Paychex 2012 Annual Report Download - page 75

PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits,
of $36.8 million as of May 31, 2012 adequately covers open tax years and uncertain tax positions up to and
including fiscal 2012 for major taxing jurisdictions. As of May 31, 2012, $31.6 million of the $36.8 million
unrecognized tax benefits, if recognized, would impact the Company’s effective income tax rate. As of May 31,
2011, $29.2 million of the $34.4 million unrecognized tax benefits, if recognized, would have impacted the
Company’s effective income tax rate.
A significant portion of the reserve relates to uncertain tax positions currently under audit by New York
State for the fiscal year ended May 31, 2004 (“fiscal 2004”) through the fiscal year ended May 31, 2009 (“fiscal
2009”). On July 14, 2010, the Company received a summary of proposed tax adjustments for fiscal 2004 through
the fiscal year ended May 31, 2007 from New York State, which was in excess of the reserve recorded as of
May 31, 2012. The ultimate outcome of the unresolved state tax matters is uncertain and could be favorable or
unfavorable to the Company. An unfavorable resolution of the uncertain tax positions in total could have a
material impact on the Company’s results of operations and effective income tax rate, and generate additional
cash outlays in the period in which the unfavorable resolution, if any, was recognized. The tax matters that are
currently under audit are not expected to have a significant future impact on the Company’s effective income tax
rate.
The Company has concluded all U.S. federal income tax matters through fiscal 2009. Fiscal 2010 and fiscal
2011 are still subject to potential audit. With limited exception, state income tax audits by taxing authorities are
closed through the fiscal year ended May 31, 2007, primarily due to expiration of the statute of limitations.
The Company continues to follow its policy of recognizing interest and penalties accrued on tax positions as
a component of income taxes on the Consolidated Statements of Income. The amount of accrued interest and
penalties associated with the Company’s tax positions is immaterial to the Consolidated Balance Sheets. The
amount of interest and penalties recognized for fiscal years 2012, 2011, and 2010 was immaterial to the
Company’s results of operations.
Note J — Other Comprehensive Income/(Loss)
Other comprehensive income/(loss) results from items deferred on the Consolidated Balance Sheets in
stockholders’ equity. The following table sets forth the components of other comprehensive income/(loss):
Year ended May 31,
In millions 2012 2011 2010
Unrealized holding gains/(losses) ................................... $1.3 $(6.0) $ 3.1
Income tax (expense)/benefit related to unrealized holding gains/(losses) .... (0.4) 1.9 (0.6)
Reclassification adjustment for the net gain on sale of available-for-sale
securities realized in net income .................................. (1.0) (1.3) (3.2)
Income tax expense on reclassification adjustment for the net gain on sale of
available-for-sale securities ...................................... 0.3 0.5 1.2
Other comprehensive income/(loss) ................................ $ 0.2 $(4.9) $ 0.5
As of May 31, 2012, the accumulated other comprehensive income was $37.7 million, which was net of
taxes of $21.8 million. As of May 31, 2011, the accumulated other comprehensive income was $37.5 million,
which was net of taxes of $21.7 million. Accumulated other comprehensive income is comprised of the
unrealized gains/losses, net of tax.
Note K — Supplemental Cash Flow Information
Income taxes paid were $301.4 million, $255.6 million, and $258.0 million for fiscal years 2012, 2011, and
2010, respectively.
Lease incentives received in the form of tenant allowances and free rent were $11.0 million, $10.5 million,
and $5.9 million for fiscal years 2012, 2011, and 2010, respectively.
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