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xbrli:shares
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<div style="font-family: Helvetica,Arial,sans-serif">
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<div align="center" style="font-size: 10pt; margin-top: 0pt"><b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note A: Description of Business and Significant Accounting Policies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Description of business: </i></b>Paychex, Inc. and its wholly owned subsidiaries (collectively, the
“Company” or “Paychex”) is a leading provider of comprehensive payroll and integrated human
resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the
United States (“U.S.”). The Company also has a subsidiary in Germany.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Paychex, a Delaware corporation formed in 1979, reports as one segment. Substantially all of the
Company’s revenue is generated within the U.S. The Company also generates revenue within Germany,
which was less than one percent of its total revenue for the nine months ended February 28, 2010
and 2009. Long-lived assets in Germany are insignificant in relation to total long-lived assets of
the Company as of February 28, 2010 and May 31, 2009.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Basis of presentation: </i></b>The accompanying consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial
information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
GAAP for complete financial statement presentation. The consolidated financial statements include
the consolidated accounts of the Company with all significant intercompany transactions eliminated.
In the opinion of management, the information furnished herein reflects all adjustments
(consisting of items of a normal recurring nature), which are necessary for a fair presentation of
the results for the interim period. These financial statements should be read in conjunction with
the Company’s consolidated financial statements and related Notes to Consolidated Financial
Statements presented in the Company’s Annual Report on Form 10-K as of and for the year ended May
31, 2009 (“fiscal 2009”). Operating results and cash flows for the nine months ended February 28,
2010 are not necessarily indicative of the results that may be expected for other interim periods
or the full fiscal year ending May 31, 2010 (“fiscal 2010”). The Company has evaluated subsequent
events for potential recognition and/or disclosure through March 24, 2010, the date of issuance of
these financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>PEO revenue recognition: </i></b>Professional Employer Organization (“PEO”) revenue is included in service
revenue and is reported net of direct costs billed and incurred which include wages, taxes, benefit
premiums, and claims of PEO worksite employees. Direct costs billed and incurred were $841.6
million and $677.0 million for the three months ended February 28, 2010 and 2009, respectively, and
$2.3 billion and $1.9 billion for the nine months ended February 28, 2010 and 2009, respectively.
</div>
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</div>
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<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>PEO workers’ compensation insurance: </i></b>Workers’ compensation insurance for PEO worksite employees is
provided under a deductible workers’ compensation policy with a national insurance company. Claims
are paid as incurred and the Company’s maximum individual claims liability is $1.0 million under
both its fiscal 2010 and fiscal 2009 policies. As of
February 28, 2010, the Company had recorded $6.1 million in current liabilities and $19.3 million
in long-term liabilities for workers’ compensation insurance claims.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Estimating the ultimate cost of future claims is an uncertain and complex process based upon
historical loss experience and actuarial loss projections, and is subject to change due to multiple
factors, including economic trends, changes in legal liability law, and damage awards, all of which
could materially impact the reserves as reported. Adjustments to previously established reserves
are reflected in the results of operations for the period in which the adjustment is identified.
Such adjustments could possibly be significant, reflecting any variety of new and adverse or
favorable trends.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Stock-based compensation costs: </i></b>The Company has issued stock-based awards to employees
and directors consisting of stock options, restricted stock awards, and restricted stock units
(“RSUs”). Grants approved by the Company’s Board of Directors (the “Board”) were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%">   </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>For the nine months ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Weighted-</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Weighted-</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>average</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>average</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>fair value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>fair value</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands, except per share amounts</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>granted</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>per share</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>granted</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>per share</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options
</div></td>
<td> </td>
<td> </td>
<td align="right">1,248</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">4.32</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">783</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">6.90</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Restricted stock
</div></td>
<td> </td>
<td> </td>
<td align="right">153</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">24.60</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">137</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">31.86</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">RSUs
</div></td>
<td> </td>
<td> </td>
<td align="right">567</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">20.62</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">607</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">28.30</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company accounts for all stock-based awards to employees and directors as compensation costs in
the Consolidated Financial Statements based on the fair value measured as of the date of grant.
These costs are recognized as an expense in the Consolidated Statements of Income over the
requisite service period and increase additional paid-in capital. Stock-based compensation costs
recognized were $5.8 million and $19.1 million for the three and nine months ended February 28,
2010, as compared with $5.4 million and $19.3 million for the respective prior year periods. As of
February 28, 2010, the total unrecognized compensation cost related to all unvested stock-based
awards was $57.7 million and is expected to be recognized over a weighted-average period of 1.9
years.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The fair value of restricted stock awards is equal to the closing market price of the underlying
common stock as of the date of grant. The fair value of RSUs is equal to the closing market price
of the underlying common stock as of the date of grant, adjusted for the present value of expected
dividends over the vesting period, as these awards do not earn dividend equivalents.
</div>
<!-- Folio -->
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</div>
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<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The fair value of stock option grants is estimated as of the date of grant using a
Black-Scholes option pricing model. The weighted-average assumptions used for valuation
under the Black-Scholes model were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7"><b>For the nine months ended</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free interest rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">3.0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">3.3</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Dividend yield
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">4.5</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">3.4</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Volatility factor
</div></td>
<td> </td>
<td> </td>
<td align="right">.28</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">.28</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected option life in years
</div></td>
<td> </td>
<td> </td>
<td align="right">6.3</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6.4</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Risk-free interest rates are yields for zero-coupon U.S. Treasury notes maturing
approximately at the end of the expected option life. The estimated volatility factor is based on a
combination of historical volatility, using weekly stock prices over a period equal to the expected
option life, and implied market volatility. The expected option life is based on historical
exercise behavior.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has determined that the Black-Scholes option pricing model, as well as the underlying
assumptions used in its application, is appropriate in estimating the fair value of its stock
option grants. The Company periodically assesses its assumptions as well as its choice of valuation
model, and will reconsider use of this model if additional information becomes available in the
future indicating that another model would provide a more accurate estimate of fair value, or if
characteristics of future grants would warrant such a change.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Recently adopted accounting pronouncements: </i></b>Effective June 1, 2009, the Company adopted the
following Financial Accounting Standards Board (“FASB”) authoritative guidance, none of which had a
material impact on its consolidated financial statements:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Revised guidance on business combinations that establishes principles and requirements
for recognizing and measuring the identifiable assets acquired (including goodwill),
liabilities assumed, and noncontrolling interests, if any, acquired in a business
combination. This guidance also requires that acquisition-related costs and costs
associated with restructuring or exiting activities of an acquired entity be expensed as
incurred.</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance on subsequent events that establishes standards related to accounting for and
disclosure of events that happen after the date of the balance sheet but before the release
of the financial statements.</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance on determination of the useful life of intangible assets that amends the
factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div style="margin-top: 0pt">
</div>
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Updates to authoritative standards that provide additional application guidance and
enhance disclosures regarding fair value measurements and impairment of debt securities.
Refer to Notes C and D of the Notes to Consolidated Financial Statements for disclosures
related to our investments in debt securities and fair value measurements.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Effective September 1, 2009, the Company adopted the following FASB authoritative guidance, which
did not have a material impact on its consolidated financial statements:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance that establishes the FASB Accounting Standards Codification (the
“Codification”). The Codification, released on July 1, 2009, became the single source of
authoritative non-governmental U.S. GAAP and supercedes all previously existing accounting
standards. The adoption changed certain disclosure references to U.S. GAAP; and</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance providing acceptable valuation techniques for measuring the fair value of a
liability in circumstances in which a quoted price in an active market for an identical
liability may not be available.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Effective December 1, 2009, the Company adopted the following FASB authoritative guidance, which
did not have a material impact on its consolidated financial statements:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance that clarifies that the stock portion of a dividend payment that is part cash
and part stock be considered a share issuance in calculating earnings per share; and</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance that clarifies the scope of the decrease-in-ownership provisions in the
Codification and expands the information an entity is required to disclose upon the
consolidation or deconsolidation of a subsidiary.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Recently issued accounting pronouncements: </i></b>In June 2009, the FASB issued the following
authoritative guidance, which was incorporated into the Codification in December 2009:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance amending the accounting and reporting standards for transfers and servicing of
financial assets, including the removal of the concept of a qualifying special purpose
entity; and</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance to require a qualitative analysis rather than a quantitative-based risks and
rewards calculation to determine the primary beneficiary of a variable interest entity
(“VIE”) for consolidation purposes. This qualitative approach focuses on identifying which
entity has the power to direct the activities of a VIE with the most significant impact on
the VIE’s economic performance.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Both of these items are effective for annual periods beginning after November 15, 2009, and
are applicable to the Company’s fiscal year beginning June 1, 2010. The Company does not expect the
adoption of this guidance to have a material effect on its consolidated financial statements.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In October 2009, the FASB issued authoritative guidance related to revenue recognition as follows:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance for arrangements with multiple deliverables that are outside the scope of the
software revenue recognition guidance; and</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Guidance eliminating tangible products containing both software and non-software
components that operate together to deliver a product’s functionality from the scope of
current GAAP for software.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Both of these items are effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted, and
are applicable to the Company’s fiscal year beginning June 1, 2011. The Company does not expect the adoption of this guidance to have a material effect on its consolidated
financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In January 2010, the FASB issued authoritative guidance aimed at improving disclosures about fair
value measurements. This guidance adds new disclosure requirements for transfers into and out of
fair value hierarchy Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and
settlements relating to Level 3 measurements. It also clarifies existing disclosure requirements
regarding the level of disaggregation for classes of assets and liabilities, and about inputs and
valuation techniques used to measure fair value. This guidance is effective for interim and annual
reporting periods beginning after December 15, 2009 (except for certain Level 3 disclosures), and
is applicable to the Company’s interim reporting period beginning March 1, 2010. The Company does
not expect the adoption of this guidance to have a material effect on its consolidated financial
statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Other recent authoritative guidance issued by the FASB (including technical corrections to the
Codification), the American Institute of Certified Public Accountants, and the Securities and
Exchange Commission did not, or are not expected to have, a material effect on the Company’s
consolidated financial statements.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
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<div style="font-family: Helvetica,Arial,sans-serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 2 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note B: Basic and Diluted Earnings Per Share</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Basic and diluted earnings per share were calculated as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>For the three months ended</b></td>
<td style="border-bottom: 0px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>For the nine months ended</b></td>
<td style="border-bottom: 0px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands, except per share amounts</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Basic earnings per share:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">112,007</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">130,790</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">361,477</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">419,741</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average common
shares outstanding
</div></td>
<td> </td>
<td> </td>
<td align="right">361,417</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">360,821</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">361,328</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">360,743</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic earnings per share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.31</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.36</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.00</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.16</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Diluted earnings per share:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">112,007</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">130,790</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">361,477</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">419,741</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average common
shares outstanding
</div></td>
<td> </td>
<td> </td>
<td align="right">361,417</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">360,821</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">361,328</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">360,743</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Dilutive effect of common
share equivalents at
average market price
</div></td>
<td> </td>
<td> </td>
<td align="right">443</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">92</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">299</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">223</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average common
shares outstanding,
assuming dilution
</div></td>
<td> </td>
<td> </td>
<td align="right">361,860</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">360,913</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">361,627</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">360,966</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Diluted earnings per share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.31</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.36</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.00</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.16</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Weighted-average
anti-dilutive common
share equivalents
</div></td>
<td> </td>
<td> </td>
<td align="right">12,488</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,379</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,506</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,267</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Weighted-average common share equivalents that have an anti-dilutive impact are excluded from the
computation of diluted earnings per share.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Shares of the Company’s common stock issued for the three months ended February 28, 2010 and 2009
were minimal. For the nine months ended February 28, 2010 and 2009, shares of the Company’s common
stock issued for stock option exercises and vesting of restricted stock and RSUs were 0.4 million
and 0.3 million, respectively.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - payx:FundsHeldForClientsAndCorporateInvestmentsTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note C: Funds Held for Clients and Corporate Investments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Funds held for clients and corporate investments consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>February 28, 2010</b> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>gains</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Type of issue:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market securities and other cash
equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,876,136</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,876,136</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Available-for-sale securities:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">General obligation municipal bonds
</div></td>
<td> </td>
<td> </td>
<td align="right">917,409</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">39,167</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">956,568</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Pre-refunded municipal bonds<sup style="font-size: 85%; vertical-align: text-top">(1)</sup>
</div></td>
<td> </td>
<td> </td>
<td align="right">556,213</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,268</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">578,480</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Revenue municipal bonds
</div></td>
<td> </td>
<td> </td>
<td align="right">364,458</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,740</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(71</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">379,127</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Variable rate demand notes<sup style="font-size: 85%; vertical-align: text-top">(2)</sup>
</div></td>
<td> </td>
<td> </td>
<td align="right">703,860</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">703,860</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Other equity securities
</div></td>
<td> </td>
<td> </td>
<td align="right">20</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">51</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total available-for-sale securities
</div></td>
<td> </td>
<td> </td>
<td align="right">2,541,960</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">76,226</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(80</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">2,618,106</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right">7,384</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">151</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(397</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">7,138</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total funds held for clients and corporate
investments
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,425,480</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">76,377</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(477</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">4,501,380</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- Next Table -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>May 31, 2009</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>gains</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Type of issue:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Money market securities and other cash
equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,816,278</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,816,278</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Available-for-sale securities:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">General obligation municipal bonds
</div></td>
<td> </td>
<td> </td>
<td align="right">849,594</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">32,698</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(136</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">882,156</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Pre-refunded municipal bonds<sup style="font-size: 85%; vertical-align: text-top">(1)</sup>
</div></td>
<td> </td>
<td> </td>
<td align="right">527,864</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,334</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(24</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">549,174</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Revenue municipal bonds
</div></td>
<td> </td>
<td> </td>
<td align="right">336,675</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,818</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(32</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">349,461</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Variable rate demand notes<sup style="font-size: 85%; vertical-align: text-top">(2)</sup>
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Other equity securities
</div></td>
<td> </td>
<td> </td>
<td align="right">20</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">42</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">62</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total available-for-sale securities
</div></td>
<td> </td>
<td> </td>
<td align="right">1,714,153</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">66,892</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(192</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">1,780,853</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right">7,477</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,288</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">6,189</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total funds held for clients and corporate
investments
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,537,908</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">66,892</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(1,480</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">3,603,320</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr style="font-size: 3pt">
<td width="3%"> </td>
<td width="1%"> </td>
<td width="96"> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td>Pre-refunded municipal bonds are secured by an escrow fund of U.S. government
obligations.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(2)</sup></td>
<td> </td>
<td>Beginning in November 2009, the Company began to invest in variable rate demand
notes (“VRDNs”) for the first time since September 2008.</td>
</tr>
</table>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Included in money market securities and other cash equivalents as of February 28, 2010 and May 31,
2009 are U.S. agency discount notes, government money market funds, and bank demand deposit
accounts.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Classification of investments on the Consolidated Balance Sheets is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>February 28,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>May 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Funds held for clients
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,091,527</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,501,376</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate investments
</div></td>
<td> </td>
<td> </td>
<td align="right">115,765</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,710</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Long-term corporate investments
</div></td>
<td> </td>
<td> </td>
<td align="right">294,088</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">82,234</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total funds held for clients and corporate
investments
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,501,380</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,603,320</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company is exposed to credit risk in connection with these investments through the possible
inability of borrowers to meet the terms of their bonds. In addition, the Company is exposed to
interest rate risk, as rate volatility will cause fluctuations in the fair value of held
investments and in the earnings potential of future investments. The Company maintains a
conservative investment strategy of maximizing liquidity and protecting principal. The Company
invests primarily in high credit quality securities with AAA and AA ratings and short-term
securities with A-1/P-1 ratings. It limits the amounts that can be invested in any single issuer,
and invests in short- to intermediate-term instruments whose fair value is less sensitive to
interest rate changes. All the investments held as of February 28, 2010 are traded in active
markets. The Company has not and does not utilize derivative financial instruments to manage
interest rate risk.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s available-for-sale securities reflected a net unrealized gain of $76.1 million as of
February 28, 2010 compared with a net unrealized gain of $66.7 million as of May 31, 2009. The
gross unrealized losses of $0.1 million, included in the net unrealized gain as of February 28,
2010, were comprised of 11 available-for-sale securities, which had a total fair value of $33.3
million. The gross unrealized losses of $0.2 million, included in the net unrealized gain as of
May 31, 2009, were comprised of 14 available-for-sale securities, which had a total fair value of
$39.4 million.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The securities in an unrealized loss position were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="23" style="border-bottom: 1px solid #000000"><b>February 28, 2010</b> </td>
<td style="border-bottom: 0px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Less than 12 months</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>More than 12 months</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Total</b> </td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="25" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Type of issue:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">General obligation
municipal bonds
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(8</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">3,065</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(8</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">3,065</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Pre-refunded
municipal bonds
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">4,189</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">4,189</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue municipal
bonds
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(71</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">26,020</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(71</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">26,020</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="23" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(80</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">33,274</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(80</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">33,274</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="25" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- Next Table -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22" style="border-bottom: 1px solid #000000"><b>May 31, 2009</b> </td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Less than 12 months</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>More than 12 months</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="25" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Type of issue:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">General obligation
municipal bonds
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(136</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">28,915</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(136</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">28,915</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Pre-refunded
municipal bonds
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(24</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">4,490</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(24</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">4,490</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenue municipal
bonds
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(21</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">2,943</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(11</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">3,010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(32</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">5,953</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="23" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(181</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">36,348</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(11</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">3,010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(192</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">39,358</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="25" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company regularly reviews its investment portfolios to determine if any investment is
other-than-temporarily impaired due to changes in credit risk or other potential valuation
concerns. The Company believes that the investments it held as of February 28, 2010 were not
other-than-temporarily impaired. While $33.3 million of available-for-sale securities had fair
values that were below amortized cost, the Company believes that it is probable that the principal
and interest will be collected in accordance with contractual terms, and that the decline in the
fair value to $0.1 million below amortized cost was due to changes in interest rates and was not
due to increased credit risk or other valuation concerns. All of the securities in an unrealized
loss position as of February 28, 2010 and the majority of the securities in an unrealized loss
position as of May 31, 2009 held an AA rating or better. The Company intends to hold these
investments until the recovery of their amortized cost basis or maturity, and further believes that
it is more-likely-than-not that it will not be required to sell these investments prior to that
time. The Company’s assessment that an investment is not other-than-temporarily impaired could
change in the future due to new developments or changes in the Company’s strategies or assumptions
related to any particular investment.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Realized gains and losses on the sales of securities are determined by specific identification of
the amortized cost basis of each security. On the Consolidated Statements of Income, realized
gains and losses from funds held for clients are included in interest on funds held for clients and
realized gains and losses from corporate investments are included in investment income, net.
Realized gains and losses were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>For the three months ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>For the nine months ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Gross realized gains
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,275</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">173</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,289</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,013</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Gross realized losses
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(135</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net realized gains
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,275</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">173</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,289</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">878</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The amortized cost and fair value of available-for-sale securities that had stated maturities as of
February 28, 2010 are shown below by contractual maturity. Expected maturities can differ from
contractual maturities because borrowers may have the right to prepay obligations without
prepayment penalties.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28, 2010</b> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Maturity date:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due in one year or less
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">309,650</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">314,006</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after one year through three years
</div></td>
<td> </td>
<td> </td>
<td align="right">785,313</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">814,289</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after three years through five years
</div></td>
<td> </td>
<td> </td>
<td align="right">490,060</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">520,522</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after five years
</div></td>
<td> </td>
<td> </td>
<td align="right">956,917</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">969,218</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,541,940</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,618,035</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">VRDNs are primarily categorized as due after five years in the table above as the contractual
maturities on these securities are typically 20 to 30 years. Although these securities are issued
as long-term securities, they are priced and traded as short-term instruments because of the
liquidity provided through the tender feature.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:FairValueDisclosuresTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note D: Fair Value Measurements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The carrying values of cash and cash equivalents, accounts receivable, net of allowance for
doubtful accounts, and accounts payable approximate fair value due to the short maturities of these
instruments. Marketable securities included in funds held for clients and corporate investments
consist primarily of securities classified as available-for-sale and are recorded at fair value on
a recurring basis.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The accounting standards related to fair value measurements include a hierarchy for information and
valuations used in measuring fair value that is broken down into three levels based on reliability,
as follows:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 1 valuations are based on quoted prices in active markets for identical
instruments that the Company has the ability to access.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 2 valuations are based on quoted prices for similar, but not identical,
instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; or other than quoted prices observable inputs.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 3 valuations are based on information that is unobservable and significant to the
overall fair value measurement.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents information on the Company’s financial assets and liabilities measured
at fair value on a recurring basis as of February 28, 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Quoted</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Significant</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>prices in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>other</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Significant</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>active</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>observable</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>unobservable</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>markets</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>inputs</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>inputs</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>(Fair value)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>(Level 1)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>(Level 2)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>(Level 3)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Assets:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Available-for-sale securities:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">General obligation municipal bonds
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">956,568</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">956,568</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Pre-refunded municipal bonds
</div></td>
<td> </td>
<td> </td>
<td align="right">578,480</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">578,480</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Revenue municipal bonds
</div></td>
<td> </td>
<td> </td>
<td align="right">379,127</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">379,127</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Variable rate demand notes
</div></td>
<td> </td>
<td> </td>
<td align="right">703,860</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">703,860</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Other equity securities
</div></td>
<td> </td>
<td> </td>
<td align="right">71</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Total available-for-sale securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,618,106</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">71</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,618,035</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,138</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,138</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Liabilities:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other long-term liabilities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">7,138</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,138</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In determining the fair value of its assets and liabilities, the Company predominately uses the
market approach. In determining the fair value of its available-for-sale securities, the Company
utilizes the Interactive Data Pricing service. Other securities are comprised of mutual fund
investments, which are valued based on quoted market prices. Other long-term liabilities include
the liability for the Company’s non-qualified and unfunded deferred compensation plans, and are
valued based on the quoted market prices for various mutual fund investment choices.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The preceding methods described may produce a fair value calculation that may not be indicative of
net realizable value or reflective of future fair values. Furthermore, although the Company
believes its valuation methods are appropriate and consistent with other market participants, the
use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:PropertyPlantAndEquipmentDisclosureTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note E: Property and Equipment, Net of Accumulated Depreciation</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The components of property and equipment, at cost, consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>February 28,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>May 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Land and improvements
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,200</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,033</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Buildings and improvements
</div></td>
<td> </td>
<td> </td>
<td align="right">83,780</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">83,386</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Data processing equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">183,874</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">180,448</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Software
</div></td>
<td> </td>
<td> </td>
<td align="right">172,753</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">165,959</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Furniture, fixtures, and equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">146,034</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">143,638</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Leasehold improvements
</div></td>
<td> </td>
<td> </td>
<td align="right">89,863</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">88,509</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Construction in progress
</div></td>
<td> </td>
<td> </td>
<td align="right">14,279</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,034</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total property and equipment, gross
</div></td>
<td> </td>
<td> </td>
<td align="right">694,783</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">670,007</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Less: Accumulated depreciation and amortization
</div></td>
<td> </td>
<td> </td>
<td align="right">430,510</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">395,477</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Property and equipment, net of accumulated depreciation
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">264,273</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">274,530</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Depreciation expense was $16.1 million and $48.5 million for the three and nine months ended
February 28, 2010, respectively, as compared with $15.8 million and $47.3 million for the three and
nine months ended February 28, 2009, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Within construction in progress, there were costs for software being developed for internal use of
$4.2 million and $3.4 million as of February 28, 2010 and May 31, 2009, respectively.
Capitalization of costs ceases when the software is ready for its intended use, at which time the
Company begins amortization of the costs.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - us-gaap:GoodwillAndIntangibleAssetsDisclosureTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note F: Goodwill and Intangible Assets, Net of Accumulated Amortization</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company had goodwill balances on its Consolidated Balance Sheets of $421.6 million as of
February 28, 2010, and $433.3 million as of May 31, 2009. The decrease in goodwill was due to
divesting of Paychex Time and Attendance Inc. (Stromberg), an immaterial component of the Company.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has certain intangible assets with finite lives. The components of intangible assets,
at cost, consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>February 28,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>May 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Client lists and associate office license agreements
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">193,722</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">194,887</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other intangible assets
</div></td>
<td> </td>
<td> </td>
<td align="right">4,935</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,675</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total intangible assets, gross
</div></td>
<td> </td>
<td> </td>
<td align="right">198,657</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">200,562</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Less: Accumulated amortization
</div></td>
<td> </td>
<td> </td>
<td align="right">130,572</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">123,921</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Intangible assets, net of accumulated amortization
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">68,085</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">76,641</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Amortization expense relating to intangible assets was $5.5 million and $16.4 million for the three
and nine months ended February 28, 2010, respectively, as compared with $5.7 million and $15.9
million for the three and nine months ended February 28, 2009, respectively.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The estimated amortization expense relating to intangible asset balances for the full fiscal year
2010 and the following four fiscal years, as of February 28, 2010, is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>amortization</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>Fiscal year ending May 31,</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>expense</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="5" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2010
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">21,872</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">19,157</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">16,095</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">11,223</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">7,077</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="5" align="left" style="border-top: 1px solid #000000">   </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note G: Comprehensive Income</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Comprehensive income is comprised of two components: net income and other comprehensive income.
Comprehensive income includes all changes in equity during a period except those resulting from
transactions with owners of the Company. The change in unrealized gains and losses, net of
applicable taxes, related to available-for-sale securities is the primary component reported in
accumulated other comprehensive income in the Consolidated Balance Sheets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Comprehensive income, net of related tax effects, is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>For the three months ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>For the nine months ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>February 28,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>In thousands</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">112,007</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">130,790</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">361,477</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">419,741</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other comprehensive
(loss)/income:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Unrealized
(losses)/gains on
available-for-sale
securities, <br />
net of
taxes
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(257</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">22,241</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,082</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27,645</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Reclassification
adjustment for the net
gain on sale of
available-for-sale
securities realized in
net income, net of tax
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(820</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(111</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,460</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(567</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total other
comprehensive
(loss)/income
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,077</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">22,130</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,622</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27,078</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total comprehensive income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">110,930</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">152,920</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">368,099</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">446,819</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td colspan="17" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">As of February 28, 2010, accumulated other comprehensive income was $48.6 million, which was net of
taxes of $27.5 million. As of May 31, 2009, accumulated other comprehensive income was $41.9
million, which was net of taxes of $24.7 million.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note H: Commitments and Contingencies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Lines of credit: </i></b>As of February 28, 2010, the Company had unused borrowing capacity available
under four uncommitted, secured, short-term lines of credit at market rates of interest with
financial institutions as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><b>Financial institution</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="3"><b>Amount available</b></td>
<td> </td>
<td nowrap="nowrap" align="right" colspan="3"><b>Expiration date</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">JP Morgan Chase Bank, N.A.
</div></td>
<td> </td>
<td colspan="3" align="right">$350 million</td>
<td>   </td>
<td colspan="3" align="right">February 2011</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Bank of America, N.A.
</div></td>
<td> </td>
<td colspan="3" align="right">$250 million</td>
<td> </td>
<td colspan="3" align="right" nowrap="nowrap">February 2011</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">PNC Bank, National Association
</div></td>
<td> </td>
<td colspan="3" align="right">$150 million</td>
<td> </td>
<td colspan="3" align="right">February 2011</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Wells Fargo Bank, National Association
</div></td>
<td> </td>
<td colspan="3" align="right">$150 million</td>
<td> </td>
<td colspan="3" align="right">February 2011</td>
</tr>
<tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The primary uses of the lines of credit would be to meet short-term funding requirements related to
deposit account overdrafts and client fund obligations arising from electronic payment transactions
on behalf of clients in the ordinary course of business, if necessary. No amounts were outstanding
against these lines of credit as of, or during the nine months ended, February 28, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">JP Morgan Chase Bank, N.A. and Bank of America, N.A. are also parties to the Company’s irrevocable
standby letters of credit, which are discussed below.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Letters of credit: </i></b>As of February 28, 2010, the Company also had irrevocable
standby letters of credit available totaling $65.3 million required to secure commitments for
certain insurance policies and bonding requirements. The letters of credit expire at various dates
between May 2010 and December 2012 and are collateralized by securities held in the Company’s
investment portfolios. No amounts were outstanding on these letters of credit as of, or during the
nine months ended, February 28, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Other commitments: </i></b>The Company enters into various purchase commitments with vendors in the
ordinary course of business. The Company had outstanding commitments to purchase approximately
$9.0 million and $4.5 million of capital assets as of February 28, 2010 and May 31, 2009,
respectively. During the nine months ended February 28, 2010, the Company entered into a
multi-year commitment with a vendor to purchase computer systems.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company guarantees performance of service on annual maintenance contracts for clients who
financed their service contracts through a third party. In the normal course of business, the
Company makes representations and warranties that guarantee the performance of its services under
service arrangements with clients. Historically, there have been no material losses related to such guarantees. In addition, the Company has entered into indemnification
agreements with its officers and directors, which require it to defend and, if necessary, indemnify
these individuals for certain pending or future claims as they relate to their services provided to
the Company.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Paychex currently self-insures the deductible portion of various insured exposures under certain
employee benefit plans. The Company’s estimated loss exposure under these insurance arrangements
is recorded in other current liabilities on the Consolidated Balance Sheets. Historically, the
amounts accrued have not been material. The Company also maintains insurance coverage in addition
to its purchased primary insurance policies for gap coverage for employment practices liability,
errors and omissions, warranty liability, and acts of terrorism; and capacity for deductibles and
self-insured retentions through its captive insurance company.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
<b>
<i>
</i>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Contingencies</i></b><i>: </i>The Company is subject to various claims and legal matters that arise in the normal
course of its business. These include disputes or potential disputes related to breach of
contract, breach of fiduciary duty, employment-related claims, tax claims, and other matters.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In August 2001, the Company’s wholly owned subsidiary, Rapid Payroll, Inc. (“Rapid Payroll”)
informed 76 licensees that it intended to stop supporting their payroll processing software in
August of 2002. The communication was sent due to the licensee contract assumed by Paychex during
the acquisition of Rapid Payroll in 1996 being very unfavorable to the Company. Thereafter,
lawsuits were commenced by licensees asserting various claims, including breach of contract and
related tort and fraud causes of action.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On March 9, 2010, the Court of Appeal of the State of California upheld a jury verdict issued on
June 27, 2007 in litigation brought by one of the licensees. In that case, the California Superior
Court, Los Angeles County jury awarded to the plaintiff $15.0 million in compensatory damages and
subsequently awarded an additional $11.0 million in punitive damages. The Company will satisfy the
judgment, including statutory interest, without further appeal. This is the final
pending matter in the Rapid Payroll litigation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2010, the Company increased its litigation reserve by $18.7 million to account for anticipated costs relating to pending litigation
matters. The Company’s reserve totaled $39.1 million as of February 28, 2010, and is included in current
liabilities on the Consolidated Balance Sheets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s management currently believes that resolution of outstanding legal matters will not
have a material adverse effect on the Company’s financial position or results of operations.
However, legal matters are subject to inherent uncertainties and there exists the possibility that
the ultimate resolution of these matters could have a material adverse impact on the Company’s
financial position and the results of operations in the period in which any such effect is
recorded.
</div>
</div>
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<!-- Begin Block Tagged Note 9 - us-gaap:RelatedPartyTransactionsDisclosureTextBlock-->
<div style="font-family: Helvetica,Arial,sans-serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note I: Related Party Transactions</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">During the three and nine months ended February 28, 2010, the Company purchased approximately $0.2
million and $1.8 million of data processing equipment and software from EMC Corporation, as
compared with $1.4 million and $4.0 million in the respective prior year periods. The Chairman,
President, and Chief Executive Officer of EMC Corporation is a member of the Company’s Board.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">During the nine months ended February 28, 2010 and 2009, the Company purchased $0.4 million and
$0.5 million, respectively, of services from Dun & Bradstreet Corporation. Purchases for the three
months ended February 28, 2010 and 2009 were minimal. Jonathan J. Judge, the Company’s President
and CEO, is a member of the Board of Directors of Dun & Bradstreet Corporation.
</div>
</div>
false
--05-31
Q3
2010
2010-02-28
10-Q
0000723531
361421034
Yes
Large Accelerated Filer
9090512779
PAYCHEX INC
No
Yes
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