This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Paychex Inc. (PAYX: chart) on June 27, 2008.

Management:

- President, Chief Executive Officer, Director: Jonathan J. Judge
- Chief Financial Officer, Senior Vice President, Secretary: John M. Morphy

Key Investors Issues

- Revenue was $2.1 billion, up 10% from $1.89 billion in the prior year.
- Net income rose 12% to $576.1 million or $1.56 a share, from $515.4 million or $1.35 in 2007.
- The firm paid out dividends amounting to $442 million and $1 billion in stock repurchases.

Fourth Quarter Highlights:

- Net income of $135.5 million, or 38 cents a share, was up 12%.
- Total revenue increased 7% to $519.2 million.
- Payroll service revenue increased 6% to $365.5 million.
- Human Resource Services revenue increased 15% to $122.4 million.

Full Year Highlights

Total revenue growth was 10% to $2.1 billion from $1.89 billion as payroll service revenue grew 8% and human resource services revenue increased 19%.

- Payroll service revenue increased 8% to $1.5 billion, driven primarily by client-based growth, higher check volume, price increases, and growth in the utilization of ancillary services.
- Employee payment service utilization was 73%, with over 80% of new clients selecting these services, which include direct deposit, access cards, and ready checks.
- Human resource services revenue increased 19% to $471.8 million due to retirement services client base increasing 9% to 48,000 clients, comprehensive human resource outsourcing services client employees up 18% to 439,000 client employees served.

Net income rose 12% to $576.1 million or $1.56 a share, from $515.4 million or $1.35 a share a year ago with the higher growth rate in EPS due to lower weighted average shares outstanding resulting from the stock repurchase program.

- Operating income, excluding interest on funds held for clients in the fiscal 2007 increase to our litigation reserve, increased 15% to $696.5 million.
- The firm continues to limit the risk exposure or investment portfolios, investing in highly liquid investment grade fixed income securities with triple A and double A ratings and short-term securities with A1/P1 ratings.
- The firm generated $6.4 million from the portfolio and realized gains from the liquidation of long-term investments no longer required for an AMT tax issue.
- It was also driven by workers’ compensation insurance client base increased 17% to 72,000 clients and the asset value of retirement services client employees funds increased 11% to $9.7 billion.

Interest on funds held for clients decreased 2% to $131.8 million, due to lower average interest rates earned, offset by higher average investment balances and higher realized gains on the sales of available for sale securities.

- Consolidated operating and selling G&A expenses increased 4% as a result of the continued investment in personnel and other costs related to selling and retaining clients and promoting new services.
- Investment income net decreased 36% reflecting the funding of the $1 billion stock repurchase program, which reduced investment income yet yielded slightly higher earnings per share results due to fewer common shares outstanding.
- Cash and total corporate investments were $435 million, with cash flows from operations strong at $725 million, an increase of 15%.
- Total available for sale investments, including corporate investments and funds held for clients, reflected net unrealized gains of $24.8 million compared with net unrealized losses of $14.9 million in 2007.

The three-year triple A municipal securities yield decreased to 2.65% from 3.71% in the prior year.

- The net property and equipment activity reflected capital expenditures of $82 million and depreciation expense of $61 million.
- Client fund deposit balances grew at a slower rate with the average balances increasing 4%, with client fund deposits at $3.8 billion.
- Total stockholders equity was $1.2 billion, reflecting $442 million in dividends paid and $1 billion in stock repurchases.

Operational Highlights:

– The firm continued to significantly improve the portfolio of MMS products and services to provide a broader range of industry-leading HR related software solutions that tie closely to payroll business.
- These service additions include a hosted version of the preview MMS payroll product; BeneTrac, an industry-leading web-based employee benefits enrolment and administration technology.
- It also includes a powerful web-based time and attendance technology for the MMS clients; and separately entered into a strategic alliance with Paleo to offer their online human capital management solution to our MMS clients.

Fiscal 2009 Outlook:

- Payroll service revenue growth is projected to be in the range of 7% to 8%.
- Human resources services revenue growth is projected to be in the range of 19% to 22%.
- Total service revenue growth is projected to be in the range of 9% to 11%.