SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 15, 1998
(Date of earliest event reported)
PAYCHEX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-11330 16-1124166
(State of incorporation) (Commission (IRS Employer
File Number) Identification Number)
911 PANORAMA TRAIL SOUTH, ROCHESTER, NEW YORK 14625-0397
(Address of principal executive offices) (Zip Code)
(716)385-6666
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
The registrant's press release dated September 15, 1998, regarding its
financial results for the three months ended August 31, 1998, is attached.
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: September 15, 1998 /s/ B. Thomas Golisano
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B. Thomas Golisano
Chairman, President and
Chief Executive Officer
Date: September 15, 1998 /s/ John M. Morphy
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John M. Morphy
Vice President, Chief
Financial Officer and
Secretary
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FOR IMMEDIATE RELEASE
John M. Morphy, Chief Financial Officer
Paychex, Inc. 716-383-3406
or
Jan Shuler 716-383-3406
Paychex, Inc.
Access Paychex, Inc. News Releases on the WORLD WIDE WEB
http://www.paychex.com or http://www.prnewswire.com
PAYCHEX, INC. REPORTS RECORD FIRST QUARTER RESULTS
ROCHESTER, NY, September 15, 1998 -- Paychex, Inc. (NASDAQ: PAYX) today
announced record net income of $31.4 million or $.19 diluted earnings per
share for the first quarter ended August 31, 1998, a 36% increase over net
income of $23.1 million or $.14 diluted earnings per share for the same period
last year. Total service revenues were $139.3 million, an increase of 23%
over $112.9 million for the same period last year.
PAYROLL SEGMENT
For the quarter ended August 31, 1998, operating income from payroll services
increased 31% to $53.9 million from $41.2 million for the same period last
year. Payroll service revenue was $128.0 million, an increase of 22% over
$104.9 million for the same period last year.
The increases in revenues and operating income were the result of an 11%
year-over-year increase in the Company's payroll client base and the continued
growth of the Taxpay and Direct Deposit products. Paychex currently services
300,900 payroll clients, with 228,900 utilizing Taxpay, the Company's tax
filing and payment feature, 112,400 taking advantage of the Company's Direct
Deposit product and 35,300 using the Company's Check Signing option.
HRS-PEO SEGMENT
For the quarter ended August 31, 1998, operating income for the HRS-PEO
segment increased 117% to $2.6 million from $1.2 million for the same period
last year. HRS-PEO service revenue was $11.3 million, an increase of 40% over
$8.1 million for the same period last year.
The increases in service revenue and operating income for the quarter were due
to the continued expansion of the segment's client bases, which produced
higher recurring revenues. As of August 31, 1998, the segment had 6,700
401(k) plan recordkeeping clients, 17,300 section 125 clients, and 19,000 PEO
worksite employees, an increase of 86%, 24%, and 31%, respectively, over
August 31, 1997 levels. Segment results also benefited from the consolidation
of the PEO administrative functions in Rochester, NY, completed in February
1998.
CORPORATE EXPENSES
Corporate expenses are primarily related to the Information Technology,
Organizational Development, Finance and Senior Management functions of the
Company. For the quarter ended August 31, 1998, operating expenses increased
23% from $12.1 million to $14.9 million. The period's increase is primarily
due to additional employees required to support the continued growth of the
Company's business segments, and from increased national marketing efforts,
commenced in the third quarter of 1998.
B. Thomas Golisano, Chairman, President, and Chief Executive Officer of
Paychex said, "First quarter fiscal 1999 is reflective of consistent results
achieved the last several years. We reached another milestone as we are now
servicing over 300,000 payroll clients. Expansion of our payroll client base
and their utilization of our ancillary services continue to generate excellent
results. Profits from the HRS-PEO segment continue to improve as we realize
the benefits of expansion efforts and optimize the segment's support
functions. HRS-PEO results are gradually becoming more important to the total
profits of Paychex."
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the three months ended
August 31, August 31,
1998 1997
Service revenues:
Payroll $127,982 $104,865
HRS-PEO 11,307 8,082
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Total service revenues 139,289 112,947
PEO direct costs billed (A) 142,498 105,636
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Total revenue 281,787 218,583
PEO direct costs (A) 142,498 105,636
Operating costs 35,885 30,306
Selling, general and administrative expenses 61,761 52,284
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Operating income 41,643 30,357
Investment income 2,961 2,188
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Income before income taxes 44,604 32,545
Income taxes 13,203 9,471
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Net income $ 31,401 $ 23,074
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Basic earnings per share (B) $ .19 $ .14
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Diluted earnings per share (B) $ .19 $ .14
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Weighted-average common shares outstanding (B) 163,277 162,845
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Weighted-average shares assuming dilution (B) 165,525 164,441
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Cash dividends per common share (B) $ .06 $ .04
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(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
(B) Financial information for the period ended August 31, 1997, has been
adjusted for a three-for-two stock split distributed in May 1998.
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PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
August 31, May 31,
1998 1998
ASSETS
Current assets:
Cash and cash equivalents $ 49,519 $ 35,571
Investments 219,350 214,967
Interest receivable 11,759 13,227
Accounts receivable 66,332 54,596
Deferred income taxes - 1,525
Prepaid expenses and other current assets 3,960 4,391
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Current assets before ENS investments 350,920 324,277
Electronic Network Services investments 1,110,205 1,154,501
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Total current assets 1,461,125 1,478,778
Property and equipment - net 62,986 64,698
Deferred income taxes 866 517
Other assets 5,980 5,794
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Total assets $1,530,957 $1,549,787
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LIABILITIES
Current liabilities:
Accounts payable $ 6,589 $ 10,496
Accrued compensation and related items 26,287 33,649
Deferred revenue 3,014 4,443
Accrued income taxes 10,581 2,628
Deferred income taxes 1,511 -
Other current liabilities 17,094 13,960
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Current liabilities before ENS client deposits 65,076 65,176
Electronic Network Services client deposits 1,103,784 1,150,484
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Total current liabilities 1,168,860 1,215,660
Other long-term liabilities 5,110 4,520
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Total liabilities 1,173,970 1,220,180
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
authorized 300,000 shares
Issued: 163,382/ August 31, 1998 and
163,188/ May 31, 1998 1,634 1,632
Additional paid-in capital 49,989 46,463
Retained earnings 299,709 278,107
Accumulated other comprehensive income 5,655 3,405
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Total stockholders' equity 356,987 329,607
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Total liabilities and stockholders' equity $1,530,957 $1,549,787
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PAYCHEX, INC.
BUSINESS SEGMENT INFORMATION
(In thousands)
The Company has 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. Corporate expenses are primarily related to the Information
Technology, Organizational Development, Finance and Senior Management
functions of the Company.
For the three months ended
August 31, August 31,
1998 1997
Total revenue:
Payroll $127,982 $104,865
HRS-PEO revenue:
Service revenue 11,307 8,082
PEO direct costs billed (A) 142,498 105,636
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Total HRS-PEO revenue 153,805 113,718
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Total revenue 281,787 218,583
PEO direct costs (A) 142,498 105,636
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Total revenue less PEO direct costs 139,289 112,947
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Operating income:
Payroll 53,888 41,234
HRS-PEO 2,611 1,204
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Total operating income 56,499 42,438
Corporate expenses 14,856 12,081
Investment income 2,961 2,188
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Income before income taxes $ 44,604 $ 32,545
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(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
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"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Certain written and oral statements made by the Company's management may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are identified by
such words and phrases as "expects" and "could be." Because they are
forward-looking, they should be evaluated in light of important risk factors.
These risk factors include 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, including Year 2000 issues; and changes in short- and
long-term interest rates and the credit rating of securities held in the
Company's investment portfolios.
