Paychex 2011 Annual Report Download - page 40

Investing Cash Flow Activities
In millions 2011 2010 2009
Year ended May 31,
Net change in funds held for clients and corporate investment
activities ............................................ $(179.8) $(341.2) $491.4
Purchases of property and equipment, net of proceeds from the sale
of property and equipment............................... (100.5) (61.3) (64.1)
(Acquisition)/sale of businesses ............................. (126.4) 13.1 (6.4)
Purchases of other assets.................................. (2.8) (11.9) (16.4)
Net cash (used in)/provided by investing activities ............... $(409.5) $(401.3) $404.5
Funds held for clients and corporate investments: Funds held for clients consist of short-term funds and
available-for-sale securities. Corporate investments are primarily comprised of available-for-sale securities. The
portfolio of funds held for clients and corporate investments is detailed in Note E of the Notes to Consolidated
Financial Statements, contained in Item 8 of this Form 10-K.
The fluctuations in the net change in funds held for clients and corporate investment activities reflect the
changing mix of investments. As a result of volatility in the financial markets, in September 2008 we divested of any
VRDN securities held and began to utilize U.S. agency discount notes as our primary short-term investment vehicle.
U.S. agency discount notes are cash equivalents. VRDNs, although priced and traded as short-term securities, are
classified as available-for-sale securities and the cash paid and proceeds received for these securities are included in
investing activities. As a result of the divestiture, the proceeds from sales of available-for-sale securities exceeded
the purchases of available-for-sale securities in fiscal 2009. Much of these proceeds were held as cash equivalents in
the funds held for clients’ portfolio. In November 2009, we began to again invest in select A-1/P-1-rated VRDNs,
although at considerably lower levels than in the prior year. We utilized some of our cash equivalents to purchase
these VRDNs, and in fiscal 2010 these purchases of available-for-sale securities were in excess of funds received
from any sales of available-for-sale securities. Also in fiscal 2010, more corporate funds have been invested in
longer-term municipal bonds. In fiscal 2011, we continued to increase our investment in VRDNs and the amounts of
purchases and sales for available-for-sale securities increased. However, partially offsetting this impact was the
related liquidation of cash equivalents and the impact on cash equivalents from timing within the funds held for
clients’ portfolio of remittances versus collections. See further discussion of this timing in the financing cash flows
discussion of net change in client fund obligations.
In general, fluctuations in net funds held for clients and corporate investment activities primarily relate to
timing of purchases, sales, or maturities of investments. The amount of funds held for clients will vary based upon
the timing of collection of client funds, and the related remittance of funds to applicable tax or regulatory agencies
for payroll tax administration services and to employees of clients utilizing employee payment services. Additional
discussion of interest rates and related risks is included in the “Market Risk Factors” section, contained in Item 7A
of this Form 10-K.
Purchases of long-lived assets: To support our continued client and ancillary product growth, purchases of
property and equipment were made for data processing equipment and software, and for the expansion and upgrade
of various operating facilities. During fiscal years 2011, 2010, and 2009, we purchased approximately $5.7 million,
$3.2 million, and $4.5 million, respectively, of data processing equipment and software from EMC Corporation.
The Chairman, President, and Chief Executive Officer of EMC Corporation is a member of our Board of Directors
(the “Board”).
During fiscal 2011, we paid $126.4 million for the acquisitions of SurePayroll and ePlan. During fiscal 2010,
we received $13.1 million from the sale of Stromberg, an immaterial component of the Company. The purchases of
other assets were for customer lists.
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