Paychex 2012 Annual Report Download - page 37

$ in millions
As of May 31, 2012 2011 2010
Net unrealized gains on available-for-sale securities(1) ........... $ 59.5 $ 59.3 $ 66.6
Federal Funds rate(2) ..................................... 0.25% 0.25% 0.25%
Total fair value of available-for-sale securities ................. $3,059.0 $2,737.2 $2,151.8
Weighted-average duration of available-for-sale securities in
years(3) .............................................. 3.0 2.4 2.5
Weighted-average yield-to-maturity of available-for-sale
securities(3) ........................................... 2.2% 2.6% 2.9%
(1) The net unrealized gain on our investment portfolios was approximately $58.0 million as of July 13, 2012.
(2) The Federal Funds rate was a range of zero to 0.25% as of May 31, 2012, 2011, and 2010.
(3) These items exclude the impact of VRDNs, as they are tied to short-term interest rates.
Payroll service revenue: Payroll service revenue increased 5% for fiscal 2012 and 2% for fiscal 2011 to
$1.5 billion and $1.4 billion, respectively. Organic growth in payroll service revenue was approximately 4% for
fiscal 2012 and 2% for fiscal 2011. Both fiscal 2012 and fiscal 2011 revenue benefited from increases in checks
per payroll and revenue per check. Checks per payroll increased 2.0% for fiscal 2012 compared to fiscal 2011,
and fiscal 2011 increased 2.7% compared to fiscal 2010. Revenue per check was positively impacted by price
increases, partially offset by discounting. Our organic client base growth was essentially flat for fiscal 2012, and
declined 0.9% for fiscal 2011, as new business formation remains challenged. Client retention improved for both
fiscal 2012 and fiscal 2011.
Human Resource Services revenue: Human Resource Services revenue increased 13% for fiscal 2012
and 10% for fiscal 2011 to $676.2 million and $597.4 million, respectively. These growth rates were impacted by
the acquisition of ePlan in May 2011 and the sale of Stromberg time and attendance operations (“Stromberg”), an
immaterial component of Paychex, in October 2009. Organic growth in Human Resource Services revenue,
excluding the impacts of these events, was approximately 11% for both fiscal 2012 and fiscal 2011, reflecting
growth in clients and price increases. The following factors contributed to the growth for fiscal 2012 and fiscal
2011:
• Paychex HR Solutions revenue was positively impacted by favorable trends in checks per payroll, price
increases, and growth in both clients and client employees. The rate of growth for Paychex HR Solutions
revenue for fiscal 2012 was adversely impacted by fewer client employees within our PEO and lower
average revenue per employee in our Paychex HR Essentials product.
• Insurance services revenue benefited from the continuing growth in health and benefits services revenue
and increases in both clients and premiums for workers’ compensation insurance services. Health and
benefits services revenue increased 24% to $52.3 million for fiscal 2012 and 29% to $42.0 million for
fiscal 2011, primarily driven by the increases for the respective periods in the number of applicants.
• Products that primarily support our MMS clients through our SaaS solution continue to experience growth
in clients and revenue.
• Retirement services revenue benefited from an increase in the average asset value of retirement services
client employees’ funds (excluding ePlan) for both fiscal 2012 and fiscal 2011. This was partially offset
by the impact from a shift in the mix of assets within these funds to investments earning lower fees from
external managers.
• Human Resource Services revenue growth is less predictable than our payroll revenue growth. PEO net
service revenue exhibits greater variability between periods due to fluctuations in total client employees as
healthcare rates and workers’ compensation claims experience vary. PEO performance had an adverse
impact on Human Resource Services revenue growth for fiscal 2012 and fiscal 2011.
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