Paychex, Inc. Reports Fiscal 2009 Results

FISCAL 2009 HIGHLIGHTS

* Total revenue increased 1% to $2.1 billion.
* Service revenue increased 4% to $2.0 billion.
* Operating income decreased 3% to $805.2 million, as combined interest on funds
held for clients and investment income decreased 48%.
* Operating income, net of certain items, increased 5% to $729.7 million.
* Net income decreased 7% to $533.5 million, while diluted earnings per share
decreased 5% to $1.48 per share.
* Cash flow from operations was $688.8 million.
* Dividends paid to shareholders were $447.7 million.

ROCHESTER, N.Y.--(Business Wire)--
Paychex, Inc. ("we," "our," or "us") (NASDAQ:PAYX) today announced total revenue
of $2.1 billion for the fiscal year ended May 31, 2009 ("fiscal 2009"), a 1%
increase over the prior fiscal year. Net income decreased 7% to $533.5 million
and diluted earnings per share decreased 5% to $1.48 per share.

"Fiscal 2009 was one of the most challenging years in Paychex history. We were
faced with many difficulties including the weakest economic conditions we have
ever experienced, a severe credit crisis, and extremely low investment rates of
return on our funds held for clients. Despite this, our team responded well to
the challenge by delivering record levels of operating income, net of certain
items. In addition, despite this volatile period, we continued to grow revenue,
expand our operating margins, invest in our business, and provide excellent
customer service," commented Jonathan J. Judge, President and Chief Executive
Officer of Paychex.

"Our financial position remains strong with cash and total corporate investments
increasing approximately $140 million during fiscal 2009. We generated this
growth while paying 84% of our net income in dividends to our stockholders,"
added Mr. Judge.

Payroll service revenue increased 1% over the prior fiscal year to $1.5 billion.
The increase was primarily due to our annual price increase and growth in the
utilization of ancillary payroll services, offset by weak economic conditions
that adversely impacted revenue growth. Weak economic conditions resulted in a
year over year decrease of 3.1% in our client base, a 2.9% decrease in checks
per client, a 19% decrease in new client sales from new business starts, and a
17% increase in clients lost due to companies going out of business or no longer
having any employees. As of May 31, 2009 and May 31, 2008, 93% of our clients
utilized our payroll tax administration services, and nearly all of our new
clients purchase these services. Employee payment services utilization was 75%
as of May 31, 2009 compared to 73% as of May 31, 2008, with over 80% of our new
clients selecting these services.

Human Resource Services revenue increased 11% to $523.6 million for fiscal 2009.
Growth in these services was generated from the following: comprehensive human
resource outsourcing services clients increased 10% to 18,000 with client
employees increasing 3% to 453,000; workers` compensation insurance clients
increased 6% to 77,000; and retirement services clients increased 2% to 50,000.
Health and benefits services revenue, our newest offering, grew 70% to $20.9
million for fiscal 2009.

Human Resource Services revenue growth was adversely impacted by weak economic
conditions with the most significant impact in retirement services and
comprehensive human resource outsourcing services. Retirement services revenue
growth for fiscal 2009 was negatively affected by $8.9 million due to a decline
in the asset value of the retirement services client employees` funds, which
decreased 12% to $8.5 billion, and a shift in client employees` retirement
portfolios to investments earning lower fees from external fund managers.
Comprehensive human resource outsourcing services revenue growth was adversely
impacted by fewer employees per client, decreasing revenue by $8.7 million for
fiscal 2009. Offsetting some of the above revenue declines was $12.4 million of
retirement services billings for client plan restatements during fiscal 2009
that are required by law approximately every ten years.

For fiscal 2009, our operating income was $805.2 million, a decrease of 3% from
the prior fiscal year. Operating income, net of certain items (see Note 1 below
for further discussion of this non-GAAP financial measure) increased 5% to
$729.7 million for fiscal 2009 as compared to $696.5 million for the prior
fiscal year.

For the three months ended For the twelve months ended
May 31, May 31,
$ in millions 2009 2008 % 2009 2008 %

Change
Change
Operating income $ 174.3 $ 197.8 (12 %) $ 805.2 $ 828.3 (3 %)
Excluding: Interest on funds held for clients (15.1 ) (31.4 ) (52 %) (75.5 ) (131.8 ) (43 %)
Operating income, net of certain items $ 159.2 $ 166.4 (4 %) $ 729.7 $ 696.5 5 %

We continue to follow our investment strategy of maximizing liquidity and
protecting principal. With the turmoil in the financial markets, this translates
to significantly lower yields on high quality instruments, impacting our income
earned on funds held for clients and corporate investments. For fiscal 2009,
interest on funds held for clients decreased 43% to $75.5 million due to lower
average interest rates earned, lower average investment balances, and lower
realized gains on the sale of available-for-sale securities. Overall economic
factors, which have negatively impacted our client base, decreased average
investment balances by 3% for fiscal 2009. Average investment balances for the
three months ended May 31, 2009 (the "fourth quarter"), which deteriorated 9%,
were also impacted by the American Recovery and Reinvestment Act of 2009 (the
"2009 economic stimulus package") generating lower tax withholdings for client
employees. Investment income decreased 74% to $6.9 million primarily due to
lower average interest rates earned and lower average investment balances, which
resulted from the funding of the stock repurchase program that was completed in
December 2007.

Average investment balances and interest rates are summarized below:

For the three months ended For the twelve months ended

May 31,
May 31,
$ in millions 2009 2008 2009 2008
Average investment balances:
Funds held for clients $ 3,395.9 $ 3,729.4 $ 3,323.3 $ 3,408.9
Corporate investments $ 607.4 $ 471.7 $ 538.2 $ 716.7

Average interest rates earned (exclusive of net realized gains):
Funds held for clients 1.7 % 3.1 % 2.2 % 3.7 %
Corporate investments 0.7 % 2.8 % 1.4 % 3.7 %

Net realized gains:
Funds held for clients $ 0.3 $ 2.6 $ 1.1 $ 6.4
Corporate investments $ -- $ -- $ -- $ --

Our exposure has been minimized in the current investment environment as the
result of our policies of investing primarily in high credit quality securities
with AAA and AA ratings and short-term securities with A-1/P-1 ratings, and by
limiting the amounts that can be invested in any single issuer. All the
investments held as of May 31, 2009 are traded in active markets.

As of May 31, 2009, we had no exposure to variable rate demand notes or prime
money market funds. Our current primary short-term investment vehicle is United
States ("U.S.") agency discount notes. We have no exposure to auction rate
securities, sub-prime mortgage securities, asset-backed securities or
asset-backed commercial paper, collateralized debt obligations, enhanced cash or
cash plus mutual funds, or structured investment vehicles (SIVs). We have not
and do not utilize derivative financial instruments to manage interest rate
risk.

The available-for-sale securities within the funds held for clients and
corporate investment portfolios reflected a net unrealized gain of $66.7 million
as of May 31, 2009, compared with a net unrealized gain of $24.8 million as of
May 31, 2008. During fiscal 2009, the investment portfolios ranged from a net
unrealized loss of $15.2 million to a net unrealized gain of $86.6 million. The
net unrealized gain of our investment portfolios was approximately $56.3 million
as of June 19, 2009.

FOURTH QUARTER FISCAL 2009 HIGHLIGHTS

Our results for the fourth quarter of fiscal 2009 fully reflect the weak
economic conditions, which impacted earlier quarters to a lesser degree. Checks
per client declined 5.2% for the fourth quarter, compared to 4.3% for the third
quarter and 2.9% for the full year. Below is a summary of our fourth quarter
financial results:

* Payroll service revenue decreased 5% to $347.9 million while Human Resource
Services revenue increased 9% to $132.9 million.
* Total revenue decreased 4% to $495.9 million.
* Operating income decreased 12% to $174.3 million, and operating income, net of
certain items, decreased 4% to $159.2 million.
* Operating income, net of certain items, was 33.1% of service revenue for the
fourth quarter compared to 34.1% for the same period last year.
* Net income and diluted earnings per share decreased 16% to $113.8 million and
$0.32 per share, respectively.

OUTLOOK

Our current outlook for the fiscal year ending May 31, 2010 ("fiscal 2010") is
based upon current economic and interest rate conditions continuing with no
significant changes. Consistent with our policy regarding guidance, our
projections do not anticipate or speculate on future changes to interest rates.
Comparisons to fiscal 2009 quarters are expected to improve as fiscal 2010
progresses. Projected changes in revenue and net income for fiscal 2010 are as
follows:

Low High
Payroll service revenue (5 %) - (3 %)
Human Resource Services revenue 3 % - 6 %
Total service revenue (4 %) - (1 %)
Interest on funds held for clients (30 %) - (25 %)
Total revenue (4 %) - (1 %)
Investment income, net (35 %) - (30 %)
Net income (12 %) - (10 %)

Operating income, net of certain items, as a percentage of service revenue is
expected to range from 34% to 35% for fiscal 2010. The effective income tax rate
is expected to approximate 35% for fiscal 2010. The higher tax rate in fiscal
2010 is driven by higher state income tax rates resulting from state legislative
changes.

Interest on funds held for clients and investment income for fiscal 2010 are
expected to be impacted by interest rate volatility. Interest on funds held for
clients will be further impacted by a projected 5% decline in average invested
balances, with most of the effect in the first half of fiscal 2010. This decline
is largely the result of the 2009 economic stimulus package generating lower tax
withholdings for client employees. The Federal Funds rate dropped significantly
in fiscal 2009 from 2.00% as of May 31, 2008, to a range of zero to 0.25% as of
May 31, 2009. As of May 31, 2009, the long-term investment portfolio had an
average yield-to-maturity of 3.3% and an average duration of 2.5 years. In the
next twelve months, slightly less than 20% of this portfolio will mature, and it
is currently anticipated that these proceeds will be reinvested at a lower
average interest rate of approximately 1.40%. Based upon current interest rate
and economic conditions, we expect interest on funds held for clients and
investment income to (decrease)/increase by the following amounts in the
respective quarters of fiscal 2010:

Fiscal 2010 Interest on funds held for clients Investment income, net
First quarter (45%) (70%)
Second quarter (35%) (40%)
Third quarter (20%) 10%
Fourth quarter (15%) 50%

Note 1: In addition to reporting operating income, a U.S. generally accepted
accounting principle ("GAAP") measure, we present operating income, net of
certain items, which is a non-GAAP measure. We believe operating income, net of
certain items, is an appropriate additional measure, as it is an indicator of
our core business operations performance period over period. It is also the
measure used internally for establishing the following year`s targets and
measuring management`s performance in connection with certain performance-based
compensation payments and awards. Operating income, net of certain items, for
the periods presented excludes interest on funds held for clients. Interest on
funds held for clients is an adjustment to operating income due to the
volatility of interest rates which are not within the control of management.
Operating income, net of certain items, is not calculated through the
application of GAAP and is not the required form of disclosure by the Securities
and Exchange Commission ("SEC"). As such, it should not be considered as a
substitute for the GAAP measure of operating income and, therefore, should not
be used in isolation, but in conjunction with the GAAP measure. The use of any
non-GAAP measure may produce results that vary from the GAAP measure and may not
be comparable to a similarly defined non-GAAP measure used by other companies.

CONFERENCE CALL

Interested parties may access the webcast of our Earnings Release Conference
Call, scheduled for June 25, 2009 at 10:30 a.m. Eastern Time, at www.paychex.com
on the Investor Relations page. The webcast will also be archived on the
Investor Relations page for approximately one month. Our news releases, current
financial information, SEC filings, and investor presentation are also
accessible at www.paychex.com. For more information, contact:

Investor Relations: John Morphy, CFO, or
Terri Allen 585-383-3406

Media Inquiries: Laura Saxby Lynch 585-383-3074

CURRENT REPORT ON FORM 8-K

We will file a Current Report on Form 8-K ("Form 8-K") by the close of business
on the same day as this press release is issued, and this will be available at
www.paychex.com. The Form 8-K will furnish as exhibits this press release and a
preliminary Management`s Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"). This press release should be read in conjunction
with the preliminary MD&A. The MD&A furnished with the Form 8-K is preliminary
and is not a complete discussion and analysis intended to satisfy the
requirements of Item 303 of Regulation S-K promulgated by the SEC. We expect to
file our fiscal 2009 Annual Report on Form 10-K ("Form 10-K") with the SEC
within 60 days following our May 31, 2009 fiscal year-end. The fiscal 2009 Form
10-K will contain a complete set of audited Consolidated Financial Statements,
Notes to Consolidated Financial Statements, and final MD&A that will satisfy the
requirements of Item 303 of Regulation S-K.

ABOUT PAYCHEX

Paychex, Inc. is a leading provider of payroll, human resource, and benefits
outsourcing solutions for small- to medium-sized businesses. The company offers
comprehensive payroll services, including payroll processing, payroll tax
administration, and employee pay services, including direct deposit, check
signing, and Readychex®. Human Resource Services include 401(k) plan
recordkeeping, health insurance, workers` compensation administration, section
125 plans, a professional employer organization, time and attendance solutions,
and other administrative services for business. Paychex, Inc. was founded in
1971. With headquarters in Rochester, New York, the company has more than 100
offices serving approximately 554,000 payroll clients nationwide as of May 31,
2009. For more information about Paychex, Inc. and our products, visit
www.paychex.com.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

Certain written and oral statements made by us may constitute "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). Forward-looking statements are identified by such words and
phrases as "we expect," "expected to," "estimates," "estimated," "current
outlook," "we look forward to," "would equate to," "projects," "projections,"
"projected to be," "anticipates," "anticipated," "we believe," "could be," and
other similar phrases. All statements addressing operating performance, events,
or developments that we expect or anticipate will occur in the future, including
statements relating to revenue growth, earnings, earnings-per-share growth, or
similar projections, are forward-looking statements within the meaning of the
Reform Act. Because they are forward-looking, they should be evaluated in light
of important risk factors. These risk factors include, but are not limited to,
the following risks, as well as those that are described in our periodic filings
with the SEC:

* general market and economic conditions including, among others, changes in
U.S. employment and wage levels, changes in new hiring trends, legislative
changes to stimulate the economy, changes in short- and long-term interest
rates, changes in the fair value and the credit rating of securities held by us,
and accessibility of financing;
* changes in demand for our services and products, ability to develop and market
new services and products effectively, pricing changes and the impact of
competition, and the availability of skilled workers;
* changes in the laws regulating collection and payment of payroll taxes,
professional employer organizations, and employee benefits, including retirement
plans, workers` compensation, health insurance, state unemployment, and section
125 plans;
* changes in workers` compensation rates and underlying claims trends;
* the possibility of failure to keep pace with technological changes and provide
timely enhancements to services and products;
* the possibility of failure of our operating facilities, computer systems, and
communication systems during a catastrophic event;
* the possibility of third-party service providers failing to perform their
functions;
* the possibility of penalties and losses resulting from errors and omissions in
performing services;
* the possible inability of our clients to meet their payroll obligations;
* the possible failure of internal controls or our inability to implement
business processing improvements; and
* potentially unfavorable outcomes related to pending legal matters.

Any of these factors could cause our actual results to differ materially from
our anticipated results. The information provided in this document is based upon
the facts and circumstances known at this time. We undertake no obligation to
update these forward-looking statements after the date of issuance of this
release to reflect events or circumstances after such date, or to reflect the
occurrence of unanticipated events.

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share amounts)

For the three months ended May 31, For the twelve months ended May 31,
2009 2008 % 2009 2008 %

Change
Change
Revenue:
Payroll service revenue $ 347,913 $ 365,455 (5 %) $ 1,483,671 $ 1,462,749 1 %
Human Resource Services revenue 132,946 122,382 9 % 523,634 471,787 11 %
Total service revenue 480,859 487,837 (1 %) 2,007,305 1,934,536 4 %
Interest on funds held for clients (1) 15,074 31,391 (52 %) 75,454 131,787 (43 %)
Total revenue 495,933 519,228 (4 %) 2,082,759 2,066,323 1 %

Expenses:
Operating expenses 166,872 167,973 (1 %) 680,518 660,735 3 %
Selling, general and administrative 154,747 153,451 1 % 597,041 577,321 3 %
expenses
Total expenses 321,619 321,424 -- 1,277,559 1,238,056 3 %

Operating income 174,314 197,804 (12 %) 805,200 828,267 (3 %)

Investment income, net (1) 825 3,211 (74 %) 6,875 26,548 (74 %)
Income before income taxes 175,139 201,015 (13 %) 812,075 854,815 (5 %)

Income taxes 61,335 65,531 (6 %) 278,530 278,670 --
Net income $ 113,804 $ 135,484 (16 %) $ 533,545 $ 576,145 (7 %)

Basic earnings per share $ 0.32 $ 0.38 (16 %) $ 1.48 $ 1.56 (5 %)

Diluted earnings per share $ 0.32 $ 0.38 (16 %) $ 1.48 $ 1.56 (5 %)

Weighted-average common shares outstanding 360,892 360,420 360,783 368,420

Weighted-average common shares outstanding, assuming dilution 361,034 361,053 360,985 369,528

Cash dividends per common share $ 0.31 $ 0.30 3 % $ 1.24 $ 1.20 3 %

(1) Further information on interest on funds held for clients and investment income, net, and the short- and long-term effects of changing interest rates can be found in our filings with the SEC, including our Quarterly Reports on Form 10-Q and our Form 10-K, as applicable, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and subheadings "Results of Operations" and "Market Risk Factors." These filings are accessible at our website www.paychex.com.

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share amount)

May 31, May 31,
2009 2008
ASSETS
Cash and cash equivalents $ 472,769 $ 164,237
Corporate investments 19,710 228,727
Interest receivable 27,722 34,435
Accounts receivable, net of allowance for doubtful accounts 177,958 184,686
Deferred income taxes 10,180 7,274
Prepaid income taxes 2,198 11,236
Prepaid expenses and other current assets 27,913 27,231
Current assets before funds held for clients 738,450 657,826
Funds held for clients 3,501,376 3,808,085
Total current assets 4,239,826 4,465,911
Long-term corporate investments 82,234 41,798
Property and equipment, net of accumulated depreciation 274,530 275,297
Intangible assets, net of accumulated amortization 76,641 74,500
Goodwill 433,316 433,316
Deferred income taxes 16,487 13,818
Other long-term assets 4,381 5,151
Total assets $ 5,127,415 $ 5,309,791

LIABILITIES
Accounts payable $ 37,334 $ 40,251
Accrued compensation and related items 135,064 132,589
Deferred revenue 9,542 10,326
Deferred taxes 17,159 --
Litigation reserve 20,411 22,968
Other current liabilities 44,704 47,457
Current liabilities before client fund obligations 264,214 253,591
Client fund obligations 3,437,679 3,783,681
Total current liabilities 3,701,893 4,037,272
Accrued income taxes 25,730 17,728
Deferred income taxes 12,773 9,600
Other long-term liabilities 45,541 48,549
Total liabilities 3,785,937 4,113,149

STOCKHOLDERS` EQUITY
Common stock, $.01 par value; Authorized: 600,000 shares; 3,610 3,605
Issued and outstanding: 360,976 shares as of May 31, 2009,

and 360,500 shares as of May 31, 2008, respectively
Additional paid-in capital 466,427 431,639
Retained earnings 829,501 745,351
Accumulated other comprehensive income 41,940 16,047
Total stockholders` equity 1,341,478 1,196,642
Total liabilities and stockholders` equity $ 5,127,415 $ 5,309,791

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

For the twelve months ended
May 31, May 31,

2009
2008
OPERATING ACTIVITIES
Net income $ 533,545 $ 576,145
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on property and equipment and intangible assets 85,772 80,614
Amortization of premiums and discounts on available-for-sale securities 22,956 19,033
Stock-based compensation costs 25,707 25,434
(Benefit)/provision for deferred income taxes (1,866 ) 3,713
Provision for allowance for doubtful accounts 2,910 3,044
Net realized gains on sales of available-for-sale securities (1,135 ) (6,450 )
Changes in operating assets and liabilities:
Interest receivable 6,713 19,189
Accounts receivable 3,818 (800 )
Prepaid expenses and other current assets 8,356 (5,080 )
Accounts payable and other current liabilities (10,049 ) 2,715
Net change in other assets and liabilities 12,044 7,112
Net cash provided by operating activities 688,771 724,669

INVESTING ACTIVITIES
Purchases of available-for-sale securities (16,365,721 ) (79,919,857 )
Proceeds from sales and maturities of available-for-sale securities 17,958,518 81,568,872
Net change in funds held for clients' money market securities and other cash equivalents (1,101,371 ) (581,738 )
Purchases of property and equipment (64,709 ) (82,289 )
Proceeds from sales of property and equipment 618 716
Acquisition of businesses, net of cash acquired (6,466 ) (32,940 )
Purchases of other assets (16,407 ) (19,599 )
Net provided by investing activities 404,462 933,165

FINANCING ACTIVITIES
Net change in client fund obligations (346,002 ) (198,649 )
Repurchases of common stock - (999,999 )
Dividends paid (447,732 ) (442,146 )
Proceeds from and excess tax benefit related to exercise of stock options 9,033 67,844
Net cash used in financing activities (784,701 ) (1,572,950 )

Increase in cash and cash equivalents 308,532 84,884
Cash and cash equivalents, beginning of period 164,237 79,353
Cash and cash equivalents, end of period $ 472,769 $ 164,237

Paychex, Inc.
Investor Relations:
John Morphy, CFO, or Terri Allen
585-383-3406
or
Media Inquiries:
Laura Saxby Lynch, 585-383-3074

Copyright Business Wire 2009