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 August 31, 1995
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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 August 31, 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
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(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 AUGUST 31,1995
- ------------------------------ -----------------------------------
(Common Stock, $.01 Par Value) (45,380,862 Shares)
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS - AUGUST 31, 1995 AND
MAY 31, 1995 3-4
CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS
ENDED AUGUST 31, 1995 AND AUGUST 31, 1994 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS
ENDED AUGUST 31, 1995 AND AUGUST 31, 1994 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
AUGUST 31, 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
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<PAGE>
PART I. FINANCIAL INFORMATION
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1995 1995
----------- -------
ASSETS (UNAUDITED)
(in thousands)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 11,451 $ 12,942
INVESTMENTS 82,136 70,753
INTEREST RECEIVABLE 6,219 6,699
TRADE ACCOUNTS RECEIVABLE 33,744 30,772
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 2,734 1,743
DEFERRED INCOME TAXES 911 1,310
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TOTAL CURRENT ASSETS 137,195 124,219
PROPERTY AND EQUIPMENT
LAND AND IMPROVEMENTS 2,787 2,779
BUILDINGS 24,346 21,304
DATA PROCESSING EQUIPMENT 38,308 33,980
FURNITURE, FIXTURES AND EQUIPMENT 32,374 29,135
LEASEHOLD IMPROVEMENTS 1,777 1,528
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99,592 88,726
LESS ALLOWANCE FOR DEPRECIATION
AND AMORTIZATION 51,843 45,019
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NET PROPERTY AND EQUIPMENT 47,749 43,707
OTHER ASSETS 1,086 511
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TOTAL ASSETS $186,030 $ 168,437
======== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONT'D.
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1995 1995
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands)
<S> <C> <C>
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 3,413 $ 3,519
ACCRUED COMPENSATION AND
RELATED ITEMS 12,025 13,162
ACCRUED INCOME TAXES 4,995 682
OTHER ACCRUED EXPENSES 6,676 6,116
DEFERRED REVENUE 2,334 2,977
CURRENT PORTION OF LONG-TERM DEBT 728 205
---------- ----------
TOTAL CURRENT LIABILITIES 30,171 26,661
OTHER LIABILITIES
LONG-TERM DEBT -0- 523
UNAMORTIZED LEASE INCENTIVES 501 557
DEFERRED INCOME TAXES 616 764
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TOTAL LIABILITIES 31,288 28,505
STOCKHOLDERS' EQUITY
COMMON STOCK, $.01 PAR VALUE,
AUTHORIZED 50,000,000 SHARES:
ISSUED 45,380,862 AT AUGUST
31, 1995 AND 45,031,716 AT
MAY 31, 1995 454 450
ADDITIONAL CAPITAL 21,009 17,727
RETAINED EARNINGS 133,279 121,755
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154,742 139,932
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $186,030 $ 168,437
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
---------------------
1995 1994
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(in thousands, except per share amounts)
<S> <C> <C>
REVENUE $76,173 $62,923
OPERATING COSTS 22,384 17,650
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 38,030 32,371
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OPERATING INCOME 15,759 12,902
OTHER INCOME (EXPENSE)
INVESTMENT INCOME 1,356 706
INTEREST EXPENSE (24) (41)
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INCOME BEFORE INCOME
TAXES 17,091 13,567
INCOME TAXES 4,888 4,016
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NET INCOME $12,203 $ 9,551
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NET INCOME PER SHARE $ .27 $ .21
======= =======
CASH DIVIDENDS PER
SHARE $ .06 $ .04
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WEIGHTED AVERAGE SHARES
OUTSTANDING 45,379 44,867
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1995 1994
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(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $12,203 $ 9,551
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 3,527 2,550
PROVISION FOR DEFERRED INCOME TAXES 161 185
PROVISION FOR BAD DEBTS 316 282
NET REALIZED GAIN ON SALES OF
AVAILABLE-FOR-SALE SECURITIES (251) (18)
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
TRADE ACCOUNTS RECEIVABLE (2,795) (5,255)
INTEREST RECEIVABLE 480 967
PREPAID EXPENSES AND OTHER
CURRENT ASSETS (752) 318
TRADE ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES 3,424 7,732
DEFERRED REVENUE (643) (846)
CHANGE IN UNAMORTIZED LEASE INCENTIVES (88) (130)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 15,582 15,336
INVESTING ACTIVITIES
INVESTMENT PURCHASES OF AVAILABLE-
FOR-SALE SECURITIES (30,775) (17,754)
PROCEEDS FROM SALES OF AVAILABLE-
FOR-SALE SECURITIES 18,457 2,771
PROCEEDS FROM MATURITIES OF AVAILABLE-
FOR-SALE SECURITIES 2,250 500
ADDITIONS TO PROPERTY AND EQUIPMENT,
NET OF NORMAL DISPOSALS (4,907) (2,593)
NET CHANGE IN OTHER ASSETS (521) (267)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (15,496) (17,343)
<PAGE>
FINANCING ACTIVITIES
PROCEEDS AND TAX BENEFIT FROM EXERCISE
OF STOCK OPTIONS 334 69
DIVIDENDS PAID (2,716) (1,794)
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NET CASH USED IN FINANCING ACTIVITIES (2,382) (1,725)
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(DECREASE) IN CASH
AND CASH EQUIVALENTS (2,296) (3,732)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12,942 14,605
CASH OBTAINED FROM PAY-FONE MERGER 805 -0-
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 11,451 $ 10,873
========== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 31, 1995
A) THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PAYCHEX, INC. AND
ITS WHOLLY-OWNED SUBSIDIARIES 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, 1995.
B) DURING THE THREE-MONTH PERIOD ENDING AUGUST 31, 1995, 28,897
SHARES OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS.
C) ON MARCH 20, 1995, THE COMPANY AND PAY-FONE SYSTEMS, INC. AGREED IN
PRINCIPLE THAT ALL OF THE OUTSTANDING COMMON STOCK OF PAY-FONE
SYSTEMS, INC., WOULD BE ACQUIRED BY THE COMPANY IN A BUSINESS
COMBINATION ACCOUNTED FOR AS A POOLING OF INTERESTS. UPON
CONSUMMATION OF THE MERGER ON JUNE 15, 1995, THE STOCKHOLDERS OF
PAY-FONE SYSTEMS, INC. RECEIVED APPROMATELY 332,000 SHARES OF PAYCHEX
COMMON STOCK. RESULTS OF OPERATIONS PRIOR TO THE MERGER HAVE NOT
BEEN RESTATED AS THE EFFECTS WOULD BE IMMATERIAL.
D) ON SEPTEMBER 29, 1995, PAYCHEX ACQUIRED THE PAYROLL COMPANY, INC. IN A
BUSINESS COMBINATION ACCOUNTED FOR AS A PURCHASE. THE PURCHASE WILL
NOT HAVE A SIGNIFICANT IMPACT ON THE COMPANY'S FINANCIAL POSITION AND
RESULTS OF OPERATIONS.
E) CERTAIN AMOUNTS FROM THE PRIOR YEAR ARE RECLASSIFIED TO CONFORM TO
FISCAL 1996 PRESENTATIONS.
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
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 FIRST QUARTER ENDED AUGUST 31, 1995 ROSE 21% TO A RECORD
$76,173,000 FROM $62,923,000 A YEAR AGO. THIS INCREASE RESULTED FROM GROWTH
OF CLIENTS UTILIZING THE BASIC PAYROLL SERVICE, THE TAXPAY TAX FILING AND
PAYMENT SERVICE AND FROM INCREASED SALES OF OTHER ADD-ON PAYROLL SERVICES.
REVENUE GAINS WERE ALSO ACHIEVED IN THE HUMAN RESOURCE SERVICES DIVISION.
THE COMPANY EXPECTS CONTINUED EXPANSION OF ITS CLIENT BASE FOR ALL PRODUCTS
AND SERVICES THROUGHOUT THE YEAR.
OPERATING COSTS WERE 29% OF REVENUE IN THE FIRST QUARTER, UP MODESTLY FROM 28%
IN THE FIRST QUARTER OF LAST YEAR. FULL YEAR OPERATING COSTS, AS A
PERCENTAGE OF REVENUE, ARE EXPECTED TO CONTINUE TO REMAIN RELATIVELY
CONSISTENT WITH FISCAL 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES WERE 50% OF REVENUE FOR THE
CURRENT QUARTER AS COMPARED TO 51% FOR THE SAME PERIOD LAST YEAR. AS A
PERCENTAGE OF REVENUE, EXPENDITURES FOR ADMINISTRATIVE WAGES WERE LOWER THAN
LAST YEAR. FURTHERMORE, NON-RECURRING MERGER COSTS INCURRED FOR THE PAY-FONE
SYSTEMS, INC. MERGER WERE FULLY ABSORBED IN THE FIRST QUARTER. THE COMPANY
EXPECTS SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, AS A PERCENTAGE OF
REVENUE, TO BE SLIGHTLY LOWER THAN LAST YEAR.
THE EFFECTIVE TAX RATE FOR THE CURRENT QUARTER WAS 28.6%, DOWN FROM 29.6% FOR
THE SAME PERIOD LAST YEAR. THE LOWER RATE WAS GENERALLY DUE TO THE 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
CONSISTENT WITH LAST YEAR'S RATE.
ON JUNE 15, 1995, THE STOCKHOLDERS OF PAY-FONE SYSTEMS, INC. RECEIVED
APPROXIMATELY 332,000 SHARES OF PAYCHEX COMMON STOCK IN A BUSINESS COMBINATION
ACCOUNTED FOR AS A POOLING OF INTERESTS. RESULTS OF OPERATIONS PRIOR TO THE
MERGER HAVE NOT BEEN RESTATED AS THE EFFECTS WOULD BE IMMATERIAL.
ON SEPTEMBER 29, 1995, THE COMPANY ACQUIRED THE PAYROLL COMPANY, INC. IN A
BUSINESS COMBINATION WAS ACCOUNTED FOR AS A PURCHASE. THE ACQUISITION WILL
NOT HAVE A SIGNIFICANT IMPACT ON PAYCHEX' FINANCIAL POSITION AND RESULTS OF
OPERATIONS.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES TOTALED $15,582,000 AND $15,336,000
FOR THE FIRST QUARTER OF 1996 AND 1995, RESPECTIVELY. NET INCOME FOR THE
CURRENT QUARTER CONTRIBUTED A RECORD $12,203,000 TO CASH FROM OPERATIONS, UP
28% OVER NET INCOME OF $9,551,000 FOR THE FIRST QUARTER LAST YEAR.
INVESTMENT PURCHASES AND SALES INCREASED IN THE CURRENT PERIOD WHEN COMPARED
TO THE SAME PERIOD LAST YEAR RESULTING FROM GROWTH IN THE COMPANY'S
INVESTMENT PORTFOLIO.
CAPITAL EXPENDITURES FOR THE FIRST QUARTER TOTALED $4,939,000. CAPITAL
EXPENDITURES FOR THE REMAINDER OF THE YEAR ARE ESTIMATED AT $14,000,000 TO
$17,000,000.
PROJECTED CASH FLOWS ARE EXPECTED TO BE ADEQUATE TO SUPPORT NORMAL BUSINESS
OPERATIONS, PLANNED CAPITAL EXPENDITURES AND DIVIDEND PAYMENTS. FURTHERMORE,
THE COMPANY HAS $200,000,000 OF UNSECURED BANK LINES OF CREDIT AVAILABLE FOR
ITS USE. AS OF AUGUST 31, 1995, THERE WERE NO OUTSTANDING BORROWINGS UNDER
THESE LINES OF CREDIT.
<PAGE>
PART II. OTHER INFORMATION
PAYCHEX, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
THERE WERE NO EXHIBITS APPLICABLE FOR THE THREE MONTH PERIOD ENDED
AUGUST 31, 1995.
(B) REPORTS ON FORM 8-K:
A FORM 8-K WAS FILED ON AUGUST 25, 1995 ANNOUNCING THE CONSOLIDATED
FINANCIAL RESULTS OF PAYCHEX, INC. AND PAY-FONE SYSTEMS, INC. FOR THE
TWO MONTH PERIOD ENDED JULY 31, 1995.
<PAGE>
SIGNATURES
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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 SUBSIDIARIES
DATE: OCTOBER 13, 1995 /s/ B. THOMAS GOLISANO
----------------------
B. THOMAS GOLISANO
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
DATE: OCTOBER 13, 1995 /s/ G. THOMAS CLARK
-------------------
G. THOMAS CLARK
SECRETARY, TREASURER AND
SENIOR VICE PRESIDENT OF FINANCE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUGUST
31, 1995 FINANCIAL STATEMENTS OF PAYCHEX, INC. AND SUBSIDIARIES 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> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<CASH> 11,451
<SECURITIES> 82,136
<RECEIVABLES> 33,744
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 137,195
<PP&E> 99,592
<DEPRECIATION> 51,843
<TOTAL-ASSETS> 186,030
<CURRENT-LIABILITIES> 30,171
<BONDS> 728
<COMMON> 454
0
0
<OTHER-SE> 154,288
<TOTAL-LIABILITY-AND-EQUITY> 186,030
<SALES> 76,173
<TOTAL-REVENUES> 76,173
<CGS> 0
<TOTAL-COSTS> 60,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 17,091
<INCOME-TAX> 4,888
<INCOME-CONTINUING> 12,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,203
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
