FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1998
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)
(716)385-6666
(Registrant's telephone number, including area code)
(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 163,537,368 Shares
- ---------------------------- ---------------------------------
CLASS OUTSTANDING AT SEPTEMBER 30, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(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
------- -------
Total service revenues 139,289 112,947
PEO direct costs billed (A) 142,498 105,636
------- -------
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
------- -------
Operating income 41,643 30,357
Investment income 2,961 2,188
------- -------
Income before income taxes 44,604 32,545
Income taxes 13,203 9,471
------- -------
Net income $ 31,401 $ 23,074
======= =======
Basic earnings per share $ .19 $ .14
======= =======
Diluted earnings per share $ .19 $ .14
======= =======
Weighted-average common shares outstanding 163,277 162,845
======= =======
Weighted-average shares assuming dilution 165,525 164,441
======= =======
Cash dividends per common share $ .06 $ .04
======= =======
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
<PAGE>
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
August 31, May 31,
1998 1998
(UNAUDITED) (AUDITED)
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
--------- ---------
Current assets before ENS investments 350,920 324,277
Electronic Network Services investments 1,110,205 1,154,501
--------- ---------
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
--------- ---------
Total assets $1,530,957 $1,549,787
========= =========
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
--------- ---------
Current liabilities before ENS client deposits 65,076 65,176
Electronic Network Services client deposits 1,103,784 1,150,484
--------- ---------
Total current liabilities 1,168,860 1,215,660
Other long-term liabilities 5,110 4,520
--------- ---------
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
--------- ---------
Total stockholders' equity 356,987 329,607
--------- ---------
Total liabilities and stockholders' equity $1,530,957 $1,549,787
========= =========
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
For the three months ended August 31, 1998 1997
OPERATING ACTIVITIES
Net income $ 31,401 $ 23,074
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization
on depreciable and intangible assets 5,165 4,189
Amortization of premiums and
discounts on available-for sale securities 2,301 1,831
Provision for deferred income taxes 1,398 669
Provision for bad debts 380 383
Net realized gains on sales
of available-for-sale securities (504) (32)
Changes in operating assets and liabilities:
Interest receivable 1,468 880
Accounts receivable (12,116) (3,998)
Prepaid expenses and other current assets 431 92
Accounts payable and other current liabilities 1,317 1,554
Net change in other assets and liabilities 372 984
-------- -------
Net cash provided by operating activities 31,613 29,626
INVESTING ACTIVITIES
Purchases of available-for-sale securities (130,021) (98,712)
Proceeds from sales of
available-for-sale securities 117,756 55,209
Proceeds from maturities of
available-for-sale securities 2,190 -
Net change in Electronic Network
Services money market securities
and other cash equivalents 51,730 6,728
Net change in Electronic Network
Services client deposits (46,700) 22,195
Purchases of property and equipment,
net of disposals (3,157) (5,273)
Purchases of other assets (264) (326)
-------- -------
Net cash used in investing activities (8,466) (20,179)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 600 198
Dividends paid (9,799) (6,516)
Other - (26)
-------- -------
Net cash used in financing activities (9,199) (6,344)
-------- -------
Increase in Cash and cash equivalents 13,948 3,103
Cash and cash equivalents, beginning of period 35,571 50,213
-------- -------
Cash and cash equivalents, end of period $ 49,519 $ 53,316
======== ========
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 31, 1998
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 period. Operating results
for the three months ended August 31, 1998, are not necessarily indicative of
the results that may be expected for the full year ended May 31, 1999. There is
no significant seasonality to the Company's business, except that over 30% of
new Payroll segment clients and over 40% of new PEO worksite employees added
in each of the last three fiscal years have been added during the third fiscal
quarter. Consequently, greater revenue and sales commission expenses are
reported in that quarter. The accompanying financial statements should be read
in conjunction with the financial statements and footnotes presented in the
Company's Annual Report on Form 10-K for the year ended May 31, 1998.
B) Basic earnings per share, diluted earnings per share, cash dividends per
share, weighted-average shares outstanding, weighted-average shares assuming
dilution and all other applicable information for the three months ended
August 31, 1997, 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,
1998, and distributed on May 22, 1998. For the three months ended August 31,
1998, stock options were exercised for 194,000 shares of the Company's common
stock.
C) Property and equipment - net:
August 31, May 31,
1998 1998
(In thousands) (UNAUDITED) (AUDITED)
Land and improvements $ 2,815 $ 2,815
Buildings and improvements 24,965 24,914
Data processing equipment and software 65,486 64,247
Furniture, fixtures and equipment 54,157 52,752
Leasehold improvements 7,517 7,323
------- -------
154,940 152,051
Less accumulated depreciation and amortization 91,954 87,353
------- -------
$ 62,986 $ 64,698
======= =======
<PAGE>
D) Segment Information: Effective May 31, 1998, the Company 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 year segment disclosures have been restated to be consistent.
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,
(In thousands) 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
------- -------
Total HRS-PEO revenue 153,805 113,718
------- -------
Total revenue 281,787 218,583
PEO direct costs (A) 142,498 105,636
------- -------
Total revenue less PEO direct costs 139,289 112,947
======= =======
Operating income:
Payroll 53,888 41,234
HRS-PEO 2,611 1,204
------- -------
Total operating income 56,499 42,438
Corporate expenses 14,856 12,081
Investment income 2,961 2,188
------- -------
Income before income taxes $ 44,604 $ 32,545
======= =======
(A) Wages and payroll taxes of PEO worksite employees and their related
benefit premiums and claims.
<PAGE>
E) Comprehensive income: Comprehensive income is comprised of two
components: net income and other comprehensive income. Comprehensive income
includes all changes in equity during a period except those resulting from
transactions with owners of the Company. The unrealized gains and losses, net
of applicable taxes, related to available-for-sale securities is the only
component reported in accumulated other comprehensive income in the
Consolidated Balance Sheets for the Company. Comprehensive income, net of
related tax effects, is as follows:
For the three months ended
August 31, August 31,
(In thousands) 1998 1997
Net income $ 31,401 $ 23,074
Unrealized gains on securities, net of
reclassification adjustments 2,250 1,408
------- -------
Total comprehensive income $ 33,651 $ 24,482
======= =======
F) Certain amounts from the prior year are reclassified to conform to
fiscal 1999 presentations.
<PAGE>
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 three months ended August 31, 1998 (fiscal 1999) and 1997 (fiscal
1998), and its financial condition at August 31, 1998. 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 accompanying August 31, 1998
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 in Exhibit 99, contained in this Form 10-Q.
Results of Operations
For the three months ended August 31, 1998 Change 1997
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
Service revenues $ 139,289 +23.3% $ 112,947
Operating income $ 41,643 +37.2% $ 30,357
Income before income taxes $ 44,604 +37.1% $ 32,545
Net income $ 31,401 +36.1% $ 23,074
Basic earnings per share $ .19 +35.7% $ .14
Diluted earnings per share $ .19 +35.7% $ .14
- -------------------------------------------------------------------------------
The Company's ability to continually grow its client base, increase the
utilization of ancillary services and decrease operating expenses as a percent
of service revenues resulted in record first quarter service revenues and net
income for the three months ended August 31, 1998.
Payroll segment:
For the three months ended August 31, 1998 Change 1997
(In thousands)
- -------------------------------------------------------------------------------
Payroll service revenue $127,982 +22.0% $104,865
Payroll operating income $ 53,888 +30.7% $ 41,234
Client statistics at August 31,
Payroll clients 300.9 +11.3% 270.3
Taxpay clients 228.9 +19.0% 192.4
Direct Deposit clients 112.4 +37.2% 81.9
Check Signing clients 35.3 +23.4% 28.6
- -------------------------------------------------------------------------------
Revenues: Payroll, Taxpay and Direct Deposit revenues include service fees
and investment revenue. Investment revenue is earned during the period
between collecting client funds and remitting the funds to the applicable tax
authorities for Taxpay clients and client employees for Direct Deposit
clients. The increase in service revenue is primarily related to the
continued growth of the Payroll client base and increased utilization of
ancillary services such as Taxpay, Direct Deposit and Check Signing by both
new and existing clients. On August 31, 1998, approximately 76% of Payroll
clients utilize the Taxpay service. Client utilization of this product is
expected to mature within the next several years within a range of 82% to
87%. Client utilization of Direct Deposit was approximately 37% at August 31,
1998, and will provide additional growth opportunities in fiscal 1999 and
beyond. During the second quarter of fiscal 1998, the Payroll segment also
began to earn new revenues from the reporting of clients' newly hired
employees to meet federal and state requirements. Fiscal 1999's percentage
growth in service revenue is expected to be slightly above 19%.
Operating income: Operating income increased as a result of continued growth
of the client base, increased utilization of ancillary services, and
leveraging of the segment's operating expense base.
HRS-PEO segment:
For the three months ended August 31, 1998 Change 1997
(In thousands)
- -------------------------------------------------------------------------------
HRS-PEO service revenue $ 11,307 + 39.9% $ 8,082
PEO direct costs billed 142,498 + 34.9% 105,636
-------- ------- --------
Total HRS-PEO revenue 153,805 + 35.3% 113,718
PEO direct costs 142,498 + 34.9% 105,636
HRS-PEO operating income $ 2,611 +116.9% $ 1,204
Client statistics at August 31,
401(k) clients 6.7 + 86.1% 3.6
401(k) client funds managed externally
(in millions) $ 401.9 +111.0% $ 190.5
Section 125 clients 17.3 + 24.5% 13.9
PEO worksite employees 19.0 + 31.0% 14.5
- -------------------------------------------------------------------------------
Revenues: The growth in service revenue was due to gains in the number of
401(k) recordkeeping clients, section 125 cafeteria plan clients and
Professional Employer Organization (PEO) worksite employees, which produced
higher recurring revenues. Fiscal 1999's service revenue is expected to grow
at a rate higher than Payroll segment revenues.
Operating income: Improvements in HRS-PEO operating income resulted primarily
from revenue growth, and benefited from the consolidation of the PEO
administrative functions in Rochester, New York, completed in February 1998.
During the three months ended August 31, 1998, the segment increased its
401(k) recordkeeping sales force by approximately 40 individuals to facilitate
the goal of attaining 10,000 clients by the end of that fiscal year. Operating
income for the full year of fiscal 1999 is expected to increase due to
continued client base growth and from efficiencies gained from centralized
operations.
PEO direct costs billed and direct costs: Consistent with industry practices
and generally accepted accounting principles, total PEO revenues reported in
the Consolidated Statements of Income include the service fee, plus the PEO
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 increases in PEO direct costs billed and direct costs are reflective of
the increases in the number of PEO worksite employees.
<PAGE>
Corporate expenses:
For the three months ended August 31, 1998 Change 1997
(In thousands)
- -------------------------------------------------------------------------------
Corporate expenses $ 14,856 +23.0% $ 12,081
- -------------------------------------------------------------------------------
Corporate expenses are primarily related to the Information Technology,
Organizational Development, Finance and Senior Management functions of the
Company. The increase in expenses is primarily related to additional
employees necessary to support the continued growth of the Company's business.
In addition, expenses reflect increased national marketing efforts commenced
during the third quarter of fiscal 1998. Fiscal 1999's expenses are expected
to increase at a rate similar to fiscal 1998's rate of approximately 18%.
Investment income:
For the three months ended August 31, 1998 Change 1997
(In thousands)
- -------------------------------------------------------------------------------
Investment income $ 2,961 +35.3% $ 2,188
- -------------------------------------------------------------------------------
Investment income earned from the Company's Investments, which does not
include the investment revenue earned from ENS investments, has grown mainly
as a result of increases in total cash and investment balances generated from
continual gains in operating cash flows. Investment income for 1999, subject
to changes in market rates of interest, is expected to grow at a rate slightly
lower than net income growth.
Income taxes: The Company's effective tax rate for the three months ended
August 31, 1998 and 1997, was 29.6%, and 29.1%, respectively. The increase in
fiscal 1999's rate is due to expected growth in pre-tax income exceeding the
growth in tax-exempt income, which is derived primarily from Taxpay and Direct
Deposit products that produce float income. Fiscal 1999's effective tax rate
is expected to range from 29.5% to 30.0%.
Liquidity and Capital Resources
Operating cash flows:
For the three months ended August 31, 1998 Change 1997
(In thousands)
- -------------------------------------------------------------------------------
Operating cash flows $ 31,613 + 6.7% $ 29,626
- -------------------------------------------------------------------------------
The increase in operating cash flows resulted primarily from the consistent
achievement of record net income. Projected operating cash flows are expected
to adequately support normal business operations and forecasted growth,
planned purchases of property and equipment and planned dividend payments.
Furthermore, at August 31, 1998, the Company had $268.9 million in available
cash and investments and $262.5 million of available, uncommitted and
unsecured lines of credit.
<PAGE>
Investments and ENS investments: Investments and ENS investments consist of
various government securities, investment grade municipal securities, money
market securities and other short-term cash equivalents. The Company's
Investments increased from the investment of gains in operating cash flows.
The amount of ENS funds held will vary significantly during the year due to
the timing of payroll tax and direct deposit payments and collections.
Credit risk - 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-1 rated short-term securities and
limiting amounts that can be invested in any single instrument. At August 31,
1998, approximately 97% of the available-for-sale securities held an AA rating
or better, and all short-term securities classified as cash equivalents held
an A-1 rating or an equivalent rating.
Interest rate risk - The Company's available-for-sale securities are exposed
to market risk from changes in interest rates, as rate volatility will cause
fluctuations in the market value of held investments and the earnings
potential of future investments. The Company's objective in managing interest
rate risk is to mitigate the risk that earnings from the portfolio could be
adversely impacted by changes in interest rates in the near term. The Company
invests in short- to intermediate-term fixed-rate municipal and government
securities, as they are less sensitive to interest rate fluctuations, and
manages the portfolio to a benchmark duration of 2.5 to 3.0 years.
Purchases of property and equipment:
For the three months ended August 31, 1998 Change 1997
(In thousands)
- -------------------------------------------------------------------------------
Purchases of property & equipment $ 3,166 -40.0% $ 5,280
- -------------------------------------------------------------------------------
The decrease in purchases is primarily related to higher purchases of data
processing equipment in the three months ended August 31, 1997, versus the
same period ended August 31, 1998. Purchases of property and equipment in
fiscal 1999 are expected to be in the range of $30 million.
Cash dividends and stock splits:
For the three months ended August 31, 1998 Change 1997
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
Cash dividends $ 9,799 +50.4% $ 6,516
Cash dividends per share $ .06 +50.0% $ .04
- -------------------------------------------------------------------------------
The increase in cash dividends and per share amounts is due to the 50%
increase declared October 1997 and paid in November 1997. The Company
distributed a three-for-two stock split effected in the form of a 50% stock
dividend on outstanding shares in May 1998. All financial information within
this Form 10-Q has been adjusted for this stock split. On October 1, 1998,
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 16,
1998, to shareholders of record November 2, 1998.
<PAGE>
OTHER
Year 2000 date conversion: The Company is actively pursuing resolution of
year 2000 issues. The year 2000 problem originated with the advent of
computers, when dates were stored without century indicators, in an effort to
reduce the need for expensive storage space used for input, output and storage
media. In order to process and calculate dates correctly, internal computer
systems must be changed to handle the year 2000 and beyond. Year 2000 efforts
extend past the Company's internal computer systems and require coordination
with clients, vendors, government entities, financial institutions and other
third parties to understand their plans for making systems and related
interfaces compliant.
In response to year 2000 issues, the Company initiated a program to manage
progress in year 2000 compliance efforts. The managers of the Company's year
2000 compliance program report directly to the Vice President of Information
Technology and provide regular reports to the Company's Senior Management and
the Board of Directors.
The Company plans to have the majority of internal mission-critical systems
year 2000 compliant by the end of calendar year 1998, and the few remaining
internal systems compliant by the end of the first quarter of calendar year
1999. Processes and procedures are in place to ensure the following: all
future internal development and testing follows year 2000 development and
testing standards, all projects undertaken in the interim deliver year 2000
compliant solutions, all future third-party hardware and software acquisitions
are year 2000 compliant, and all commercial third-party service providers are
being queried regarding their year 2000 compliance plans. In addition, the
Company is actively working with all government agency partners to determine
their year 2000 compliance plans, and has begun making year 2000 changes based
on their mandates.
Calendar year 1999 will be used to react to yet unknown changes dictated by
third parties, such as government agencies, hardware and software vendors,
financial institutions, or utility companies. Third-party interface testing
and resolution of year 2000 issues with external agencies and partners is
dependent upon those third parties completing their own year 2000 remediation
efforts.
The Company expects minimal business disruption will occur as a result of year
2000 issues for systems that the Company directly controls. The Company will
enhance existing normal business contingency plans to address any identified
year 2000 issues based on actual testing experience with third parties and
assessment of outside risks. There can be no assurance that there will not be
an adverse effect on the Company if third parties, such as government
agencies, hardware and software vendors, financial institutions or utility
companies, do not convert their systems in a timely manner and in a way that
is compatible with the Company's systems. However, management believes that
ongoing communication with and assessment of these third parties will minimize
these risks.
<PAGE>
The Company currently anticipates expenditures for year 2000 efforts to
approximate $5 million, with approximately fifty percent spent through August
31, 1998. The cost of the project and the date on which the Company plans to
complete the year 2000 modifications are based on management's best estimates.
These estimates were derived from internal assessments and assumptions of
future events. The estimates may be adversely affected by the continued
availability of personnel and system resources, as well as the failure of
third-party vendors, service providers, and agencies to properly address year
2000 issues. There is no guarantee that these estimates will be achieved, and
actual results could differ significantly from those anticipated.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on October 1, 1998. Stockholders
elected seven Directors nominated in the August 7, 1998 Proxy Statement,
incorporated herein by reference, to hold office until the next Annual Meeting
of Stockholders. Additionally, the stockholders ratified the proposal to
adopt the Paychex, Inc. 1998 stock Incentive Plan.
Results of stockholder voting are as follows:
1. Election of Directors Votes For Votes Withheld
B. Thomas Golisano 134,474,955 474,228
Steven D. Brooks 134,509,941 432,242
G. Thomas Clark 134,477,200 471,783
Phillip Horsley 134,510,429 438,754
Grant M. Inman 134,507,487 444,696
Harry P. Messina, Jr. 134,475,941 473,441
J. Robert Sebo 134,475,205 473,978
2. Proposal to adopt the Paychex, Inc. 1998 Stock Incentive Plan
For Against Abstaining Broker Non-Votes
132,540,946 1,876,707 531,513 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - "Financial Data Schedule" is filed electronically.
Exhibit 99 - "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995.
(b) Reports on Form 8-K: The Company filed a report on Form 8-K on July 2,
1998, that included the Company's press release for the fourth quarter and
year ended May 31, 1998.
<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 15, 1998 /s/ B. Thomas Golisano
-----------------------
B. Thomas Golisano
Chairman, President and
Chief Executive Officer
Date: October 15, 1998 /s/ John M. Morphy
-----------------------
John M. Morphy
Vice President, Chief
Financial Officer and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUGUST
31, 1998 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. ON MAY 22, 1998, PAYCHEX, INC.,
DISTRIBUTED A THREE-FOR-TWO STOCK SPLIT EFFECTED IN THE FORM OF A 50% STOCK
DIVIDEND TO STOCKHOLDERS OF RECORD AS OF MAY 8, 1998. THEREFORE, ALL
APPLICABLE AMOUNTS FOR THE PRIOR YEAR INCLUDED IN THIS SCHEDULE AFFECTED BY
THE STOCK SPLIT HAVE BEEN ADJUSTED.
</LEGEND>
<CIK> 0000723531
<NAME> PAYCHEX, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1999 MAY-31-1998
<PERIOD-START> JUN-01-1998 JUN-01-1997
<PERIOD-END> AUG-31-1998 AUG-31-1997
<CASH> 49,519 53,316
<SECURITIES> 1,329,555<F1> 1,066,627<F1>
<RECEIVABLES> 78,091 58,724
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,461,125 1,181,930
<PP&E> 154,940 131,509
<DEPRECIATION> 91,954 75,973
<TOTAL-ASSETS> 1,530,957 1,244,334
<CURRENT-LIABILITIES> 1,168,860 969,796
<BONDS> 0 0
0 0
0 0
<COMMON> 1,634 1,086
<OTHER-SE> 355,353 268,620
<TOTAL-LIABILITY-AND-EQUITY> 1,530,957 1,244,334
<SALES> 0 0
<TOTAL-REVENUES> 281,787 218,583
<CGS> 0 0
<TOTAL-COSTS> 178,383 135,942
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 44,604 32,545
<INCOME-TAX> 13,203 9,471
<INCOME-CONTINUING> 31,401 23,074
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 31,401 23,074
<EPS-PRIMARY> .19 .14
<EPS-DILUTED> .19 .14
<FN>
<F1>SECURITIES - Includes amounts related to Electronic Network Services
investments with a balance at August 31, 1998 and 1997 of $1,110,205 and
$920,565, respectively.
</FN>
</TABLE>
EXHIBIT 99: "Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
"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.
