Paychex 2016 Annual Report Download - page 35

We continue to strengthen our position as an expert in our industry by serving as a source of education and
information to clients, small businesses, and other interested parties. We provide free webinars, white papers, and
other information on our website to aid existing and prospective clients with the impact of regulatory
changes. The Paychex Insurance Agency, Inc. website, www.paychexinsurance.com, helps small-business
owners navigate the area of insurance coverage. Both this website and www.paychex.com have sections
dedicated to the topic of health care reform.
Financial position and liquidity
Our financial position as of May 31, 2016 remained strong with cash and total corporate investments of
$793.2 million and no debt. Our investment strategy continues to focus on protecting principal and optimizing
liquidity. Yields on high quality financial instruments remain low, negatively impacting our income earned on
funds held for clients and corporate investments. We invest predominately in municipal bonds — including
general obligation bonds; pre-refunded bonds, which are secured by a U.S. government escrow; and essential
services revenue bonds — along with U.S. government agency securities and corporate bonds. During fiscal
2016, our primary short-term investment vehicles were bank demand deposit accounts, variable rate demand
notes (“VRDNs”), high-quality commercial paper, and government agency discount notes.
A substantial portion of our portfolio is invested in high credit quality securities with ratings of AA or
higher, and A-1/P-1 ratings on short-term securities. We limit the amounts that can be invested in any single
issuer and invest in short- to intermediate-term instruments whose fair value is less sensitive to interest rate
changes. We believe that our investments as of May 31, 2016 were not other-than-temporarily impaired, nor has
any event occurred subsequent to that date that would indicate any other-than-temporary impairment.
Our primary source of cash is our ongoing operations. Cash flow from operations exceeded $1.0 billion for
the first time for fiscal 2016. Historically, we have funded our operations, capital purchases, business
acquisitions, share repurchases, and dividend payments from our operating activities. Our positive operating cash
flows for fiscal 2016 allowed us to support our business growth and to pay substantial dividends to our
stockholders. In July 2015, we announced an increase in our quarterly dividend of 11%, or $0.04 per share. In
July 2016, we subsequently announced an additional $0.04 per share, or 10%, increase in our quarterly
dividend. Dividends paid to stockholders were 80% of net income in fiscal 2016. It is anticipated that cash and
total corporate investments as of May 31, 2016, along with projected operating cash flows, will support our
normal business operations, capital purchases, share repurchases, dividend payments, and business acquisitions,
if any, for the foreseeable future.
For further analysis of our results of operations for fiscal years 2016, 2015, and 2014, and our financial
position as of May 31, 2016, refer to the tables and analysis in the “Results of Operations” and “Liquidity and
Capital Resources” sections of this Item 7 and the discussion in the “Critical Accounting Policies” section of this
Item 7.
Outlook
Our outlook for the fiscal year ending May 31, 2017 (“fiscal 2017”) is based upon current market,
economic, and interest rate conditions continuing with no significant changes. Our expected full-year fiscal 2017
payroll revenue growth rate is based upon anticipated client base growth and increases in revenue per check. Our
guidance for fiscal 2017 is as follows:
• Payroll service revenue is anticipated to increase approximately 4%;
• HRS Revenue is anticipated to increase in the range of 12% to 14%;
• total service revenue is expected to increase in the range of 7% to 8%;
• interest on funds held for clients is expected to reflect mid-single-digit growth;
• net income is expected to increase approximately 8%, excluding the net tax benefit recognized in fiscal
2016 related to income derived in prior tax years;
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