Paychex 2012 Annual Report Download - page 34

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we launched new ancillary products in fiscal 2012. Our Business Insurance Payment Service relieves business
owners of the administrative burden of paying their insurance premiums. Paychex Advisory Select 401(k) is a
new offering specifically designed for fee-based financial advisors.
We have focused on launching enhanced technology to support our existing SaaS products. Recent launches
include a single sign-on and landing page; Paychex Online Mobile iPad®and Android™tablet applications; and,
most recently, a smartphone application. These mobile applications allow our clients instant access and increased
productivity.
We continued to invest in our Paychex Next Generation platform and its suite of innovative products, as we
believe this is a key building block to our future success. This new platform allows us to leverage efficiencies in
our processes and to 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 37.1% for fiscal 2012, compared to 36.3% for fiscal 2011.
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 approximately 107,000 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 have 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 an effort to help
entrepreneurs and small-business owners achieve success, we launched a new website, BuildMyBiz.com, that
provides tools and resources for starting, growing, and managing a business. 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 supply of high credit quality securities has been limited with the continued volatility in the global
financial markets, thereby limiting our investment choices. Despite this macroeconomic environment, our
financial position as of May 31, 2012 remained strong with cash and total corporate investments of $790.0
million and no debt.
Our investment strategy focuses 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 — general obligation bonds; pre-refunded bonds,
which are secured by a U.S. government escrow; and essential services revenue bonds. During fiscal 2012, our
primary short-term investment vehicles were high quality variable rate demand notes (“VRDNs”) and Federal
Deposit Insurance Corporation (“FDIC”) insured deposit accounts.
A substantial portion of our portfolios is invested in high credit quality securities with AAA and AA ratings
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, 2012 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 was $706.6 million for
fiscal 2012. Historically, we have funded our operations, capital purchases, business acquisitions, and dividend
payments from our operating activities. Our positive cash flows in fiscal 2012 allowed us to support our business
growth and to pay substantial dividends to our stockholders. During fiscal 2012, dividends paid to stockholders
were 84% of net income. It is anticipated that cash and total corporate investments as of May 31, 2012, along
with projected operating cash flows, will support our normal business operations, capital purchases, and dividend
payments for the foreseeable future.
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