10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

______________

FORM 10-Q

______________

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

For the Quarterly Period Ended December 31, 2006

OR

[ ]   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)	(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 January 31, 2007 was 550,288,406.

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						Six Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
REVENUES:
Revenues, other than interest on funds held for Employer Services’ clients and PEO revenues	$	1,968.3		$	1,748.0		$	3,837.8		$	3,390.5
Interest on funds held for Employer Services’ clients		142.4			118.9			277.0			227.3
PEO revenues (A)		205.4			163.5			400.4			319.3
TOTAL REVENUES		2,316.1			2,030.4			4,515.2			3,937.1
EXPENSES:
Costs of revenues
Operating expenses		1,110.4			947.7			2,209.5			1,859.5
Systems development and programming costs		145.1			145.9			282.8			287.9
Depreciation and amortization		62.2			51.0			123.7			99.7
TOTAL COST OF REVENUES		1,317.7			1,144.6			2,616.0			2,247.1
Selling, general and administrative expenses		564.3			481.0			1,108.5			956.0
Separation costs		8.0			—			10.6			—
Other income, net		(27.6	)		(9.0	)		(82.4	)		(11.4	)
TOTAL EXPENSES		1,862.4			1,616.6			3,652.7			3,191.7
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		453.7			413.8			862.5			745.4
Provision for income taxes		170.7			156.8			324.4			282.6
NET EARNINGS FROM CONTINUING OPERATIONS	$	283.0		$	257.0		$	538.1		$	462.8
Earnings from discontinued operations, net of provision for income taxes of $1.9 and $1.2 for the three months ended December 31, 2006 and 2005, respectively, and $3.3 and $8.5 for the six months ended December 31, 2006 and 2005, respectively		14.7			2.7			17.0			16.9
NET EARNINGS	$	297.7		$	259.7		$	555.1		$	479.7
Basic Earnings Per Share from Continuing Operations	$	0.52		$	0.45		$	0.98		$	0.80
Basic Earnings Per Share from Discontinued Operations		0.03			—			0.03			0.03
BASIC EARNINGS PER SHARE	$	0.54		$	0.45		$	1.01		$	0.83
Diluted Earnings Per Share from Continuing Operations	$	0.51		$	0.44		$	0.97		$	0.80
Diluted Earnings Per Share from Discontinued Operations		0.03			—			0.03			0.03
DILUTED EARNINGS PER SHARE	$	0.54		$	0.45		$	1.00		$	0.83
Basic weighted average shares outstanding		548.5			576.2			551.4			576.8
Diluted weighted average shares outstanding		555.3			582.3			557.9			582.0
Dividends declared per common share	$	0.2300		$	0.1850		$	0.4150		$	0.3400

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs of $2,442.5 and $1,719.2 for the three months ended December 31, 2006 and 2005, respectively, and $4,345.3 and $3,209.9 for the six months ended December 31, 2006 and 2005, respectively.  

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

	December 31,			June 30,
Assets	2006			2006
Current assets:
Cash and cash equivalents	$	1,294.7		$	1,900.6
Short-term marketable securities (includes $40.4 and $40.3 of segregated securities deposited with clearing organizations or segregated for regulatory purposes, respectively)		249.4			367.9
Accounts receivable, net		1,280.7			1,185.5
Securities clearing receivables		924.0			836.8
Other current assets		522.8			451.5
Assets of discontinued operations		20.5			18.0
Total current assets		4,292.1			4,760.3
Long-term marketable securities		155.6			334.0
Long-term receivables, net		196.4			215.4
Property, plant and equipment, net		780.6			782.2
Other assets		896.3			830.1
Goodwill		2,753.4			2,466.2
Intangible assets, net		738.3			618.0
Total assets before funds held for clients		9,812.7			10,006.2
Funds held for clients		21,799.5			17,483.9
Total assets	$	31,612.2		$	27,490.1
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	171.8		$	205.6
Accrued expenses and other current liabilities		1,463.2			1,542.3
Securities clearing payables		790.5			613.6
Income taxes payable		94.8			205.7
Liabilities of discontinued operations		31.2			35.0
Total current liabilities		2,551.5			2,602.2
Long-term debt		73.8			74.3
Other liabilities		426.1			373.4
Deferred income taxes		183.1			123.7
Deferred revenues		534.3			517.5
Total liabilities before client funds obligations		3,768.8			3,691.1
Client funds obligations		21,936.9			17,787.4
Total liabilities		25,705.7			21,478.5
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 638.7 shares		63.9			63.9
Capital in excess of par value		260.5			157.4
Retained earnings		9,438.0			9,111.4
Treasury stock - at cost: 90.7 and 77.3 shares, respectively		(3,872.6	)		(3,194.8	)
Accumulated other comprehensive income (loss)		16.7			(126.3	)
Total stockholders’ equity		5,906.5			6,011.6
Total liabilities and stockholders’ equity	$	31,612.2		$	27,490.1

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

	Six Months Ended
	December 31,
	2006			2005
Cash Flows from Operating Activities:
Net earnings	$	555.1		$	479.7
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Gain on sale of cost-based investment		(38.6	)		—
Depreciation and amortization		168.0			142.5
Deferred income taxes		4.3			3.8
Stock-based compensation expense		82.6			83.5
Pension expense		22.6			17.2
Net realized (gain) loss from the sales of marketable securities		(17.9	)		15.9
Amortization of premiums and discounts on available-for-sale securities		21.7			44.3
Gain on sale of business		(13.2	)		—
Impairment of assets of discontinued operations business		—			19.0
Other		27.8			15.9
Operating activities of discontinued operations		(2.4	)		1.4
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Decrease in securities deposited with clearing organizations or segregated for regulatory purposes		(0.1	)		178.4
Increase in receivables and other assets		(176.7	)		(20.1	)
Decrease in accounts payable, accrued expenses and other liabilities		(225.4	)		(103.1	)
Increase in securities clearing receivables		(87.2	)		(84.6	)
Increase in securities clearing payables		176.8			106.4
Net cash flows provided by operating activities		497.4			900.2
Cash Flows from Investing Activities:
Purchases of marketable securities		(2,468.1	)		(2,931.6	)
Proceeds from the sales and maturities of marketable securities		2,614.3			2,584.4
Net purchases of client funds securities		(4,044.7	)		(1,595.3	)
Change in client funds obligations		4,188.3			2,001.4
Capital expenditures		(89.7	)		(150.8	)
Additions to intangibles		(101.2	)		(56.2	)
Proceeds from the sale of investment		38.6			—
Proceeds from the sale of business		13.2			—
Acquisitions of businesses, net of cash acquired		(369.2	)		(285.9	)
Other		9.2			5.6
Investing activities of discontinued operations		—			(8.7	)
Net cash flows used in investing activities		(209.3	)		(437.1	)
Cash Flows from Financing Activities:
Proceeds from issuance of notes		0.3			0.3
Payments of debt		(1.2	)		(0.4	)
Repurchases of common stock		(872.0	)		(341.0	)
Proceeds from stock purchase plan and exercises of stock options		178.6			149.2
Dividends paid		(207.9	)		(181.1	)
Financing activities of discontinued operations		—			4.3
Net cash flows used in financing activities		(902.2	)		(368.7	)
Effect of exchange rate changes on cash and cash equivalents		8.2			(7.2	)
Net change in cash and cash equivalents		(605.9	)		87.2
Cash and cash equivalents, beginning of period		1,900.6			975.0
Cash and cash equivalents, end of period	$	1,294.7		$	1,062.2
Less cash and cash equivalents of discontinued operations, end of period		—			117.8
Cash and cash equivalents of continuing operations, end of period	$	1,294.7		$	944.4

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, 2006. The results of operations for the three and six months ended December 31, 2006 may not be indicative of the results to be expected for the fiscal year ending June 30, 2007.

Note 2. Discontinued Operations

During the three months ended December 31, 2006, the Company entered into a definitive agreement to sell its Sandy division, a business within the Dealer Services segment, which specializes in sales and marketing training, for approximately $5.2 million in cash, subject to final closing adjustments, plus an additional earn-out payment if certain revenue targets are achieved. On January 23, 2007, the Company completed the sale of its Sandy division. The Company has classified the results of operations of this business as discontinued operations for all periods presented.

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, during the fiscal year ended June 30, 2006. During the three months ended December 31, 2006, 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 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.

On January 20, 2006, the Company completed the sale of its Brokerage Services’ financial print business. The Company classified the results of operations of this business as discontinued operations during the fiscal year ended June 30, 2006.

Operating results of these discontinued operations were as follows:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2006		2005		2006		2005
Revenues	$	17.7	$	145.0	$	36.2	$	284.5
Earnings from discontinued operations before income taxes		3.4		3.9		7.1		25.4
Provision for income taxes		1.3		1.2		2.7		8.5
Net earnings from discontinued operations before gain on disposal of discontinued operations		2.1		2.7		4.4		16.9
Gain on disposal of discontinued operations, net of provision for income taxes of $0.6		12.6		—		12.6		—
Net earnings from discontinued operations	$	14.7	$	2.7	$	17.0	$	16.9

The following are the major classes of assets and liabilities related to the discontinued operations as of December 31, 2006 and June 30, 2006.

	December 31,		June 30,
	2006		2006
Assets:
Accounts receivable, net	$	19.5	$	16.9
Property, plant and equipment, net		0.1		0.2
Other assets		0.9		0.9
Total	$	20.5	$	18.0
Liabilities:
Accounts payable	$	1.8	$	1.7
Accrued expenses		7.8		9.2
Income taxes payable		14.5		14.6
Deferred revenue		7.1		9.5
Total	$	31.2	$	35.0

Note 3. Cost of Revenues

The Company has revised the format of our Statements of Consolidated Earnings to include a separate line item for cost of revenues. The Company’s costs and expenses applicable to revenues (“cost of revenues”) represent the total of operating expenses and systems development and programming costs as presented on the Statements of Consolidated Earnings, as well as the portion of depreciation and amortization that relates to our services and products.

The Company previously reported that depreciation and amortization from continuing operations totaled $72.5 million and $142.5 million for the three and six months ended December 31, 2005, respectively. The portion of depreciation and amortization that relates to our services and products equals $51.0 million and $99.7 million for the three and six months ended December 31, 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 $21.5 million and $42.8 million for the three and six months ended December 31, 2005, respectively, was reclassified to selling, general and administrative expenses on the Statements of Consolidated Earnings.

The following table provides the cost of revenues from continuing operations for the three fiscal years ended June 30, 2006:

Years ending June 30,		2006		2005		2004
Operating expenses	$	4,234.6	$	3,713.8	$	3,257.0
Systems development and programming costs		589.8		549.9		523.6
Depreciation and amortization		216.8		209.5		215.9
Cost of revenues	$	5,041.2	$	4,473.2	$	3,996.5

Note 4. Spin-off of Brokerage Services Group

On August 2, 2006, the Company announced that its Board of Directors approved a plan to spin-off the Brokerage Services Group business, comprised of Brokerage Services and Securities Clearing and Outsourcing Services, into an independent publicly traded company through a tax-free spin-off of 100% of Brokerage Services Group to ADP shareholders. This new independent publicly traded company will be called Broadridge Financial Solutions, Inc. (“Broadridge"). The Company has requested a favorable ruling from the Internal Revenue Service (the “IRS”) with respect to the spin-off and intends to complete the spin-off only if the favorable ruling and a favorable opinion of counsel confirming the spin-off’s tax-free status are received. The spin-off is also subject to other conditions, including necessary regulatory approvals.

In December 2006, Broadridge (under the name of “BSG LLC”) filed a registration statement on Form 10 with the Securities and Exchange Commission (“SEC”). The financial presentation of Broadridge in the Form 10 differs from the financial presentation of the Brokerage Services and Securities Clearing and Outsourcing Services segments in ADP’s financial statements due to adjustments made in the Form 10 to reflect the additional corporate expenses and other operating costs of Broadridge as if it were a stand-alone company.

Upon completion of the spin-off, the ADP shareholders will have separate ownership interests in ADP and Broadridge. Broadridge will be a global provider of technology-based outsourcing solutions to the financial services industry. ADP and Broadridge will be two distinct businesses with separate ownership and management. To facilitate Broadridge’s separation from ADP, ADP will provide certain services to Broadridge during a transition period following completion of the spin-off. ADP expects to incur incremental costs associated with the spin-off of approximately $45 to $55 million. Incremental costs associated with the spin-off of $8.0 million and $10.6 million for the three and six months ended December 31, 2006, respectively, are included in separation costs on the Statements of Consolidated Earnings and are principally related to professional services.

Note 5. New Accounting Pronouncements

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 companies to evaluate the materiality of identified unadjusted errors on each financial statement and related financial statement disclosure using both the rollover approach and the iron curtain approach. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company plans to include the effect of adopting SAB 108 in its Annual Report on Form 10-K for the year ending June 30, 2007 and is currently evaluating the effect that the adoption will have on its consolidated results of operations and financial condition.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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 postretirement 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 disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The Company plans to include the effect of adopting SFAS No. 158 in its Annual Report on Form 10-K for the year ending June 30, 2007 and is currently assessing the impact of adoption. The requirement to measure the plan assets and benefit obligations as of the date of the  

employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company does not believe this requirement will have a material impact 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 is currently evaluating the effect that the adoption of SFAS No. 157 will have, if any, on its consolidated results of operations and financial condition.

In July 2006, the FASB issued FASB Interpretation (“FIN”) 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. The Company expects to adopt FIN 48 on July 1, 2007 and is currently evaluating the effect that the adoption of FIN 48 will have on its consolidated results of operations and financial condition.

Note 6. Acquisitions

The Company acquired four businesses during the six months ended December 31, 2006 for approximately $368.3 million, net of cash acquired and subject to post-closing purchase adjustments. The Company has allocated the purchase price of these acquisitions based upon preliminary estimates and assumptions. Accordingly, these allocations are subject to revision when the Company receives final information, including appraisals and other analyses. These acquisitions resulted in approximately $264.8 million of goodwill. Intangible assets acquired, which totaled approximately $100.3 million, consisted primarily of customer contracts and lists, software and trademarks 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 $0.9 million of contingent payments relating to previously consummated acquisitions.

Note 7. Earnings Per Share (“EPS”)

	For the three months ended December 31,
	2006					2005
	Net Earnings from Continuing Operations		Weighted Average Shares	EPS from Continuing Operations		Net Earnings from Continuing Operations		Weighted Average Shares	EPS from Continuing Operations
Basic	$	283.0	548.5	$	0.52	$	257.0	576.2	$	0.45
Effect of zero coupon subordinated notes		0.4	1.1				0.3	1.2
Effect of employee compensation related shares		—	5.7				—	4.9
Diluted	$	283.4	555.3	$	0.51	$	257.3	582.3	$	0.44

	For the six months ended December 31,
	2006					2005
	Net Earnings from Continuing Operations		Weighted Average Shares	EPS from Continuing Operations		Net Earnings from Continuing Operations		Weighted Average Shares	EPS from Continuing Operations
Basic	$	538.1	551.4	$	0.98	$	462.8	576.8	$	0.80
Effect of zero coupon subordinated notes		0.8	1.1				0.6	1.2
Effect of employee compensation related shares		—	5.4				—	4.0
Diluted	$	538.9	557.9	$	0.97	$	463.4	582.0	$	0.80

Options to purchase 21.5 million and 29.2 million shares of common stock for the three months ended December 31, 2006 and 2005, respectively, and 24.9 million and 34.5 million shares of common stock for the six months ended December 31, 2006 and 2005, respectively, were excluded from the calculation of diluted earnings per share, as the effect would have been anti-dilutive for each respective period.

Note 8. 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 primarily 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 and, 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 fiscal 2007, the Company has 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. Prior to November 2005, the Company offered an employee stock purchase plan that allowed eligible employees to purchase shares of common stock at 85% of the lower of market value as of the date the purchase price for an offering was determined or as of the end of such offering. In November 2005, the Company revised the employee stock purchase plan offering beginning on January 1, 2006, whereby eligible employees can purchase shares of common stock at 85% of the market value at the date the purchase price for the offering is determined. Compensation expense for the employee stock purchase plan is recognized over the vesting period of 24 months on a straight-line basis.

• Restricted Stock. The Company has a 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 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 restricted stock, based on market prices, is recognized as compensation expense over the restriction period on a straight-line basis.

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 $44.2 million and $40.5 million was recognized in earnings from continuing operations for the three months ended December 31, 2006 and 2005, respectively, as well as related tax benefits of $13.5 million and $11.6 million, respectively. Stock-based compensation expense of $82.6 million and $83.5 million was recognized in earnings from continuing operations for the six months ended December 31, 2006 and 2005, respectively, as well as related tax benefits of $24.7 million and $23.9 million, respectively.

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2006		2005		2006		2005
Operating expenses	$	8.5	$	7.7	$	15.0	$	15.9
Selling, general and administrative expenses		26.6		24.9		51.5		51.0
System development and programming costs		9.1		7.9		16.1		16.6
Total pretax stock-based compensation expense included in continuing operations	$	44.2	$	40.5	$	82.6	$	83.5
Total pretax stock-based compensation expense included in discontinued operations		0.2		2.3		0.3		4.8
Total pretax stock-based compensation expense	$	44.4	$	42.8	$	82.9	$	88.3

As of December 31, 2006, the total remaining unrecognized compensation cost related to non-vested stock options, the employee stock purchase plan and restricted stock awards amounted to $109.2 million, $9.9 million and $105.3 million respectively, which will be amortized over the weighted average remaining requisite service periods of 1.2 years, 0.6 years and 1.2 years, respectively.

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 of stock options granted during the six months ended December 31, 2006 and 2005:

Risk-free interest rate		4.7% — 5.4	%		4.0	%
Dividend yield		1.6	%		1.4	%
Weighted average volatility factor		24.5% — 24.7	%		24.7	%
Weighted average expected life (in years)		5.6			5.5
Weighted average fair value (in dollars)	$	12.21		$	10.37

Note 9. Other Income, net

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
Interest income on corporate funds	$	(41.8	)	$	(37.8	)	$	(93.6	)	$	(71.7	)
Interest expense		32.3			25.7			67.7			44.4
Gain on sale of investment		—			—			(38.6	)		—
Realized gains on available-for-sale securities		(19.7	)		(0.1	)		(20.1	)		(0.6	)
Realized losses on available-for-sale securities		1.6			3.2			2.2			16.5
Other income, net	$	(27.6	)	$	(9.0	)	$	(82.4	)	$	(11.4	)

Proceeds from sales and maturities of available-for-sale securities were $2,614.3 million and $2,584.4 million for the six months ended December 31, 2006 and 2005, respectively.

During the six months ended December 31, 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.

Note 10. Comprehensive Income

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2006			2005			2006		2005
Net earnings	$	297.7		$	259.7		$	555.1	$	479.7
Other comprehensive income (loss):
Foreign currency translation adjustments		10.3			(32.8	)		31.9		(16.4	)
Unrealized net gain (loss) on available-for-sale securities, net of tax		(10.0	)		(36.2	)		111.1		(109.5	)
Comprehensive income	$	298.0		$	190.7		$	698.1	$	353.8

Note 11. Interim Financial Data by Segment

Employer Services, Brokerage Services, Securities Clearing and Outsourcing Services and Dealer Services are the Company's reportable segments. The primary components of “Other” are miscellaneous processing services and corporate allocations and expenses, including stock-based compensation expense.

 The Company evaluates the performance of its reportable segments based on operating results before interest on corporate funds, foreign currency gains and losses and income taxes. 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’s reportable segment revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated fiscal 2007 budgeted foreign exchange rates.

Reconciling items include foreign exchange differences between the actual foreign exchange rates and fiscal 2007 budgeted foreign exchange rates, and the adjustment for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services at a standard rate of 4.5%. Both of these adjustments are eliminated in consolidation and as such represent reconciling items to revenues and earnings from continuing operations before income taxes. The reportable segment results also include an internal cost of capital charge related to the funding of acquisitions and other investments. This charge is eliminated in consolidation and as such represents a reconciling item to earnings from continuing operations before income taxes.

Segment Results:

	Revenues
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
Employer Services	$	1,540.5		$	1,376.6		$	2,994.2		$	2,679.7
Brokerage Services		404.3			368.4			816.9			725.1
Securities Clearing and Outsourcing Services		23.2			19.8			45.0			37.5
Dealer Services		302.9			253.8			597.5			493.5
Other		32.5			31.8			39.9			43.6
Reconciling items:
Foreign exchange		18.1			(3.7	)		33.6			(6.0	)
Client fund interest		(5.4	)		(16.3	)		(11.9	)		(36.3	)
Total	$	2,316.1		$	2,030.4		$	4,515.2		$	3,937.1

	Earnings From Continuing Operations Before Income Taxes
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
Employer Services	$	335.0		$	310.1		$	630.6		$	582.0
Brokerage Services		57.0			54.8			115.5			109.4
Securities Clearing and Outsourcing Services		(5.5	)		(7.6	)		(12.0	)		(19.4	)
Dealer Services		48.0			39.3			92.3			80.1
Other		(16.9	)		(1.4	)		(32.7	)		(38.7	)
Reconciling items:
Foreign exchange		2.5			(0.4	)		4.8			(1.3	)
Client fund interest		(5.4	)		(16.3	)		(11.9	)		(36.3	)
Cost of capital charge		39.0			35.3			75.9			69.6
Total	$	453.7		$	413.8		$	862.5		$	745.4

Note 12. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at December 31, 2006 and June 30, 2006 are as follows:

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Type of issue:
Money market securities and other cash equivalents	$	9,859.6		—		—		$	9,859.6
Trading securities:
U.S. Treasury and direct obligations of U.S. government agencies		40.4		—		—			40.4
Available-for-sale securities:
U.S. Treasury and direct obligations of U.S. government agencies		6,336.1		1.5		(88.0	)		6,249.6
Asset backed securities		2,076.3		4.3		(17.6	)		2,063.0
Corporate bonds		3,615.6		6.8		(36.4	)		3,586.0
Canadian government obligations and Canadian government agency obligations		965.6		0.4		(4.9	)		961.1
Other debt securities		745.4		1.9		(7.8	)		739.5
Total available-for-sale securities		13,739.0		14.9		(154.7	)		13,599.2
Total corporate investments and funds held for clients	$	23,639.0	$	14.9	$	(154.7	)	$	23,499.2

	June 30, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Type of issue:
Money market securities and other cash equivalents	$	6,433.3		—		—		$	6,433.3
Trading securities:
U.S. Treasury and direct obligations of U.S. government agencies		40.3		—		—			40.3
Available-for-sale securities:
U.S. Treasury and direct obligations of U.S. government agencies		6,441.5		0.1		(165.0	)		6,276.6
Asset backed securities		2,214.1		0.3		(40.8	)		2,173.6
Corporate bonds		3,564.7		0.2		(75.9	)		3,489.0
Canadian government obligations and Canadian government agency obligations		838.1		0.1		(11.5	)		826.7
Other debt securities		867.3		0.1		(20.5	)		846.9
Total available-for-sale securities		13,925.7		0.8		(313.7	)		13,612.8
Total corporate investments and funds held for clients	$	20,399.3	$	0.8	$	(313.7	)	$	20,086.4

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

	December 31,		June 30,
	2006		2006
Corporate investments:
Cash and cash equivalents	$	1,294.7	$	1,900.6
Short-term marketable securities		249.4		367.9
Long-term marketable securities		155.6		334.0
Total corporate investments		1,699.7		2,602.5
Funds held for clients		21,799.5		17,483.9
Total corporate investments and funds held for clients	$	23,499.2	$	20,086.4

The Company’s trading securities include $40.4 million and $40.3 million at December 31, 2006 and June 30, 2006, respectively, that have been pledged as collateral to exchanges and clearinghouses.

The Company believes that its available-for-sale securities that have fair values below cost are not other-than-temporarily impaired since it is probable that 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 to hold these investments until the earlier of market price recovery and/or maturity and currently intends to do so. 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.

At December 31, 2006 approximately 95% of the available-for-sale securities held an AAA or AA rating, as rated by Moody’s, Standard & Poor’s and Dominion Bond Rating Service.

Expected maturities of available-for-sale securities at December 31, 2006 are as follows:

Due in one year or less	$	2,763.8
Due after one year to two years		2,679.3
Due after two years to three years		2,529.7
Due after three years to four years		2,598.3
Due after four years to ten years		3,028.1
Total available-for-sale securities	$	13,599.2

Note 13. Allowance for Doubtful Accounts

The allowance for doubtful accounts was $44.9 million and $43.1 million at December 31, 2006 and June 30, 2006, respectively.

Note 14. Securities Clearing and Outsourcing Services

Securities clearing receivables and payables consist of the following:

	December 31,		June 30,
	2006		2006
Receivables:
Clearing customers	$	551.9	$	552.0
Securities borrowed		110.2		100.7
Broker-dealers and other		111.5		63.3
Clearing organizations		24.3		27.7
Securities failed to deliver		126.1		93.1
Total	$	924.0	$	836.8
Payables:
Clearing customers	$	550.2	$	449.7
Securities loaned		13.3		5.8
Broker-dealers and other		132.8		90.8
Securities failed to receive		94.2		67.3
Total	$	790.5	$	613.6

The Securities Clearing and Outsourcing Services segment is comprised of one subsidiary, ADP Clearing & Outsourcing Services, Inc. (“ADP Clearing”). As of December 31, 2006, ADP Clearing had received collateral, primarily in connection with securities borrowed, customer margin loans and broker-dealer accounts, with a market value of approximately $6,749.2 million, which it can sell or repledge. Of this amount, approximately $380.0 million had been repledged or sold as of December 31, 2006 in connection with securities loaned, deposits with clearing organizations and securities clearing activities.

As a registered broker-dealer and member of the New York Stock Exchange, ADP Clearing is subject to the Uniform Net Capital Rule 15c3-1 (the “rule”) of the SEC. ADP Clearing computes its net capital under the alternative method permitted by the rule, which requires that minimum net capital be equal to 2% of aggregate debit items arising from customer transactions. At December 31, 2006, ADP Clearing’s net capital was $216.5 million, which was 27.5% of aggregate debit items and exceeded requirements by $200.8 million. ADP Clearing has secured unlimited Securities Industry Protection Corporation (“SIPC”) insurance coverage for its customers. Under the terms of the unlimited SIPC insurance coverage, ADP Clearing is required to maintain net capital of $200.0 million.

Note 15. Goodwill and Intangible Assets, net

Changes in goodwill for the six months ended December 31, 2006 are as follows:

	Employer Services		Brokerage Services		Securities Clearing and Outsourcing Services			Dealer Services		Other		Total
Balance as of June 30, 2006	$	1,246.2	$	370.0	$	110.4		$	730.0	$	9.6	$	2,466.2
Additions, net		264.2		—		(0.3	)		1.1		—		265.0
Adjustment to reallocate goodwill		—		80.0		(80.0	)		—		—		—
Currency translation adjustments		9.5		0.7		—			11.8		0.2		22.2
Balance as of December 31, 2006	$	1,519.9	$	450.7	$	30.1		$	742.9	$	9.8	$	2,753.4

During the three months ended December 31, 2006, the Company recorded an adjustment to allocate $80.0 million of goodwill from the Securities Clearing and Outsourcing Services segment, originally recorded as part of the fiscal 2005 acquisition of the U.S. Clearing and BrokerDealer Services divisions of Bank of America Corporation, to the Brokerage Services segment as this segment received a benefit from a significant portion of the synergies attained from this acquisition.

Components of intangible assets, net are as follows:

	December 31,			June 30,
	2006			2006
Intangible assets:
Software and software licenses	$	960.7		$	833.6
Customer contracts and lists		693.5			624.2
Other intangibles		333.3			332.3
		1,987.5			1,790.1
Less accumulated amortization:
Software and software licenses		(684.3	)		(635.2	)
Customer contracts and lists		(348.7	)		(332.7	)
Other intangibles		(216.2	)		(204.2	)
		(1,249.2	)		(1,172.1	)
Intangible assets, net	$	738.3		$	618.0

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, 12 years for customer contracts and lists, and 9 years for other). Amortization of intangibles totaled $40.4 million and $33.0 million for the three months ended December 31, 2006 and 2005, respectively, and totaled $77.9 million and $64.8 million for the six months ended December 31, 2006 and 2005, respectively. Estimated amortization expense of the Company’s existing intangible assets for the remaining six months of fiscal 2007 and the succeeding five fiscal years are as follows:

	Amount
2007	$	94.7
2008	$	164.6
2009	$	112.8
2010	$	82.1
2011	$	48.1
2012	$	43.7

Note 16. Short-term Financing

In June 2006, the Company entered into a $1.75 billion, 364-day credit agreement and a $2.25 billion, five-year credit agreement with a group of lenders. The five-year facility contains an accordion feature under which the aggregate commitment can be increased by $500.0 million to $2.75 billion, subject to the availability of additional commitments. These facilities replaced the Company’s prior $1.25 billion, 364-day facility, and $2.25 billion, five-year facility, both of which were terminated in June 2006. The $1.75 billion and $2.25 billion agreements mature in June 2007 and June 2011, respectively. The Company also has a $1.5 billion credit facility that matures in June 2010. 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 December 31, 2006 under the credit agreements.

The Company maintains a U.S. short-term commercial paper program providing for the issuance of up to $5.5 billion in aggregate maturity value of commercial paper at the Company’s discretion. The Company’s 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 270 days. At December 31, 2006 and 2005, there was no commercial paper outstanding. For both the three months ended December 31, 2006 and 2005, the Company had average borrowings of $2.1 billion at a weighted average interest rate of 5.3% and 4.0%, respectively. For the six months ended December 31, 2006 and 2005, the Company had average borrowings of $2.2 billion and $1.9 billion, respectively, at a weighted average interest rate of 5.3% and 3.8%, respectively. The weighted average maturity of the Company’s commercial paper during the three and six months ended December 31, 2006 and 2005 was less than two days for each period.

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 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 December 31, 2006 and 2005, there were no outstanding obligations under repurchase agreements. For the three months ended December 31, 2006 and 2005, the Company had average outstanding balances under repurchase agreements of $113.5 million and $165.3 million, respectively, at a weighted average interest rate of 4.3% and 3.3%, respectively. For the six months ended December 31, 2006 and 2005, the Company had average outstanding balances under repurchase agreements of $128.2 million and $216.0 million, respectively, at a weighted average interest rate of 4.4% and 3.2%, respectively.

Note 17. Pension Plans

The components of net pension expense included in continuing operations were as follows:

	Three months ended						Six months ended
	December 31,						December 31,
	2006			2005			2006			2005
Service cost– benefits earned during the period	$	10.8		$	7.9		$	21.7		$	15.8
Interest cost on projected benefits		12.1			9.9			24.2			19.8
Expected return on plan assets		(15.2	)		(14.0	)		(30.5	)		(28.0	)
Net amortization and deferral		3.6			4.8			7.2			9.6
Net pension expense	$	11.3		$	8.6		$	22.6		$	17.2

The minimum required contribution to the Company’s pension plans is $3.3 million in fiscal 2007. For the six months ended December 31, 2006, the Company made $21.7 million in contributions to the pension plans and expects to contribute an additional $1.6 million during fiscal 2007.

Note 18. Commitments and Contingencies

From time to time the Company will extend a temporary subordinated loan (“TSL”) to its correspondent broker-dealers in the Securities Clearing and Outsourcing Services segment. In addition, the Company will provide committed revolving lines of credit. As of December 31, 2006 and 2005, there were no TSL's outstanding. Unfunded committed revolving lines of credit were $0 and $5 million as of December 31, 2006 and 2005, respectively.

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 products and services. In addition, the securities transactions of the Securities Clearing and Outsourcing Services segment involve collateral arrangements required by various regulatory and internal guidelines, which are monitored daily. The Company does not expect any material losses related to such representations and warranties or collateral arrangements.

The Company is a member of numerous exchanges and clearinghouses. Under the membership agreements, members are generally required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral. The Company's maximum potential liability under these arrangements cannot be quantified. However, the Company believes that it is unlikely that the Company will be required to make payments under these arrangements. Accordingly, no contingent liability is recorded in the consolidated financial statements for these arrangements.

Note 19. Income Taxes

The Company is routinely examined by the IRS and tax authorities in countries in which it conducts business, as well as states in which it has significant business operations. The tax years under examination vary by jurisdiction. The Company expects an IRS examination for fiscal 1998 through fiscal 2002 to be substantially completed during fiscal 2008. In addition, the IRS is conducting an examination of fiscal 2003 through fiscal 2006. The Company regularly considers the likelihood of assessments 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. Once established, reserves are adjusted when there is more information available, when an event occurs necessitating a change to the reserves or the statute of limitations for the relevant taxing authority to examine the tax position has expired. The resolution of tax matters should not 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular dollars are presented in millions, except per share amounts)

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 in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006 in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

Analysis of Consolidated Operations

	Three Months Ended
	December 31,
	2006			2005			Change
Total revenues	$	2,316.1		$	2,030.4		14	%
Costs of revenues
Operating expenses		1,110.4			947.7
Systems development and programming costs		145.1			145.9
Depreciation and amortization		62.2			51.0
Total cost of revenues		1,317.7			1,144.6
Selling, general and administrative expenses		564.3			481.0
Separation costs		8.0			—
Other income, net		(27.6	)		(9.0	)
Total expenses	$	1,862.4		$	1,616.6		15	%
Earnings from continuing operations before income taxes	$	453.7		$	413.8		10	%
Margin		20	%		20	%
Provision for income taxes	$	170.7		$	156.8		9	%
Effective tax rate		37.6	%		37.9	%
Net earnings from continuing operations	$	283.0		$	257.0		10	%
Diluted earnings per share from continuing operations	$	0.51		$	0.44		16	%

	Six Months Ended
	December 31,
	2006			2005			Change
Total revenues	$	4,515.2		$	3,937.1		15	%
Costs of revenues
Operating expenses		2,209.5			1,859.5
Systems development and programming costs		282.8			287.9
Depreciation and amortization		123.7			99.7
Total cost of revenues		2,616.0			2,247.1
Selling, general and administrative expenses		1,108.5			956.0
Separation costs		10.6			—
Other income, net		(82.4	)		(11.4	)
Total expenses	$	3,652.7		$	3,191.7		14	%
Earnings from continuing operations before income taxes	$	862.5		$	745.4		16	%
Margin		19	%		19	%
Provision for income taxes	$	324.4		$	282.6		15	%

Effective tax rate		37.6	%		37.9	%
Net earnings from continuing operations	$	538.1		$	462.8		16	%
Diluted earnings per share from continuing operations	$	0.97		$	0.80		21	%

We have revised the format of our Statements of Consolidated Earnings to include a separate line item for cost of revenues. Our costs and expenses applicable to revenues represent the total of operating expenses and systems development and programming costs as presented on the Statements of Consolidated Earnings, as well as the portion of depreciation and amortization that relates to our services and products.

We previously reported that depreciation and amortization from continuing operations totaled $72.5 million and $142.5 million for the three and six months ended December 31, 2005, respectively. The portion of depreciation and amortization that relates to our services and products equals $51.0 million and $99.7 million for the three and six months ended December 31, 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 $21.5 million and $42.8 million for the three and six months ended December 31, 2005, respectively, was reclassified to selling, general and administrative expenses on the Statements of Consolidated Earnings.

Total Revenues

Our consolidated revenues for the three months ended December 31, 2006 grew 14%, to $2,316.1 million, primarily due to increases in Employer Services of 12%, or $163.9 million, to $1,540.5 million, Brokerage Services of 10%, or $35.9 million, to $404.3 million, Securities Clearing and Outsourcing Services of 17%, or $3.4 million, to $23.2 million, and Dealer Services of 19%, or $49.1 million, to $302.9 million. Our consolidated internal revenue growth, which represents revenue growth excluding the impact of acquisitions and divestitures, was 11% for the three months ended December 31, 2006 as compared to the prior year. Revenue growth was favorably impacted by $22.2 million, or 1%, due to fluctuations in foreign currency exchange rates.

Our consolidated revenues for the three months ended December 31, 2006 include interest on funds held for Employer Services’ clients of $142.4 million as compared to $118.9 million in the prior year. The increase in the consolidated interest earned on funds held for Employer Services’ clients resulted from the increase of 9% in our average client funds balances to $13.1 billion, as well as the increase in the average interest rates earned to 4.3% for the three months ended December 31, 2006 as compared to 4.0% in the prior year. We credit Employer Services with interest revenues at a standard rate of 4.5%; therefore Employer Services’ results are not influenced by changes in interest rates. The difference between the 4.5% standard rate allocation in Employer Services and the actual interest earned is a reconciling item that reduces revenue by $5.4 million and $16.3 million in the three months ended December 31, 2006 and 2005, respectively, and results in the elimination of this allocation in consolidation.

Our consolidated revenues for the six months ended December 31, 2006 grew 15%, to $4,515.2 million, primarily due to increases in Employer Services of 12%, or $314.5 million, to $2,994.2 million, Brokerage Services of 13%, or $91.8 million, to $816.9 million, Securities Clearing and Outsourcing Services of 20%, or $7.5 million, to $45.0 million, and Dealer Services of 21%, or $104.0 million, to $597.5 million. Our consolidated internal revenue growth was 12% for the six months ended December 31, 2006 as compared to the prior year. Revenue growth was favorably impacted by $39.7 million, or 1%, due to fluctuations in foreign currency exchange rates.

 Our consolidated revenues for the six months ended December 31, 2006 include interest on funds held for Employer Services’ clients of $277.0 million as compared to $227.3 million in the prior year. The increase in the consolidated interest earned on funds held for Employer Services’ clients resulted from the increase of 9% in our average client funds balances to $12.8 billion, as well as the increase in the average interest rates earned to 4.3% for the six months ended December 31, 2006 as compared to 3.9% in the prior year. We credit Employer Services with interest revenues at a standard rate of 4.5%; therefore Employer Services’ results are not influenced by changes in interest rates. The difference between the 4.5% standard rate allocation in Employer Services and the actual interest earned is a reconciling item that reduces revenue by $11.9 million and $36.3 million in the six months ended December 31, 2006 and 2005, respectively, and results in the elimination of this allocation in consolidation.

Total Expenses

Our consolidated expenses for the three months ended December 31, 2006 increased by $245.8 million, to $1,862.4 million, from $1,616.6 million for the three months ended December 31, 2005. Our consolidated expenses for the six months ended December 31, 2006 increased by $461.0 million, to $3,652.7 million, from $3,191.7 million for the six months ended December 31, 2005. The increase in our consolidated expenses for both periods is due to the increase in our revenues, higher pass-through costs associated with our Professional Employer Organization (“PEO”) business and investor communications activity, an increase in our salesforce and implementation personnel and higher expenses associated with our Employer Services’ new business sales and implementation. In addition, consolidated expenses increased by $19.4 million, or 1%, and $33.8 million, or 1%, for the three and six months ended December 31, 2006, respectively, due to fluctuations in foreign currency exchange rates.

Our total cost of revenues increased by $173.1 million, to $1,317.7 million, from $1,144.6 million for the three months ended December 31, 2006 due to increases in our operating expenses. Operating expenses increased by $162.7 million, or 17%, for the three months ended December 31, 2006 due to the increase in revenues, including the increases in the PEO business and investor communications activity, which both have pass-through costs that are re-billable. The pass-through costs for these two services were $286.4 million and $241.4 million for the three months ended December 31, 2006 and 2005, respectively. In addition, operating expenses for the three months ended December 31, 2006 increased by approximately $53 million as a result of higher compensation expenses associated with additional implementation and service personnel, including approximately $15 million of spending on new business opportunities in Employer Services. Our new business opportunities relate to our Employer Services’ Human Resource Business Process Outsourcing (“HR BPO”) opportunities, which focus on the outsourcing of integrated multiple processes – such as payroll, HR, and benefits and related administration. This spending was targeted at expanding our Comprehensive Outsourcing Services (“COS”) product for larger employers, our PEO business, our Administrative Services Offering (“ASO”) product, which is a bundled HR outsourcing solution similar to a PEO, but without co-employment, and GlobalView®, our HR outsourcing offering for multi-national organizations. Operating expenses for the three months ended December 31, 2006 also increased by approximately 2% due to the operating costs of our new businesses acquired, which primarily represents Kerridge Computer Company Ltd (“Kerridge”).

Our total cost of revenues increased by $368.9 million, to $2,616.0 million, from $2,247.1 million for the six months ended December 31, 2006 due to increases in our operating expenses. Operating expenses increased by $350.0 million, or 19%, for the six months ended December 31, 2006 due to the increase in revenues, including the increases in the PEO business and investor communications activity, which both have pass-through costs that are re-billable. The pass-through costs for these two services were $569.1 million and $462.9 million for the six months ended December 31, 2006 and 2005, respectively. In addition, operating expenses for the six months ended December 31, 2006 increased by approximately $89 million as a result of higher compensation expenses associated with additional implementation and service personnel, including approximately $26 million of spending on new business opportunities in Employer Services as discussed above. Lastly, operating expenses also increased by approximately 2% due to the operating costs of our new businesses acquired, which primarily represents Kerridge.

Selling, general and administrative expenses increased by $83.3 million, or 17%, for the three months ended December 31, 2006, due to the increase in salesforce personnel and higher selling expenses in Employer Services resulting in an increase of approximately $37 million of expenses. This $37 million increase includes approximately $5 million for expenses relating to our Employer Services’ HR BPO opportunities discussed above. In addition, selling, general and administrative expenses also increased by approximately 4% due to the selling, general and administrative costs of our new businesses acquired, which primarily represents Kerridge.

Selling, general and administrative expenses increased by $152.5 million, or 16%, for the six months ended December 31, 2006, due to the increase in salesforce personnel and higher selling expenses in Employer Services resulting in an increase of approximately $73 million of expenses. This $73 million increase includes approximately $9 million for expenses relating to our Employer Services’ HR BPO opportunities discussed above. In addition, selling, general and administrative expenses also increased by approximately 4% due to the selling, general and administrative costs of our new businesses acquired, which primarily represents Kerridge.

Separation costs represent the incremental costs associated with the spin-off of the Brokerage Services Group and totaled $8.0 million and $10.6 million for the three and six months ended December 31, 2006, respectively. We expect to incur separation costs of $45 to $55 million during the fiscal year ending June 30, 2007.

Other income, net, increased $18.6 million for the three months ended December 31, 2006 due to an increase of $19.6 million of realized gains on our available for sale securities as a result of the liquidation of certain investments during the quarter. Additionally, other income, net included an increase in interest income on corporate funds of $4.0 million as a result of higher interest rates offset by an increase of $6.6 million in interest expense as a result of higher interest rates on our short-term financing arrangements.

Other income, net, increased $71.0 million for the six months ended December 31, 2006 due to a gain of $38.6 million on the sale of a minority investment, an increase of $19.5 million of realized gains on our available for sale securities as a result of the liquidation of certain investments and a decline of $14.3 million of realized losses on our available for sale securities. Additionally, other income, net included an increase in interest income on corporate funds of $21.9 million as a result of higher interest rates offset by an increase of $23.3 million in interest expense as a result of higher interest rates on our short-term financing arrangements.

Earnings from Continuing Operations before Income Taxes

Earnings from continuing operations before income taxes increased by $39.9 million, or 10%, from $413.8 million for the three months ended December 31, 2005 to $453.7 million for the three months ended December 31, 2006 due to the increase in revenues and expenses discussed above. Overall margin remained flat at 20% for the three months ended December 31, 2006 as compared to the three months ended December 31, 2005.

Earnings from continuing operations before income taxes increased by $117.1 million, or 16%, from $745.4 million for the six months ended December 31, 2005 to $862.5 million for the six months ended December 31, 2006 due to the increase in revenues and expenses discussed above. Overall margin remained flat at 19% for the six months ended December 31, 2006 as compared to the six months ended December 31, 2005.

Provision for Income Taxes

Our effective tax rate for the three and six months ended December 31, 2006 was 37.6%, as compared to 37.9% for the comparable periods in the prior year. The decrease in the effective tax rate for both periods is primarily attributable to a favorable mix in income among tax jurisdictions.

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

Net earnings from continuing operations increased 10%, to $283.0 million, for the three months ended December 31, 2006, from $257.0 million for the three months ended December 31, 2005, and the related diluted earnings per share from continuing operations increased 16%, to $0.51, for the three months ended December 31, 2006. Net earnings from continuing operations increased 16%, to $538.1 million, for the six months ended December 31, 2006, from $462.8 million for the six months ended December 31, 2005, and the related diluted earnings per share from continuing operations increased 21%, to $0.97, for the six months ended December 31, 2006. The increase in net earnings from continuing operations for the three and six months ended December 31, 2006 reflects the increase in earnings from continuing operations before income taxes as a result of increased revenues being offset by expenses, and a lower effective tax rate as described above. The increase in diluted earnings per share from continuing operations for the three and six months ended December 31, 2006 reflects the increase in net earnings from continuing operations and the impact of fewer shares outstanding due to the repurchase of 5.1 million shares and 17.7 million shares during the three and six months ended December 31, 2006, respectively, and the repurchase of 29.6 million shares in fiscal 2006.

Analysis of Reportable Segments

Analysis of Reportable Segments
Revenues
	Three Months Ended								Six Months Ended
	December 31,								December 31,
	2006			2005			Change		2006			2005			Change
Employer Services	$	1,540.5		$	1,376.6		12	%	$	2,994.2		$	2,679.7		12	%
Brokerage Services		404.3			368.4		10	%		816.9			725.1		13	%
Securities Clearing and Outsourcing Services		23.2			19.8		17	%		45.0			37.5		20	%
Dealer Services		302.9			253.8		19	%		597.5			493.5		21	%
Other		32.5			31.8		2	%		39.9			43.6		(8	)%
Reconciling items:
Foreign exchange		18.1			(3.7	)				33.6			(6.0	)
Client fund interest		(5.4	)		(16.3	)				(11.9	)		(36.3	)
Total revenues	$	2,316.1		$	2,030.4		14	%	$	4,515.2		$	3,937.1		15	%

Earnings From Continuing Operations
Before Income Taxes
	Three Months Ended								Six Months Ended
	December 31,								December 31,
	2006			2005			Change		2006			2005			Change
Employer Services	$	335.0		$	310.1		8	%	$	630.6		$	582.0		8	%
Brokerage Services		57.0			54.8		4	%		115.5			109.4		6	%
Securities Clearing and Outsourcing Services		(5.5	)		(7.6	)	28	%		(12.0	)		(19.4	)	38	%
Dealer Services		48.0			39.3		22	%		92.3			80.1		15	%
Other		(16.9	)		(1.4	)	(100	)+%		(32.7	)		(38.7	)	16	%
Reconciling items:
Foreign exchange		2.5			(0.4	)				4.8			(1.3	)
Client fund interest		(5.4	)		(16.3	)				(11.9	)		(36.3	)
Cost of capital charge		39.0			35.3					75.9			69.6
Total earnings from continuing operations before income taxes	$	453.7		$	413.8		10	%	$	862.5		$	745.4		16	%

Employer Services

Revenues

Employer Services' revenues increased 12% for both the three and six months ended December 31, 2006, primarily due to new business started in the period, an increase in the number of employees on our clients’ payrolls, strong client retention, price increases and an increase in client funds balances. Internal revenue growth was approximately 11% for both the three and six months ended December 31, 2006. New business sales, which represent the annualized recurring revenues anticipated from sales orders to new and existing clients, grew 11% and 12% in the United States for the three and six months ended December 31, 2006, respectively, and 13% and 14% worldwide for the three and six months ended December 31, 2006, respectively, due to the increase in the salesforce headcount as well as an increase in their productivity. Revenues from our traditional payroll and payroll tax filing business grew 9% for both the three and six months ended December 31, 2006. The number of employees on our clients’ payrolls, “pays per control,” increased 1.7% and 2.1% for the three and six months ended December 31, 2006, respectively, in the United States. This employment metric represents over 125 thousand payrolls of small to large businesses and reflects a broad range of U.S. geographic regions. Our worldwide client retention declined 0.2 percentage points for both the three and six months ended December 31, 2006 as compared to the high levels achieved in the three and six months ended December 31, 2005.

Interest income was credited to Employer Services at a standard rate of 4.5% so the results of the business were not influenced by changes in interest rates. Interest income increased by $12.6 million and $25.3 million for the three and six months ended December 31, 2006, respectively, which each accounted for approximately 1% growth in Employer Services’ revenues. Interest income increased in both periods due to the increase in the average client funds balances as a result of increased Employer Services’ new business and growth in our existing client base as compared to the prior year. The average client funds balances were $13.1 billion as compared to $12.0 billion for the three months ended December 31, 2006 and 2005, respectively, and $12.8 billion as compared to $11.7 billion for the six months ended December 31, 2006 and 2005, respectively, both representing an increase of 9%.

Revenues from our "beyond payroll" products continued to grow at a faster rate than the traditional payroll and payroll tax revenues. Our PEO revenues grew 26%, to $205.4 million, and 25%, to $400.4 million, for the three and six months ended December 31, 2006, respectively, due to 22% growth in the number of PEO worksite employees and additional pass-through benefits. In addition, "beyond payroll"

 revenues grew due to an increase in our Time and Labor Management Services revenues of 23% and 25% for the three and six months ended December 31, 2006, respectively, as a result of increases in the number of clients utilizing this service.

Earnings from Continuing Operations before Income Taxes

Earnings from continuing operations before income taxes increased 8%, from $310.1 million to $335.0 million and from $582.0 million to $630.6 million, for both the three and six months ended December 31, 2006, respectively. Earnings from continuing operations before income taxes for the three and six months ended December 31, 2006 did not grow at the same rate as the growth in revenues due to the higher pass-through costs associated with our PEO business and higher expenses associated with sales and implementation. Our PEO revenues and pass-through operating expenses related to benefits and workers’ compensation costs grew 26% and 24%, respectively, to $205.4 million and $145.0 million, respectively, for the three months ended December 31, 2006. Our PEO revenues and pass-through operating expenses related to benefits and workers’ compensation costs both grew 25% to $400.4 million and $287.7 million, respectively, for the six months ended December 31, 2006. Earnings from continuing operations before income taxes for the three and six months ended December 31, 2006 were also impacted by the increase of approximately $91 million and $161 million, respectively, in compensation expenses for implementation, service and salesforce personnel, spending on new business opportunities, and higher selling and implementation expenses associated with new business sales. This increase in expenses for the three and six months ended December 31, 2006 includes approximately $20 million and $35 million, respectively, relating to our HR BPO opportunities. This spending was targeted at expanding our PEO business, our COS product for larger employers, our ASO product and GlobalView® outsourcing offering. Earnings from continuing operations before income taxes were also impacted by an increase in expenses associated with four acquisitions made during the six months ended December 31, 2006. These acquisitions as well as the additional expenses discussed above contributed to the decline of 80 basis points and 60 basis points in Employer Services’ margins during the three and six months ended December 31, 2006, respectively.

Brokerage Services

Revenues

Brokerage Services' revenues increased 10% and 13% for the three and six months ended December 31, 2006, respectively, due to the increase in certain investor communication activities and back-office revenues. Revenues from our beyond beneficial products grew 13%, to $160.3 million, and 22%, to $330.5 million, for the three and six months ended December 31, 2006, respectively, driven by higher volumes from fulfillment, sales in registered mutual fund proxy and interims, transaction reporting and related postage revenue. In addition, beyond beneficial product revenues for the six months ended December 31, 2006 were impacted by increased corporate action mailing activity. Postage revenue increased as a result of a 5.4% increase in the United States Postal Service postage rates in January 2006 and higher volumes. Revenues from our beneficial proxy and interim communications grew 9%, to $122.6 million, and 10%, to $251.1 million, for the three and six months ended December 31, 2006, respectively, due to increased volumes. Our number of pieces delivered increased 18% for both the three months ended December 31, 2006, from 202 million to 238 million, and the six months ended December 31, 2006, from 398 million to 471 million, due to increased interim communications and registered proxy volumes. Stock record growth, which is a measure of how many stockholders own a security compared to the prior year, decreased 3% and 2% for the three and six months ended December 31, 2006, respectively. Our back-office revenues increased 7%, to $91.1 million, and 4%, to $176.7 million, for the three and six months ended December 31, 2006, respectively, driven by higher trade revenues as a result of increased trade volumes. Back-office average trades per day increased 28%, from 1.61 million to 2.06 million, for the three months ended December 31, 2006, and 24%, from 1.56 million to 1.93 million, for the six months ended December 31, 2006, primarily due to growth in our existing client base. The revenue associated with the increase in average trades per day was offset by the decrease in the average revenue per trade of 15% and 14% for the three and six months ended December 31, 2006, respectively, due to our tiered pricing agreements and an increase in lower priced institutional trades.

 Earnings from Continuing Operations before Income Taxes

Earnings from continuing operations before income taxes increased $2.2 million, or 4%, to $57.0 million for the three months ended December 31, 2006 and increased $6.1 million, or 6%, to $115.5 million for the six months ended December 31, 2006. Margin declined approximately 80 basis points and 100 basis points for the three and six months ended December 31, 2006, respectively, due to the mix of our products and higher pass-through distribution costs associated with our services. In addition, the margin decline for the three months ended December 31, 2006 was impacted by $2.3 million of expenses associated with due diligence for acquisitions that did not occur and higher marketing costs. These decreases were offset in part by an improvement in margins of our back-office services due to the continued efforts to align our operating expenses with our back-office services revenues and our overall cost containment measures.

Securities Clearing and Outsourcing Services

Revenues

Revenues for Securities Clearing and Outsourcing Services increased 17% and 20% for the three and six months ended December 31, 2006, respectively, due to new outsourcing business and higher net interest income. Average margin balances for the three and six months ended December 31, 2006 were $688 million and $661 million, respectively, as compared with $636 million and $616 million for the three and six months ended December 31, 2005, respectively. Average number of trades cleared per day for the three and six months ended December 31, 2006 were 24 thousand and 23 thousand, respectively, as compared with 19 thousand and 18 thousand for the three and six months ended December 31, 2005, respectively.

Loss from Continuing Operations before Income Taxes

Loss from continuing operations before income taxes was $5.5 million and $12.0 million for the three and six months ended December 31, 2006, respectively, as compared with $7.6 million and $19.4 million for the three and six months ended December 31, 2005, respectively. The improvement in the loss from continuing operations before income taxes for both periods was due to higher revenues offset by lower expenses due to the absence of integration and transition costs incurred in the prior year.

Dealer Services

Revenues

Dealer Services' revenues increased 19% and 21% for the three and six months ended December 31, 2006, respectively, as compared to the prior year driven by revenues from Kerridge, which was acquired in December 2005. Internal revenue growth was approximately 5% for both the three and six months ended December 31, 2006. New business sales, which represent the one time and annualized recurring revenue anticipated from sales orders to new and existing clients, grew 8% and 18% for the three and six months ended December 31, 2006, respectively, due to a combination of higher sales in North America and strength in the international market driven by our acquisition of Kerridge. Revenues increased for our dealer business systems in North America by $20.4 million, to $233.4 million, for the three months ended December 31, 2006 and $38.2 million, to $465.2 million, for the six months ended December 31, 2006, primarily due to growth in our key products. The growth in our key products was driven by the increased users for Application Service Provider managed services, increased Credit Check and Computerized Vehicle Registration transaction volume, new network installations and increased market penetration of our Digital Marketing product.

Earnings from Continuing Operations before Income Taxes

Earnings from continuing operations before income taxes increased $8.7 million, or 22%, to $48.0 million and $12.2 million, or 15%, to $92.3 million for the three and six months ended December 31, 2006, respectively, due to the increases in revenues of our dealer business systems and contributions from recent acquisitions. In addition, earnings from continuing operations before income taxes for the three months ended December 31, 2006 was favorably impacted by the improvement in our margin due to the elimination of costs associated with the integration of the Kerridge acquisition during the current quarter. These improvements in Dealer Services’ margin were offset by higher costs associated with our implementation personnel resulting in a net increase of 30 basis points in Dealer Services’ margin for the three months ended December 31, 2006. For the six months ended December 31, 2006, earnings from continuing operations were adversely impacted by the timing of new business installations, while they were favorably impacted by the integration synergies associated with the acquisition of Kerridge. These factors resulted in the decline of 80 basis points in Dealer Services’ margins during the six months ended December 31, 2006.

Other

The primary components of "Other" are miscellaneous processing services and corporate allocations and expenses, including stock-based compensation expense. Additionally, a gain of $38.6 million on the sale of a minority investment is included in “Other” for the six months ended December 31, 2006.

Reconciling Items

The prior year’s reportable segment revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated fiscal 2007 budgeted foreign exchange rates. Reconciling items include foreign exchange differences between the actual foreign exchange rates and fiscal 2007 budgeted foreign exchange rates, and the adjustment for the difference between actual interest income earned on invested funds held for Employer Services’ clients and interest credited to Employer Services at a standard rate of 4.5%. Both of these adjustments are eliminated in consolidation and as such represent reconciling items to revenues and earnings from continuing operations before income taxes. The reportable segment results also include an internal cost of capital charge related to the funding of acquisitions and other investments. This charge is eliminated in consolidation and as such represents a reconciling item to earnings from continuing operations before income taxes.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2006, cash and marketable securities were $1,699.7 million, stockholders’ equity was $5,906.5 million and the ratio of long-term debt-to-equity was 1.2%. At December 31, 2006, working capital was $1,740.6 million as compared to $2,158.1 million at June 30, 2006.

Our principal sources of liquidity are derived from cash generated through operations and our 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 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.

On August 2, 2006, the Company announced that its Board of Directors approved a plan to spin-off the Brokerage Services Group business, comprised of Brokerage Services and Securities Clearing and Outsourcing Services, into an independent publicly traded company through a tax-free spin-off of 100% of Brokerage Services Group to ADP shareholders. This new independent publicly traded company will be called Broadridge Financial Solutions, Inc. ("Broadridge"). The Company has requested a favorable ruling from the Internal Revenue Service (the “IRS”) with respect to the spin-off and intends to complete the spin-off only if the favorable ruling and a favorable opinion of counsel confirming the spin-off’s tax-free status are received. The spin-off is also subject to other conditions, including necessary regulatory approvals. ADP expects to incur incremental costs associated with the spin-off of approximately $45 to $55 million. Incremental costs associated with the spin-off of $10.6 million for the six months ended December 31, 2006 are included in separation costs on the Statements of Consolidated Earnings and are principally related to professional services.

Our Securities Clearing and Outsourcing Services segment provides third-party clearing operations in the regulated broker-dealer industry. The cash flows from operations for this business differ from that of our other businesses because the broker-dealer third-party clearing activities utilize payables to finance their business activities and the regulations associated with the broker-dealer industry require cash or securities to be segregated for the exclusive benefit of customers in certain circumstances based on regulatory calculations driven by customers’ balances. As a result, management analyzes cash flows provided from operating activities of the Securities Clearing and Outsourcing Services segment separately from all other businesses. Management’s view of the net cash flows provided by operating activities is as follows:

	Six Months Ended
	December 31,
	2006		2005
Net cash flows provided by operating activities for all businesses, excluding the Securities Clearing and Outsourcing Services segment	$	417.9	$	719.8
Net cash flows provided by operating activities for the Securities Clearing and Outsourcing Services segment		79.5		180.4
Net cash flows provided by operating activities, as reported	$	497.4	$	900.2

Net cash flows provided by operating activities for all businesses, excluding the Securities Clearing and Outsourcing Services segment, were $417.9 million for the six months ended December 31, 2006, as compared to $719.8 million for the comparable period in the prior fiscal year. The fluctuation between periods was due to the increase of $156.6 million in receivables and other assets as well as the decrease of $122.3 million in accounts payable, accrued expenses and other liabilities. The increase in receivables and other assets was due to an $86 million increase in trade receivables related to our increased revenues, a $20 million increase in our pension plan contributions and approximately a $45 million increase in other assets due to the timing of certain payments for prepaid insurance and software maintenance contracts during the six months ended December 31, 2006, as compared to the six months ended December 31, 2005. Approximately $114 million of the decrease in accounts payable, accrued expenses and other liabilities was due to the timing of our quarterly Federal income tax payments as well as tax payments associated with the gain on the fiscal 2006 sale of the Claims Services business.

Net cash flows provided by operating activities for the Securities Clearing and Outsourcing Services segment decreased $100.9 million, to $79.5 million, for the six months ended December 31, 2006, as compared to $180.4 million for the comparable period in the prior fiscal year due to the timing of the securities clearing activities. The net cash flows provided by operating activities for the Securities Clearing and Outsourcing Services segment for the six months ended December 31, 2006 resulted from

an increase of $176.8 million in securities clearing payables offset by an increase of $87.2 million in securities clearing receivables.

Cash flows used in investing activities for the six months ended December 31, 2006 totaled $209.3 million, compared to $437.1 million for the comparable period in the prior year. The fluctuation between periods was due to the timing of purchases of and proceeds from the sales and maturities of marketable securities, the change in client funds obligations and the decrease of $61.1 million in capital expenditures due to the completion of the data center facilities during fiscal 2006. These decreases in cash flows used in investing activities were offset by an increase of $45.0 million of additions to intangible assets due to the timing of payments for software license fees and the increase of $83.3 million in cash paid for acquisitions as a result of the four Employer Services’ businesses acquired during the six months ended December 31, 2006. In addition, cash flows used in investing activities for the six months ended December 31, 2006 includes the proceeds of $38.6 million received on the sale of a minority investment and $13.2 million received from a purchase price adjustment relating to the fiscal 2006 sale of the Claims Services business.

Cash flows used in financing activities for the six months ended December 31, 2006 totaled $902.2 million, compared to $368.7 million for the six months ended December 31, 2005. The increase in cash used in financing activities was due to repurchases of common stock and the increase in dividends paid resulting from the increase in the amount of dividends per common share for the six months ended December 31, 2006, as compared to the comparable period in the prior year, offset by the increase in proceeds received from the stock purchase plan and exercises of stock options. We purchased 17.7 million shares of our common stock at an average price per share of $47.15 during the six months ended December 31, 2006. As of December 31, 2006, we had remaining Board of Directors’ authorization to purchase up to 66.3 million additional shares.

In June 2006, we entered into a $1.75 billion, 364-day credit agreement and a $2.25 billion, five-year credit agreement with a group of lenders. The five-year facility contains an accordion feature under which the aggregate commitment can be increased by $500.0 million to $2.75 billion, subject to the availability of additional commitments. These facilities replaced our prior $1.25 billion, 364-day facility, and $2.25 billion, five-year facility, both of which were terminated in June 2006. The $1.75 billion and $2.25 billion agreements mature in June 2007 and June 2011, respectively. We also have a $1.5 billion credit facility that matures in June 2010. 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 December 31, 2006 under the credit agreements.

We maintain a U.S. short-term commercial paper program providing for the issuance of up to $5.5 billion in aggregate maturity value of commercial paper at the Company’s discretion. 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 270 days. At December 31, 2006 and 2005, there was no commercial paper outstanding. For both the three months ended December 31, 2006 and 2005, we had average borrowings of $2.1 billion at a weighted average interest rate of 5.3% and 4.0%, respectively. For the six months ended December 31, 2006 and 2005, we had average borrowings of $2.2 billion and $1.9 billion, respectively, at a weighted average interest rate of 5.3% and 3.8%, respectively. The weighted average maturity of our commercial paper during the three and six months ended December 31, 2006 and 2005 was less than two days for each period.

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 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 December 31, 2006 and 2005, there were no outstanding obligations under repurchase agreements. For the three months ended December 31, 2006 and 2005, the Company had average outstanding balances under repurchase agreements of $113.5 million and $165.3 million, respectively, at a weighted average interest rate of 4.3% and 3.3%, respectively. For the six months ended December 31, 2006 and 2005, the Company had average outstanding balances under repurchase agreements of $128.2 million and $216.0 million, respectively, at a weighted average interest rate of 4.4% and 3.2%, respectively.

For the six months ended December 31, 2006 capital expenditures for continuing operations were $86.3 million. Capital expenditures for continuing operations for fiscal 2007 are expected to be approximately $250.0 million, compared to $289.2 million in fiscal 2006.

It is not our 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, we also enter into contracts in which we make representations and warranties that relate to the performance of our products and services. In addition, the securities transactions of the Securities Clearing and Outsourcing Services segment involve collateral arrangements required by various regulatory and internal guidelines, which are monitored daily. We do not expect any material losses related to such representations and warranties or collateral arrangements.

We are a member of numerous exchanges and clearinghouses. Under the membership agreements, members are generally required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral. Our maximum potential liability under these arrangements cannot be quantified. However, we believe that it is unlikely that the Company will be required to make payments under these arrangements. Accordingly, no contingent liability is recorded in the consolidated financial statements for these arrangements.

Quantitative and Qualitative Disclosures about Market Risk

During the six months ended December 31, 2006, approximately 20% of our overall investment portfolio was invested in cash and cash equivalents, and therefore was impacted almost immediately by changes in short-term interest rates. The other 80% of our investment portfolio was invested in fixed-income securities, with varying maturities of less than ten years, which were also subject to interest rate risk, including reinvestment risk. We have historically had the ability to hold these investments until maturity. Details regarding our overall investment portfolio are as follows:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2006		2005		2006		2005
Average investment balances at cost:
Corporate investments	$	3,851.1	$	4,069.0	$	4,303.0	$	3,987.4
Funds held for clients		13,137.3		12,026.0		12,826.8		11,723.1
Total	$	16,988.4	$	16,095.0	$	17,129.8	$	15,710.5

Average interest rates earned exclusive of realized gains/(losses) on:
Corporate investments		4.4	%		3.7	%		4.3	%		3.6	%
Funds held for clients		4.3	%		4.0	%		4.3	%		3.9	%
Total		4.3	%		3.9	%		4.3	%		3.8	%
Realized gains on available-for-sale securities	$	19.7		$	0.1		$	20.1		$	0.6
Realized losses on available- for-sale securities		(1.6	)		(3.2	)		(2.2	)		(16.5	)
Net realized gains (losses) on available-for-sale securities	$	18.1		$	(3.1	)	$	17.9		$	(15.9	)

	December 31,			June 30,
	2006			2006
Net unrealized pre-tax losses on available-for-sale securities	$	(139.8	)	$	(312.9	)
Total available-for-sale securities	$	13,599.2		$	13,612.8

The return on our portfolio is impacted by interest rate changes. 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 during the fiscal year 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 rate) and intermediate-term interest rates of 25 basis points applied to the estimated fiscal 2007 average investment balances and any related borrowings would result in approximately a $10 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 2007 average short-term investment balances and any related short-term borrowings would result in approximately a $4 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 bonds. The Company limits credit risk by investing primarily in AAA and AA rated securities, as rated by Moody’s, Standard & Poor’s, and for Canadian securities, Dominion Bond Rating Service. At December 31, 2006, approximately 95% of our available-for-sale securities held an AAA or AA rating. In addition, we also limit amounts that can be invested in certain issuers.

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 securities clearing activities of the Securities Clearing and Outsourcing Services segment provides trade execution, settlement and financing of various security clearing transactions for a nationwide client base. With these activities, we may be exposed to risk in the event customers, other broker-dealers, banks, clearing organizations or depositories are unable to fulfill contractual obligations. For securities clearing activities of the Securities Clearing and Outsourcing

Services segment in which we extend credit to customers and broker-dealers, we seek to control the risk associated with these activities by requiring customers and broker-dealers to maintain margin collateral in compliance with various regulatory and internal guidelines. We monitor margin levels and, pursuant to such guidelines, request the deposit of additional collateral or the reduction of securities positions, when necessary. In addition, broker-dealers may be required to maintain deposits relating to any securities clearing activities we perform on their behalf.

We record customers’ security clearing transactions on a settlement date basis, which is generally three business days after trade date. The Company is therefore exposed to off-balance sheet risk of loss on unsettled transactions in the event customers and other counterparties are unable to fulfill contractual obligations.

New Accounting Pronouncements

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 companies to evaluate the materiality of identified unadjusted errors on each financial statement and related financial statement disclosure using both the rollover approach and the iron curtain approach. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. We plan to include the effect of adopting SAB 108 in our Annual Report on Form 10-K for the year ending June 30, 2007 and are currently evaluating the effect that the adoption will have on our consolidated results of operations and financial condition.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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 postretirement 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 disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. We plan to include the effect of adopting SFAS No. 158 in our Annual Report on Form 10-K for the year ending June 30, 2007 and are currently assessing the impact of adoption. The requirement to measure the plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. We do not believe this requirement will have a material impact on our 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. We are currently evaluating the effect that the adoption of SFAS No. 157 will have, if any, on our consolidated results of operations and financial condition.

In July 2006, the FASB issued FASB Interpretation (“FIN”) 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. We expect to adopt FIN 48 on July 1, 2007 and are currently evaluating the effect that t he adoption of FIN 48 will have on our consolidated results of operations and financial condition.

Income Taxes

The Company is routinely examined by the IRS and tax authorities in countries in which it conducts business, as well as states in which it has significant business operations. The tax years under examination vary by jurisdiction. The Company expects an IRS examination for fiscal 1998 through fiscal 2002 to be substantially completed during fiscal 2008. In addition, the IRS is conducting an examination of fiscal 2003 through fiscal 2006. The Company regularly considers the likelihood of assessments 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. Once established, reserves are adjusted when there is more information available, when an event occurs necessitating a change to the reserves or the statute of limitations for the relevant taxing authority to examine the tax position has expired. The resolution of tax matters should not 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.

FORWARD-LOOKING INFORMATION

This report and other written or oral statements made from time to time by 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 products and services; changes in laws regulating payroll taxes, professional employer organizations, employee benefits and registered clearing agencies and broker-dealers; overall market and economic conditions, including interest rate and foreign currency trends; competitive conditions; stock market activity; 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. In addition, the proposed spin-off of the Brokerage Services Group is subject to inherent risks and uncertainties, including: risks that the spin-off will not be consummated; increased demands on our management team to accomplish the spin-off; significant transaction costs; risks of changes in our credit rating and risks from changes in results of operations of our reportable segments. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. 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 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e)  

and 15d-15(e) of the Securities and Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in the Company's internal control over financial reporting that occurred during the three and six months ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Except as noted below, all other items are either inapplicable or would result in negative responses and, therefore, have been omitted.

Item 1. 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. Among the various claims and litigation pending against the Company is the following:

The Company and its indirect wholly-owned subsidiaries Dealer Solutions, L.L.C. and Dealer Solutions Holdings, Inc. ("DSI") were named as defendants in a lawsuit filed on March 4, 1999 in the 133rd Judicial District Court of Harris County, Texas by Universal Computer Systems, Inc., Universal Computer Consulting, Ltd., Universal Computer Services, Inc., and Dealer Computer Services, Inc. (collectively, "UCS"), which lawsuit alleged trade secret violations by DSI in the creation by DSI of the CARMan automobile dealership software product and misappropriation of those trade secrets by the Company through its acquisition of DSI. UCS sought injunctive relief and damages of $56 million. An award in favor of the Company was entered by a court-appointed arbitration panel on November 11, 2003 (the "Award"). The Award was affirmed and adopted by the District Court and affirmed by the Texas Court of Appeals. The Texas Supreme Court (on June 9, 2006) and the United States Supreme Court (on November 13, 2006) have denied UCS's applications for review, and all opportunities to appeal the Award have been exhausted. Therefore, the case has been terminated without liability to the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

	(a)	(b)		(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid per Share (3)		Total Number of Shares Purchased as Part of the Publicly Announced Common Stock Repurchase Plan (1)	Maximum Number of Shares that may yet be Purchased under the Common Stock Repurchase Plan (1)
October 1, 2006 to October 31, 2006	1,002,677	$	47.53	1,000,000	70,389,440

November 1, 2006 to November 30, 2006	2,080,628			$	48.86	2,080,000	68,309,440
December 1, 2006 to December 31, 2006	2,000,583			$	48.81	2,000,000	66,309,440
Total	5,083,888	(2	)			5,080,000

(1) 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 fiscal 2007, pursuant to the terms of the Company’s restricted stock program, the Company (i) made repurchases of 383 shares during October 2006, 628 shares during November 2006 and 583 shares during December 2006 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 2,294 shares during October 2006 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.

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

The Company's Annual Meeting of the Stockholders was held on November 14, 2006. There were present at the meeting, either in person or by proxy, holders of 466,813,766 shares of common stock. The following nominees were elected to the Company's Board of Directors to hold office for the ensuing year. The votes cast for each nominee were as follows:

Nominee	For	Withheld
Gregory D. Brenneman	459,211,456	7,602,310
Leslie A. Brun	452,828,958	13,984,808
Gary C. Butler	454,317,383	12,496,383
Leon G. Cooperman	454,365,372	12,448,394
R. Glenn Hubbard	459,579,779	7,233,987
John P. Jones	458,432,362	8,381,404
Ann Dibble Jordan	454,032,440	12,781,326
Frederic V. Malek	453,027,055	13,786,711
Henry Taub	453,960,029	12,853,737
Arthur F. Weinbach	453,927,945	12,885,821

The results of the voting to approve the Company’s Amended and Restated Executive Incentive Compensation Plan were as follows:

For	Against	Abstained	Not Voted
366,764,592	17,186,686	5,167,711	77,694,777

The results of the voting to ratify the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, to serve as the Company’s independent auditors to audit the accounts of the Company and its subsidiaries for the fiscal year that began on July 1, 2006, were as follows:

For	Against	Abstained
456,361,460	6,596,542	3,855,764

Item 6. Exhibits

Exhibit Number	Exhibit
10.4	Supplemental Officers’ Retirement Plan
10.8	2000 Stock Option Plan
10.9	Amended and Restated Executive Incentive Compensation Plan
10.9(a)	Form of Performance Based Restricted Stock Award Agreement under the Amended and Restated Executive Incentive Compensation Plan
10.13	Amended and Restated Employees’ Savings-Stock Purchase Plan
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 the Company’s Current Report on Form 8-K, dated November 15, 2006 (Management Contract)

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

SIGNATURES

Pursuant to the requirements 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)
Date: February 9, 2007	/s/ Christopher R. Reidy Christopher R. Reidy
	Chief Financial Officer (Title)

EX-31.1

EXHIBIT 31.1

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

I, Gary C. Butler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Automatic Data Processing, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2007

/s/ Gary C. Butler                                    

Gary C. Butler

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

I, Christopher R. Reidy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Automatic Data Processing, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2007

/s/ Christopher R. Reidy                      

Christopher R. Reidy

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Automatic Data Processing, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary C. Butler, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Gary C. Butler

Gary C. Butler

President and Chief Executive Officer

February 9, 2007

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Automatic Data Processing, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher R. Reidy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Christopher R. Reidy

Christopher R. Reidy

Chief Financial Officer

February 9, 2007

EX-10.4

AUTOMATIC DATA PROCESSING, INC.

SUPPLEMENTAL OFFICERS RETIREMENT PLAN

(as amended on May 14, 2002, January 27, 2005, June 15, 2006,

and as further amended on January 26, 2007)

The purpose of this Supplemental Officers Retirement Plan (the “Plan”) is to provide an additional means by which AUTOMATIC DATA PROCESSING, INC. may attract, retain and encourage the productive efforts of a select group of corporate vice presidents and more senior corporate officers who provide valuable services to AUTOMATIC DATA PROCESSING, INC. and its subsidiaries. The Plan provides supplemental retirement benefits to qualifying participants.

The Plan is as follows:

	ARTICLE I
DEFINITIONS

The following terms when used in this Plan shall have the designated meaning, unless a different meaning is clearly required by the context.

1.1        Annual Plan Benefit. The Annual Plan Benefit shall be the annual amount of a Participant’s Plan benefit calculated in accordance with the provisions of Section 3.1 below.

1.2 Annual Benefit Multiplier. The Annual Benefit Multiplier shall be 1-1/2%.  

1.3      Committee. Three board members or senior officers of the Corporation appointed from time to time by the Board of Directors of the Company.

1.4	Board. The Board of Directors of the Company.
1.5	Code. The Internal Revenue Code of 1986, as amended.

1.6      Company. Automatic Data Processing, Inc. (“ADP”) and its subsidiaries, and ADP’s successors.

1.7 Early Retirement Date. The date on which a Participant attains age sixty (60).

1.8      Final Average Annual Pay. The average annual compensation of a Participant for the five full consecutive calendar years during his Future Service period during which he received the largest total amount of compensation. For this purpose, a Participant’s “compensation” shall mean the total compensation actually paid or accrued by the Company to or for such Participant including, without limitation, bonuses paid or accrued (other than any bonuses paid or accrued under the Company’s three-year GIP growth incentive plan), performance incentive payments and the like and restricted stock plans and programs (other than (A) the Company’s 2005 fiscal year and 2006 fiscal year broad-based performance-based restricted stock programs (PBRS) in which all “letter grade” associates participated and (B) the Company’s two-year accelerated revenue PBRS programs (i.e. the ARPs), the first of which commenced in the Company’s 2007 fiscal year), and excluding relocation pay, compensation derived from stock options, stock appreciation rights or any similar plans; provided that, notwithstanding anything to the contrary set forth herein, amounts deferred at such Participant’s election under a plan described in section 401(k) of the Code, and the value (at time of grant) of any stock option grant made in lieu of a bonus payment, shall be included in such Participant’s compensation. The Company’s chief executive officer shall determine the value of any stock option grant made in lieu of a bonus payment, which value shall not, in any event, be: (i) greater than the “target bonus” amount of the stock option grant was made in lieu of (the “Substituted Amount”) or (ii) less than the amount such Participant would have received had the foregoing stock option grant not been made and the normal bonus “scoring” methodology been applied to the Substituted Amount, provided that such amount shall not exceed the Substituted Amount. The value of such stock option grant shall be included in a Participant’s compensation in the calendar year in which the bonus (which the stock option was granted in lieu of) would have otherwise been paid or accrued. The value (on the date that restrictions lapse) of a Participant’s restricted stock with restrictions lapsing during the Company’s fiscal year that begins during the applicable calendar year shall be included in the Participant’s compensation for such calendar year; provided that, in the case of restricted stock that is includable in a Participant’s compensation for calendar year 2007, the value of such restricted stock will be determined by multiplying (a) the price of a share of the Company’s common stock on the date the restrictions t hereon lapse (determined consistently with past practice), by (b) the number resulting from multiplying the aggregate number of includable restricted shares by a fraction, the numerator of which is the “last trade” price of a share of the Company’s common stock on the trading date immediately prior to the date the tax-free spin-off of the Company’s Brokerage Services Group business occurs (the “Spin-off”) and the denominator of which is the “first trade” price of the Company’s common stock on the trading date on which the Spin-off has occurred.

1.9        Future Service. A Participant’s period of full calendar years of continuous employment with the Company after his Plan participation has begun. Leaves of absence of less than six months may be taken into account as Future Service, to the extent provided by the Committee. The Committee may, in the applicable Supplement, grant a Participant prior service credit for determining the length of his Future Service period.

1.10      Government Sponsored Plan Benefits. The annual amount of benefits to which a Participant is entitled on his Normal Retirement Date under all government sponsored retirement benefit plans (including, without limitation, Participant’s Social Security benefits). A Participant’s government sponsored retirement plan benefits shall be expressed as an annual amount in the form of an actuarially equivalent straight life annuity starting on his Normal Retirement Date.

1.11      Maximum Annual Benefit Limitation. The Maximum Annual Benefit Limitation shall be 25% of a Participant’s Final Average Annual Pay.

1.12      Normal Retirement Date. The date on which the Participant attains age sixty-five (65).

1.13      Other Retirement Benefits. The sum of the Participant’s Private Sector Plan Benefits and his Government Sponsored Plan Benefits.

1.14      Participant. An individual who has been designated as a Participant by the Committee pursuant to Article II.

1.15      Private Sector Plan Benefits. The annual amount of benefits to which a Participant is entitled on his Normal Retirement Date under all retirement plans maintained by the Company (other than this Plan), or by any former or subsequent employer of Participant (other than a governmental body covered by Section 1.10 above), whether as a periodic payment, as a lump sum, or otherwise. A Participant’s Private Sector Plan Benefits shall be expressed as an annual amount in the form of an actuarially equivalent straight life annuity starting at his Normal Retirement Date.

1.16      Supplement. A supplement attached to and made a part of this Plan, which shall set forth for each Participant any special conditions applicable to him.

1.17      Termination of Employment. References hereunder to a Participant’s termination of employment, the date a Participant’s employment terminates and the like, shall refer to the ceasing of the Participant’s employment with the Company for any reason.

1.18      Vested Percentage. Except to the extent set forth in Sections 3.4 and 5.5, until a Participant completes 5 full calendar years of Future Service, such Participant’s Vested Percentage shall be 0% and he shall not be entitled to any Plan benefits hereunder. Upon completing 5, 6, 7, 8, 9, and 10 or more full calendar years of Future Service, a Participant’s Vested Percentage shall be 50%, 60%, 70%, 80%, 90%, and 100%, respectively. The Committee may, in the applicable Supplement, grant a Participant prior service credit for determining his Vesting Percentage purposes. Any Participant who has passed the age of 55 and served as a corporate officer for more than 5 years as of the effective date of this Plan, January 1, 1989, shall be 100% vested in all of his plan benefits hereunder.

	ARTICLE II
ELIGIBILITY

(a)         The Committee may at any time and from time to time (but prospectively only) designate any corporate vice president or any more senior corporate officer of the Company as a Participant in the Plan; provided that such person participates to the maximum extent permissible in the Company’s other retirement plans (including, without limitation, the Automatic Data Processing, Inc. Retirement and Savings Plan and the Automatic Data Processing, Inc. Pension Retirement Plan) during the entire period he is a Participant in the Plan.

(b)        A person shall automatically cease to be a Participant on the earlier to occur of the date on which: (i) he is no longer a corporate vice president or a more senior corporate officer of the Company; or (ii) he ceases to participate to the maximum extent permissible in the Company’s retirement plans (including, without limitation, the Automatic Data Processing, Inc. Retirement and Savings Plan and the Automatic Data Processing, Inc. Pension Retirement Plan).

			ARTICLE III
		RETIREMENT BENEFITS
3.1	In General.

(a)         A Participant’s Annual Plan Benefit is the product of (i) his Final Average Annual Pay, (ii) his Future Service period, (iii) the Annual Benefit Multiplier and (iv) his Vested Percentage; provided that, in no event, may the Participant’s Annual Plan Benefit exceed the Maximum Annual Benefit Limitation applicable to him.

(b)        In addition, the Annual Plan Benefits otherwise payable to a Participant under the Plan’s basic benefit formula set forth in Section 3.1(a) above shall be reduced to the extent necessary to cause the total of (i) Participant’s Annual Plan Benefits and (ii) Participant’s annual Other Retirement Benefits not to exceed 60% of Participant’s Final Average Annual Pay.

(c)         A Participant’s benefits under this Plan shall be expressed as an annual amount in the form of a straight life annuity or, at the Committee’s election, another actuarially equivalent payment option, starting as at the date the payments to such Participant under this Article III begin.

3.2        Normal Retirement Benefit. If a Participant wishes to receive Plan benefits on and after his Normal Retirement Date, the Company will pay the Participant a monthly benefit, starting on the first of the month after Normal Retirement Date and ending with the payment for the month in which his death occurs; provided that no benefit shall be paid hereunder unless and until such Participant has ceased to be employed by the Company. Such monthly benefit shall be one-twelfth of such Participant’s Annual Plan Benefit determined in accordance with the provisions of Section 3.1 above.

3.3        Early Retirement Benefit. If a Participant wishes to receive Plan benefits commencing on or after his Early Retirement Date and before his Normal Retirement Date, the Company will, at Participant’s request, pay the Participant a monthly benefit starting on the first of the month after his Early Retirement Date after which he requested that he begin receiving benefits under the Plan and ending with the payment for the month in which his death occurs; provided that no benefit shall be paid hereunder unless and until such Participant has ceased to be employed by the Company. Such monthly benefit shall be in an amount equal to the product of the monthly benefit the Participant would have received under Section 3.2 if the Participant had elected to commence receiving payments under the Plan on his Normal Retire ment Date, actuarially reduced to reflect the commencement of the payment of Plan benefits before his Normal Retirement Date. The Committee may, in its discretion, reduce a Participant’s Plan benefits by less than a straight actuarially reduced amount if Participant begins to receive Plan benefits after his Early Retirement Date and before his Normal Retirement Date.

3.4        Disability Retirement Benefit. If a Participant shall incur a Disability while employed by the Company, the Company shall pay such Participant a monthly benefit starting on the first day of the calendar month after the date his Disability begins and ending with the payment for the calendar month in which his death occurs or his disability ends, whichever occurs first. Such monthly benefit (which shall not be reduced by, and shall not reduce, the benefits, if any, payable to a Participant under the Company’s Long Term Disability Insurance Program) shall be calculated in the same way as an Early Retirement benefit under Section 3.3, based on his Final Average Annual Pay when his Disability begins (which will, for purposes of this Section 3.4 only, be determined over less than five full consecutive calendar years to the extent that his Future Service period is less than five years), except that (i) the Vested Percentage shall always be 100%, (ii) there shall not be any actuarial reduction to reflect the commencement of the payment of benefits before his Normal Retirement Date, and (iii) there shall not be any Future Service period accrual during his Disability. For purposes of this Section 3.4, “Disability” shall have the same meaning, and shall be determined in the same manner, as it is determined under the Company’s Long Term Disability Insurance Program as in effect on the date the Disability begins.

3.5        No Duplication. In no event shall benefits become payable to any Participant under more than one Section of this Article III.

	ARTICLE IV
FORFEITURES

4.1        Forfeiture for Competitive Employment. If a Participant violates the non-competition provisions of any agreement he has entered into with the Company after his employment terminates, or if his employment with the Company is terminated on account of his dishonesty or gross negligence, such Participant shall forever and irrevocably forfeit all benefits otherwise due him under the terms of the Plan.

4.2        Limitation. If any provision of this Article IV shall be unenforceable as a matter of law, it shall be construed to apply to the greatest extent permitted by law so as to give effect to its intended purposes.

	ARTICLE V
CONDITIONS RELATED TO BENEFITS

5.1        Administration of Plan. The Committee shall administer the Plan and shall have the sole and exclusive authority to interpret, construe and apply its provisions. The Committee shall have the power to establish, adopt and revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan and the operation of the Committee’s activities in connection therewith. All decisions of the Committee shall be by vote or written consent of the majority of its members and shall be final and binding. Members of the Committee shall be eligible to participate in the Plan while serving as a member of the Committee, but a member of the Committee shall not vote or act upon any matter which relates solely to such member in his capacity as a Participant.

5.2        Grantor Trust. The Committee may, at its discretion, have the Company create a grantor trust (within the meaning of section 671 of the Code) in connection with the adoption of this Plan to which it may from time to time contribute amounts to accumulate an appropriate reserve against its obligations hereunder. Notwithstanding the creation of such trust, the benefits hereunder shall be a general obligation of the Company. Except to the extent that the benefit amounts payable hereunder have been specifically transferred for an identified Participant into the Automatic Data Processing, Inc. Retirement and Savings Plan (the “Pension Plan”) pursuant to the terms and conditions of the Pension Plan and are payable thereunder, a Participant shall have only a contractual right as a general creditor of the Compa ny to the amounts, if any, payable hereunder and such right shall not be secured by any assets of the Company or the trust.

5.3        No Right to Company Assets. Except to the extent that benefit amounts have been specifically transferred for an identified Participant into the Pension Plan pursuant to the terms and conditions of the Pension Plan and are payable thereunder, neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of the Company whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which the Company may set aside in anticipation of a liability hereunder, nor in any policy or policies of insurance on the life of a Participant owned by the Company.

5.4        No Employment Rights. Nothing herein shall constitute a contract of continuing employment or in any manner obligate the Company to continue the service of a Participant, or obligate a Participant to continue in the service of the Company, and nothing herein shall be construed as fixing or regulating the compensation paid to a Participant.

5.5        Company’s Right to Terminate and Amend. The Company reserves the right in its sole discretion at any time to amend the Plan in any respect or terminate the Plan. Notwithstanding the foregoing, no such amendment or termination shall reduce the amount of the benefit theretofore vested by any Participant or change the conditions required to be satisfied to receive payment of such past accrued benefit based on the provisions of the Plan as theretofore in effect. For this purpose, the amount of a Participant’s accrued benefit as of the date of any plan amendment or termination shall be determined as if the Participant was then retiring in accordance with Section 3.3 with his actual Vested Percentage accrued as at such date; provided that if the Company is terminating the Plan and if a Participant has not c ompleted at least 5 years of Future Service, Participant’s Vested Percentage shall be (i) 40% if he has completed 4 years of Future Service, (ii) 30% if he has completed 3 years of Future Service, (iii) 20% if he has completed 2 years of Future Service, (iv) 10% if he has completed 1 year of Future Service, and (v) 0% if he has not completed 1 year of Future Service.

5.6        Protective Provisions. The Participant shall cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of benefits hereunder.

5.7        Right of Offset. If at the time any payment is to be made hereunder a Participant is indebted to the Company or otherwise subject to a monetary claim by the Company, the payments remaining to be paid to the Participant under the Plan may, at the Company’s discretion, be reduced by setoff against the amount of such indebtedness or claim.

5.8        No Third Party Rights. Nothing in this Plan or any trust established pursuant to Section 5.2 hereof shall be construed to create any rights hereunder in favor of any person (other than the Company and any Participant) or to limit the Company’s right to amend or terminate the Plan in any manner subject to Section 5.5 hereof.

	ARTICLE VI
MISCELLANEOUS

6.1        Nonassignability. No rights or payments to any Participant shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or involuntary, and no attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be valid, nor shall any such benefit or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements or torts of any Participant or subject to levy, garnishment, attachment, execution or other legal or equitable process. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant, nor be transferable by operation of law in the ev ent of a Participant’s bankruptcy or insolvency.

6.2        Withholding. To the extent required by law the Company shall be entitled to withhold from any payments due hereunder any federal, state and local taxes required to be withheld in connection with such payment.

6.3        Gender and Number. Wherever appropriate herein, the masculine shall mean the feminine and the singular shall mean the plural or vice versa.

6.4        Notice. Any notice required or permitted to be made under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to (a) in the case of notice to the Company or the Committee, the principal office of the Company, directed to the attention of the Secretary of the Committee, and (b) in the case of a Participant, such Participant’s home or business address maintained in the Company’s personnel records. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.

6.5        Validity. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan.

6.6        Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of New Jersey.

	ARTICLE VII
SPOUSAL BENEFITS

In the event of the death of a participant who is at least 35 years of age at the time of his death and who is vested in accordance with the provisions of Paragraph 1.18, the surviving spouse is entitled to receive 50% of the death benefit which the participant would have been entitled to receive at the time of his death. Such benefit shall be payable monthly as a straight life annuity benefit and shall be calculated in accordance with the benefit which the participant would have been entitled to at the normal retirement age of 65 or, at the election of the spouse, in accordance with the early retirement provision actuarily reduced.

EX-10.9

AUTOMATIC DATA PROCESSING, INC.

AMENDED AND RESTATED

EXECUTIVE INCENTIVE COMPENSATION PLAN

I. Purpose

The purpose of the Automatic Data Processing, Inc. Executive Incentive Compensation Plan (the “Plan”) is to establish an incentive compensation program for certain executive employees of Automatic Data Processing, Inc. (the “Company”) and its subsidiaries and divisions who have significant responsibility for the success and growth of the Company and to assist in attracting, motivating and retaining key employees on a competitive basis. The Plan permits the Company to grant annual incentives and performance-based restricted stock awards (respectively “Bonus Awards” and “Performance-Based Restricted Stock Awards”) to certain executive employees who make substantial contributions to the Company and/or its subsidiaries and divisions, as determined by the Committee (as defined below).

The Plan was originally adopted on August 13, 2001. The Plan is hereby amended and restated in its entirety effective August 10, 2006 in connection with its submission to shareholders for reapproval.

II. Definitions

“Award” means a Bonus Award or a Performance-Based Restricted Stock Award.

“Board” means the Board of Directors of the Company or the Executive Committee thereof.

“Bonus Award” has the meaning ascribed to it in Section I.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means a committee selected by the Board to administer the Plan and composed of not less than two directors, each of whom is a “non-employee director” (within the meaning of Rule 16b-3 of the Securities and Exchange Commission under the Exchange Act if and as such Rule is in effect) and an “outside director” (within the meaning of Section 162(m) of the Code).

“Common Stock” means the common stock of the Company, par value $.10 per share.

“Company” has the meaning ascribed to it in Section I.

“Designated Beneficiary” has the meaning ascribed to it in Section XII.

“Effective Date” shall mean July 1, 2001, subject to approval by the Company’s shareholders in a manner which complies with the shareholder approval requirements of Section 162(m) of the Code. 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Participant” has the meaning ascribed to it in Section III.

“Performance-Based Restricted Stock Award” has the meaning ascribed to it in Section I.

“Performance Criteria” has the meaning ascribed to it in Section V.A.2.

“Performance Period” means the period during which performance is measured to determine the level of attainment or vesting of an Award.

“Plan” has the meaning ascribed to it in Section I.

“Restricted Shares” means shares of restricted Common Stock granted to a Participant in accordance with Section VII.

“Restricted Stock Vesting Percentage” means the percentage of a Participant’s Target Restricted Stock Award which vests based upon the level of attainment of Performance Criteria.

“Target Restricted Stock Award” means number of Restricted Shares granted under the Plan to a Participant at the beginning of a Performance Period in the form of a Performance-Based Restricted Stock Award.

III. Eligibility

Any executive employee of the Company or any of its subsidiaries or divisions is eligible to be selected to participate in the Plan. The Committee shall select in its sole discretion those persons from among such employees who shall participate in the Plan in respect of any Performance Period (“Participants”). No person shall at any time have the right to be selected as a Participant nor, having been selected as a Participant for one Performance Period, to be selected as a Participant in any other Performance Period.

IV. Administration

A.The Committee, in its sole discretion, will determine eligibility for participation, establish the maximum Award which may be earned by each Participant, establish Performance Criteria for each Participant, calculate and determine each Participant’s level of attainment of such Performance Criteria, and calculate the Bonus Award and Restricted Stock Vesting Percentage for each Participant based upon such level of attainment. In addition to the authority otherwise prescribed in the Plan, the Committee shall have the authority in its sole discretion to prescribe such limitations, restrictions, and conditions upon, provisions for vesting and acceleration of, provisions prescribing the nature and amount of legal consideration to be received upon the grant of a Performance-Based Restricted Stock Award and all other terms and conditions of any Award as the Committee deems appropriate, provided that none of the foregoing conflicts with any of the express terms or limitations of the Plan. 

B.Except as otherwise herein expressly provided, full power and authority to construe, interpret, and administer the Plan shall be vested in the Committee, including the power to amend or terminate the Plan as further described in Section XV. The Committee may at any time adopt such rules, regulations, policies, or practices as, in its sole discretion, it shall determine to be necessary or appropriate for the administration of, or theperformance of its respective responsibilities under, the Plan. The Committee may at any time amend, modify, suspend, or terminate such rules, regulations, policies, or practices. All actions taken and all interpretations and determinations made by the Committee (and by the Company’s executive officers in furtherance of such interpretations and determinations) shall be binding upon all affected persons.

C.All expenses and liabilities incurred by members of the Committee in connection with the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, or other persons to assist it in the discharge of its duties hereunder. The Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons.

D.Notwithstanding the foregoing or any other provision of the Plan, the Board may at any time or from time to time resolve to administer the Plan and in such case, references herein to the Committee shall mean the Board when so acting.

V. Performance Criteria and Section 162(m)

A.Awards granted under the Plan are intended to qualify for the exception to Section 162(m) of the Code applicable to “performance-based compensation,” and will be subject to the following requirements, notwithstanding any other provision of the Plan to the contrary:

1. No Bonus Award may be paid or Performance-Based Restricted Stock Award vest unless and until the shareholders of the Company have approved the Plan in a manner which complies with the shareholder approval requirements of Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.

2. The performance goals to which the payment or vesting, as applicable, of an Award is subject must be based solely on objective performance criteria established by the Committee in accordance with this Section V (“Performance Criteria”). Such Performance Criteria must be established by the Committee within the time limits required in order for the Award to qualify for the performance-based compensation exception to Section 162(m) of the Code.

3. No Award may be paid or vested, as applicable, until the Committee has certified the level of attainment of the applicable Performance Criteria.

B.Performance Criteria shall be measured in terms of one or more of the following objectives, described as they relate to Company-wide objectives or of a subsidiary, division, department or function of the Company:

(i) Earnings per share;

(ii) Stock price;

(iii) Shareholder return;

(iv) Return on investment;

(v) Return on capital;

(vi) Earnings before interest, taxes, depreciation and amortization;

(vii) Gross or net profits;

(viii) Gross or net revenues;

(ix) Net earnings or net income (before or after taxes);

(x) Net operating profit (before or after taxes);

(xi) Return measures (including, but not limited to, return on assets, capital, invested capital, equity, or sales);

(xii) Cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);

(xiii) Gross or operating margins;

(xiv) Productivity ratios;

(xv) Expense targets;

(xvi) Margins;

(xvii) Operating efficiency;

(xviii) Objective measures of customer satisfaction;

(xix) Working capital targets;

(xx) Measures of economic value added;

(xxi) Sales;

(xxii) Enterprise value;

(xxiii) Client retention;

(xxiv) Competitive market metrics;

(xxv) Employee retention;

(xxvi) Timely completion of new product rollouts; or

(xxvii) Any combination of the foregoing.

In computing any of the foregoing, unless determined otherwise by the Committee in respect of any particular Performance Criteria no later than the time that such Performance Criteria is established, there shall be excluded, to the extent applicable, the following:

(i) all items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, all as determined in accordance with standards established by opinion No. 30 of the Accounting Principles Board, as amended, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”

(ii) all items of gain, loss or expense related to restructuring charges of subsidiaries whose operations are not included in operating income for the Performance Period;

(iii) all items of gain, loss or expense related to discontinued operations that do not qualify as a segment of a business as defined under Statements of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and

(iv) any profit or loss attributable to the business operations of any entity acquired by either the Company or any consolidated subsidiary during the Performance Period.

C.As to each Award, the Committee shall specify the Performance Criteria to be achieved, a minimum acceptable level of achievement below which no payment or vesting will occur, and a formula for determining the amount of any payment or vesting to occur if performance is at or above the minimum acceptable level but falls short of full achievement of the specified Performance Criteria.

D.If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Criteria to be unsuitable, the Committee may modify such Performance Criteria or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided, however, that no such modification shall be made if the effect would be to cause an Award to fail to qualify for the performance-based compensation exception to Section 162(m) of the Code. In addition, at the time Performance Criteria are established as to an Award, the Committee is authorized to determine the manner in which the Performance Criteria related thereto will be calculated or measured to take into account certain factors over which the Participant has no control or limited control including changes in industry margins, general economic conditions, interest rate movements and changes in accounting principles.

VI. Bonus Awards

A.The Committee, based upon information to be supplied by management of the Company and, where determined as necessary by the Board, the ratification of the Board, will establish for each Performance Period a target Bonus Award (and, if the Committee deems appropriate, a threshold Award) and Performance Criteria for each Participant selected by the Committee to receive a Bonus Award and communicate such Award levels and Performance Criteria to such Participant prior to or during the Performance Period for which such Bonus Award may be made. Bonus Awards will be earned by Participants based upon the level of attainment of the applicable Performance Criteria during the applicable Performance Period; provided that the Committee may reduce the amount of any Bonus Award in its sole and absolute discretion. As soon as practicable after the end of the applicable Performance Period, the Committee shall determine and certify the level of attainment of the Performance Criteria for each applicable Participant and the Bonus Award to be made to each applicable Participant.

B.Bonus Awards earned during any Performance Period shall be paid as soon as practicable following the end of such Performance Period, unless payment is deferred at the election of a Participant pursuant to a deferred compensation arrangement maintained by the Company. Payment of Bonus Awards shall be made in the form of cash. Bonus Awards earned but not yet paid will not accrue interest.

C.Notwithstanding the above, unless determined otherwise by the Committee, a Participant shall not be eligible to receive payment of his or her Bonus Award earned during a Performance Period unless the Participant is employed on the day such Bonus Award otherwise would be paid; provided that in the event of a Participant’s death prior to the payment of a Bonus Award which has been earned, such payment shall be made to the Participant’s Designated Beneficiary.

D.Notwithstanding anything in the Plan to the contrary, the maximum amount of any single Bonus Award for any single Performance Period shall be $5,000,000.

VII. Performance-Based Restricted Stock Awards

A.Subject to adjustment pursuant to Section VII.D, the number of shares of Common Stock that may be the subject of Performance-Based Restricted Stock Awards under this Plan is 3,500,000. Such shares may be treasury shares or shares of original issue or a combination of the foregoing. In the event that any Performance-Based Restricted Stock Award under the Plan expires, terminates or is canceled for any reason whatsoever without the Participant having received any benefit therefrom, the shares of Common Stock covered by such Performance-Based Restricted Stock Award shall again become available for future Performance-Based Restricted Stock Awards under the Plan. For purposes of the foregoing sentence, a Participant shall not be deemed to have received any “benefit” in the case of forfeited Restricted Shares by reason of having enjoyed vot ing rights and dividend rights prior to the date of forfeiture.

B.Each Performance-Based Restricted Stock Award shall be comprised of that number of actual shares of restricted Common Stock equal to the Participant’s Target Restricted Stock Award and subject to the terms and conditions of this Plan. For each Participant granted a Performance-Based Restricted Stock Award, the Committee shall establish (i) the Performance Period, (ii) the Target Restricted Stock Award, (iii) the level of Performance Criteria used to determine the Restricted Stock Vesting Percentage and (iv) the level of the Restricted Stock Vesting Percentage determined by the attainment of the Performance Criteria. Each of these items, as well as any other terms and conditions of a Participant’s Performance-Based Restricted Stock Award, shall be described in detail in an agreement delivered to the Participant. Each Performance-Based Restricted Stock Award shall vest based upon the level of attainment of the applicable Performance Criteria during the Performance Period and the resulting Restricted Stock Vesting Percentage, as well as, if determined by the Committee, upon the continued employment of the Participant (subject to the terms and conditions of the Participant’s Award agreement). As soon as practicable after the end of each applicable Performance Period, the Committee shall determine the level of attainment of the Performance Criteria for each Participant, the associated Restricted Stock Vesting Percentage and the number of Restricted Shares, if any, as to which the restrictions thereon shall lapse at the end of the Performance Period if any other vesting conditions contained in the Participant’s Award agreement are satisfied.

The Committee may, in its discretion, require that Performance Criteria be attained as a condition of the grant of a Performance-Based Restricted Stock Award to a Participant. Such a Performance-Based Restricted Stock Award shall be subject to additional vesting conditions upon grant, which may include continued service and which need not include the attainment of additional Performance Criteria.

C.If determined by the Committee and set forth in an Award agreement, a Participant shall be entitled to payment of dividends on the Restricted Shares comprising his Performance-Based Restricted Stock Award, whether or not such Restricted Shares have vested.

D.If from time to time during the term of the Plan there is any share split, spin off, share dividend, share distribution or other reclassification of the Common Stock, any and all new, substituted or additional securities to which a Participant is entitled by reason of his ownership of Restricted Shares shall be immediately subject to the terms of the Plan. If the Common Stock is converted into or exchanged for, or shareholders of the Company receive by reason of any distribution in total or partial liquidation, securities of another corporation, or other property (including cash), pursuant to any merger of the Company or acquisition of its assets, then the rights of the Company under the Plan shall inure to the benefit of the Company’s successor and the Plan shall apply to the securities or other property received upon such conversion, exchange or distribution in the same manner and to the same extent as the Restricted Shares. In the case of any such event, the Committee may, if and to the extent it deems appropriate, adjust the number and kind of shares which may be subject to Performance-Based Restricted Stock Awards as set forth in Section VII.A. and the maximum number of Restricted Shares that may be to any Participant in a single fiscal year set forth in Section VII.E. 2(iv). 

E.Performance-Based Restricted Stock Awards shall be granted only pursuant to an Award agreement, which shall be executed by the Participant and a duly authorized officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with the Plan, including the following

1. Price. The purchase price of Restricted Shares shall be determined by the Committee, in its sole discretion, and may be zero.

2. Restrictions and Conditions

(i) The Performance-Based Restricted Stock Awards shall be subject to Performance Criteria as a condition for the vesting of the Restricted Shares, as provided in the Award agreement. Prior to vesting, no Restricted Share may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant. Any Restricted Share as to which the applicable Performance Period has lapsed without becoming vested shall be forfeited and returned to the Company and treated in accordance with the third sentence of Section VII.A.

(ii) Except as provided in clause (i), the Participant shall have, with respect to the Restricted Shares, all of the rights of a shareholder of the Company, including the right to vote the shares of Common Stock and to receive any cash dividends.

(iii) The Committee may, in its sole discretion, provide that Restricted Shares be held in escrow or trust pending delivery to the Participant upon vesting or delivery to the Company upon forfeiture. The escrow agent may be the Company, at the discretion of the Committee.

(iv) Subject to adjustment pursuant to Section VII.D, the maximum number of Restricted Shares that may be granted to any Participant in a single fiscal year of the Company shall be 200,000.

F.A Participant may make an election pursuant to Section 83(b) of the Code in respect of his or her Restricted Shares and, if he or she does so, he or she shall timely notify the Company of such election and send the Company a copy thereof. The Participant shall be solely responsible for properly and timely completing and filing any such election.

G.Each certificate representing Restricted Shares shall bear an appropriate legend, as determined by the Company, until the lapse of all restrictions with respect to such Restricted Shares.

H.The obligation of the Company to grant or sell Restricted Shares, and to honor the vesting conditions thereof, shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Performance-Based Restricted Stock Award to the contrary, the Company shall be under no obligation to grant or to sell and shall be prohibited from granting or selling any Restricted Shares unless such Restricted Shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be granted or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such ex emption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the Restricted Shares. If the Restricted Shares are granted or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such Restricted Shares and may legend the certificates representing such Restricted Shares in such manner as it deems advisable to ensure the availability of any such exemption.

VIII. Reorganization or Discontinuance

The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. The Company will make appropriate provision for the preservation of Participants’ rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets.

IX. Non-Alienation of Benefits

A Participant may not assign, sell, encumber, transfer or otherwise dispose of any rights or interests under the Plan except by will or the laws of descent and distribution. Any attempted disposition in contravention of the preceding sentence shall be null and void.

X. No Claim or Right to Plan Participation

No employee or other person shall have any claim or right to be selected as a Participant under the Plan. Neither the Plan nor any action taken pursuant to the Plan shall be construed as giving any employee any right to be retained in the employ of the Company.

XI. Taxes

The Company shall deduct from all amounts paid under the Plan all federal, state, local and other payroll taxes and income tax withholding required by law to be withheld with respect to such payments.

XII. Designation and Change of Beneficiary

Each Participant may indicate upon notice to him or her by the Committee of his or her right to receive an Award a designation of one or more persons who shall be entitled to receive the amount, if any, payable under the Plan upon the death of the Participant (“Designated Beneficiary”). Such designation shall be in writing to the Committee. A Participant may, from time to time, revoke or change his or her Designated Beneficiary without the consent of any prior Designated Beneficiary by filing a written designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a d ate prior to such receipt. If no Designated Beneficiary of a Participant is living at the time of the Participant’s death, or if the Participant has not designated a Designated Beneficiary, then the Participant’s Designated Beneficiary shall be his or her estate.

XIII. Payments to Persons Other Than the Participant

If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his or her affairs because of incapacity, illness or accident, or is a minor, or has died, then any payment due to such person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs, be paid to his or her spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee, in its sole discretion, to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Company therefor.

XIV. No Liability of Committee Members

No member of the Committee shall be personally liable by reason of any contract or other instrument related to the Plan executed by such member or on his or her behalf in his or her capacity as a member of the Committee, nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each employee, officer, or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including legal fees, disbursements and other related charges) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or bad faith.

XV. Termination or Amendment

The Committee may amend, suspend or terminate the Plan at any time; provided that no amendment may be made without the approval of the Company’s shareholders if the effect of such amendment would be to cause outstanding or pending Awards to cease to qualify for the performance-based compensation exception to Section 162(m) of the Code.

XVI. Unfunded Plan

Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, Designated Beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan.

The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.

XVII. Governing Law

The terms of the Plan and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws.

XVIII. Severability

If any provision of the Plan or any award made hereunder is, becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or award, or would disqualify the Plan or any award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the award, such provision shall be stricken as to such jurisdiction, person or award and the remainder of the Plan and any such award shall remain in full force and effect.

XIX. Headings

Headings are used herein solely as a convenience to facilitate reference and shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

XX. Expiration Date

No award shall be made under the Plan after the tenth anniversary of the Effective Date; provided, however, that the Plan shall be resubmitted to the Company’s shareholders as necessary to ensure that Awards continue to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. As of the Effective Date, pursuant to Treasury Regulation §1.167-27(e)(4)(vi), the proviso to the preceding sentence requires the Plan to be resubmitted to the Company’s shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the Plan. Effective August 10, 2006, the Plan is hereby amended and restated in its entirety, and shall be resubmitted to the Company’s shareholders at the shareholder meeting occurring on November 14, 2006, or any adjournments or postponements thereof. Thereafter, the Plan shall be resubmitted to the Company’s shareholders as described in the first two sentences of this Section XX.

As amended and restated by the Company pursuant to action

of the Board of Directors at a meeting

held on August 10, 2006.

By: /s/ James B. Benson

Corporate Secretary

EX-10.9A

PERFORMACE BASED RESTRICTED STOCK AWARD AGREEMENT

_______________, 20__

AUTOMATIC DATA PROCESSING, INC.

One ADP Boulevard

Roseland, New Jersey 07068

Participant is a key employee of ADP or one of its subsidiaries.

ADP wishes to provide Participant with an additional incentive to exert maximum efforts on behalf of ADP and its business.

ADP and Participant agree as follows:

1. ADP is delivering to Participant shares of ADP common stock, par value $.10 per share, pursuant to the Amended and Restated Executive Incentive Compensation Plan (the “Plan”). The terms and conditions of the Plan are incorporated by reference into this agreement. Participant agrees to hold such shares subject to all the terms and conditions of this agreement and the Plan.

2. Participant represents that he/she will hold all such ADP shares for his/her own account for investment and not with a view to the resale or other distribution thereof and agrees not to dispose of any of such shares in violation of the applicable securities laws.

3. All of such shares shall be held by Participant under the following further restrictions and agreements:

(a) Participant will not at any time prior to the release date specified in Paragraph 3(d) below sell, assign, pledge, encumber or otherwise transfer any or all of such shares, voluntarily or involuntarily, to anyone other than ADP.

(b) If at any time hereafter Participant willfully attempts to transfer any shares in excess of the number, if any, then released from restrictions pursuant to Paragraph 3(d) below, all of the shares attempted to be transferred in excess of the number, if any, then released from restrictions pursuant to Paragraph 3(d) below shall be forfeited by Participant.

(c) If Participant’s employment by ADP or any subsidiary thereof, or any successor thereto, shall terminate for any reason prior to the release of shares pursuant to Paragraph 3(d) below, all of the shares granted to Participant hereunder in excess of the number, if any, then released from restrictions pursuant to Paragraph 3(d) below, shall be forfeited by Participant.

(d) The restrictions on sales and other transfers contained in this Paragraph 3 shall cease to apply on ________________, 20__.

4. Nothing in this agreement shall confer upon Participant any right to continue in the employ of ADP or any of its subsidiaries or shall affect ADP’s right to terminate Participant’s employment as would exist in the absence of this agreement.

5. In the event of any transaction described in Section VII D of the Plan, any new or additional securities or other property received by the Participant in connection therewith shall be subject to Section VII D of the Plan.

6. Participant must satisfy any required income tax withholding and payroll tax obligations in respect of any release of the restrictions described in Paragraph 3 as a condition to such release. Those obligations will be satisfied by delivering to ADP shares as to which the restrictions contained in Paragraph 3 have lapsed with a fair market value equal to such withholding liability (but no greater than the minimum such withholding liability).

7. The effectiveness of the award granted hereunder is conditioned upon the execution and delivery by the Participant of a covenant or agreement acceptable to ADP restricting the Participant’s ability to disclose confidential information of ADP, to compete with the ADP and to solicit ADP’s employees.

8. This agreement shall bind and benefit Participant and his/her heirs, legal representatives and assigns, and ADP, its legal representatives, successors and assigns.

9. All notices and other communications required or permitted to be given under this agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been duly given if delivered or mailed first class, postage prepaid or certified mail, as follows:

Automatic Data Processing, Inc.
One ADP Boulevard	M/S B437
Roseland, New Jersey 07068
Attention: Stock Plan Services Department

EX-10.8

AUTOMATIC DATA PROCESSING, INC.

2000 STOCK OPTION PLAN

(originally effective as of August 10, 1999, as amended effective as of August 31, 2001,

as further amended on May 14, 2002, as amended and restated as of August 11, 2003,

as further amended and restated as of January 27, 2005,

and as further amended on January 26, 2007)

Automatic Data Processing, Inc., a Delaware corporation (the “Company”), hereby formulates and adopts the following amended and restated 2000 Stock Option Plan (the “Plan”) for employees of the Company and its Subsidiaries (as defined in Paragraph 5) and non-employee directors of the Company:

1. PURPOSE. The purpose of the Plan is to secure for the Company the benefits of the additional incentive inherent in the ownership of common stock, par value $.10, of the Company (“Common Stock”) by selected employees of the Company and its Subsidiaries, and non-employee directors of the Company, who, in the judgment of the Committee (as defined in Paragraph 2), are important to the success and the growth of the business of the Company and its Subsidiaries, and to help the Company and its Subsidiaries secure and retain the services of such persons.

2. ADMINISTRATION. Except to the extent required in order to qualify for exemptive relief under Rule 16b-3 or its successor provision under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), in which case the Board of Directors of the Company (the “Board of Directors”), or a committee appointed by the Board of Directors which satisfies the requirements of such provisions shall administer the Plan (and all applicable provisions of the Plan, including any reference herein to the “Committee”, shall be construed accordingly), the Plan shall be administered by the Compensation Committee of the Board of Directors (the “Committee”). The Committee shall select one of its members as Chairman and shall make such rules and regulations as it shall deem appropriate concerning the holding of its meetings and transaction of its business. Any member of the Committee may be removed at any time either with or without cause by resolution adopted by the Board of Directors, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board of Directors.

Subject to the express provisions of the Plan, the Committee shall have plenary authority to interpret the Plan, to prescribe, amend and rescind the rules and regulations relating to it and to make all other determinations deemed necessary and advisable for the administration of the Plan. The determinations of the Committee shall be conclusive.

3. STOCK SUBJECT TO OPTIONS. Subject to the adjustment provisions of Paragraph 13 below, a maximum of 71,750,000 shares of Common Stock may be made subject to Options (as defined below) granted under the Plan. In addition, subject to the adjustment provisions of Paragraph 13 below, no person may be granted Options under the Plan during any of the Company’s fiscal years with respect to more than 500,000 shares of Common Stock.

If, and to the extent that, Options granted under the Plan shall terminate, expire or be canceled for any reason without having been exercised, new Options may be granted in respect of the shares covered by such terminated, expired or canceled Options. The granting and terms of such new Options shall comply in all respects with the provisions of the Plan.

Shares sold upon the exercise of any Option granted under the Plan may be shares of authorized and unissued Common Stock, shares of issued Common Stock held in the Company’s treasury, or both.

There shall be reserved at all times for sale under the Plan a number of shares of Common Stock, of either authorized and unissued shares of Common Stock, shares of Common Stock held in the Company’s treasury, or both, equal to the maximum number of shares that may be purchased pursuant to Options granted or that may be granted under the Plan.

4. GRANT OF OPTIONS. The Committee shall have the authority and responsibility, within the limitations of the Plan, to determine the employees and the non-employee directors to whom Options are to be granted, whether Options granted to employees shall be “incentive stock options” (“Incentive Options”), within the meaning of Section 422(b) of the Code, or Options which are not Incentive Options (“Nonqualified Options” and together with Incentive Options, “Options,” individually, an “Option”), the number of shares that may be purchased under each Option and the Option price.

In determining the officers, key employees and non-employee directors to whom Options shall be granted and the number of shares to be covered by each such Option, the Committee shall take into consideration the individual’s present and potential contribution to the success of the Company and its Subsidiaries (as defined below) and such other factors as the Committee may deem proper and relevant.

5. PERSONS ELIGIBLE. Incentive Options may be granted to any key employee of the Company or any of its Subsidiaries. Nonqualified Options may be granted to any key employee of the Company or any of its Subsidiaries or Affiliates and to any non-employee director of the Company. Options may be granted to employees and non-employee directors who hold or have held Options under this Plan or any similar or other awards under any other plan of the Company or any of its Subsidiaries or Affiliates. Employees who are also officers or directors of the Company or any of its Subsidiaries or Affiliates shall not by reason of such offices be ineligible as recipients of Options.

For purposes of the Plan, a “Subsidiary” of the Company shall mean any “subsidiary corporation” as such term is defined in Section 424(f) of the Code. An entity shall be deemed a Subsidiary of the Company only for such periods as the requisite ownership relationship is maintained.

 For purposes of the Plan, an “Affiliate” of the Company shall mean any corporation, partnership, or other entity controlled by the Company.

Any employee who would own, directly or indirectly, immediately after the granting of an Option to such person, more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries shall only be eligible to receive an Incentive Option under the Plan if it satisfies the requirements of Section 422(c)(5) of the Code.

A person receiving an Option pursuant to the Plan is hereinafter referred to as an “Optionee”.

6. PRICE. The exercise price of each share of Common Stock purchasable under any Option granted pursuant to the Plan shall not be less than the Fair Market Value (as defined below) thereof at the time the Option is granted. In no event shall the Committee cause or permit, without the prior approval of the Company’s stockholders, any Options granted pursuant to the Plan to be repriced, replaced, or re-granted through cancellation, or to otherwise lower the exercise price of a previously granted Option.

For purposes of the Plan, “Fair Market Value” of a share of Common Stock means the closing price of a share of Common Stock on the New York Stock Exchange Composite Tape on the date in question. If shares of Common Stock are not traded on the New York Stock Exchange on such date, “Fair Market Value” of a share of Common Stock shall be determined by the Committee in its sole discretion.

7. DURATION OF OPTIONS. Options granted hereunder shall become exercisable, in whole or in part, all as the Committee in its discretion may provide upon the granting thereof.

Notwithstanding any provision of the Plan to the contrary, except as otherwise provided in the applicable award agreement, the unexercised portion of any Option granted under the Plan shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:

(a) The expiration of 10 years (or, in the case of an Incentive Option, five years, in the case of an Optionee described in Section 422(c)(5) of the Code) from the date on which such Option was granted;

(b) The expiration of 60 days (or such longer period as the Committee may provide in the event of the Optionee’s Permanent and Total Disability (as defined in Section 22(a)(3) of the Code) from the date of termination of the Optionee’s employment or service with the Company or any of its Subsidiaries; provided, however, that if the Optionee shall die during such 60-day period (or such longer period as the Committee may provide in the event of the Optionee’s Permanent and Total Disability) the provisions of subparagraph (c) below shall apply;

(c) The expiration of six months after the appointment and qualification of the executor or administrator of the Optionee’s estate or 12 months after the date of the Optionee’s death, whichever occurs earlier, if such death occurs either during employment by, or service with, the Company or any of its Subsidiaries or during the 60-day period (or such longer period as the Committee may provide in the event of the Optionee’s Permanent and Total Disability) following the date of termination of such employment or service; and

(d) In whole or in part, at such earlier time or upon occurrence of such earlier event as the Committee in its discretion may provide upon the granting of such Option.

The Committee may determine whether any given leave of absence constitutes a termination of employment or service. Options granted under the Plan shall not be affected by any change of employment or service so long as the Optionee continues to be an employee of the Company or any of its Subsidiaries or non-employee director of the Company.

8. EXERCISE OF OPTIONS. Options shall be exercisable by the Optionee (or the Optionee’s executor or administrator), as to all or part of the shares covered thereby, by the giving of written notice of the exercise thereof to the Company at its principal business office, directed to the attention of its Secretary. The Company shall cause certificates for the shares so purchased to be delivered to the Optionee (or the Optionee’s executor or administrator) at the Company’s principal business office, against payment in full of the purchase price, which payment may be made by cash, check or money order and, subject to the Committee’s consent, by shares of the Company’s Common Stock which are not subject to any pledge or security interest and have been held for at least 6 months or previously acquired on the open market or by delivery to the Committee of a copy of irrevocable instructions to a stockbroker to deliver promptly to the Company any amount of loan proceeds or proceeds of the sale of the shares subject to the Option sufficient to pay the exercise price on the date specified in the notice of exercise. Notwithstanding the foregoing, shares of the Company’s Common Stock may not be used by Canadian Optionees to pay the exercise price of the shares being purchased pursuant to the exercise of an Option.

9. NONTRANSFERABILITY OF OPTIONS. No Option or any right evidenced thereby shall be transferable in any manner other than by will or the laws of descent and distribution, and, during the lifetime of an Optionee, only the Optionee (or the Optionee’s court-appointed legal representative) may exercise an Option.

10. RIGHTS OF OPTIONEE. Neither the Optionee nor the Optionee’s executor or administrator shall have any of the rights of a stockholder of the Company with respect to the shares subject to an Option until certificates for such shares shall actually have been issued upon the due exercise of such Option. No adjustment shall be made for any cash dividend or other right for which the record date is prior to the date of such due exercise and full payment for such shares has been made therefor.

11. RIGHT TO TERMINATE EMPLOYMENT OR SERVICE. Nothing in the Plan or in any Option shall confer upon any Optionee the right to continue in the employment or service of the Company or any of its Subsidiaries or affect the right of the Company or any of its Subsidiaries to terminate an Optionee’s employment at any time, subject, however, to the provisions of any agreement of employment between the Company or any of its Subsidiaries and the Optionee.

12. NONALIENATION OF BENEFITS. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. To the extent permitted by applicable law, no right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits.

13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any stock split, stock dividend, stock change, reclassification, recapitalization or combination of shares which changes the character or amount of Common Stock prior to exercise of any portion of an Option theretofore granted under the Plan, such Option, to the extent that it shall not have been exercised, shall entitle the Optionee (or the Optionee’s executor or administrator) upon its exercise to receive in substitution such number and kind of shares as the Optionee would be entitled to receive if the Optionee had actually owned the stock subject to such Option at the time of the occurrence of such change and the Options shall be subject to such adjustments, as determined by the Committee, as to the number, price or kind of stock as determined to be equitable; provided, however, that if the change is of such a nature that the Optionee, upon exercise of the Option, would receive property other than shares of stock, then the Committee shall make an appropriate adjustment in the Option to provide that the Optionee (or the Optionee’s executor or administrator) shall acquire upon exercise only shares of stock of such number and kind as the Committee, in its sole judgment, shall deem equitable; and, provided further, that the Committee may make such adjustment individually with respect to each Optionee, and need not treat all Optionees uniformly. The Committee shall also make appropriate adjustment in the number of shares subject to Options under the Plan and the maximum number of shares to be granted to any person in any fiscal year as determined to be equitable.

In the event that any transaction (other than a change specified in the preceding paragraph) described in Section 424(a) of the Code affects the Common Stock subject to any unexercised Option, the Board of the surviving or acquiring corporation shall make such similar adjustment as is permissible and appropriate.

If any such change or transaction shall occur, the number and kind of shares for which Options may thereafter be granted under the Plan shall be adjusted to give effect thereto.

14. PURCHASE FOR INVESTMENT. Whether or not the Options and shares covered by the Plan have been registered under the Securities Act of 1933, as amended, each person exercising an Option under the Plan may be required by the Company to give a representation in writing that such person is acquiring such shares for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.

The Company will endorse any necessary legend referring to the foregoing restriction upon the certificate or certificates representing any shares issued or transferred to the Optionee upon the exercise of any Option granted under the Plan.

15. FORM OF AGREEMENTS WITH OPTIONEES. Each Option granted pursuant to the Plan shall be in writing and shall have such form, terms and provisions, not inconsistent with the provisions of the Plan, as the Committee shall provide for such Option. Each Optionee shall be notified promptly of such grant, and a written agreement shall be promptly executed and delivered by the Company and the Optionee.

16. TERMINATION AND AMENDMENT OF PLAN AND OPTIONS. Unless the Plan shall theretofore have been terminated as hereinafter provided, Options may be granted under the Plan at any time, and from time to time, prior to the tenth anniversary of the Effective Date (as defined below), on which date the Plan will expire, except as to Options then outstanding under the Plan. Such Options shall remain in effect until they have been exercised, have expired or have been canceled.

The Plan may be terminated or modified at any time by the Board of Directors; provided, however, that any such modification shall comply with all applicable laws, applicable stock exchange listing requirements, and applicable requirements for exemption (to the extent necessary) under Rule 16b-3 under the Exchange Act.

No termination, modification or amendment of the Plan, without the consent of the Optionee, may adversely affect the rights of such person with respect to such Option. With the consent of an Optionee and subject to the terms and conditions of the Plan, the Committee may amend outstanding award agreements with such Optionee.

17. EFFECTIVE DATE OF PLAN. The Plan originally became effective on August 10, 1999, the date of its adoption by the Board of Directors (the “Effective Date”).

18. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agency as may be required, including, without limitation, the effectiveness of any registration statement required under the Securities Act of 1933, as amended, and the rules and regulations of any securities exchange on which the Common Stock may be listed.

19. WITHHOLDING. The Company’s obligation to deliver shares of Common Stock in respect of any Option granted under the Plan shall be subject to all applicable federal, state, local and foreign tax withholding requirements. Federal, state, local and foreign withholding taxes due upon the exercise of any Option (or upon any disqualifying disposition of shares of Common Stock subject to an Incentive Option), in the Committee’s sole discretion, may be paid in shares of Common Stock (including the withholding of shares subject to an Option) upon such terms and conditions as the Committee may determine. Notwithstanding the foregoing, shares of the Company’s Common Stock may not be used by Canadian Optionees to pay any taxes due upon the exercise of any Option.

20. SEPARABILITY. If any of the terms or provisions of the Plan conflict with the requirements of Rule 16b-3 under the Exchange Act and/or Section 422 of the Code, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 under the Exchange Act and/or Section 422 of the Code. With respect to Incentive Options, if the Plan does not contain any provision required to be included herein under Section 422 of the Code, such provision shall be deemed to be incorporated herein with the same force and effect as if such provision had been set out at length herein; provided, further, that to the extent any Option which is intended to qualify as an Incentive Option cannot so qualify such Option, to the extent, shall be deemed to be a Nonqualified Option for all purposes of the Plan.

21. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitation on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

22. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By acceptance of an Option, each Optionee shall be deemed to have agreed that such grant is special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan of the Company or any of its Subsidiaries. In addition, each beneficiary of a deceased Optionee shall be deemed to have agreed that such Option will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Optionee which is payable to such beneficiary under any life insurance plan covering employees of the Company or any of its Subsidiaries.

23. GOVERNING LAW. The Plan shall be governed by, and construed in accordance with, the laws of the State of New Jersey.

EX-10.13

AUTOMATIC DATA PROCESSING, INC.

AMENDED AND RESTATED EMPLOYEES’

SAVINGS–STOCK PURCHASE PLAN

The following is an amendment and restatement, effective as of November 8, 2005, of the Employees’ Savings-Stock Purchase Plan of Automatic Data Processing, Inc., originally adopted on May 2, 1968 and approved by stockholders on October 31, 1968, as amended on November 14, 2006.

1.            Purpose. The purpose of the Plan is to provide eligible employees of the Company, its Designated Subsidiaries and its Designated Foreign Subsidiaries with a convenient opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.

(a)         This Plan document is an omnibus document which includes, in addition to the Plan, separate sub-plans (“Non-Statutory Plans”) that permit offerings of grants to employees of certain Designated Foreign Subsidiaries that are not intended to satisfy the requirements of Section 423 of the Code. Offerings under the Non-Statutory Plans may be made to achieve desired tax or other objectives in particular locations outside the United States of America or to comply with local laws applicable to offerings in such foreign jurisdictions. The Plan shall be a separate and independent plan from the Non-Statutory Plans.

(b)        Although the Plan is a separate and independent plan from the Non-Statutory Plans, the total number of Shares authorized to be issued under the Plan applies in the aggregate to both the Plan and the Non-Statutory Plans. Section 11 of the Plan sets forth the maximum number of Shares to be offered under the Plan (together with the Non-Statutory Plans), subject to adjustments as permitted under Section 17. The Administration Committee shall determine from time to time the method for allocating the number of such total Shares to be offered under the Plan and each Non-Statutory Plan. Such determination shall be in the Administration Committee’s discretion and shall not require stockholder approval.

(c)          The Administration Committee may adopt Non-Statutory Plans applicable to particular Designated Foreign Subsidiaries or locations that are not participating in the Plan. The terms of each Non-Statutory Plan shall take precedence over other provisions in this Plan document in respect of any Designated Foreign Subsidiary participating therein, with the exception of Sections 11 and 17 with respect to the total number of Shares available to be offered under the Plan and all Non-Statutory Plans. Unless otherwise superseded by the terms of a Non-Statutory Plan, the provisions of this Plan document shall govern the operation of each Non-Statutory Plan. Except to the extent expressly set forth herein or where the context suggests otherwise, any reference herein to “Plan” shall be construed to include a reference to the Plan and the Non-Statutory Plans.

2.           Definitions.

(a)         “Administration Committee” means a committee appointed by the Board. Notwithstanding the above, in the absence of a contrary designation by the Board, the Administration Committee shall be the Compensation Committee of the Board.

(b)        “Board” means the Board of Directors of the Company.

(c)         “Code” means the United States Internal Revenue Code of 1986, as amended.

(d)        “Common Stock” means the Common Stock of the Company, $.10 par value per share.

(e)         “Company” means Automatic Data Processing, Inc., a Delaware corporation.

(f)         “Compensation” means the earnings received by an Employee from the Company, a Designated Subsidiary or a Designated Foreign Subsidiary as determined by the Administration Committee in a manner intended to comply with the requirements of Section 423 of the Code and the Treasury Regulations promulgated thereunder.

(g)        “Continuous Status as an Employee” means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of: (i) sick leave, military leave, or other bona fide leave of absence which is required by law to be considered uninterrupted service or which is otherwise approved by the Administration Committee if the period of such leave does not exceed 90 days, or if longer, so long as the individual’s right to reemployment as an Employee is guaranteed either by contract or statute; or (ii) transfers between locations of the Company or between and among the Company, its Designated Subsidiaries or Designated Foreign Subsidiaries. For purposes of clarification, the disposition of a Designated Subsidiary or Designated Foreign Subsidiary shall constitute a termination of the Continuous Status as an Employee of any Employee employed by such Designated Subsidiary or Designated Foreign Subsidiary.

(h)        “Contributions” means all amounts credited to the account of a Participant pursuant to the Plan.

(i)          “Corporate Transaction” means a sale of all or substantially all of the Company’s assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation, or any other transaction or series of related transactions in which the Company’s stockholders immediately prior thereto own less than 50% of the voting stock of the Company (or its successor or parent) immediately thereafter.

(j)          “Designated Broker” shall mean Smith Barney, or such other institution selected by the Administration Committee.

(k)        “Designated Country” means a jurisdiction or country other than the United States of America that is designated by the Board or the Administration Committee from time to time.

(l)          “Designated Foreign Subsidiaries” means all Subsidiaries organized under the laws of any Designated Country; provided, however, that Subsidiaries employing as a service for clients any worksite, leased, or similar type employees under a professional employer, employee leasing or similar type of employment relationship shall not be Designated Foreign Subsidiaries.

(m)       “Designated Subsidiaries” means all Subsidiaries organized under the laws of any state of the United States of America, except with respect to any of such Subsidiaries which the Board or the Administration Committee has determined is not eligible to participate in the Plan; provided, however, that Subsidiaries employing as a service for clients any worksite, leased, or similar type employers under a professional employer, employee leasing, or similar type of employment relationship shall not be Designated Subsidiaries; provided, further, however, that at any given time, a Subsidiary that is a Designated Foreign Subsidiary in a Non-Statutory Plan may not be a Designated Subsidiary in the Plan.

(n)        “Employee” means any person who is an employee of the Company or one of its Designated Subsidiaries or Designated Foreign Subsidiaries for tax purposes and who is customarily employed thereby for at least ten hours per week.

(o)        “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

(p)        “Fair Market Value” shall have the meaning ascribed to it in Section 7(b).

(q)        “GAAP” shall mean United States generally accepted accounting principles as in effect from time to time.

(r)         “New Purchase Date” shall have the meaning ascribed to it in Section 17(b).

(s)         “Non-Statutory Plans” shall have the meaning ascribed to it in Section 1(a).

(t)          “Offering Date” means the first day of each Offering Period, as determined in accordance with Section 4(a).

(u)        “Offering Period” means the period described in Section 4(a).

(v)        “Plan” means this Automatic Data Processing, Inc. Amended and Restated Employees’ Savings–Stock Purchase Plan.

(w)       “Participant” means an eligible Employee who has elected to participate in the Plan in accordance with Section 5.

(x)        “Purchase Date” means the last day of each Purchase Period.

(y)        “Purchase Period” means the period described in Section 4(b).

(z)         “Purchase Price” means with respect to a Purchase Period an amount equal to 85% of the Fair Market Value of a Share of Common Stock on the Offering Date.

(aa)       “Reserves” shall have the meaning ascribed to it in Section 17(a).

(bb)      “Retirement” means an Employee’s termination of employment under conditions prescribed by the Administration Committee from time to time.

(cc)       “Rule 16b-3” means Rule 16b-3 adopted under Section 16 of the Exchange Act.

(dd)       “Sales Benefit Earnings” means earnings of an Employee, determined in accordance with the Sales Benefit Earnings Calculation Summary, as established by the Company from time to time.

(ee)       “Share” means a share of Common Stock, as adjusted in accordance with Section 17.

(ff)        “Subsidiary” means a corporation which is a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code; provided, however, that, with respect to determining Designated Foreign Subsidiaries, the term “Subsidiary” means a corporation or other entity organized or established under the laws of any country other than the United States of America, of which not less than 50% of the voting control is held, directly or indirectly, by the Company.

3.           Eligibility.

(a)         Any person who is an Employee of the Company or a Designated Subsidiary as of the Offering Date of a given Offering Period, or such later date established by the Administration Committee in respect of a given Offering Period, shall be eligible to participate in such Offering Period, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code; provided, however, that any Employee working in a country in which participation by such Employee in the Plan is prohibited by law, or where an alternative employee stock purchase plan of the Company, or a similar plan, is offered, is not eligible to participate in the Plan. Any person who is an Employee of a Designated Foreign Subsidiary as of the Offering Date of a given Offering Period, or such later date established by the Administration Committee in respect of a given Offering Period, shall be eligible to participate in such Offering Period under the Non-Statutory Plan in which such Designated Foreign Subsidiary participates, subject to the requirements of Section 5(a).

(b)        Any provisions of the Plan to the contrary notwithstanding, each option to purchase Shares under the Plan shall be limited as necessary to prevent any Employee from (i) immediately after the grant, owning capital stock of the Company and holding outstanding options to purchase capital stock of the Company possessing, in the aggregate, more than five percent of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary, including for this purpose any stock attributed to such Employee pursuant to Section 424(d) of the Code, or (ii) acquiring rights to purchase stock under all employee stock purchase plans (as described in Section 423 of the Code or any other similar arrangements maintained by the Company or any of its Subsidiaries) of the Company and its Subsidiaries which accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined at the time such option is granted in accordance with the principles set forth in Section 7(b)) for each calendar year in which such option is outstanding at any time.

4.           Offering Periods and Purchase Periods.

(a)         Offering Periods. The Plan shall be implemented by a series of consecutive Offering Periods of 27 months’ duration, with new Offering Periods commencing on October 1 of each year, or the first business day thereafter if October 1 is not a business day; provided, however, that the Administration Committee may determine that any Offering Period shall commence on a different date and/or be of a different duration (so long as such duration is not greater than 27 months). The Plan shall continue until terminated in accordance with Section 18 hereof.

(b)        Purchase Periods. Subject to Section 17(b), each Offering Period shall include one Purchase Period of 24 months’ duration, commencing on the January 1 following the Offering Date in respect of such Offering Period and ending on December 31 of the following year; provided, however, that the Administration Committee may determine that any Purchase Period may have a different commencement date and a different duration, so long as such duration is no longer than that of the associated Offering Period.

5.           Participation.

(a)         An eligible Employee may become a Participant in respect of an Offering Period by electing to participate on the Company’s internet or intranet site or calling the Company’s Associate Benefit System, in each case, as approved by the Administration Committee, or in such other manner as the Administration Committee shall approve, in each case prior to the tenth day preceding the first day of the Purchase Period related to such Offering Period, unless a different time for electing to participate is set by the Administration Committee with respect to a given Offering Period.

(b)        In accordance with Section 6(a), payroll deductions in an amount necessary to purchase the number of Shares elected to be purchased by the Participant in respect of any Offering Period pursuant to Section 7 shall commence on the first full payroll following the first day of the associated Purchase Period and shall end on the last payroll paid on or prior to the Purchase Date of such Purchase Period, unless sooner terminated by the Participant as provided in Section 10.

6.           Method of Payment of Contributions.

(a)         Payroll deductions shall be made from a Participant’s Compensation during a Purchase Period in an amount necessary to purchase that number of Shares indicated by the Participant on his or her participation election, subject to the limitations of Section 7(a). All payroll deductions made by a Participant shall be credited to his or her account under the Plan. Except as permitted in Section 6(d), a Participant may not make a prepayment or any additional payments into such account.

(b)        A Participant may discontinue his or her participation in the Plan as provided in Section 10. A Participant may elect at any time during an Offering Period to reduce (but not increase) the number of Shares he or she has elected to purchase in respect of such Offering Period in accordance with such procedures as may be established by the Administration Committee, and the Participant’s payroll deductions shall be reduced accordingly.

(c)         Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant’s payroll deductions may be decreased by the Company during any Purchase Period to zero.

(d)        Participants on an authorized leave of absence during the first 22 months of a Purchase Period may continue to participate in such Purchase Period for up to 12 months. Upon return from the leave of absence, the Participant may make up any deficit in the total amount which would have been in such Participant’s account but for such leave of absence through increased uniform payroll deductions over the remaining payroll periods in the Purchase Period, or the Participant may elect to submit a certified check for the full deficit in the account. If, however, the authorized leave of absence begins after the twenty-second month of a Purchase Period, then the Participant may only make up any deficit in the amount required to purchase the number of Shares that the Participant elected to purchase by certified check.

(e)         At the time an option granted under the Plan is exercised, in whole or in part, or at the time some or all of the Common Stock issued to a Participant under the Plan is disposed of, the Participant must make adequate provisions for any applicable federal, state or other tax withholding obligations, if any, which arise upon the Purchase Date or the disposition of the Common Stock. At any time, the Company, a Designated Subsidiary or a Designated Foreign Subsidiary may, but will not be obligated to, withhold from the Participant’s compensation the amount necessary to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to the sale or disposition of Common Stock by the Participant earlier than as described in Section 423(a)(1) of the Code.

7.           Grant of Option.

(a)         At any time after the Offering Date of each Offering Period and prior to the tenth day preceding the first day of the Purchase Period related to such Offering Period (unless a different time for electing to participate is set by the Administration Committee with respect to a given Offering Period) each Participant shall be entitled to elect to receive (using the procedures set forth in Section 5) an option for a number of Shares not to exceed the amount that is equal to (i) ten percent of such Participant’s Compensation on the related Offering Date (or such other day as may be determined by the Administration Committee), divided by (ii) 85% of the Fair Market Value of a Share on the related Offering Date; provided, however, that (x) the number of Shares for which an election is made shall not exceed that number of Shares permitted under Section 3(b) and (y) such election shall be subject to the limitations set forth in Section 11, if applicable. Upon making a proper election, a Participant shall be granted an option to purchase on the Purchase Date the number of Shares so elected (subject to Sections 3(b) and 11). The option granted hereunder may be reduced pursuant to Section 6.

(b)        The fair market value of the Company’s Common Stock on a given date (the “Fair Market Value”) shall be the average of the high and low sales prices of a Share on the primary exchange over which the Common Stock is traded for such date or, in the event that the Common Stock is not traded on such date, then the immediately preceding trading date.

8.           Exercise of Option; Interest.

(a)         Except as otherwise provided in Section 10 or Section 8(b), unless a Participant withdraws from the Plan as provided in Section 10 (or is deemed to have withdrawn under Section 8(b)), his or her option for the purchase of Shares will be exercised automatically on each Purchase Date, and the number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account and the interest on such Contributions as calculated in accordance with Section 8(c). No fractional Shares shall be issued. Any amounts accumulated in a Participant’s account (including interest) that are in excess of that required to purchase the number of Shares that the Participant elected to purchase, or that are not sufficient to purchase a full Share, shall be refunded to the Participant in cash. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the Participant as of the Purchase Date. During his or her lifetime, a Participant’s option to purchase Shares hereunder is exercisable only by him or her.

(b)        In the event that the applicable Purchase Price on a given Purchase Date exceeds the Fair Market Value of a Share of Common Stock on such Purchase Date, all Participants will be deemed to have withdrawn from the Plan with respect to such Offering Period, in accordance with the provisions of Section 10(a).

(c)         Each Participant’s account shall be credited daily with interest at an annual rate determined by the Administration Committee and such interest shall be compounded daily.

9.           Delivery. As promptly as practicable after each Purchase Date, the number of Shares purchased by each Participant upon exercise of his or her option shall be deposited into an account established in the Participant’s name with the Designated Broker. The Administration Committee may determine that, for one year following each Purchase Date, no Share purchased on such Purchase Date may be transferred out of such Participant’s account with the Designated Broker other than in connection with the “disposition,” as such term is used in Section 423(a)(1) of the Code, of such Share.

10.        Voluntary Withdrawal; Termination of Employment.

(a)         A Participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company in the manner directed by the Company. All of the Participant’s Contributions, plus any interest, credited to his or her account with respect to an Offering Period will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current Offering Period will be automatically terminated, and no further Contributions for the purchase of Shares may be made by the Participant with respect to such Offering Period.

(b)        Upon termination of the Participant’s Continuous Status as an Employee prior to a Purchase Date for any reason other than Retirement or death, the Contributions, plus any interest, credited to his or her account will be returned to him or her and his or her option will be automatically terminated.

(c)         Upon termination of a Participant’s Continuous Status as an Employee prior to a Purchase Date due to Retirement, the Participant may elect to purchase Shares with amounts accumulated in his or her account through the date of Retirement in accordance with Section 10(d) or the Participant may elect to cease participation in the Plan in respect of the then-current Offering Period and receive a full refund of the amounts accumulated in his or her account up to the date of Retirement. Upon termination of the Participant’s Continuous Status as an Employee prior to a Purchase Date due to death, the Participant’s election to participate in the Plan shall cease on the date the Participant dies and Shares will be purchased with amounts accumulated in his or her account in accordance with Section 10(d).

(d)        If a Participant who retires elects to purchase Shares with funds collected through the date of Retirement in accordance with Section 10(c), or if a Participant dies, on the last business day of the month in which the Participant retires or dies all amounts accumulated in his or her account, including any interest thereon, will be used to purchase, at a price equal to the applicable Purchase Price, as many whole Shares as such amount will purchase up to the maximum number of Shares that the Participant had elected to purchase during the Purchase Period, and the balance of funds, if any, will be paid in cash. All Shares purchased on behalf of deceased Participants will be issued, and all payments of excess funds will be made, in accordance with Section 13.

(e)         A Participant’s withdrawal from the Plan during an Offering Period will not have any effect upon his or her eligibility to participate in a succeeding Offering Period or in any similar plan that may hereafter be adopted by the Company.

11.        Shares.

(a)         Subject to adjustment as provided in Section 17, the maximum number of Shares which shall be made available for sale under the Plan shall be 60,000,000. If the Administration Committee determines at any time that, on a given Purchase Date, the number of Shares with respect to which options are to be exercised may exceed the number of Shares that are available for sale under the Plan on such Purchase Date, the Board or the Administration Committee may in its discretion provide (x) that the Company shall make a pro rata allocation of the Shares available for purchase on such Purchase Date, in as uniform a manner as shall be practicable and as it shall determine to be equitable among all Participants exercising options to purchase Common Stock on such Purchase Date, and continue all Offering Periods then in effect, or (y) that the Company shall make a pro rata allocation of the Shares available for purchase on such Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine to be equitable among all Participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods then in effect pursuant to Section 18 below.

(b)        The Participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised.

(c)         Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant.

12.        Administration.

(a)         Subject to the express provisions of the Plan, the Administration Committee shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Administration Committee shall be final, binding, and conclusive.

(b)        The Board and the Administration Committee may delegate any or all of their authority and obligations under this Plan to such committee or committees (including without limitation, a committee of the Board) or officer(s) of the Company as they may designate. Notwithstanding any such delegation of authority, the Board may itself take any action under the Plan in its discretion at any time, and any reference in this Plan document to the rights and obligations of the Administration Committee shall be construed to apply equally to the Board. Any references to the Board mean only the Board. The authority of the Administration Committee includes, without limitation, the authority to (i) establish Non-Statutory Plans and determine the terms of such Non-Statutory Plans, (ii) designate from time to time which Subsidiaries will be Designated Foreign Subsidiaries, and which Designated Foreign Subsidiaries will participate in a particular Non-Statutory Plan, (iii) determine procedures for eligible Employees to enroll in or withdraw from a Non-Statutory Plan, setting or changing payroll deduction percentages, and obtaining necessary tax withholdings, (iv) allocate the available Shares under the Plan to the Non-Statutory Plans for particular offerings, and (v) adopt amendments to the Plan or any Non-Statutory Plan in accordance with Section 18.

(c)         The authority of the Administration Committee will specifically include, without limitation, the power to make any changes to the Plan with respect to the participation of Employees of any Designated Foreign Subsidiary when the Administration Committee deems such changes to be necessary or appropriate to achieve a desired tax treatment in such foreign jurisdiction or to comply with the laws applicable to such Designated Foreign Subsidiary. Such changes may include, without limitation, the exclusion of particular Designated Foreign Subsidiaries from participation in the Plan; modifications to eligibility criteria, maximum number or value of Shares that may be purchased in a given period, or other requirements set forth herein; and procedural or administrative modifications. Any modification relating to offerings to a particular Designated Foreign Subsidiary will apply only to such Designated Foreign Subsidiary, and will apply equally to all similarly situated employees of such Designated Foreign Subsidiary.

13.        Delivery Following the Death of a Participant. In the event of the death of a Participant, the Company shall deliver to the executor or administrator of the estate of the Participant any Shares and/or cash due to the Participant in accordance with the Plan or, if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant.

14.        Transferability. Neither amounts accumulated in a Participant’s account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 13) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.

15.        Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.

16.        Reports. Statements of account will be made available to Participants by the Company or the Designated Broker in the form and manner designated by the Administration Committee.

17.        Adjustments Upon Changes in Capitalization; Corporate Transactions.

(a)         Adjustment. Subject to any required action by the stockholders of the Company, the number of Shares covered by each option under the Plan that has not yet been exercised and the number of Shares that have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the “Reserves”), as well as the maximum number of Shares that may be purchased by a Participant in a Purchase Period, the number of Shares set forth in Section 11 above, and the price per Share covered by each option under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, subdivision, combination or reclassification of the Common Stock (including any such change in the number of shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company, or any increase or decrease in the value of a Share resulting from a spin-off or split-up; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administration Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of Shares of stock of any class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option.

(b)        Corporate Transactions. In the event of a dissolution or liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the “New Purchase Date”), as of which date any Purchase Period and Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each Participant in writing, at least ten days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 17, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of Shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 17); provided, however, that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction.

(c)         Sales of Designated Subsidiaries and Business Units. In the event the Company consummates the sale or transfer of a Designated Subsidiary, Designated Foreign Subsidiary, business unit or division to an unaffiliated person or entity, or the spin-off of a Designated Subsidiary, Designated Foreign Subsidiary, business unit or division to shareholders, during a Purchase Period, each Participant that is employed by such Designated Subsidiary, Designated Foreign Subsidiary, business unit or division, as applicable, shall be entitled to purchase Shares, on the last business day of the month in which the sale, transfer or spin-off, as applicable, of such Designated Subsidiary, Designated Foreign Subsidiary, business unit or division, as applicable, is consummated, with funds collected through the date of the sale, transfer or spin-off, as applicable, of such Designated Subsidiary, Designated Foreign Subsidiary, business unit or division, as applicable, including any interest thereon, at a price equal to the Purchase Price applicable to such Purchase Period, up to the maximum number of Shares that the Participant had elected to purchase during the applicable Purchase Period, and the balance of funds, if any, will be paid in cash; provided, however, that if the number of months elapsed as of the date of the sale, transfer or spin-off of such Designated Subsidiary, Designated Foreign Subsidiary, business unit or division, as applicable, in any Purchase Period is less than 12, then the Contributions, plus any interest thereon (if any), credited to the Participant’s account as of the time of such sale, transfer or spin-off with respect the offering to which such Purchase Period relates, will be returned to the Participant and the Participant’s option will be automatically terminated.

The Administration Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company’s being consolidated with or merged into any other corporation.

18.        Amendment or Termination.

(a)         The Board may at any time and for any reason terminate the Plan. Except as provided in Section 17, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board’s setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the GAAP rules applicable to the Plan. Either the Board or the Administration Committee may amend the Plan, provided, however, that the Administration Committee may amend the Plan only to the extent required to comply with applicable law. Except as provided in Section 17 and in this Section 18, no amendment to the Plan shall make any change in any option previously granted that adversely affects the rights of any Participant. In addition, to the extent necessary to comply with Rule 16b-3 or Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required.

(b)        Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, the Board or the Administration Committee shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Board or the Administration Committee determines in its sole discretion advisable that are consistent with the Plan.

19.        Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

20.        Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

21.        Term of Plan; Effective Date. The Plan was originally adopted by the Board on May 2, 1968, and approved by the Company’s stockholders on October 31, 1968, and has been amended and approved by stockholders from time to time since then. The Plan, as amended and restated herein, is effective as of November 8, 2005 and shall continue in force and effect until terminated under Section 18.

22.        Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.