range of value-added services that are specifically designed for small business clients. Major Account Services and National Account Services offer a full suite of best-of-breed employer services solutions for clients ranging from mid-size through many of the world’s largest corporations.

ADP enables its largest clients to interface their major enterprise resource planning (ERP) applications with ADP’s outsourced payroll services. For those organizations that choose to process payroll in-house, ADP delivers stand-alone services such as payroll tax filing, check printing and distribution, year-end tax statements (i.e.(i.e., form W-2) and, wage garnishment services.services, health and welfare administration and flexible spending account (FSA) administration.

2

     In order to address the growing business process outsourcing (BPO) market for clients seeking human resource information systems and benefit outsourcing solutions, ADP offers its integrated comprehensive outsourcing services (COS) solution that allows a clientlarger clients to outsource its HR, payroll, payroll administration, employee service center, benefits administration, and time and labor management functions to ADP. ADP also offers ADP Resource®, an integrated, flexible HR and payroll service offering that provides a menu of optional services, such as 401(k), FSA and pay-as-you goa comprehensive Pay-by-Pay® workers’ compensation.compensation payment program.

     ADP provides payroll services that include the preparation of client employee paychecks and electronic direct deposits, along with supporting journals, summaries and management reports. ADP also supplies the quarterly and annual social security, medicare and federal, state and local income tax withholding reports required to be filed by employers.

2

ADP’s Added Value Services division (formerly the Tax, Retirement, Insurance and Pre-Employment Services divisiondivision) includes the following businesses: Tax and Financial Services, Retirement Services, Insurance Services and Pre-Employment Services. These businesses primarily support SBS, Major Account Services and/or National Account Services, and their services are sold through those businesses, as well as dedicated salesforces and marketing arrangements with alliance partners.

  • Tax and Financial Services processes and collects federal, state and local payroll taxesontaxes on behalf of, and from, ADP clients and remits these taxes to the appropriate taxingauthorities.taxing authorities. This business is also responsible for the efficient movement of informationandinformation and funds from clients to third parties through service offerings such as new hirereporting, TotalPay® payroll check (ADPCheck™), full service direct deposit (FSDD)and stored value payroll card (TotalPay® Card) products, and the collection and paymentofpayment of wage garnishments. Tax and Financial Services also offers accounts payable, wageverificationwage verification and sales and use tax services. This business provides an electronic interfacebetweeninterface between ADP clients and over 2,200 federal, state and local tax agencies, from theInternalthe Internal Revenue Service to local governments. In fiscal 2007,2008, Tax and FinancialServicesFinancial Services in the United States processed and delivered over 5452 million year-end taxstatementstax statements (i.e., form W-2) to its clients’ employees and over 43.240.8 million remittancesand employer payroll tax returns and deposits, and moved over $1 trillion in client fundstofunds to taxing authorities and its clients’ employees via electronic transfer, direct deposit andADPCheck.and ADPCheck.

  • Retirement Services provides recordkeeping and/or related administrative services withrespect to various types of retirement (primarily 401(k)) and SIMPLE IRA) plans, deferred compensationplanscompensation plans and “premium only” cafeteria plans.

  • Insurance Services provides a pay as you gocomprehensive Pay-by-Pay workers’ compensation payment service for workers compensationand,program and, through Automatic Data Processing Insurance Agency, Inc., offers workerscompensationworkers compensation and group health insurance to small and mid-size clients.

  • 3


    • Pre-Employment Services includes three categories of services: Applicant ManagementServices, Screening and Selection Services, and Tax Credit Services. ApplicantManagementApplicant Management Services provides employers with a web-based solution to manage theirtalenttheir talent throughout their lifecycle. Screening and SelectionandSelection Services provides backgroundchecks,background checks, reference verifications and an HR help desk. Tax Credit Services provides job taxcredittax credit services that assist employers in the identification of, and filing for, federal, stateandstate and local tax credits and other incentives based on geography, demographics and othercriteria,other criteria, and includes negotiation of incentive packages with applicable governmentalagencies.governmental agencies.

    ADP’s HR services provide comprehensivesolutions from pre-hire to retire, including talent acquisition through employee HR recordkeeping services, including benefits administration and outsourcing, employee history and position control.compliance management. ADP’s Benefit Services business provides benefits administration across all market segments, including management of the open enrollment of benefits, COBRA and flexible spending accountFSA administration. ADP’s timeTime and labor managementLabor Management services business provides solutions for employers to capture, calculate and report employee time and attendance.

         In fiscal 2007, ADP made several acquisitions to help expand its client base and reach into adjacent markets, including: Employease, Inc., a leading provider of web-based solutions for HR and benefits professionals; VirtualEdge Corporation, an innovator in the field of recruiting and talent lifecycle management solutions for HR organizations; the fully-outsourced payroll business of Intuit Inc.; the tax incentives business of Mintax, Inc.; and Taxware, LP, a leading provider of tax content and compliance solutions for sales, use and value added tax.

    International

    Employer Services has a growing presence outside of the United States, where it offers solutions on the basis of both geographic and specific client business needs. ADP offers in-country “best of breed” payroll and human resource outsourcing solutions to small and large clients alike in over a dozen countries outside of the United States. In each of Canada and Europe, ADP is the leading provider of payroll processing (including full departmental outsourcing) and human resource administration services. Within Europe, Employer Services has business operations supporting its in-country solutions in nineeight countries: France, Germany, Italy, the Netherlands, Poland, Spain, Switzerland the Czech Republic and the United Kingdom. It also offers services in Ireland (from the United Kingdom) and in Portugal (from Spain). In South America (primarily Brazil), Australia and Asia, ADP provides traditional service bureau payroll and also offers full departmental outsourcing of payroll services. ADP also offers wage and tax collection and remittance services in Canada and has developed wage collection and remittance services to be offered in the United Kingdom.

    3

         There is a steadily increasing demand from multinational companies for global payroll and human resource management services. In fiscal 2007,2008, ADP continued to expand its GlobalView®offering, making it available in 3237 countries. GlobalView is built on the SAP®ERP Human Capital Management and the SAP NetWeaver®platform and offers multinational and global companies an end-to-end outsourcing solution enabling standardized payroll processing and human resource administration. As of the end of fiscal 2007, 652008, 78 clients had contracted for GlobalView services, with approximately 250,000390,000 employees being processed. Upon completing the implementation for all these clients, ADP expects to be providing GlobalView services to more than 730,000nearly one million employees in 4546 different countries. In fiscal 2007, ADP established a wholly foreign owned entity in Shanghai, China, to better understand the developing market in China and serve the needs of multinational companies with operations in China.

    4

    Professional Employer Organization Services

         In the United States, ADPADP’s TotalSource®, ADP’s professional employer organization (PEO) business, provides clients with comprehensive employment administration outsourcing solutions through a co-employment relationship, including payroll, payroll tax filing, HR guidance, 401(k) plan administration, benefits administration, compliance services, health and workers’ compensation coverage and other supplemental benefits for employees. ADPADP’s TotalSource is the largest PEO in the United States based on the number of total paid worksite employees. PEO ServicesADP’s TotalSource has 4746 offices located in 1819 states and serves approximately 159,000188,000 worksite employees in all 50 states.

    Dealer Services

         Dealer Services provides integrated dealer management systems (such a system is also known in the industry as a “DMS”) and other business management solutions to automotive, heavy truck, and powersports (i.e., motorcycle, marine and recreational)recreational vehicle (RV) retailers in the United States, Canada,North America, Europe, South Africa and the Asia and Europe.Pacific region. Over 25,000 automotive, heavy truck, motorcycle, marine and powersports dealersRV retailers in over 5060 countries use ADP’s DMS products, other software based solutions,applications, networking solutions, data integration, consulting and/or digital marketing services.

         Clients use ADP’s DMS products to manage core business activities such as accounting, inventory management, factory communications, appointment scheduling, vehicle financing and insurance, sales and service. In addition to its DMS products, Dealer Services also offers its clients a full suite of web-enabled business solutionsadditional integrated applications to address each department and functional area of the dealership, (including customer relationship managementincluding Customer Relationship Management (CRM) applications, front-end sales and marketing solutions, (CRM) and “front-end” applications), and an IP telephonyTelephony phone system that canfully-integrated into the DMS to help dealerships with theirdrive sales processes and business development initiatives. All of Dealer Services’ business solutions are supported by comprehensive training offerings and business process consulting services. Dealer Services also offersprovides its dealership clients computer hardware, hardware maintenance services, licensed software support, system design and network consulting services. ADP’s DMS and other software products are available as “on-site” applications or through ADP’s application service provider (ASP) managed services solution (in which clients license and outsource the information technology management to Dealer Services).

         Dealer Services also designs, establishes and maintains communications networks for its dealership clients that allow interactive communications among multiple site locations as well as links between franchised dealers and their vehicle manufacturer franchisors. These networks are used for activities such as new vehicle ordering and status inquiry, warranty submission and validation, parts and vehicle locating, dealership customer credit application submission and decision-making, vehicle repair estimation and acquisition of vehicle registration and lien holder information.

         In fiscal 2006, ADP established a wholly foreign owned entity in Shanghai, China to facilitateAll of Dealer Services’ expandingsolutions are supported by comprehensive training offerings and business opportunities within China inprocess consulting services. ADP’s DMS and other software products are available as “on-site” applications installed at the automotive market segment.

    Spin-off of the Brokerage Services Group and Sale of Travel Clearing Business

         On March 30, 2007, ADP completed the tax free spin-off of its former Brokerage Services Group business, comprised of Brokerage Services and Securities Clearing and Outsourcing Services, into an independent publicly traded company called Broadridge Financial Solutions, Inc. On July 6, 2007, ADP completed the sale of its Travel Clearing business for approximately $116 million in cash. The Travel

    5

    Clearing business was previously reported in the “Other” segment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) and Note 5 of the “Notesdealership or as application service provider (ASP) managed services solutions (in which clients outsource their information technology management activities to Consolidated Financial Statements” contained in this Form 10-K.Dealer Services).

    Markets and Marketing Methods

         Employer Services offers services in the United States, Canada, Europe, South America (primarily Brazil), Australia and Asia. Dealer Services has offerings in the United States, Canada,North America, Europe, South Africa and the Asia and Europe.Pacific region. PEO Services are offered in the United States.

    4

         None of ADP’s major business groups have a single homogenous client base or market. For example, Dealer Services primarily serves automotive dealers, but also serves heavy truck, powersports (i.e., motorcycle, marine and recreational), and agricultural equipment dealers, auto repair shops, used car lots, state departments of motor vehicles and manufacturers of automobiles, trucks and agricultural equipment. Employer Services and PEO Services have clients from a large variety of industries and markets. Within this client base are concentrations of clients in specific industries. Dealer Services primarily serves automobile dealers, which in turn may be dependent on a relatively small number of automobile manufacturers, but also serves heavy truck and powersports (i.e., motorcycle, marine and recreational) dealers, auto repair shops, used car lots, state departments of motor vehicles and manufacturers of automobiles and trucks. Employer Services also sells to autoautomobile dealers. While concentrations of clients exist, no one client or industry group is material to ADP’s overall revenues.

         ADP’s businesses are not overly sensitive to price changes, although economic conditions among selected clients and groups of clients may and do have a temporary impact on demand for ADP’s services. In fiscal 2007,2008, Employer Services continued to grow, primarily due to the increase in its United States payroll and payroll tax businesses, including new business started in the fiscal year,period, an increase in the number of employees on our clients’ payrolls, the impact of price increases and an increase in average client funds balances and improved client retention;balances; Dealer Services grew due to both internal revenue growth and growth from acquisitions, primarily the acquisition of Kerridge Computer Company, Ltd. in December 2005 and BZ Results LLC;acquisitions; and PEO Services grew primarily due to an increase in the average number of worksite employees and higher administrative revenues as a result of an increase in the average number of worksite employees.

         ADP enjoys a leadership position in each of its major service offerings and does not believe any major service or business unit in ADP is subject to unique market risk.

    Competition

         The industries in which ADP operates are highly competitive. ADP knows of no reliable statistics by which it can determine the number of its competitors, but it believes that it is one of the largest providers of business outsourcing solutions in the world. Employer Services and PEO Services compete with other independent business outsourcing companies, companies providing enterprise resource planning services, software companies and financial institutions. Captive in-house functions, whereby a company installs and operates its own business processing systems, are another competitive factor in the industries in which Employer Services and PEO Services operate. Dealer Services’ competitors include full service DMS providers such as The Reynolds & Reynolds Company, Dealer Service’sServices’ largest DMS competitor in the United States and Canada, and companies providing applications and services that compete with Dealer Service’sServices’ non-DMS applications and services.

         Competition in ADP’s industries is primarily based on service responsiveness, product quality and price. ADP believes that it is very competitive in each of these areas and that there are no material negative factors impacting ADP’s competitive position.

    6

    Clients and Client Contracts

         ADP provides its services to approximatelyover 585,000 clients. In fiscal 2007,2008, no single client or group of affiliated clients accounted for revenues in excess of 2% of annual consolidated revenues.

         Our business is typically characterized by long-term customer relationships that result in recurring revenue. ADP is continuously in the process of performing implementation services for our clients. Depending on the service agreement and/or the size of the client, the installation or conversion period for new clients could vary from a short period of time (up to two weeks) for an SBS client to a longer period (generally six to twelve months) for a National Account Services or Dealer Services client with multiple deliverables, and in some cases may exceed two years for a large GlobalView client or other large, complicated implementation.Although we monitor sales that have not yet been billed or installed, we do not view this metric as material in light of the recurring nature of our business. This is not a reported number, but it is used by management as a planning tool relating to resources needed to install services, and a means of assessing our performance against the installation timing expectations of our clients.

         ADP’s average client retention is estimated at more than 10 years in Employer Services, more than 5 years in PEO Services and 10 or more years in Dealer Services, and has not varied significantly from period to period.

    5

    ADP’s services are provided under written price quotations or service agreements having varying terms and conditions. No one price quotation or service agreement is material to ADP. Discounts, rebates and promotions offered by ADP to clients are not material.

    Systems Development and Programming

         During the fiscal years ended June 30, 2008, 2007 2006 and 2005,2006, ADP invested $611 million, $609 million $551 million, and $491$551 million, respectively, from continuing operations, in systems development and programming, migration to new computing technologies and the development of new products and maintenance of our existing technologies, including purchases of new software and software licenses.

    Product Development

         ADP continually upgrades, enhances and expands its existing products and services. Generally, no new product or service has a significant effect on ADP’s revenues or negatively impacts its existing products and services, and ADP’s products and services have significant remaining life cycles.

    Licenses

         ADP is the licensee under a number of agreements for computer programs and databases. ADP’s business is not dependent upon a single license or group of licenses. Third-party licenses, patents, trademarks and franchises are not material to ADP’s business as a whole.

    Number of Employees

         ADP employed approximately 46,00047,000 persons as of June 30, 2007.2008.

    76

    Item 1A. Risk Factors

         Our businesses routinely encounter and address risks, some of which may cause our future results to be different than we currently anticipate. Risk factors described below represent our current view of some of the most important risks facing our businesses and are important to understandingour business. The following information should be read in conjunction with MD&A,Management’s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk and the consolidated financial statements and related notes included in this Form 10-K. This discussion includes a number of forward-looking statements. You should refer to the description of the qualifications and limitations on forward-looking statements in the first paragraph under MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K. Unless otherwise indicated or the context otherwise requires, reference in this section to “we,” “ours,” “us” or similar terms means ADP, together with its subsidiaries. The level of importance of each of the following risks may vary from time to time.

    Changes in laws and regulations may decrease our revenues and earnings

    Portions of ADP’s business are subject to governmental regulations. Changes in governmental regulations may decrease our revenues and earnings and may require us to change the manner in which we conduct some of the aspects of our business. For example, a change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities would adversely impact interest income from investing funds that we collect from clients but have not yet remitted to the applicable taxing authorities or client employees, thus reducing our revenues and income from this source.

    Security and privacy breaches may hurt our business

    We store electronically personal information including social security numbers, about our clients and employees of our clients. In addition, our retirement services systems maintain investor account information for retirement plans. There is no guarantee that the systems and procedures that we maintain to protect against unauthorized access to such information are adequate to protect against all security breaches. Any significant violations of data privacy could result in the loss of business, litigation and regulatory investigations and penalties that could damage our reputation and the growth of our business could be materially adversely affected.

    Our systems may be subject to disruptions that could adversely affect our business and reputation

    Many of our businesses are highly dependent on our ability to process, on a daily basis, a large number of complicated transactions. We rely heavily on our payroll, financial, accounting and other data processing systems. If any of these systems fail to operate properly or become disabled even for a brief period of time, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or damage to our reputation. We have disaster recovery plans in place to protect our businesses against natural disasters, security breaches, military or terrorist actions, power or communication failures or similar events. Despite our preparations, in the event of a catastrophic occurrence, our disaster recovery plans may not be successful in preventing the loss of customer data, service interruptions, disruptions to our operations, or damage to our important facilities.

    8

    If we fail to adapt our technology to meet customer needs and preferences, the demand for our services may diminish

    Our businesses operate in industries that are subject to rapid technological advances and changing customer needs and preferences. In order to remain competitive and responsive to customer demands, we continually upgrade, enhance and expand our existing products and services. If we fail to respond successfully to the technology challenges, the demand for our services may diminish.

    Political and economic factors may adversely affect our business and financial results

    Trade, monetary and fiscal policies, and political and economic conditions may substantially change. When there is a slowdown in the economy, employment levels and interest rates may decrease with a corresponding impact on our businesses. Customers may react to worsening conditions by reducing their spending on payroll and other outsourcing services or renegotiating their contracts with us. If any of these circumstances remain in effect for an extended period of time, there could be a material adverse effect on our financial results.

    7

    Change in our credit ratings could adversely impact our operations and lower our profitability

    The major credit rating agencies periodically evaluate our creditworthiness and have consistently given us their highest long-term debt and commercial paper ratings. Failure to maintain high credit ratings on long-term and short-term debt could increase our cost of borrowing, reduce our ability to obtain intra-day borrowing required by our Employer Services business, and ultimately reduce our client interest revenue.

    We may be unable to attract and retain qualified personnel

    Our ability to grow and provide our customers with competitive services is partially dependent on our ability to attract and retain highly motivated people with the skills to serve our customers. Competition for skilled employees in the outsourcing and other markets in which we operate is intense and if we are unable to attract and retain highly skilled and motivated personnel, expected results from our operations may suffer.

    Item 1B. Unresolved Staff Comments

         None

    Item 2. Properties

    ADP owns 45 of its processing centers, other operational offices, sales offices and its corporate headquarters complex in Roseland, New Jersey, which aggregate approximately 4,110,251 square feet. None of ADP’s owned facilities is subject to any material encumbrances. ADP leases space for some of its processing centers, other operational offices and sales offices. All of these leases, which aggregate approximately 6,083,0006,063,665 square feet in North America, Europe, South America (primarily Brazil), Asia, Australia and South Africa, expire at various times up to the year 2036. ADP owns 43 of its processing centers, other operational offices, sales offices and its corporate headquarters complex in Roseland, New Jersey, which aggregate approximately 4,090,000 square feet. None of ADP’s owned facilities is subject to any material encumbrances. ADP believes its facilities are currently adequate for their intended purposes and are adequately maintained.

    9

    Item 3. Legal Proceedings

    In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, the Company believes it has valid defenses with respect to the legal matters pending against it and the Company believes that the ultimate resolution of these matters will not have a material adverse impact on its financial condition, results of operations or cash flows.

    Item 4. Submission of Matters to a Vote of Security Holders

         None

    8

    Part II

    Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    Market for the Registrant’s Common Equity

         The principal market for the Company’s common stock (symbol: ADP) is the New York Stock Exchange. The following table sets forth the reported high and low sales prices of the Company’s common stock based on the NYSE composite transactions, and the cash dividends per share of common stock declared, during the past two fiscal years. As of June 30, 2007,2008, there were 40,78841,011 holders of record of the Company’s common stock. As of such date, 363,899274,146 additional holders held their common stock in “street name.”

     Price Per Share  Dividends Price Per ShareDividends
     High      Low      Per Share  HighLow Per Share
    Fiscal 2007 quarter ended    
    Fiscal 2008 quarterended:            
    June 30  $50.30   $43.89  $0.230 $45.23$41.25$0.290
    March 31  $51.50  $46.85   $0.230 $44.66$37.74$0.290
    December 31  $49.94 

    		 $46.26  $0.230 $49.81 $44.25$0.290
    September 30  $48.30  $42.50  $0.185 $49.38$43.91$0.230
    Fiscal 2006 quarter ended    
    Fiscal 2007 quarterended:
    June 30  $46.93  $43.31  $0.185 $50.30$43.89$0.230
    March 31  $47.95  $43.25  $0.185 $51.50$46.85$0.230
    December 31  $48.11  $42.19  $0.185 $49.94$46.26$0.230
    September 30  $45.07  $41.21  $0.155 $48.30$42.50$0.185

         On March 30, 2007, ADP completed the spin-off of its former Brokerage Services Group business. In the table above, market prices include the value of the Brokerage Services Group business through the date of the spin-off.

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    Issuer Purchases of Equity Securities

     (a)(b) (c)(d)
       Total Number 
       of SharesMaximum
       Purchased as PartNumber of Shares
       of the Publiclythat may yet be
       AnnouncedPurchased under
        Common Stockthe Common
     Total Number ofAverage Price Repurchase PlanStock Repurchase
                   Period Shares PurchasedPaid per Share (3) (1)Plan (1)
           
      April 1, 2007 to      
      April 30, 2007 2,060,623$45.51 2,000,00063,909,440
         
      May 1, 2007 to     
      May 31, 2007 10,183,138$48.08 10,150,90053,758,540
         
      June 1, 2007 to      
      June 30, 2007 9,982,976$48.86 9,982,00043,776,540
         
      Total 22,226,737 (2)   22,132,900 
    (a)(b)(c)(d)
    Total Number
    of SharesMaximum
    Purchased as PartNumber of Shares
    of the Publiclythat may yet be
    AnnouncedPurchased under
    Common Stockthe Common
    Total Number ofAverage PriceRepurchase PlanStock Repurchase
     PeriodShares Purchased (1)Paid per Share (2)(3)Plan (3)
     
    April 1, 2008 to
    April 30, 2008501,500$43.55500,00019,930,740
     
    May 1, 2008 to
    May 31, 2008 3,956,501$43.173,956,00015,974,740
     
    June 1, 2008 to
    June 30, 2008 5,130,800$42.755,130,80010,843,940
     
    Total9,588,8019,586,800 

    (1) Pursuant to the terms of the Company’s restricted stock program, the Company made purchases of 1,500 shares during April 2008 and 501 shares during May 2008 at a price of $.10 per share under the terms of such program to repurchase stock granted to employees who have left the Company.

    (2) The average price per share does not include the repurchases described in the preceding footnote.

    (3) In March 2001, the Company received the Board of Directors’ approval to repurchase up to 50 million shares of the Company’s common stock. In November 2002, November 2005 and August 2006, the Company received the Board of Directors’ approval to repurchase an additional 35 million, 50 million and 50 million shares, respectively, of the Company’s common stock. There is no expiration date for the common stock repurchase plan.

    (2) During 2007, pursuant to the terms of the Company’s restricted stock program, the Company (i) made repurchases of 2,313 shares during May 2007 and 976 shares during June 2007 at the then market value of the shares in connection with the exercise by employees of their option under such program to satisfy certain tax withholding requirements through the delivery of shares to the Company instead of cash and (ii) made purchases of 60,623 shares during April 2007 and 29,925 shares during May 2007 at a price of $.10 per share under the terms of such program to repurchase stock granted to employees who have left the Company.

    (3) The average price per share does not include the repurchases described in clause (ii) of the preceding footnote.

    1110

    Performance Graph

         The following graph compares the cumulative return on the Company’s common stock(a)for the most recent five years with the cumulative return on the S&P 500 Index, a Peer Group Index(b)and an Old Peer Group Index(c), assuming an initial investment of $100 on June 30, 2002,2003, with all dividends reinvested.


    (a) On March 30, 2007, the Company completed the spin-off of its former Brokerage Services Group business, comprised of Brokerage Services and Securities Clearing and Outsourcing Services, into an independent publicly traded company called Broadridge Financial Solutions, Inc. The cumulative returns of the Company’s common stock have been adjusted to reflect the spin-off.

    (b) The Peer Group Index is comprised of the following companies:

        Ceridian CorporationAdministaff, Inc. First Data CorporationIntuit Inc. 
    Computer Sciences Corporation Paychex, Inc. 
    Electronic Data Systems Corporation     Gevity HR, Inc. The Ultimate Software Group, Inc. 
    Global Payments Inc. Total SystemsSystem Services, Inc. 
    Hewitt Associates, Inc. The Western Union Company 

    (c) The Old Peer Group Index is comprised of the following companies:

    Ceridian Corporation First Data Corporation 
    Computer Sciences Corporation Paychex, Inc. 
    Electronic Data Systems Corporation Total System Services, Inc. 

         Thecomponents of the Peer Group Indexwere changed because the common stock ofthree of the companies in the Old Peer Group Index as well as Fiserv, Inc. and DST Systems, Inc., which provide services to the brokerage industry and were removed from the Peer Group Index in connection with the spin-off of the Brokerage Services Group business.is no longer publiclytraded.

    1211

    Item 6. Selected Financial Data

    The following selected financial data is derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes, MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk included in this Form 10-K.

    (Dollars and shares in millions, except per share amounts) (Dollars and shares in millions, except per share amounts)      (Dollars and shares in millions, except per share amounts)
    Years ended June 30,   2007    2006    2005    2004    2003 2008  2007  2006   2005   2004
    Total revenues Total revenues $7,800.0 $6,835.6 $6,131.3 $5,575.7 $5,078.8 Total revenues$8,776.5$7,800.0$6,835.6$6,131.3 $5,575.7 
    Total cost of revenues $4,087.3 $3,603.7 $3,165.3 $2,794.7 $2,339.9 
    Total costs of revenuesTotal costs of revenues$4,680.1$4,087.3$3,603.7$3,165.3 $2,794.7
    Gross profit Gross profit $3,712.7$3,231.9$2,966.0$2,781.0$2,738.9Gross profit$4,096.4$3,712.7$3,231.9$2,966.0$2,781.0
    Earnings from continuing operations before income taxes Earnings from continuing operations before income taxes $1,623.5 $1,361.2 $1,237.8 $1,117.8 $1,303.0 Earnings from continuing operations before income taxes$1,812.0$1,623.5 $1,361.2 $1,237.8$1,117.8
    Net earnings from continuing operations Net earnings from continuing operations $1,021.2  $841.9  $780.6  $702.4  $813.3 Net earnings from continuing operations$1,161.7$1,021.2$841.9$780.6$702.4
    Basic earnings per share from continuing operations Basic earnings per share from continuing operations $1.86 $1.46 $1.34 $1.19 $1.36 Basic earnings per share from continuing operations$2.23$1.86$1.46$1.34$1.19
    Diluted earnings per share from continuing operations Diluted earnings per share from continuing operations $1.83 $1.45 $1.32 $1.18 $1.34 Diluted earnings per share from continuing operations$2.20$1.83$1.45$1.32$1.18
    Basic weighted average shares outstanding Basic weighted average shares outstanding 549.7 574.8 583.2 591.7 600.1 Basic weighted average shares outstanding521.5 549.7574.8583.2591.7
    Diluted weighted average shares outstanding Diluted weighted average shares outstanding 557.9 580.3 590.0 598.7 605.9 Diluted weighted average shares outstanding 527.2 557.9580.3590.0598.7
    Cash dividends declared per share Cash dividends declared per share $0.8750 $0.7100 $0.6050 $0.5400 $0.4750 Cash dividends declared per share$1.1000 $0.8750$0.7100$0.6050$0.5400
    Return on equity (Note 1)  23.7%   17.4%   15.5%   13.8%   15.8% 
    Adjusted return on equity (Note 1)Adjusted return on equity (Note 1)27.5%23.7%17.4%15.5%13.8%
    Return on equity from continuing operations (Note 2)Return on equity from continuing operations (Note 2)22.7%18.3%14.3%13.9%13.0%
    At year end: At year end:      At year end:
    Cash, cash equivalents and marketable securities Cash, cash equivalents and marketable securities $1,884.6 $2,461.3 $1,716.0 $1,918.2 $2,169.6 Cash, cash equivalents and marketable securities$1,660.3$1,884.6$2,461.3$1,716.0$1,918.2
    Total assets before funds held for clients $8,159.7 $10,006.2 $9,717.9  $8,217.0 $8,025.9 
    Total assets Total assets $26,648.9 $27,490.1 $27,615.4 $21,120.6 $19,833.7 Total assets$23,734.4$26,648.9$27,490.1$27,615.4$21,120.6
    Long-term debt Long-term debt $43.5  $74.3  $75.7 $76.2 $84.7 Long-term debt$52.1$43.5$74.3$75.7$76.2
    Stockholders’ equity Stockholders’ equity $5,147.9  $6,011.6  $5,783.9   $5,417.7   $5,371.5 Stockholders’ equity$5,087.2$5,147.9$6,011.6$5,783.9$5,417.7

    Note 1. U.S. GAAP requires net earnings of discontinued operations to be displayed separately in the Statements of Consolidated Earnings. As a result,Earnings, and therefore we believe it is appropriate to discloseadjusted return on equity, excluding the effects of discontinued operations. Adjusted return on equity represents a non-GAAP measure used by management to evaluate the results of the business. The numerator of net earnings that is used in our calculation ofadjusted return on equity should exclude thoseexcludes net earnings from discontinued operations. Further, we believe it is appropriate to exclude from theThe denominatorof average total stockholders’adjusted return on equity excludes the average cumulative net earnings from discontinued operations for each of the five years since fiscal 20032004 for which such returns are presented, as well as the equity impact of the spin-off of the Brokerage Services Group business, which was classified as a discontinued operation. As a result,adjusted return on equity, excluding the effects of discontinued operations has been calculated as net earnings from continuing operations divided by average stockholders’ equity, excluding the effects of discontinued operations as noted below.

    (In millions)      
    June 30,   2007     2006     2005     2004     2003 
    Average total equity $5,579.8 $5,897.7 $5,600.7 $5,394.6 $5,242.9 
    Less:        
           Cumulative effect of discontinued operations  1,266.3  1,069.1  575.6   321.6   102.5 
    Average total equity, excluding effects of discontinued operations $4,313.5 $4,828.6 $5,025.1 $5,073.0  $5,140.4 

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    (In millions)
    Years ended June 30, 2008     2007     2006     2005     2004
    Average total stockholders' equity$5,117.5$5,579.8$5,897.7$5,600.7$5,394.6
    Less: 
           Cumulative effect of discontinued operations894.71,266.31,069.1575.6321.6
    Average total equity, excluding effects of discontinued operations$4,222.8$4,313.5$4,828.6$5,025.1$5,073.0

    Note 2. Return on equity from continuing operations has been calculated as net earnings from continuing operations divided by average total stockholders’ equity.

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    Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    FORWARD-LOOKING STATEMENTS

         This report and other written or oral statements made from time to time by Automatic Data Processing, Inc. (“ADP”)ADP may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: ADP’s success in obtaining, retaining and selling additional services to clients; the pricing of productsservices and services;products; changes in laws regulating payroll taxes, professional employer organizations and employee benefits; overall market and economic conditions, including interest rate and foreign currency trends; competitive conditions; auto sales and related industry changes; employment and wage levels; changes in technology; availability of skilled technical associates and the impact of new acquisitions and divestitures. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. These risks and uncertainties, along with the risk factors discussed above under “Item 1A.– Risk1A.-Risk Factors,” should be considered in evaluating any forward-looking statements contained herein.

    DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS

         ADP is one of the world’s largest providers of business outsourcing solutions. Leveraging more than 55nearly 60 years of experience, ADP offers a wide range of HR,human resource (“HR”), payroll, tax and benefits administration solutions from a single source. ADP is also a leading provider of integrated computing solutions to automotive, heavy truck, motorcycle, marine and recreational vehicle dealers throughout the world. In fiscal 2007, the Company implemented several key changes to its operations, including the spin-off of its former Brokerage Services Group business on March 30, 2007. In addition, there were changes in theThe Company’s executive management team. As a result of these changes, the Company reassessed its reportable segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and determined that Professional Employer Organization (“PEO”) Services should be a reportable segment in addition to Employer Services and Dealer Services. Based upon similar economic characteristics and operational characteristics, the Company’s strategic business units are aggregated into the following three reportable segments:are: Employer Services, PEO Services and Dealer Services. The Company has restated its previously reported segment results for all periods presented to reflect this change in the Company’s reportable segments. A brief description of each segment’s operations is provided below.

    Employer Services

         Employer Services offers a comprehensive range of human resource (“HR”)HR information, payroll processing, tax and benefits administration productsservices and services,products, including traditional and Web-based outsourcing solutions, that assist approximately 560,000 employers in the United States, Canada, Europe, South America (primarily Brazil), Australia and Asia to staff, manage, pay and retain their employees. Employer Services categorizes its services between traditional payroll and payroll tax, and “beyond payroll.” The traditional payroll and payroll tax business represents the Company’s core payroll processing and payroll tax filing business. The “beyond payroll” business represents the services that extend beyond the traditional payroll and payroll tax filing services, such as Time and

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    Labor Management and benefit and retirement administration. Within Employer Services, the Company collects client funds and remits such funds to tax authorities for payroll tax filing and payment services, and to employees of payroll services clients.

    PEO Services

         PEO Services provides over 4,5005,100 small and medium sized businesses with comprehensive employment administration outsourcing solutions through a co-employment relationship, including payroll, payroll tax filing, HR guidance, 401(k) plan administration, benefits administration, compliance services, health and workers’ compensation coverage and other supplemental benefits for employees.

    Dealer Services

    Dealer Services provides integrated dealer management systems (such a system is also known in the industry as a “DMS”) and other business management solutions to automotive, heavy truck, and powersports (i.e., motorcycle, marine and recreational)recreational vehicle (“RV”) retailers in the United States, Canada,North America, Europe, South Africa and the Asia and Europe.Pacific region. Over 25,000 automotive, heavy truck, motorcycle, marine and powersports dealersRV retailers in over 5060 countries use our DMS products, other software-based solutions,software applications, networking solutions, data integration, consulting and/or digital marketing services.

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    EXECUTIVE OVERVIEW

         We reported strong results in each of our business segments during the fiscal year ended June 30, 2008 (“fiscal 2008”). Consolidated revenues from continuing operations in fiscal 2008 grew 13%, to $8,776.5 million, as compared to $7,800.0 million in the fiscal year ended June 30, 2007 (“fiscal 2007”) grew 14%, to $7,800.0 million, as compared to $6,835.6 million in the fiscal year ended June 30, 2006 (“fiscal 2006”). Earnings from continuing operations before income taxes and net earnings from continuing operations increased 19%12% and 21%14%, respectively. Diluted earnings per share from continuing operations increased 26%20%, to $1.83$2.20 in fiscal 2007,2008, from $1.45$1.83 per share in fiscal 2006,2007, on fewer weighted average diluted shares outstanding.

         We are pleased with our strong results in each of our business segments in fiscal 2007.     Employer Services’ revenues increased 11%9% and PEO Services revenues increased 26%20% in fiscal 2007.2008. Employer Services’ and PEO Services’ new business sales, which represent annualized recurring revenues anticipated from sales orders to new and existing clients, grew 11%8% worldwide, to approximately $1,055.1$1,142.8 million in fiscal 2007. This represents the third straight year of double-digit sales growth.2008. In fiscal 2007, Employer Services2008,we grew average client funds balances 8%6.6% as a result of new business and growth in our existing client base.base. The increase in average client funds balances resulted in an increase in interest revenues within Employer Services, which accounted for approximately 1% growth in Employer Services’ revenues as compared to fiscal 2006. The number of employees on our clients’ payrolls, “pays per control,” increased 1.3% in all market segments with 2.3% overall growth in the United States,fiscal 2008. This employment metric represents over 141,000 payrolls of small to large businesses and clientreflects a broad range of U.S. geographic regions. Client retention improved 0.10.2 percentage pointpoints worldwide over last year’s record level. PEO Services’ revenues grew 26%20% in fiscal 2007 primarily2008 due to a 22%an 18% increase in the average number of worksite employees. Dealer Services’ revenues grew 14%9% in fiscal 20072008 due to internal revenue growth and the effect of acquisitions.

         Additionally,     In light of the challenging economic environment during fiscal 2008, we were veryare especially pleased with the performance of our investment portfolio and the investment choices we made throughout the year. Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages or home equity loans, collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), credit default swaps, asset-backed commercial paper, auction rate securities, structured investment vehicles or non-investment-grade securities. We mitigate credit risk by investing in only investment-grade bonds. We own senior tranches of AAA fixed rate credit card, auto loan and other asset-backed securities, whose trusts predominately contain prime collateral. All collateral on asset-backed securities is performing as expected. ADP owns senior debt directly issued by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). We do not own subordinated debt, preferred stock or common stock of either of these agencies. ADP also owns mortgage pass-through securities that are guaranteed by Fannie Mae or Freddie Mac. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations.

         Our product set and global breadth, depth and reach in the marketplace have never been stronger. During fiscal 2008 and fiscal 2007, the Company took efforts to divest certain non-strategic, slow-growing businesses. This allowed us to set our focus on our businesses that have strong underlying growth attributes and that operate in large, under-penetrated markets. We completed the tax-free spin-off of our former Brokerage Services Group business as well ason March 30, 2007 into an independent publicly traded company called Broadridge Financial Solutions, Inc. We made the salesdecision to spin-off this business for several reasons. First, we determined that the growth potential of certainthe Brokerage Services Group business, while part of ADP, was expected to be lower than that of our other businesses. Further, the Brokerage Services Group business had operating models and long-term growth plans that were different than those of our other businesses. The spin-off allowed more concentrated focus by each management team on its own respective core business, which is expected to be more beneficial to each company’s stockholders, clients and associates.

         In addition, during fiscal 2007, we divested Sandy Corporation, which was previously reported in our Dealer Services segment. During fiscal 2008, we finalized the sale of our Travel Clearing business, which was previously reported in our Other segment. We divested Sandy Corporation and Travel Clearing because they were non-strategic slow-growingbusinesses that did not complement our other businesses. TheMoreover, the growth potential of these businesses was also believed to be slower than that of our other businesses.

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         These transactions, along with our cash flows from operating activities, have allowed us to continue to focus on the objective of returning excess cash to our stockholders through our share buyback program and our cash dividends to stockholders. Subsequent to the completion of these transactions, the new ADP is a more focused company, which we believe has excellent growth potential for revenue and pretax earnings.

    15

         On March 30, 2007, we completed the tax-free spin-off of our former Brokerage Services Group business, comprised of our former Brokerage Services and Securities Clearing and Outsourcing Services segments, into an independent publicly traded company called Broadridge Financial Solutions, Inc. (“Broadridge”). As a result of the spin-off, ADP stockholders of record on March 23, 2007 (the “record date”) received one share of Broadridge common stock for every four shares of ADP common stock held by them on the record date and cash for any fractional shares of Broadridge common stock. We have classified the results of operations of the spun-off business as discontinued operations for all periods presented. Additionally, we recorded a decrease to retained earnings of $1,125.2 million for the non-cash reduction in net assets of Broadridge related to the spin-off, offset by an increase to retained earnings of $690.0 million related to the cash dividend received from Broadridge as part of the spin-off.

         On January 23, 2007, the Company completed the sale of Sandy Corporation, a business within the Dealer Services segment that specializes in sales and marketing training, for approximately $4.0 million in cash and the assumption of certain liabilities by the buyer, plus an additional earn-out payment if certain revenue targets are achieved. The Company reported a gain of $11.2 million, or $6.9 million after tax within earnings from discontinued operations on the Statements of Consolidated Earnings. The Company has classified the results of operations of this business as discontinued operations for all periods presented.

         On June 30, 2007, we entered into a definitive agreement to sell our Travel Clearing business for approximately $116 million in cash. We completed the sale of this business on July 6, 2007. The Travel Clearing business was previously reported in the “Other” segment. In connection with the disposal of this business, we have classified the results of operations of this business as discontinued operations for all periods presented. We expect to record a gain of approximately $55 million to $65 million, after taxes, which we will classify as discontinued operations in fiscal 2008. Such gain is exclusive of a working capital adjustment to the original purchase price. This working capital adjustment is expected to be finalized in fiscal 2008 and will increase or decrease the gain accordingly.

         With the cash dividend from the spin-off of our former Brokerage Services Group business and our cash flows from operations, we continued our accelerated share buyback program and acquired over 40 million of our shares for treasury for over $1.9 billion. These share repurchases, along with our repurchase of over 29 million shares in fiscal 2006, demonstrate our confidence in ADP’s future growth opportunities.

         Our financial condition and balance sheet remain solid with cash and marketable securities of $1,884.6$1,660.3 million at June 30, 2007.2008. Our net cash flows provided by operating activities decreased $514.5were $1,772.2 million in fiscal 2008, as compared to $1,298.0 million in fiscal 2007, from $1,812.5 million in fiscal 2006 as a result of a decrease in the operating activities of discontinued operations of $186.1 million, as well as an2007.This increase of $247.2 million in accounts receivable and an increase of $116.2 million in other assets. The increase in accounts receivable was related toexceeded our increased revenues and the timing of collections. The increase in other assets was largely due to a $17.4 million increase in our pension plan cash contributions and a $62.3 million increase in other current assetsexpectations due to the timing of certain collections of accounts receivable and the timing of payments of certain accruals.

    RECLASSIFICATIONS WITHIN CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED CASH FLOWS

         The Company has reclassified funds held for prepaid insuranceclients and software maintenance contractsclient funds obligations that had been previously presented outside of current assets and current liabilities, respectively, within the Consolidated Balance Sheets, to current assets and current liabilities, respectively, for all periods presented. Additionally, the Company has reclassified the net increase (decrease) in fiscal 2007 as comparedclient funds obligations in the Statements of Consolidated Cash Flows from investing activities to fiscal 2006.financing activities for all periods presented.

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    RESULTS OF OPERATIONS
    ANALYSIS OF CONSOLIDATED OPERATIONS

    Fiscal 2008 Compared to Fiscal 2007

    (Dollars in millions, except per share amounts)

    Years ended June 30, Change
         2008     2007     2008 vs 2007
    Total revenues$8,776.5  $7,800.0 13%
     
    Costs of revenues:  
           Operating expenses 3,915.73,392.315%
           Systems development and programming costs525.9 486.18%
           Depreciation and amortization238.5  208.914%
    Total cost of revenues4,680.14,087.315%
     
    Selling, general and administrative expenses2,370.42,206.27%
    Interest expense  80.594.9(15)%
    Total expenses7,131.06,388.412%
     
    Other income, net166.5211.9(21)%
     
    Earnings from continuing operations before income taxes$1,812.0$1,623.512%
    Margin21%21%
     
    Provision for income taxes$650.3$602.38%
    Effective tax rate35.9%37.1%
     
    Net earnings from continuing operations$1,161.7$1,021.214%
     
    Diluted earnings per share from continuing operations$2.20$1.8320%

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    Total Revenues

         Our consolidated revenues in fiscal 2008 grew 13%, to $8,776.5 million, due to increases in Employer Services of 9%, or $535.4 million, to $6,243.1 million, PEO Services of 20%, or $175.7 million, to $1,060.5 million, and Dealer Services of 9%, or $107.0 million, to $1,364.3 million. Our consolidated internal revenue growth, which represents revenue growth excluding the impact of acquisitions and divestitures, was 11% in fiscal 2008. Revenue growth was favorably impacted by $167.8 million, or 2%, due to fluctuations in foreign currency exchange rates.

         Our consolidated revenues in fiscal 2008 include interest on funds held for clients of $684.5 million as compared to $653.6 million in fiscal 2007. The increase in the consolidated interest earned on funds held for clients resulted from the increase of 6.6% in our average client funds balances to $15.7 billion, offset by the decrease in the average interest rate earned to 4.4% in fiscal 2008 as compared to 4.5% in fiscal 2007.

    Total Expenses

         Our consolidated expenses increased $742.6 million, to $7,131.0 million in fiscal 2008, from $6,388.4 million in fiscal 2007. The increase in our consolidated expenses is due to the increase in our revenues, higher pass-through costs associated with our PEO business, an increase in our salesforce and implementation personnel, and higher expenses associated with Employer Services’ new business sales and implementation. In addition, consolidated expenses increased $142.1 million, or 2%, in fiscal 2008 due to fluctuations in foreign currency exchange rates.

         Our total costs of revenues increased $592.8 million, to $4,680.1 million in fiscal 2008, from $4,087.3 million in fiscal 2007, due to increases in our operating expenses. Operating expenses increased $523.4 million, or 15%, in fiscal 2008 due to the increase in revenues described above, including the increases in PEO services, which has pass-through costs that are re-billable. The pass-through costs were $763.0 million and $640.7 million in fiscal 2008 and 2007, respectively. The increase in operating expenses is also due to an increase of approximately $131.7 million relating to compensation expenses associated with implementation and service personnel in Employer Services.Operating expensesalso increased approximately $28.0 million due to the operating costs of our newly acquired businesses and approximately $73.6 million due to foreign currency fluctuations. Systems development and programming costs increased $39.8 million, or 8%, in fiscal 2008 compared to fiscal 2007 due to an increase in expenses of $5.1 million for our newly acquired businesses. Systems development and programming expenses also increased approximately $15.0 million due to foreign currency fluctuations. In addition, depreciation and amortization expenses increased $29.6 million, or 14%, in fiscal 2008 compared to fiscal 2007 due to increased amortization expenses of $10.2 million resulting from the intangible assets acquired with new businesses and the purchases of software and software licenses in fiscal 2008.

         Selling, general and administrative expenses increased $164.2 million, or 7%, in fiscal 2008 as compared to fiscal 2007, which was attributable to the increase in salesforce personnel to support our new domestic business sales in Employer Services. This increase in salesforce personnel resulted in an increase of approximately $32.0 million of expenses.Selling, general and administrative expensesalso increased approximately $34.5 million due to the selling, general and administrative costs of our newly acquired businesses and approximately $48.8 million due to foreign currency fluctuations. These increases were partially offset by a decrease in stock-based compensation expense of $8.0 million.

         Interest expense decreased $14.4 million in fiscal 2008 as a result of lower average borrowings and lower average interest rates on our short-term commercial paper program. In fiscal 2008 and 2007, the Company’s average borrowings under the commercial paper program were $1.4 billion and $1.5 billion, respectively, at weighted average interest rates of 4.2% and 5.3%, respectively.

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    Other Income, net

         Other income, net, decreased $45.4 million in fiscal 2008 as compared to fiscal 2007. The Company recorded a gain on the sale of a building in fiscal 2008 of $16.0 million and a gain on the sale of a minority investment during fiscal 2007 of $38.6 million. Other income, net, also decreased $9.6 million due to net realized losses on available-for-sale securities of $1.3 million in fiscal 2008 as compared to net realized gains on available-for-sale securities of $8.3 million in fiscal 2007. Lastly, interest income on corporate funds decreased $15.5 million as a result of lower average daily balances and lower interest rates. Average daily balances declined from $3.6 billion in fiscal 2007 to $3.4 billion in fiscal 2008 due to the use of corporate funds for repurchases of common stock during fiscal 2008. The average interest rate earned on our corporate funds decreased from 4.6% in fiscal 2007 to 4.4% in fiscal 2008.

    Earnings from Continuing Operations before Income Taxes

         Earnings from continuing operations before income taxes increased $188.5 million, or 12%, from $1,623.5 million in fiscal 2007 to $1,812.0 million in fiscal 2008 due to the increase in revenues and corresponding expenses discussed above. Overall margin of 21% in fiscal 2008 was unchanged from fiscal 2007.

    Provision for Income Taxes

         The effective tax rate in fiscal 2008 was 35.9%, as compared to 37.1% in fiscal 2007. The decrease in the effective tax rate is due to a favorable mix in income among state tax jurisdictions, as well as tax rate decreases in certain foreign tax jurisdictions. Additionally, during fiscal 2008 we recorded a reduction in the provision for income taxes of $12.4 million, which was related to the settlement of a state tax matter. This decreased the effective tax rate by approximately 0.7 percentage points in fiscal 2008. These decreases were partially offset by an increase in the provision for income taxes relating to the recording of the interest liability associated with unrecognized tax benefits as required underFinancial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”). This increased the effective tax rate by approximately 0.6 percentage points in fiscal 2008.

    Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations

         Net earnings from continuing operations increased 14%, to $1,161.7 million, for fiscal 2008, from $1,021.2 million in fiscal 2007, and the related diluted earnings per share from continuing operations increased 20%, to $2.20, in fiscal 2008. The increase in net earnings from continuing operations in fiscal 2008 reflects the increase in earnings from continuing operations before income taxes and a lower effective tax rate. These increases were offset by the decline in other income, net, of $45.4 million in fiscal 2008. This decrease was a result of lower transactional gains reported in fiscal 2008 of $22.6 million, lower net realized gains/losses on available-for-sale securities of $9.6 million and lower interest income on corporate funds of $15.5 million. The decrease in transactional gains in fiscal 2008 of $22.6 million was a result of a gain on the sale of a building of $16.0 million during fiscal 2008 and a gain on the sale of a minority investment of $38.6 million during fiscal 2007. The decrease in interest income on corporate funds was a result of lower average daily balances and lower interest rates. Average daily balances declined from $3.6 billion in fiscal 2007 to $3.4 billion in fiscal 2008 due to the use of corporate funds for repurchases of common stock during fiscal 2008. The average interest rate earned on our corporate funds decreased from 4.6% in fiscal 2007 to 4.4% in fiscal 2008.

         The increase in diluted earnings per share from continuing operations in fiscal 2008 reflects the increase in net earnings from continuing operations and the impact of fewer weighted average diluted shares outstanding due to the repurchase of 32.9 million shares in fiscal 2008 and 40.2 million shares in fiscal 2007.

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    Fiscal 2007 Compared to Fiscal 2006

    (Dollars in millions, except per share amounts)

     Yearsended June 30, ChangeYears ended June 30,Change
    2007     2006     2007 vs 2006     2007     2006     2007 vs 2006
    Total revenues

    $

    		7,800.0 

    $

    		6,835.6 14% $7,800.0 $6,835.614%
    Costs of revenues:     
    Operating expenses 3,392.3  2,970.5 14% 3,392.32,970.5 14%
    Systems development and programming costs 486.1  472.3 3% 486.1472.33%
    Depreciation and amortization  208.9  160.9 30% 208.9160.930%
    Total cost of revenues 4,087.3  3,603.7 13% 4,087.33,603.713%
    Selling, general and administrative expenses 2,206.2  1,933.7 14% 2,206.21,933.714%
    Interest expense  94.9  72.8 30% 94.972.830%
    Total expenses 6,388.4  5,610.2  14% 6,388.45,610.214%
    Other income, net  211.9   135.8  56% 211.9135.856%
    Earnings from continuing operations before income taxes

    $

    		1,623.5 

    $

    		1,361.2 19% $1,623.5$1,361.219%
    Margin  21%  20%  21%20%
    Provision for income taxes

    $

    		602.3 

    $

    		519.3  16% $602.3$519.316%
    Effective tax rate  37.1% 38.2%  37.1%38.2%
    Net earnings from continuing operations

    $

    		1,021.2 

    $

    		841.9 21% $1,021.2$841.921%
    Diluted earnings per share from continuing operations

    $

    		1.83  

    $

    		1.45 26%$1.83$1.4526%

    Total Revenues

         Our consolidated revenues in fiscal 2007 grew 14%, to $7,800.0, million due to increases in Employer Services of 11%, or $539.0$545.1 million, to $5,615.4$5,707.7 million, PEO Services of 26%, or $181.1 million, to $884.8 million, and Dealer Services of 14%15%, or $153.0$159.6 million, to $1,225.8$1,257.3 million. Our consolidated revenues, excluding the impact of acquisitions and divestitures, grew 12% in fiscal 2007 as compared to the prior year. Revenue growth was also favorably impacted by $81.1 million, or 1%, due to fluctuations in foreign currency rates.

         Our consolidated revenues in fiscal 2007 include interest on funds held for clients of $653.6 million as compared to $549.8 million in the prior year. The increase in the consolidated interest earned on funds held for clients resulted from the increase of 8% in our average client funds balances to $14.7 billion, as well as the increase in the average interest rate earned to approximately 4.5% in fiscal 2007 as compared to 4.1% in the fiscal 2006.year ended June 30, 2006 (“fiscal 2006”).

    1718

    Total Expenses

         Our consolidated expenses increased $778.2 million, from $5,610.2 million in fiscal 2006, to $6,388.4 million in fiscal 2007. The percentage increase in our consolidated expenses was proportionate to the increase in our revenues. Additionally, the increase was due to higher pass-through costs associated with our PEO business revenues, which have pass-through operating expenses, an increase in our salesforce and implementation personnel, higher expenses associated with our Employer Services’ new business sales and implementation and the impact of acquisitions. Consolidated expenses also increased $79.8 million, or 1%, due to fluctuations in foreign currency exchange rates.

         Our total costcosts of revenues increased $483.6 million, to $4,087.3 million in fiscal 2007, from $3,603.7 million in fiscal 2006, due to increases in our operating expenses. Operating expenses increased $421.8 million due to the increase in revenues described above, including the increases in PEO revenues, which have pass-through costs that are re-billable, and higher compensation expenses associated with additional implementation and service personnel. The pass-through costs for our PEO revenues were $640.7 million in fiscal 2007, as compared to $511.0 million in fiscal 2006. In addition, operating expenses in fiscal 2007 increased approximately $136.0 million as a result of higher compensation expenses associated with additional implementation and service personnel, including approximately $47.0 million of spending on new business opportunities in Employer Services and PEO Services. Our new business opportunities relate to our Human Resource Business Process Outsourcing (“HR BPO”) opportunities, which focus on the outsourcing of integrated multiple processes – such as payroll, HR, and benefits administration. This spending was targeted at expanding our Comprehensive Outsourcing Services (“COS”) product for larger employers, our PEO Services business, our ADP Resource®Resource® product, which is an integrated, flexible HR and payroll-based service offering, and GlobalView®GlobalView®, which is our outsourcing offering for multi-national and global organizations. Lastly, our operating expenses increased $30.0 million due to fluctuations in foreign currency rates and increased approximately $64.6 million due to the operating costs of new businesses acquired. Systems development and programming costs increased $20.4 million due to the increase in headcount and the additional expenses associated with our new businesses acquired and increased $6.1 million due to fluctuations in foreign currency exchange rates. These increases in systems development and programming costs were offset by lower compensation expenses of approximately $16.0 million associated with the increased resources at our off-shore locations and smartshoring facilities. In addition, depreciation and amortization expenses increased $48.0 million due to increased amortization expenses of $28.2 million resulting from the intangible assets acquired with new businesses and the purchases of software and software licenses in fiscal 2007. In addition, depreciation and amortization expenses increased due to fiscal 2006 capital expenditures of approximately $100 million related to the consolidation of our data center facilities.

         Selling, general and administrative expenses increased $272.5 million, to $2,206.2 million in fiscal 2007, due to higher selling expenses in Employer Services and PEO Services, which resulted in an increase in expenses of approximately $97.5 million and $18.3 million, respectively. The $97.5 million increase in expenses in Employer Services includesincluded approximately $13 million for expenses relating to our HR BPO opportunities discussed above. Selling, general and administrative expenses also increased approximately $73.8 million due to the selling, general and administrative expenses related to our business acquisitions in fiscal 2007 and increased $20.1 million due to fluctuations in foreign currency rates. Additionally, we had an increase in restructuring charges of $21.5 million, which primarily related to severance.

    18

         Interest expense increased $22.1 million in fiscal 2007 as a result of higher average borrowings and higher interest rates on our short-term commercial paper program. In fiscal 2007 and 2006, the Company’s average borrowings under the commercial paper program were $1.5 billion and $1.4 billion, respectively, at a weighted average interest rate of 5.3% and 4.1%, respectively.

    Other Income, net

         Other income, net, increased $76.1 million in fiscal 2007 due to a gain of $38.6 million on the sale of a minority investment, an increase of $7.5 million of realized gains on our available-for-sale securities and a decrease of $5.4 million of realized losses on our available-for-sale securities. Additionally, other income, net, included an increase in interest income on corporate funds of $24.6 million as a result of the higher average interest rates earned on our corporate balances, which increased to 4.6% in fiscal 2007 as compared to 4.0% in the prior year and our average corporate balances increased to $3.6 billion in fiscal 2007 as compared to $3.5 billion in the prior year.

    Earnings from Continuing Operations before Income Taxes

         Earnings from continuing operations before income taxes increased $262.3 million, or 19%, to $1,623.5 million in fiscal 2007 due to the increase in revenues and expenses discussed above. Overall margin increased from 20% in fiscal 2006 to 21% in fiscal 2007.

    19

    Provision for Income Taxes

         Our     The effective tax rate in fiscal 2007 was 37.1%, as compared to 38.2% in fiscal 2006. The decrease in the effective tax rate is attributable to a favorable mix in income among tax jurisdictions and to $10.0 million of income tax expense recorded in fiscal 2006 for the repatriation in fiscal 2006 of approximately $250.0 million of eligible dividends from non-U.S. subsidiaries.

    Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations

         Net earnings from continuing operations in fiscal 2007 increased 21%, to $1,021.2 million, from $841.9 million in fiscal 2006, and the related diluted earnings per share from continuing operations increased 26%, to $1.83. The diluted earnings per share from continuing operations of $1.83 includes a net one-time gain of approximately $20.3 million, net of taxes, from the sale of a Dealer Services non-core minority investment, offset by restructuring charges, which was accretive to diluted earnings per share from continuing operations by approximately $0.03 per share. The increase in net earnings from continuing operations in fiscal 2007 reflects the increase in earnings from continuing operations before income taxes as a result of increased revenues offset by expenses and a lower effective tax rate. The increase in diluted earnings per share from continuing operations in fiscal 2007 reflects the increase in net earnings from continuing operations and the impact of fewer shares outstanding due to the repurchase of 40.2 million shares in fiscal 2007 and 29.6 million shares in fiscal 2006.

    19

    Fiscal 2006 Compared to Fiscal 2005

    (Dollars in millions, except per share amounts)

    Years ended June 30, ChangeChange
    2006-As2005-As2005-As2006 vs 2005- 2006 vs 2005- 
         Reported     Reported     Adjusted     As Reported     As Adjusted
    Total revenues$6,835.6 $6,131.3 $6,131.3 11%11%
     
    Costs of revenues:       
         Operating expenses 2,970.5  2,588.1  2,619.9 15%13%
         Systems development and       
              programming costs 472.3  426.6  458.8 11%3%
         Depreciation and amortization 160.9  150.6  150.6 7%7%
    Total cost of revenues 3,603.7  3,165.3  3,229.3 14%12%
     
    Selling, general and       
         administrative expenses 1,933.7  1,758.6  1,839.6 10%5%
    Interest expense 72.8  32.3  32.3 125%125%
    Total expenses 5,610.2  4,956.2  5,101.2 13%10%
     
    Other income, net 135.8  62.7  62.7 117%117%
     
    Earnings from continuing       
         operations before income taxes$1,361.2  $1,237.8 $1,092.8 10%25%
    Margin 20% 20% 18%     
     
    Provision for income taxes$519.3 $457.2 $415.7 14%25%
    Effective tax rate  38.2% 36.9% 38.0%    
     
    Net earnings from       
         continuing operations$841.9 $780.6  $677.1 8%24%
     
    Diluted earnings per share        
         from continuing operations$1.45 $1.32 $1.15 10%26%

         The comparison between the results of operations in fiscal 2006 and 2005 is affected by the impact of our adoption of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”), effective July 1, 2005, using the modified prospective method. Accordingly, prior period amounts have not been restated. We believe the inclusion of the “2005 – As Adjusted” amounts provides a useful additional perspective to compare the results of operations in fiscal 2006 and 2005 as a result of our adoption of SFAS No. 123R. We use both generally accepted accounting principles (“GAAP”) and non-GAAP measures to manage and evaluate the Company’s performance and consider it appropriate to disclose these non-GAAP measures to assist investors with analyzing business performance and trends. However, these measures should not be considered in isolation or as a substitute for the results of operations and diluted earnings per share prepared in accordance with GAAP.

    20

         The adoption of SFAS No. 123R requires the recognition of stock-based compensation expense in the consolidated financial statements. Prior to July 1, 2005, we followed Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. Under APB No. 25, no stock-based compensation expense was recognized related to our stock option program and employee stock purchase plan, as all options granted under the stock option program had an exercise price equal to the market value of the underlying common stock on the date of grant and, with respect to the employee stock purchase plan, the discount did not exceed fifteen percent. Stock-based compensation expense for our restricted stock program has historically been recognized in our results of operations in accordance with APB No. 25. The following table summarizes the stock-based compensation expense related to our stock option program, the employee stock purchase plan and restricted stock program that have been recorded in earnings from continuing operations in each respective period:

    (In millions)
    Years ended June 30,      2006     2005
    Operating expenses$23.7$ --
    Selling, general and administrative expenses95.711.8
    Systems development and programming costs 23.3  -- 
     
    Total stock-based compensation expense reported in
         net earnings from continuing operations$142.7 $11.8 
     
    Income tax benefit on stock-based compensation expense 
         reported in net earnings from continuing operations$(41.7) $(4.6)

         In order to provide a comparable basis between the results of operations in fiscal 2006 and the fiscal year ended June 30, 2005 (“fiscal 2005”), we have provided pro forma information, reflected under the heading “2005 – As Adjusted”, to provide fiscal 2005 results as if stock-based compensation expense related to our stock option program and employee stock purchase plan had been expensed. The “2005 – As Adjusted” amounts include the following pro forma stock-based compensation expense related to our stock option program and employee stock purchase plan, which are based on the pro forma amounts disclosed in Note 14 to the consolidated financial statements included with this Annual Report on Form 10-K:

    (In millions)
    Year ended June 30,  2005
    Operating expenses$31.8
    Selling, general and administrative expenses81.0
    Systems development and programming costs 32.2 
     
    Total pro forma stock-based compensation expense$145.0 
     
    Pro forma income tax benefit on stock-based
         compensation expense$(41.5)

    21

    Total Revenues

         Our consolidated revenues in fiscal 2006 grew 11%, to $6,835.6 million, as compared to our consolidated revenues in fiscal 2005, due to increases in Employer Services of 8%, or $376.7 million, to $5,076.4 million, PEO Services of 22%, or $126.7 million, to $703.7 million, and Dealer Services of 15%, or $136.2 million, to $1,072.8 million. Our consolidated revenues, excluding the impact of acquisitions and divestitures, grew 10% in fiscal 2006 as compared to the prior year.

         Our consolidated revenues in fiscal 2006 include interest on funds held for clients of $549.8 million, as compared to $421.4 million in fiscal 2005. The increase in the consolidated interest earned on funds held for clients was due to the increase of 11% in our average client funds balances in fiscal 2006 to $13.6 billion as a result of new business and growth in our existing client base, as well as the increase in the average interest rate earned on client funds from 3.4% in fiscal 2005 to 4.1% in fiscal 2006.

    Total Expenses, As Reported

         Our consolidated expenses in fiscal 2006 increased $654.0 million, to $5,610.2 million, from $4,956.2 million in fiscal 2005, as reported, due to an increase in our revenues described above, an increase in our stock-based compensation expense, and increases in our cost of revenues and selling, general and administrative expenses. The increase in our stock-based compensation expense in our results of operations as of July 1, 2005 is associated with the adoption of SFAS No. 123R. Total stock-based compensation expense included in continuing operations increased $130.9 million, to $142.7 million, in fiscal 2006, from $11.8 million, as reported, in fiscal 2005 due to the recording of expenses within our results of operations for our stock option program and employee stock purchase plan.

         Our total cost of revenues increased $438.4 million, to $3,603.7 million in fiscal 2006, from $3,165.3 million in fiscal 2005, due to increases in our operating expenses and systems development and programming costs. Operating expenses increased $382.4 million, or 15%, due to the increase in revenues described above, including the increase in PEO revenues, which have pass-through costs. The pass-through costs associated with our PEO revenues increased $88.4 million in fiscal 2006, to $511.0 million. In addition, operating expenses increased approximately $95.3 million as a result of higher compensation expenses associated with additional implementation and service personnel. Lastly, our operating expenses increased $23.7 million due to the increase in stock-based compensation expense in fiscal 2006. Systems development and programming costs increased $45.7 million, to $472.3 million, due to stock-based compensation expense of $23.3 million recorded in fiscal 2006 and increased compensation expenses associated with personnel to support and maintain our products and services.

         Selling, general and administrative expenses increased $175.1 million in fiscal 2006, to $1,933.7 million, attributable to the increase in stock-based compensation expense of $83.9 million in fiscal 2006 and increased compensation costs of $77.8 million associated with our continued investment in our sales personnel to drive our revenue growth.

         Interest expense increased $40.5 million in fiscal 2006 as a result of higher interest rates and higher average borrowings on our short-term commercial paper program. In fiscal 2006 and 2005, the Company’s average borrowings under the commercial paper program were $1.4 billion and $1.0 billion, respectively, at a weighted average interest rate of 4.1% and 2.1%, respectively.

    22

    Total Expenses, As Adjusted

         Our consolidated expenses in fiscal 2006 increased $509.0 million, to $5,610.2 million, from $5,101.2 million in fiscal 2005, as adjusted, due to increases in our costs of revenues and selling, general and administrative expenses. Total stock-based compensation expense included in continuing operations decreased $14.1 million, to $142.7 million in fiscal 2006, from $156.8 million, as adjusted, in fiscal 2005. This decrease was driven by the reduction in the number of stock options granted to associates, which began in fiscal 2006.

         Our total cost of revenues increased $374.4 million, to $3,603.7 million in fiscal 2006, from $3,229.3 million in fiscal 2005, due to increases in our operating expenses and systems development and programming costs. Operating expenses increased $350.6 million, or 13%, due to the increase in revenues described above, including the increase in PEO revenues, which have pass-through costs. The pass-through costs associated with our PEO revenues increased $88.4 million in fiscal 2006, to $511.0 million. In addition, operating expenses increased approximately $95.3 million as a result of higher compensation expenses associated with additional implementation and service personnel. Systems development and programming costs increased $13.5 million, to $472.3 million, due to increased compensation expenses associated with personnel to support and maintain our products and services.

         Selling, general and administrative expenses increased $94.1 million in fiscal 2006, to $1,933.7 million, attributable to increased compensation costs of $77.8 million associated with our continued investment in our sales personnel to drive our revenue growth.

         Interest expense increased $40.5 million in fiscal 2006 as a result of higher interest rates and higher average borrowings on our short-term commercial paper program. In fiscal 2006 and 2005, the Company’s average borrowings under the commercial paper program were $1.4 billion and $1.0 billion, respectively, at a weighted average interest rate of 4.1% and 2.1%, respectively.

    Other Income, net

         Other income, net, increased $73.1 million in fiscal 2006 due to the increase in interest income on corporate funds of $49.2 million as a result of the increase in the average interest rate earned on our corporate investments from 3.0% in fiscal 2005 to 4.0% in fiscal 2006 and a decrease in the net realized losses on available-for-sale securities of $23.9 million.

    Earnings from Continuing Operations before Income Taxes, As Reported

         Earnings from continuing operations before income taxes increased $123.4 million, or 10%, from $1,237.8 million, as reported, in fiscal 2005 to $1,361.2 million in fiscal 2006 due to the increase in revenues and expenses discussed above. Overall margin remained flat at 20%. We leveraged our expense levels with the increasing revenues, in order to improve margins on our services. The improved margins on our services were offset by the increase in stock compensation expenses of $130.9 million due to the recording of stock-based compensation expense associated with our stock option program and employee stock purchase plan in fiscal 2006. Additionally, our margin was negatively impacted by increasing PEO revenues, which have pass-through operating expenses and therefore lower margins.

    23

    Earnings from Continuing Operations before Income Taxes, As Adjusted

         Earnings from continuing operations before income taxes increased $268.4 million, or 25%, from $1,092.8 million, as adjusted, in fiscal 2005 to $1,361.2 million in fiscal 2006 due to the increase in revenues and expenses discussed above. Overall margin improved from 18% to 20%. We leveraged our expense levels with the increasing revenues in order to improve margins on our services and total stock-based compensation expense decreased due to the reduction in the number of stock options granted to associates. In addition, our margin was negatively impacted by the increasing PEO revenues, which have pass-through operating expenses and therefore lower margins.

    Provision for Income Taxes, As Reported

         Our effective tax rate in fiscal 2006 was 38.2% as compared to 36.9%, as reported, in fiscal 2005. The increase in the effective tax rate is attributable to the expensing of stock-based compensation, as certain components of our stock-based compensation programs are non-deductible, resulting in a higher effective tax rate. In addition, the effective tax rate increased due to the application of the provisions of the American Jobs Creation Act (the “AJCA”) to our repatriation of approximately $250.0 million of eligible dividends from non-U.S. subsidiaries, which resulted in income tax expense of approximately $10.0 million in fiscal 2006. These increases in the effective tax rate were partially offset by a favorable mix in income among tax jurisdictions.

    Provision for Income Taxes, As Adjusted

         Our effective tax rate was 38.2% and 38.0% in fiscal 2006 and fiscal 2005, respectively, as adjusted. The increase in our effective tax rate was due to additional income tax expense of approximately $10.0 million in fiscal 2006 associated with the repatriation of approximately $250.0 million of eligible dividends from non-U.S. subsidiaries under the AJCA. Certain components of our stock-based compensation programs are non-deductible, which results in a higher effective tax rate. In fiscal 2006, our non-deductible stock-based compensation expense decreased and our overall earnings from continuing operations before income taxes increased, both of which offset the increase in the effective tax rate. In addition, the increase in the effective tax rate was partially offset by a favorable mix in income among tax jurisdictions.

    Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations, As Reported

         Net earnings from continuing operations increased 8%, to $841.9 million, in fiscal 2006, from $780.6 million, as reported, in fiscal 2005 and the related diluted earnings per share from continuing operations increased 10%, to $1.45. The increase in net earnings from continuing operations reflects the increase in earnings from continuing operations before income taxes as a result of increased revenues offset by the additional expense associated with stock-based compensation and a higher effective tax rate as described above. The increase in diluted earnings per share from continuing operations reflects the increase in net earnings from continuing operations and the impact of fewer shares outstanding due to the repurchase of 29.6 million shares in fiscal 2006 and 14.1 million shares in fiscal 2005.

    24

    Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations, As Adjusted

         Net earnings from continuing operations increased 24%, to $841.9 million, in fiscal 2006, from $677.1 million, as adjusted, in fiscal 2005. Diluted earnings per share from continuing operations increased 26%, to $1.45 in fiscal 2006 from $1.15, as adjusted, in fiscal 2005. The increase in net earnings from continuing operations reflects the increase in earnings from continuing operations before income taxes as a result of our higher revenues and improved margin, as described above. The increase in diluted earnings per share from continuing operations reflects the increase in net earnings from continuing operations and the impact of fewer shares outstanding due to the repurchase of 29.6 million shares in fiscal 2006 and 14.1 million shares in fiscal 2005.

    ANALYSIS OF REPORTABLE SEGMENTS

    Revenues

    (Dollars in millions)
    Years ended June 30,ChangeYears ended June 30,Change
         2007     2006     2005     2007     2006     2005     2008     2007     2006     2008     2007
    Employer Services$5,615.4$5,076.4$4,699.711%8%6%$6,243.1 $5,707.7 $5,162.6 9%11%
    PEO Services884.8703.7577.026%22%24%1,060.5884.8703.720%26%
    Dealer Services 1,225.81,072.8936.614%15%11%1,364.31,257.31,097.79%15%
    Other(1.7)36.635.0(100)+% 5% (16)%4.9(1.5)36.9100+%(100)+%
    Reconciling items: 
    Foreign exchange78.6 2.99.4  118.7(45.4)(108.5)
    Client funds interest (2.9) (56.8) (126.4)     (15.0)(2.9)(56.8)
    Total revenues$7,800.0 $6,835.6  $6,131.3 14%11%10%$8,776.5$7,800.0$6,835.613%14%

    20

    Earnings from Continuing Operations before Income Taxes

    (Dollars in millions)        
    Years ended June 30,ChangeYears ended June 30,Change
         2007     2006     2005     2007     2006     20052008     2007     2006     2008     2007
    Employer Services$1,408.1$1,254.3$1,113.712%13%14%  $1,601.4 $1,412.4 $1,259.3 13%12%
    PEO Services80.454.939.846%38%40% 104.9  80.4  54.9 30%46%
    Dealer Services200.0157.9 148.827%6%5% 232.0  204.4 159.7 14%28%
    Other(183.7)(150.0) (29.8)(22)%(100)+% (100)+% (238.9)  (177.0)  (143.9)   (35)%(23)% 
    Reconciling items:         
    Foreign exchange8.3 0.8 (2.6)  15.9  (7.1)  (12.1)   
    Client funds interest (2.9) (56.8)(126.4) (15.1)  (2.9)  (56.8)   
    Cost of Capital Charge 113.3  100.1  94.3       
    Total earnings from 
    continuing operations 
    before income taxes$1,623.5 $1,361.2 $1,237.8 19%10%11%
    Cost of capital charge  111.8   113.3   100.1      
    Total earnings from continuingoperations before income taxes $1,812.0  $1,623.5  $1,361.2 12% 19%

    25

         Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are charged to the reportable segments based on management’s responsibility for the applicable costs. Lastly, various income and expense items, including certain non-recurring gains and losses and stock-based compensation expenses of $130.5 million, $142.7 million and $11.8 million in fiscal 2007, 2006 and 2005, respectively, are recorded in “Other”.

        The fiscal 20062007 and 20052006 reportable segments’ revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated fiscal 20072008 budgeted foreign exchange rates. This adjustment is made for management purposes so that the reportable segments’ revenues are presented on a consistent basis without the impact of fluctuations in foreign currency exchange rates. This adjustment is a reconciling item to revenues and earnings from continuing operations before income taxes and results in the elimination of this adjustment in consolidation.

        Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are charged to the reportable segments based on management’s responsibility for the applicable costs. Lastly, various income and expense items, including certain non-recurring gains and losses and stock-based compensation expenses of $123.6 million, $130.5 million and $142.7 million in fiscal 2008, 2007 and 2006, respectively, are recorded in “Other.”

        In addition, the reconciling items include an adjustment for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of 4.5%. This allocation is made for management reasons so that the reportable segments’ results are presented on a consistent basis without the impact of fluctuations in interest rates. This allocation is a reconciling item to our reportable segments’ revenues and earnings from continuing operations before income taxes and results in the elimination of this allocationadjustment in consolidation.

         The    Finally, the reportable segments’ results also include a cost of capital charge related to the funding of acquisitions and other investments. This charge is a reconciling item to earnings from continuing operations before income taxes and results in the elimination of this charge in consolidation.

    Employer Services

    Fiscal 2008 Compared to Fiscal 2007

    Revenues

        Employer Services' revenues increased 9% in fiscal 2008 due to new business started in the period, an increase in the number of employees on our clients’ payrolls, the impact of price increases, which contributed approximately 2% to our revenue growth, and an increase in average client funds balances, which increased interest revenues. Internal revenue growth, which represents revenue growth excluding the impact of acquisitions and divestitures, was approximately 8% for fiscal 2008. Revenue from our traditional payroll and payroll tax filing business grew 7%. The number of employees on our clients’ payrolls, “pays per control,” in the United States increased 1.3% in fiscal 2008. This employment metric represents over 141,000 payrolls of small to large businesses and reflects a broad range of U.S. geographic regions. Our worldwide client retention increased 0.2 percentage points in fiscal 2008, as compared to fiscal 2007. Revenues from our “beyond payroll” services, excluding PEO Services, which is a separate reportable segment, increased 16% in fiscal 2008 due to an increase in our Time and Labor Management services revenues of 17% and due to the impact of business acquisitions. The increase in revenues related to our Time and Labor Management services was due to an increase in the number of clients utilizing these services.

    21

        We credit Employer Services with interest on client funds at a standard rate of 4.5%; therefore, Employer Services’ results are not influenced by changes in interest rates. Interest on client funds recorded within the Employer Services segment increased $41.4 million in fiscal 2008, which accounted for 1% growth in Employer Services’ revenues. This increase was due to the increase in the average client funds balances as a result of new business started in the period, growth in our existing client base and growth in wages. The average client funds balances were $15.5 billion in fiscal 2008 and $14.6 billion in fiscal 2007, representing an increase of 6.4%.

    Earnings from Continuing Operations before Income Taxes

        Earnings from continuing operations before income taxes increased $189.0 million, or 13%, to $1,601.4 million in fiscal 2008. Earnings from continuing operations before income taxes for fiscal 2008 grew at a faster rate than revenues due to the improvement in margins for our services resulting from the leveraging of our expense structure with increased revenues. This was offset, in part, by higher compensation expenses of $131.7 million for implementation and service personnel, as well as higher selling expenses of $38.0 million attributable to the increase in salesforce personnel in Employer Services. Lastly, our expenses increased by approximately $42.2 million as a result of acquisitions of businesses in Employer Services.

    Fiscal 2007 Compared to Fiscal 2006

    Revenues

        Employer Services’ revenues increased $545.1 million, or 11%, to $5,707.7 million in fiscal 2007 due to new business started in the period, an increase in the number of employees on our clients’ payrolls in the United States, increased client retention, the impact of pricingprice increases, which contributed approximately 2% to our revenue growth, and an increase in client funds balances, which increased interest revenues. Internal revenuegrowth which represents revenue growth excluding the impact of acquisitions and divestitures, was approximately 9% for fiscal 2007. Revenue from our traditional payroll and payroll tax filing business grew 9%. The number of employees on our clients’ payrolls, “pays per control,” increased 2.3% in the United States. This employment metric represents over 141,000 payrolls of small to large businesses and reflects a broad range of U.S. geographic regions.States. Our worldwide client retention improved 0.1 percentage point over last year’s record level. Revenues from our “beyond payroll” services, excluding PEO Services which is disclosed as a separate reportable segment,, increased 18% in fiscal2007 due to an increase in our Time and Labor Management services revenues of 22%, as well as the impact of certain business acquisitions in fiscal 2007. The increase in revenues related to our Time and Labor Management services was due to an increase in the number of clients utilizing these services.

        We credit Employer Services with interest on client funds at a standard rate of 4.5%; therefore, Employer Services’ results are not influenced by changes in interest rates. Interest on client funds recorded within the Employer Services segment increased $48.8 million in fiscal 2007, which represented 1% growth in Employer Services’ revenues, due to the increase in the average client funds balances as a

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    result of increased Employer Services’ new business and growth in our existing client base. The average client funds balances were $14.6 billion in fiscal 2007 as compared to $13.5 billion in fiscal 2006, an increase of 8%.

    Earnings from Continuing Operations before Income Taxes

        Earnings from continuing operations before income taxes increased $153.8$153.1 million, or 12%, to $1,408.1$1,412.4 million, in fiscal 2007. Earnings from continuing operations before income taxes in fiscal 2007 grew at a faster rate than revenues due to the improvement in margins for our services from the leveraging of our expense structure with the increased revenues. This was offset, in part, by higher operating expenses from the increase of approximately $226.5 million in compensation expenses for implementation, service and salesforce personnel, and spending on new business opportunities related to our HR BPO offerings of approximately $7 million. This spending on new business opportunities was targeted at expanding our COS product for larger employers and our ADP Resource® product, as well as our GlobalView® product, which is our outsourcing offering for multi-national and global organizations. Lastly, earnings from continuing operations before income taxes were negatively impacted by approximately $8.4 million related to six acquisitions made in fiscal 2007.

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    PEO Services

    Fiscal 20062008 Compared to Fiscal 20052007

    Revenues

        EmployerPEO Services’ revenues increased 8%20% in fiscal 20062008 due to an 18% increase in the average number of worksite employees. The increase in the average number of worksite employees was due to new business started inclient sales and the period, annet increase in the number of worksite employees onat existing clients. Additionally, benefits related revenues, which are billed to our clients’ payrollsclients and have an equal amount of cost in operating expenses, increased $115.8 million, or 23%, due to the increase in the United States, increased client retention, the impact of pricing increases, which contributed approximately 2% to our revenue growth, and an increase in client funds balances, which increased interest revenues. Theaverage number of worksite employees, onas well as increases in health care costs.Administrative revenues, which represent the fees for our clients’ payrolls, “pays per control,”services that are billed based upon a percentage of wages related to worksite employees, increased 2.3% in the United States. Our worldwide client retention improved 0.1 percentage point over the record level in fiscal 2005. Revenues from our “beyond payroll” services, excluding PEO Services, which is disclosed as a separate reportable segment, increased 11% in fiscal 2006,$29.4 million, or 17%, due to an increase in our Time and Labor Management services revenues of 21% due to anthe increase in the number of client utilizing these services.average worksite employees and price increases.

        We credit EmployerPEO Services with interest on client funds at a standard rate of 4.5%; therefore, EmployerPEO Services’ results are not influenced by changes in interest rates. Interest on client funds recorded within the EmployerPEO Services segment increased $57.8$1.7 million in fiscal 2006, which represented approximately 1% growth in Employer Services’ revenues,2008 due to the increase in the average client funds balances as a result of increased EmployerPEO Services’ new business and growth in our existing client base. The average client funds balances were $13.5$0.2 billion in fiscal 2006 as compared to $12.22008 and $0.1 billion in fiscal 2005, representing an increase of 11%.2007.

    Earnings from Continuing Operations before Income Taxes

        Earnings from continuing operations before income taxes increased 13%$24.5 million, or 30%, from $1,113.7 million to $1,254.3$104.9 million in fiscal 2006 due2008. This increase was primarily attributable to the increase in revenues described above, net of the related cost of providing benefits and workers compensation coverage and payment of state unemployment taxes for worksite employees, which are included in costs of revenues. Earnings from continuing operations before income taxes grew at a faster rate than revenues dueThis increase was partially offset by an increase in our operating costs and selling expenses. In fiscal 2008, our cost of providing benefits to the improvement in margins for our services from the leveraging of our expense structure with theworksite employees increased revenues offset, in part, by higher selling$116.1 million over fiscal 2007. Our expenses associated with additional personnel expenses resulting from thenew business sales increased $12.2 million as a result of growth in our salesforce and an increase in implementation and salesforce personnel and higher commission expenses resulting from our increase in new business sales.sales over fiscal 2007. In addition, expensesthe costs of providing our services increased $14.0 million in fiscal 2006 increased due to start-up expenses relating to GlobalView®.

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    PEO Services2008.

    Fiscal 2007 Compared to Fiscal 2006

    Revenues

        PEO Services’ revenues increased $181.1 million, or 26%, to $884.8 million in fiscal 2007. The increase in revenues was primarily due to a 22% increase in the average number of worksite employees in fiscal 2007. The increase in the average number of worksite employees was due to new client sales, improved client retention and the net increase in the number of worksite employees at existing clients. Additionally, benefit relatedrevenues which are billed to our clients and therefore have an equal amount of costs in operating expenses, increased $112.5 million, or 29%, due to the increase in the average number of worksite employees in fiscal 2007, as well as increases in health care costs, which were passed on to clients. Administrativerevenues which represent the fees for our services, increased $33.8 million in fiscal 2007, or 24%, due to the increase in the number of average worksite employees and price increases, which are based upon a percentage of the salaries related to worksite employees.

        We credit PEO Services with interest on client funds at a standard rate of 4.5%; therefore, PEO Services’ results are not influenced by changes in interest rates. Interest on client funds recorded within the PEO Services segment increased $1.2 million in fiscal 2007, due to the increase in the average client funds balances as a result of increased PEO Services’ new business and growth in our existing client base. The average client funds balances were $0.1 billion in both fiscal 2007 and 2006.

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    Earnings from Continuing Operations before Income Taxes

        Earnings from continuing operations before income taxes increased $25.5 million, or 46%, to $80.4 million in fiscal 2007. This increase was primarily attributable to the increase in revenues described above, net of the related cost of providing benefits and workers compensation coverage and payment of state unemployment taxes for worksite employees, which are included in costcosts of revenues, and contributed to a $52.1 million increase in our earnings from continuing operations in fiscal 2007 as compared to fiscal 2006. This increase was primarily attributable to 22% growth in the average number of worksite employees, price increases, and improvement in margins on the workers compensation and state unemployment components of the PEO Services’ offering. The increase in earnings from continuing operations before income taxes of $52.1 million was partially offset by an increase in our cost of services of $9.8 million in fiscal 2007 as compared to fiscal 2006. In addition, our expenses associated with new business sales increased $12.2 million in fiscal 2007, primarily as a result of growth in our salesforce and an increase in sales over fiscal 2006 of 14%. Lastly, selling, general and administrative expenses increased $4.6 million primarily as a result of the growth in the business.

    Dealer Services

    Fiscal 20062008 Compared to Fiscal 20052007

    Revenues

        PEO Services’Dealer Services' revenues increased $126.7$107.0 million, or 22%9%, to $703.7$1,364.3 million in fiscal 2006.2008. The increase in revenues in fiscal 2008 was primarilydriven by both internal revenue growth and by acquisitions. Internal revenue growth, which represents the revenue growth excluding the impact of acquisitions and divestitures, was approximately 6% in both fiscal 2008 and fiscal 2007. Revenues increased for our dealer business systems in North America by $59.1 million, to $1,012.9 million in fiscal 2008 due to a 19% increasegrowth in our key products. The growth in our key products was driven by the increased users for Application Service Provider (“ASP”) managed services, growth in our Digital Marketing strategic initiatives, increased Credit Check and Computerized Vehicle Registration (“CVR”) transaction volume, and new network and hosted IP telephony installations. In addition, revenues increased $39.9 million due to business acquisitions in the average numberfourth quarter of worksite employees inthe fiscal 2006. The increase in the average number of worksite employees was due to new client sales and the net increase in worksite employees at existing clients. Additionally, benefit related revenues, which are billed to our clients and therefore have an equal amount of costs in operating expenses, increased

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    $85.8 million, or 28%, due to the increase in the average number of worksite employeesyear 2007 as well as increases in health care costs, which were passed on to clients. Administrative revenues increased $19.9 million, or 16%, due to the increase in the average number of worksite employees.

         We credit PEO Services with interest on client funds at a standard rate of 4.5%; therefore, PEO Services’ results are not influenced by changes in interest rates. Interest on client funds recorded within the PEO Services segment increased $1.0 million in fiscal 2007, due to the increase in the average client funds balances as a result of increased PEO Services’ new business and growth in our existing client base. The average client funds balances were $0.1 billion in both fiscal 2006 and 2005.2008.

    Earnings from Continuing Operations before Income Taxes

        Earnings from continuing operations before income taxes increased $15.1$27.6 million, or 38%14%, to $54.9$232.0 million in fiscal 2006. This increase was primarily attributable2008 due to the increase in revenues described above, net of the related cost of providing benefitsour dealer business systems and workers compensation coverage and payment of state unemployment taxes for worksite employees, which are included in cost of revenues, and contributed to a $37.1 million increase in our earningscontributions from continuing operations in fiscal 2006 as compared to fiscal 2005. This increase is attributable to 19% growth in the average worksite employees and improvement in margins on the workers compensation and state unemployment components of the PEO Services’ product offering. The increase in earnings from continuing operations before income taxes of $37.1 million was partiallyrecent acquisitions. These increases were offset by an increase in our cost of revenues of $10.8 million in fiscal 2006 as compared to fiscal 2005. Lastly, ouroperating expenses associated with new business sales increased $14.3 million in fiscal 2006, primarily as a result of growth in our salesforce and an increase in headcount to support new business sales overand the timing of installations during the year. Lastly, our expenses increased by approximately $37.0 million as a result of acquisitions of businesses during fiscal 2006 of 30%.

    Dealer Services2008.

    Fiscal 2007 Compared to Fiscal 2006

    Revenues

        Dealer Services’ revenues increased $153.0$159.6 million, or 14%15%, to $1,225.8$1,257.3 million in fiscal 2007. The increase in revenues in fiscal 2007 was driven by both internal revenue growth and by acquisitions. Revenues increased for our dealer business systems in North America by $74.0$74.3 million, to $946.8$953.8 million, due to growth in our key services. The growth in our key services was driven by the increased users for Application Service Provider (“ASP”)ASP managed services, increased Credit Check and Computerized Vehicle Registration (“CVR”)CVR transaction volume, new network installations and increased market penetration of our Digital Marketing services. Internal revenue growth which represents revenue growth excluding the impact of acquisitions and divestitures, was approximately 6% for fiscal 2007.

    Earnings from Continuing Operations before Income Taxes

        Earnings from continuing operations before income taxes increased $42.1$44.7 million, to $200.0$204.4 million, in fiscal 2007, due to the increases in revenues of our dealer business systems and contributions from recent acquisitions. Overall margin improved to 16% in fiscal 2007, from 15% in fiscal 2006, driven by growth in the international market due to the acquisition of Kerridge Computer Company Ltd. in fiscal 2006 and cost savings achieved from the integration of Kerridge in the current year.fiscal 2007. Lastly, earnings from continuing operations before income taxes also improved as a result of a decline in restructuring expenses of $5.6 million, which represented the expenses recorded in the prior yearfiscal 2006 relating to the integration of Kerridge.

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    Fiscal 2006 Compared to Fiscal 2005

    Revenues

         Dealer Services’ revenues increased $136.2 million, or 15%, to $1,072.8 million in fiscal 2006. Revenues increased for our dealer business systems in North America by $42.3 million, to $872.8 million, due to growth in our key services. The growth in our key services was driven by the increased users for ASP managed services, increased Credit Check and CVR transaction volume, new network installations and increased market penetration of our Customer Relationship Management services. Internal revenue growth, which represents revenue growth excluding the impact of acquisitions and divestitures, was approximately 4% for fiscal 2006.

    Earnings from Continuing Operations before Income Taxes

         Earnings from continuing operations before income taxes increased $9.1 million, to $157.9 million, in fiscal 2006. The increases in revenues of our dealer business systems and contributions from recent acquisitions increased earnings in fiscal 2006. These increases were partially offset by additional sales expenses relating to sales personnel headcount additions. Earnings from continuing operations before income taxes were also negatively impacted by the integration expenses associated with the acquisition of Kerridge, including $5.6 million of restructuring expenses.

    Other

        The primary components of “Other” are miscellaneous processing services, and corporate allocations and expenses, including stock-based compensation expense reported in net earnings from continuing operations related to the Company’s adoption of SFAS No. 123R, effective July 1, 2005, of$123.6 million, $130.5 million $142.7 million and $11.8$142.7 million in fiscal 2008, 2007 2006 and 2005,2006, respectively. Additionally, certain non-recurring gains and losses, including a gain on the sale of a building of $16.0 million in fiscal 2008 and a gain of $38.6 million on the sale of a minority interest investment in fiscal 2007, are included in “Other”.“Other.”

    FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

        Our financial condition and balance sheet remain strong. At June 30, 2007,2008, cash and marketable securities were $1,884.6$1,660.3 million. The ratio of long-term debt-to-equity was 0.8%1.0% at June 30, 2007.2008. At June 30, 2007,2008, working capital from continuing operations before funds held for clients and client funds obligations was $1,534.8$1,343.1 million, as compared to $1,596.4$1,534.8 million at June 30, 2006.2007. This fluctuation is due to a decrease in cash and cash equivalents and short-term marketable securities of $54.0 million and $257.1 million, respectively. These decreases were offset by an increase in accounts receivable of $289.7 million due to the increased revenues and the timing of collections.$232.7 million.

        Our principal sources of liquidity are derived from cash generated through operations and through cash and marketable securities on hand. We also have the ability to generate cash through our financing arrangements under our U.S. short-term commercial paper program and our U.S. and Canadian short-term repurchase agreements. In addition, we have three unsecured revolving credit agreements that allow us to borrow up to $5.5$6.0 billion in the aggregate. Our short-term commercial paper program and repurchase agreements are utilized as the primary instruments to meet short-term funding requirements related to client funds obligations. Our revolving credit agreements are in place to provide additional liquidity, if needed. We have never had borrowings under the revolving credit agreements. The Company believes that the internally generated cash flows and financing arrangements are adequate to support business operations and capital expenditures.

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        On March 30, 2007, we completed the tax free spin-off of our former Brokerage Services Group business, comprised of our former Brokerage Services and Securities Clearing and Outsourcing Services segments, into an independent publicly traded company called Broadridge Financial Solutions, Inc.Inc (“Broadridge”). As a result of the spin-off, ADP stockholders of record on March 23, 2007 (the “record date”) received one share of Broadridge common stock with a par value $0.01 per share, for every four shares of ADP common stock held by them on the record date and cash for any fractional shares of Broadridge common stock. We have classified the results of operations of the spun-off business as discontinued operations for all periods presented. Additionally,on March 30, 2007, we recorded a decrease to retained earnings of $1,125.2 million for the non-cash reduction in net assets of the Brokerage Services Group business related to the spin-off, offset by an increase to retained earnings of $690.0 million related to the cash dividend received from Broadridge as part of the spin-off.

        In February 2007, we notified holders of our zero coupon convertible subordinated notes that we would redeem all the notes that were outstanding as of the end of the business day on March 19, 2007 (the “redemption date”). Prior to the redemption date, notes with a face value of approximately $39 million were converted into approximately 1one million shares of the Company’s common stock. We subsequently redeemed the remaining 352 notes outstanding as of the redemption date at a redemption price of $775 for each note, representing the accrued value of each note at the time of the redemption.

        Net cash flows provided by operating activities were $1,772.2 million in fiscal 2008, as compared to $1,298.0 million in fiscal 2007, as2007. The increase was due to a $97.0 million increase in net earnings compared to $1,812.5the prior year. In addition, the increase was due to a $132.5 million increase in fiscal 2006 as a result of a decrease in the operating activities of discontinued operations of $186.1 million, as well as accrued expenses and other liabilities due toan increase in payroll and payroll-related accruals due to the timing of $247.2payments and a $289.8 million decrease in accounts receivable and an increasedue toimprovement in the collections of $116.2 million in other assets. The increase inour accounts receivable was related to our increased revenues and the timingcollection in fiscal 2008 of collections.a large direct debit receivable that was outstanding at June 30, 2007. The increaseincreases in other assets was largely due tocash provided were offset by a $17.4$31.2 million increase in our pension plan cash contributions and a $62.3 million increase in other current assets due to the timing of certain payments for prepaid insurance and software maintenance contracts in fiscal 2007, as compared to fiscal 2006.contributions.

         Cash flows provided by investing activities in fiscal 2007 totaled $430.8 million, as compared to $452.2 million in fiscal 2006. The fluctuation between periods was due to a decrease in proceeds from the sale of businesses included in discontinued operations, net of cash divested, of $885.2 million, which was due to the receipt of $896.2 million related to the sale of the Claims Services business and $6.2 million related to the sale of Brokerage Services’ financial print business in fiscal 2006, offset by $13.2 million received in fiscal 2007 representing a purchase price adjustment relating to the fiscal 2006 sale of the Claims Services business and $4.0 million received from the sale of Sandy Corporation in fiscal 2007. This net decrease was offset by the receipt of the $690.0 million cash dividend from Broadridge, which was offset by $29.9 million of cash retained by Broadridge, and the proceeds of $38.6 million received on the sale of a minority investment in fiscal 2007. The    Net cash flows provided by investing activities in fiscal 2007 also increased $34.82008 totaled $2,613.9 million, foras compared to $276.9 million used in fiscal 2007. This increase to funds provided was due to a net decrease in restricted cash paid for intangibleand cash equivalents and other restricted assets relatingheld to software license fees and increased $107.8satisfy client funds obligations of $4,717.6 million, a decrease in cash paid for acquisitions as a resultintangibles of the eleven businesses acquired in fiscal 2007. These increases were offset by$53.4 million and a decrease of $86.0 million in net cash paid for capital expenditures due toacquisitions of $349.6 million.Additionally, proceeds received from the completionsale of businesses increased by $95.2 million. These increases in cash provided were partially offset by the consolidationchange in net purchases/proceeds from our marketable securities of $1,657.5 million, the data center facilities in$38.6 million of proceeds from the sale of a minority investment during fiscal 2006.2007 and the $660.1 million of net dividends received from Broadridge during fiscal 2007.

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        Cash flows used in financing in fiscal 20072008 totaled $1,884.4$5,270.7 million as compared to $1,348.8$1,176.7 million in fiscal 2006.2007. The increase in cash flows used in financing activities was due to increased repurchases of common stock of $600.5a $4,188.0 million decrease in client funds obligations and an increase in dividends paid of $67.4a $87.6 million resulting from the increase in the amount of dividends per common sharepaid in fiscal 2007, as2008 compared to fiscal 2006,2007. Additionally, there was a decrease in proceeds from stock purchase plan and exercises of stock options of $104.5 million. The increase in cash flows used was offset by a decrease in cash paid for the reduction in the number of shares outstanding due to the repurchaserepurchases of common stock.stock of $395.6 million. We purchased 40.232.9 million shares of our common stock at an average price per share of $47.74 in$44.44 during fiscal

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    2007, as compared to 29.6 million shares in fiscal 2006. 2008. As of June 30, 2007,2008, we had remaining Board of Directors’Director’s authorization to purchase up to 43.810.8 million additional shares. These increases were offset, in part, by an increase in proceedsIn August 2008, the Company received from the stockBoard of Directors’ approval to purchase plan and exercisesup to 50 million additional shares of stock options of $126.2 million due to higher levels of stock option exercises in fiscal 2007 as compared to fiscal 2006.the Company’s common stock.

        In June 2007,2008, we entered into a $1.75$2.25 billion, 364-day credit agreement with a group of lenders. The 364-day facility replaced the Company’s prior $1.75 billion 364-day facility. We also have a $1.5 billion credit facility and a $2.25 billion credit facility that mature in June 2010 and June 2011, respectively. The five-year facilities contain accordion features under which the aggregate commitments can each be increased by $500.0$500 million, subject to the availability of additional commitments. The interest rate applicable to the borrowings is tied to LIBOR or prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. We are also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and to provide funding for general corporate purposes, if necessary. There were no borrowings through June 30, 20072008 under the credit agreements.

        We maintainmaintained a U.S. short-term commercial paper program, providingwhich provided for the issuance of up to $5.5 billion in aggregate maturity value of commercial paper at the Company’s discretion. In July 2008, we increased the U.S. short-term commercial paper program to provide for the issuance of up to $6.0 billion in aggregate maturity value. Our commercial paper program is rated A-1+ by Standard and Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At June 30, 20072008 and 2006,2007, there was no commercial paper outstanding. In fiscal 20072008 and 2006,2007, the Company’s average borrowings were $1.5$1.4 billion and $1.4$1.5 billion, respectively, at a weighted average interest rate of 5.3%4.2% and 4.1%5.3%, respectively. The weighted average maturity of the Company’s commercial paper was less than two days in both fiscal 20072008 and fiscal 2006.2007.

        Our U.S. and Canadian short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities. These agreements generally have terms ranging from overnight to up to five business days. At June 30, 20072008, we had an $11.8 million obligation outstanding related to reverse repurchase agreements. The term of the reverse repurchase transaction matured on July 2, 2008 and 2006,the outstanding obligation was repaid. At June 30, 2007, there were no outstanding obligations under reverse repurchase agreements. In fiscal 20072008 and 2006,2007, the Company had average outstanding balances under reverse repurchase agreements of $141.6$360.4 million and $165.7$141.6 million, respectively, at a weighted average interest rate of 4.4%3.4% and 3.5%4.4%, respectively.

        Capital expenditures for continuing operations in fiscal 20072008 were $169.7$186.4 million, as compared to $169.7 million in fiscal 2007 and $252.8 million in fiscal 2006 and $160.3 million in fiscal 2005.2006. The capital expenditures in fiscal 20072008 related to data center and other facility improvements to support our operations. The decrease in capital expenditures from fiscal 2006 to fiscal 2007 was primarily related to lower capital expenditures relating to the consolidation of the data centers, which was completed in fiscal 2006. We expect capital expenditures in fiscal 20082009 to be approximately $200$220 million.

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        The following table provides a summary of our contractual obligations as of June 30, 2007:2008:

    (In millions) (In millions)       

    (In millions)

     Payments due by period  Payments due by period
    Less than1-33-5More than  Less than1-33-5More than  
    Contractual Obligations     1 year    years    years    5 years    Total 1 year    years    years    5 years    Unknown    Total
    Debt Obligations (1) Debt Obligations (1) $    0.2  $16.5 $-- $  27.0  $43.7Debt Obligations (1)   $2.7   $5.6   $28.7 $17.8 $-   $54.8 
    Operating Lease and Software Operating Lease and Software         Operating Lease and Software         
    License Obligations (2) License Obligations (2) 227.6  299.2 72.351.1  650.2 License Obligations (2)  252.9  400.0  199.6  50.8  - 903.3 
    Purchase Obligations (3) Purchase Obligations (3) 87.7  99.4 44.7--  231.8Purchase Obligations (3)  107.7  121.7 79.9  - - 309.3 
    Obligations related to Unrecognized Tax Benefits (4) Obligations related to Unrecognized Tax Benefits (4)  80.0 -  -  - 324.2 404.2 
    Other long-term liabilities reflected Other long-term liabilities reflected       Other long-term liabilities reflected           
    on our Consolidated Balance Sheets: on our Consolidated Balance Sheets:        on our Consolidated Balance Sheets:         
    Compensation and Benefits (4) 51.1   85.4 54.569.6   260.6
    Compensation and Benefits (5) Compensation and Benefits (5)  29.5  119.1  69.7  99.6  34.8  352.7 
    Total Total $366.6  $500.5$171.5$147.7  $1,186.3Total $472.8 $646.4 $377.9 $168.2 $359.0  $2,024.3 

    (1) These amounts represent the principal repayments of our debt and are included on our Consolidated Balance Sheets. See Note 11 to the consolidated financial statements for additional information about our debt and related matters. The estimated interest payments due by corresponding period above are $2.2 million, $4.5 million, $4.0 million, and $7.1 million, respectively, which have been excluded.
    (2) Included in these amounts are various facilities and equipment leases and software license agreements. We enter into operating leases in the normal course of business relating to facilities and equipment, as well as the licensing of software. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts or if we enter into additional operating lease agreements.
    (3) Purchase obligations primarily relate to purchase and maintenance agreements on our software, equipment and other assets.
    (4) We made the determination that net cash payments expected to be paid within the next 12 months, related to unrecognized tax benefits of $404.2 million at June 30, 2008, may be up to $80 million. The Company is unable to make reasonably reliable estimates as to the period beyond the next 12 months in which cash payments related to unrecognized tax benefits are expected to be paid.
    (5) Compensation and benefits primarily relates to amounts associated with our employee benefit plans and other compensation arrangements.

    (2) Included in these amounts are various facilities and equipment leases and software license agreements. We enter into operating leases in the normal course of business relating to facilities and equipment, as well as the licensing of software. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts or if we enter into additional operating lease agreements.

    (3) Purchase obligations primarily relate to purchase and maintenance agreements on our software, equipment and other assets.

    (4) Compensation and benefits primarily relates to amounts associated with our employee benefit plans and other compensation arrangements.

        In addition to the obligations quantified in the table above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services. As of June 30, 2007,2008, the obligations relating to these matters, which are expected to be paid in fiscal 2008,2009, total $18,673.0$15,294.7 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $18,489.2 millionof$15,418.9 millionof cash and marketable securities that have been impounded from our clients to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2007 that have been impounded from our clients to satisfy such obligations.2008.

        The Company’s wholly-owned subsidiary, ADP Indemnity, Inc., provides workers’ compensation and employer liability insurance coverage for our PEO worksite employees. We have secured specific per occurrence and aggregate stop loss reinsurance from third-party carriers that cap losses that reach a certain level in each policy year. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability for the PEO business. In both fiscal 20072008 and 2006,2007, we received premiums of $51.4 millionmillion. In fiscal 2008 and $46.5 million, respectively, and2007, we paid claims of $27.4$38.1 million and $21.9$27.4 million, respectively. At June 30, 2007,2008, our cash and marketable securities included balances totaling approximately $131.8$189.1 million to cover the actuarially-estimated cost of workers’ compensation claims for the policy years that the PEO worksite employees were covered by ADP Indemnity, Inc.

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        In the normal course of business, we also enter into contracts in which we make representations and warranties that relate to the performance of our productsservices and services.products. We do not expect any material losses related to such representations and warranties.

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    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, short-term marketable securities, and long-term marketable securities) and client funds assets (funds that have been collected from clients but not yet remitted to the applicable tax authorities or client employees).

        In order to provide more cost-effective liquidity and maximize our interest income, we utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. In these instances, a portion of this portfolio is considered and reported within the corporate investment balances in order to reflect the pure client funds assets and related obligations. Interest income on the corporate investment portion of the portfolio is reported in otherincome, net on our Statements of Consolidated Earnings.

        Our corporate investments are invested in cash equivalents and highly liquid, investment grade securities. These assets are available for repurchases of common stock for treasury and/or acquisitions, as well as other corporate operating purposes. All of our short-term and long-term marketable securities are classified as available-for-sale securities.

        Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary goals. Consistent with those goals, whilewe also seekingseek to maximize interest income and to minimize the volatility of interest income. Client funds assets are invested in highly liquid, investment gradeinvestment-grade marketable securities with a maximum maturity of 10 years at time of purchase. A significant portionpurchase and money market securities and other cash equivalents. At June 30, 2008, approximately 87% of the client funds assets areavailable-for-sale securities categorized as U.S. Treasury and direct obligations of U.S. government agencies was invested in U.S. government agency securities.senior debt directly issued by the Federal Home Loan Banks, Fannie Mae and Freddie Mac.

        We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating for fixed income securities is BBB and for asset-backed and mortgage-backed securities is AAA. The maximum maturity at time of purchase for a BBB-rated security is 5 years, for a single A-rated securities is 7 years, and for AA-rated and AAA-rated securities is 10 years. Commercial paper must be rated A1/P1 and, for time deposits, banks must have a Financial Strength Rating of C or better.

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        Details regarding our overall investment portfolio are as follows:

    (Dollars in millions) (Dollars in millions)       (Dollars in millions)      
    Years ended June 30,      2007     2006     2005 2008     2007     2006
    Average investment balances at cost: Average investment balances at cost:       Average investment balances at cost:          
    Corporate investments Corporate investments $3,556.8 $3,487.8 $3,065.8  Corporate investments   $3,387.0   $3,556.8   $3,487.8 
    Funds held for clients Funds held for clients  14,682.9  13,566.2  12,263.9  Funds held for clients  15,654.3  14,682.9   13,566.2 
    Total Total $18,239.7 $17,054.0 $15,329.7 Total $19,041.3 $18,239.7 $17,054.0 
    Average interest rates earned exclusive of Average interest rates earned exclusive of       Average interest rates earned exclusive of       
    realized gains/ (losses) on: realized gains/ (losses) on:        realized gains/ (losses) on:       
    Corporate investments Corporate investments  4.6% 4.0% 3.0% Corporate investments  4.4% 4.6% 4.0%
    Funds held for clients Funds held for clients  4.5% 4.1% 3.4% Funds held for clients  4.4% 4.5% 4.1%
    Total Total  4.5% 4.0% 3.3%Total  4.4% 4.5% 4.0%
    Realized gains on available-for-sale securities Realized gains on available-for-sale securities $20.8 $13.3 $10.7 Realized gains on available-for-sale securities $10.1 $20.8 $13.3 
    Realized losses on available-for-sale securities Realized losses on available-for-sale securities  (12.5)  (17.9)  (39.2) Realized losses on available-for-sale securities  (11.4)  (12.5)  (17.9) 
    Net realized gains/(losses) $8.3 $(4.6) $(28.5) 
    Net realized (losses)/ gains Net realized (losses)/ gains $(1.3) $8.3 $(4.6) 
    As of June 30: As of June 30:       As of June 30:       
    Net unrealized pre-tax (losses) gains on       
    Net unrealized pre-tax gains/ (losses) on Net unrealized pre-tax gains/ (losses) on       
    available-for-sale securities available-for-sale securities $(184.9) $(312.9) $32.9  available-for-sale securities $142.1 $(184.9) $(312.9) 
    Total available-for-sale securities at fair value Total available-for-sale securities at fair value $ 13,369.4 $ 13,612.8 $ 13,001.5 Total available-for-sale securities at fair value $     15,066.4 $     13,369.4 $     13,612.8 

        In fiscal 2007,2008, approximately 25% of our overall investment portfolio was invested in cash and cash equivalents and, therefore, iswas impacted by changes in short-term interest rates. The other 75% of our investment portfolio was invested in fixed-income securities, with varying maturities of 10 years or less, which were also subject to interest rate risk including reinvestment risk.

    Factors that influence the earnings impact of the interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies and is impacted by daily interest rate changes. A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the Fed Funds rates) and intermediate-term interest rates of 25 basis points applied to the estimated fiscal 20082009 average investment balances and any related borrowings would result in approximately an $11a $7 million impact to earnings before income taxes over a twelve-month period. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated fiscal 20082009 average short-term investment balances and any related short-term borrowings would result in approximately a $7$3 million impact to earnings before income taxes over a twelve-month period.

        The Company is exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities. The Company limits credit risk by investing in AAA and AA rated securities, as rated by Moody’s, Standard & Poor’s, and for Canadian securities, Dominion Bond Rating Service. At June 30, 2007,2008, approximately 95%90% of our available-for-sale securities held an AAA or AA rating.ratings. In addition, we also limit amounts that can be invested in any security other than USU.S. and Canadian government or government agency securities.

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        The Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading purposes. We did not enter into any derivative financial instruments in fiscal 2007, nor were there any derivative financial instruments outstanding at June 30, 2007.

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    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In June 2008, theFASB issued FASB Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Upon adoption, a Company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with provisions of this FSP. We are currently evaluating the impact, if any, that the adoption of FSP EITF 03-6-1 will have on our consolidated results of operations or financial condition.

        In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity withgenerally accepted accounting principles. SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We do not anticipate the adoption of SFAS No. 162 will have a material impact on our results of operations, cash flows or financial condition.

        In April 2008, the FASB issued FSP FAS 142-3,“Determination of the Useful Life of Intangible Assets”(“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142,Goodwill and Other Intangible Asset.FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are currently evaluating the impact that the adoption of FSP FAS 142-3 will have on our consolidated results of operations, cash flows or financial condition.

        In March2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not anticipate the adoption of SFAS No. 161 will have a material impact on our results of operations, cash flows or financial condition.

        In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any controlling interest in the business and the goodwill acquired. SFAS No. 141R further requires that acquisition-related costs and costs associated with restructuring or exiting activities of an acquired entity will be expensed as incurred. SFAS No. 141R also establishes disclosure requirements that will require disclosure on the nature and financial effects of the business combination. SFAS No. 141R will impact business combinations for the Company that may be completed on or after July 1, 2009. We cannot anticipate whether the adoption of SFAS No. 141R will have a material impact on our results of operations and financial condition as the impact is solely dependent on whether we enter into any business combinations after July 1, 2009 and the terms of such transactions.

        In March 2007, the Financial Accounting Standards Board (“FASB”)FASB ratified EITF Issue No. 06-11, “Accounting"Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”" EITF 06-11 requires companies to recognize, as an increase to additional paid-in capital, the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards as an increase to additional paid-in capital.awards. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. We do not expect EITF 06-11 willto have a material impact on our consolidated results of operations or cash flows.

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        In February 2007, the FASB issued Statement of Financial Accounting StandardsSFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. This statement provides companies with an option to measure selected financial assets and liabilities at fair value. We are currently evaluating the effect thathave not elected to measure such selected financial assets and liabilities at fair value. As such, we do not expect the adoption of SFAS No. 159 willto have if any,a material impact on our consolidated results of operations, cash flows or financial condition.

         In September 2006, the Staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires registrants to use a combination of two approaches to evaluate the materiality of identified unadjusted errors, the “rollover” approach, which quantifies an error based on the amount of the error originating in the current year income statement, and the “iron curtain” approach, which quantifies an error based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year. SAB 108 permits companies to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. We have adopted SAB 108 in fiscal 2007. The adoption of SAB 108 resulted in an increase to our opening retained earnings as of July 1, 2006 of approximately $44.3 million, net of tax.

         In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement would require a company to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (c) recognize changes in the funded status of a defined benefit plan in the year in which the changes occur (reported in comprehensive income). The requirement to recognize the funded status of a benefit plan and the related disclosure requirements were adopted by the Company at the end of fiscal 2007.

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        In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We believe thatdo not expect the adoption of SFAS No. 157 will notto have a material effectimpact on our consolidated results of operations, cash flows or financial condition.

    In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 applies to all tax positions accounted for under SFAS No. 109, “Accounting for Income Taxes” and defines the confidence level that a tax position must meet in order to be recognized in the financial statements. The interpretation requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If a tax position is not considered “more-likely-than-not” to be sustained then no benefits of the position are to be recognized. FIN 48 requires additional annual disclosures and is effective as of the beginning of the first fiscal year beginning after December 15, 2006. FIN 48 is effective for the Company as of the beginning of fiscal 2008 (i.e., as of July 1, 2007). While we continue to analyze the effect of adopting the provisions of FIN 48, it is currently expected that a cumulative effect adjustment in the range of $15 million to $30 million will be charged to retained earnings in the first quarter of fiscal 2008 to increase the reserve for uncertain tax positions. This estimate is subject to change as we complete our analysis.

    CRITICAL ACCOUNTING POLICIES

        Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below.

    Revenue Recognition. Our revenues are primarily attributable to fees for providing services (e.g., Employer Services’ payroll processing fees) as well as investment income on payroll funds, payroll tax filing funds and other Employer Services’ client-related funds. We enter into agreements for a fixed fee per transaction (e.g., number of payees)payees or number of payrolls processed). Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectibility is reasonably assured. Our service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties. Interest income on collected but not yet remitted funds held for clients is recognized in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.

        We also recognize revenues associated with the sale of software systems and associated software licenses.licenses (e.g. Dealer Services’ dealer management systems). For a majority of our software sales arrangements, which provide hardware, software licenses, installation and post-contract customer support, revenues are recognized ratably over the software license term as vendor-specific objective evidence of the fair values of the individual elements in the sales arrangement does not exist. Changes to the elements in an arrangement and the ability to establish vendor-specific objective evidence for those elements could affect the timing of the revenue recognition.

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        We assess collectibility of our revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history. We do not believe that a change in our assumptions utilized in the collectibility determination would result in a material change to revenues as no single customer accounts for a significant portion of our revenues.

    Goodwill. We review the carrying value of all ouraccount for goodwill and other intangible assets with indefinite useful lives in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” which states that goodwill and intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment at least annually at the reporting unit level. We perform this impairment test by first comparing the carryingfair value of our reporting units to their carrying amount. If an indicator of impairment exists based upon comparing the fair value of our reporting units to their carrying amount, we would then compare the implied fair value of our goodwill to the carrying amount in order to determine the amount of the impairment, if any. We use discounted cash flows to determine fair values. WeWhen available and as appropriate, comparative market multiples are requiredused to perform this comparison at least annually or more frequently if circumstances indicate possible impairment. When determining fair value, we utilize acorroborate discounted future cash flow approach using various assumptions, including projections of revenues based on assumed long-term growth rates, estimated costs, and appropriate discount rates based on the Company’s weighted average cost of capital. Our estimates of long-term growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of our routine long-range planning process.results. We had $2,353.6$2,426.7 million of goodwill as of June 30, 2007.2008. Given the significance of our goodwill, an adverse change to the fair value could result in an impairment charge, which could be material to our consolidated earnings.

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    Income Taxes.We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements.

        We adopted the provisions of FIN 48 on July 1, 2007. FIN 48 prescribes a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. Specifically, it clarifies that an entity’s tax benefits must be “more likely than not” of being sustained assuming that position will be examined by taxing authorities with full knowledge of all relevant information prior to recording the related tax benefit in the financial statements. If the position drops below the “more likely than not” standard, the benefit can no longer be recognized. Assumptions, judgment and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. A change in the assessment of the “more likely than not” standard could materially impact our consolidated financial statements.

    Stock-Based Compensation.SFAS No. 123R requires the measurement of stock-based compensation expense based on the fair value of the award on the date of grant. We determine the fair value of stock options issued by using a binominal option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of the Company’sour stock price and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. Determining these assumptions areis subjective and complex, and therefore, a change in the assumptions utilized could impact the calculation of the fair value of our stock options. Prior to July 1, 2005, we followed APB No. 25, and related interpretations. Under APB No. 25, no stock-based compensation expense was recognized related to our stock option program and employee stock purchase plan, as all options granted under the stock option program had an exercise price equal to the market value of the underlying common stock on the date of grant and, with respect to the employee stock purchase plan, the discount did not exceed fifteen percent.

    Item 7A. Quantitative and Qualitative Disclosures About Market Risk

         The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures About Market Risk” under “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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    Item 8. Financial Statements and Supplementary Data

    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    Board of Directors and Stockholders of
    Automatic Data Processing, Inc.
    Roseland, New Jersey

        We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc. and subsidiaries (the “Company”"Company") as of June 30, 20072008 and 2006,2007, and the related statements of consolidated earnings, stockholders’stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2007.2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a) 2. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, suchthe consolidated financial statements referred to above present fairly, in all material respects, the financial position of Automatic Data Processing, Inc. and subsidiaries atas of June 30, 20072008 and 2006,2007, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2007,2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,presents fairly, in all material respects, the information set forth therein.

        As discussed inNotes 1 and 1814 to the consolidated financial statements, in 2008 the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109,” effective July 1, 2007.

        In addition, as discussed in Notes 13 and 17 to the consolidated financial statements, in 2007 the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R),” effective June 30, 2007 and Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” effective July 1, 2006, on those financial statements and financial statement schedule.2006.

         In addition, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” as revised, effective July 1, 2005.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’sCompany's internal control over financial reporting as of June 30, 2007,2008 based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our reportdated August 29, 20072008, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’sCompany's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

    /s/ Deloitte & Touche LLP
    New York, New York
    August 29, 2007

    39/s/ Deloitte & Touche LLP
    New York, New York
    August 29, 2008

    33

    Statements of Consolidated Earnings

    (In millions, except per share amounts)

    Years ended June 30,      2007    2006    2005 2008     2007     2006
    Revenues, other than interest on funds held
    for clients and PEO revenues $ 6,267.4 $ 5,582.1 $ 5,132.9 
    REVENUES: REVENUES:      
    Revenues, other than interest on funds Revenues, other than interest on funds      
    held for clients and PEO revenues held for clients and PEO revenues $7,038.9 $6,267.4 $5,582.1 
    Interest on funds held for clientsInterest on funds held for clients653.6549.8421.4Interest on funds held for clients 684.5  653.6  549.8 
    PEO revenues (A)PEO revenues (A) 879.0  703.7  577.0 PEO revenues (A)  1,053.1  879.0  703.7 
    Total revenues 7,800.0  6,835.6  6,131.3 
    TOTAL REVENUES TOTAL REVENUES  8,776.5  7,800.0  6,835.6 
    EXPENSES: EXPENSES:      
    Costs of revenuesCosts of revenuesCosts of revenues      
    Operating expenses Operating expenses3,392.32,970.52,588.1 Operating expenses 3,915.7  3,392.3  2,970.5 
    Systems development and programming costs Systems development and programming costs486.1472.3426.6 Systems development and programming costs  525.9  486.1  472.3 
    Depreciation and amortization Depreciation and amortization 208.9  160.9  150.6  Depreciation and amortization  238.5  208.9  160.9 
    Total cost of revenues4,087.33,603.73,165.3
    TOTAL COSTS OF REVENUES TOTAL COSTS OF REVENUES 4,680.1  4,087.3  3,603.7 
    Selling, general and administrative expensesSelling, general and administrative expenses2,206.21,933.71,758.6Selling, general and administrative expenses 2,370.4  2,206.2  1,933.7 
    Interest expenseInterest expense 94.9  72.8  32.3 Interest expense  80.5  94.9  72.8 
    Total expenses 6,388.4  5,610.2  4,956.2 
    TOTAL EXPENSES TOTAL EXPENSES  7,131.0  6,388.4  5,610.2 
    Other income, netOther income, net (211.9) (135.8) (62.7)Other income, net  (166.5)  (211.9)  (135.8) 
    Earnings from continuing operations before income taxes1,623.51,361.21,237.8
    EARNINGS FROM CONTINUING OPERATIONS EARNINGS FROM CONTINUING OPERATIONS      
    BEFORE INCOME TAXES BEFORE INCOME TAXES 1,812.0  1,623.5  1,361.2 
    Provision for income taxesProvision for income taxes 602.3  519.3  457.2 Provision for income taxes  650.3  602.3  519.3 
    Net earnings from continuing operations1,021.2841.9780.6
    Earnings from discontinued operations, net of provision for
    income taxes of $110.6, $274.5 and $165.3 for the fiscal years
    ended June 30, 2007, 2006 and 2005, respectively 117.5  712.1  274.8 
    Net earnings $1,138.7 $1,554.0 $1,055.4 
    NET EARNINGS FROM CONTINUING OPERATIONS NET EARNINGS FROM CONTINUING OPERATIONS 1,161.7  1,021.2  841.9 
    Earnings from discontinued operations, net of provision Earnings from discontinued operations, net of provision      
    for income taxes of $23.2, $110.6 and $274.5 for the fiscal for income taxes of $23.2, $110.6 and $274.5 for the fiscal      
    years ended June 30, 2008, 2007 and 2006, respectively years ended June 30, 2008, 2007 and 2006, respectively  74.0  117.5  712.1 
    NET EARNINGS NET EARNINGS $1,235.7 $1,138.7 $1,554.0 
    Basic earnings per share from continuing operationsBasic earnings per share from continuing operations$1.86$1.46$1.34Basic earnings per share from continuing operations $2.23 $1.86 $1.46 
    Basic earnings per share from discontinued operationsBasic earnings per share from discontinued operations 0.21  1.24  0.47 Basic earnings per share from discontinued operations  0.14  0.21  1.24 
    Basic earnings per share$2.07 $2.70 $1.81 
    BASIC EARNINGS PER SHARE BASIC EARNINGS PER SHARE $2.37 $2.07 $2.70 
    Diluted earnings per share from continuing operationsDiluted earnings per share from continuing operations$1.83$1.45$1.32Diluted earnings per share from continuing operations $2.20 $1.83 $1.45 
    Diluted earnings per share from discontinued operationsDiluted earnings per share from discontinued operations 0.21  1.23  0.47 Diluted earnings per share from discontinued operations  0.14  0.21  1.23 
    Diluted earnings per share$2.04 $2.68 $1.79 
    DILUTED EARNINGS PER SHARE DILUTED EARNINGS PER SHARE $2.34 $2.04 $2.68 
    Basic weighted average shares outstandingBasic weighted average shares outstanding 549.7  574.8  583.2 Basic weighted average shares outstanding  521.5  549.7  574.8 
    Diluted weighted average shares outstandingDiluted weighted average shares outstanding 557.9  580.3  590.0 Diluted weighted average shares outstanding  527.2  557.9  580.3 

    (A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $11,247.4, $9,082.5 $6,977.0 and $5,499.2,$6,977.0, respectively.

    See notes to consolidated financial statements.

    4034

    Consolidated Balance Sheets

    (In millions, except per share amounts)

    June 30,     2007    2006 2008     2007
    AssetsAssetsAssets   
    Current assets:Current assets:Current assets:   
    Cash and cash equivalents Cash and cash equivalents $1,746.1  $1,800.1  Cash and cash equivalents $917.5 $1,746.1 
    Short-term marketable securities Short-term marketable securities70.4327.5 Short-term marketable securities 666.3 70.4 
    Accounts receivable, net Accounts receivable, net1,041.9752.2 Accounts receivable, net 1,034.6 1,041.9 
    Other current assets Other current assets448.1394.3 Other current assets 771.6 448.1 
    Assets of discontinued operations Assets of discontinued operations 57.7  2,208.7  Assets of discontinued operations  -  57.7 
    Total current assets before funds held for clients Total current assets before funds held for clients  3,390.0  3,364.2 
    Funds held for clients Funds held for clients  15,418.9  18,489.2 
    Total current assetsTotal current assets3,364.25,482.8Total current assets 18,808.9 21,853.4 
    Long-term marketable securities68.1333.7
    Long-term marketable securities (A) Long-term marketable securities (A)  76.5 68.1 
    Long-term receivables, netLong-term receivables, net226.5215.4Long-term receivables, net 234.0 226.5 
    Property, plant and equipment, netProperty, plant and equipment, net723.8700.0Property, plant and equipment, net 742.9 723.8 
    Other assets Other assets 735.5771.9Other assets 808.3 735.5 
    GoodwillGoodwill2,353.61,976.2Goodwill 2,426.7 2,353.6 
    Intangible assets, netIntangible assets, net 688.0  526.2 Intangible assets, net  637.1  688.0 
    Total assets before funds held for clients8,159.710,006.2
    Funds held for clients 18,489.2  17,483.9 
    Total assets Total assets$26,648.9 $27,490.1  Total assets $23,734.4 $26,648.9 
    Liabilities and Stockholders’ Equity
    Liabilities and Stockholders' Equity Liabilities and Stockholders' Equity   
    Current liabilities:Current liabilities:Current liabilities:   
    Accounts payable Accounts payable$125.9$125.2 Accounts payable $126.9 $125.9 
    Accrued expenses and other current liabilities Accrued expenses and other current liabilities703.4662.8 Accrued expenses and other current liabilities 668.1 703.4 
    Accrued payroll and payroll related expenses Accrued payroll and payroll related expenses402.6346.3 Accrued payroll and payroll related expenses 479.4 402.6 
    Dividends payable Dividends payable122.0102.6 Dividends payable 145.7 122.0 
    Short-term deferred revenues Short-term deferred revenues299.1244.4 Short-term deferred revenues 356.1 299.1 
    Obligation under reverse repurchase agreement Obligation under reverse repurchase agreement 11.8 - 
    Income taxes payable Income taxes payable118.7196.4 Income taxes payable 258.9 118.7 
    Liabilities of discontinued operations Liabilities of discontinued operations 19.1  996.5  Liabilities of discontinued operations  -  19.1 
    Total current liabilities before client funds obligations Total current liabilities before client funds obligations  2,046.9  1,790.8 
    Client funds obligations Client funds obligations  15,294.7  18,673.0 
    Total current liabilitiesTotal current liabilities1,790.82,674.2Total current liabilities 17,341.6 20,463.8 
    Long-term debtLong-term debt43.574.3Long-term debt 52.1 43.5 
    Other liabilitiesOther liabilities390.5360.8Other liabilities 587.9 390.5 
    Deferred income taxesDeferred income taxes127.7100.4Deferred income taxes 170.0 127.7 
    Long-term deferred revenuesLong-term deferred revenues 475.5  481.4 Long-term deferred revenues  495.6  475.5 
    Total liabilities before client funds obligations2,828.03,691.1
    Client funds obligations 18,673.0  17,787.4 
    Total liabilities Total liabilities 21,501.0  21,478.5  Total liabilities  18,647.2  21,501.0 
    Commitments and contingencies (Note 16)
    Commitments and contingencies (Note 15) Commitments and contingencies (Note 15)   
    Stockholders’ equity:
    Stockholders' equity: Stockholders' equity:   
    Preferred stock, $1.00 par value: Authorized, 0.3 shares; issued, nonePreferred stock, $1.00 par value: Authorized, 0.3 shares; issued, none----Preferred stock, $1.00 par value: Authorized, 0.3 shares; issued, none - - 
    Common stock, $0.10 par value: Authorized, 1,000.0 shares; issued, 638.7 shares at
    June 30, 2007 and 2006; outstanding, 535.8 and 561.4 shares at June 30, 2007
    and 2006, respectively63.963.9
    Common stock, $0.10 par value: Authorized, 1,000.0 shares; issued, 638.7 shares at June 30, 2008 and 2007; Common stock, $0.10 par value: Authorized, 1,000.0 shares; issued, 638.7 shares at June 30, 2008 and 2007;   
    outstanding, 510.3 and 535.8 shares at June 30, 2008 and 2007, respectively outstanding, 510.3 and 535.8 shares at June 30, 2008 and 2007, respectively 63.9 63.9 
    Capital in excess of par valueCapital in excess of par value351.8157.4Capital in excess of par value 522.0 351.8 
    Retained earningsRetained earnings9,378.59,111.4Retained earnings 10,029.8 9,378.5 
    Treasury stock - at cost: 102.9 and 77.3 shares, respectively(4,612.9)(3,194.8)
    Accumulated other comprehensive loss (33.4) (126.3)
    Total stockholders’ equity 5,147.9  6,011.6 
    Total liabilities and stockholders’ equity$ 26,648.9 $ 27,490.1 
    Treasury stock - at cost: 128.4 and 102.9 shares at June 30, 2008 and 2007, respectively Treasury stock - at cost: 128.4 and 102.9 shares at June 30, 2008 and 2007, respectively (5,804.7)(4,612.9)
    Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss)  276.2  (33.4)
    Total stockholders' equity Total stockholders' equity  5,087.2  5,147.9 
    Total liabilities and stockholders' equity Total liabilities and stockholders' equity $23,734.4 $26,648.9 

    (A) As of June 30, 2008, long-term marketable securities include $11.7 of securities that have been pledged as collateral under the Company’s reverse repurchase agreement (see Note 10).

    See notes to consolidated financial statements.

    35

    Statements of Consolidated Stockholders’ Equity
    (In millions, except per share amounts)

                             Accumulated
         Capital in                 Other
    Common Stock Excess of Deferred Retained Treasury Comprehensive Comprehensive
    Shares  Amount  Par Value  Compensation  Earnings  Stock  Income  Income (Loss)
    Balance at June 30, 2005638.7$63.9$-$(13.3)$7,966.0$(2,246.8)$14.1
    Net earnings -  -  -   -   1,554.0   -  $1,554.0   - 
    Foreign currency translation adjustments 80.280.2
    Unrealized net loss on securities, net of tax                      (221.0)  (221.0)
    Minimum pension liability adjustment, net of tax   0.4 0.4
    Comprehensive income                     $1,413.6    
     
    Elimination of deferred compensation upon adoption of  
         Statement of Financial Accounting Standards No. 123R--(13.3)13.3 ---
    Stock-based compensation expense-  -  174.9   -   -   -       - 
    Stock plans and related tax benefits--(3.7)--375.6-
    Treasury stock acquired (29.6 shares)-  -  -   -   -   (1,326.9)      - 
    Debt conversion (0.1 shares)--(0.5)--3.3-
    Dividends ($0.7100 per share)-  -  -   -   (408.6)  -       - 
     
    Balance at June 30, 2006638.7$63.9$157.4$-$9,111.4$(3,194.8)$(126.3)
    Adoption of Statement of Financial Accounting                           
         Standards No. 158, net of tax-  -  -   -   -   -       (63.1)
    Net earnings ----1,138.7-$1,138.7-
    Foreign currency translation adjustments                      76.4   76.4 
    Unrealized net gain on securities, net of tax81.981.9
    Minimum pension liability adjustment, net of tax                      (2.3)  (2.3)
    Comprehensive income$1,294.7 
     
    Stock-based compensation expense--148.7----
    Stock plans and related tax benefits-  -  55.4   -   -   464.4       - 
    Treasury stock acquired (40.2 shares)-----(1,920.3)-
    Adoption of Staff Accounting Bulletin No. 108, net of tax-  -  (3.2)  -   44.3   -       - 
    Brokerage Services Group spin-off----(1,125.2)--
    Brokerage Services Group dividend-  -  -   -   690.0   -       - 
    Debt conversion (1.1 shares)--(6.5)--37.8-
    Dividends ($0.8750 per share)-  -  -   -   (480.7)  -       - 
     
    Balance at June 30, 2007638.7$63.9$351.8$-$9,378.5$(4,612.9)$(33.4)
    Net earnings -  -  -   -   1,235.7   -  $1,235.7   - 
    Foreign currency translation adjustments127.9127.9
    Unrealized net gain on securities, net of tax                      209.7   209.7 
    Pension liability adjustment, net of tax (28.0)(28.0)
    Comprehensive income                     $1,545.3    
     
    Stock-based compensation expense--123.6----
    Stock plans and related tax benefits-  -  4.5   -   -   271.7       - 
    Treasury stock acquired (32.9 shares)-----(1,463.5)-
    Adoption ofFinancial Accounting Standards Board Interpretation No. 48-  -  -   -   (11.7)  -       - 
    Tax basis adjustment related to pooling of interest (see Note 14)--42.1----
    Dividends ($1.1000 per share)-  -  -   -   (572.7)  -       - 
     
    Balance at June 30, 2008638.7$63.9$522.0 $- $10,029.8 $(5,804.7)$276.2 

    See notes to consolidated financial statements.

    4136


    Statements of Consolidated Cash Flows    
    (In millions)
    Years ended June 30, 2008     2007     2006
    Cash Flows From Operating Activities    
    Net earnings $1,235.7 $1,138.7 $1,554.0 
    Adjustments to reconcile net earnings to cash flows provided by operating activities:    
        Gain on sale of cost-based investment - (38.6)- 
        Gain on sale of building  (16.0)- - 
        Depreciation and amortization 319.1 288.8 246.0 
        Deferred income taxes (92.7)15.1 (5.0)
        Excess tax benefit related to exercises of stock options (0.7)(0.2)(7.9)
        Stock-based compensation expense 123.6  130.5 142.7 
        Net pension expense 40.0 40.3  31.4 
        Net realized loss (gain) from the sales of marketable securities 1.3 (8.3)4.6 
        Net amortization of premiums and accretion of discounts on available-for-sale securities 42.7 40.5 75.4 
        Gain on sale of discontinued businesses, net of tax (74.0)(20.9)(452.8)
        Impairment of assets of discontinued operations businesses - - 18.6 
        Other 100.6 40.8 30.6 
    Changes in operating assets and liabilities, net of effects from acquistions and divestitures of businesses:    
        Decrease (increase) in accounts receivable 34.2 (255.6)(8.4)
        (Increase) decrease in other assets (40.5)(88.0)28.2 
        Increase (decrease) in accounts payable 9.7 (1.5)3.2 
        Increase (decrease) in accrued expenses and other liabilities 89.2 (43.3)(93.9)
    Operating activities of discontinued operations  -  59.7  245.8 
    Net cash flows provided by operating activities  1,772.2  1,298.0  1,812.5 
    Cash Flows From Investing Activities    
    Purchases of corporate and client funds marketable securities (6,407.2)(4,449.1)(5,846.5)
    Proceeds from the sales and maturities of corporate and client funds marketable securities 5,140.6 4,840.0 4,955.0 
    Net decrease (increase) in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations 4,119.6 (598.0)1,364.1 
    Capital expenditures (181.0)(172.8)(258.8)
    Additions to intangibles (96.6)(150.0)(115.2)
    Acquisitions of businesses, net of cash acquired (97.3)(446.9)(339.1)
    Proceeds from the sale of cost-based investment - 38.6 - 
    Dividend received from Broadridge Financial Solutions, Inc., net of $29.9 million in cash retained by Broadridge Financial Solutions, Inc. - 660.1 - 
    Other 23.4 14.5 12.3 
    Proceeds from the sale of businesses included in discontinued operations, net of cash divested 112.4 17.2 902.4 
    Investing activities of discontinued operations  -  (30.5) (47.7)
    Net cash flows provided by (used in) investing activities  2,613.9  (276.9) 626.5 
    Cash Flows From Financing Activities    
    Net (decrease) increase in client funds obligations (3,480.3)707.7 (174.3)
    Proceeds from issuance of debt 21.2 0.6 0.5 
    Payments of debt (10.1)(1.8)(0.7)
    Repurchases of common stock (1,504.8)(1,900.4)(1,299.9)
    Proceeds from stock purchase plan and exercises of stock options 239.7 344.2 218.0 
    Excess tax benefit related to exercises of stock options 0.7 0.2 7.9 
    Dividends paid (548.9)(461.3)(393.9)
    Net proceeds from reverse repurchase agreements 11.8 - - 
    Financing activities of discontinued operations  -  134.1  119.3 
    Net cash flows used in financing activities  (5,270.7) (1,176.7) (1,523.1)
    Effect of exchange rate changes on cash and cash equivalents  41.3  15.7  9.4 
    Net change in cash and cash equivalents (843.3)(139.9)925.3 
    Cash and cash equivalents of continuing operations, beginning of year 1,746.1 1,800.1 777.3 
    Cash and cash equivalents of discontinued operations, beginning of year  14.7  100.6  198.1 
    Cash and cash equivalents, end of year 917.5 1,760.8 1,900.7 
    Less cash and cash equivalents of discontinued operations, end of year  -  14.7  100.6 
    Cash and cash equivalents of continuing operations, end of year $917.5 $1,746.1 $1,800.1 
     
    See notes to consolidated financial statements.    

    Statements of Consolidated Stockholders’ Equity
    (In millions, except per share amounts)

    Accumulated
    Capital inOther
    Common StockExcess ofDeferredRetainedTreasuryComprehensiveComprehensive
       Shares   Amount   Par Value   Compensation   Earnings   Stock   Income   Income (Loss)
    Balance at June 30, 2004 638.7  $63.9    $96.6  $(17.0) $7,326.9  $(2,033.2)     $(19.5)
    Net earnings-- --   ----1,055.4--$1,055.4--
    Foreign currency translation adjustments52.552.5
    Unrealized net loss on securities, net of tax(16.8)(16.8)
    Minimum pension liability adjustment, net of tax (2.1)(2.1)
    Comprehensive income$1,089.0 
     
    Stock plans and related tax benefits-- --   (94.5)3.7(63.6)373.6--
    Treasury stock acquired (14.1 shares)-- --   ------(591.4)--
    Acquisitions-- --   ------0.6--
    Debt conversion (0.1 shares)-- --   (2.1)----3.6--
    Dividends ($0.6050 per share) --   --     --   --   (352.7)  --       -- 
     
    Balance at June 30, 2005638.7 63.9   --(13.3)7,966.0(2,246.8)14.1
    Net earnings-- --   ----1,554.0--$1,554.0--
    Foreign currency translation adjustments80.280.2
    Unrealized net loss on securities, net of tax(221.0)(221.0)
    Minimum pension liability adjustment, net of tax 0.4 0.4
    Comprehensive income$1,413.6 
     
    Elimination of deferred compensation upon adoption of
           Statement of Financial Accounting Standard No. 123R-- --   (13.3)13.3------
    Stock-based compensation expense-- --   174.9--------
    Stock plans and related tax benefits-- --   (3.7)----375.6--
    Treasury stock acquired (29.6 shares)-- --   ------(1,326.9)--
    Debt conversion (0.1 shares)-- --   (0.5)----3.3--
    Dividends ($0.7100 per share) --   --     --   --   (408.6)  --       -- 
     
    Balance at June 30, 2006638.7 63.9   157.4--9,111.4(3,194.8)(126.3)
    Adoption of Statement of Financial Accounting
           Standards No. 158, net of tax(63.1)
    Net earnings-- --   ----1,138.7--$1,138.7--
    Foreign currency translation adjustments76.476.4
    Unrealized net gain on securities, net of tax81.981.9
    Minimum pension liability adjustment, net of tax (2.3)(2.3)
    Comprehensive income$1,294.7 
     
    Stock-based compensation expense-- --   148.7--------
    Stock plans and related tax benefits-- --   55.4----464.4--
    Treasury stock acquired (40.2 shares)-- --   ------(1,920.3)--
    Adoption of Staff Accounting Bulletin No. 108, net of tax-- --   (3.2)--44.3----
    Brokerage Services Group spin-off-- --   ----(1,125.2)----
    Brokerage Services Group dividend-- --   ----690.0----
    Debt conversion (1.1 shares)-- --   (6.5)----37.8--
    Dividends ($0.8750 per share) --   --     --   --   (480.7)  --       -- 
     
    Balance at June 30, 2007638.7 $63.9   $351.8 $-- $9,378.5 $(4,612.9)$(33.4)

    See notes to consolidated financial statements.

    42

    Statements of Consolidated Cash Flows
    (In millions)

    Years ended June 30,    2007   2006   2005
    Cash Flows From Operating Activities
    Net earnings $1,138.7  $1,554.0  $1,055.4 
    Adjustments to reconcile net earnings to cash flows provided by
           operating activities:
           Gain on sale of cost-based investment(38.6)----
           Depreciation and amortization288.8246.0225.6
           Deferred income taxes15.1(5.0)10.3
           Stock-based compensation expense130.5142.711.8
           Pension expense40.331.423.0
           Net realized (gain) loss from the sales of marketable securities(8.3)4.628.5
           Amortization of premiums and discounts on available-for-sale securities40.575.4120.0
           Gain on sale of businesses, net of tax(20.9)(452.8)--
           Impairment of assets of discontinued operations businesses--18.6--
           Other40.830.6(24.1)
    Changes in operating assets and liabilities, net of effects from acquistions and
           divestitures of businesses:
           (Increase) decrease in accounts receivable(255.6)(8.4)10.5
           (Increase) decrease in other assets(88.0)28.2(134.9)
           (Decrease) increase in accounts payable, accrued expenses and other liabilities(45.0)(98.6)215.7
    Operating activities of discontinued operations 59.7  245.8  (108.3)
    Net cash flows provided by operating activities 1,298.0  1,812.5  1,433.5 
    Cash Flows From Investing Activities
    Purchases of marketable securities(4,449.1)(5,846.5)(7,599.4)
    Proceeds from the sales and maturities of marketable securities4,840.04,955.06,629.1
    Net (purchases of) proceeds from client funds securities(598.0)1,364.1(3,765.6)
    Net increase (decrease) in client funds obligations707.7(174.3)5,018.9
    Capital expenditures(172.8)(258.8)(153.5)
    Additions to intangibles(150.0)(115.2)(90.6)
    Acquisitions of businesses, net of cash acquired(446.9)(339.1)(434.4)
    Proceeds from the sale of investment38.6----
    Dividend received from Broadridge Financial Solutions, Inc., net of $29.9 million
           in cash retained by Broadridge Financial Solutions, Inc.660.1----
    Other14.512.34.7
    Proceeds from the sale of businesses included in discontinued operations,
           net of cash divested17.2902.417.2
    Investing activities of discontinued operations (30.5) (47.7) (64.3)
    Net cash flows provided by (used in) investing activities 430.8  452.2  (437.9)
    Cash Flows From Financing Activities
    Proceeds from issuance of notes0.60.50.4
    Payments of debt(1.8)(0.7)(1.1)
    Repurchases of common stock(1,900.4)(1,299.9)(584.4)
    Proceeds from stock purchase plan and exercises of stock options344.2218.0146.3
    Excess tax benefit related to exercises of stock options0.27.9--
    Dividends paid(461.3)(393.9)(344.9)
    Financing activities of discontinued operations 134.1  119.3  37.2 
    Net cash flows used in financing activities (1,884.4) (1,348.8) (746.5)
    Effect of exchange rate changes on cash and cash equivalents 15.7  9.4  13.3 
    Net change in cash and cash equivalents(139.9)925.3262.4
    Cash and cash equivalents, beginning of year 1,900.7  975.4  713.0 
    Cash and cash equivalents, end of year1,760.81,900.7975.4
    Less cash and cash equivalents of discontinued operations, end of year 14.7  100.6  198.1 
    Cash and cash equivalents of continuing operations, end of year$1,746.1 $1,800.1 $777.3 

    See notes to consolidated financial statements.

    4337

    Notes to Consolidated Financial Statements

    (Tabular dollars in millions, except per share amounts)

    NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    A. Consolidation and Basis of Preparation.The consolidated financial statements include the financial results of Automatic Data Processing, Inc. and its majority-owned subsidiaries (the “Company” or “ADP”). Intercompany balances and transactions have been eliminated in consolidation.

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

    Certain reclassifications of prior years’ financial statements have been made to conform to the current year presentation. Refer to Note 2 “Reclassifications within Consolidated Balance Sheets and Statements of Consolidated Cash Flows” for additional disclosures related to such reclassifications.

    B. Description of Business.The Company is a provider of technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers. The Company classifies its operations into the following reportable segments: Employer Services, PEO Services, DealerProfessional Employer Organization (“PEO”) Services, and Other.Dealer Services. “Other” consists primarily of miscellaneous processing services, and corporate allocations and expenses, including stock-based compensation expense related to the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”), effective July 1, 2005.expense.

    As further discussed in Note 5, on June 30, 2007, the Company entered into a definitive agreement to sell its Travel Clearing business for approximately $116 million in cash. Additionally, on March 30, 2007 the Company completed the tax free spin-off of its former Brokerage Services Group business, comprised of the former Brokerage Services and Securities Clearing and Outsourcing Services segments, into an independent publicly traded company called Broadridge Financial Solutions, Inc. (“Broadridge”). Lastly, on January 23, 2007, the Company completed the sale of Sandy Corporation, a business within the Dealer Services segment, which specializes in sales and marketing training. The Company has classified the results of operations of these businesses as discontinued operations for all periods presented.

    C. Revenue Recognition.A majority of the Company’s revenuesRevenues are primarily attributable to fees for providing services (e.g.(e.g., Employer Services’ payroll processing fees) as well as investment income on payroll funds, payroll tax filing funds and other Employer Services’ client-related funds.The Company typically enters into agreements for a fixed fee per transaction (e.g.(e.g., number of payees)payees or number of payrolls processed). Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectibility is reasonably assured.Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties. Interest income on collected but not yet remitted funds held for clients is recognized in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.

    Interest income on collected but not yet remitted funds held for clients is earned on funds that are collected from clients and invested until remittance to the applicable tax agencies or clients’ employees. The interest earned on these funds is included in revenues because the collection, holding and remittance of these funds are critical components of providing these services.

    The Company alsorecognizes revenues associated with the sale of software systems and associated software licenses.licenses (e.g., Dealer Services’ dealer management systems). For a majority of the Company’sour software sales arrangements, which provide hardware, software licenses, installation and post-contract customer support, revenues are recognized ratably over the software license term as vendor-specific objective evidence of the fair values of the individual elements in the sales arrangement does not exist.

    44The Company assesses collectibility of our revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

    Professional Employer Organization (“PEO”)PEO revenues are reported in PEO revenues on the Statements of Consolidated Earnings and are reported net of direct pass-through costs, which are costs billed and incurred for PEO worksite employees, primarily consisting of payroll wages and payroll taxes. Benefits and workers’ compensation fees for PEO worksite employees are included in PEO revenues and the associated costs are included in operating expenses.

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    D. Cash and Cash Equivalents.Investment securities with a maturity of ninety days or less at the time of purchase are considered cash equivalents.

    E. Corporate Investments and Funds Held for Clients.All of the Company’s marketable securities are considered to be “available-for-sale” and, accordingly, are carried on the Consolidated Balance Sheets at fair value. Unrealized gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss), on the Consolidated Balance Sheets, until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis and are included in other income, net.net on the Statements of Consolidated Earnings.

    If the market value of any available-for-sale security declines below cost and it is deemed to be other-than-temporary, an impairment charge is recorded to earnings for the difference between the carrying amount of the respective security and the fair value.

    Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned.

    F. Long-term Receivables.Long-term receivables relate to notes receivable from the sale of computer systems, primarily to automotive, heavy truck and powersports and truck dealers. Unearned income from finance receivables represents the excess of gross receivables over the sales price of the computer systems financed. Unearned income is amortized using the effective-interest method to maintain a constant rate of return on the net investment over the term of each contract.

    The allowance for doubtful accounts on long-term receivables is the Company’s best estimate of the amount of probable credit losses inrelated to the Company’s existing note receivables.

    G. Property, Plant and Equipment.Property, plant and equipment is stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of assets are primarily as follows:

    Data processing equipment2 to 5 years
    Buildings20 to 40 years
    Furniture and fixtures3 to 7years

    H. Goodwill and Other Intangible Assets.The Company accounts for goodwill and other intangible assets with indefinite useful lives in accordance with SFASStatement of Financial Accounting Standards (“SFAS”)  No. 142, “Goodwill and Other Intangible Assets,” which states that goodwill and intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment at least annually at the reporting unit level. The Company performs this impairment test by first comparing the fair value of our reporting units to their carrying amount. If an indicator of impairment exists a write-down tobased upon comparing the fair value (normally measured by discounting estimated futureof our reporting units to their carrying amount, the Company would then compare the implied fair value of our goodwill to the carrying amount in order to determine the amount of the impairment, if any. The Company uses discounted cash flows) is recorded. Intangible assets with finite livesflows to determine fair values. When available and as appropriate, comparative market multiples are amortized primarily on a straight-line basis over their estimated useful lives and are reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”).used to corroborate discounted cash flow results.

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    I. Impairment of Long-Lived Assets.In accordance with SFAS No. 144, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

    J. Foreign Currency Translation.The net assets of the Company’s foreign subsidiaries are translated into U.S. dollars based on exchange rates in effect at the end offor each period, and revenues and expenses are translated at average exchange rates in the periods. Currency transaction gains or losses, which are included in the results of operations, are immaterial for all periods presented. Gains or losses from balance sheet translation are included in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.

    K. Derivative Financial Instruments.Derivative financial instruments are measured at fair value and are recognized as assets or liabilities on the Consolidated Balance Sheets with changes in the fair value of the derivatives recognized in either net earnings from continuing operations or accumulated other comprehensive income (loss), depending on the timing and designated purpose of the derivative, in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”

    The Company did not enter into any derivative financial instruments in fiscal 2007, norThere were there anyno derivative financial instruments outstanding at June 30, 2008 or June 30, 2007. The Company does not hold any derivative instruments for trading purposes.

    L. Earnings per Share (“EPS”).The calculations of basic and diluted EPS are as follows:

            Effect of   Effect of   Effect of     
          Effect of   Employee   Employee   Employee     Effect ofEffect ofEffect ofEffect of
          Zero Coupon   Stock   Stock   Restricted     Zero CouponEmployeeEmployeeEmployee
          Subordinated   Option   Purchase   Stock     SubordinatedStock OptionStock PurchaseRestricted Stock
    Years ended June 30,      Basic      Notes      Shares      PlanShares      Shares      Diluted Basic     Notes     Shares     Plan Shares     Shares     Diluted
    2008 
    Net earnings from continuing operations$1,161.7$   -$   -$   -$   -$1,161.7
    Weighted average shares (in millions)521.54.30.3 1.1527.2
    EPS from continuing operations$2.23$2.20
    2007                      
    Net earnings from continuing operations  $1,021.2         $1.1          $--          $--          $--  $1,022.3$1,021.2$1.1$   -$   -$   -$1,022.3
    Weighted average shares (in millions)  549.7  0.8   4.8   1.0   1.6   557.9549.70.84.81.01.6557.9
    EPS from continuing operations  $1.86                 $1.83$1.86$1.83
    2006                      
    Net earnings from continuing operations  $841.9 $1.0  $--  $--  $ --  $842.9$841.9$1.0$   -$   -$   -$842.9
    Weighted average shares (in millions)  574.8  1.1   3.6   0.6   0.2   580.3574.81.13.60.60.2580.3
    EPS from continuing operations  $1.46                 $1.45$1.46$1.45 
    2005                      
    Net earnings from continuing operations  $780.6 $1.0  $--  $--  $ --  $781.6
    Weighted average shares (in millions)  583.2  1.2   4.2   1.4   --   590.0
    EPS from continuing operations  $1.34                 $1.32

    Options to purchase 12.6 million, 16.9 million, 26.6 million, and 34.626.6 million shares of common stock for fiscal 2008, 2007 2006 and 2005,2006, respectively, were excluded from the calculation of diluted earnings per share because their exercise prices exceeded the average market price of outstanding common shares for the respective fiscal year.

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    M. Stock-Based Compensation.As further discussed in Note 14, theThe Company adoptedaccounts for stock-based compensation under SFAS No. 123R, effective July 1, 2005, using the modified prospective method. Accordingly, prior period amounts have not been restated. The adoption of this standard“Share-Based Payment,” which requires the measurement of stock-based compensation expense to be recognized in net earnings based on the fair value of the award on the date of the grant. Prior to July 1, 2005,The Company determines the Company followed Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. Under APB No. 25, no stock-based compensation expense was recognizedfair value of stock options issued by using a binominal option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of the Company’s stock option programprice and employee stock purchase plan, as all options granted underother factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option program had an exercise price equal togrants is derived from the market valueoutput of the underlying common stock onbinomial model and represents the dateperiod of grant and, with respecttime that options granted are expected to the employee stock purchase plan, the discount did not exceed fifteen percent.be outstanding.

    N. Internal Use Software.Expenditures for major software purchases and software developed or obtained for internal use are capitalized and amortized over a three- to five-year period on a straight-line basis. For software developed or obtained for internal use, the Company capitalizes costs in accordance with the provisions of Statement of Position No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The Company’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. The Company also expenses internal costs related to minor upgrades and enhancements, as it is impractical to separate these costs from normal maintenance activities.

    O. Computer Software to be Sold, Leased or Otherwise Marketed.The Company capitalizes certain costs of computer software to be sold, leased or otherwise marketed in accordance with the provisions of SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.” The Company’s policy provides for the capitalization of all software production costs upon reaching technological feasibility for a specific product. Technological feasibility is attained when software products have a completed working model whose consistency with the overall product design has been confirmed by testing. Costs incurred prior to the establishment of technological feasibility are expensed as incurred. The establishment of technological feasibility requires judgment by management and in many instances is only attained a short time prior to the general release of the software. Upon the general release of the software product to customers, capitalization ceases and such costs are amortized over a three-year period on a straight-line basis. Maintenance-related costs are expensed as incurred.

    P. Income Taxes.The provisionsCompany accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which establishes financial accounting and reporting standards for the effect of income taxes payable and deferredtaxes. The objectives of accounting for income taxes are determined usingto recognize the liability method. Deferredamount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service and liabilities are determined basedother tax authorities.

    The Company adopted the provisions ofFinancial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) on differences betweenJuly 1, 2007. FIN 48 prescribes a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. Specifically, it clarifies that an entity’s tax benefits must be “more likely than not” of being sustained assuming that position will be examined by taxing authorities with full knowledge of all relevant information prior to recording the related tax benefit in the financial reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse. A valuation allowance is provided whenstatements. If the Company determines that it is moreposition drops below the “more likely than not that a portionnot” standard, the benefit can no longer be recognized. Assumptions, judgment and the use of estimates are required in determining if the deferred tax asset balance will not be realized.“more likely than not” standard has been met when developing the provision for income taxes.

    Q. Recently Issued Accounting Pronouncements.In June 2008, theFASB issued FASB Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Upon adoption, a Company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to provisions of this FSP. The Company is currently evaluating the impact, if any, that the adoption of FSP EITF 03-6-1 will have on its consolidated results of operations or financial condition.

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    In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity withgenerally accepted accounting principles. SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not anticipate the adoption of SFAS No. 162 will have a material impact on its results of operations, cash flows or financial condition.

    In April 2008, the FASB issued FSP FAS 142-3,“Determination of the Useful Life of Intangible Assets”(“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142,Goodwill and Other Intangible Asset.FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of FSP FAS 142-3 will have on its consolidated results of operation, cash flows or financial condition.

    In March2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not anticipate the adoption of SFAS No. 161 will have a material impact on its results of operations, cash flows or financial condition.

    In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any controlling interest in the business and the goodwill acquired. SFAS No. 141R further requires that acquisition-related costs and costs associated with restructuring or exiting activities of an acquired entity will be expensed as incurred. SFAS No. 141R also establishes disclosure requirements that will require disclosure on the nature and financial effects of the business combination. SFAS No. 141R will impact business combinations for the Company that may be completed on or after July 1, 2009. The Company cannot anticipate whether the adoption of SFAS No. 141R will have a material impact on its results of operations and financial condition as the impact is solely dependent on whether the Company enters into any business combinations after July 1, 2009 and the terms of such transactions.

    In March 2007, the Financial Accounting Standards Board (“FASB”)FASB ratified EITF Issue No. 06-11, “Accounting"Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”" EITF 06-11 requires companies to recognize, as an increase to additional paid-in capital, the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards as an increase to

    47

    additional paid-in capital.awards. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The Company does not expect EITF 06-11 willto have a material impact on its consolidated results of operations or cash flows.

    In February 2007, the FASB issued Statement of Financial Accounting StandardsSFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. This statement provides companies with an option to measure selected financial assets and liabilities at fair value. The Company is currently evaluating the effect thathas not elected to measure such selected financial assets and liabilities at fair value. As such, theCompany does not expect the adoption of SFAS No. 159 willto have if any,a material impact on ourits consolidated results of operations, cash flows or financial condition.

    In September 2006, the Staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires registrants to use a combination of two approaches to evaluate the materiality of identified unadjusted errors: the “rollover” approach, which quantifies an error based on the amount of the error originating in the current year income statement, and the “iron curtain” approach, which quantifies an error based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year. SAB 108 permits companies to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. The Company adopted SAB 108 in fiscal 2007. The adoption of SAB 108 resulted in an increase to opening retained earnings as of July 1, 2006 of approximately $44.3 million, net of tax (see Note 18).42

    In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement would require a company to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (c) recognize changes in the funded status of a defined benefit plan in the year in which the changes occur (reported in comprehensive income). The requirement to recognize the funded status of a benefit plan and the related disclosure requirements were effective for the Company as of the end of fiscal 2007 and the Company adopted the statement at that time (see Note 14).

    In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company believes thatdoes not expect the adoption of SFAS No. 157 will notto have a material effectimpact on ourits consolidated results of operations, cash flows or financial condition.

    In July 2006,NOTE 2. RECLASSIFICATIONS WITHIN CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED CASH FLOWS

    The Company has reclassified funds held for clients and client funds obligations that had been previously presented outside of current assets and current liabilities, respectively, within the FASB issued FASB Interpretation No. 48, “AccountingConsolidated Balance Sheets, to current assets and current liabilities, respectively for Uncertaintyall periods presented. Previously presented amounts reclassified were as follows:

    Year ended June 30, 2007
    Funds held for clients$   18,489.2
    Client funds obligations$18,673.0

    This reclassification had no impact on total assets or liabilities for any period presented.

    Additionally, the Company has reclassified the net increase (decrease) in Income Taxes” (“FIN 48”). FIN 48 applies to all tax positions accounted for under SFAS No. 109, “Accounting for Income Taxes” and defines the confidence level that a tax position must meet in order to be recognizedclient funds obligations in the financial statements.Statements of Consolidated Cash Flows from investing activities to financing activities for all periods presented. The interpretation requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained by the taxing authority asimpacts of the reporting date. If a tax position is not considered “more-likely-than-not”reclassifications were as follows:

    Years ended June 30,     2007    2006
    Net cash flows provided by (used in) investing
        activities - as previously reported $430.8$452.2
    Impact of reclassification$(707.7)$174.3
    Net cash flows (used in) provided by investing
        activities - as reclassified$(276.9)$626.5
     
    Net cash flows used in financing activities - as 
        previously reported$     (1,884.4)$     (1,348.8)
    Impact of reclassification$707.7$(174.3)
    Net cash flows (used in) provided by financing
        activities - as reclassified$(1,176.7)$(1,523.1)

    This reclassification had no impact on the net change in cash and cash equivalents or cash flows from operating activities for any period presented.

    Refer to be sustained then no benefits of the position areNote 6 “Corporate Investments and Funds Held for Clients” for additional disclosures related to be recognized. FIN 48 requires additional annual disclosuresfunds held for clients and is effective as of the beginning of the first fiscal year beginning after December 15, 2006. FIN 48 is effective for the Company as of the beginning of fiscal 2008 (i.e., as of July 1, 2007). While the Company continues toclient funds obligations.

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    analyze the effect of adopting the provisions of FIN 48, it is currently expected that a cumulative effect adjustment in the range of $15 million to $30 million will be charged to retained earnings in the first quarter of fiscal 2008 to increase its reserve for uncertain tax positions. This estimate is subject to change as the Company completes its analysis.

    NOTE 2.3. OTHER INCOME, NET

    Other income, net consists of the following:

    Years ended June 30,      2007     2006     2005     2008    2007    2006
    Interest income on corporate funds Interest income on corporate funds $(165.0)$(140.4) $(91.2)Interest income on corporate funds $(149.5) $(165.0) $(140.4)
    Gain on sale of buildingGain on sale of building(16.0)--
    Gain on sale of investment Gain on sale of investment (38.6) --  -- Gain on sale of investment-(38.6)-
    Realized gains on available-for-sale securities Realized gains on available-for-sale securities  (20.8)(13.3) (10.7)Realized gains on available-for-sale securities(10.1) (20.8)(13.3)
    Realized losses on available-for-sale securities Realized losses on available-for-sale securities  12.5  17.9  39.2 Realized losses on available-for-sale securities 11.4 12.517.9
    Other, net Other, net (2.3)--
    Other income, net Other income, net $ (211.9)$ (135.8)$ (62.7)Other income, net$     (166.5)$     (211.9)$     (135.8)

    In fiscal 2008, the Company sold a building for $20.7 million, which resulted in a net gain of $16.0 million. The Company will receive cash related to the sale of this building in the first quarter of the fiscal year endedJune 30, 2009.

    In fiscal 2007, the Company sold a minority investment that was previously accounted for using the cost basis and had a net book value of $0.basis. The Company’s sale of this investment resulted in a gain of $38.6 million.

    NOTE 3. COST OF REVENUES

    The Company has revisedan outsourcing agreement with Broadridge pursuant to which the formatCompany will continue to provide data center outsourcing services, principally information technology services and service delivery network services, to Broadridge in the same capacity post-spin as it had been pre-spin. As a result of the Statementsoutsourcing agreement, the Company recognized income of Consolidated Earnings to include a separate line item for cost$107.8 million in fiscal 2008, which is offset by expenses associated with providing such services of revenues. The Company’s costs and expenses applicable to revenues (“cost$105.5 million, both of revenues”) represent the total of operating expenses and systems development and programming costs as previously presentedwhich were recorded in other income, net on the Statements of Consolidated Earnings, as well as the portion of depreciation and amortization that relates to our services and products.

    Earnings. The Company previously reported that depreciation and amortizationhad a receivable on the Consolidated Balance Sheets from continuing operations totaled $246.0Broadridge for the services under this agreement of $9.7 million and $225.6$9.6 million for fiscal 2006on June 30, 2008 and 2005,2007, respectively. The portion of depreciation and amortization that relates to our services and products was $160.9 million and $150.6 million for fiscal 2006 and 2005, respectively, and is included in cost of revenues. The portion of depreciation and amortization that does not relate to our services and products of $85.1 million and $75.0 million for fiscal 2006 and 2005, respectively, was reclassified to selling, general and administrative expenses on the Statements of Consolidated Earnings.

    NOTE 4. ACQUISITIONS

    Assets acquired and liabilities assumed in business combinations were recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Statements of Consolidated Earnings since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when the Company receives final information, including appraisals and other analyses.analyses, which typically occurs within one year from the date of acquisition.

    49The Company acquired four businesses in fiscal 2008 for approximately $45.9 million, net of cash acquired. These acquisitions resulted in approximately $37.7 million of goodwill. Intangible assets acquired, which totaled approximately $11.6 million, consist primarily of software, and customer contracts and lists that are being amortized over a weighted average life of 9 years. In addition, the Company made $51.4 million of contingent paymentsin fiscal 2008 relating to previously consummated acquisitions. As of June 30, 2008, the Company had contingent consideration remaining for all transactions of approximately $25.6 million.

    The Company acquired eleven businesses in fiscal 2007 for approximately $434.4 million, net of cash acquired. These acquisitions resulted in approximately $327.2 million of goodwill. Intangible assets acquired, which totaled approximately $157.9 million, consist primarily of software, and customer contracts and lists that are being amortized over a weighted average life of 9 years. In addition, the Company made $12.5 million of contingent paymentsin fiscal 2007 relating to previously consummated acquisitions. As of June 30, 2007, the Company had contingent consideration remaining for all transactions of approximately $106.6 million, of which approximately $49.7 million was recorded as a liability at June 30, 2007. The liability was recorded because it is reasonably probable that the contingency was expected to be achieved. The contingent consideration is payable over the next four years and is subject to the acquired entity’s achievement of specified revenue, earnings and/or development targets.

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    The Company acquired five businesses in fiscal 2006 for approximately $353.8 million, net of cash acquired. These acquisitions resulted in approximately $362.5 million of goodwill. Intangible assets acquired, which totaled approximately $74.7 million, consist primarily of software, and customer contracts and lists that are being amortized over a weighted average life of 10 years. In addition, the Company made $0.7 million of contingent paymentsin fiscal 2006 relating to previously consummated acquisitions.

    The Company acquired five businesses in fiscal 2005 for approximately $422.6 million, net of cash acquired. These acquisitions resulted in approximately $162.1 million of goodwill. Intangible assets acquired, which totaled approximately $30.0 million, consist primarily of software, and customer contracts and lists that are being amortized over a weighted average life of 8 years. In addition, the Company made $12.3 million of contingent payments (including $0.5 million in common stock) relating to previously consummated acquisitions.

    The acquisitions discussed above for fiscal 2008, 2007 2006 and 20052006 were not material, either individually or in the aggregate, to the Company’s operations, financial position or cash flows.

    NOTE 5. DIVESTITURES

    On June 30, 2007, the Company entered into a definitive agreement to sell its Travel Clearing business for approximately $116$116.0 million in cash. The Company completed the sale of its Travel Clearing business on July 6, 2007. The Travel Clearing business was previously reported in the “Other” segment. In connection with the disposal of this business, the Company has classified the results of operations of this business as discontinued operations asfor all periods presented. Additionally, in January 2008, the Company finalized a purchase price adjustment and received an additional payment of June 30, 2007.$7.2 million, for which the Company recorded a gain of $7.2 million, or $4.9 million after taxes, within earnings from discontinued operations on the Statements of Consolidated Earnings. During fiscal 2008, the Company reported a gain of $95.8 million, or $62.2 million after taxes, within earnings from discontinued operations on the Statements of Consolidated Earnings.

    On March 30, 2007, the Company completed the tax freetax-free spin-off of its former Brokerage Services Group business, comprised of the former Brokerage Services and Securities Clearing and Outsourcing Services, segments, into an independent publicly traded company called Broadridge Financial Solutions, Inc. (“Broadridge”).Broadridge. As a result of the spin-off, ADP stockholders of record on March 23, 2007 (the “record date”) received one share of Broadridge common stock for every four shares of ADP common stock held by them on the record date and cash for any fractional shares of Broadridge common stock. ADP distributed approximately 138.8 million shares of Broadridge common stock in the distribution. The spin-off was made without the payment of any consideration or the exchange of any shares by ADP stockholders. The Company has classified the results of operations of the spun-off business as discontinued operations for all periods presented. Additionally,

    During fiscal 2008, the Company recorded a decrease to retained earningsnet gain of $1,125.2$10.2 million, for the non-cash reduction in net assets of the Brokerage Services Group business related to the spin-off, offset by an increase to retained earnings of $690.0 million related to the cash dividend received from Broadridge as part of the spin-off. The spin-off and the transitional and on-going relationships between ADP and Broadridge are governed by a Separation and Distribution Agreement entered into between ADP and Broadridge, and other ancillary agreements.

    50

    The Company’s ongoing relationship with Broadridge includes providing data center services pursuant to an outsourcing agreement signed at the time of the spin-off. The agreement states that the Company will continue to provide data center outsourcing services, principally information technology services and service delivery network services, to Broadridge in the same capacity post-spin as it had been pre-spin. The outsourcing agreement went into effect upon consummation of the spin-off on March 30, 2007 and expires on June 30, 2012. As a result of the outsourcing agreement, the Company recognized income of $27.5 million in fiscal 2007, which is offset by expenses associated with providing such services of $27.5 million. The fee structure in the agreement provides for revenues to exceed the Company’s expenses for the remainder of the term. The income and expenses associated with the outsourcing agreement are reported in other income, net in the Statements of Consolidated Earnings. The related receivable in the Consolidated Balance Sheet from Broadridge for the services under this agreement was $9.6 million on June 30, 2007.

    Incremental costs associated with the spin-off in fiscal 2007 of $37.8 million are included intaxes, within earnings from discontinued operations related to a change in estimated taxes on the Statementsdivestitures of Consolidated Earnings and are principally related tobusinesses of $11.3 million, partially offset by professional services.fees incurred in connection with the divestitures of businesses of $1.1 million.

    On January 23, 2007, the Company completed the sale of Sandy Corporation, a business within the Dealer Services segment, which specializes in sales and marketing training, for approximately $4.0 million in cash and the assumption of certain liabilities by the buyer, plus an additional earn-out payment if certain revenue targets are achieved. The Company has classified the results of operations of this business as discontinued operations for all periods presented. Additionally, during the fiscal year 2007, the Company reported a gain of $11.2 million, or $6.9 million after tax, within earnings from discontinued operations on the Statements of Consolidated Earnings. In March 2008, the Company received an additional payment of $2.5 million, which represented a purchase price adjustment for the sale of Sandy Corporation. The Company has classified the resultsrecorded an additional gain of operations$2.5 million, or $1.6 million net of this business astax, within earnings from discontinued operations for all periods presented.during fiscal 2008.

    On April 13, 2006, the Company completed the sale of its Claims Services business to Solera, Inc. for $975.0 million in cash and reported a gain of $560.9 million, or $452.8 million after tax, in fiscal 2006. In fiscal 2007, the Company received an additional payment of $13.2 million, or $12.6 million after tax, from Solera, Inc., which represented the final purchase price adjustment for the sale of the Claims Services business. The Company reported the gain and the final purchase price adjustment within earnings from discontinued operations on the Statements of Consolidated Earnings. The Claims Services business was a separate operating segment of the Company and was reported in the “Other” segment. In connection with the disposal of this business, the Company has classified the results of operations of this business as discontinued operations for all periods presented.

    45

    On January 20, 2006, the Company completed the sale of itsthe Brokerage Services’Services Group’s financial print business for $7.5 million in cash. The Company classified the results of operations of this business as discontinued operations in fiscal 2006. In connection with the plan to dispose of the financial print business, the Company recorded an impairment charge of $18.6 million in order to reflect the assets of this business at fair value in fiscal 2006 in accordance with SFAS No. 144. This impairment charge is included in the earnings from discontinued operations on the Statements of Consolidated Earnings.

    51

    Operating results for all discontinued operations were as follows:

    Years ended June 30,      2007     2006     2005     2008    2007    2006
    Revenues Revenues  $1,518.7$2,427.6 $2,367.8Revenues$-$     1,518.7$     2,427.6
    Earnings from discontinued operations before income taxes Earnings from discontinued operations before income taxes 201.4425.7440.1Earnings from discontinued operations before income taxes-201.4425.7
    Provision for income taxes Provision for income taxes  104.8 166.4 165.3Provision for income taxes- 104.8166.4
    Net earnings from discontinued operations before gain on disposal of     
    discontinued operations 96.6259.3274.8
    Gain on disposal of discontinued operations, net of provision for    
    income taxes of $5.8, $108.1 and $0 for fiscal 2007, 2006 and    
    2005, respectively  20.9 452.8 --
    Net earnings from discontinued operations before gainNet earnings from discontinued operations before gain 
    on disposal of discontinued operations on disposal of discontinued operations- 96.6259.3
    Gain on disposal of discontinued operations, net ofGain on disposal of discontinued operations, net of
    provision for income taxes of $23.2, $5.8 and $108.1 for provision for income taxes of $23.2, $5.8 and $108.1 for  
    fiscal 2008, 2007 and 2006, respectively fiscal 2008, 2007 and 2006, respectively      74.020.9452.8
    Net earnings from discontinued operations Net earnings from discontinued operations $117.5$712.1$274.8Net earnings from discontinued operations$74.0$117.5$712.1

    The following are the major classes of assets and liabilities related to the discontinued operations as of June 30, 2007 and 2006:2007:

    June 30,      2007     2006
    Assets: Assets:   
    Cash Cash $14.7$100.6$     14.7
    Short-term marketable securities --40.3
    Accounts receivable, net Accounts receivable, net 12.7450.212.7
    Securities clearing receivables --836.8
    Property, plant and equipment, net Property, plant and equipment, net 5.382.55.3
    Goodwill Goodwill 10.1490.010.1
    Intangible assets, net Intangible assets, net 9.691.89.6
    Other assets Other assets  5.3  116.55.3
    Total Total $57.7$2,208.7$57.7
    Liabilities: Liabilities:   
    Accounts payable $ --$82.1
    Accrued expenses Accrued expenses 15.9227.9$15.9
    Securities clearing payables --613.6
    Income taxes payable Income taxes payable 1.423.91.4
    Deferred revenue --45.6
    Other liabilities Other liabilities  1.8 3.41.8
    Total Total $19.1$996.5$19.1

    In addition to the above discontinued operations, the Company divested two additional businesses in fiscal 2005 for $17.2 million. The divestitures of these businesses were not material, either individually or in the aggregate, to the Company’s operations, financial position or cash flows in fiscal 2005.

    5246

    NOTE 6. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS

    Corporate investments and funds held for clients at June 30, 20072008 and 20062007 are as follows:

     June30, 2007June 30, 2008
     GrossGross GrossGross
    AmortizedUnrealizedUnrealized AmortizedUnrealizedUnrealized
         Cost     Gains     Losses     Fair Value    Cost     Gains     Losses     Fair Value
    Type of issue:      
    Money market securities and other cash equivalents $7,004.4       $-- $-- $   7,004.4$2,012.8$-$-$2,012.8
    Available-for-sale securities:      
    U.S. Treasury and direct obligations of U.S. government      
    agencies 6,010.91.7 (90.0)5,922.6
    U.S. Treasury and direct obligations of
    U.S. government agencies6,138.5109.6(14.2)6,233.9
    Corporate bonds 3,388.62.0 (38.2)3,352.44,343.542.0(28.8)4,356.7
    Asset-backed securities 1,906.50.6  (21.1)1,886.01,821.818.4(3.7)1,836.5
    Canadian government obligations and Canadian government      
    agency obligations 1,042.50.2 (22.3)1,020.4
    Other debt securities  1,205.8 0.7  (18.5)1,188.0
    Canadian government obligations and
    Canadian government agency obligations1,009.115.1(0.5)1,023.7
    Other securities1,611.421.9(17.7)1,615.6
    Total available-for-sale securities  13,554.3 5.2  (190.1)13,369.414,924.3207.0(64.9)15,066.4
    Total corporate investments and funds held for clients $20,558.7$5.2 $(190.1)$ 20,373.8$16,937.1 $ 207.0$(64.9)$17,079.2
     June30, 2006    June 30, 2007
     GrossGross GrossGross
    AmortizedUnrealizedUnrealized AmortizedUnrealizedUnrealized
     CostGainsLossesFair ValueCostGainsLossesFair Value
    Type of issue:       
    Money market securities and other cash equivalents $6,332.4$--$-- $   6,332.4$7,004.4$-$-$7,004.4
    Available-for-sale securities:      
    U.S. Treasury and direct obligations of U.S. government      
    agencies 6,441.50.1 (165.0)6,276.6
    U.S. Treasury and direct obligations of
    U.S. government agencies 6,010.9 1.7(90.0)5,922.6
    Corporate bonds 3,564.70.2 (75.9)3,489.03,388.6 2.0(38.2)3,352.4
    Asset-backed securities 2,214.10.3 (40.8)2,173.61,906.50.6(21.1)1,886.0
    Canadian government obligations and Canadian government      
    agency obligations 838.10.1 (11.5)826.7
    Other debt securities  867.3 0.1  (20.5)846.9
    Canadian government obligations and  
    Canadian government agency obligations1,042.50.2(22.3)1,020.4
    Other securities1,205.80.7(18.5) 1,188.0
    Total available-for-sale securities  13,925.7 0.8  (313.7)13,612.8 13,554.35.2(190.1) 13,369.4
    Total corporate investments and funds held for clients $20,258.1$0.8 $(313.7)$ 19,945.2$     20,558.7$5.2$     (190.1)$     20,373.8

    5347

    Classification of investments on the Consolidated Balance Sheets is as follows:

    June 30,      2007     2006     2008    2007
    Corporate investments:Corporate investments:  Corporate investments: 
    Cash and cash equivalents Cash and cash equivalents$1,746.1 $1,800.1 Cash and cash equivalents $917.5$1,746.1
    Short-term marketable securities Short-term marketable securities70.4327.5 Short-term marketable securities666.370.4
    Long-term marketable securities Long-term marketable securities 68.1 333.7 Long-term marketable securities 76.5 68.1
    Total corporate investmentsTotal corporate investments 1,884.62,461.3Total corporate investments$     1,660.3$     1,884.6
    Funds held for clients 18,489.2 17,483.9
    Total corporate investments and funds held for clients$20,373.8$19,945.2

    Funds held for clients represent assets that, based upon Company’s intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to our payroll and payroll tax filing services, which are classified as client funds obligations on our Consolidated Balance Sheets. Funds held for clients have been invested in the following categories:

    June 30,     2008    2007
    Funds held for clients:
        Restricted cash and cash equivalents held 
             tosatisfy client funds obligations$955.7$5,189.2
        Restricted short-term marketable securities held  
             to satisfy client funds obligations1,666.72,403.2
        Restricted long-term marketable securities held 
             to satisfy client funds obligations  12,656.910,827.7
        Other restricted assets held to satisfy client 
             funds obligations139.669.1
    Total funds held for clients$    15,418.9$    18,489.2

    The amount of collected but not yet remitted funds for the Company’s payroll and payroll tax filing and other services varies significantly during the fiscal year, and averaged approximately $15,654.3 million, $14,682.9 million and $13,566.2 million in fiscal 2008, 2007 and 2006, respectively.

    Client funds obligations represent the Company’s contractual obligations to remit funds to satisfy clients’ payroll and tax payment obligations and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheet totaling $15,294.7 million and $18,673.0 million as of June 30, 2008 and 2007, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purposes of satisfying the client funds obligations.

    The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash inflows and outflows related to client funds investments with original maturities of 90 days or less on a net basis within “net decrease (increase) in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations” in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash flows related to the cash received from and paid on behalf of clients on a net basis within “net (decrease) increase in client funds obligations” in the financing section of the Statements of Consolidated Cash Flows.

    48

    At June 30, 2007,2008, approximately 95%90% of our available-for-sale securities held a AAA or AA rating,ratings, as rated by Moody’s, Standard & Poor’s and, for Canadian securities, Dominion Bond Rating Service.

    The Company evaluates unrealized losses on available-for-sale securities for other-than-temporary impairment based upon whether the unrealized losses were interest rate related or credit related, and based upon the length of time and the extent to which the fair value for each individual security has been below cost. As of June 30, 2008, the Company determined that none of the unrealized losses were other-than-temporary.

    Available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 20072008 are as follows:

    Unrealized Unrealized   UnrealizedUnrealized
    lossesFair marketlossesFair marketTotal grossTotal fairlossesFair marketlossesFair marketTotal gross
    less thanvalue less thangreater thanvalue greaterunrealizedmarketless thanvalue less thangreater thanvalue greaterunrealizedTotal fair
       12months   12 months   12months   than 12 months   losses   value12 months     12 months     12 months     than 12 months     losses     market value
    U.S. Treasury and direct obligations of        
    U.S. government agencies  $(20.5)       $1,332.3 $(69.4)       $4,258.5 $(90.0)$5,590.8$(14.2) $762.3$           -$- $(14.2)$762.3
    Asset backed securities(6.6)698.3 (14.6)890.1(21.1)1,588.4 (3.7)277.0- 2.4(3.7)279.4
    Corporate bonds (13.8)1,382.5(24.4)1,492.5(38.2)2,875.0(28.4)1,771.9 (0.4)3.7(28.8)1,775.6
    Canadian government obligations and       
    Canadian government agency      
    obligations(22.3)961.4-- --(22.3)961.4
    Other debt securities (11.0) 725.7  (7.5) 274.8   (18.5) 1,000.5
    Canadian government agency obligations(0.5)51.4--(0.5)51.4
    Other securities(13.5)837.8(4.2)73.7(17.7)911.5
    $(74.2)$5,100.2 $(115.9)$6,915.9 $(190.1)$12,016.1
    $       (60.3)$3,700.4$            (4.6)$79.8$        (64.9)$3,780.2

    The Company believes its available-for-sale securities that have fair values below cost are not other-than-temporarily impaired since it is probable that the principal and interest would be collected in accordance with contractual terms, and that the decline in the market value was primarily due to changes in interest rates and not changes to credit risk. The Company currently believes that it has the ability and intent to hold these investments until the earlier of market price recovery and/or maturity. The Company’s assessment that an investment is not other-than-temporarily impaired could change in the future due to new developments or changes in the Company’s strategies or assumptions related to any particular investment.

    54

    Expected maturities of available-for-sale securities at June 30, 20072008 are as follows:

    Maturity Dates:   
    Due in one year or less $2,474.3$2,333.0
    Due after one year up to two years  2,613.32,788.1
    Due after two years up to three years  2,643.02,932.9
    Due after three years up to four years  2,541.03,086.7
    Due after four years up to ten years  3,097.8
    Due after four years3,925.7
    Total available-for-sale securities $13,369.4$     15,066.4

    49

    NOTE 7. RECEIVABLES

    Accounts receivable is net of an allowance for doubtful accounts of $30.8$38.4 million and $39.2$30.8 million at June 30, 20072008 and 2006,2007, respectively.

    The Company’s receivables include notes receivable for the financing of the sale of computer systems, most of which are due from automotive, heavy truck and powersports dealers. These notes receivable are reflected on the Consolidated Balance Sheets as follows:

    June 30,  2007 2006 20082007
     Current      Long-term      Current      Long-term    Current    Long-term    Current    Long-term
    Receivables Receivables $173.6  $249.7  $172.1      $239.6 Receivables $177.7$259.7$173.6$249.7
    Less: Less:       Less:
    Allowance for doubtful accounts Allowance for doubtful accounts (4.8)   (8.3) (4.8) (7.7) Allowance for doubtful accounts (4.5) (7.9) (4.8) (8.3)
    Unearned income Unearned income  (16.9)  (14.9)  (18.2)  (16.5) Unearned income (18.1)(17.8)(16.9)(14.9)
    $151.9  $226.5  $149.1  $215.4  $     155.1$     234.0$     151.9$     226.5 

    Long-term receivables at June 30, 20072008 mature as follows:

    2009$129.6  
    201073.2         $129.9
    201135.779.3
    201210.737.2
    2013 0.5 12.3
    20141.0
      $249.7 $259.7

    55

    NOTE 8. PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment at cost and accumulated depreciation at June 30, 20072008 and 20062007 are as follows:

    June 30,  2007        2006       2008    2007
    Property, plant and equipment: Property, plant and equipment:       Property, plant and equipment:   
    Land and buildings Land and buildings $ 684.5 $ 640.9  Land and buildings$714.3$684.5
    Data processing equipment Data processing equipment  684.0  642.1  Data processing equipment 747.3684.0
    Furniture, leaseholds and other Furniture, leaseholds and other  375.8  351.6  Furniture, leaseholds and other407.8375.8
     1,744.3  1,634.6  1,869.41,744.3
    Less: accumulated depreciation Less: accumulated depreciation  (1,020.5)  (934.6) Less: accumulated depreciation     (1,126.5)      (1,020.5)
    Property, plant and equipment, net Property, plant and equipment, net $ 723.8 $ 700.0 Property, plant and equipment, net$742.9$723.8 

    50

    NOTE 9. GOODWILL AND INTANGIBLE ASSETS, NET

    Changes in goodwill for the fiscal year ended June 30, 20072008 and 20062007 are as follows:

     Employer  PEO  Dealer EmployerPEODealer
     Services       Services       Services      Total    Services    Services    Services    Total
    Balance as of June 30, 2005 $1,319.9    $ 4.8  $354.6 $1,679.3 
    Additions 2.0  -- 360.6  362.6 
    Adjustments to previously recognized      
    purchase price (93.8)  -- (5.3) (99.1) 
    Currency translation adjustments  13.3  --   20.1  33.4 
    Balance as of June 30, 2006 $1,241.4 $ 4.8 $730.0 $1,976.2 $1,241.4$4.8 $730.0$1,976.2
    Additions and other adjustments, net 313.0  -- 21.7 334.7 313.0-21.7334.7
    Currency translation adjustments  22.2  --   20.5  42.7  22.2 -20.5 42.7
    Balance as of June 30, 2007 $1,576.6 $ 4.8  $772.2 $2,353.6 $1,576.6$4.8$772.2$2,353.6
    Additions and other adjustments, net(19.1) - 25.56.4
    Currency translation adjustments58.2-8.566.7
    Balance as of June 30, 2008$     1,615.7$        4.8$     806.2 $     2,426.7

    In fiscal 2006, the Company completed a review of income tax amounts, which were recorded as part of certain international acquisitions completed in prior years. As a result of this review, the Company recorded an adjustment to reduce previously recognized goodwill of $99.1 million2008, 2007 and previously recognized income tax amounts of the same amount, which were recorded within income taxes payable and deferred tax liabilities on the Consolidated Balance Sheets. The effect of these adjustments corrects the goodwill and related income taxes payable and deferred income tax liability balances as they relate to these respective acquisitions. The Company has not restated the prior period financial statements since the amounts are not material to the statements of financial position and this adjustment had no impact to the results of operations or cash flows in any prior year period.

    In fiscal 2007, 2006, and 2005, the Company performed the required impairment tests of goodwill and determined that there was no impairment.

    56

    Components of intangible assets are as follows:

    June 30,  2007      2006     2008    2007
    Intangibles: Intangibles:      Intangibles:
    Software and software licenses Software and software licenses $ 947.0 $ 775.6  Software and software licenses$1,004.5$947.0
    Customer contracts and lists Customer contracts and lists  712.0  560.0  Customer contracts and lists 627.0 712.0
    Other intangibles Other intangibles  245.6  243.2  Other intangibles197.2245.6
     1,904.6  1,578.8 1,828.71,904.6
    Less accumulated amortization: Less accumulated amortization:     Less accumulated amortization:
    Software and software licenses Software and software licenses  (694.5)  (586.6)  Software and software licenses(805.4)(694.5)
    Customer contracts and lists Customer contracts and lists  (349.6)  (301.8)  Customer contracts and lists(293.5)(349.6)
    Other intangibles Other intangibles  (172.5)  (164.2)  Other intangibles(92.7)(172.5)
     (1,216.6)  (1,052.6)      (1,191.6)     (1,216.6)
        
    Intangible assets, net Intangible assets, net $ 688.0 $ 526.2 Intangible assets, net$637.1$688.0 

    Other intangibles consist primarily of purchased rights, covenants, patents and trademarks (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 8 years (3 years for software and software licenses, 11 years for customer contracts and lists, and 1110 years for other intangibles). Amortization of intangible assets totaled $132.6 million, $145.5 million $116.4 million and $110.1$116.4 million for fiscal 2008, 2007 and 2006, and 2005, respectively.

    Estimated amortization expenses of the Company’s existing intangible assets for the next fivefiscalyears are as follows:

    2008 $149.6
    2009 $125.6$134.0
    2010 $94.2$     118.3
    2011 $69.2$86.3
    2012 $64.2$68.5
    2013$41.9

    51

    NOTE 10. SHORT-TERM FINANCING

    In June 2007,2008, the Company entered into a $1.75$2.25 billion, 364-day credit agreement with a group of lenders. The 364-day facility replaced the Company’s prior $1.75 billion 364-day facility. The Company also has a $1.5 billion credit facility and a $2.25 billion credit facility that mature in June 2010 and June 2011, respectively. The five-year facilities contain accordion features under which the aggregate commitments can each be increased by $500.0$500 million, subject to the availability of additional commitments. The interest rate applicable to the borrowings is tied to LIBOR or prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and to provide funding for general corporate purposes, if necessary. The Company had no borrowings through June 30, 20072008 under the credit agreements.

    The Company maintainsmaintained a U.S. short-term commercial paper program, providingwhich provided for the issuance of up to $5.5 billion in aggregate maturity value of commercial paper at the Company’s discretion. In July 2008, the Company increased the U.S. short-term commercial paper program to provide for the issuance of up to $6.0 billion in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard and Poor’s and Prime-1 by Moody’s.

    57

    These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At June 30, 20072008 and 2006,2007, there was no commercial paper outstanding. In fiscal 20072008 and 2006,2007, the Company’s average borrowings were $1.5$1.4 billion and $1.4$1.5 billion, respectively, at a weighted average interest rate of 5.3%4.2% and 4.1%5.3%, respectively. The weighted average maturity of the Company’s commercial paper in fiscal 20072008 and 20062007 was less than two days for both fiscal years.

    The Company’s U.S. and Canadian short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities. These agreements generally have terms ranging from overnight to up to five business days. At June 30, 20072008, the Company had an $11.8 million obligation outstanding related to reverse repurchase agreements. The term of the reverse repurchase transaction matured on July 2, 2008 and 2006,the outstanding obligation was repaid. At June 30, 2007, there were no outstanding obligations under reverse repurchase agreements. In fiscal 20072008 and 2006,2007, the Company had average outstanding balances under reverse repurchase agreements of $141.6$360.4 million and $165.7$141.6 million, respectively, at a weighted average interest raterates of 4.4%3.4% and 3.5%4.4%, respectively.

    NOTE 11. DEBT

    Components of long-term debt are as follows:

    June 30,  2007      2006     2008    2007
    Zero coupon convertible subordinated notes (5.25% yield) $ -- $30.5 
    Industrial revenue bonds (with variable interest rates from   
    3.75% to 4.24%) 36.6 36.6 
    Industrial revenue bonds(with variable interest rates from 2.88% to 3.45%)Industrial revenue bonds(with variable interest rates from 2.88% to 3.45%)$34.1 $36.6
    Secured financingSecured financing20.7 -
    Other Other  7.1  7.4 Other - 7.1
    43.7 74.5 54.843.7
    Less: current portion Less: current portion  (0.2)  (0.2) Less: current portion(2.7)(0.2)
    $43.5 $74.3 $52.1$43.5 

    During fiscal 2008, the Company entered into a secured financing agreement, whereby the Company borrowed $21.1 million from a third party in exchange for a security interest in a single client’s unbilled accounts receivable, which is billable over a ten-year period. The Company will continue to collect amounts due from the client as they are billed. The security interest in the receivables retained by the third party is without recourse against the Company in the event that the client does not make the appropriate payments to the Company. As of June 30, 2008, the Company has recorded approximately $2.7 million within accrued expenses and other current liabilities and approximately $18.0 million within long-term debt on the Company’s Consolidated Balance Sheets.

    52

    In fiscal 2007, the Company notified holders of its zero coupon convertible subordinated notes that the Company would redeem all the notes that were outstanding as of the end of the business day on March 19, 2007 (the “redemption date”). Prior to the redemption date, notes with a face value of approximately $39 million were converted into approximately one million shares of the Company’s common stock. The Company subsequently redeemed the remaining 352 notes outstanding as of the redemption date at a redemption price of $775 for each note, representing the accrued value of each note at the time of the redemption.

    The fair value of the industrial revenue bonds and other debt, included above, approximates carrying value.

    Long-term debt repayments at June 30, 20072008 are due as follows:

    2009 $16.5
    2010 --$2.8
    2011 -- 2.8
    2012 --2.8
    2013 23.125.9
    20142.8
    Thereafter  3.915.0
    $43.5$52.1

    58

    Cash payments relating to interest on long-term debt and the short-term financing arrangements described in Note 10 were approximately $82.1 million, $93.5 million, $67.4 million, and $25.7$67.4 million in fiscal 2008, 2007 and 2006, and 2005, respectively.

    NOTE 12. FOREIGN CURRENCY RISK MANAGEMENT PROGRAMS

    In fiscal 2006, the Company had an outstanding foreign exchange forward contract to hedge against foreign exchange fluctuations on a Canadian dollar-denominated short-term intercompany loan. This forward contract did not qualify for foreign currency fair value hedge accounting treatment in accordance with SFAS No. 133 and, therefore, was recorded at fair value with any gains or losses recognized in current period earnings. In fiscal 2006, the Company recorded foreign exchange net losses of $4.0 million on the re-measurement of this foreign exchange forward contract, which offset the foreign exchange net gains of $4.4 million recorded on the re-measurement of the Company’s Canadian dollar-denominated short-term intercompany loan. Both the Company’s foreign exchange forward contract and Canadian dollar-denominated short-term intercompany loan matured in April 2006. The cash flows from the Company’sCompany's derivative contract are reflected as operating activities in the Consolidated Statements of Cash Flows.

    There were no derivative financial instruments outstanding at June 30, 2008 or 2007. The Company does not hold any derivative instruments for trading purposes.

    The Company did not enter into any derivative financial instruments in fiscal 2007, nor were there any derivative financial instruments outstanding at June 30, 2007.

    NOTE 13. FUNDS HELD FOR CLIENTS AND CLIENT FUNDS OBLIGATIONS

    As part of its integrated payroll and payroll tax filing services, the Company impounds funds for federal, state and local employment taxes from approximately 434,000 clients; handles regulatory payroll tax filings, correspondence, amendments, and penalty and interest disputes; remits the funds to the appropriate tax agencies; and handles other employer-related services. In addition to fees paid by clients for these services, the Company receives interest in the interval between the receipt and disbursement of these funds by investing the funds primarily in fixed-income instruments. The amount of collected but not yet remitted funds for the Company’s payroll and payroll tax filing and other services varies significantly in the fiscal year, and averaged approximately $14,682.9 million, $13,566.2 million and $12,263.9 million in fiscal 2007, 2006 and 2005, respectively.

    NOTE 14.13. EMPLOYEE BENEFIT PLANS

    A. Stock Plans.Effective July 1, 2005, theThe Company accounts for stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which requires stock-based compensation expense to be recognized in net earnings based on the fair value of the award on the date of grant. Stock-based compensation consists of the following:

    • Stock Options.Stock options are granted to employees at exercise prices equal to thefairthe fair market value of the Company’s common stock on the dates of grant. Stock optionsareoptions are issued under a grade vesting schedule, generally vest ratably over five years andhaveand have a term of 10 years. Compensation expense for stock options is recognized over therequisitethe requisite service period for each separately vesting portion of the stock option award. Infiscal 2007, the Company reduced the number of stock options issued to employees andreplaced these awards with the issuance of performance-based restricted stock.

    5953


    • Employee Stock Purchase Plan.Prior to November 2005, theThe Company offeredanoffers an employee stock purchase plan that allowedallows eligible employees to purchase sharesof common stock at 85% of the lower of market value as of the date the purchaseprice for an offering was determined or as of the end of such offering. In November2005, the Company revised the employee stock purchase plan offering beginning onJanuary 1, 2006, whereby eligible employees can purchase shares of common stock at85%at a price equal to 85% of the market value for the common stock at the date the purchase price for the offering is determined.Compensationdetermined. Compensation expense for the employee stock purchase plan is recognized on a straight-line basis over thevesting period of 24 months on a straight-line basis.months.
       
    • Restricted Stock.
       
      • Time-Based Restricted Stock.The Company has aissued time-based restrictedstock program under which shares of common stock have been issued to certain key employees. These shares are restricted as to transfer and in certain circumstances must be returned to the Company at the original purchase price. The Company records stock compensation expense relating to the issuance of restricted stock over the period in which the transfer restrictions exist, which is up to five years from the date of grant. The value of the Company’s time-based restricted stock, based on market prices on the date of grant, is recognized as compensation expense over the restriction period on a straight-line basis.
         
      • Performance-Based Restricted Stock.In fiscal 2007, the Company restructuredrevised its stock-based compensation programs for non-executives, on a prospective basis, and began awarding two-year performance-based restricted stock in place of stock options at a ratio of approximately one share of performance-based restricted stock for every four stock options. In addition, in fiscal 2007, the existing time-based restricted stock program for key employees referred to above was largely eliminated and replaced by two-year performance-based restricted stock on a prospective basis. The performance-based restricted stock program contains a two-year performance period and a subsequent six-month service period. Under this program, the Company communicates “target awards” to employees at the beginning of a performance period and, as such, dividends are not paid in respect of the “target awards” during the performance period. After the two-year performance period, if the performance targets are achieved, associates are eligible to receive dividends on any shares awarded under the program. The performance target is based on EPS growth over the performance period with possible payouts ranging from 0% to 125% of the “target award.”awards”. SFAS No. 123R requires the measurement of stock-based compensation expense based upon the fair value of the award on the grant date. Compensation expense is recognized on a straight-line basis over the vesting term of approximately 30 months based upon the probable performance target that will be met.

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    The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under its employee stock purchase plan and restricted stock awards. Stock-based compensation expense of $123.6 million, $130.5 million $142.7 million and $11.8$142.7 million was recognized in earnings from continuing operations in fiscal 2008, 2007 2006 and 2005,2006, respectively, as well as related tax benefits on such stock compensation expense of $37.0 million, $38.9 million and $41.7 million, and $4.6 million, respectively.

    Years ended June 30,  2007      2006      2005      2008     2007     2006
    Operating expenses Operating expenses $23.3$23.7$--Operating expenses$25.4$23.3$23.7
    Selling, general and administrative expenses Selling, general and administrative expenses 84.795.711.8Selling, general and administrative expenses76.784.795.7
    System development and programming costs System development and programming costs  22.5 23.3 --System development and programming costs21.522.523.3
    Total pretax stock-based compensation expense included    
    in continuing operations $130.5$142.7$11.8
    Total pretax stock-based compensation expense included    
    in discontinued operations  18.2 32.2 2.8
    Total pretax stock-based compensation expense included inTotal pretax stock-based compensation expense included in
    continuing operations continuing operations$123.6$130.5$142.7
    Total pretax stock-based compensation expense included inTotal pretax stock-based compensation expense included in
    discontinued operations discontinued operations-18.232.2
    Total pretax stock-based compensation expense Total pretax stock-based compensation expense $148.7$174.9$14.6Total pretax stock-based compensation expense$123.6$148.7$174.9

    The total stock-based compensation expense included in earnings from continuing operations before income taxes includes expenses related to restricted stock awards of $41.0 million, $17.3 million, and $11.8 million in fiscal 2007, 2006 and 2005, respectively. 54

    As of June 30, 2007,2008, the total remaining unrecognized compensation cost from continuing operations related to non-vested stock options, the employee stock purchase plan and restricted stock awards amounted to $71.3$42.8 million, $19.9$23.4 million and $64.6$88.8 million, respectively, which will be amortized over the weighted average periods of 1.21.9 years, 0.81.3 years and 1.11.8 years, respectively.

    As a result of the spin-off of Broadridge, the number of vested and unvested ADP stock options, as well as the strike price on these options, and the number of shares elected under the outstanding employee stock purchase plan, as well as the purchase price for these offerings, was adjusted to preserve the intrinsic value of the awards immediately prior to the spin-off using an adjustment ratio based on the ADP closing market stock price prior to the spin-off and the ADP opening market stock price subsequent to the spin-off. Additionally, the “target awards” outstanding under the two-year performance-based restricted stock program were adjusted using the same adjustment ratio. As the adjustments were considered modifications of awards in accordance with SFAS No. 123R, the Company compared the fair value of the awards immediately prior to the spin-off to the fair value immediately after the spin-off to measure the incremental stock-based compensation cost. The adjustments did not result in an increase in the fair value of the awards and, accordingly, the Company did not record incremental stock-based compensation expense. ADP stock options and restricted stock target awards held by Broadridge employees were cancelled or forfeited as of the date of the spin-off. The stock-based compensation expense associated with the original grant of ADP stock to continuing ADP employees will continue to be recognized within earnings from continuing operations on the Company’s Statements of Consolidated Earnings. The stock-based compensation expense related to Broadridge employees for services received through March 30, 2007 are reflected in earnings from discontinued operations on the Statements of Consolidated Earnings.

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    In fiscal 2007,2008, the following activity occurred under our existing plans:

    Stock Options:

     Number of Options Weighted Average Price Number of OptionsWeighted Average Price
     (in thousands)      (in dollars)  (in thousands)(in dollars)
    Years ended June 30,  2007(a)       2006      2005 2007(a)      2006      2005      2008     2007 (a)     2006     2008     2007 (a)     2006
    Options outstanding, Options outstanding,          Options outstanding,
    beginning of year beginning of year 73,189 70,395 70,159 $49 $42  $42   beginning of year53,78673,189 70,395$40   $49$42   
    Options granted Options granted 3,449 9,189 8,698 $43 $44  $43  Options granted2,047 3,4499,189$41   $43$44   
    Options exercised Options exercised (11,740) (7,677) (4,012) $34 $33  $28  Options exercised(5,068)(11,740)(7,677)$34   $34$33   
    Options canceled (b) Options canceled (b) (11,112) (5,170) (4,450) $41 $46  $45  Options canceled (b)(1,638)(11,112)(5,170)$43   $41$46   
    Options outstanding, end of year Options outstanding, end of year 53,786 66,737 70,395 $40 $43  $42  Options outstanding, end of year49,12753,78666,737$41   $40$43   
    Options exercisable, end of year Options exercisable, end of year 35,529 38,044 36,992 $40 $43  $42  Options exercisable, end of year36,65335,52938,044$41      $40$43   
    Shares available for future grants, Shares available for future grants,      Shares available for future grants,
    end of year end of year 23,208 14,164 18,183    end of year22,79923,20814,164
    Shares reserved for issuance under Shares reserved for issuance under      Shares reserved for issuance under
    stock option plans stock option plans 76,994 80,901 88,578    stock option plans71,92676,99480,901 

    (a) For fiscal 2007, the number of options and weighted average price were adjusted to reflect the impact of the spin-off of Broadridge.
    (b) Includes 7.8 million options held by Brokerage Services Group business employees that were canceled or forfeited as of the date of the spin-off.

    (a) For fiscal 2007, the number of options and weighted average price were adjusted to reflect the impact of the spin-off of Broadridge.

    (b)Options cancelled for the year ended June 30, 2007 includes 7.8 million options held by Brokerage Services Group business employees that were canceled or forfeited on March 30, 2007.

    Performance-Based Restricted Stock:

     Number of Shares (a) Number of Shares (a)
     (inthousands)(in thousands)
    Years ended June 30,  2007       2006       2008     2007     2006
    Shares outstanding, Shares outstanding,     Shares outstanding,  
    beginning of year beginning of year 238.4 --  beginning of year1,711238-
    Shares granted Shares granted 2,021.3 249.8 Shares granted1,4872,021250
    Shares vested Shares vested (79.0)(4.9) Shares vested(122)(79)(5)
    Shares forfeited (b) Shares forfeited (b) (469.5)(6.5) Shares forfeited (b)(148)(469)(7)
    Shares outstanding, end of year Shares outstanding, end of year 1,711.2 238.4 Shares outstanding, end of year2,9281,711238

    (a)The number of shares was adjusted to reflect the impact of the spin-off of Broadridge.
    (b)Includes 431,200 shares held by Brokerage Services Group business employees that were forfeited as of the date of the spin-off.

    62(a) The number of shares was adjusted to reflect the impact of the spin-off of Broadridge.

    (b)Shares forfeited for the year ended June 30, 2007 includes 431,200 shares held by Brokerage Services Group business employees that were forfeited on March 30, 2007.

    The aggregate intrinsic value of stock options outstanding and exercisable as of June 30, 20072008 was $275.2$136.0 million and $181.8$111.3 million, respectively, and the aggregate intrinsic value for stock options exercised in fiscal 20072008 was $127.8 $56.3million. Prior to the adoption of SFAS No. 123R, the Company presented all tax benefits resulting from the exercise of stock options as operating cash flows (reflected in income taxes payable). SFAS No. 123R requires the cash flows resulting from excess tax benefits (tax deductions realized in excess of the compensation costs recognized for the stock options exercised) from the date of adoption of SFAS No. 123R to be classified as financing cash flows. Therefore, excess tax benefits for fiscal 2007 and 2006 have been classified as financing cash flows.

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    Summarized information about stock options outstanding as of June 30, 20072008 is as follows:

       Outstanding   Exercisable 
                         Weighted             Weighted 
     Exercise  Number  Remaining  Average  Number  Average 
     Price  of Options  Life  Price  of Options  Price 
     Range  (in thousands)  (in years)  (in dollars)  (in thousands)  (in dollars) 
    Under  $15 11          1.5 $  8 11           $  8 
    $15to$25 788          0.4 $25 787           $25 
    $25to$35 7,231          4.1 $32 6,172           $32 
    $35to$45 36,718          6.5 $40 19,562           $40 
    $45to$55 9,038          3.7 $50 8,997           $50 
     OutstandingExercisable
    WeightedWeighted
    ExerciseNumberRemainingAverageNumberAverage
    Priceof OptionsLifePriceof OptionsPrice
    Range     (in thousands)     (in years)     (in dollars)           (in thousands)     (in dollars)
    Under $15110.5 $  811 $  8
    $15 to $2580.4 $22 8 $22
    $25 to $35 5,403  3.6  $325,254 $32
    $35 to $4534,9545.7 $4022,924  $40
    $45 to $558,7512.9 $508,456 $50

    In fiscal 2007,2008, the Company issued 2.31.9 million shares in connection with the employee stock purchase plan offering that vested on December 31, 2006.2007. The Company expects to issue approximately 2.11.9 million and 2.52.0 million shares for the employee stock purchase plan offerings that vest on December 31, 20072008 and 2008,2009, respectively. In addition, in fiscal 2007,2008, the Company issued 423,849481,290 shares of restricted stock.

    The following table illustrates the effect on net earnings from continuing operations and earnings per share from continuing operations if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation for the period prior to the adoption of SFAS No. 123R.

    Year ended June 30, 2005
    Net earnings from continuing operations, as reported $ 780.6
    Add: Stock-based employee compensation expense 
           included in reported net earnings from continuing 
           operations, net of related tax effects 7.2
    Deduct: Total stock-based employee compensation 
           expense determined using the fair value-based 
           method for all awards, net of related tax effects (110.7) 
    Pro forma net earnings from continuing operations $ 677.1
    Earnings per share from continuing operations: 
    Basic – as reported $ 1.34
    Basic – pro forma $ 1.16
    Diluted – as reported $ 1.32
    Diluted – pro forma $ 1.15

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    The fair value of each stock option issued prior to January 1, 2005 was estimated on the date of grant using a Black-Scholes option pricing model. For stock options issued on or after January 1, 2005, the fair value of each stock option was estimated on the date of grant using a binomial option pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.

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    The fair value for stock options granted was estimated at the date of grant with the following assumptions:

    Years ended June 30,   2007      2006      2005      2008    2007    2006
    Risk-free interest rate Risk-free interest rate  4.6% - 5.0%  4.0% - 4.6%  2.1% - 4.2% Risk-free interest rate2.8% - 4.6%4.6% - 5.0%4.0% - 4.6%
    Dividend yield Dividend yield  1.6% - 1.7%  1.4% - 1.7%  1.2% - 1.4% Dividend yield1.7% - 2.7%1.6% - 1.7%1.4% - 1.7%
    Weighted average volatility factor Weighted average volatility factor  18.4% - 24.7%  17.1% - 24.7%  26.2% - 29.2% Weighted average volatility factor22.8% - 25.6%18.4% - 24.7%17.1% - 24.7%
    Weighted average expected life (in years): Weighted average expected life (in years):       Weighted average expected life (in years): 
    Stock options Stock options  4.9 - 5.6  5.5 - 5.6  5.5 - 6.5  Stock options5.04.9 - 5.6 5.5 - 5.6
    Stock purchase plan Stock purchase plan  2.0  2.0  2.0  Stock purchase plan 2.02.02.0
    Weighted average fair value (in dollars): Weighted average fair value (in dollars):       Weighted average fair value (in dollars): 
    Stock options (a) Stock options (a) $ 10.77 $ 9.92 $ 10.37  Stock options (a)$8.31$10.77$9.92
    Stock purchase plan (a) Stock purchase plan (a) $ 11.24  $ 8.89  $ 11.54  Stock purchase plan (a)$11.99$11.24$8.89

    (a) The weighted average fair values were adjusted to reflect the impact of the spin-off of Broadridge.

    B. Pension Plans.The Company has a defined benefit cash balance pension plan covering substantially all U.S. employees, under which employees are credited with a percentage of base pay plus interest. The plan interest credit rate will vary from year-to-year based on the ten-year U.S. Treasury rate. Employees are fully vested on completion of fivethree years of service. The Company’sCompany's policy is to make contributions within the range determined by generally accepted actuarial principles. In addition, the Company has various retirement plans for its non-U.S. employees and maintains a Supplemental Officer Retirement Plan (“SORP”). The SORP is a defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key officers upon retirement based upon the officers’ years of service and compensation.

    A June 30 measurement date was used in determining the Company’s benefit obligations and fair value of plan assets.

    In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement requires a company to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (c) recognize changes in the funded status of a defined benefit plan in the year in which the changes occur (reported in comprehensive income). The requirement to recognize the funded status

    64

    of a benefit plan and the related disclosure requirements were effective for the Company as of the end of fiscal 2007 and the Company adopted the statement at that time. The adoption of SFAS No. 158 resulted in a $63.1 million reduction in stockholders’ equity,, net of income taxes.taxes, in stockholders’equity.

    57

    The Company’s pension plans funded status as of June 30, 20072008 and 20062007 is as follows:

    June 30,   2007     2006      2008     2007
    Change in plan assets: Change in plan assets:   Change in plan assets:
    Fair value of plan assets at beginning of year Fair value of plan assets at beginning of year $821.8 $790.1  Fair value of plan assets at beginning of year$976.2$821.8
    Actual return on plan assets Actual return on plan assets 150.7 69.0  Actual return on plan assets(49.9)150.7
    Employer contributions Employer contributions 24.4 4.1  Employer contributions55.624.4
    Benefits paid Benefits paid (20.7) (18.6)  Benefits paid(29.7)(20.7)
    Divestitures -- (22.8) 
    Fair value of plan assets at end of year Fair value of plan assets at end of year $976.2 $821.8 Fair value of plan assets at end of year$952.2$976.2
    Change in benefit obligation: Change in benefit obligation:   Change in benefit obligation:
    Benefit obligation at beginning of year Benefit obligation at beginning of year $762.7 $787.1  Benefit obligation at beginning of year$830.3$762.7
    Service cost Service cost 42.2 31.6  Service cost 46.1 42.2 
    Interest cost Interest cost 49.0 39.6  Interest cost 50.749.0
    Actuarial and other gains Actuarial and other gains (2.9) (48.1)  Actuarial and other gains(54.6) (2.9)
    Benefits paid Benefits paid (20.7) (18.6)  Benefits paid(29.7)(20.7)
    Divestitures -- (28.9) 
    Projected benefit obligation at end of year Projected benefit obligation at end of year $830.3  $762.7  Projected benefit obligation at end of year$842.8$830.3
    Funded status - plan assets less benefit obligations Funded status - plan assets less benefit obligations $145.9 $59.1 Funded status - plan assets less benefit obligations$109.4$145.9 
    Unrecognized net actuarial loss due to different   
    experience than assumed -- 213.5 
    Net amount recognized $145.9  $272.6 

    The impact of the adoption of SFAS No. 158 resulted in a reduction to stockholders’ equity of $63.1 million, which consists of the following adjustments to the Consolidated Balance Sheet:Sheet as of June 30, 2007:

    Current Assets $1.6 
    Noncurrent Assets (51.3) 
    Current Liabilities (2.8) 
    Noncurrent Liabilities (10.6) 
    Impact to Stockholders’ Equity $(63.1) 
    Currentassets$1.6
    Noncurrentassets(51.3)
    Currentliabilities (2.8)
    Noncurrentliabilities(10.6)
    Impact tostockholders' equity$(63.1) 

    After the adoption of SFAS No. 158, the amounts recognized inon the Consolidated Balance SheetSheets as of June 30, 2008 and 2007 consisted of:

    Noncurrent assets $201.3 
    Current liabilities (2.9) 
    Noncurrent liabilities (52.5) 
    Net amount recognized $145.9 

    65
    June 30,       2008     2007
    Noncurrent assets $ 180.6 $ 201.3 
    Current liabilities  (3.6)  (2.9) 
    Noncurrent liabilities  (67.6)  (52.5) 
    Net amount recognized $ 109.4 $ 145.9 

    58


    As a result of the adoption of SFAS No. 158, the $63.1 million that is recognized in accumulated other comprehensive income (loss) consists of:

    Years ended June 30,       2007
    Net actuarial and other loss, net of tax $ (61.6) 
    Prior service cost, net of tax  (0.5) 
    Transition obligation, net of tax  (1.0) 
     $ (63.1) 

    The accumulated benefit obligation for all defined benefit pension plans was $824.3$831.9 million and $756.8$824.3 millionat June 30, 2008 and 2007, and 2006, respectively.

    The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company’s pension plans with accumulated benefit obligations in excess of plan assets were $110.3 million, $103.4 million and $39.1 million, respectively, as of June 30, 2008, and $95.9 million, $93.6 million and $40.5 million, respectively, as of June 30, 2007, and $84.4 million, $81.4 million and $34.1 million, respectively, as of June 30, 2006.2007.

    The components of net pension expense were as follows:

    Years ended June 30,   2007     2006     2005      2008     2007     2006
    Service cost - benefits earned Service cost - benefits earned       Service cost - benefits earned       
    during the period during the period $ 42.2 $ 31.6 $ 29.6  during the period $ 46.1 $ 42.2 $ 31.6 
    Interest cost on projected benefits Interest cost on projected benefits  49.0  39.6  37.7 Interest cost on projected benefits  50.7  49.0  39.6 
    Expected return on plan assets Expected return on plan assets  (62.0)  (56.0)  (53.1) Expected return on plan assets  (67.2)  (62.0)  (56.0) 
    Net amortization and deferral Net amortization and deferral   14.6   19.3   11.1 Net amortization and deferral  10.4  14.6  19.3 
    $ 43.8   $ 34.5  $ 25.3  $ 40.0 $ 43.8 $ 34.5 

    Net pension expense for fiscal 2007 2006, and 20052006 includes $3.5 million $3.1 million and $2.3$3.1 million, respectively, reported within earnings from discontinued operations on the Statements of Consolidated Earnings.

    The net actuarial and other loss, transition obligation and prior service cost for the defined benefit pension plans that are included in accumulated other comprehensive income (loss) and that have not yet been recognized as components of net periodic benefit cost are $139.2 million, $1.5 million and $9.1 million, respectively, at June 30, 2008. The estimated net actuarial and other loss, transition obligation and prior service creditcost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $10.1$0.7 million, $0.2 million and $(0.2)$0.4 million, respectively.respectively, at June 30, 2008.

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    Assumptions used to determine the actuarial present value of benefit obligations were:

    Years ended June 30,   2007     2006     2008    2007
    Discount rate Discount rate  6.25%   6.25% Discount rate  6.95% 6.25%
    Increase in compensation levels Increase in compensation levels  5.50%   5.50% Increase in compensation levels 5.50%5.50%


    Assumptions used to determine the net pension expense generally were:

    Years ended June 30,   2007     2006    2005     2008    2007    2006
    Discount rate Discount rate  6.25%  5.25%  6.00%Discount rate 6.25%6.25%5.25%
    Expected long-term rate of return on assets Expected long-term rate of return on assets  7.25%  7.25% 7.25%Expected long-term rate of return on assets  7.25% 7.25% 7.25%
    Increase in compensation levels Increase in compensation levels  5.50%  5.50%  5.50%Increase in compensation levels 5.50%5.50%5.50%

    66

    The discount rate is based upon published rates for high-quality fixed-income investments that produce cash flows that approximate the timing and amount of expected future benefit payments.

    The long-term expected rate of return on assets assumption is 7.25%. This percentage has been determined based on historical and expected future rates of return on plan assets considering the target asset mix and the long-term investment strategy.

    Plan Assets

    The Company’s pension plans’ weighted average asset allocations at June 30, 20072008 and 20062007 by asset category were as follows:

     2007     20062008    2007
    United States Fixed Income Securities 30%32%42%30%
    United States Equity Securities 50%48%41% 50%
    International Equity Securities 20%20%17%20%
    Total 100% 100%100%100%

    The Company’s pension plans’ asset investment strategy is designed to ensure prudent management of assets, consistent with long-term return objectives and the prompt fulfillment of all pension plan obligations. The investment strategy and asset mix were developed in coordination with an asset liability study conducted by external consultants to maximize the funded ratio with the least amount of volatility.

    The pension plans’ assets are currently invested in various asset classes with differing expected rates of return, correlations and volatilities, including large capitalization and small capitalization U.S. equities, international equities, and U.S. fixed income securities and cash.

    The target asset allocation ranges are as follows:

    United States Fixed Income Securities  3035– 40%45% 
    United States Equity Securities  4537– 55%50% 
    International Equity Securities  12– 20%
           Total Equities  60– 70% 

    The pension plans’ fixed income portfolio is designed to match the duration and liquidity characteristics of the pension plans’ liabilities. In addition, the pension plans invest only in investment-grade debt securities to ensure preservation of capital. The pension plans’ equity portfolios are subject to diversification guidelines to reduce the impact of losses in single investments. Investment managers are prohibited from buying or selling commodities and from the short selling of securities.

    None of the pension plans’ assets are directly invested in the Company’s stock, although the pension plans may hold a minimal amount of Company stock to the extent of the Company’s participation in the S&P 500 Index.

    60

    Contributions

    The Company expects to contribute approximately $50$6.0 million to the pension plans in fiscal 2008.2009.

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    Estimated Future Benefit Payments

    The benefits expected to be paid in each year from fiscal 20082009 to 20122013 are $39.6$44.1 million, $41.8$43.9 million, $46.2$48.3 million, $51.9$52.2 million and $57.4$59.5 million, respectively. The aggregate benefits expected to be paid in the five fiscal years from 20132014 to 20172018 are $411.3$412.7 million. The expected benefits to be paid are based on the same assumptions used to measure the Company’s pension plans’ benefit obligation at June 30, 20072008 and includes estimated future employee service.

    C. Retirement and Savings Plan.The Company has a 401(k) retirement and savings plan, which allows eligible employees to contribute up to 35% of their compensation annually and allows highly compensated employees to contribute up to 10% of their compensation annually. The Company matches a portion of employee contributions, which amounted to approximately $49.0 million, $47.5 million, $44.5 million, and $40.2$44.5 million for calendar years endingended December 31, 2007, 2006 2005 and 2004,2005, respectively.

    NOTE 15.14. INCOME TAXES

    Earnings from continuing operations before income taxes shown below are based on the geographic location to which such earnings are attributable.

    Years ended June 30,  2007      2006      2005       2008     2007     2006
    Earnings from continuing operations before income taxes:Earnings from continuing operations before income taxes:   Earnings from continuing operations before income taxes:
    United States United States$1,457.4$1,251.2$1,145.2 United States $1,618.6 $1,457.4$1,251.2
    Foreign Foreign166.1110.092.6 Foreign193.4166.1110.0
    $1,623.5 $1,361.2 $1,237.8$1,812.0$1,623.5$1,361.2

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    The provision for income taxes consists of the following components:

    Years ended June 30,   2007     2006     2005     2008    2007    2006
    Current: Current:    Current:      
    Federal Federal $482.0 $441.1 $378.7  Federal$632.3$482.0$441.1
    Foreign Foreign 70.3 52.4 37.3  Foreign 79.2  70.3  52.4 
    State State  34.9   30.8   30.9   State31.534.930.8
    Total current Total current 587.2 524.3 446.9 Total current 743.0  587.2  524.3 
    Deferred: Deferred:    Deferred:     
    Federal Federal 18.4 (1.0) 7.7  Federal(75.7) 18.4(1.0)
    Foreign Foreign (7.9) (5.2) 2.8  Foreign (10.8) (7.9) (5.2)
    State State  4.6   1.2   (0.2)  State(6.2)4.6 1.2
    Total deferred Total deferred  15.1   (5.0)  10.3 Total deferred(92.7)15.1(5.0)
    Total provision for income taxes Total provision for income taxes  $602.3   $519.3   $457.2 Total provision for income taxes$650.3$602.3$519.3

    68

    A reconciliation between the Company’sCompany's effective tax rate and the U.S. federal statutory rate is as follows:

    Years ended June 30,  2007      %      2006      %      2005      %      2008    %    2007    %    2006    %
    Provision for taxes at U.S. Provision for taxes at U.S.       Provision for taxes at U.S.        
    statutory rate statutory rate $568.2  35.0$476.4  35.0 $433.2  35.0  statutory rate$634.235.0$568.235.0$476.435.0
    Increase (decrease) in provision from: Increase (decrease) in provision from:        Increase (decrease) in provision from:        
    State taxes, net of federal tax State taxes, net of federal tax 25.7 1.6 20.8 1.6 20.0 1.6  State taxes, net of federal tax 16.40.925.7  1.620.81.6
    Non-deductible stock-based Non-deductible stock-based        Non-deductible stock-based           
    compensation expense compensation expense 9.7 0.612.3 0.9 -- --  compensation expense 5.5 0.3  9.7 0.6  12.3 0.9
    Tax on repatriated earnings Tax on repatriated earnings 34.4 2.110.0 0.7 -- --  Tax on repatriated earnings-- 34.42.110.00.7
    Utilization of foreign tax credits Utilization of foreign tax credits(26.5) (1.6)  ---- -- --  Utilization of foreign tax credits - -  (26.5)(1.6)-    -
    Other Other (9.2) (0.6) (0.2)  -- 4.0  0.3  Other(5.8)(0.3)(9.2)(0.6)(0.2)   -
    $602.3   37.1  $519.3  38.2  $457.2  36.9  $650.335.9$602.337.1$519.338.2

    62

    The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:

    Years ended June 30,  2007     2006      2008       2007  
    Deferred tax assets: Deferred tax assets:   Deferred tax assets:    
    Accrued expenses not currently deductible Accrued expenses not currently deductible  $160.7 $172.7  Accrued expenses not currently deductible$190.1$160.7
    Stock-based compensation expense Stock-based compensation expense 99.7  74.7 
    Unrealized investment losses, net Unrealized investment losses, net 66.6 112.7  Unrealized investment losses, net-66.6
    Net operating losses Net operating losses 52.5 19.0  Net operating losses 84.8  52.5 
    Other Other  19.7  19.9   Other25.719.7
    299.5 324.3   400.3  374.2 
    Less: valuation allowances Less: valuation allowances  (31.2)  (21.3) Less: valuation allowances(44.4)(31.2)
    Deferred tax assets, net Deferred tax assets, net  $268.3 $303.0 Deferred tax assets, net$355.9$343.0
    Deferred tax liabilities: Deferred tax liabilities:   Deferred tax liabilities:    
    Accrued retirement benefits Accrued retirement benefits  $8.2 $57.7  Accrued retirement benefits$44.1$83.0
    Depreciation and amortization 309.8 274.8 
    Deferred revenue Deferred revenue 86.3  - 
    Fixed and intangible assets Fixed and intangible assets141.0283.6
    Prepaid expenses Prepaid expenses 27.4 26.1 
    Unrealized investment gains, net Unrealized investment gains, net46.2 -
    Tax on unrepatriated earnings Tax on unrepatriated earnings  42.1  - 
    Other Other  9.2  8.2  Other9.49.2
    Deferred tax liabilities Deferred tax liabilities  $327.2 $340.7 Deferred tax liabilities$396.5$401.9
    Net deferred tax liabilities Net deferred tax liabilities  $58.9  $37.7 Net deferred tax liabilities$40.6$58.9

    There are $68.2$92.3 million and $69.5$68.2 million of current deferred tax assets included in other current assets on the Consolidated Balance Sheets at June 30, 20072008 and 2006,2007, respectively. There are $1.8$44.8 million and $1.1$1.8 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 20072008 and 2006,2007, respectively. There are $1.2$7.6 million and $7.9$1.2 million of current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at June 30, 20072008 and 2006,2007, respectively.

    Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $655.6 million and $1,256.9$1,091.0 million as of June 30, 2007 and June 30, 2006, respectively,2008, as the Company considers such earnings to be permanently reinvested outside of the United States.

    The additional U.S. income tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impractical to estimate the amount of undistributed earnings for whichnet income and withholding tax has not been provided decreased in fiscal 2007 compared to fiscal 2006 due to the intent to repatriate approximately $680.0 million, of which approximately $140.0 million was repatriated in fiscal 2007 and $540.0 million of which is expected tothat might be repatriated in fiscal 2008.payable.

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    On October 22, 2004, the American Jobs Creation Act (the “AJCA”) was signed into law. The AJCA created a temporary incentive for the Company to repatriate earnings accumulated outside the U.S. by allowing the Company to reduce its taxable income by 85 percent of certain eligible dividends received from non-U.S. subsidiaries by the end of the Company’s fiscal year ended June 30, 2006. In connection with the sale of the Claims Services business on April 13, 2006 and receipt of the related proceeds, the Company elected to apply the provisions of the AJCA to qualifying earnings repatriations in fiscal 2006. As approved by our Board of Directors in June 2006, approximately $250 million was repatriated under the AJCA. Income tax expense of approximately $10 million associated with this repatriation was recorded in fiscal 2006.

    The additional U.S. and non-U.S. income and withholding tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impractical to estimate the amount of net income and withholding tax that might be payable.63

    The Company has estimated foreign net operating loss carry forwardscarry-forwards of approximately $101.7$110.7 million as of June 30, 2007,2008, of which $11.7$30.5 million expires in 2010 through 2022 and $90.0$80.2 million has an indefinite utilization period. In addition, the Company has estimated Federal net operating lossesloss carry-forwards of acquired companies of approximately $64.5$54.8 million as of June 30, 2007,2008, which expires in 20082009 through 2026. There is an annual limitation pursuant to Internal Revenue Code section 382 on the utilization of the Federal net operating loss carry forwardscarry-forwards of approximately $24.0$25.4 million per year. The Company has estimated state net operating loss carry-forwards of approximately $235.0 million as of June 30, 2008, which expire in 2009 through 2026.

    The Company has recorded valuation allowances of $31.2$44.4 million and $21.3$31.2 million at June 30, 20072008 and 2006,2007, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized. A portion of the valuation allowances in the amounts of approximately $6.6$4.7 million and $1.8$6.6 million at June 30, 20072008 and 2006,2007, respectively, relate to net deferred tax assets which were recorded in purchase accounting. Any recognition of such amountsnet deferred tax assets in future years will be a reduction to goodwill.goodwill until the adoption of SFAS No. 141R. Subsequent to the adoption of SFAS No. 141R, anysuch adjustmentsin future years will be recorded to our Provision for Income Taxeson the Statements of Consolidated Earnings.

    Income tax payments were approximately $755.7 million, $718.2 million, $601.8 million, and $378.9$601.8 million for fiscal 2008, 2007 and 2006, respectively.

    On July 1, 2007, the Company adopted the provisions of FIN 48. As a result of the adoption, the Company recorded a net decrease to retained earnings of $11.7 million, as well as a corresponding increase to other liabilities on the Consolidated Balance Sheets. Among other things, FIN 48 requires that a liability associated with an unrecognized tax benefit be classified as a long-term liability, except for the amount for which a cash payment is anticipated within one year. Therefore, upon adoption, $100.6 million of tax liabilities were reclassified from other current liabilities to other liabilities on the Consolidated Balance Sheets.

    As of July 1, 2007, the Company’s liabilities for unrecognized tax benefits, which include interest and 2005,penalties, were $350.2 million. The amount that, if recognized, would impact the effective tax rate is $152.0 million. The remainder, if recognized, would principally affect deferred taxes.

    As of June 30, 2008, the Company’s liabilities for unrecognized tax benefits, which include interest and penalties, were $404.2 million. The amount that, if recognized, would impact the effective tax rate is $171.2 million. The remainder, if recognized, would principally affect deferred taxes.

    A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

    Unrecognized tax benefits at July 1, 2007     $350.2 
    Additions for tax positions of the fiscal year ended June 30, 2008  23.6 
    Reductions for tax positions of the fiscal year ended June 30, 2008  - 
    Additions for tax positions of periods prior to the fiscal year ended June 30, 2008  43.2 
    Reductions for tax positions of periods prior to the fiscal year ended June 30, 2008  (11.5)
    Settlements with tax authorities  (1.1)
    Expiration of the statute of limitations  (4.0)
    Impact of foreign exchange rate fluctuations  3.8 
    Unrecognized tax benefits at June 30, 2008 $404.2 

    Subsequent to the adoption of FIN 48, interest expense and penalties associated with uncertain tax positions have been recorded in the provision for income taxes on the Statements of Consolidated Earnings. Prior to the adoption of FIN 48, interest expense was recorded in selling, general and administrative expenses. During the fiscal years ended June 30, 2008, 2007 and 2006, the Company recorded interest expense of $18.4 million, $11.5 million and $13.4 million, respectively. At July 1, 2007, the Company had accrued interest of $97.6 million, recorded within other liabilities on the Consolidated Balance Sheets. At June 30, 2008, the Company had accrued interest of $117.6 million recorded on the Consolidated Balance Sheets, of which $53.5 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At July 1, 2007, the Company had accrued penalties of $19.8 million recorded within other liabilities on the Consolidated Balance Sheets. At June 30, 2008, the Company had accrued penalties of $26.9 million, of which $23.8 million was recorded within income taxes payable, and the remainder was recorded within other liabilities on the Consolidated Balance Sheets.

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    The Company is routinely examined by the Internal Revenue Service (“IRS”)IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations.operations, such as California, Illinois, Minnesota, New York and New Jersey. The tax years under examination vary by jurisdiction. The Company expects an IRS examination for the fiscal year ended June 30, 1998 through the fiscal year ended June 30, 2007 to be completed during the fiscal year ending June 30, 2009. ADP is conductingalso under examination by the following jurisdictions: California for fiscal years ended June 30, 2004 and June 30, 2005; Illinois for fiscal years ended June 30, 2004 and June 30, 2005; and Minnesota for fiscal years ended June 30, 1998 through June 30, 2004. New York City commenced an examinationaudit of the fiscal year ended June 30, 2003 through the fiscal 2007. The Company is a current participantyear ended June 30, 2006 in the IRS Compliance Assurance Processfourth quarter of the fiscal year ended June 30, 2008. New Jersey commenced an audit program.

    for fiscal years ended June 30, 2002 through June 30, 2006 in the fourth quarter of the fiscal year ended June 30, 2008. Canada has notified the Company that they will commence a joint audit with the Province of Ontario for the fiscal year ended June 30, 2005 through the fiscal year ended June 30, 2007 in the first half of the fiscal year ending June 30, 2009. The Province of Alberta is examining the 2004, 2005 and 2006 tax returns. The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions resulting from examinations. The Company has established tax reserves which it believes are adequate in relation to the potential assessments.jurisdictions. Once established, reserves are adjusted when there is more information available, when an event occurs necessitating a change to the reserves or when the statute of limitations for the relevant taxing authority to examine the tax position has expired. The resolution of tax matters shouldis not expected to have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company’s Statements of Consolidated Earnings for a particular future period and on the Company’s effective tax rate.

    As discussed in Note 1,During the fiscal year ended June 30, 2008, the Company will adopt FIN 48recorded a reduction in the provision for income taxes of $12.4 million, which was primarily related to the settlement of a state tax matter, for which the Company had previously recorded a liability for unrecognized tax benefits of $7.9 million and a related deferred tax asset of $2.9 million.

    If certain pending tax matters settle within the next 12 months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to numerous jurisdictions and tax periods could increase earnings in an amount up to $90 million and expected net cash payments could be up to $80 million. The liability related to cash payments expected to be paid within the next 12 months has been reclassified from other liabilities to current liabilities on the Consolidated Balance Sheets. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

    Lastly, the Company acquired a business in May 1999 in a stock for stock transaction that was accounted for by the Company as a pooling of the beginning ofinterests under Accounting Principles Board Opinion No. 16 “Business Combinations.” During fiscal 2008, (i.e., asthe Companyrecorded a tax-basis adjustment to Capital in Excess of July 1, 2007).Par Value on the Statements of Consolidated Stockholders’Equity.

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    NOTE 16.15. CONTRACTUAL COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

    The Company has obligations under various facilities and equipment leases and software license agreements. Total expense under these agreements was approximately $247.4 million, $281.0 million, $245.8 million, and $204.8$245.8 million in fiscal 2008, 2007 2006 and 2005,2006, respectively, with minimum commitments at June 30, 20072008 as follows:

    Years ending June 30,     
    2008 $227.6
    2009 2009 170.62009$252.9
    2010 2010 128.62010217.9
    2011 2011 44.32011182.1
    2012 2012 28.02012156.1
    2013201343.5
    Thereafter Thereafter 51.1Thereafter50.8
    $650.2 $903.3

    In addition to fixed rentals, certain leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices.

    As of June 30, 2007,2008, the Company has purchase commitments of approximately $231.8$309.3 million relating to software and equipment purchases and maintenance contracts, of which $87.7 million relates to fiscal 2008, $55.2$107.7 million relates to fiscal 2009, and the remaining $88.9$65.8 million relates to fiscal 2010 and the remaining $135.8 million relates to fiscal 2011 through fiscal 2012.2013.

    The Company is subject to various claims and litigation in the normal course of business. The Company does not believe that the resolution of these matters will have a material impact on the consolidated financial statements.

    It is not the Company’s business practice to enter into off-balance sheet arrangements. However, the Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading purposes. In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company’s productsservices and services.products. The Company does not expect any material losses related to such representations and warranties.

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    NOTE 17.16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

    Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss). Other comprehensive income (loss) results from items deferred on the Consolidated Balance Sheets in stockholders’ equity. Other comprehensive income (loss) was $309.6 million, $156.0 million, $(140.4) million, and $33.6$(140.4) million in fiscal 2008, 2007 2006 and 2005,2006, respectively. The accumulated balances for each component of other comprehensive income (loss) are as follows:

    June 30,   2007     2006     2005 200820072006
    Currency translation adjustments Currency translation adjustments $ 156.7 $80.3 $ 0.1 Currency translation adjustments$284.6      $156.7      $80.3 
    Unrealized (loss) gain on available-for-sale      
    Unrealized gain (loss) on available-for-saleUnrealized gain (loss) on available-for-sale      
    securities, net of tax securities, net of tax  (118.4) (200.3)  20.7  securities, net of tax 91.3  (118.4) (200.3)
    Adoption of SFAS No. 158, net of tax  (63.1) --  -- 
    Minimum pension liability adjustment Minimum pension liability adjustment      Minimum pension liability adjustment    
    (prior to SFAS No. 158), net of tax (prior to SFAS No. 158), net of tax   (8.6)  (6.3)   (6.7)  (prior to SFAS No. 158), net of tax (8.6) (8.6) (6.3)
    Accumulated other comprehensive (loss) income $ (33.4)  $(126.3)  $ 14.1  
    Adoption of SFAS No. 158, net of taxAdoption of SFAS No. 158, net of tax (63.1) (63.1) - 
    Pension liability adjustment (post adoption ofPension liability adjustment (post adoption of       
    SFAS No. 158), net of tax SFAS No. 158), net of tax (28.0) -   - 
    Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)$276.2 $(33.4)$(126.3)

    NOTE 18.17. STAFF ACCOUNTING BULLETIN NO. 108

    In September 2006,fiscal 2007, the Staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires registrants to use a combination of two approaches to evaluate the materiality of identified unadjusted errors: the “rollover” approach, which quantifies an error based on the amount of the error originating in the current year income statement, and the “iron curtain” approach, which quantifies an error based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year. SAB 108 permits companies to adjust for the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings in the year of adoption. In fiscal 2007, the Company adopted SAB 108.

    In the course of evaluating the provisions of SAB 108, the Company identified the following misstatements as of July 1, 2006. The adoption of SAB 108 resulted in an increase to opening retained earnings as of July 1, 2006 of approximately $44.3 million, net of tax. Such errors, which management previously deemed immaterial, were related to the following:

    • Overstated accrued expenses of $22.1 million, net of tax, related to professional services,termination of contracts and employee benefits, which arosepriorarose prior to the fiscal yearendedyear ended June 30, 2003

    • Overstated accounts receivable reserves of $11.2 million, net of tax, which arose prior totheto the fiscal year ended June 30, 2001

    • Overstated accrued expenses related to certain post retirement and non-US pension plansbyplans by $8.2 million, net of tax, of which $3.3 million arose in the fiscal year ended June 30,200230, 2002 and the remaining arose ratably over the fiscal years ended June 30, 2003, 2004, 2005 and 2006

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    • Overstated insurance and environmental reserves related primarily to worker’s compensation liabilities and self-insured liabilities of $9.3 million, net of tax, which arose prior to the fiscal year ended June 30, 2001

    • Understated tax provision and liability, as well as related interest and penalties, of $6.5 million, related to tax deductions taken for the tax years 1998 through 2006


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    NOTE 19.18. FINANCIAL DATA BY SEGMENT AND GEOGRAPHIC AREA

    In the fiscal 2007, the Company implemented several key changes to its operations, including the spin-off of its Brokerage Services Group business on March 30, 2007. In addition, there were changes in the Company’s executive management team. As a result of these changes, the Company reassessed its reportable segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and determined that PEO Services should be a reportable segment in addition to Employer Services and Dealer Services. Based upon similar economic characteristics and operational characteristics, the Company’s strategic business units have been aggregated into the following three reportable segments: Employer Services, PEO Services and Dealer Services. The Company has restated its previously reported segment results for all periods presented to reflect this change in the Company’s reportable segments. The primary components of “Other” are miscellaneous processing services, and corporate allocations and expenses, including stock-based compensation expense. Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility. The fiscal 20062007 and 20052006 reportable segments’ revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated fiscal 20072008 budgeted foreign exchange rates. In addition, there is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of 4.5%. The reportable segments’ results also include an internal cost of capital charge related to the funding of acquisitions and other investments. All of these adjustments/charges are reconciling items to our reportable segments’ revenues and/or earnings from continuing operations before income taxes and results in the elimination of these adjustments/charges in consolidation. Reportable segments’ assets include funds held for clients, but exclude corporate cash, corporate marketable securities and goodwill.

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               Reconciling Items         Reconciling Items 
                 Client Cost of          ClientCost of 
     Employer PEO  Dealer    Foreign  Fund Capital  EmployerPEODealer  ForeignFundCapital 
    Services  Services  Services  Other  Exchange  Interest  Charge  Total
    Year ended June 30, 2008             
    Revenues from continuing operations$6,243.1$1,060.5 $1,364.3$4.9 $118.7 $(15.0)$- $8,776.5 
    Earnings from continuing             
    operations before income taxes1,601.4 104.9  232.0 (238.9) 15.9  (15.1) 111.8  1,812.0 
    Assets from continuing operations18,197.8 45.3  658.2 4,833.1  -  -  -  23,734.4 
    Capital expenditures             
    for continuing operations87.4 1.0  38.1 59.9  -  -  -  186.4 
    Depreciation and amortization 251.0 1.5  86.8 91.6  -  -  (111.8) 319.1(a)
        Services    Services    Services    Other    Exchange    Interest    Charge     Total
    Year ended June 30, 2007                               
    Revenues from continuing operations $5,615.4 $884.8  $1,225.8 $(1.7)  $78.6  $(2.9) $--  $7,800.0$5,707.7$884.8 $1,257.3$(1.5)$(45.4)$(2.9)$- $7,800.0 
    Earnings from continuing                               
    operations before income taxes 1,408.1  80.4  200.0  (183.7) 8.3 (2.9)  113.3  1,623.51,412.4 80.4  204.4 (177.0) (7.1) (2.9) 113.3  1,623.5 
    Assets from continuing operations 20,406.4  115.5   619.4  5,449.9  -- --   --  26,591.220,406.4 115.5  619.4 5,449.9  -  -  -  26,591.2 
    Capital expenditures for                  
    continuing operations 79.0  1.6  36.1  53.0 -- --  -- 169.7
    Capital expenditures             
    for continuing operations79.0 1.6  36.1 53.0  -  -  -  169.7 
    Depreciation and amortization  246.7  1.6   81.7  72.1   --   --   (113.3)  288.8(a) 246.7 1.6  81.7 72.1  -  -  (113.3) 288.8(a)
    Year ended June 30, 2006                               
    Revenues from continuing operations $5,076.4 $703.7  $1,072.8 $36.6   $2.9  $(56.8) $--  $6,835.6$5,162.6$703.7 $1,097.7$36.9 $(108.5)$(56.8)$- $6,835.6 
    Earnings from continuing operations                  
    before income taxes 1,254.3  54.9  157.9  (150.0) 0.8 (56.8)  100.1 1,361.2
    Assets from continuing operations 19,067.5  (8.2)  609.4  5,612.7  -- --   --  25,281.4
    Capital expenditures for                  
    continuing operations 87.4  0.7  45.1  119.6 -- --  -- 252.8
    Depreciation and amortization  251.8  1.7   73.0  19.6   --   --   (100.1)  246.0(a)
    Year ended June 30, 2005                  
    Revenues from continuing operations $4,699.7 $577.0  $936.6 $35.0  $9.4  $(126.4) $--  $6,131.3
    Earnings from continuing                               
    operations before income taxes 1,113.7  39.8  148.8  (29.8) (2.6) (126.4)  94.3 1,237.8 1,259.3 54.9  159.7 (143.9) (12.1) (56.8) 100.1  1,361.2 
    Assets from continuing operations 19,395.5  29.1   466.2  4,581.2   -- --   --  24,472.019,067.5 (8.2) 609.4 5,612.7 - -  - 25,281.4 
    Capital expenditures for                  
    continuing operations 103.1  0.6  34.1  22.5 -- --   -- 160.3
    Capital expenditures          
    for continuing operations87.4 0.7  45.1 119.6  -  -  -  252.8 
    Depreciation and amortization  249.4  1.6   57.6  11.3   --   --   (94.3)  225.6(a) 251.8 1.7  73.0 19.6  -  -  (100.1) 246.0(a)

    (a) Includes $80.6 million, $79.9 million $85.1 million and $75.0$85.1 million of depreciation and amortization that does not relate to our services and products, which was recorded in selling, general and administrative expenses on the Statements of Consolidated Earnings.products.

    68

    Revenues and assets from continuing operations by geographic area are as follows:

    UnitedUnited    
    States     Europe     Canada     Other     Total
    Year ended June 30, 2008     
    Revenues from continuing operations$7,072.7$1,119.9$388.7$195.2$8,776.5
    Assets from continuing operations$19,813.4$1,951.3$1,668.7$301.0$23,734.4
         States     Europe     Canada     Other     Total
    Year ended June 30, 2007               
    Revenues from continuing operations$6,422.0$919.6$323.0$135.4$7,800.0$6,422.0$919.6$323.0$135.4$7,800.0
    Assets from continuing operations$22,591.8$1,815.5$1,963.9$220.0$26,591.2$22,591.8$1,815.5$1,963.9$220.0$26,591.2
    Year ended June 30, 2006               
    Revenues from continuing operations$5,678.8$742.6$296.9$117.3 $6,835.6$5,678.8 $742.6 $296.9 $117.3 $6,835.6
    Assets from continuing operations$21,380.4$1,639.5$2,084.4$177.1$25,281.4$21,380.4$1,639.5$2,084.4$177.1$25,281.4
    Year ended June 30, 2005           
    Revenues from continuing operations $5,149.7 $657.4 $249.3$74.9 $6,131.3
    Assets from continuing operations$21,564.2$1,058.2$1,689.4 $160.2$24,472.0

    7469

    NOTE 20.19. QUARTERLY FINANCIAL RESULTS (UNAUDITED)

    Summarized quarterly results of our continuing operations for the two fiscal years ended June 30, 20072008 are as follows:

    FirstSecondThirdFourthFirstSecondThirdFourth
    Quarter     Quarter     Quarter     Quarter
    Year ended June 30, 2008    
    Revenues$1,992.0$2,150.1$2,427.2$2,207.1
    Costs of revenues$1,092.1$1,168.2$1,224.4$1,195.5
    Gross profit $899.9$981.9$1,202.8$1,011.6
    Net earnings from continuing operations$240.4$291.6$403.6$226.0
    Basic earnings per share from    
    continuing operations$0.45$0.56$0.78$0.44
    Diluted earnings per share from    
    continuing operations$0.45$0.55$0.77$0.43
         Quarter     Quarter     Quarter     Quarter
    Year ended June 30, 2007    
    Revenues$1,754.8$1,874.3$2,171.0$1,999.8$1,754.8$1,874.3$2,171.0$1,999.8
    Costs of revenues $967.6$991.8$1,067.1$1,060.8$967.6$991.8$1,067.1$1,060.8
    Gross profit $787.2$882.5$1,103.9$939.0$787.2$882.5$1,103.9$939.0
    Net earnings from continuing operations$219.2$248.0$360.1$193.8$219.2 $248.0$360.1$193.8
    Basic earnings per share from continuing
    operations$0.40$0.45$0.65$0.36
    Basic earnings per share from    
    continuing operations$0.40$0.45 $0.65 $0.36
    Diluted earnings per share from    
    continuing operations$0.39$0.45$0.65$0.35$0.39$0.45$0.65$0.35
    Year ended June 30, 2006
    Revenues$1,525.3$1,633.9$1,910.7 $1,765.6
    Costs of revenues $815.1$849.6$936.4$1,002.5
    Gross profit $710.2$784.3$974.3$763.1
    Net earnings from continuing operations$173.1$217.6$310.3$140.9
    Basic earnings per share from continuing  
    operations$0.30 $0.38$0.54$0.25
    Diluted earnings per share from 
    continuing operations$0.30$0.37$0.53$0.25

    NOTE 21.20. SUBSEQUENT EVENTSEVENT (UNAUDITED)

    The Company completed the sale of its Travel Clearing business on July 6, 2007. The Travel Clearing business was previously reported in the “Other” segment. In connection with the disposal of this business,August 2008, the Company has classifiedreceived the resultsBoard of operationsDirectors approval to purchase up to 50 million additional shares of this business as discontinued operations as of June 30, 2007. The Company expects to record a gain of approximately $55 million to $65 million, after taxes, which will be classified as discontinued operations, in fiscal 2008. Such gain is exclusive of a working capital adjustment to the original purchase price. This working capital adjustment is expected to be finalized in fiscal 2008 and will increase or decrease the gain accordingly.Company’s common stock.

    7570

    Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    None

    Item 9A. Controls and Procedures

    Attached as Exhibits 31.1 and 31.2 to this Form 10-K are certifications of ADP’s Chief Executive Officer and Chief Financial Officer, which are required by Rule 13a-14(a) of the Securities Exchange Act of 1934. This “Controls and Procedures” section should be read in conjunction with the report of Deloitte & Touche LLP attestation report on management’s assessment of ADP’s internal control over financial reporting that appears on pages77-78ofpage 73of this Form 10-K and is hereby incorporated herein by reference.

    71

    Management’s Evaluation of Disclosure Controls and Procedures

         ADPThe Company carried out an evaluation (the “evaluation”), under the supervision and with the participation of ADP’sthe Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of ADP’sthe Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) ofunder the Securities Exchange Act of 1934.1934, as amended (the “Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on thatthe evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that ADP’sthe Company’s disclosure controls and procedures were effective as of June 30, 2007 were effective to ensure2008 in ensuring that (i) information required to be disclosed by ADPthe Company in reports that it files or submits under the Securities Exchange Act of 1934is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms.

    Management’s Report on Internal Control over Financial Reporting

         It is the responsibility of Automatic Data Processing, Inc.’s (“ADP”) management to establish and maintain effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Internal control over financial reporting is designed to provide reasonable assurance to ADP’s management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.

         ADP’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ADP; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of ADP are being made only in accordance with authorizations of management and directors of ADP; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of ADP’s assets that could have a material effect on the financial statements of ADP.

         Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

         Management has performed an assessment of the effectiveness of ADP’s internal control over financial reporting as of June 30, 20072008 based upon criteria set forth inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that ADP’s internal control over financial reporting was effective as of June 30, 2007.2008.

    76

         Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of internal control over financial reporting, which attestation report appears on pages 77-78 of this Form 10-K.

    /s/ Gary C. Butler

    Gary C. Butler
    President and Chief Executive Officer

    /s/ Christopher R. Reidy

    Christopher R. Reidy
    Chief Financial Officer

    Roseland, New Jersey
    August29 2007    , 2008

    72

    Changes in Internal Control over Financial Reporting

         There were no changes in ADP’s internal control over financial reporting that occurred during the quarter ended June 30, 20072008 that have materially affected, or are reasonably likely to materially affect, ADP’s internal control over financial reporting.

    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    To the Board of Directors and Stockholders of
    Automatic Data Processing, Inc.
    Roseland, New Jersey

    We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting thatinternal control over financial reporting of Automatic Data Processing, Inc. and subsidiaries (the “Company”"Company") maintained effective internal control over financial reporting as of June 30, 2007,2008, based on criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting based on our audits.audit.

         We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.opinion.

         A company’scompany's internal control over financial reporting is a process designed by, or under the supervision of, the company’scompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the company’scompany's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation

    77

    of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.

         Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

    In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of June 30, 2007, is fairly stated, in all material respects, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007,2008, based on the criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

         We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as asof and for the year ended June 30, 20072008 of the Company and our report, dated August 29, 20072008, expressed an unqualified opinion on those consolidated financial statements and financial statement schedule and included an explanatory paragraph regarding the Company’s adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109,” effective July 1, 2007, the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158. “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R),” effective June 30, 2007 and Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements,” effective July 1, 2006.

    /s/ Deloitte & Touche LLP
    New York, New York
    August 29, 2007

    /s/ Deloitte & Touche LLP
    New York, New York
    August 29, 2008

    Item 9B. Other Information

         None.


    7873


    Part III

    Item 10. Directors, Executive Officers and Corporate Governance

    Executive Officers

         The executive officers of the Company, their ages, positions and the period during which they have been employed by ADP are as follows:

      Employed by                             Employed by
    Name          Age         Position         ADP SinceAgePosition ADP Since 
    Steven J. Anenen 54President,  197555President, Dealer Services 1975
     Dealer Services  
    James B. Benson 62Vice President, General 197763Vice President, General Counsel and 1977
     Counsel and Secretary   Secretary  
    Gary C. Butler 60President and Chief 197561President and Chief Executive Officer 1975
     Executive Officer  
    Benito Cachinero 49Vice President, Human 200750Vice President, Human Resources  2007
    Michael L. Capone 42Vice President and Chief Information 1988
     Resources   Officer   
    Raymond L. Colotti 61 Vice President and 199562Vice President and Treasurer 1995
    Edward B. Flynn, III 48President, Employer Services– 1988
     Treasurer   International  
    John J. Gleason 51Vice President, 198352Vice President, Employer Services- 1983
     Employer Services–Sales  Sales   
    Campbell B. Langdon46President,200047President, Employer Services–Major 2000
    Employer Services–Major Accounts Division  
    Account Division
    Regina R. Lee50President,198251President, Employer Services–National 1982
    Employer Services–National Accounts Division  
    Account Division
    S. Michael Martone59Chief Operating Officer1987 60 Chief Operating Officer 1987
    Alfred A. Nietzel45Chief Financial Officer2001
    of Field Operations
    Christopher R. Reidy50Chief Financial Officer200651Chief Financial Officer 2006
    Carlos Rodriguez43President, Employer 199944President, Employer Services–Small 1999
    Services – Small Business
    Services Division Business Services Division  
    Alan Sheiness49Corporate Controller and198450Corporate Controller and Principal 1984
     Principal Accounting Officer Accounting Officer  
    Jan Siegmund43President, Tax, Retirement,199944President, Added Value Services 1999
     Insurance and Pre-
     Employment Services
    George I. Stoeckert58President, Employer1991
    Services – International

         Messrs. Benson, Butler, Colotti and Martone have each been employed by ADP in senior executive positions for more than the past five years.

         Steven J. Anenen joined ADP in 1975. Prior to his promotion to President, Dealer Services in 2004, he served as Senior Vice President, Dealer Services from 1998 to 2004.

    79

    Benito Cachinero joined ADP in 2007 as Vice President, Human Resources. Prior to joining ADP, he was Vice President, Human Resources for the Medical Devices & Diagnostics Group of Johnson & Johnson from 2004 to 2007, and Worldwide Vice President, Human Resources for Ethicon, a Johnson & Johnson company, from 2001 to 2004.

         Michael L. Capone joined ADP in 1988. Prior to his promotion to Vice President and Chief Information Officer in 2008, he served as Senior Vice President and General Manager of GlobalView from 2005 to 2008, and as Vice President, Corporate Information Systems from 1999 to 2005.

    74

    John J. Gleason joined ADP in 1983. Prior to his promotion to Vice President of Sales, Employer Services in 2005, he served as Senior Vice President of Sales, Dealer Services from 1998 to 2005.

         Edward B. Flynn, III joined ADP in 1988. Prior to his promotion to President, Employer Services – International in 2008 he served as Senior Vice President of Sales for Employer Services, International, from 2004 to 2008, and as Senior Vice President of Sales, Small Business Services, Employer Services from 1988 to 2004.

    Campbell B. Langdon joined ADP in 2000 as Vice President, Strategic Development. Prior to his promotion to President – Major Account Services Division in 2007, he served as President, Tax, Retirement and Pre-Employment Services from 2003 to 2007.

         Regina R. Lee joined ADP in 1982. Prior to her promotion to President, National Account Services, Employer Services in 2005, she served as President, Small Business Services, Employer Services from 2004 to 2005, and as Senior Vice President, Service, Small Business Services, Employer Services from 2001 to 2004.

         Alfred A. Nietzel joined ADP in 2001. Prior to his promotion in 2007 to Chief Financial Officer, Field Operations, he served as Corporate Controller from 2006 to 2007, Chief Financial Officer, Employer Services in 2006, and Chief Financial Officer, Dealer Services from 2001 to 2005.

    Christopher R. Reidy joined ADP in 2006 as Vice President and Chief Financial Officer. Prior to joining ADP, he was Vice President, Controller and Chief Accounting Officer of the AT&T Corporation from 2003 to 2006, and Vice President and Chief Financial Officer, Business Services of AT&TCorporation&TCorporation from 2001 to 2003.

         Carlos Rodriguez joined ADP in 1999. Prior to his promotion in 2007 to President, Small Business Services, Employer Services, he served as President of TotalSource, Employer Services from 2000 to 2007.

         Alan Sheiness joined ADP in 1984. Prior to his promotion to Corporate Controller and Principal Accounting Officer, he served as President, Small Business Services, Employer Services, from 2006 to 2007, as Chief Financial Officer, Employer Services, from 2004 to 2005, as General Manager of Tax, Retirement and Pre-Employment Services, Employer Services, from 2003 to 2004, and as Chief Financial Officer of Tax, Retirement and Pre-Employment Services, Employer Services from 1999 to 2003.

         Jan Siegmund joined ADP in 1999. Prior to his promotion to President, Added Value Services (formerly Tax, Retirement, Insurance and Pre-Employment ServicesServices) in 2007, he served as Vice President, Strategic Development from 2004 to 2007 and as Senior Vice President of Strategic Development, Brokerage Services from 2000 to 2004.

         George I. Stoeckert joined ADP in 1991. Prior to his promotion to President, Employer Services – International in 2003, he served as President – Major Account Services Division, Employer Services from 1996 to 2003.

    Each of ADP’s executive officers is elected for a term of one year and until their successors are chosen and qualified or until their death, resignation or removal.

    80

    Directors

         See “Election of Directors” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    Section 16(a) Beneficial Ownership Reporting Compliance

         See “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    Code of Ethics

         ADP has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The code of ethics may be viewed online on ADP’s website atwww.adp.comunder “Ethics” in the “About ADP” section.

    Audit Committee

         See “Audit Committee Report” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    75

    Item 11. Executive Compensation

         See “Compensation of Executive Officers” and “Election of Directors–Directors – Compensation of Non-Employee Directors” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

         See “Election of Directors – Security Ownership of Certain Beneficial Owners and Managers” and “Election of Directors – Equity Compensation Plan Information” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    Item 13. Certain Relationships and Related Transactions, and Director Independence

         See “Election of Directors – Corporate Governance” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    Item 14. Principal Accountant Fees and Services

         See “Independent Registered Public Accounting Firms’Firm’s Fees” in the Proxy Statement for the Company’s 20072008 Annual Meeting of Stockholders, which information is incorporated herein by reference.

    8176

    Part IV

    Item 15. Exhibits, Financial Statement Schedules

         (a)Financial Statements and Financial Statement Schedules

         1.Financial Statements

         The following report and consolidated financial statements of the Company are contained in Part II, Item 8 hereof:

         Report of Independent Registered Public Accounting Firm

         Statements of Consolidated Earnings - - years ended June 30, 2008, 2007 2006 and 20052006

         Consolidated Balance Sheets - June 30, 20072008 and 20062007

         Statements of Consolidated Stockholders’ Equity - years ended June 30, 2008, 2007 2006 and 20052006

         Statements of Consolidated Cash Flows - years ended June 30, 2008, 2007 2006 and 20052006

    Notes to Consolidated Financial Statements

    2.Financial Statement Schedules

    Page in Form 10-K

    		Schedule II - Valuation and Qualifying Accounts

    		8681 

         All other Schedules have been omitted because they are inapplicable or are not required or the information is included elsewhere in the financial statements or notes thereto.

         (b)Exhibits

         The following exhibits are filed with this Form 10-K or incorporated herein by reference to the document set forth next to the exhibit in the list below:

    3.1-Amended and Restated Certificate of Incorporation dated November 11, 1998 - incorporated by reference to Exhibit 3.1 to Company’s Registration Statement No. 333-72023 on Form S-4 filed with the Commission on February 9, 1999
         
    3.2-Amended and Restated By-laws of the Company - incorporated by reference to Exhibit 3.2 to Company’s Current Report on Form 8-K, dated August 9,November 13, 2007
     
    10.1-Separation and Distribution Agreement, dated as of March 20, 2007, between Automatic Data Processing, Inc. and Broadridge Financial Solutions, LLC - incorporated by reference to Exhibit 10.1 to Company’s Current Report on Form 8-K, dated March 21, 2007

    8277


    10.2-

    Letter Agreement dated as of June 28, 2006 between Automatic Data Processing, Inc. and Gary C. Butler - incorporated by reference to Exhibit 10.2 to Company’s Current Report on Form 8-K, dated June 28, 2006 (Management Contract)

        
    10.3-

    Key Employees’ Restricted Stock Plan - incorporated by reference to Company’s Registration Statement No. 33-25290 on Form S-8 (Management Compensatory Plan)

     
    10.4-

    Supplemental Officers Retirement Plan, as amended (Management Compensatory Plan)

     
    10.5-

    1989 Non-Employee Director Stock Option Plan - incorporated by reference to Exhibit 10(iii)(A)-#7 to Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1990 (Management Compensatory Plan)

     
    10.5(a)-

    Amendment to 1989 Non-Employee Director Stock Option Plan - incorporated by reference to Exhibit 10(6)(a)10.6(a) to Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (Management Compensatory Plan)

     
    10.6-

    1990 Key Employees’ Stock Option Plan - incorporated by reference to Exhibit 10(iii)(A)-#8 to Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1990 (Management Compensatory Plan)

     
    10.6(a)-

    Amendment to 1990 Key Employees’ Stock Option Plan - incorporated by reference to Exhibit 10(7)(a)10.7(a) to Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (Management Compensatory Plan)

     
    10.7-

    1994 Directors’ Pension Arrangement - incorporated by reference to Exhibit 10(iii)(A)-#10 to Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1994 (Management Compensatory Plan)

     
    10.8-

    2000 Stock Option Plan - incorporated by reference to Exhibit 10.8 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2006 (Management Compensatory Plan)

     
    10.9-

    Amended and Restated Executive Incentive Compensation Plan - incorporated by reference to Exhibit 10.9 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2006 (Management Compensatory Plan)

     
    10.9(a)-

    Form of Performance Based Restricted Stock Award Agreement under the Amended and Restated Executive Incentive Compensation Plan - incorporated by reference to Exhibit 10.9(a) to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2006

     
    10.10-

    Change in Control Severance Plan for Corporate Officers, as amended - incorporated by reference to Company’s Current Report onForm 8-K, dated June 16, 2006 (Management Compensatory Plan)

     
    10.11-

    Amended and Restated Employees’ Saving-Stock Option Plan - incorporated by reference to Exhibit 10.11 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2005 (Management Compensatory Plan)


    8378


    10.12-

    2003 Director Stock Plan - incorporated by reference to Exhibit 10.64.4 to Company’s Quarterly ReportRegistration Statement No. 333-147377 on Form 10-Q forS-8 filed with the fiscal quarter ended December 31, 2003Commission on November 14, 2007 (Management Compensatory Plan)

         
    10.13-

    Amended and Restated Employees’ Savings-Stock Purchase Plan - incorporated by reference to Exhibit 10.13 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2006

     
    10.14-

    364-Day Credit Agreement, dated as of June 27, 2007,25, 2008, among Automatic Data Processing, Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, BNP Paribas, Citicorp USA, Inc., Deutsche Bank AG New York Branch and Wachovia Bank, National Association, as Documentation Agents - incorporated by reference to Exhibit 10.14 to Company’s Current Report on Form 8-K, dated June 29, 200725, 2008

     
    10.15-

    Five-Year Credit Agreement, dated as of June 28, 2006, among Automatic Data Processing, Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, BNP Paribas, Citicorp USA, Inc., Deutsche Bank AG New York Branch and Wachovia Bank National Association, as Documentation Agents - incorporated by reference to Exhibit 10.15 to Company’s Current Report on Form 8-K, dated June 30, 2006

     
    10.16-

    Five-Year Credit Agreement, dated as of June 29, 2005, among Automatic Data Processing, Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, BNP Paribas, Citicorp USA, Inc., Deutsche Bank Securities Inc. and Wachovia Bank, National Association, as Documentation Agents - incorporated by reference to Exhibit 10.16 to Company’s Current Report on Form 8-K, dated June 29, 2005

     
    10.17-

    2000 Stock Option Grant Agreement (Form for Employees)used prior to August14, 2008 – incorporated by reference to Exhibit 10.1 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan)

     
    10.18-

    2000 Stock Option Grant Agreement (Form for French Associates) used prior toAugust 14, 2008 – incorporated by reference to Exhibit 10.110.2 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan)

      
    10.19-

    2000 Stock Option Grant Agreement (Form for Non-Employee Directors) used prior toAugust 14, 2008 – incorporated by reference to Exhibit 10.110.3 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan)

     
    10.20-

    Directors Compensation Summary Sheet – incorporated by reference to Exhibit 10.20 to Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2007 (Management Compensatory Plan)

     
    10.21-

    Summary of Compensation Arrangement for Arthur F. Weinbach – incorporated by reference to Exhibit 10.21 to Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007 (Management Compensatory Plan)

    8479


    10.22-

    Letter Agreement, dated as of August 1, 2006, between Automatic Data Processing, Inc. and Christopher R. Reidy – incorporated by reference to Exhibit 10.22 to Company’s Current Report on Form 8-K, dated August 2, 2006 (Management Contract)

         
    10.23-

    Letter Agreement, dated as of November 15, 2006, between Automatic Data Processing, Inc. and S. Michael Martone – incorporated by reference to Exhibit 10.23 to Company’s Current Report on Form 8-K, dated November 15, 2006 (Management Contract)

     
    10.2421-     -    Subsidiaries of the Company

    Termination Agreement and Release by and between George I. Stoeckert, Automatic DataProcessing, Inc., and ADP, Inc. dated June 24, 2008 – incorporated by reference to Exhibit 10.24 to Company’s Current Report on Form 8-K, dated June 24, 2008 (Management Contract)

     
    10.25-

    2000 Stock Option Grant Agreement (Form for Employees) for use beginning August 14, 2008 – incorporated by reference to Exhibit 10.25 to Company’s Current Report on Form 8-K, dated August 13, 2008 (Management Compensatory Plan)

    21-

    Subsidiaries of the Company

    23-

    Consent of Independent Registered Public Accounting Firm

     
    31.1-

    Certification by Gary C. Butler pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

     
    31.2-

    Certification by Christopher R. Reidy pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

     
    32.1-

    Certification by Gary C. Butler pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     
    32.2-

    Certification by Christopher R. Reidy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

    8580

    AUTOMATIC DATA PROCESSING, INC.

    AND SUBSIDIARIES

    SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


    (In thousands)

    Column A ColumnBColumn CColumn DColumnE Column BColumn C  Column D Column E 
    Additions  Additions   
    (1)(2)  (1) (2)   
    Balance atCharged toCharged  Balance Balance atCharged to Charged   Balance
    beginningcosts andto otherat end of beginningcosts and to other   at end of
       of period   expenses   accounts   Deductions   period of period     expenses     accounts      Deductions      period
    Year ended June 30, 2008:Year ended June 30, 2008:       
    Allowance for doubtful accounts:Allowance for doubtful accounts:      
    Current Current$30,802$27,693 $- $(20,088)(A)$38,407
    Long-term Long-term$8,297$2,062 $- $(2,421)(A)$7,938
    Deferred tax valuation allowanceDeferred tax valuation allowance$31,241$4,116 $15,463(B)(C) $(6,390)(D)$44,430
    Year ended June 30, 2007:Year ended June 30, 2007:Year ended June 30, 2007:      
    Allowance for doubtful accounts:Allowance for doubtful accounts:Allowance for doubtful accounts:      
    Current Current  $39,210    $14,095$--$(22,503)(A)   $30,802  Current$39,210$14,095 $- $(22,503)(A)$30,802
    Long-term Long-term$7,696$1,057$--$(456)(A)$8,297 Long-term$7,696$1,057 $- $(456)(A)$8,297
    Deferred tax valuation allowanceDeferred tax valuation allowance $21,262$9,716$263$--$31,241Deferred tax valuation allowance$21,262$9,716 $263 $-      $31,241
    Year ended June 30, 2006:Year ended June 30, 2006:Year ended June 30, 2006:      
    Allowance for doubtful accounts:Allowance for doubtful accounts:Allowance for doubtful accounts:      
    Current Current$38,038 $16,826$--$(15,654)(A)$39,210 Current$38,038$16,826 $- $(15,654)(A)$39,210
    Long-term Long-term$8,172$1,319$-- $(1,795)(A)$7,696 Long-term$8,172$1,319 $- $(1,795)(A)$7,696
    Deferred tax valuation allowanceDeferred tax valuation allowance$19,852 $1,748  $(338)(C)$--$21,262Deferred tax valuation allowance$19,852$1,748 $(338)(B) $-      $21,262
    Year ended June 30, 2005:
    Allowance for doubtful accounts:
    Current$36,600$16,672$--$(15,234)(A)$38,038
    Long-term$8,578$1,326$--$(1,732)(A)$8,172
    Deferred tax valuation allowance$18,510$2,385$--$(1,043)(B)$19,852

    (A)Doubtful accounts written off, less recoveries on accounts previously written off.
    (B)Related to foreign exchange fluctuation.
    (C)Related to state deferred tax assets pertaining to net operating loss carryforwards.
    (D)Related to surrender in disposition of subsidiaries, mergers and liquidations.

    (A) Doubtful accounts written off, less recoveries on accounts previously written off.

    (B) A portion of this allowance is related to the net deferred tax assets recorded in purchase accounting, the recognition of which is allocated to reduce goodwill. The remaining portion reduced the current year provision for income taxes.

    (C) Related to foreign exchange fluctuation.

    8681

    SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    		AUTOMATIC DATA PROCESSING, INC.

                          (Registrant)
                        (Registrant) 
    August 29 2007, 2008By /s/ Gary C. Butler 
      Gary C. Butler
      President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

    SignatureTitle Date 
    /s/ Gary C. Butler      TitleDate
    /s/ Gary C.ButlerPresident and Chief ExecutiveAugust 29 2007, 2008
       (Gary(Gary C. Butler)Officer, Director 
     (Principal Executive Officer)
    /s/ Christopher R. Reidy Chief Financial Officer August 29, 2008
       (Christopher R. Reidy) (Principal Financial Officer)  
     
    /s/ Christopher R. ReidyAlan Sheiness Chief Financial OfficerCorporate Controller August 29 2007, 2008
       (Christopher R. Reidy)(Alan Sheiness) (Principal FinancialAccounting Officer) 
     
    /s/ Alan SheinessGregory D. Brenneman Corporate ControllerDirector August 29 2007, 2008
       (Alan Sheiness)(Principal Accounting Officer)
    /s/ GregoryD. BrennemanDirectorAugust 29, 2007
    (Gregory(Gregory D. Brenneman)  
     
    /s/ Leslie A. BrunDirectorAugust 29 2007, 2008
       (Leslie(Leslie A. Brun)  
     
    /s/ Leon G. CoopermanDirectorAugust 29 2007, 2008
       (Leon(Leon G. Cooperman)  
     
    /s/ R. Glenn HubbardEric C. Fast DirectorAugust 29 2007, 2008
       (R. Glenn Hubbard)(Eric C. Fast)   
     
    /s/ John P.JonesR. Glenn Hubbard DirectorAugust 29 2007, 2008
       (John P. Jones)(R. Glenn Hubbard)   
     
    /s/ FredericV. MalekJohn P. Jones DirectorAugust 29 2007, 2008
       (Frederic V. Malek)(John P. Jones)   
     
    /s/ Henry TaubFrederic V. Malek   DirectorAugust 29 2007, 2008
       (Henry Taub)(Frederic V. Malek)   
     
    /s/ ArthurF. WeinbachCharles H. Noski DirectorAugust 29 2007, 2008
       (Charles H. Noski) 
    /s/ Sharon T. Rowlands Director August 29, 2008
       (Sharon T. Rowlands) 
     
    /s/ Gregory L. Summe Director (Arthur F. Weinbach)August 29, 2008
       (Gregory L. Summe) 
    /s/ Henry Taub Director August 29, 2008
       (Henry Taub)   

    82