Financial Analysis

"Note D Business Combinations The Company accounts for acquisitions in accordance with the guidance in FASB ASC 805, Business Combinations. This guidance requires disclosure of consideration transferred, including any contingent consideration, assets acquired, and liabilities assumed to be measured at their fair values as of the acquisition date. This guidance further provides that: (1) acquisition costs will generally be expensed as incurred, (2) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (3) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of the purchase price over the fair values of the net assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill. Paycor HCM, Inc. On April 14, 2025, the Company completed its acquisition of Paycor HCM, Inc. (Paycor) for total purchase consideration of approximately $ 4.1 billion, of which $ 4.06 billion was paid in cash and $ 25.1 million was paid in the form of replacement awards. To finance the purchase consideration, Paychex issued a $ 4.2 billion aggregate principal amount of fixed-rate corporate bonds. Refer to Note N for further details on the issued fixed rate corporate bonds. Paycor is a leading Software-as-a-Service (SaaS) provider of HCM solutions for small and medium-size …

BusinessCombinationDisclosureTextBlock · excerpt; the full note is in the filing

Note Q Commitments and Contingencies Other commitments: As of May 31, 2026, the Company had outstanding commitments under existing workers compensation insurance agreements and other legally binding contractual arrangements with minimum future payment obligations of approximately $ 898.4 million. The Company also enters into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase approximately $ 13.5 million of capital assets. These minimum future payment obligations relate to the following fiscal years: Payments due by period In millions 2027 2028 2029 2030 2031 Thereafter Workers' compensation estimated obligations $ 80.7 $ 42.5 $ 27.3 $ 18.5 $ 12.8 $ 55.9 Purchase obligations $ 359.6 $ 138.8 $ 67.7 $ 22.4 $ 10.8 $ 61.4 In the normal course of business, the Company makes representations and warranties that guarantee the performance of services under service arrangements with customers. Historically, there have been no material losses related to such guarantees. The Company has also entered into indemnification agreements with its officers, directors, and non-officer fiduciaries of our pooled employer plan retirement offering, which require the Company to defend and, if necessary, indemnify these individuals for certain pending or future claims as they relate to their services provided to the Company. The Company currently self-insures the deductible portion of various insured exposures under certain corporate …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

"Note F Stock-Based Compensation Plans The Paychex, Inc. 2002 Stock Incentive Plan, as last amended and restated effective October 15, 2020 (the 2002 Plan), authorizes grants of u p to 46.5 million shares of the Companys common stock. As of May 31, 2026, there were 11.2 million shares available for future grants under the 2002 Plan. The Company issues new shares of common stock to satisfy stock option exercises, issuances under the Companys employee stock purchase plan, and stock awards. All stock-based awards to employees are recognized as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized as an expense in the Consolidated Statements of Income and Comprehensive Income on a straight-line basis over the requisite service period and an increase in additional paid-in capital. Stock-based compensation expense was $ 96.1 million , $ 111.8 million , and $ 61.1 million for fiscal years 2026, 2025, and 2024, respectively. Related income tax benefits recognized were $ 17.5 million , $ 17.7 million , and $ 12.7 million for the respective fiscal years. As of May 31, 2026, the total unrecognized compensation cost related to all unvested stock-based awards was $ 119.6 million and is expected to be recognized over a weighted-average period of 2.5 years. Stock options: Stock options entitle the holder to purchase, at the end of the vesting term, a specified number of shares of the Companys commo …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

"Note H Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. 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: Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date. Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are observable for the instrument, either directly or indirectly, for substantially the full term of the asset or liability including the following: o quoted prices for similar, but not identical, instruments in active markets; o quoted prices for identical or similar instruments in markets that are not active; o inputs other than quoted prices that are observable for the instrument; or o inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement. The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, net of allowance for credit losses, PEO unbilled receivables, net of advance …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Note K Goodwill and Intangible Assets, Net of Accumulated Amortization Goodwill and changes in goodwill as of and for the years ended May 31, 2026 and May 31, 2025 were as follows: May 31, In millions 2026 2025 Balance, beginning of fiscal year $ 4,514.1 $ 1,882.7 Changes during the period: Goodwill acquired 10.2 2,626.5 Currency translation adjustment 3.1 4.9 Balance, end of fiscal year $ 4,527.4 $ 4,514.1 Acquired goodwill for fiscal 2026 primarily relates to purchase accounting adjustments made during the measurement period for Paycor. Acquired goodwill for fiscal 2025 primarily relates to the Company's acquisition of Paycor. Refer to Note D for more information related to the Company's acquisitions. The Company had certain intangible assets on its Consolidated Balance Sheets. The components of intangible assets, at cost, consisted of the following: May 31, In millions 2026 2025 Customer lists $ 1,835.5 $ 1,797.9 Acquired developed software 408.5 410.5 Other intangible assets 315.0 314.7 Total intangible assets, gross 2,559.0 2,523.1 Less: Accumulated amortization 875.0 575.8 Intangible assets, net of accumulated amortization $ 1,684.0 $ 1,947.3 During fiscal 2026, the Company acquired customer lists with a weighted-average amortization period of 8.0 years. Amortization expense relating to intangible assets was $ 299.5 million, $ 90.7 million, and $ 49.0 million for fiscal 2026, 2025, and 2024, respectively. The Company did no t recognize an impairment loss as it relates t …

GoodwillAndIntangibleAssetsDisclosureTextBlock · excerpt; the full note is in the filing

"Note L Income Taxes The components of deferred tax assets and liabilities are as follows: May 31, In millions 2026 2025 Deferred tax assets: Compensation and employee benefit liabilities $ 71.5 $ 69.2 Other current liabilities 27.2 15.8 Tax credit carry forward 0.8 10.4 Stock-based compensation 16.2 24.4 Unrealized losses on AFS securities 13.1 13.6 Capitalization of research and development 26.9 133.4 Leases 16.0 15.6 Net operating loss (NOL) carry forwards 15.9 28.9 Tax benefit of uncertain tax positions 20.4 18.3 Gross deferred tax assets 208.0 329.6 Deferred tax liabilities: Deferred contract costs 173.3 149.7 Capitalized software 177.0 167.7 Goodwill, intangible assets, and fixed assets 374.4 431.8 Operating lease right-of-use assets 14.0 12.7 Other 6.7 6.6 Gross deferred tax liabilities 745.4 768.5 Net deferred tax liability $ ( 537.4 ) $ ( 438.9 ) On July 4, 2025, the One Big Beautiful Bill Act (""The Act"") was enacted into law. The most significant provisions applicable to the Company relate to accelerated tax deductions for qualified property and research expenditures as reflected in the deferred tax table above. There was no material impact on the Company's effective tax rate as a result of The Act. The deferred tax asset related to NOL carry forwards is comprised of $ 2.1 million of federal NOL carry forwards, $ 8.4 million of state NOL carry forwards, and $ 5.4 million of foreign NOL carry forwards. The federal NOL carry forwards were acquired through various ac …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

Note I Leases The Companys lease portfolio consists primarily of operating leases for office space and has remaining terms from less than one year up to twelve years , with contractual terms expiring from 2026 to 2038 . Lease contracts may include one or more renewal options that allow the Company to extend the lease term, typically from one year to five years per renewal option. The exercise of lease options is generally at the discretion of the Company. None of the Companys leases contain residual value guarantees, substantial restrictions, or covenants. Supplemental balance sheet information related to the Companys leases were as follows: May 31, $ in millions 2026 2025 Operating lease ROU assets, net of accumulated amortization $ 63.9 $ 63.8 Operating lease liabilities, current (1) 22.0 22.5 Operating lease liabilities, non-current 52.2 55.5 Weighted average remaining lease term (in years) 5.1 4.0 Weighted average discount rate 4.13 % 3.73 % (1) The current portion of operating lease liabilities is reported in the other current liabilities line item on the Companys Consolidated Balance Sheets. The components of lease expense were as follows: Year ended May 31, In millions 2026 2025 2024 Fixed payment operating lease expense $ 19.8 $ 27.7 $ 28.7 Variable payment operating lease expense 4.1 4.8 5.8 Short-term lease expense 0.0 0.0 0.0 During the fiscal fourth quarter ended May 31, 2024 , the Company focused on cost optimization initiatives, including further reductions to t …

LesseeOperatingLeasesTextBlock · excerpt; the full note is in the filing

Note N Long-term Financing Long-term debt, at amortized cost, consisted of the following as of: Effective May 31, In millions interest rate 2026 2025 Senior Notes Series A, fixed rate 4.07 % - due March 13, 2026 4.12 % $ - $ 400.0 Senior Notes Series B, fixed rate 4.25 % - due March 13, 2029 4.30 % 400.0 400.0 5-year Corporate Bonds, fixed rate 5.10 % - due April 15, 2030 5.35 % 1,500.0 1,500.0 7-year Corporate Bonds, fixed rate 5.35 % - due April 15, 2032 5.57 % 1,500.0 1,500.0 10-year Corporate Bonds, fixed rate 5.60 % - due April 15, 2035 5.84 % 1,200.0 1,200.0 Total long-term debt 4,600.0 5,000.0 Less: current portion, net of debt issuance costs - ( 399.8 ) Less: unamortized discount and debt issuance costs ( 43.9 ) ( 51.8 ) Long-term debt, net $ 4,556.1 $ 4,548.4 The Senior Notes, Series A and Senior Notes, Series B (collectively the Notes), and Corporate Bonds are senior unsecured obligations, with interest paid semi-annually in arrears. The effective interest rate for the Notes and Corporate Bonds includes the interest on the debt and amortization of debt discount and debt issuance costs. The Notes are issued pursuant to the Note Purchase and Guarantee Agreement (the Agreement) and may be prepaid, all or in part, at any time by the Company subject to certain conditions as described in the Agreement. Payment of all amounts due with respect to the Notes and performance under the Agreement is guaranteed by the Company, Paychex of New York LLC, and certain other subsidiari …

LongTermDebtTextBlock · excerpt; the full note is in the filing

"Recently adopted accounting pronouncements: Effective for the Company's Annual Report on Form 10-K for fiscal 2026, the Company adopted Accounting Standard Update (""ASU"") No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures using a retrospective application approach. The requirements of this ASU are disclosure-related and do no t have an impact on the Companys financial condition, results of operations, or cash flows. The ASU requires additional detail in the income tax rate reconciliation, including quantitative thresholds for reconciling items, and mandates disaggregation of income taxes paid among federal, state, and foreign jurisdictions, with further breakdowns for significant individual jurisdictions. Refer to Note L of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding income taxes. Recently issued accounting pronouncements: In November 2024, the FASB issued ASU No. 2024-03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU No. 2024-03 as amended by subsequent ASUs on the topic requires public business entities to disclose, for interim and annual reporting periods, additional information about certain income statement expense categories. The requirements are effective for annual reporting periods beginning after December 15, 2026, and for interim periods within annual reporti …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

Note B Service Revenue Service revenue is primarily attributable to fees for providing services to the Companys customers and is recognized when control of the contracted services is transferred to its customers, in an amount that reflects the consideration it expects to receive in exchange for such services. Insurance Solutions revenue is commissions earned on premiums collected and remitted to insurance carriers. The Companys contracts generally do not contain specified contract periods and may be terminated by either party with 30 -days notice of termination. Sales and other applicable non-payroll related taxes are excluded from service revenue. Based upon similar operational and economic characteristics, the Companys service revenue is disaggregated by Management Solutions and PEO and Insurance Solutions as reported in the Companys Consolidated Statements of Income and Comprehensive Income. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Management Solutions Revenue Management Solutions revenue is primarily derived from the Companys integrated HCM and HR outsourcing solutions. Customers can select services on an a la carte basis or as part of various solution bundles. The Companys offerings often leverage the information gathered in its base payroll processing service, allowing it to provide comprehensive outsourcing services covering the HCM spectrum. Mana …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

"Note R Segment Reporting The Company has determined that it operates as a single operating segment at the consolidated level. Operating segments for the Company are determined based on the information used by the chief operating decision maker (""CODM"") in assessing performance and allocating resources. The Company's Chief Executive Officer is the CODM and reviews the Company's financial information on a consolidated basis. Accordingly, the CODM primarily uses consolidated net income as the measure of segment profit or loss and to assess performance and allocate resources, primarily through the annual budgeting and forecasting process. B udget-to-actual variances are reviewed regularly , with consideration given to the impact of certain expenses that are not considered part of the Company's core business operations. Total revenue, net income, and significant expenses used by the CODM for the purpose of allocating resources and evaluating the Company's financial performance were as follows: Year ended May 31, In millions 2026 2025 2024 Total revenue $ 6,512.0 $ 5,571.7 $ 5,278.3 Core business operations: Compensation-related expenses 2,091.9 1,853.0 1,810.4 PEO direct insurance costs 563.2 520.1 471.3 Depreciation and amortization 200.6 168.8 176.5 Other segment items (1) 841.6 659.8 606.5 Non-core business operations: Acquisition-related costs (2) 304.2 162.3 Cost optimization initiatives (3) 39.5 Total expenses 4,001.5 3,364.0 3,104.2 Interest expense, excluding Paycor acq …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

"Note D: Business Combinations The Company accounts for acquisitions in accordance with the guidance in FASB Accounting Standards Codification 805, Business Combinations (""ASC 805""). This guidance requires disclosure of consideration transferred, including any contingent consideration, assets acquired, and liabilities assumed to be measured at their fair values as of the acquisition date. This guidance further provides that: (1) acquisition costs will generally be expensed as incurred, (2) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (3) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of the purchase price over the fair values of the net assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill. Paycor HCM, Inc. On April 14, 2025, the Company completed its acquisition of Paycor HCM, Inc. (Paycor) for total purchase consideration of approximately $ 4.1 billion, of which $ 4.06 billion was paid in cash and $ 25.1 million was paid in the form of replacement awards. To finance the purchase consideration, Paychex issued a $ 4.2 billion aggregate principal amount of fixed-rate corporate bonds (""Corporate Bonds""). Refer to Note N of the Notes to Consolidated Financial Statements contained in Item 8 of the Company's Form 10- …

BusinessCombinationDisclosureTextBlock · excerpt; the full note is in the filing

Note I: Commitments and Contingencies Other commitments: The Company had outstanding commitments under existing workers compensation insurance agreements and other legally binding contractual arrangements. The Company also enters into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase capital assets of approximately $ 5.9 million as of November 30, 2025 and $ 4.9 million as of May 31, 2025. In the normal course of business, the Company makes representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. The Company has also entered into indemnification agreements with its officers, directors, and non-officer fiduciaries of our pooled employer plan retirement offering, which require the Company to defend and, if necessary, indemnify these individuals for certain pending or future claims as they relate to their services provided to the Company. The Company currently self-insures the deductible portion of various insured exposures under certain corporate employee and PEO employee health and medical benefit plans. Historically, the amounts accrued for these plans have not been material and were not material as of November 30, 2025. The Company also self-insures the deductible portion of certain PEO workers' compensation benefit plans. Refer to Note A Description of Business, Basis of …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Note G: Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. 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: Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date. Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are observable for the instrument, either directly or indirectly, for substantially the full term of the asset or liability including the following: o quoted prices for similar, but not identical, instruments in active markets; o quoted prices for identical or similar instruments in markets that are not active; o inputs other than quoted prices that are observable for the instrument; or o inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement. The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, net of allowance for credit losses, PEO unbilled receivables, net of advance …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Note J: Income Taxes The Companys effective income tax rate was 24.0 % and 23.4 % for the three and six months ended November 30, 2025, respectively, compared to 24.0 % and 23.6 % for the three and six months ended November 30, 2024, respectively. Both periods were impacted by the recognition of discrete tax impacts related to employee stock-based compensation payments. On July 4, 2025, the One Big Beautiful Bill Act (the Act) was enacted into law. The most significant provisions applicable to the Company relate to accelerated tax deductions for qualified property and research expenditures. As a result, the Companys deferred tax liabilities will be impacted in fiscal 2026 by the deductibility of previously capitalized research expenditures and accelerated tax depreciation. The Act is not expected to have a material impact on the Companys effective tax rate. …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

"Recently adopted accounting pronouncements: There were no recently adopted accounting pronouncements during the six months ended November 30, 2025 that had a material impact on the Company's consolidated financial statements or disclosures. Recently issued accounting pronouncements: In December 2023, the Financial Accounting Standards Board (the ""FASB"") issued Accounting Standards Update (""ASU"") No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU updates income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024, and is applicable to the Companys Annual Report on Form 10-K for fiscal 2026, with early application permitted. The transition method is prospective with the retrospective method permitted. The requirements of this ASU are disclosure-related and will not have an impact on the Companys financial condition, results of operations, or cash flows. The Company is currently evaluating the impact of adopting this ASU on its income tax disclosures. In November 2024, the FASB issued ASU No. 2024-03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU No. 2024-03 as amended by subsequent ASUs on the topic requires public business entitie …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

Note B: Service Revenue Service revenue is primarily attributable to fees for providing services to the Companys clients and is recognized when control of the contracted services is transferred to its clients, in an amount that reflects the consideration it expects to receive in exchange for such services. Insurance Solutions revenue is commissions earned on premiums collected and remitted to insurance carriers. The Companys contracts generally do not contain specified contract periods and may be terminated by either party with a 30 -day notice of termination. Sales and other applicable non-payroll related taxes are excluded from service revenue. Based upon similar operational and economic characteristics, the Companys service revenue is disaggregated by Management Solutions and PEO and Insurance Solutions as reported in the Companys Consolidated Statements of Income and Comprehensive Income. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Management Solutions Revenue Management Solutions revenue is primarily derived from the Companys payroll and HCM services, HR outsourcing and retirement solutions. Clients can select services on an a la carte basis or as part of various product bundles. The Companys offerings often leverage the information gathered in its payroll processing service, enabling more targeted prospecting and easier provision of additional ancilla …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

Note K: Segment Reporting Total revenue, net income, and significant expenses used by the chief operating decision maker for the purpose of allocating resources and evaluating the Company's financial performance were as follows: For the three months ended For the six months ended November 30, November 30, In millions 2025 2024 2025 2024 Total revenue $ 1,557.6 $ 1,316.9 $ 3,097.6 $ 2,635.4 Core business operations: Compensation-related expenses 525.5 454.4 1,055.5 905.7 PEO direct insurance costs 137.0 130.8 275.6 261.1 Depreciation and amortization 49.1 41.7 97.3 80.7 Other segment items (1) 197.0 151.9 393.5 303.1 Non-core business operations: Acquisition-related costs (2) 77.1 161.9 Total expenses 985.7 778.8 1,983.8 1,550.6 Interest expense ( 68.5 ) ( 9.5 ) ( 136.7 ) ( 19.1 ) Other income, net 16.8 15.1 40.6 35.1 Income before income taxes 520.2 543.7 1,017.7 1,100.8 Income tax expense 124.8 130.3 238.5 260.0 Net income $ 395.4 $ 413.4 $ 779.2 $ 840.8 (1) Other segment items include professional service expense, marketing and advertising expenses, and other overhead expenses. (2) Acquisition-related costs included in total expenses include the amortization of intangibles acquired in the acquisition of Paycor, compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance, and retention bonuses, and other acquisition-related costs, primarily reflecting third-party professional service fees. …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing