AUTOMATIC DATA PROCESSING INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

______________

FORM 10-Q

______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 1-5397

AUTOMATIC DATA PROCESSING, INC.

(Exact name of registrant as specified in its charter)

Delaware	22-1467904
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

One ADP Boulevard, Roseland, New Jersey	07068
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (973) 974-5000

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 such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o

No x

The number of shares outstanding of the registrant’s common stock as of October 31, 2007 was 526,189,408.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Earnings

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended
	September 30,
	2007			2006
REVENUES:
Revenues, other than interest on funds held for clients and PEO revenues	$	1,603.5		$	1,426.6
Interest on funds held for clients		154.5			134.6
PEO revenues (A)		234.0			193.6
TOTAL REVENUES		1,992.0			1,754.8

EXPENSES:
Costs of revenues:
Operating expenses		908.3			803.5
Systems development and programming costs		124.4			113.9
Depreciation and amortization		59.4			50.2
TOTAL COSTS OF REVENUES		1,092.1			967.6

Selling, general and administrative expenses		533.6			492.6
Interest expense		29.4			35.4
TOTAL EXPENSES		1,655.1			1,495.6

Other income, net		(44.6	)		(90.0	)

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		381.5			349.2

Provision for income taxes		141.1			130.0

NET EARNINGS FROM CONTINUING OPERATIONS	$	240.4		$	219.2

Earnings from discontinued operations, net of provision for income taxes of $31.2 and $25.2 for the three months ended September 30, 2007 and 2006, respectively		57.0			38.3

NET EARNINGS	$	297.4		$	257.5

Basic Earnings Per Share from Continuing Operations	$	0.45		$	0.40
Basic Earnings Per Share from Discontinued Operations		0.11			0.07
BASIC EARNINGS PER SHARE	$	0.56		$	0.46

Diluted Earnings Per Share from Continuing Operations	$	0.45		$	0.39
Diluted Earnings Per Share from Discontinued Operations		0.11			0.07
DILUTED EARNINGS PER SHARE	$	0.55		$	0.46

Basic weighted average shares outstanding		529.3			554.2
Diluted weighted average shares outstanding		536.2			559.5

Dividends declared per common share	$	0.2300		$	0.1850

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $2,404.2 and $1,902.8 for the three months ended September 30, 2007 and 2006, respectively.

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

	September 30,			June 30,
Assets	2007			2007
Current assets:
Cash and cash equivalents	$	1,428.6		$	1,746.1
Short-term marketable securities (A)		146.4			70.4
Accounts receivable, net		957.8			1,041.9
Other current assets		545.5			448.1
Assets of discontinued operations		—			57.7
Total current assets		3,078.3			3,364.2
Long-term marketable securities (A)		301.6			68.1
Long-term receivables, net		234.4			226.5
Property, plant and equipment, net		722.2			723.8
Other assets		910.3			735.5
Goodwill		2,373.9			2,353.6
Intangible assets, net		689.3			688.0
Total assets before funds held for clients		8,310.0			8,159.7
Funds held for clients		17,393.3			18,489.2
Total assets	$	25,703.3		$	26,648.9

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	91.4		$	125.9
Accrued expenses and other current liabilities		1,385.6			1,527.1
Obligation under reverse repurchase agreement		345.9			—
Income taxes payable		135.2			118.7
Liabilities of discontinued operations		—			19.1
Total current liabilities		1,958.1			1,790.8
Long-term debt		43.5			43.5
Other liabilities		703.8			390.5
Deferred income taxes		109.8			127.7
Long-term deferred revenues		485.3			475.5
Total liabilities before client funds obligations		3,300.5			2,828.0
Client funds obligations		17,404.9			18,673.0
Total liabilities		20,705.4			21,501.0

Stockholders’ equity:
Preferred stock, $1.00 par value:
Authorized, 0.3 shares; issued, none		—			—
Common stock, $0.10 par value:
Authorized, 1,000.0 shares; issued 638.7shares at September 30, 2007 and June 30, 2007;outstanding, 526.1 and 535.8 shares at September 30, 2007and June 30, 2007, respectively		63.9			63.9
Capital in excess of par value		384.7			351.8
Retained earnings		9,556.1			9,378.5
Treasury stock- at cost: 112.6 and 102.9 shares at September 30, 2007 and June 30, 2007, respectively		(5,087.6	)		(4,612.9	)
Accumulated other comprehensive income (loss)		80.8			(33.4	)
Total stockholders’ equity		4,997.9			5,147.9
Total liabilities and stockholders’ equity	$	25,703.3		$	26,648.9

(A)	As of September 30, 2007, short-term and long-term marketable securities include $107.4 and $236.2, respectively, of securities that have been pledged as collateral under the Company’s reverse repurchase agreement (see Note 13).

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

	Three Months Ended September 30,
	2007			2006
Cash Flows from Operating Activities:
Net earnings	$	297.4		$	257.5
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Gain on sale of cost-based investment		—			(38.6	)
Depreciation and amortization		75.8			68.1
Deferred income taxes		(23.9	)		14.8
Stock-based compensation expense		28.9			32.6
Net periodic benefit cost		9.6			10.1
Net realized loss from the sales of marketable securities		—			0.2
Amortization of premiums and discounts on available-for-sale securities		7.6			11.2
Gain on sale of discontinued businesses, net of tax		(57.0	)		—
Other		12.9			23.6
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Decrease (increase) in accounts receivable		89.6			(27.8	)
Increase in other assets		(149.7	)		(92.8	)
Decrease in accounts payable		(35.7	)		(22.3	)
Increase (decrease) in accrued expenses and other liabilities		21.0			(84.5	)
Operating activities of discontinued operations		—			15.2
Net cash flows provided by operating activities		276.5			167.3


Cash Flows from Investing Activities:
Purchases of marketable securities		(1,604.8	)		(418.0	)
Proceeds from the sales and maturities of marketable securities		1,504.6			562.8
Net proceeds from client funds securities		1,074.1			1,052.8
Net decrease in client funds obligations		(1,293.5	)		(1,183.1	)
Capital expenditures		(36.4	)		(37.1	)
Additions to intangibles		(22.7	)		(20.5	)
Acquisitions of businesses, net of cash acquired		(56.9	)		(24.8	)
Proceeds from the sale of cost-based investment		—			38.6
Other		6.9			2.2
Proceeds from the sale of businesses included in discontinued operations, net of cash divested		102.7			—
Investing activities of discontinued operations		—			(4.0	)
Net cash flows used in investing activities		(326.0	)		(31.1	)

Cash Flows from Financing Activities :
Proceeds from issuance of notes		0.1			0.1
Payments of debt		(0.2	)		(0.2	)
Repurchases of common stock		(558.7	)		(611.6	)
Proceeds from reverse repurchase agreements		345.9			—
Proceeds from stock purchase plan and exercises of stock options		50.9			67.4
Dividends paid		(127.3	)		(105.0	)
Financing activities of discontinued operations		—			13.0
Net cash flows used in financing activities		(289.3	)		(636.3	)

Effect of exchange rate changes on cash and cash equivalents		6.6			0.7

Net change in cash and cash equivalents		(332.2	)		(499.4	)

Cash and cash equivalents of continuing operations, beginning of period		1,746.1			1,800.1
Cash and cash equivalents of discontinued operations, beginning of period		14.7			100.5

Cash and cash equivalents, end of period		1,428.6			1,401.2

Less cash and cash equivalents of discontinued operations, end of period		—			72.0

Cash and cash equivalents of continuing operations, end of period	$	1,428.6		$	1,329.2

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Tabular dollars in millions, except per share amounts)

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. Adjustments are of a normal recurring nature. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes of Automatic Data Processing, Inc. and subsidiaries (“ADP” or the “Company”) as of and for the year ended June 30, 2007. The results of operations for the three months ended September 30, 2007 may not be indicative of the results to be expected for the fiscal year ending June 30, 2008.

Note 2. Divestitures

On June 30, 2007, the Company entered into a definitive agreement to sell its Travel Clearing business for approximately $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 this business as discontinued operations for all periods presented. Additionally, during the three months ended September 30, 2007, the Company reported a gain of $88.2 million, or $57.0 million after taxes, exclusive of a working capital adjustment, within earnings from discontinued operations on the Statements of Consolidated Earnings.

On March 30, 2007, the Company 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. (“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.

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. During the fiscal year ended June 30, 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. The Company has classified the results of operations of this business as discontinued operations for all periods presented.

Operating results of these discontinued operations were as follows:

	Three Months Ended September 30,
	2007		2006

Revenues	$	—	$	462.8

Earnings from discontinued operations before income taxes		—		63.5
Provision for income taxes		—		25.2
Net earnings from discontinued operations before gain on disposal of discontinued operations		—		38.3
Gain on disposal of discontinued operations, net of provision for income taxes of $31.2 for the three months ended
September 30, 2007		57.0		—
Net earnings from discontinued operations	$	57.0	$	38.3

There were no assets or liabilities of discontinued operations as of September 30, 2007. The following are the major classes of assets and liabilities related to the discontinued operations as of June 30, 2007.

	June 30, 2007
Assets:
Cash	$	14.7
Accounts receivable, net		12.7
Property, plant and equipment, net		5.3
Goodwill		10.1
Intangible assets, net		9.6
Other assets		5.3

Total	$	57.7


Liabilities:
Accrued expenses	$	15.9
Income taxes payable		1.4
Other liabilities		1.8

Total	$	19.1

Note 3. New Accounting Pronouncements

In March 2007, the Financial Accounting Standards Board (“FASB”) ratified EITF Issue No. 06-11, “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. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The Company does not expect EITF 06-11 to have a material impact on its results of operations or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards 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 that the adoption of SFAS No. 159 will have, if any, on its consolidated results of operations and financial condition.

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 that the adoption of SFAS No. 157 will not have a material effect on its 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 – an interpretation of FASB Statement No. 109” (“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. The Company adopted the provisions of FIN 48 as of July 1, 2007, which resulted in a decrease to stockholders’ equity of $11.7 million (see Note 16).

Note 4. Acquisitions

The Company acquired three businesses during the three months ended September 30, 2007 for approximately $39.6 million, net of cash acquired. These acquisitions resulted in approximately $19.9 million of goodwill. Intangible assets acquired, which totaled approximately $18.8 million, consisted primarily of customer contracts and lists and software that are being amortized over a weighted average life of 10 years. The acquisitions were not material, either individually or in the aggregate, to the Company’s operations, financial position or cash flows. The Company also made $17.3 million of contingent payments during the three months ended September 30, 2007 relating to previously consummated acquisitions.

Note 5. Earnings per Share (“EPS”)

	Basic		Effect of Zero Coupon Subordinated Notes		Effect of Employee Stock Option Shares		Effect of Employee Stock Purchase Plan Shares		Effect of Employee Restricted Stock Shares		Diluted

Three months ended September 30,

2007
Net earnings from continuing operations	$	240.4	$	—	$	—	$	—	$	—	$	240.4
Weighted average shares (in millions)		529.3				5.8		0.5		0.6		536.2
EPS from continuing operations	$	0.45									$	0.45

2006
Net earnings from continuing operations	$	219.2	$	0.4	$	—	$	—	$	—	$	219.6
Weighted average shares (in millions)		554.2		1.1		3.6		0.3		0.3		559.5
EPS from continuing operations	$	0.40									$	0.39

Options to purchase 6.9 million and 25.7 million shares of common stock for the three months ended September 30, 2007 and 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 period.

Note 6. Fair Value Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), 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 grant. Stock-based compensation consists of the following:

•

Stock Options. Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s common stock on the dates of grant. Stock options are issued under a grade vesting schedule, generally vest ratably over five years and have a term of 10 years. Compensation expense for stock options is recognized over the requisite service period for each separately vesting portion of the stock option award. In the fiscal year ended June 30, 2007, the Company reduced the number of stock options issued to employees and replaced these awards with the issuance of performance-based restricted stock.

•

Employee Stock Purchase Plan. The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock 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. Compensation expense for the employee stock purchase plan is recognized on a straight-line basis over the vesting period of 24 months.

•

Restricted Stock.

Time-Based Restricted Stock. The Company has a time-based restricted stock 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 time-based restricted stock over the period during 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, is recognized as compensation expense over the restriction period on a straight-line basis.

Performance-Based Restricted Stock. In the fiscal year ended June 30, 2007, the Company revised its stock-based compensation programs for non-executives, and began awarding two-year performance-based restricted stock in place of stock options. In addition, in the fiscal year ended June 30, 2007, the existing time-based restricted stock program for key employees 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 awards”. SFAS No. 123R requires the measurement of stock-based compensation 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.

The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company’s employee stock purchase plan and restricted stock awards. Stock-based compensation expense of $28.9 million and $32.6 million was recognized in earnings from continuing operations for the three months ended September 30, 2007 and 2006, respectively, as well as related tax benefits of $8.5 million and $9.5 million, respectively.

	Three Months Ended September 30,
	2007		2006

Operating expenses	$	5.3	$	5.0
Selling, general and administrative expenses		18.9		22.6
System development and programming costs		4.7		5.0
Total pretax stock-based compensation expense included in continuing operations	$	28.9	$	32.6
Total pretax stock-based compensation expense included in discontinued operations		—		5.9
Total pretax stock-based compensation expense	$	28.9	$	38.5

As of September 30, 2007, the total remaining unrecognized compensation cost related to non-vested stock options, the employee stock purchase plan and restricted stock awards amounted to $60.8 million, $15.2 million and $129.0 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 1.2 years, 1.1 years and 2.0 years, respectively.

During the three months ended September 30, 2007, the following activity occurred under our existing plans:

Stock Options:

	Number of Options		Weighted Average Price
	(in thousands)		(in dollars)

Options outstanding at July 1, 2007	53,786		$	40
Options granted	264		$	48
Options exercised	(982	)	$	37
Options canceled	(379	)	$	41

Options outstanding at September 30, 2007	52,689		$	40

Performance-Based Restricted Stock:

	Number
	of Shares
	(in thousands)

Restricted shares outstanding at July 1, 2007	1,711
Restricted shares granted	1,487
Restricted shares vested	(121	)
Restricted shares forfeited	(24	)

Restricted shares outstanding at September 30, 2007	3,053

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.

The following assumptions were used to determine the fair values estimated at the date of grant for stock options:

	Three Months Ended
	September 30,
	2007			2006
Risk-free interest rate		4.6	%		5.0	%
Dividend yield		1.7	%		1.6	%
Weighted average volatility factor		24.5	%		24.5	%
Weighted average expected life (in years)		5.0			5.6
Weighted average fair value (in dollars)	$	11.33		$	11.13

Note 7. Other Income, net

	Three Months Ended
	September 30,
	2007			2006
Interest income on corporate funds	$	(44.0	)	$	(51.6	)
Gain on sale of investment		—			(38.6	)
Realized gains on available-for-sale securities		(4.6	)		(0.4	)
Realized losses on available-for-sale securities		4.6			0.6
Other, net		(0.6	)		—

Other income, net	$	(44.6	)	$	(90.0	)

Proceeds from sales and maturities of available-for-sale securities were $1,504.6 million and $562.8 million for the three months ended September 30, 2007 and 2006, respectively.

During the three months ended September 30, 2006, the Company sold a minority investment that was previously accounted for using the cost basis and had a net book value of $0. The Company’s sale of this investment resulted in a gain of approximately $38.6 million.

The Company has an outsourcing agreement with Broadridge pursuant to which the Company will continue to provide data center outsourcing, principally information technology services and service delivery network services to Broadridge in the same capacity post-spin as had been provided pre-spin. As a result of the outsourcing agreement, the Company recognized income of $26.2 million for the three months ended September 30, 2007, which is offset by expenses directly associated with providing such services of $25.6 million, both of which were recorded in other income, net, on the Statements of Consolidated Earnings. The Company had an $8.9 million and $9.6 million receivable from Broadridge for the services under this agreement within accounts receivable on the Consolidated Balance Sheets as of September 30, 2007 and June 30, 2007, respectively.

Note 8. Comprehensive Income

	Three Months Ended
	September 30,
	2007		2006
Net earnings	$	297.4	$	257.5
Other comprehensive income:
Foreign currency translation adjustments		4.1		21.6
Unrealized net gain on available-for-sale securities, net of tax		108.5		121.1
Pension benefit plans adjustment		1.6		—
Comprehensive income	$	411.6	$	400.2

Note 9. Interim Financial Data by Segment

In the fiscal year ended June 30, 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 prior year reportable segments’ revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated budgeted foreign exchange rates for the fiscal year ending June 30, 2008. 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 the Company’s reportable segments’ revenues and/or earnings from continuing operations before income taxes and results in the elimination of these adjustments/charges in consolidation.

Segment Results:

	Revenues						Earnings from Continuing Operations before Income Taxes
	Three Months Ended September 30,						Three Months Ended September 30,
	2007			2006			2007			2006

Employer Services	$	1,420.7		$	1,279.8		$	318.1		$	279.8
PEO Services		235.7			194.9			25.0			15.7
Dealer Services		325.7			301.8			50.5			44.8
Other		(0.7	)		0.3			(45.5	)		(9.8	)
Reconciling items:
Foreign exchange		7.2			(15.5	)		0.6			(1.2	)
Client fund interest		3.4			(6.5	)		3.4			(6.5	)
Cost of capital charge		—			—			29.4			26.4
Total	$	1,992.0		$	1,754.8		$	381.5		$	349.2

Note 10. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at September 30, 2007 and June 30, 2007 are as follows:

	September 30, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Type of issue:
Money market securities and other cash equivalents	$	5,571.1	$	—	$	—		$	5,571.1
Available-for-sale securities:
U.S. Treasury and direct obligations of U.S. government agencies		5,781.1		17.3		(17.7	)		5,780.7
Corporate bonds		3,485.3		14.5		(16.8	)		3,483.0
Asset-backed securities		1,958.9		7.0		(9.2	)		1,956.7
Canadian government obligations and Canadian government agency obligations		1,067.1		1.4		(12.5	)		1,056.0
Other debt securities		1,422.2		8.3		(8.1	)		1,422.4

Total available-for-sale securities		13,714.6		48.5		(64.3	)		13,698.8

Total corporate investments and funds held for clients	$	19,285.7	$	48.5	$	(64.3	)	$	19,269.9

June 30, 2007