Paychex 2015 Annual Report Download - page 42

Investment income, net: Investment income, net, primarily represents earnings from our cash and cash
equivalents and investments in available-for-sale securities. Investment income does not include interest on funds
held for clients, which is included in total revenue. Investment income, net, increased 17% for fiscal 2015 as the
result of an increase in average investment balances, while interest rates earned remained relatively flat.
Investment income decreased 18% for fiscal 2014 as a result of lower average interest rates earned on
investments, partially offset by an increase in average investment balances. Average investment balances
increased 4% for fiscal 2015 and 17% for fiscal 2014. The increases were the result of investment of cash
generated from operations. The lower rate of growth in average investment balances for fiscal 2015 is the result
of cash outflows for stock repurchases in fiscal 2015 and the later half of fiscal 2014.
Income taxes: Our effective income tax rate was 36.3% for fiscal 2015 compared to 36.5% for fiscal 2014
and 37.6% for fiscal 2013. The higher effective tax rate for fiscal 2013 was the result of the settlement of a state
income tax matter. Refer to Note I of the Notes to Consolidated Financial Statements, contained in Item 8 of this
Form 10-K, for additional disclosures on income taxes.
Net income and earnings per share: Net income increased 8% to $674.9 million for fiscal 2015 and 10%
to $627.5 million for fiscal 2014. Diluted earnings per share increased 8% to $1.85 per share for fiscal 2015 and
10% to $1.71 per share for fiscal 2014. These fluctuations were attributable to the factors previously discussed.
The growth rates for fiscal 2014 were impacted by the settlement of a state income tax matter, which reduced
diluted earnings per share by approximately $0.04 per share for fiscal 2013.
Liquidity and Capital Resources
Our financial position as of May 31, 2015 remained strong with cash and total corporate investments of
$936.4 million and no debt. We believe that our investments as of May 31, 2015 were not other-than-temporarily
impaired, nor has any event occurred subsequent to that date that would indicate any other-than-temporary
impairment. We anticipate that cash and total corporate investments as of May 31, 2015, along with projected
operating cash flows, will support our normal business operations, capital purchases, business acquisitions, share
repurchases, and dividend payments for the foreseeable future.
Commitments and Contractual Obligations
Lines of credit: As of May 31, 2015, we had unused borrowing capacity available under uncommitted,
secured, short-term lines of credit at market rates of interest with financial institutions as follows:
Financial institution Amount available Expiration date
JP Morgan Chase Bank, N.A. ........................... $350 million February 28, 2016
Bank of America, N.A. ................................ $250 million February 28, 2016
PNC Bank, National Association ........................ $150 million February 28, 2016
Wells Fargo Bank, National Association .................. $150 million February 28, 2016
Our credit facilities are evidenced by promissory notes and are secured by separate pledge security
agreements by and between Paychex, Inc. and each of the financial institutions (the “Lenders”), pursuant to
which we have granted each of the Lenders a security interest in certain of our investment securities accounts.
The collateral is maintained in a pooled custody account pursuant to the terms of a control agreement and is to be
administered under an intercreditor agreement among the Lenders. Under certain circumstances, individual
Lenders may require that collateral be transferred from the pooled account into segregated accounts for the
benefit of such individual Lenders.
The primary uses of the lines of credit would be to meet short-term funding requirements related to deposit
account overdrafts and client fund obligations arising from electronic payment transactions on behalf of our
clients in the ordinary course of business, if necessary. No amounts were outstanding against these lines of credit
during fiscal 2015 or as of May 31, 2015.
Certain of the financial institutions are also parties to our credit facility and irrevocable standby letters of
credit, which are discussed on the next page.
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