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 29, 1996
-------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
For Quarter Ended February 29, 1996 Commission file number 0-11330
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PAYCHEX, INC.
- ---------------------------------------------------------------------
(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
------------
- ----------------------------------------------------------------------
(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 29, 1996
- ------------------------------ -----------------------------------
(Common Stock, $.01 Par Value) (45,686,814 Shares)
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS - FEBRUARY 29, 1996 AND
MAY 31, 1995 3-4
CONSOLIDATED STATEMENTS OF INCOME - THREE AND NINE
MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-
FEBRUARY 29, 1996 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1995
----------- -------
ASSETS (UNAUDITED)
(in thousands)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 21,497 $ 12,942
INVESTMENTS 96,400 70,753
INTEREST RECEIVABLE 6,419 6,699
TRADE ACCOUNTS RECEIVABLE 31,733 30,772
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 2,703 1,743
DEFERRED INCOME TAXES 2,232 1,310
--------- ---------
TOTAL CURRENT ASSETS 160,984 124,219
PROPERTY AND EQUIPMENT
LAND AND IMPROVEMENTS 2,787 2,779
BUILDINGS 23,988 21,304
DATA PROCESSING EQUIPMENT 42,115 33,980
FURNITURE, FIXTURES AND EQUIPMENT 36,715 29,135
LEASEHOLD IMPROVEMENTS 2,437 1,528
--------- ---------
108,042 88,726
LESS ALLOWANCE FOR DEPRECIATION
AND AMORTIZATION 57,857 45,019
--------- ---------
NET PROPERTY AND EQUIPMENT 50,185 43,707
OTHER ASSETS 4,897 511
--------- ---------
TOTAL ASSETS $ 216,066 $ 168,437
========= ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONT'D.
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1995
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 4,871 $ 3,519
ACCRUED COMPENSATION AND
RELATED ITEMS 16,580 13,162
ACCRUED INCOME TAXES 4,160 682
OTHER ACCRUED EXPENSES 6,565 6,116
DEFERRED REVENUE 5,346 2,977
CURRENT PORTION OF LONG-TERM DEBT -0- 205
---------- ----------
TOTAL CURRENT LIABILITIES 37,522 26,661
OTHER LIABILITIES
LONG-TERM DEBT -0- 523
UNAMORTIZED LEASE INCENTIVES 595 557
DEFERRED INCOME TAXES 217 764
---------- ----------
TOTAL LIABILITIES 38,334 28,505
STOCKHOLDERS' EQUITY
COMMON STOCK, $.01 PAR VALUE,
AUTHORIZED 150,000,000 SHARES:
ISSUED 45,686,814 AT FEBRUARY
29, 1996 AND 45,031,716 AT
MAY 31, 1995 457 450
ADDITIONAL CAPITAL 26,497 17,727
RETAINED EARNINGS 150,778 121,755
--------- ----------
177,732 139,932
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 216,066 $ 168,437
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
FEB 29, 1996 FEB 28, 1995 FEB 29, 1996 FEB 28, 1995
------------ ------------ ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUE $84,941 $68,638 $239,346 $195,327
OPERATING COSTS 25,756 21,309 71,933 57,358
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 42,937 35,350 118,929 100,164
------- ------- -------- --------
OPERATING INCOME 16,248 11,979 48,484 37,805
OTHER INCOME (EXPENSE)
INVESTMENT INCOME 1,421 1,006 4,168 2,500
INTEREST EXPENSE (27) (105) (68) (168)
------- ------- -------- --------
INCOME BEFORE INCOME
TAXES 17,642 12,880 52,584 40,137
INCOME TAXES 4,766 3,532 14,724 11,600
------- ------- -------- --------
NET INCOME $12,876 $ 9,348 $ 37,860 $ 28,537
======= ======= ======== ========
NET INCOME PER SHARE $ .28 $ .21 $ .83 $ .64
======= ======= ======== ========
CASH DIVIDENDS PER
SHARE $ .09 $ .06 $ .24 $ .16
======= ======= ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING 45,640 44,940 45,514 44,899
======= ======= ======== ========
NOTE: PER SHARE AMOUNTS AND AVERAGE SHARES OUTSTANDING HAVE BEEN ADJUSTED FOR A
THREE-FOR-TWO STOCK SPLIT EFFECTIVE MAY, 1995.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
FEB 29, FEB 28,
1996 1995
------- -------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 37,860 $ 28,537
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 10,469 8,041
PROVISION FOR DEFERRED INCOME TAXES (1,438) (652)
PROVISION FOR BAD DEBTS 657 818
NET REALIZED GAIN ON SALES OF
AVAILABLE-FOR-SALE SECURITIES (616) (45)
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
TRADE ACCOUNTS RECEIVABLE (872) (4,664)
INTEREST RECEIVABLE 280 393
PREPAID EXPENSES AND OTHER
CURRENT ASSETS (681) 628
TRADE ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES 7,845 6,139
DEFERRED REVENUE 2,369 650
CHANGE IN UNAMORTIZED LEASE INCENTIVES (74) (334)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 55,799 39,511
INVESTING ACTIVITIES
INVESTMENT PURCHASES OF AVAILABLE-
FOR-SALE SECURITIES (99,371) (26,351)
PROCEEDS FROM SALES OF AVAILABLE-
FOR-SALE SECURITIES 71,711 14,035
PROCEEDS FROM MATURITIES OF AVAILABLE-
FOR-SALE SECURITIES 3,787 1,000
ADDITIONS TO PROPERTY AND EQUIPMENT,
NET OF NORMAL DISPOSALS (13,907) (9,199)
NET CHANGE IN OTHER ASSETS (591) (98)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES (38,371) (20,613)
<PAGE>
FINANCING ACTIVITIES
PAYMENTS ON LONG-TERM DEBT (728) -0-
PROCEEDS AND TAX BENEFIT FROM EXERCISE
OF STOCK OPTIONS 1,973 1,645
DIVIDENDS PAID (10,930) (7,187)
----------- --------
NET CASH USED IN FINANCING ACTIVITIES (9,685) (5,542)
----------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 7,743 13,356
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,942 14,605
CASH OBTAINED FROM PAY-FONE AND THE PAYROLL
COMPANY MERGERS 812 -0-
---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,497 $ 27,961
========== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 29, 1996
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 NINE-MONTH PERIOD ENDING FEBRUARY 29, 1996, 216,351
SHARES OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS.
C) ON JUNE 15, 1995, PAYCHEX ACQUIRED PAY-FONE SYSTEMS, INC. FOR
APPROXIMATELY 332,000 SHARES OF PAYCHEX 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.
D) ON SEPTEMBER 29, 1995, PAYCHEX ACQUIRED THE PAYROLL COMPANY, INC. FOR
APPROXIMATELY 116,000 SHARES OF COMMON STOCK IN A BUSINESS COMBINATION
ACCOUNTED FOR AS A PURCHASE. THE PURCHASE DID NOT HAVE A SIGNIFICANT
IMPACT ON THE COMPANY'S SECOND QUARTER 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 THIRD QUARTER AND NINE MONTHS ENDED FEBRUARY 29, 1996
ROSE 24% TO $84,941,000 AND 23% TO $239,346,000, RESPECTIVELY, WHEN
COMPARED TO THE SAME PERIODS LAST YEAR. THESE GAINS RESULTED FROM THE
CONTINUED EXPANSION OF THE PAYROLL CLIENT BASE. GROWTH IN THE KEY
ADD-ON SERVICES OF TAXPAY AND DIRECT DEPOSIT, AND THE RESULTANT
INCREASE OF FEE AND INVESTMENT REVENUE, ALSO CONTRIBUTED TO REVENUE
GROWTH. THE COMPANY EXPECTS CONTINUED REVENUE INCREASES THROUGHOUT THE
REMAINDER OF THE YEAR.
OPERATING COSTS WERE 30% OF REVENUE FOR THE CURRENT THREE AND NINE
MONTH PERIODS AS COMPARED TO 31% AND 29% FOR THE RESPECTIVE PRIOR YEAR
PERIODS. THE COMPANY BENEFITED FROM MORE COST EFFECTIVE CALENDAR
YEAR-END PROCESSING. FULL YEAR OPERATING COSTS, AS A PERCENTAGE OF
REVENUE, ARE EXPECTED TO BE SLIGHTLY HIGHER THAN FISCAL 1995.
SELLING, GENERAL AND ADMINISTRATING EXPENSES WERE 51% AND 50% OF
REVENUE FOR THE RESPECTIVE THREE AND NINE-MONTH PERIODS OF THE CURRENT
YEAR, WHICH WERE SLIGHTLY BELOW COMPARATIVE PRIOR YEAR PERIODS.
THE EFFECTIVE TAX RATES FOR THE CURRENT QUARTER AND NINE MONTHS ENDED
FEBRUARY 29, 1996 WERE 27.0% AND 28.0%, RESPECTIVELY, AS COMPARED TO
27.4% AND 28.9% FOR THE SAME PERIODS LAST YEAR. THE LOWER CURRENT YEAR
RATES WERE 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 SLIGHTLY LOWER
THAN 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.
FOR APPROXIMATELY 116,000 SHARES OF COMMON STOCK IN A BUSINESS
COMBINATION ACCOUNTED FOR AS A PURCHASE. THE ACQUISITION DID 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 $55,799,000 FOR THE
NINE MONTHS ENDED FEBRUARY 29, 1996, UP FROM $39,511,000 FOR THE SAME
PERIOD LAST YEAR. THIS GAIN WAS PRIMARILY ATTRIBUTED TO RECORD
YEAR-TO-DATE NET INCOME WHICH REACHED $37,860,000, A 33% INCREASE OVER
NET INCOME OF $28,537,000 FOR THE SAME PERIOD LAST YEAR
THE COMPANY'S INVESTMENT PURCHASES AND SALES TRANSACTIONS INCREASED
DURING THE NINE MONTHS OF THE CURRENT YEAR WHEN COMPARED TO THE SAME
PERIOD LAST YEAR. THIS RESULTED FROM THE COMPANY'S DECISION TO
REPOSITION ITS INVESTMENT PORTFOLIO TO MAXIMIZE RETURNS AND MINIMIZE
RISK ASSOCIATED WITH INTEREST RATE VOLATILITY.
CAPITAL EXPENDITURES FOR THE NINE-MONTH PERIOD WERE $14,032,000 AND ARE
EXPECTED TO APPROXIMATE $21,000,000 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 $210,000,000 OF UNSECURED BANK
LINES OF CREDIT AVAILABLE FOR ITS USE. AS OF FEBRUARY 29, 1996, 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
FEBRUARY 29, 1996.
B. REPORTS ON FORM 8-K
-------------------
THERE WERE NO REPORTS ON FORM 8-K FILED DURING THE THREE MONTH PERIOD
ENDED FEBRUARY 29, 1996.
<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 SUBSIDIARIES
DATE: APRIL 11, 1996 /s/ B. THOMAS GOLISANO
----------------------
B. THOMAS GOLISANO
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
DATE: APRIL 11, 1996 /s/ G. THOMAS CLARK
-------------------
G. THOMAS CLARK
SECRETARY, TREASURER AND
SENIOR VICE PRESIDENT OF FINANCE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FEBRUARY
29, 1996 FINANCIAL STATEMENTS OF PAYCHEX, INC. AND SUBSIDIARIES AND IS QUAlIFIED
IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000723531
<NAME> PAYCHEX,INC.
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<EXCHANGE-RATE> 1
<CASH> 21,497
<SECURITIES> 96,400
<RECEIVABLES> 31,733
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 160,984
<PP&E> 108,042
<DEPRECIATION> 57,857
<TOTAL-ASSETS> 216,066
<CURRENT-LIABILITIES> 37,522
<BONDS> 0
0
0
<COMMON> 457
<OTHER-SE> 177,275
<TOTAL-LIABILITY-AND-EQUITY> 216,066
<SALES> 239,346
<TOTAL-REVENUES> 239,346
<CGS> 0
<TOTAL-COSTS> 190,862
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 52,584
<INCOME-TAX> 14,724
<INCOME-CONTINUING> 37,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,860
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
