FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1995
-------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended February 28, 1995 Commission file number 0-11330
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PAYCHEX, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 16-1124166
-------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
911 PANORAMA TRAIL SOUTH, ROCHESTER, NEW YORK 14625-0397
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (716)385-6666
------------
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x . NO .
----- -----
CLASS OUTSTANDING AT FEBRUARY 28,1995
- ------------------------------ -----------------------------------
(Common Stock, $.01 Par Value) (29,990,871 Shares)
<PAGE>
PAYCHEX, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS - FEBRUARY 28, 1995 AND
MAY 31, 1994 3-4
CONSOLIDATED STATEMENTS OF INCOME - THREE AND NINE
MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
FEBRUARY 28, 1995 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
PAYCHEX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
----------- -------
ASSETS (UNAUDITED)
(in thousands)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 27,961 $ 14,605
INVESTMENTS 51,617 40,991
INTEREST RECEIVABLE 4,474 4,867
TRADE ACCOUNTS RECEIVABLE 26,658 22,812
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 1,663 2,291
DEFERRED INCOME TAXES 2,348 1,435
----------- ---------
TOTAL CURRENT ASSETS 114,721 87,001
PROPERTY AND EQUIPMENT
LAND AND IMPROVEMENTS 2,765 2,718
BUILDINGS 21,276 21,183
DATA PROCESSING EQUIPMENT 33,177 42,818
FURNITURE, FIXTURES AND EQUIPMENT 28,585 25,199
LEASEHOLD IMPROVEMENTS 1,346 1,070
----------- ---------
87,149 92,988
LESS ALLOWANCE FOR DEPRECIATION
AND AMORTIZATION 43,526 50,572
----------- ---------
NET PROPERTY AND EQUIPMENT 43,623 42,416
OTHER ASSETS 421 372
----------- ---------
TOTAL ASSETS $ 158,765 $ 129,789
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONT'D.
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
------------ ------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands)
<S> <C> <C>
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 2,635 $ 3,487
ACCRUED COMPENSATION AND
RELATED ITEMS 12,348 9,585
ACCRUED INCOME TAXES 2,351 -0-
OTHER ACCRUED EXPENSES 4,709 2,906
DEFERRED REVENUE 3,422 2,772
CURRENT PORTION OF LONG-TERM DEBT 220 220
----------- ----------
TOTAL CURRENT LIABILITIES 25,685 18,970
OTHER LIABILITIES
LONG-TERM DEBT 728 728
UNAMORTIZED LEASE INCENTIVES 625 885
DEFERRED INCOME TAXES 661 698
----------- ----------
TOTAL LIABILITIES 27,699 21,281
STOCKHOLDERS' EQUITY
COMMON STOCK, $.01 PAR VALUE,
AUTHORIZED 50,000,000 SHARES:
ISSUED 29,990,871 AT FEBRUARY
28, 1995 AND 29,907,406 AT
MAY 31, 1994 300 299
ADDITIONAL CAPITAL 17,422 15,778
RETAINED EARNINGS 113,344 92,431
---------- ----------
131,066 108,508
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 158,765 $ 129,789
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
--------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUE $68,638 $57,572 $195,327 $165,212
OPERATING COSTS 21,309 17,958 57,358 50,633
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 35,350 30,980 100,164 87,248
------- ------- -------- --------
OPERATING INCOME 11,979 8,634 37,805 27,331
OTHER INCOME (EXPENSE)
INVESTMENT INCOME 1,006 733 2,500 1,734
INTEREST EXPENSE (105) (34) (168) (92)
------- ------- ------- --------
INCOME BEFORE INCOME
TAXES 12,880 9,333 40,137 28,973
INCOME TAXES 3,532 2,684 11,600 8,302
------- ------- -------- --------
NET INCOME $ 9,348 $ 6,649 $ 28,537 $20,671
======= ======= ======== =======
NET INCOME PER SHARE $ .31 $ .22 $ .95 $ .69
======= ======= ======== =======
CASH DIVIDENDS PER
SHARE $ .09 $ .06 $ .24 $ .16
======= ======= ======== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING 29,960 29,882 29,933 29,846
======= ======= ======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28,
------------------------------
1995 1994
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(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 28,537 $ 20,671
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 8,041 8,486
PROVISION FOR DEFERRED INCOME TAXES (652) 126
PROVISION FOR BAD DEBTS 818 687
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
TRADE ACCOUNTS RECEIVABLE (4,664) (3,879)
INTEREST RECEIVABLE 393 (37)
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 628 1,448
TRADE ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES 6,139 3,930
DEFERRED REVENUE 650 836
CHANGE IN UNAMORTIZED LEASE INCENTIVES (334) (444)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,556 31,824
INVESTING ACTIVITIES
INVESTMENT PURCHASES (25,731) (22,612)
PROCEEDS FROM INVESTMENT SALES
AND MATURITIES 14,370 19,355
ADDITIONS TO PROPERTY AND EQUIPMENT
NET OF NORMAL DISPOSALS (9,199) (8,965)
ADDITIONS TO OTHER ASSETS (98) (218)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES (20,658) (12,440)
FINANCING ACTIVITIES
PAYMENTS ON LONG-TERM DEBT -0- (374)
PROCEEDS AND TAX BENEFIT FROM EXERCISE
OF STOCK OPTIONS 1,645 1,744
DIVIDENDS PAID (7,187) (4,777)
PAYMENT IN LIEU OF ISSUANCE OF
FRACTIONAL SHARES -0- (12)
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NET CASH USED IN FINANCING ACTIVITIES (5,542) (3,419)
----------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 13,356 15,965
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 14,605 5,023
---------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 27,961 $ 20,988
========== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARY
FEBRUARY 28, 1995
A) THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PAYCHEX, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY HAVE BEEN PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR INTERIM FINANCIAL
INFORMATION AND WITH THE INSTRUCTIONS TO FORM 10-Q AND ARTICLE 10 OF
REGULATION S-X. ACCORDINGLY, THE CONSOLIDATED FINANCIAL STATEMENTS DO
NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. IN
THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS CONSIDERED NECESSARY FOR A
FAIR PRESENTATION HAVE BEEN INCLUDED. THE ACCOMPANYING FINANCIAL
STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE NOTES TO FINANCIAL
STATEMENTS PRESENTED IN THE COMPANY'S FORM 10-K AND ANNUAL REPORT FOR
THE YEAR ENDED MAY 31, 1994.
B) DURING THE NINE-MONTH PERIOD ENDING FEBRUARY 28, 1995, 83,465
SHARES OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS.
C) EFFECTIVE JUNE 1, 1994, THE COMPANY ADOPTED STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES." THE COMPANY CLASSIFIES ALL INVESTMENTS
AS AVAILABLE FOR SALE. INVESTMENTS ARE STATED AT FAIR VALUE WITH
UNREALIZED GAINS AND LOSSES REPORTED IN RETAINED EARNINGS, NET OF TAX.
THE IMPACT OF THE ADOPTION AT JUNE 1, 1994, WAS A DECREASE TO
SHAREHOLDERS' EQUITY OF $206,000 (NET OF $140,000 IN DEFERRED INCOME
TAXES). THE ADJUSTMENT FOR THE NINE MONTH PERIOD ENDING FEBRUARY 28,
1995, WHICH INCLUDES THE JUNE 1, 1994 ADJUSTMENT, WAS A DECREASE TO
SHAREHOLDERS' EQUITY OF $437,000 (NET OF $298,000 IN DEFERRED INCOME
TAXES).
D) ON MARCH 20, 1995, PAYCHEX, INC. ANNOUNCED IT HAD SIGNED AN
AGREEMENT TO MERGE WITH PAY-FONE SYSTEMS, INC. THE MERGER WILL BE
ACCOUNTED FOR AS A POOLING OF INTERESTS WHEREBY PAY-FONE SHAREHOLDERS
WILL EXCHANGE ALL THEIR STOCK FOR APPROXIMATELY $10,475,000 OF NEWLY
ISSUED PAYCHEX STOCK. THE MERGER IS SUBJECT TO APPROVAL BY PAY-FONE
SHAREHOLDERS AND IS NOT EXPECTED TO HAVE A SIGNIFICANT IMPACT ON
PAYCHEX' FINANCIAL POSITION AND RESULTS OF OPERATIONS.
<PAGE>
PAYCHEX, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING IS MANAGEMENT'S DISCUSSION OF CERTAIN SIGNIFICANT CHANGES IN
THE RESULTS OF OPERATIONS DURING THE PERIODS INCLUDED IN THE ACCOMPANYING
FINANCIAL STATEMENTS.
RESULTS OF OPERATIONS
- ---------------------
REVENUE FOR THE THIRD QUARTER AND NINE MONTHS ENDED FEBRUARY 28, 1995 ROSE BY
19% TO $68,638,000 AND 18% TO $195,327,000, RESPECTIVELY, WHEN COMPARED TO
THE SAME PERIODS LAST YEAR. THE REVENUE INCREASE RESULTED FROM GREATER THAN
EXPECTED GROWTH IN PAYROLL CLIENTS, THE CONTINUED GROWTH OF THOSE CLIENTS
UTILIZING THE TAXPAY FEATURE AND A SALARY DEPOSIT OPTION, SOLID REVENUE GAINS
IN THE HUMAN RESOURCE SERVICES DIVISION AND CONTINUED IMPROVED INTEREST RATES
ON THE TAXPAY INVESTMENTS. THE COMPANY EXPECTS CONTINUED EXPANSION OF ITS
CLIENT BASE FOR ALL PRODUCTS AND SERVICES FOR THE REMAINDER OF THE YEAR.
OPERATING COSTS FOR THE THREE-MONTH PERIOD WERE AT LAST YEAR'S LEVEL OF 31%.
YEAR-TO-DATE OPERATING COSTS AMOUNTED TO 29% OF REVENUE, AS COMPARED TO 31%
FOR THE SAME PERIOD LAST YEAR. AS A PERCENTAGE OF REVENUE, DEPRECIATION,
PROCESSING WAGES AND MAINTENANCE CHARGES WERE LOWER IN THE CURRENT NINE-MONTH
PERIOD WHEN COMPARED TO THE SAME NINE MONTHS LAST YEAR. IT IS EXPECTED THAT
OPERATING COSTS FOR THE FISCAL YEAR, AS A PERCENTAGE OF REVENUE, WILL BE
LOWER THAN LAST YEAR.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES WERE 52% AND 51% OF REVENUE FOR
THE RESPECTIVE THREE AND NINE-MONTH PERIODS OF THE CURRENT YEAR WHICH WERE
BELOW COMPARATIVE PRIOR YEAR PERIODS. A MODEST INCREASE IN SELLING EXPENSES,
AS A PERCENTAGE OF REVENUE, WAS MORE THAN OFFSET WITH DECREASES IN GENERAL
AND ADMINISTRATIVE PAYROLL AND OTHER COSTS. THE COMPANY EXPECTS TOTAL
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE CURRENT YEAR, AS A
PERCENTAGE OF REVENUE, TO BE SLIGHTLY LOWER THAN LAST YEAR.
THE TAX RATE FOR THE CURRENT QUARTER WAS 27.4% COMPARED TO 28.8% FOR THE SAME
QUARTER LAST YEAR. THE DECREASE IS PRIMARILY ATTRIBUTABLE TO AN INCREASE OF
TAX-EXEMPT INTEREST INCOME AS A PERCENTAGE OF PRE-TAX INCOME. IT IS
ANTICIPATED THAT THE EFFECTIVE TAX RATE FOR THE CURRENT FISCAL YEAR WILL BE
SLIGHTLY HIGHER THAN LAST YEAR. THE PRIOR YEAR'S LOWER RATE IS DUE PRIMARILY
TO THE IMPACT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS #109
"ACCOUNTING FOR INCOME TAXES" IN THE FIRST FISCAL QUARTER.
ON MARCH 20, 1995, THE COMPANY ANNOUNCED IT HAD SIGNED AN AGREEMENT TO MERGE
WITH PAY-FONE SYSTEMS, INC. THE MERGER WILL BE ACCOUNTED FOR AS A POOLING OF
INTERESTS WHEREBY PAY-FONE SHAREHOLDERS WILL EXCHANGE ALL THEIR STOCK FOR
APPROXIMATELY $10,475,000 OF NEWLY ISSUED PAYCHEX STOCK. PAY-FONE PROVIDES
PAYROLL AND TAX PREPARATION SERVICES TO APPROXIMATELY 3,500 CLIENTS THROUGH
FIVE OFFICES IN CALIFORNIA. THE MERGER IS SUBJECT TO APPROVAL BY PAY-FONE
SHAREHOLDERS AND IS NOT EXPECTED TO HAVE A SIGNIFICANT IMPACT ON PAYCHEX'
FINANCIAL POSITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES TOTALED $39,556,000 FOR THE NINE
MONTHS ENDED FEBRUARY 28, 1995, AS COMPARED TO $31,824,000 FOR THE SAME
PERIOD LAST YEAR. THIS GAIN WAS PRIMARILY ATTRIBUTABLE TO RECORD
YEAR-TO-DATE NET INCOME WHICH REACHED $28,537,000. THIS REPRESENTS A 38%
INCREASE IN NET INCOME OVER THE COMPARATIVE PRIOR YEAR PERIOD.
NET CASH USED IN INVESTING ACTIVITIES INCREASED IN THE CURRENT NINE-MONTH
PERIOD WHEN COMPARED TO THE SAME PERIOD LAST YEAR AS A HIGHER LEVEL OF
INVESTMENT PURCHASES RESULTED FROM THE GROWTH IN THE COMPANY'S CASH PROVIDED
BY OPERATIONS. THIS YEAR'S SALE OF INVESTMENTS WERE LOWER THAN LAST YEAR
WHEN THE COMPANY SOLD FIXED INCOME SECURITIES AS INTEREST RATES WERE
DECLINING TO REALIZE FAVORABLE GAINS.
CAPITAL EXPENDITURES FOR THE NINE MONTH PERIOD WERE $9,305,000 AND ARE
EXPECTED TO RANGE BETWEEN $12,000,000 AND $13,000,000 FOR THE YEAR.
PROJECTED CASH FLOWS ARE EXPECTED TO BE ADEQUATE TO SUPPORT NORMAL BUSINESS
OPERATIONS, PLANNED CAPITAL EXPENDITURES AND DIVIDEND PAYMENTS. FURTHERMORE,
THE COMPANY HAS $115,000,000 OF UNSECURED BANK LINES OF CREDIT AVAILABLE FOR
ITS USE. AS OF FEBRUARY 28, 1995, THERE WERE NO OUTSTANDING BORROWINGS UNDER
THESE LINES OF CREDIT.
<PAGE>
PART II. OTHER INFORMATION
PAYCHEX, INC. AND SUBSIDIARY
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
THERE WERE NO EXHIBITS APPLICABLE FOR THE THREE MONTH PERIOD ENDED
FEBRUARY 28, 1995.
(B) REPORTS ON FORM 8-K:
THERE WERE NO REPORTS ON FORM 8-K FILED DURING THE THREE MONTH
PERIOD ENDED FEBRUARY 28, 1995.
<PAGE>
SIGNATURES
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PAYCHEX, INC. AND SUBSIDIARY
DATE: MARCH 23, 1995 /s/ B. THOMAS GOLISANO
----------------------
B. THOMAS GOLISANO CHAIRMAN,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
DATE: MARCH 23, 1995 /s/ G. THOMAS CLARK
-------------------
G. THOMAS CLARK
SECRETARY, TREASURER AND
VICE PRESIDENT OF FINANCE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FEBRUARY
28, 1995 FINANCIAL STATEMENTS OF PAYCHEX, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000723531
<NAME> PAYCHEX, INC.
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> FEB-28-1995
<EXCHANGE-RATE> 1
<CASH> 27,961
<SECURITIES> 51,617
<RECEIVABLES> 26,658
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 114,721
<PP&E> 87,149
<DEPRECIATION> 43,526
<TOTAL-ASSETS> 158,765
<CURRENT-LIABILITIES> 25,685
<BONDS> 948
<COMMON> 300
0
0
<OTHER-SE> 130,766
<TOTAL-LIABILITY-AND-EQUITY> 158,765
<SALES> 195,327
<TOTAL-REVENUES> 195,327
<CGS> 0
<TOTAL-COSTS> 157,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 818
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 40,137
<INCOME-TAX> 11,600
<INCOME-CONTINUING> 28,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,537
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
