Paychex 2012 Annual Report Download - page 41

Other commitments: We have entered into various operating leases and purchase obligations that, under
GAAP, are not reflected on the Consolidated Balance Sheets as of May 31, 2012. The table below summarizes
our estimated annual payment obligations under these commitments as of May 31, 2012:
Payments due by period
In millions Total
Less than
1 year 1-3 years 4-5 years
More than
5 years
Operating leases(1) ...................... $154.9 $38.9 $59.6 $35.0 $21.4
Purchase obligations(2) ................... 88.4 47.8 37.1 3.0 0.5
Total ................................. $243.3 $86.7 $96.7 $38.0 $21.9
(1) Operating leases are primarily for office space and equipment used in our branch operations.
(2) Purchase obligations include our estimate of the minimum outstanding commitments under purchase orders
to buy goods and services and legally binding contractual arrangements with future payment obligations.
Included in the total purchase obligations is $7.6 million of commitments to purchase capital assets.
Amounts actually paid under certain of these arrangements may be higher due to variable components of
these agreements.
The liability for uncertain tax positions was approximately $36.8 million as of May 31, 2012. Refer to Note
I of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for more information
on income taxes. We are not able to reasonably estimate the timing of future cash flows related to this liability
and have excluded it from the table above. We are currently under a state income tax audit for the fiscal years
ended May 31, 2004 through 2009. On July 14, 2010, we received a summary of proposed tax adjustments from
the New York State Department of Taxation and Finance, which was in excess of the reserve recorded as of
May 31, 2012. The outcome of the audit and the timing of settlement, if any, are subject to significant
uncertainty. It is not possible to reasonably estimate the impact, if any, if resolution is ultimately unfavorable to
us.
Certain deferred compensation plan obligations and other long-term liabilities reported in our Consolidated
Balance Sheets amounting to $52.9 million are excluded from the table above because the timing of actual
payments cannot be specifically or reasonably determined due to the variability in assumptions required to
project the timing of future payments.
Advantage Payroll Services Inc. (“Advantage”) has license agreements with independently owned associate
offices (“Associates”), which are responsible for selling and marketing Advantage payroll services and
performing certain operational functions, while Paychex and Advantage provide all centralized back-office
payroll processing and payroll tax administration services. Under these arrangements, Advantage pays the
Associates commissions based on processing activity for the related clients. When we acquired Advantage, there
were fifteen Associates. Over the past few years, arrangements with some Associates have been discontinued,
and there are currently fewer than ten Associates. Since the actual amounts of future payments are uncertain,
obligations under these arrangements are not included in the table above. Commission expense for the Associates
for fiscal years 2012, 2011, and 2010 was $11.7 million, $10.4 million, and $9.9 million, respectively.
In the normal course of business, we make representations and warranties that guarantee the performance of
services under service arrangements with clients. Historically, there have been no material losses related to such
guarantees. In addition, we have entered into indemnification agreements with our officers and directors, which
require us to defend and, if necessary, indemnify these individuals for certain pending or future legal claims as
they relate to their services provided to us.
We currently self-insure the deductible portion of various insured exposures under certain employee benefit
plans. Our estimated loss exposure under these insurance arrangements is recorded in other current liabilities on
our Consolidated Balance Sheets. Historically, the amounts accrued have not been material. We also maintain
insurance coverage in addition to our purchased primary insurance policies for gap coverage for employment
practices liability, errors and omissions, warranty liability, theft and embezzlement, and acts of terrorism; and
capacity for deductibles and self-insured retentions through our captive insurance company.
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