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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 

_________________________________________

FORM 10-Q

_________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended November 30, 2019

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.

911 Panorama Trail South

Rochester, NY 14625-2396

(585) 385-6666

A Delaware Corporation

IRS Employer Identification Number: 16-1124166

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange of which registered

Common Stock, $0.01 par value

PAYX

NASDAQ

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 by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x

Accelerated Filer    

Non-Accelerated Filer    

Smaller Reporting Company  

Emerging Growth Company   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 30, 2019, 358,386,480 shares of the registrant’s common stock, $.01 par value, were outstanding.


PAYCHEX, INC.

Table of Contents

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Consolidated Statements of Income and Comprehensive Income

1

Consolidated Balance Sheets

2

Consolidated Statements of Stockholders’ Equity

3

Consolidated Statements of Cash Flows

4

Notes to Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures of Market Risk

39

Item 4.

Controls and Procedures

39

PART II. OTHER INFORMATION

40

Item 6.

Exhibits

40

Signatures

41

 


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

In millions, except per share amounts

For the three months ended

For the six months ended

November 30,

November 30,

2019

2018

2019

2018

Revenue:

Management Solutions

$

726.7

$

685.4

$

1,451.2

$

1,373.1

PEO and Insurance Services

244.1

155.2

491.1

313.2

Total service revenue

970.8

840.6

1,942.3

1,686.3

Interest on funds held for clients

19.9

18.3

40.4

35.4

Total revenue

990.7

858.9

1,982.7

1,721.7

Expenses:

Operating expenses

323.4

264.9

648.8

530.4

Selling, general and administrative expenses

325.6

286.8

643.1

563.8

Total expenses

649.0

551.7

1,291.9

1,094.2

Operating income

341.7

307.2

690.8

627.5

Other (expense)/income, net

(4.7)

2.1

(9.5)

4.4

Income before income taxes

337.0

309.3

681.3

631.9

Income taxes

78.3

73.5

158.4

152.5

Net income

$

258.7

$

235.8

$

522.9

$

479.4

Other comprehensive (loss)/income, net of tax

(14.9)

(11.6)

11.5

(11.2)

Comprehensive income

$

243.8

$

224.2

$

534.4

$

468.2

Basic earnings per share

$

0.72

$

0.66

$

1.46

$

1.34

Diluted earnings per share

$

0.72

$

0.65

$

1.45

$

1.33

Weighted-average common shares outstanding

358.1

359.1

358.4

359.1

Weighted-average common shares outstanding,
    assuming dilution

360.6

361.5

361.1

361.5

See Notes to Consolidated Financial Statements.

1


Table of Contents

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts

November 30,

May 31,

2019

2019

Assets

Cash and cash equivalents

$

600.6

$

673.6

Restricted cash

53.0

50.6

Corporate investments

34.4

39.0

Interest receivable

29.0

27.4

Accounts receivable, net of allowance for doubtful accounts

464.9

420.5

PEO unbilled receivables, net of advance collections

411.7

406.3

Prepaid income taxes

58.6

22.6

Prepaid expenses and other current assets

240.9

233.9

Current assets before funds held for clients

1,893.1

1,873.9

Funds held for clients

3,734.8

3,803.8

Total current assets

5,627.9

5,677.7

Long-term restricted cash

9.7

6.5

Long-term corporate investments

10.1

10.2

Property and equipment, net of accumulated depreciation

401.7

408.7

Operating lease right-of-use assets, net of accumulated amortization

119.2

Intangible assets, net of accumulated amortization

359.7

399.1

Goodwill

1,785.8

1,782.6

Long-term deferred costs

359.7

366.3

Other long-term assets

27.9

24.9

Total assets

$

8,701.7

$

8,676.0

Liabilities

Accounts payable

$

76.3

$

75.9

Accrued corporate compensation and related items

121.5

146.4

Accrued worksite employee compensation and related items

568.3

578.6

Short-term borrowings

51.3

Deferred revenue

42.2

40.3

Other current liabilities

268.0

219.5

Current liabilities before client fund obligations

1,127.6

1,060.7

Client fund obligations

3,696.3

3,784.3

Total current liabilities

4,823.9

4,845.0

Accrued income taxes

30.6

27.3

Deferred income taxes

226.8

223.1

Long-term borrowings, net of debt issuance costs

796.6

796.4

Operating lease liabilities

100.1

13.0

Other long-term liabilities

154.3

151.7

Total liabilities

6,132.3

6,056.5

Commitments and contingencies — Note N

 

 

Stockholders’ equity

Common stock, $0.01 par value; Authorized: 600.0 shares;
   Issued and outstanding: 358.4 shares as of November 30, 2019
   and 359.3 shares as of May 31, 2019

3.6

3.6

Additional paid-in capital

1,252.8

1,206.3

Retained earnings

1,301.4

1,409.5

Accumulated other comprehensive income

11.6

0.1

Total stockholders’ equity

2,569.4

2,619.5

Total liabilities and stockholders’ equity

$

8,701.7

$

8,676.0

See Notes to Consolidated Financial Statements. 

2


Table of Contents

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

In millions, except per share amounts

For the six months ended November 30, 2019

Accumulated

Additional

other

Common stock

paid-in

Retained

comprehensive

Shares

Amount

capital

earnings

income/(loss)

Total

Balance as of May 31, 2019

359.3

$

3.6

$

1,206.3

$

1,409.5

$

0.1

$

2,619.5

Net income

522.9

522.9

Unrealized gains on securities, net of reclassification adjustment and tax

14.3

14.3

Cash dividends declared ($1.24 per share)

(444.3)

(444.3)

Repurchases of common shares

(2.0)

(3.7)

(168.2)

(171.9)

Stock-based compensation costs

23.8

23.8

Foreign currency translation adjustment

(2.8)

(2.8)

Activity related to equity-based plans

1.1

26.4

(18.5)

7.9

Balance as of November 30, 2019

358.4

$

3.6

$

1,252.8

$

1,301.4

$

11.6

$

2,569.4

For the three months ended November 30, 2019

Balance as of August 31, 2019

357.9

$

3.6

$

1,224.0

$

1,265.2

$

26.5

$

2,519.3

Net income

258.7

258.7

Unrealized losses on securities, net of reclassification adjustment and tax

(11.1)

(11.1)

Cash dividends declared ($0.62 per share)

(222.3)

(222.3)

Stock-based compensation costs

13.3

13.3

Foreign currency translation adjustment

(3.8)

(3.8)

Activity related to equity-based plans

0.5

15.5

(0.2)

15.3

Balance as of November 30, 2019

358.4

$

3.6

$

1,252.8

$

1,301.4

$

11.6

$

2,569.4

For the six months ended November 30, 2018

Balance as of May 31, 2018

359.0

$

3.6

$

1,126.8

$

1,262.6

$

(36.2)

$

2,356.8

Net income

479.4

479.4

Unrealized losses on securities, net of reclassification adjustment and tax

(5.2)

(5.2)

Cash dividends declared ($1.12 per share)

(402.7)

(402.7)

Repurchases of common shares

(0.5)

(0.8)

(32.0)