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: December 19, 2001 (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) (585) 385-6666 (Registrant's telephone number, including area code) ITEM 9. REGULATION FD DISCLOSURE The registrant's press release dated December 19, 2001 is attached. This release announces the Company's results of operations for the second quarter ended November 30, 2001. 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: December 19, 2001 /s/ B. Thomas Golisano ----------------------- B. Thomas Golisano Chairman, President and Chief Executive Officer Date: December 19, 2001 /s/ John M. Morphy ----------------------- John M. Morphy Vice President, Chief Financial Officer and Secretary FOR IMMEDIATE RELEASE John M. Morphy, Chief Financial Officer or Jan Shuler 585-383-3406 Access the Webcast of the Paychex, Inc. Second Quarter Earnings Release Conference Call scheduled for December 19, 2001 at 11:00 a.m. Eastern Standard Time at http://www.paychex.com at the Investor Relations home page. Paychex, Inc. news releases, current financial information, related SEC filings and Investor Relations presentation are accessible at the same Web site. PAYCHEX, INC. REPORTS RECORD SECOND QUARTER RESULTS ROCHESTER, NY, December 19, 2001 -- Paychex, Inc. (NASDAQ: PAYX) today announced net income of $68.7 million, or $.18 diluted earnings per share, for the quarter ended November 30, 2001, an 11% increase over net income of $62.1 million, or $.16 diluted earnings per share, for the same period last year. Total revenues were $233.0 million, a 12% increase over $208.1 million for the second quarter last year. For the six months ended November 30, 2001, the Company reported record net income of $138.9 million, or $.37 diluted earnings per share, a 15% increase over $120.8 million, or $.32 diluted earnings per share, for the same period last year. Total revenues were $467.8 million, an increase of 14% over $412.0 million for the same period last year. ECONOMIC CONDITIONS The Company first experienced the effects of the recession during the first quarter of fiscal 2002, and these effects have heightened during the second quarter. In response to the declining economic conditions, the Federal Reserve has lowered the Federal Funds rate eleven times for a cumulative 475 basis point affect on interest rates. The short- and long-term effect of changing interest rates is disclosed in detail in the Company's financial statements and recent SEC filings, which are accessible at the Company's Web site. After the effects of volatile interest rates, the most significant impact of a recessionary economy is lower checks per client as existing clients reduce the size of their work force. During the second quarter of fiscal 2002, the Company experienced a 4.3% decline in checks per client compared to 2.6% in the first quarter. During the recession of the early 1990's, the Company experienced an approximate 3% total reduction in checks per client. Despite the above factors, income before taxes remained strong at 43% of revenues during the first half of the year compared with 42% for the same period last year. If the interest rates and checks per client conditions experienced in fiscal 2000 had prevailed through fiscal 2001 and the first half of fiscal 2002, net income growth in fiscal 2001 would have been approximately 25% compared with a reported 34% growth. Net income growth for the first half of fiscal 2002 would also have been approximately 25% compared with a reported 15%. SERVICE REVENUES For the quarter ended November 30, 2001, service revenues, which are comprised of the Payroll and Human Resource and Benefits product lines, were $217.5 million, an increase of 14% over $190.7 million for the prior year quarter. For the six months ended November 30, 2001, service revenues were $433.7 million, an increase of 15% over $377.2 million for the same period last year. Payroll service revenue increased 13% to $188.5 million from $167.1 million for the prior year second quarter. For the six-month period, Payroll service revenue increased 14% to $377.9 million from $331.7 million for the prior year period. The increases in Payroll service revenue reflect growth in the client base, increased utilization of ancillary services and price increases. As of November 30, 2001, 84% of Paychex clients utilized Taxpay(Registered Trademark), the Company's tax filing and payment feature. The Company's Employee Pay Services, which includes Direct Deposit, Readychex(Service Mark) and Access Card products, was utilized by 55% of its clients. Major Market Services revenue increased 56% and 59% for the second quarter and six-month periods to $16.6 million and $32.2 million, respectively. Human Resource and Benefits service revenue was $29.0 million, an increase of 23% over $23.6 million for the second quarter last year. For the six-month period, Human Resource and Benefits service revenue increased 22% to $55.8 million from $45.6 million for the prior year period. The increases are related primarily to growth in clients for Retirement Services and in client employees served by the Company's comprehensive Paychex Administrative Services (PAS) and Professional Employer Organization (PEO) bundled services. Retirement Services revenue increased 30% and 28% in the second quarter and six-month periods to $13.6 million and $25.9 million, respectively. INTEREST ON FUNDS HELD FOR CLIENTS For the quarter ended November 30, 2001, interest on funds held for clients was $15.5 million, an 11% decrease from $17.4 million for the second quarter last year. For the six months ended November 30, 2001, interest on funds held for clients decreased 2% to $34.1 million from $34.8 million. The decreases are the result of lower interest rates earned in fiscal 2002 offset by net realized gains on the sale of available-for-sale securities and higher average portfolio balances. Net realized gains included in interest on funds held for clients were $2.2 million and $5.4 million for the second quarter and six-month periods of fiscal 2002 compared with net realized losses of $.1 million and $.2 million for the respective prior year periods. OPERATING INCOME For the quarter ended November 30, 2001, operating income was $91.1 million, a 9% increase over $83.4 million for the second quarter last year. For the six months ended November 30, 2001, operating income increased 14% to $184.8 million from $162.3 million in the prior year period. Combined operating and selling, general and administrative expenses increased 14% in the second quarter and 13% for the six-month period over the prior year periods. These increases reflect increases in personnel, information technology and facility costs necessary to support the growth of the Company. INVESTMENT INCOME Investment income for the quarter ended November 30, 2001 increased 37% to $8.2 million from $6.0 million in the second quarter of last year. Investment income for the six-month period increased 37% to $15.7 million from $11.5 million in the prior year period. The increases are due to net realized gains on the sale of available-for-sale securities and higher average daily invested balances offset by the impact of lower interest rates in fiscal 2002. Net realized gains included in investment income were $1.8 million and $2.8 million for the second quarter and six-month periods of fiscal 2002 compared with net realized losses of $.1 million and $.2 million for the respective prior year periods. B. Thomas Golisano, Chairman, President and Chief Executive Officer of Paychex, said, "Given the significant decreases in interest rates and declining economic conditions, which continue to impact average checks per client, we are pleased with our results for the second quarter. During these challenging conditions, we remain focused on increasing our client base, utilization of ancillary services and controlling expenses. For fiscal 2002, we expect to produce record revenue and net income with revenue growth in the range of 9% to 11%." "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain written and oral statements made by Paychex, Inc. (the "Company") 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 "we expect," "expected to," "estimates," "we look forward to," "would equate to," "projects," "projected to be," "anticipates," "we believe," "could be," and other similar phrases. Because they are forward-looking, they should be evaluated in light of important risk factors. These risk factors include, but are not limited to, general market and economic conditions, including demand for the Company's products and services, availability of internal and external resources, executing expansion plans, 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, state unemployment, and section 125 plans; delays in the development, timing of the introduction, and marketing of new products and services; changes in technology, including use of the Internet; the possibility of catastrophic events that could impact the Company's operating facilities, computer technology, and communication systems; stock volatility; and changes in short- and long-term interest rates, changes in market value of available-for-sale securities, and the credit rating of cash, cash equivalents, and securities held in the Company's investment portfolios, all of which could cause actual results to differ materially from anticipated results. The information provided in this document is based upon the facts and circumstances known at this time. The Company assumes no obligation to update this document for new information subsequent to its issuance. PAYCHEX, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
- -------------------------------------------------------------------------------- For the three months ended For the six months ended November 30, November 30, November 30, November 30, 2001 2000 2001 2000 - -------------------------------------------------------------------------------- Revenues: Service revenues $217,509 $190,745 $433,685 $377,215 Interest on funds held for clients 15,479 17,353 34,117 34,766 - -------------------------------------------------------------------------------- Total revenues 232,988 208,098 467,802 411,981 Operating costs 54,731 47,095 108,487 93,022 Selling, general and administrative expenses 87,174 77,578 174,470 156,708 - -------------------------------------------------------------------------------- Operating income 91,083 83,425 184,845 162,251 Investment income 8,191 5,965 15,718 11,499 - -------------------------------------------------------------------------------- Income before income taxes 99,274 89,390 200,563 173,750 Income taxes 30,576 27,264 61,672 52,994 - -------------------------------------------------------------------------------- Net income $ 68,698 $ 62,126 $138,891 $120,756 ================================================================================ Basic earnings per share $ .18 $ .17 $ .37 $ .32 - -------------------------------------------------------------------------------- Diluted earnings per share $ .18 $ .16 $ .37 $ .32 - -------------------------------------------------------------------------------- Weighted-average common shares outstanding 374,512 372,618 374,237 372,326 - -------------------------------------------------------------------------------- Weighted-average shares assuming dilution 377,614 377,839 377,672 377,511 - -------------------------------------------------------------------------------- Cash dividends per common share $ .11 $ .09 $ .20 $ .15 - -------------------------------------------------------------------------------- (A) Certain amounts for the three- and six-month periods ended November 30, 2000 have been reclassified to conform to the current year presentation. In addition, the Company has changed its segment reporting from two segments to one segment in fiscal 2002. (B) Further information on interest on funds held for clients and investment income can be found in the Company's SEC filings, including recent Form 10-Qs, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and subheadings "Results of Operations" and "Market Risk Factors." These SEC filings are accessible at the Company's Web site.
PAYCHEX, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
- -------------------------------------------------------------------------------- November 30, May 31, 2001 2001 - -------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 96,290 $ 45,784 Corporate investments 563,893 568,217 Interest receivable 24,646 28,281 Accounts receivable 112,911 100,640 Prepaid expenses and other current assets 8,330 7,306 - -------------------------------------------------------------------------------- Current assets before funds held for clients 806,070 750,228 Funds held for clients 1,841,370 2,041,045 - -------------------------------------------------------------------------------- Total current assets 2,647,440 2,791,273 Property and equipment - net 107,071 96,078 Intangible assets - net 9,316 9,612 Deferred income taxes -- 1,361 Other assets 8,713 8,872 - -------------------------------------------------------------------------------- Total assets $2,772,540 $2,907,196 ================================================================================ LIABILITIES Accounts payable $ 12,179 $ 16,377 Accrued compensation and related items 38,718 57,418 Deferred revenue 3,344 4,421 Accrued income taxes 3,196 9,783 Deferred income taxes 17,843 4,996 Other current liabilities 15,203 19,282 - -------------------------------------------------------------------------------- Current liabilities before client fund deposits 90,483 112,277 Client fund deposits 1,829,619 2,031,565 - -------------------------------------------------------------------------------- Total current liabilities 1,920,102 2,143,842 Long-term liabilities 5,866 5,512 - -------------------------------------------------------------------------------- Total liabilities 1,925,968 2,149,354 STOCKHOLDERS' EQUITY Common stock, $.01 par value, 600,000 authorized shares Issued: 374,740 at November 30, 2001 and 373,647 at May 31, 2001 3,747 3,736 Additional paid-in capital 161,535 139,897 Retained earnings 665,145 601,142 Accumulated other comprehensive income 16,145 13,067 - -------------------------------------------------------------------------------- Total stockholders' equity 846,572 757,842 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,772,540 $2,907,196 ================================================================================ (A) The combined funds held for clients and corporate investment portfolio balances reflected unrealized gains of $25.3 million at November 30, 2001 compared with $20.5 million at May 31, 2001. Intermediate-term interest rates have increased slightly since November 30, 2001 resulting in a decline in the unrealized gain position to approximately $16 million at December 17, 2001.