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: June 30, 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 June 30, 1998, regarding its financial
results for the fiscal year ended May 31, 1998, is attached as EXHIBIT A.
The registrant also includes the restated segment information reflecting the
adoption of Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" for the four quarters
and years ended May 31, 1998 and 1997. The release with the restated
information is attached as EXHIBIT B.
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: June 30, 1998 /s/ B. Thomas Golisano
-----------------------
B. Thomas Golisano
Chairman, President and
Chief Executive Officer
Date: June 30, 1998 /s/ John M. Morphy
-----------------------
John M. Morphy
Vice President, Chief
Financial Officer and
Secretary
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EXHIBIT A
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
YEAR END AND FOURTH QUARTER RESULTS
ROCHESTER, NY, June 30, 1998 -- Paychex, Inc. (NASDAQ: PAYX) today announced
record net income of $102.2 million or $.62 diluted earnings per share for the
year ended May 31, 1998, a 36% increase over net income of $75.2 million or
$.46 diluted earnings per share for the same period last year. Total service
revenues were $493.7 million, an increase of 24% over $399.7 million for the
previous fiscal year.
For the quarter ended May 31, 1998, net income increased 35% to $28.1 million
or $.17 diluted earnings per share as compared to net income of $20.7 million
or $.13 diluted earnings per share for the same period last year. Total
service revenues were $131.7 million, an increase of 23% over $106.8 million
for the same period last year.
Effective May 31, 1998, Paychex, Inc., adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Statement requires the Company to report segment
financial information consistent with the presentation made to the Company's
management for decision-making purposes. Prior quarter and year segment
disclosures have been restated to be consistent with the fourth quarter and
year ended May 31, 1998.
PAYROLL SEGMENT
For the year ended May 31, 1998, operating income from payroll services
increased 33% to $180.3 million from $135.4 million for the same period last
year. Payroll service revenue was $455.2 million, an increase of 23% over
$368.9 million for the same period last year.
For the quarter ended May 31, 1998, operating income from payroll services
increased 29% to $46.7 million from $36.2 million for the fourth quarter last
year. Payroll service revenue was $119.6 million, an increase of 21% over
$98.9 million for the fourth quarter last year.
The increases in revenues and operating income were the result of a 12% year
over year increase in the Company's payroll client base and continued growth
of the Taxpay and Direct Deposit products. Paychex currently services
293,600 payroll clients, with 220,700 utilizing Taxpay, the Company's tax
filing and payment feature, 104,400 taking advantage of the Company's Direct
Deposit product and 33,500 using the Company's Check Signing option.
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HRS-PEO SEGMENT
For the year ended May 31, 1998, operating income for the segment increased
from $5.6 million to $6.6 million. HRS-PEO service revenue rose to $38.5
million, an increase of 25% over $30.9 million for the same period last year.
For the quarter ended May 31, 1998, operating income for the HRS-PEO segment
increased from $.5 million to $3.9 million. HRS-PEO service revenue rose to
$12.1 million, an increase of 53% over $7.9 million for the fourth quarter
last year.
The increased revenue for the year and the quarter is directly related to the
continued growth of the segment's client bases. As of May 31, 1998, the
segment had 6,000 401(k) recordkeeping clients, 16,400 section 125 clients,
and 19,200 PEO worksite employees, which represent an increase of 100%, 24%,
and 39%, respectively, over the same period last year. The segment's increase
in operating income for the quarter ended May 31, 1998, is due to increased
revenue and the benefits of consolidating the PEO administrative functions in
Rochester, NY. This consolidation was completed at the end of February, 1998.
CORPORATE EXPENSES
Corporate expenses include the Information Technology, Organizational
Development, Finance and Senior Management functions of the Company. For the
year ended May 31, 1998, operating expenses increased 18% from $44.3 million
to $52.2 million. For the quarter ended May 31, 1998, operating expenses
increased 30% from $10.6 million to $13.7 million. The year's increase in
expenses is primarily due to additional employees necessary to support the
growth of the Company's business segments. The fourth quarter increase relates
to additional personnel and increased national marketing efforts, which were
commenced in the third quarter of 1998.
B. Thomas Golisano, Chairman, President, and Chief Executive Officer of
Paychex said, "We are pleased with our excellent financial results for both
the year and fourth quarter of fiscal 1998. These results reflect our seventh
consecutive year of net income growth of 36% or more. Outstanding new payroll
client growth was accompanied by increased utilization of Taxpay, Direct
Deposit and other ancillary products. We see growing acceptance of our
HRS-PEO products and, as evidenced by our fourth quarter results, anticipate
excellent opportunities from this combination of resources and client
experience. We look forward to continued success as we expand our client base
in the Payroll and HRS-PEO divisions."
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PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the For the
three months ended twelve months ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
Service revenues:
Payroll $119,595 $ 98,910 $455,227 $368,855
HRS-PEO 12,116 7,930 38,477 30,878
------- ------- ------- -------
Total service revenues 131,711 106,840 493,704 399,733
PEO direct costs billed (A) 136,575 96,756 499,741 334,966
------- ------- ------- -------
Total revenue 268,286 203,596 993,445 734,699
PEO direct costs (A) 136,575 96,756 499,741 334,966
Operating costs 34,187 30,178 131,731 115,034
Selling, general and
administrative expenses 60,605 50,505 227,273 188,074
------- ------- ------- -------
Operating income 36,919 26,157 134,700 96,625
Investment income 2,645 2,037 9,473 7,031
------- ------- ------- -------
Income before income taxes 39,564 28,194 144,173 103,656
Income taxes 11,513 7,471 41,954 28,506
------ ------- ------- -------
Net income $ 28,051 $ 20,723 $102,219 $ 75,150
======= ======= ======= =======
Basic earnings per share (B)$ .17 $ .13 $ .63 $ .46
======= ======= ======= =======
Diluted earnings
per share (B) $ .17 $ .13 $ .62 $ .46
======= ======= ======= =======
Weighted-average common
shares outstanding (B) 163,162 162,730 163,009 162,002
======= ======= ======= =======
Weighted-average shares
assuming dilution (B) 165,326 164,275 164,813 163,757
======= ======= ======= =======
Cash dividends per share (B)$ .06 $ .04 $ .22 $ .15
======= ======= ======= =======
(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
(B) Financial information for the periods ended May 31, 1997, have been
adjusted for a three-for-two stock split distributed in May 1998.
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PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 31, 1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 35,571 $ 50,213
Investments 214,967 132,780
Interest receivable 13,227 10,462
Accounts receivable 54,596 45,527
Deferred income taxes 1,525 2,560
Prepaid expenses and other current assets 4,391 2,486
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Current assets before ENS investments 324,277 244,028
Electronic Network Services investments 1,154,501 896,633
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Total current assets 1,478,778 1,140,661
Property and equipment - net 64,698 54,178
Deferred income taxes 517 72
Other assets 5,794 6,412
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Total assets $1,549,787 $1,201,323
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LIABILITIES
Current liabilities:
Accounts payable $ 10,496 $ 5,649
Accrued compensation and related items 33,649 26,969
Deferred revenue 4,443 4,335
Accrued income taxes 2,628 1,774
Other current liabilities 13,960 11,240
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Current liabilities before ENS client deposits 65,176 49,967
Electronic Network Services client deposits 1,150,484 896,080
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Total current liabilities 1,215,660 946,047
Other long-term liabilities 4,520 3,734
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Total liabilities 1,220,180 949,781
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
authorized 300,000 shares
Issued: 163,188/1998 and 108,519/1997 1,632 1,085
Additional paid-in capital 46,463 37,531
Retained earnings 278,107 212,387
Accumulated other comprehensive income 3,405 539
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Total stockholders' equity 329,607 251,542
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Total liabilities and stockholders' equity $1,549,787 $1,201,323
========= =========
Note: Accumulated other comprehensive income is related to the Company's
early adoption of Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." The adoption of the Statement did not have
an effect on the Company's results of operations or financial position.
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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 For the
three months ended twelve months ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
Total revenue:
Payroll $119,595 $ 98,910 $455,227 $368,855
HRS-PEO revenue:
Service revenue 12,116 7,930 38,477 30,878
PEO direct costs billed (A) 136,575 96,756 499,741 334,966
------- ------- ------- -------
Total HRS-PEO revenue 148,691 104,686 538,218 365,844
------- ------- ------- -------
Total revenue 268,286 203,596 993,445 734,699
PEO direct costs (A) 136,575 96,756 499,741 334,966
------- ------- ------- -------
Total revenue less
PEO direct costs 131,711 106,840 493,704 399,733
======= ======= ======= =======
Operating income:
Payroll 46,707 36,228 180,265 135,364
HRS-PEO 3,948 480 6,642 5,596
------- ------- ------- -------
Total operating income 50,655 36,708 186,907 140,960
Corporate expenses 13,736 10,551 52,207 44,335
Investment income 2,645 2,037 9,473 7,031
------- ------- ------- -------
Income before income taxes $ 39,564 $ 28,194 $144,173 $103,656
======= ======= ======= =======
(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.
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EXHIBIT B
PAYCHEX, INC. RESTATED QUARTERLY SEGMENT RESULTS
IN ACCORDANCE WITH ADOPTION OF SFAS No. 131
During the fourth quarter of fiscal year 1998, Paychex, Inc., adopted
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Statement requires
the Company to report segment financial information consistent with the
presentation made to the Company's management for decision-making purposes.
Previously reported prior quarter and year segment disclosures have been
restated to be consistent with the fourth quarter and year ended May 31, 1998.
Adoption of SFAS No. 131 required the Company's Corporate expenses to be
displayed separately. Previous segment disclosure requirements required
Corporate expenses to be allocated to the reported segments.
Segment information reflecting the adoption of SFAS No. 131 for the four
quarters and years ended May 31, 1998 and 1997, is as follows.
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.
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PAYCHEX, INC.
BUSINESS SEGMENT INFORMATION
RESTATED FOR ADOPTION OF SFAS No. 131
(In thousands)
Year ended May 31, 1998 For the
twelve
months
/----------For the three months ended-----------/ ended
August 31, November 30, February 28, May 31, May 31,
1997 1997 1998 1998 1998
Total revenue:
Payroll $104,865 $108,528 $122,239 $119,595 $455,227
HRS-PEO revenue:
Service revenue 8,082 8,645 9,634 12,116 38,477
PEO direct costs
billed (A) 105,636 118,048 139,482 136,575 499,741
------- ------- ------- ------- -------
Total HRS-PEO
revenue 113,718 126,693 149,116 148,691 538,218
------- ------- ------- ------- -------
Total revenue 218,583 235,221 271,355 268,286 993,445
PEO direct costs (A) 105,636 118,048 139,482 136,575 499,741
------- ------- ------- ------- -------
Total revenue less
PEO direct costs 112,947 117,173 131,873 131,711 493,704
======= ======= ======= ======= =======
Operating income:
Payroll 41,234 44,230 48,094 46,707 180,265
HRS-PEO 1,204 994 496 3,948 6,642
------- ------- ------- ------- -------
Total operating
income 42,438 45,224 48,590 50,655 186,907
Corporate expenses 12,081 12,652 13,738 13,736 52,207
Investment income 2,188 2,291 2,349 2,645 9,473
------- ------- ------- ------- -------
Income before
income taxes $ 32,545 $ 34,863 $ 37,201 $ 39,564 $144,173
======= ======= ======= ======= =======
(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
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PAYCHEX, INC.
BUSINESS SEGMENT INFORMATION
RESTATED FOR ADOPTION OF SFAS No. 131
(In thousands)
Year ended May 31, 1998 For the
twelve
months
/----------For the three months ended-----------/ ended
August 31, November 30, February 28, May 31, May 31,
1996 1996 1997 1997 1997
Total revenue:
Payroll $ 84,307 $ 87,704 $ 97,934 $ 98,910 $368,855
HRS-PEO revenue:
Service revenue 6,966 7,562 8,420 7,930 30,878
PEO direct costs
billed (A) 74,769 74,233 89,208 96,756 334,966
------- ------- ------- ------- -------
Total HRS-PEO
revenue 81,735 81,795 97,628 104,686 365,844
------- ------- ------- ------- -------
Total revenue 166,042 169,499 195,562 203,596 734,699
PEO direct costs (A) 74,769 74,233 89,208 96,756 334,966
Total revenue less
PEO direct costs 91,273 95,266 106,354 106,840 399,733
======= ======= ======= ======= =======
Operating income:
Payroll 31,301 32,583 35,252 36,228 135,364
HRS-PEO 1,539 2,356 1,221 480 5,596
------- ------- ------- ------- -------
Total operating
income 32,840 34,939 36,473 36,708 140,960
Corporate expenses 10,743 11,590 11,451 10,551 44,335
Investment income 1,485 1,745 1,764 2,037 7,031
------- ------- ------- ------- -------
Income before
income taxes $ 23,582 $ 25,094 $ 26,786 $ 28,194 $103,656
======= ======= ======= ======= =======
(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
