FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1997
-------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission file number 0-11330
-------
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
- --------------------------------------------------------------------
(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 .
----- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 108,602,308 Shares
- ---------------------------- -----------------------------------
CLASS OUTSTANDING AT SEPTEMBER 30, 1997
<PAGE>
PAYCHEX, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets - August 31, 1997 and
May 31, 1997 3
Consolidated Statements of Income - For the Three Months
Ended August 31, 1997 and 1996 4
Consolidated Statements of Cash Flows - For the Three Months
Ended August 31, 1997 and 1996 (Restated) 5
Notes To Consolidated Financial Statements -
August 31, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
August 31, May 31,
1997 1997
ASSETS (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $ 53,316 $ 50,213
Investments 146,062 132,780
Interest receivable 9,582 10,462
Accounts receivable 49,142 45,527
Deferred income taxes 869 2,560
Prepaid expenses and other current assets 2,394 2,486
--------- ---------
Current assets before ENS investments 261,365 244,028
Electronic Network Services investments (1) 920,565 896,633
--------- ---------
Total current assets 1,181,930 1,140,661
Property and equipment - net 55,536 54,178
Deferred income taxes 290 72
Other assets 6,578 6,412
--------- ---------
Total assets $1,244,334 $1,201,323
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 4,294 $ 5,649
Accrued compensation and related items 21,118 26,969
Deferred revenue 3,326 4,335
Reserve for workers' compensation 2,011 1,813
Accrued income taxes 10,051 1,774
Other current liabilities 10,721 9,427
--------- ---------
Current liabilities before ENS client deposits 51,521 49,967
Electronic Network Services client deposits (1) 918,275 896,080
--------- ---------
Total current liabilities 969,796 946,047
Other liabilities:
Reserve for workers' compensation 1,230 928
Other long-term liabilities 3,602 2,806
--------- ---------
Total liabilities 974,628 949,781
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized
150,000,000 shares 1,086 1,085
Issued: 108,600,209 and
108,518,831
Additional paid-in capital 37,728 37,531
Retained earnings 230,892 212,926
--------- ---------
Total stockholders' equity 269,706 251,542
--------- ---------
Total liabilities and stockholders' equity $1,244,334 $1,201,323
========= =========
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
(1) Electronic Network Services (ENS) investments and related client
deposits result from the collection of funds for Taxpay and Direct Deposit
products.
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except per share amounts)
For the three months ended August 31, 1997 1996
Service revenues:
Payroll $104,865 $ 84,307
HRS-PEO 8,082 6,966
------- -------
Total service revenues 112,947 91,273
PEO direct costs billed (1) 105,636 74,769
------- -------
Total revenue 218,583 166,042
PEO direct costs (1) 105,636 74,769
Operating costs 30,306 26,564
Selling, general and
administrative expenses 52,284 42,612
------- -------
Operating income 30,357 22,097
Investment income 2,188 1,485
------- -------
Income before income taxes 32,545 23,582
Income taxes 9,471 6,509
------- -------
Net income $ 23,074 $ 17,073
======= =======
Earnings per share $ .21 $ .16
======= =======
Cash dividends per share $ .06 $ .04
======= =======
Weighted-average shares outstanding 108,563 107,480
======= =======
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
(1) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
<PAGE>
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
For the three months ended August 31, 1997 1996
(Restated)
OPERATING ACTIVITIES:
Net income $ 23,074 $ 17,073
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization
on depreciable and intangible assets 4,189 3,475
Amortization of premiums and
discounts on securities 1,831 1,126
Net change in provision for deferred
income taxes 669 (649)
Provision for bad debts 383 368
Net realized gains on sales
of available-for-sale securities (32) (54)
Changes in operating assets and liabilities:
Accounts receivable (3,998) (762)
Interest receivable 880 287
Prepaid expenses and other current assets 92 (258)
Accounts payable and other current liabilities 1,554 6,275
Net change in other assets and liabilities 984 117
-------- --------
Net cash provided by operating activities 29,626 26,998
INVESTING ACTIVITIES:
Investment purchases of
available-for-sale securities (98,712) (83,319)
Proceeds from sales of
available-for-sale securities 55,209 24,670
Proceeds from maturities of
available-for-sale securities - 1,500
Net change in Electronic Network
Services money market funds
and other cash equivalents 6,728 30,364
Net change in Electronic Network
Services client deposits 22,195 7,817
Additions to property and equipment,
net of disposals (5,273) (4,178)
Purchases of other assets (326) (780)
-------- --------
Net cash used in investing activities (20,179) (23,926)
FINANCING ACTIVITIES:
Proceeds and tax benefit from
exercise of stock options 198 244
Dividends paid (6,516) (4,643)
Payment in lieu of issuance
of fractional shares (26) -
Payments on long-term debt - 248
-------- --------
Net cash used in financing activities (6,344) (4,151)
-------- --------
Increase (decrease) in cash and cash equivalents 3,103 (1,079)
Cash and cash equivalents, beginning of period 50,213 19,999
-------- --------
Cash and cash equivalents, end of period $ 53,316 $ $18,920
======== ========
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
<PAGE>
PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 31, 1997
A) The accompanying 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, the information furnished herein reflects all adjustments
(consisting of items of a normal recurring nature) which are necessary for a
fair presentation of the results for the interim periods. Operating results
for the three months ended August 31, 1997, are not necessarily indicative of
the results that may be expected for the year ended May 31, 1998. There is no
significant seasonality to the Company's business, except that over 30% of new
Payroll segment clients added in each of the last three fiscal years have been
added during the third fiscal quarter. Consequently, greater sales
commissions are earned in that quarter, resulting in higher selling expenses
for the third quarter. The accompanying financial statements should be read
in conjunction with the financial statements and footnotes presented in the
Company's Form 10-K and Annual Report for the year ended May 31, 1997.
B) In May 1997, the Company restated previously reported consolidated
financial statements to reflect the Electronic Network Services funds and
related client deposit liabilities as current assets and current liabilities
on the consolidated balance sheets. This restatement had no effect on
previously reported net income or earnings per share, but required the
restatement of the consolidated statement of cash flows for the three months
ended August 31, 1996, contained herein.
C) Earnings per share, cash dividends per share, weighted-average shares
outstanding and all other applicable information for the quarter ended August
31, 1996, have been adjusted to reflect a three-for-two stock split effected
in the form of 50% stock dividends to holders of record on May 8, 1997, and
distributed on May 29, 1997.
D) Net income per share of common stock is based upon the
weighted-average number of shares of common stock outstanding during the
period. Common stock equivalents have not been included as their impact is not
materially dilutive. See Part II, Item 6, (a) Exhibit 11, "Statement re
computation of per share earnings".
E) Recently issued accounting standards: In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," which is effective
for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company will adopt
this SFAS in the quarter ending August 31, 1998 (the first quarter of fiscal
year 1999), and will reclassify its financial statements for earlier periods
provided for comparative purposes. The Company's management does not believe
that the difference between reported net income and pro forma comprehensive
income to be significant.
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of An
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Currently, management believes this SFAS will not have a
significant effect on the Company's segment disclosures and related
information.
F) Certain amounts from the prior year are reclassified to conform to
fiscal 1998 presentations.
G) Property and equipment - net:
August 31, May 31,
1997 1997
(In thousands) (UNAUDITED) (AUDITED)
Land and improvements $ 2,789 $ 2,789
Buildings and improvements 24,700 24,672
Data processing equipment and software 54,556 50,973
Furniture, fixtures and equipment 45,226 44,251
Leasehold improvements 4,238 3,582
------- -------
131,509 126,267
Less accumulated depreciation and amortization 75,973 72,089
------- -------
$ 55,536 $ 54,178
======= =======
<PAGE>
H) Segment financial information: The Company operates in two business
segments: Payroll and Human Resource Services-Professional Employer
Organization (HRS-PEO). The Payroll segment is engaged in the preparation of
payroll checks, internal accounting records, all Federal, state and local
payroll tax returns, and collection and remittance of payroll obligations for
small- to medium-sized businesses. The HRS-PEO segment specializes in
providing small- and medium-sized businesses with cost-effective outsourcing
solutions for their employee benefits. HRS-PEO products include 401(k) plan
recordkeeping services, group benefits and workers' compensation insurance
services, section 125 plans, employee handbooks and management services. As
an outsourcing solution, HRS-PEO relieves the business owner of human resource
administration, employment regulatory compliance, workers' compensation
coverage, health care and other employee related responsibilities. Consistent
with PEO industry practice, HRS-PEO revenue includes all amounts billed to
clients for the services provided.
For the three months ended August 31, 1997 1996
(In thousands and unaudited) (Restated(2))
Total revenue:
Payroll $104,865 $ 84,307
HRS-PEO revenue:
Service revenue 8,082 6,966
PEO direct costs billed (1) 105,636 74,769
------- -------
Total HRS-PEO revenue 113,718 81,735
------- -------
Total revenue 218,583 166,042
PEO direct costs (1) 105,636 74,769
------- -------
Total revenue less PEO direct costs 112,947 91,273
======= =======
Operating costs:
Payroll 28,249 24,381
HRS-PEO 2,057 2,183
------- -------
Total operating costs 30,306 26,564
======= =======
Selling, general and administrative
expenses:
Payroll 46,438 37,927
HRS-PEO 5,040 3,189
------- -------
Total selling, general and
administrative expenses 51,478 41,116
======= =======
Operating income:
Payroll 30,178 21,999
HRS-PEO 985 1,594
------- -------
Total operating income 31,163 23,593
General corporate expenses 806 1,496
Investment income 2,188 1,485
------- -------
Income before income taxes $ 32,545 $ 23,582
======= =======
(1) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
(2) All financial information has been restated to reflect the formation
of the HRS-PEO business segment in the third quarter of fiscal 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Management's discussion and analysis reviews the Company's operating results
for the quarter ended August 31, 1997 and 1996, and its financial condition at
August 31, 1997. The focus of this review is on the underlying business
reasons for significant changes and trends affecting revenues, net income and
financial condition. This review should be read in conjunction with the
August 31, 1997 consolidated financial statements, and the related notes to
consolidated financial statements contained in this Form 10-Q. Forward-looking
statements in this management's discussion and analysis are qualified by the
cautionary statement at the end of this discussion.
RESULTS OF CONSOLIDATED OPERATIONS
For the three months ended August 31, 1997 Change 1996
(In thousands except per share amounts)
- ---------------------------------------------------------------------------
Total revenue $ 218,583 +31.6% $ 166,042
Operating income $ 30,357 +37.4% $ 22,097
Net income $ 23,074 +35.1% $ 17,073
Earnings per share $ .21 +31.3% $ .16
- ---------------------------------------------------------------------------
The Company's record levels of total revenue and net income resulted from
continued growth in its client base, increased utilization of ancillary
services, and decreased selling, general and administrative expenses as a
percent of total revenue. For the three months ended August 31, 1996, the
results included approximately $0.5 million of merger costs (included in
general corporate expenses) from the business acquisition of National Business
Solutions, Inc., completed on August 26, 1996.
PAYROLL SEGMENT:
For the three months ended August 31, 1997 Change 1996
(In thousands)
- ---------------------------------------------------------------------------
Payroll service revenue $104,865 +24.4% $ 84,307
Payroll operating income $ 30,178 +37.2% $ 21,999
Client statistics at August 31,
Payroll clients 270.3 +12.8% 239.6
Taxpay clients 192.4 +36.0% 141.5
Direct Deposit clients 81.9 +46.8% 55.8
Check Signing clients 28.6 +21.7% 23.5
- ---------------------------------------------------------------------------
Revenues: Payroll, Taxpay, Direct Deposit and other payroll revenues include
service fees and investment income. Investment income is earned during the
period between collecting client funds and remitting the funds to the
applicable tax authorities or client employees from Taxpay and Direct Deposit
products. Client base gains continue to be the main reason for the increased
Payroll segment revenues. During the quarter ended August 31, 1997, the
Taxpay client base benefited from the Federal mandate requiring small
businesses to file payroll taxes electronically as of July 1, 1997, but
without penalties until July 1, 1998. The Company believes it has already
derived much of the benefit from this mandate for fiscal 1998.
Operating income: Operating income for the quarter increased as a result of
continued growth of the client base and utilization of ancillary services,
plus continued leveraging of the segment's operating and selling, general and
administrative expenses as percent of revenue.
<PAGE>
Effective July 1, 1997, the Company complied with the Internal Revenue
Service's Electronic Funds Transfer Payment Service by making client tax
payments "good funds" one business day earlier. Therefore, revenue and income
for the quarter was reduced by lower levels of tax-exempt municipal security
investments. The Company offset these reductions by a modest price increase
for its Taxpay services.
HRS-PEO SEGMENT:
For the three months ended August 31, 1997 Change 1996
(In thousands)
- ---------------------------------------------------------------------------
HRS-PEO service revenue $ 8,082 + 16.0% $ 6,966
PEO direct costs billed 105,636 + 41.3% 74,769
-------- ------- --------
Total HRS-PEO revenue 113,718 + 39.1% 81,735
PEO direct costs 105,636 + 41.3% 74,769
HRS-PEO operating income $ 985 - 38.2% $ 1,594
Client statistics at August 31,
401(k) clients 3.5 +150.0% 1.4
PEO worksite employees 14.5 + 51.0% 9.6
- ---------------------------------------------------------------------------
Revenues: The increase in HRS-PEO service revenue was a result of increases
in the number of 401(k) clients and PEO worksite employees, and offset by a
decrease of $.9 million in Handbook revenues. The Handbook revenue decrease
was primarily due to the reallocation of resources from Handbook products to
generate recurring revenues from 401(k) recordkeeping services and section 125
cafeteria plans. Fiscal 1998 revenues are expected to grow as the Company
continues to increase 401(k) clients, PEO worksite employees and other HRS-PEO
ancillary product sales.
Operating income: The decrease in operating income was a result of the
reallocation of resources from Handbook products to generate recurring
revenues from 401(k) recordkeeping services and section 125 cafeteria plans,
costs of PEO expansion and centralization activities, and market-driven
decreases in gross profit per PEO worksite employee. Operating income for
fiscal 1998 is expected to increase in comparison to fiscal 1997, but will
continue to be impacted by the same factors experienced in the first quarter
ended August 31, 1997.
PEO direct costs billed and direct costs: Consistent with industry practices
and generally accepted accounting principles, PEO revenues reported in the
consolidated statements of income include the service fee, plus the direct
costs billed to clients for the wages and payroll taxes of worksite employees,
their related benefit premiums and claims and other direct costs. The Company
continually manages the costs related to employee benefits, including workers'
compensation liabilities. The Company records reserves for workers'
compensation claims costs at the expected liability amount based on the
estimated loss exposure considering the maximum potential exposure under the
workers' compensation deductible insurance policies. At August 31, 1997, the
recorded reserve is at the maximum exposure under these insurance policies.
The increases in PEO direct costs billed and direct costs are reflective of
the increases in the number of PEO worksite employees.
Investment income:
For the three months ended August 31, 1997 Change 1996
(In thousands)
- ---------------------------------------------------------------------------
Investment income $2,188 +47.3% $1,485
- ---------------------------------------------------------------------------
<PAGE>
Investment income earned from the Company's Investments, which does not
include the income earned from ENS investments, has grown as a result of
increases in investment balances generated from successive gains in operating
cash flows and slightly higher rates of interest earned on money market funds
and other cash equivalents. Investment income for fiscal 1998 is expected to
grow as a result of increased net income and investment of subsequent
operating cash flows, but will be impacted by typical changes in market rates
of interest.
Income taxes: The Company's effective tax rate for the quarter ended August
31, 1997 and 1996 was 29.1% and 27.6%, respectively. The effective tax rate
for the quarter ended August 31, 1997, was impacted by the reduction of
investment income earned from lower levels of tax-exempt municipal securities
and by the increase in taxable service fee revenue charged for the Company's
Taxpay services. Fiscal 1998's effective tax rate is expected to approximate
29.0%.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated operating cash flows:
For the three months ended August 31, 1997 Change 1996
(In thousands)
- ---------------------------------------------------------------------------
Operating cash flows $29,626 +9.7% $26,998
- ---------------------------------------------------------------------------
The increase in operating cash flows resulted primarily from the continued
achievement of record net income for the quarter ended August 31, 1997.
Projected operating cash flows are expected to be adequate to support normal
business operations and continued growth, planned purchases of property and
equipment and dividend payments. Furthermore, at August 31, 1997, the Company
had $199.4 million in available cash and investments and $262.5 million of
available, unsecured and unused lines of credit.
Investments and ENS investments: Investments and ENS investments consist of
various government securities, investment grade municipal securities, money
market funds and other cash equivalents. The Company is exposed to credit
risk in connection with these investments through the possible inability of
the borrowers to meet the terms of the bonds. The Company attempts to limit
credit risk by investing primarily in AAA- and AA-rated securities, A-rated or
better money market funds and by limiting amounts that can be invested in any
single instrument. The Company invests in short- to intermediate-term
securities as they are less sensitive to interest rate fluctuations. At
August 31, 1997, the portfolio of securities had an average duration of 2.6
years.
For the quarter ended August 31, 1997, investment purchases of
available-for-sale securities increased as compared to the prior year as a
result of the increases in the number of Taxpay and Direct Deposit clients,
and increased operating cash flows used for investing activities. Proceeds
from sales of available-for-sale securities increased as compared to the prior
year's quarter as a result of liquidity needs to make client tax payments
"good funds" one business day earlier.
Purchases of property and equipment:
For the three months ended August 31, 1997 Change 1996
(In thousands)
- ---------------------------------------------------------------------------
Purchases of property and equipment $5,280 +11.7% $4,727
- ---------------------------------------------------------------------------
Purchases of property and equipment for the quarter ended August 31, 1997 and
1996 were mainly comprised of upgrades to data processing equipment,
workstations, and leasehold improvements. Purchases of property and equipment
in fiscal 1998 are expected to range from $19 to $23 million.
<PAGE>
Cash dividends:
For the three months ended August 31, 1997 Change 1996
(In thousands except per share amounts)
- ---------------------------------------------------------------------------
Cash dividends $6,516 +40.3% $4,643
Cash dividends per share $ .06 +50.0% $ .04
- ---------------------------------------------------------------------------
On October 2, 1997, the Company's Board of Directors declared a 50% increase
in the Company's quarterly dividend from $.06 per share to $.09 per share,
payable November 24, 1997 to shareholders of record October 27, 1997.
OTHER
Recently issued accounting standards: In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company will adopt
this SFAS in the quarter ending August 31, 1998 (the first quarter of fiscal
year 1999), and will reclassify its financial statements for earlier periods
provided for comparative purposes. The Company's management does not believe
that the difference between reported net income and pro forma comprehensive
income to be significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of An
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Currently, management believes this SFAS will not have a
significant effect on the Company's segment disclosures and related
information.
FORWARD-LOOKING CAUTIONARY STATEMENT
In an effort to give investors a well-rounded view of the Company's current
condition and future opportunities, this Form 10-Q includes comments by the
Company's management about future performance and results. Because they are
forward-looking, these forecasts involve uncertainties. They include risks of
general market conditions, including demand for the Company's products and
services, competition and price levels; changes in the laws regulating
collection and payment of payroll taxes, professional employer organizations,
and employee benefits, including 401(k) plans, workers' compensation, and
section 125 plans; delays in the development and marketing of new products and
services; the possibility of catastrophic events that could impact the
Company's operating facilities, computer technology and communication systems;
changes in short- and long-term interest rates and the credit rating of
municipal securities held in the Company's investment portfolios.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on October 2, 1997. Stockholders
elected eight Directors nominated in the August 8, 1997 Proxy Statement,
incorporated herein by reference, to hold office until the next Annual Meeting
of Stockholders. Additionally, the stockholders ratified the proposal to
amend the Certificate of Incorporation to increase the authorized shares of
common stock from 150,000,000 to 300,000,000. Results of stockholder voting
are as follows:
1. Election of Directors Votes For Votes Withheld
B. Thomas Golisano 92,798,149 245,719
Donald W. Brinckman 92,837,318 206,557
Steven D. Brooks 91,322,962 1,720,909
G. Thomas Clark 92,813,255 230,622
Phillip Horsley 92,847,580 196,297
Grant M. Inman 92,845,632 198,245
Harry P. Messina, Jr. 92,193,234 850,645
J. Robert Sebo 92,811,562 232,315
2. Proposal to amend the Certificate of Incorporation to increase the
authorized shares of common stock from 150,000,000 to 300,000,000.
For Against Abstaining Broker Non-Votes
90,058,186 2,746,472 238,838 383
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 (i), "Articles of Incorporation". The Certificate of
Amendment of Certificate of Incorporation was filed with the Delaware
Secretary of State on October 2, 1997, and a copy is filed herewith at
the end of this Form 10-Q.
Exhibit 11, "Statement re computation of per share earnings" is filed
herewith at the end of this Form 10-Q.
Exhibit 27, "Financial Data Schedules" are filed electronically.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
three month period ended August 31, 1997.
<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.
Date: October 14, 1997 /s/ Eugene R. Polisseni
-----------------------
Eugene R. Polisseni
Vice President, Marketing
Date: October 14, 1997 /s/ John M. Morphy
-----------------------
John M. Morphy
Vice President, Chief
Financial Officer and
Secretary
EXHIBIT 3 (i)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PAYCHEX, INC.
Under Section 242 of the General Corporation Law
The undersigned, being the President and Secretary of Paychex, Inc., do
hereby certify as follows:
1. The name of the Corporation is Paychex, Inc. The Corporation was
originally formed under the name Blase T. Golisano, Inc., the name having
been changed by Amendment contained in a Certificate of Merger filed on May
17, 1979.
2. The Certificate of Incorporation was filed by the Delaware Secretary
of State on April 26, 1979.
3. The Certificate of Incorporation is amended to increase the number of
authorized shares from 150,000,000 having a par value of $.01 each, to
300,000,000 having a par value of $.01 each.
Paragraph 4 of the Certificate of Incorporation is amended to read in
its entirety as follows:
"4 The total number of shares of stock which the Corporation shall
have authority to issue is 300,000,000 shares of common stock and
the par value of each of such shares is $.01, amounting in the
aggregate to $3,000,000."
4. The Amendment to the Certificate of Incorporation was adopted by the
Board of Directors and authorized at a meeting of stockholders by vote of the
holders of a majority of all outstanding shares entitled to vote.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary as of the 2nd day of
October, 1997.
/s/ B. Thomas Golisano
-----------------------------------
B. Thomas Golisano,
President
Attested By:
/s/ John M. Morphy
-----------------------------------
John M. Morphy,
Secretary
EXHIBIT 11
PAYCHEX, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share data)
For the three months ended August 31, 1997 1996
A. Net income $ 23,074 $ 17,073
B. Actual weighted-average number of common
shares outstanding 108,563 107,480
C. Earnings per common share (A/B) (1) $ .21 $ .16
PRIMARY DILUTED EARNINGS PER SHARE (2):
D. Net effect of dilutive stock options based on
Treasury Stock Method using average market price
for the three months ended August 31, 1,065 1,236
E. Adjusted weighted-average shares outstanding (B+D) 109,628 108,716
F. Primary diluted earnings per share (A/E) $ .21 $ .16
G. Dilutive effect on earnings per share (C-F) $ .00 $ .00
FULLY DILUTED EARNINGS PER SHARE (2):
H. Net effect of dilutive stock options based on
Treasury Stock Method using the period end market
price, if greater than the average market price
for the three months ended August 31, 1,065 1,287
I. Adjusted weighted-average shares outstanding (B+H) 109,628 108,767
J. Fully diluted earnings per share (A/I) $ .21 $ .16
K. Dilutive effect on earnings per share (C-J) $ .00 $ .00
(1) Earnings per common share information is based on weighted-average number
of shares of common stock outstanding during each period. No effect has been
given to stock options outstanding under the Company's Stock Incentive Plans
as no material dilutive effect would result from the exercise of these
options.
(2) This calculation is submitted in accordance with The Securities and
Exchange Act of 1934, although not required by Accounting Principles Board
Opinion No. 15, since no material dilutive effect would result from the
exercise of these options.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUGUST
31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES TO CONSOLIDATED
FOR FINANCIAL STATEMENTS OF PAYCHEX, INC., AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000723531
<NAME> PAYCHEX, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1997
<PERIOD-START> JUN-01-1997 JUN-01-1996
<PERIOD-END> AUG-31-1997 AUG-31-1996<F2>
<CASH> 53,316 18,920
<SECURITIES> 1,066,627<F1> 729,240<F1>
<RECEIVABLES> 58,724 49,568
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,181,930 802,176
<PP&E> 131,509 113,789
<DEPRECIATION> 75,973 62,431
<TOTAL-ASSETS> 1,244,334 859,082
<CURRENT-LIABILITIES> 969,796 651,438
<BONDS> 0 0
0 0
0 0
<COMMON> 1,086 717
<OTHER-SE> 268,620 203,562
<TOTAL-LIABILITY-AND-EQUITY> 1,244,334 859,082
<SALES> 0 0
<TOTAL-REVENUES> 218,583 166,042
<CGS> 0 0
<TOTAL-COSTS> 135,942 101,333
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 32,545 23,582
<INCOME-TAX> 9,471 6,509
<INCOME-CONTINUING> 23,074 17,073
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 23,074 17,073
<EPS-PRIMARY> .21 .16
<EPS-DILUTED> .21 .16
<FN>
<F1>SECURITIES - Includes amounts related to Electronic Network Services
investments with a balance at August 31, 1997 and 1996 of $920,565 and
$608,032, respectively.
<F2>Prior to May 1997, the Company did not report the Electronic Network
Services (ENS) funds as assets and liabilities based on its understanding of
the nature of the funds and industry practices. Due to recent changes in case
law, the Company restated previously reported consolidated financial
statements to reflect the ENS funds and related client deposits as current
assets and current liabilities on the consolidated balance sheets. This
restatement had no effect on previously reported net income or earnings per
share.
</FN>
</TABLE>
