Paychex 2010 Annual Report Download - page 36

Combined operating and SG&A expenses: The following table summarizes total combined operating and
selling, general and administrative (“SG&A”) expenses for fiscal years:
In millions 2010 Change 2009 Change 2008
Compensation-related expenses ........... $ 829.3 (1)% $ 835.1 4% $ 804.7
Stock-based compensation costs .......... 25.6 — 25.7 1% 25.4
Facilities expenses .................... 60.4 1% 59.6 4% 57.4
Depreciation of property and equipment .... 64.6 1% 64.0 4% 61.4
Amortization of intangible assets .......... 21.9 — 21.8 13% 19.2
Other expenses ....................... 255.5 (6)% 271.4 1% 269.9
1,257.3 (2)% 1,277.6 3% 1,238.0
Expense charge to increase the litigation
reserve . . ......................... 18.7 100% — — —
Total operating and SG&A expenses ....... $1,276.0 — $1,277.6 3% $1,238.0
During fiscal 2010, we recorded an expense charge of $18.7 million to increase our litigation reserve. Refer to
Note L of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for additional
information on legal matters.
Excluding the expense charge to increase the litigation reserve, combined operating and SG&A expenses
decreased 2% for fiscal 2010 and increased 3% for fiscal 2009. The decline for fiscal 2010 was generated from cost
control measures and lower headcount, offset slightly by costs related to continued investment in our sales force,
customer service, and technological infrastructure. In fiscal 2010, we had a freeze on salary increases and made no
matching contributions to our 401(k) plan. We reinstituted salary increases beginning March 1, 2010, but the freeze
saved us approximately $15.0 million for fiscal 2010. As of May 31, 2010, no decision had been made on the
reinstatement of the 401(k) match, although we saved approximately $15.0 million for fiscal 2010 from its
suspension. The increase for fiscal 2009 was primarily due to increases in personnel, though at a slower pace than
prior years, and other costs related to selling and retaining clients and promoting new services. As of May 31, 2010,
we had approximately 12,200 employees compared with approximately 12,500 employees as of May 31, 2009 and
12,200 employees as of May 31, 2008.
Depreciation expense is primarily related to buildings, furniture and fixtures, data processing equipment, and
software. Increases in depreciation expense were due to capital expenditures as we invested in technology and
continued to grow our business. Amortization of intangible assets is primarily related to client list acquisitions,
which are amortized using either straight-line or accelerated methods. The increase in amortization in fiscal 2009
was a result of intangibles from acquisitions and client list acquisitions. Other expenses include items such as
delivery, forms and supplies, communications, travel and entertainment, professional services, and other costs
incurred to support our business.
Operating income: Operating income declined 10% and 3% for fiscal 2010 and fiscal 2009, respectively.
The fluctuations in operating income were attributable to the factors previously discussed.
Operating income, net of certain items, is as follows for fiscal years:
In millions 2010 Change 2009 Change 2008
Operating income ........................ $724.8 (10)% $805.2 (3)% $ 828.3
Excluding:
Interest on funds held for clients ............ (55.0) (27)% (75.5) (43)% (131.8)
Expense charge to increase the litigation
reserve ............................. 18.7 100% — — —
Operating income, net of certain items ......... $688.5 (6)% $729.7 5% $ 696.5
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