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 November 30, 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 November 30, 1996 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 .
----- ----
CLASS OUTSTANDING AT NOVEMBER 30, 1996
- ------------------------------ -----------------------------------
(Common Stock, $.01 Par Value) (72,147,969 Shares)
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS - NOVEMBER 30, 1996 AND
MAY 31, 1996 3
CONSOLIDATED STATEMENTS OF INCOME - THREE AND SIX MONTHS
ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS
ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
NOVEMBER 30, 1996 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
- --------------------------
ITEM 2. CHANGES IN SECURITIES 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1996 1996
------------ -------
ASSETS (UNAUDITED)
(in thousands)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 19,559 $ 19,999
INVESTMENTS 125,328 102,967
INTEREST RECEIVABLE 9,071 7,385
TRADE ACCOUNTS RECEIVABLE 46,071 42,076
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 3,031 1,903
DEFERRED INCOME TAXES 509 1,419
--------- ---------
TOTAL CURRENT ASSETS 203,569 175,749
PROPERTY AND EQUIPMENT
LAND AND IMPROVEMENTS 2,787 2,787
BUILDINGS 24,535 24,145
DATA PROCESSING EQUIPMENT 45,935 43,439
FURNITURE, FIXTURES AND EQUIPMENT 41,106 37,921
LEASEHOLD IMPROVEMENTS 3,090 2,718
--------- ---------
117,453 111,010
LESS ALLOWANCE FOR DEPRECIATION
AND AMORTIZATION 65,070 60,355
--------- ---------
NET PROPERTY AND EQUIPMENT 52,383 50,655
OTHER ASSETS 7,351 4,945
--------- ---------
TOTAL ASSETS $ 263,303 $ 231,349
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONT'D.
<TABLE>
<CAPTION>
November 30, MAY 31,
1996 1996
------------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 4,606 $ 4,183
ACCRUED COMPENSATION AND
RELATED ITEMS 20,705 19,120
RESERVE FOR WORKERS' COMPENSATION 1,766 1,235
ACCRUED INCOME TAXES 3,616 573
OTHER ACCRUED EXPENSES 8,204 5,941
DEFERRED REVENUE 3,467 4,934
--------- ---------
TOTAL CURRENT LIABILITIES 42,364 35,986
OTHER LIABILITIES
DEFERRED INCOME TAXES 211 416
RESERVE FOR WORKERS' COMPENSATION 865 865
CUSTOMER DEPOSITS 1,318 1,038
OTHER LONG-TERM LIABILITIES 1,143 848
--------- ---------
TOTAL LIABILITIES 45,901 39,153
STOCKHOLDERS' EQUITY
COMMON STOCK, $.01 PAR VALUE,
AUTHORIZED 150,000,000 SHARES:
ISSUED 72,147,969 AT NOVEMBER
30, 1996 AND 71,632,456 AT
MAY 31, 1996 721 716
ADDITIONAL CAPITAL 30,663 30,112
RETAINED EARNINGS 186,018 161,368
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 217,402 192,196
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 263,303 $ 231,349
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
PAYROLL REVENUE $ 92,552 $ 78,232 $181,479 $154,405
PEO REVENUE 76,947 51,679 154,062 98,993
-------- -------- -------- --------
TOTAL REVENUE $169,499 $129,911 $335,541 $253,398
-------- -------- -------- --------
PEO DIRECT COSTS 74,233 49,832 149,002 95,460
OPERATING COSTS 28,059 24,800 54,623 48,175
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 43,858 38,199 86,470 76,400
-------- -------- -------- --------
OPERATING INCOME 23,349 17,080 45,446 33,363
OTHER INCOME 1,745 1,465 3,230 2,851
-------- -------- -------- --------
INCOME BEFORE INCOME
TAXES 25,094 18,545 48,676 36,214
INCOME TAXES 7,026 5,070 13,535 9,958
-------- -------- -------- --------
NET INCOME $ 18,068 $ 13,475 $ 35,141 $ 26,256
======== ======== ======== ========
EARNINGS PER SHARE $ .25 $ .19 * $ .49 $ .37 *
======== ======== ======== ========
CASH DIVIDENDS PER
SHARE $ .09 $ .06 * $ .15 $ .10 *
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING 71,828 71,205 * 71,750 71,115 *
======== ======== ======== ========
</TABLE>
* ADJUSTED FOR THREE-FOR-TWO STOCK SPLIT IN MAY, 1996.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30,
-------------------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 35,141 $ 26,256
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 7,434 7,210
NET CHANGE IN DEFERRED INCOME TAXES 174 1,354
PROVISION FOR BAD DEBTS 750 340
NET REALIZED (GAIN) ON SALES OF
AVAILABLE-FOR-SALE SECURITIES (143) (389)
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
TRADE ACCOUNTS RECEIVABLE (4,746) (5,376)
ACCRUED INTEREST RECEIVABLE (1,686) (502)
PREPAID EXPENSES AND OTHER
CURRENT ASSETS (1,128) (577)
TRADE ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES 7,313 1,954
DEFERRED REVENUE (1,466) (38)
RESERVE FOR WORKERS' COMPENSATION 531 648
CUSTOMER DEPOSITS 280 164
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 42,454 31,044
INVESTING ACTIVITIES
INVESTMENT PURCHASES OF AVAILABLE-
FOR-SALE SECURITIES (64,668) (55,518)
PROCEEDS FROM SALES OF AVAILABLE-
FOR-SALE SECURITIES 43,747 38,357
PROCEEDS FROM MATURITIES OF AVAILABLE-
FOR-SALE SECURITIES -0- 3,387
ADDITIONS TO PROPERTY AND EQUIPMENT,
NET OF DISPOSALS (8,811) (11,713)
NET CHANGE IN OTHER ASSETS (2,756) (902)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (32,488) (26,389)
<PAGE>
FINANCING ACTIVITIES
PAYMENTS ON LONG-TERM DEBT -0- (728)
PROCEEDS AND TAX BENEFIT FROM EXERCISE
OF STOCK OPTIONS 401 1,084
DIVIDENDS PAID (11,101) (6,888)
OTHER 294 12
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (10,406) (5,792)
--------- ---------
(DECREASE) IN CASH
AND CASH EQUIVALENTS (440) (1,865)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 19,999 14,812
CASH OBTAINED THROUGH ACQUISITIONS -0- 812
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 19,559 $ 13,759
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 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, 1996.
B) DURING THE SIX-MONTH PERIOD ENDING NOVEMBER 30, 1996, 67,468 SHARES OF
STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS.
IN ADDITION, THE COMPANY GRANTED STOCK OPTIONS FOR APPROXIMATELY
793,000 SHARES, INCLUDING APPROXIMATELY 614,000 SHARES RELATED TO A
BROAD BASED STOCK OPTION PLAN FOR IT'S EMPLOYEES.
C) ON AUGUST 26, 1996, THE COMPANY COMPLETED ITS MERGER WITH NATIONAL
BUSINESS SOLUTIONS, INC. (NBS), NOW PAYCHEX BUSINESS SOLUTIONS, INC.
(PBS) A PROFESSIONAL EMPLOYER ORGANIZATION, HEADQUARTERED IN ST.
PETERSBURG, FLORIDA. THE OUTSTANDING COMMON STOCK OF NBS WAS EXCHANGED
FOR 2,934,496 SHARES OF PAYCHEX COMMON STOCK, VALUED AT $140,000,000.
THE TRANSACTION WAS ACCOUNTED FOR AS A POOLING OF INTERESTS; THEREFORE,
PRIOR PERIOD FINANCIAL STATEMENTS HAVE BEEN RESTATED TO REFLECT THIS
MERGER.
PBS IS A LEADING PROFESSIONAL EMPLOYER ORGANIZATION ("PEO"), WHICH
PROVIDES SMALL AND MEDIUM-SIZED BUSINESSES WITH AN OUTSOURCING SOLUTION
TO THE COMPLEXITIES AND COSTS RELATED TO EMPLOYMENT AND HUMAN
RESOURCES.
D) ON AUGUST 29, 1996, THE COMPANY ACQUIRED ALL OF THE OUTSTANDING STOCK
OF THE PAYROLL SERVICE, INC., IN EXCHANGE FOR APPROXIMATELY 55,000
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.
E) ON NOVEMBER 21, 1996, THE COMPANY ACQUIRED ALL OF THE OUTSTANDING STOCK
OF OLSEN COMPUTER SYSTEMS, INC., NOW PAYCHEX COMPUTER SYSTEMS, INC., IN
EXCHANGE FOR APPROXIMATELY 393,000 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.
F) CERTAIN AMOUNTS FROM THE PRIOR YEAR ARE RECLASSIFIED TO CONFORM TO
FISCAL 1997 PRESENTATIONS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONT'D.
NOTE G - SEGMENT INFORMATION
THE COMPANY OPERATES IN TWO MAJOR SEGMENTS, PAYROLL AND PROFESSIONAL EMPLOYER
ORGANIZATION (PEO). THE PAYROLL SEGMENT IS ENGAGED IN THE PREPARATION OF
PAYROLL CHECKS, INTERNAL ACCOUNTING RECORDS AND ALL FEDERAL, STATE AND LOCAL
PAYROLL TAX RETURNS FOR SMALL TO MEDIUM-SIZED BUSINESSES. THE PAYROLL SEGMENT
ALSO INCLUDES EMPLOYEE HANDBOOKS, SECTION 125 PLANS AND 401(K) PLAN
RECORDKEEPING SERVICES. THE PEO SEGMENT SPECIALIZES IN PROVIDING SMALL AND
MEDIUM-SIZED BUSINESSES WITH COST-EFFECTIVE OUTSOURCING SOLUTIONS FOR THEIR
EMPLOYEE BENEFITS. AS AN OUTSOURCING SOLUTION, THE PEO RELIEVES THE BUSINESS
OWNER OF HUMAN RESOURCES ADMINISTRATION, EMPLOYMENT REGULATORY COMPLIANCE,
WORKERS' COMPENSATION COVERAGE, HEALTH CARE AND OTHER EMPLOYEE RELATED
RESPONSIBILITIES. CONSISTENT WITH PEO INDUSTRY PRACTICE, REVENUE INCLUDES ALL
AMOUNTS BILLED TO CLIENTS FOR THE SERVICES PROVIDED BY THE PEO.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
------------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
REVENUE
PAYROLL $ 92,552 $ 78,232 $181,479 $154,405
PEO 76,947 51,679 154,062 98,993
------------------------- -------------------------
TOTAL REVENUE 169,499 129,911 335,541 253,398
PEO DIRECT COSTS 74,233 49,832 149,002 95,460
------------------------- -------------------------
REVENUE, LESS PEO DIRECT COSTS 95,266 80,079 186,539 157,938
OPERATING COSTS
PAYROLL 26,565 23,793 51,821 46,177
PEO 1,494 1,007 2,802 1,998
------------------------- -------------------------
TOTAL OPERATING COSTS 28,059 24,800 54,623 48,175
SELLING, GENERAL AND ADMIN
PAYROLL 41,861 36,611 82,740 73,316
PEO 300 237 537 408
------------------------- -------------------------
TOTAL SELLING, GENERAL AND ADMIN 42,161 36,848 83,277 73,724
OPERATING INCOME
PAYROLL 24,126 17,828 46,918 34,912
PEO 920 603 1,721 1,127
------------------------- -------------------------
TOTAL OPERATING INCOME 25,046 18,431 48,639 36,039
GENERAL CORPORATE EXPENSES 1,697 1,351 3,193 2,676
OTHER INCOME - NET 1,745 1,465 3,230 2,851
------------------------- -------------------------
INCOME BEFORE TAXES $ 25,094 $ 18,545 $ 48,676 $ 36,214
========================= =========================
</TABLE>
<PAGE>
PAYCHEX, INC. AND SUBSIDIARIES
ITEM 2. 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 November 30, 1996 and 1995, and its financial condition
at November 30, 1996. 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 May
31, 1996 Consolidated Financial Statements, and the related Notes to
Consolidated Financial Statements, as well as Form 8-K filed on July 9, 1996
which contained audited financial statements of National Business Solutions,
Inc., discussed below. Forward-looking statements in this management's
discussion and analysis are qualified by the cautionary statement at the end
of this discussion.
Results of operations for 1995 and 1996 have been restated to reflect Paychex'
August 26, 1996 merger with National Business Solutions, Inc. (NBS) now
Paychex Business Solutions, Inc. (PBS), a Professional Employer Organization
(PEO) headquartered in St. Petersburg, Florida. The transaction was accounted
for as a pooling of interests.
On August 29, 1996 and November 21, 1996, the company acquired all of the
outstanding stock of the Payroll Service, Inc. and Olsen Computer Systems,
Inc., respectively, in exchange for approximately 448,000 total shares. The
business combinations were accounted for as pooling of interests. Results of
operations prior to the mergers have not been restated as the effects would be
immaterial.
Results of Operations
_____________________
Paychex earned a record consolidated net income of $18.1 million or $.25 per
share for the second quarter ended November 30, 1996, up 34% over consolidated
net income of $13.5 million or $.19 per share for the same quarter last year.
Consolidated revenue for the quarter reached $169.5 million, an increase of
30% over $129.9 million for the same period last year.
For the six months ended November 30, 1996, net income increased 34% to $35.1
million or $.49 per share, compared to net income of $26.3 million or $.37 per
share for the same period last year. Total revenue for the six month period
reached $335.5 million, an increase of 32% over $253.4 million reported for
the first six months of the previous fiscal year.
Payroll Segment
_______________
Payroll service revenue for the second quarter ended November 30, 1996 reached
$92.6 million, an increase of 18% over $78.2 million for the second quarter
last year. For the six months ended November 30, 1996, payroll service
revenue reached $181.5 million, an increase of 18% over $154.4 million
reported last year. These gains resulted primarily from increases in clients
utilizing the basic payroll service and clients using Taxpay and Direct
Deposit products. During the quarter the percentage of the client base using
Taxpay increased from 59% to 63% as the Company continued to benefit from the
Federal mandate requiring small businesses to file payroll taxes
electronically as of July 1, 1997.
<PAGE>
Paychex currently serves 246,500 payroll clients, with 156,500 utilizing
Taxpay while approximately 62,100 take advantage of Direct Deposit for their
employees.
Operating costs were 29% of revenue for the current three and six month
periods, down from 30% for the same periods last year. Most of the decrease
resulted from lower costs, as a percentage of revenue, associated with
delivery, wages and facilities. Full year operating costs, as a percentage of
revenue, are expected to be slightly lower than last year.
Selling, general and administrative expenses were 45% and 46% of revenue for
the three and six month periods ended November 30, 1996, down from 47% and 48%
for the respective periods last year. As a percentage of revenue, wages were
lower in the current quarter and six month periods, versus the same periods
last year. Selling, general and administrative expenses, as a percentage of
revenue, have been decreasing over the past few years. The Company expects
this trend to continue in fiscal 1997.
PEO Segment
___________
The revenue and profit growth experienced by PBS is directly related to
significant increases in worksite employees on a year-over-year basis. PBS
currently serves 10,100 worksite employees, an increase of 46% over the prior
year. PBS, a professional employer organization, specializes in providing
small and medium-sized businesses with cost-effective outsourcing solutions
for their employee benefits. As an outsourcing solution, PBS relieves the
business owner of human resources administration, employment regulatory
compliance, workers' compensation coverage, health care, 401(k) administration
and other employee related responsibilities.
PBS gross revenue for the second quarter and six months ended November 30,
1996 rose by 49% to $76.9 million and 56% to $154.1 million, respectively,
when compared to the same periods last year.
PBS has started to offer the PEO services to Paychex payroll clients in
Florida and plans to expand to other select locations. The client base and
worksite employees are expected to continue to grow as PBS expands the
offering of its PEO services to existing payroll clients.
Liquidity and Capital Resources
_______________________________
Net cash provided by consolidated operating activities totaled $42.5 million
for the six months ended November 30, 1996 as compared to $31.0 million in
1996. Net income for the period contributed a record $35.1 million,
representing a 34% gain over net income of $26.3 million achieved for the same
period last year.
<PAGE>
Company owned investments and investments of client funds held for Taxpay and
Direct Deposit consist primarily of tax-exempt municipal securities issued by
various governmental agencies and short-term money market securities. At
November 30, 1996, the total Taxpay and Direct Deposit funds held by the
Company were $712.1 million. The Company continues to control credit and
market risks by investing primarily in AAA and AA rated municipal securities,
limiting amounts that can be invested in any single instrument, and investing
in short-to intermediate-term instruments which limit sensitivity to interest
rate changes.
Capital expenditures for the second quarter and year to date periods totalled
$4.2 million and $8.9 million, respectively. In addition, the Company
completed its planned upgrade of laser printing equipment in branch offices
through five year operating leases. The Company also invested in planned
furniture and fixtures expenditures related to continued Paychex growth and
expansion. Capital expenditures for the remainder of the year are estimated
to range between $7 million to $13 million.
Projected cash flows are expected to be adequate to support normal business
operations, planned capital expenditures and dividend payments. Furthermore,
the Company has $225 million of unsecured bank lines of credit available for
its use. As of November 30, 1996, there were no outstanding borrowings under
these lines of credit.
Other
_____
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 and employee benefits, including
401(k) plans 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.
<PAGE>
PART II. OTHER INFORMATION
PAYCHEX, INC. AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES
On November 21, 1996 Paychex, Inc. acquired Olsen Computer Systems,
Inc. ("OCS") which licenses computer software to approximately 100
payroll service centers throughout the United States. Paychex issued
392,926 shares of its common stock to the two shareholders of OCS for
all of the stock of OCS in an unregistered private placement under
Section 4(2) of the Securities Act of 1933, as amended. No broker
was involved in the transaction.
ITEM 5. OTHER INFORMATION
On August 26, 1996, the Company completed its merger with National
Business Solutions, Inc. (NBS), now Paychex Business Solutions, Inc.
(PBS).
On October 30, 1996, the Company filed Form S-3, Registration
#333-15105, primarily related to the public offering of shares for
the acquisition of NBS.
(See Notes to Consolidated Financial Statements, Note C)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
THERE WERE NO EXHIBITS APPLICABLE FOR THE THREE MONTH PERIOD ENDED
NOVEMBER 30, 1996.
(B) REPORTS ON FORM 8-K:
ON OCTOBER 22, 1996, THE COMPANY FILED A FORM 8-K DATED SEPTEMBER 30, 1996
DISCLOSING COMBINED FINANCIAL RESULTS FOR THE FOUR MONTHS ENDED SEPTEMBER
30, 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: JANUARY 14, 1997 /s/ B. THOMAS GOLISANO
----------------------
B. THOMAS GOLISANO
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
DATE: JANUARY 14, 1997 /s/ JOHN M. MORPHY
----------------------
JOHN M. MORPHY
VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND
SECRETARY
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NOVEMBER
30, 1996 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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-1-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<CASH> 19,559
<SECURITIES> 125,328
<RECEIVABLES> 46,071
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 203,569
<PP&E> 117,453
<DEPRECIATION> 65,070
<TOTAL-ASSETS> 263,303
<CURRENT-LIABILITIES> 42,364
<BONDS> 0
0
0
<COMMON> 721
<OTHER-SE> 216,681
<TOTAL-LIABILITY-AND-EQUITY> 263,303
<SALES> 335,541
<TOTAL-REVENUES> 335,541
<CGS> 0
<TOTAL-COSTS> 290,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 48,676
<INCOME-TAX> 13,535
<INCOME-CONTINUING> 35,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,141
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
