Paychex 2011 Annual Report Download - page 31

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Ancillary services effectively leverage payroll processing data and, therefore, are beneficial to our operating
margin. The following statistics demonstrate the growth in our ancillary service offerings:
As of May 31, 2011 2010 2009
Paychex HR Solutions client employees
(1)
................... 567,000 502,000 453,000
Paychex HR Solutions clients
(1)
........................... 21,000 19,000 18,000
Insurance services clients
(2)
.............................. 100,000 92,000 86,000
Health and benefits services applicants ...................... 99,000 80,000 58,000
Retirement services clients
(3)
............................. 57,000 51,000 50,000
(1) Includes Paychex HR Essentials as of May 31, 2011.
(2) Includes workers’ compensation insurance services clients and health and benefits services clients.
(3) Includes ePlan clients as of May 31, 2011.
Continued investment in our business is critical to our success. In fiscal 2011, we made investments in our sales
force and product development. Our sales force increased 2% to 2,380 sales representatives for fiscal 2011, and is
expected to grow 1% to 2,400 sales representatives for the fiscal year ending May 31, 2012 (“fiscal 2012”). This
growth is driven primarily by increases in insurance services and other Human Resource Services offerings.
We have continued to expand our enhanced payroll processing platform to include additional service offerings.
This new platform allows us to leverage efficiencies in our processes and continue to provide excellent customer
service to our clients. Our enhanced platform has led to improved productivity within our operations, contributing to
the increase in our operating income, net of certain items, as a percentage of service revenue to 36.3% for fiscal
2011, compared to 35.4% for the prior year.
Over the next few years, we will continue to invest in our product development, as we believe it is critical to our
success. We have introduced new product offerings to add value for our clients. In fiscal 2011, we introduced
Paychex HR Essentials, an ASO offering that provides support to our clients over the phone or online to help
manage employee-related topics. We also introduced Paychex SmartTime
TM
time clocks for small businesses. This
self-contained system offers small businesses an economical, easy-to-use time and attendance solution that
automatically collects and calculates employee hours, and integrates with Paychex payroll.
We continued the expansion of our insurance services nationwide, simplifying the process required to obtain
coverage through our network of national and regional insurers. We now service over 100,000 clients through our
subsidiary, Paychex Insurance Agency, Inc. We believe insurance services is an area that continues to offer
significant opportunities for future growth.
We strengthened our position as an expert in our industry by serving as a source of education and information to
clients 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. In addition, the Paychex Insurance Agency,
Inc. website, www.paychexinsurance.com, helps small business owners navigate the area of insurance coverage.
Financial position and liquidity
The volatility in the global financial markets that began in September 2008 continues to curtail available
liquidity and limit investment choices. Despite this macroeconomic environment, as of May 31, 2011, our financial
position remained strong with cash and total corporate investments of $671.3 million and no debt.
Our investment strategy focuses on optimizing liquidity and protecting principal. 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 — general obligation bonds; pre-refunded bonds, which
are secured by a U.S. government escrow; and essential services revenue bonds. Our primary short-term investment
vehicle has been U.S. agency discount notes. Starting in November 2009, we began to invest in select A-1/P-1-rated
variable rate demand notes (“VRDNs”) and have gradually increased our investment in VRDNs to $828.3 million as
of May 31, 2011. During fiscal 2011, we earned an after-tax rate of approximately 0.23% for VRDNs compared to
approximately 0.06% for U.S. agency discount notes.
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