FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1995 ------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------- For Quarter Ended February 28, 1995 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) (Registrant's telephone number, including area code) (716)385-6666 ------------ - ---------------------------------------------------------------------- (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 . ----- ----- CLASS OUTSTANDING AT FEBRUARY 28,1995 - ------------------------------ ----------------------------------- (Common Stock, $.01 Par Value) (29,990,871 Shares) PAYCHEX, INC. AND SUBSIDIARY INDEX PART I. FINANCIAL INFORMATION PAGE - ------------------------------ ---- ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEETS - FEBRUARY 28, 1995 AND MAY 31, 1994 3-4 CONSOLIDATED STATEMENTS OF INCOME - THREE AND NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994 5 CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - FEBRUARY 28, 1995 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9 PART II. OTHER INFORMATION - -------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 - ---------- PART I. FINANCIAL INFORMATION PAYCHEX, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, MAY 31, 1995 1994 ----------- ------- ASSETS (UNAUDITED) (in thousands) CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 27,961 $ 14,605 INVESTMENTS 51,617 40,991 INTEREST RECEIVABLE 4,474 4,867 TRADE ACCOUNTS RECEIVABLE 26,658 22,812 PREPAID EXPENSES AND OTHER CURRENT ASSETS 1,663 2,291 DEFERRED INCOME TAXES 2,348 1,435 ----------- --------- TOTAL CURRENT ASSETS 114,721 87,001 PROPERTY AND EQUIPMENT LAND AND IMPROVEMENTS 2,765 2,718 BUILDINGS 21,276 21,183 DATA PROCESSING EQUIPMENT 33,177 42,818 FURNITURE, FIXTURES AND EQUIPMENT 28,585 25,199 LEASEHOLD IMPROVEMENTS 1,346 1,070 ----------- --------- 87,149 92,988 LESS ALLOWANCE FOR DEPRECIATION AND AMORTIZATION 43,526 50,572 ----------- --------- NET PROPERTY AND EQUIPMENT 43,623 42,416 OTHER ASSETS 421 372 ----------- --------- TOTAL ASSETS $ 158,765 $ 129,789 =========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, CONT'D.
FEBRUARY 28, MAY 31, 1995 1994 ------------ ------------ (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 2,635 $ 3,487 ACCRUED COMPENSATION AND RELATED ITEMS 12,348 9,585 ACCRUED INCOME TAXES 2,351 -0- OTHER ACCRUED EXPENSES 4,709 2,906 DEFERRED REVENUE 3,422 2,772 CURRENT PORTION OF LONG-TERM DEBT 220 220 ----------- ---------- TOTAL CURRENT LIABILITIES 25,685 18,970 OTHER LIABILITIES LONG-TERM DEBT 728 728 UNAMORTIZED LEASE INCENTIVES 625 885 DEFERRED INCOME TAXES 661 698 ----------- ---------- TOTAL LIABILITIES 27,699 21,281 STOCKHOLDERS' EQUITY COMMON STOCK, $.01 PAR VALUE, AUTHORIZED 50,000,000 SHARES: ISSUED 29,990,871 AT FEBRUARY 28, 1995 AND 29,907,406 AT MAY 31, 1994 300 299 ADDITIONAL CAPITAL 17,422 15,778 RETAINED EARNINGS 113,344 92,431 ---------- ---------- 131,066 108,508 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 158,765 $ 129,789 ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED FEBRUARY 28, FEBRUARY 28, --------------------- ------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (in thousands, except per share amounts) REVENUE $68,638 $57,572 $195,327 $165,212 OPERATING COSTS 21,309 17,958 57,358 50,633 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 35,350 30,980 100,164 87,248 ------- ------- -------- -------- OPERATING INCOME 11,979 8,634 37,805 27,331 OTHER INCOME (EXPENSE) INVESTMENT INCOME 1,006 733 2,500 1,734 INTEREST EXPENSE (105) (34) (168) (92) ------- ------- ------- -------- INCOME BEFORE INCOME TAXES 12,880 9,333 40,137 28,973 INCOME TAXES 3,532 2,684 11,600 8,302 ------- ------- -------- -------- NET INCOME $ 9,348 $ 6,649 $ 28,537 $20,671 ======= ======= ======== ======= NET INCOME PER SHARE $ .31 $ .22 $ .95 $ .69 ======= ======= ======== ======= CASH DIVIDENDS PER SHARE $ .09 $ .06 $ .24 $ .16 ======= ======= ======== ======= WEIGHTED AVERAGE SHARES OUTSTANDING 29,960 29,882 29,933 29,846 ======= ======= ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, ------------------------------ 1995 1994 ---- ---- (in thousands) OPERATING ACTIVITIES NET INCOME $ 28,537 $ 20,671 ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 8,041 8,486 PROVISION FOR DEFERRED INCOME TAXES (652) 126 PROVISION FOR BAD DEBTS 818 687 CHANGES IN OPERATING ASSETS AND LIABILITIES: TRADE ACCOUNTS RECEIVABLE (4,664) (3,879) INTEREST RECEIVABLE 393 (37) PREPAID EXPENSES AND OTHER CURRENT ASSETS 628 1,448 TRADE ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES 6,139 3,930 DEFERRED REVENUE 650 836 CHANGE IN UNAMORTIZED LEASE INCENTIVES (334) (444) --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 39,556 31,824 INVESTING ACTIVITIES INVESTMENT PURCHASES (25,731) (22,612) PROCEEDS FROM INVESTMENT SALES AND MATURITIES 14,370 19,355 ADDITIONS TO PROPERTY AND EQUIPMENT NET OF NORMAL DISPOSALS (9,199) (8,965) ADDITIONS TO OTHER ASSETS (98) (218) ---------- -------- NET CASH USED IN INVESTING ACTIVITIES (20,658) (12,440) FINANCING ACTIVITIES PAYMENTS ON LONG-TERM DEBT -0- (374) PROCEEDS AND TAX BENEFIT FROM EXERCISE OF STOCK OPTIONS 1,645 1,744 DIVIDENDS PAID (7,187) (4,777) PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES -0- (12) ----------- -------- NET CASH USED IN FINANCING ACTIVITIES (5,542) (3,419) ----------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 13,356 15,965 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,605 5,023 ---------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,961 $ 20,988 ========== ========
SEE NOTES TO FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARY FEBRUARY 28, 1995 A) THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PAYCHEX, INC. AND ITS WHOLLY-OWNED SUBSIDIARY 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, ALL ADJUSTMENTS CONSIDERED NECESSARY FOR A FAIR PRESENTATION HAVE BEEN INCLUDED. THE ACCOMPANYING FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE NOTES TO FINANCIAL STATEMENTS PRESENTED IN THE COMPANY'S FORM 10-K AND ANNUAL REPORT FOR THE YEAR ENDED MAY 31, 1994. B) DURING THE NINE-MONTH PERIOD ENDING FEBRUARY 28, 1995, 83,465 SHARES OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS. C) EFFECTIVE JUNE 1, 1994, THE COMPANY ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES." THE COMPANY CLASSIFIES ALL INVESTMENTS AS AVAILABLE FOR SALE. INVESTMENTS ARE STATED AT FAIR VALUE WITH UNREALIZED GAINS AND LOSSES REPORTED IN RETAINED EARNINGS, NET OF TAX. THE IMPACT OF THE ADOPTION AT JUNE 1, 1994, WAS A DECREASE TO SHAREHOLDERS' EQUITY OF $206,000 (NET OF $140,000 IN DEFERRED INCOME TAXES). THE ADJUSTMENT FOR THE NINE MONTH PERIOD ENDING FEBRUARY 28, 1995, WHICH INCLUDES THE JUNE 1, 1994 ADJUSTMENT, WAS A DECREASE TO SHAREHOLDERS' EQUITY OF $437,000 (NET OF $298,000 IN DEFERRED INCOME TAXES). D) ON MARCH 20, 1995, PAYCHEX, INC. ANNOUNCED IT HAD SIGNED AN AGREEMENT TO MERGE WITH PAY-FONE SYSTEMS, INC. THE MERGER WILL BE ACCOUNTED FOR AS A POOLING OF INTERESTS WHEREBY PAY-FONE SHAREHOLDERS WILL EXCHANGE ALL THEIR STOCK FOR APPROXIMATELY $10,475,000 OF NEWLY ISSUED PAYCHEX STOCK. THE MERGER IS SUBJECT TO APPROVAL BY PAY-FONE SHAREHOLDERS AND IS NOT EXPECTED TO HAVE A SIGNIFICANT IMPACT ON PAYCHEX' FINANCIAL POSITION AND RESULTS OF OPERATIONS. PAYCHEX, INC. AND SUBSIDIARY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING IS MANAGEMENT'S DISCUSSION OF CERTAIN SIGNIFICANT CHANGES IN THE RESULTS OF OPERATIONS DURING THE PERIODS INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS. RESULTS OF OPERATIONS - --------------------- REVENUE FOR THE THIRD QUARTER AND NINE MONTHS ENDED FEBRUARY 28, 1995 ROSE BY 19% TO $68,638,000 AND 18% TO $195,327,000, RESPECTIVELY, WHEN COMPARED TO THE SAME PERIODS LAST YEAR. THE REVENUE INCREASE RESULTED FROM GREATER THAN EXPECTED GROWTH IN PAYROLL CLIENTS, THE CONTINUED GROWTH OF THOSE CLIENTS UTILIZING THE TAXPAY FEATURE AND A SALARY DEPOSIT OPTION, SOLID REVENUE GAINS IN THE HUMAN RESOURCE SERVICES DIVISION AND CONTINUED IMPROVED INTEREST RATES ON THE TAXPAY INVESTMENTS. THE COMPANY EXPECTS CONTINUED EXPANSION OF ITS CLIENT BASE FOR ALL PRODUCTS AND SERVICES FOR THE REMAINDER OF THE YEAR. OPERATING COSTS FOR THE THREE-MONTH PERIOD WERE AT LAST YEAR'S LEVEL OF 31%. YEAR-TO-DATE OPERATING COSTS AMOUNTED TO 29% OF REVENUE, AS COMPARED TO 31% FOR THE SAME PERIOD LAST YEAR. AS A PERCENTAGE OF REVENUE, DEPRECIATION, PROCESSING WAGES AND MAINTENANCE CHARGES WERE LOWER IN THE CURRENT NINE-MONTH PERIOD WHEN COMPARED TO THE SAME NINE MONTHS LAST YEAR. IT IS EXPECTED THAT OPERATING COSTS FOR THE FISCAL YEAR, AS A PERCENTAGE OF REVENUE, WILL BE LOWER THAN LAST YEAR. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES WERE 52% AND 51% OF REVENUE FOR THE RESPECTIVE THREE AND NINE-MONTH PERIODS OF THE CURRENT YEAR WHICH WERE BELOW COMPARATIVE PRIOR YEAR PERIODS. A MODEST INCREASE IN SELLING EXPENSES, AS A PERCENTAGE OF REVENUE, WAS MORE THAN OFFSET WITH DECREASES IN GENERAL AND ADMINISTRATIVE PAYROLL AND OTHER COSTS. THE COMPANY EXPECTS TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE CURRENT YEAR, AS A PERCENTAGE OF REVENUE, TO BE SLIGHTLY LOWER THAN LAST YEAR. THE TAX RATE FOR THE CURRENT QUARTER WAS 27.4% COMPARED TO 28.8% FOR THE SAME QUARTER LAST YEAR. THE DECREASE IS PRIMARILY ATTRIBUTABLE TO AN INCREASE OF TAX-EXEMPT INTEREST INCOME AS A PERCENTAGE OF PRE-TAX INCOME. IT IS ANTICIPATED THAT THE EFFECTIVE TAX RATE FOR THE CURRENT FISCAL YEAR WILL BE SLIGHTLY HIGHER THAN LAST YEAR. THE PRIOR YEAR'S LOWER RATE IS DUE PRIMARILY TO THE IMPACT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS #109 "ACCOUNTING FOR INCOME TAXES" IN THE FIRST FISCAL QUARTER. ON MARCH 20, 1995, THE COMPANY ANNOUNCED IT HAD SIGNED AN AGREEMENT TO MERGE WITH PAY-FONE SYSTEMS, INC. THE MERGER WILL BE ACCOUNTED FOR AS A POOLING OF INTERESTS WHEREBY PAY-FONE SHAREHOLDERS WILL EXCHANGE ALL THEIR STOCK FOR APPROXIMATELY $10,475,000 OF NEWLY ISSUED PAYCHEX STOCK. PAY-FONE PROVIDES PAYROLL AND TAX PREPARATION SERVICES TO APPROXIMATELY 3,500 CLIENTS THROUGH FIVE OFFICES IN CALIFORNIA. THE MERGER IS SUBJECT TO APPROVAL BY PAY-FONE SHAREHOLDERS AND IS NOT EXPECTED TO HAVE A SIGNIFICANT IMPACT ON PAYCHEX' FINANCIAL POSITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES TOTALED $39,556,000 FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995, AS COMPARED TO $31,824,000 FOR THE SAME PERIOD LAST YEAR. THIS GAIN WAS PRIMARILY ATTRIBUTABLE TO RECORD YEAR-TO-DATE NET INCOME WHICH REACHED $28,537,000. THIS REPRESENTS A 38% INCREASE IN NET INCOME OVER THE COMPARATIVE PRIOR YEAR PERIOD. NET CASH USED IN INVESTING ACTIVITIES INCREASED IN THE CURRENT NINE-MONTH PERIOD WHEN COMPARED TO THE SAME PERIOD LAST YEAR AS A HIGHER LEVEL OF INVESTMENT PURCHASES RESULTED FROM THE GROWTH IN THE COMPANY'S CASH PROVIDED BY OPERATIONS. THIS YEAR'S SALE OF INVESTMENTS WERE LOWER THAN LAST YEAR WHEN THE COMPANY SOLD FIXED INCOME SECURITIES AS INTEREST RATES WERE DECLINING TO REALIZE FAVORABLE GAINS. CAPITAL EXPENDITURES FOR THE NINE MONTH PERIOD WERE $9,305,000 AND ARE EXPECTED TO RANGE BETWEEN $12,000,000 AND $13,000,000 FOR THE YEAR. PROJECTED CASH FLOWS ARE EXPECTED TO BE ADEQUATE TO SUPPORT NORMAL BUSINESS OPERATIONS, PLANNED CAPITAL EXPENDITURES AND DIVIDEND PAYMENTS. FURTHERMORE, THE COMPANY HAS $115,000,000 OF UNSECURED BANK LINES OF CREDIT AVAILABLE FOR ITS USE. AS OF FEBRUARY 28, 1995, THERE WERE NO OUTSTANDING BORROWINGS UNDER THESE LINES OF CREDIT. PART II. OTHER INFORMATION PAYCHEX, INC. AND SUBSIDIARY ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: THERE WERE NO EXHIBITS APPLICABLE FOR THE THREE MONTH PERIOD ENDED FEBRUARY 28, 1995. (B) REPORTS ON FORM 8-K: THERE WERE NO REPORTS ON FORM 8-K FILED DURING THE THREE MONTH PERIOD ENDED FEBRUARY 28, 1995. 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. AND SUBSIDIARY DATE: MARCH 23, 1995 /s/ B. THOMAS GOLISANO ---------------------- B. THOMAS GOLISANO CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER DATE: MARCH 23, 1995 /s/ G. THOMAS CLARK ------------------- G. THOMAS CLARK SECRETARY, TREASURER AND VICE PRESIDENT OF FINANCE