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 August 31, 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 August 31, 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 AUGUST 31,1995 - ------------------------------ ----------------------------------- (Common Stock, $.01 Par Value) (45,380,862 Shares) PAYCHEX, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE - ------------------------------ ---- ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEETS - AUGUST 31, 1995 AND MAY 31, 1995 3-4 CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994 5 CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - AUGUST 31, 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 SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AUGUST 31, MAY 31, 1995 1995 ----------- ------- ASSETS (UNAUDITED) (in thousands) CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 11,451 $ 12,942 INVESTMENTS 82,136 70,753 INTEREST RECEIVABLE 6,219 6,699 TRADE ACCOUNTS RECEIVABLE 33,744 30,772 PREPAID EXPENSES AND OTHER CURRENT ASSETS 2,734 1,743 DEFERRED INCOME TAXES 911 1,310 -------- --------- TOTAL CURRENT ASSETS 137,195 124,219 PROPERTY AND EQUIPMENT LAND AND IMPROVEMENTS 2,787 2,779 BUILDINGS 24,346 21,304 DATA PROCESSING EQUIPMENT 38,308 33,980 FURNITURE, FIXTURES AND EQUIPMENT 32,374 29,135 LEASEHOLD IMPROVEMENTS 1,777 1,528 -------- --------- 99,592 88,726 LESS ALLOWANCE FOR DEPRECIATION AND AMORTIZATION 51,843 45,019 -------- --------- NET PROPERTY AND EQUIPMENT 47,749 43,707 OTHER ASSETS 1,086 511 -------- --------- TOTAL ASSETS $186,030 $ 168,437 ======== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONT'D.
AUGUST 31, MAY 31, 1995 1995 ---------- --------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 3,413 $ 3,519 ACCRUED COMPENSATION AND RELATED ITEMS 12,025 13,162 ACCRUED INCOME TAXES 4,995 682 OTHER ACCRUED EXPENSES 6,676 6,116 DEFERRED REVENUE 2,334 2,977 CURRENT PORTION OF LONG-TERM DEBT 728 205 ---------- ---------- TOTAL CURRENT LIABILITIES 30,171 26,661 OTHER LIABILITIES LONG-TERM DEBT -0- 523 UNAMORTIZED LEASE INCENTIVES 501 557 DEFERRED INCOME TAXES 616 764 ---------- ---------- TOTAL LIABILITIES 31,288 28,505 STOCKHOLDERS' EQUITY COMMON STOCK, $.01 PAR VALUE, AUTHORIZED 50,000,000 SHARES: ISSUED 45,380,862 AT AUGUST 31, 1995 AND 45,031,716 AT MAY 31, 1995 454 450 ADDITIONAL CAPITAL 21,009 17,727 RETAINED EARNINGS 133,279 121,755 --------- ---------- 154,742 139,932 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $186,030 $ 168,437 ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, --------------------- 1995 1994 ---- ---- (in thousands, except per share amounts) REVENUE $76,173 $62,923 OPERATING COSTS 22,384 17,650 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 38,030 32,371 ------- ------- OPERATING INCOME 15,759 12,902 OTHER INCOME (EXPENSE) INVESTMENT INCOME 1,356 706 INTEREST EXPENSE (24) (41) ------- ------- INCOME BEFORE INCOME TAXES 17,091 13,567 INCOME TAXES 4,888 4,016 ------- ------- NET INCOME $12,203 $ 9,551 ======= ======= NET INCOME PER SHARE $ .27 $ .21 ======= ======= CASH DIVIDENDS PER SHARE $ .06 $ .04 ======= ======= WEIGHTED AVERAGE SHARES OUTSTANDING 45,379 44,867 ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, ----------------------------- 1995 1994 ---- ---- (in thousands) OPERATING ACTIVITIES NET INCOME $12,203 $ 9,551 ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 3,527 2,550 PROVISION FOR DEFERRED INCOME TAXES 161 185 PROVISION FOR BAD DEBTS 316 282 NET REALIZED GAIN ON SALES OF AVAILABLE-FOR-SALE SECURITIES (251) (18) CHANGES IN OPERATING ASSETS AND LIABILITIES: TRADE ACCOUNTS RECEIVABLE (2,795) (5,255) INTEREST RECEIVABLE 480 967 PREPAID EXPENSES AND OTHER CURRENT ASSETS (752) 318 TRADE ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES 3,424 7,732 DEFERRED REVENUE (643) (846) CHANGE IN UNAMORTIZED LEASE INCENTIVES (88) (130) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 15,582 15,336 INVESTING ACTIVITIES INVESTMENT PURCHASES OF AVAILABLE- FOR-SALE SECURITIES (30,775) (17,754) PROCEEDS FROM SALES OF AVAILABLE- FOR-SALE SECURITIES 18,457 2,771 PROCEEDS FROM MATURITIES OF AVAILABLE- FOR-SALE SECURITIES 2,250 500 ADDITIONS TO PROPERTY AND EQUIPMENT, NET OF NORMAL DISPOSALS (4,907) (2,593) NET CHANGE IN OTHER ASSETS (521) (267) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (15,496) (17,343) FINANCING ACTIVITIES PROCEEDS AND TAX BENEFIT FROM EXERCISE OF STOCK OPTIONS 334 69 DIVIDENDS PAID (2,716) (1,794) --------- ------- NET CASH USED IN FINANCING ACTIVITIES (2,382) (1,725) --------- ------- (DECREASE) IN CASH AND CASH EQUIVALENTS (2,296) (3,732) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,942 14,605 CASH OBTAINED FROM PAY-FONE MERGER 805 -0- ---------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,451 $ 10,873 ========== ========
SEE NOTES TO FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AUGUST 31, 1995 A) THE 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, 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, 1995. B) DURING THE THREE-MONTH PERIOD ENDING AUGUST 31, 1995, 28,897 SHARES OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS. C) ON MARCH 20, 1995, THE COMPANY AND PAY-FONE SYSTEMS, INC. AGREED IN PRINCIPLE THAT ALL OF THE OUTSTANDING COMMON STOCK OF PAY-FONE SYSTEMS, INC., WOULD BE ACQUIRED BY THE COMPANY IN A BUSINESS COMBINATION ACCOUNTED FOR AS A POOLING OF INTERESTS. UPON CONSUMMATION OF THE MERGER ON JUNE 15, 1995, THE STOCKHOLDERS OF PAY-FONE SYSTEMS, INC. RECEIVED APPROMATELY 332,000 SHARES OF PAYCHEX COMMON STOCK. RESULTS OF OPERATIONS PRIOR TO THE MERGER HAVE NOT BEEN RESTATED AS THE EFFECTS WOULD BE IMMATERIAL. D) ON SEPTEMBER 29, 1995, PAYCHEX ACQUIRED THE PAYROLL COMPANY, INC. IN A BUSINESS COMBINATION ACCOUNTED FOR AS A PURCHASE. THE PURCHASE WILL NOT HAVE A SIGNIFICANT IMPACT ON THE COMPANY'S FINANCIAL POSITION AND RESULTS OF OPERATIONS. E) CERTAIN AMOUNTS FROM THE PRIOR YEAR ARE RECLASSIFIED TO CONFORM TO FISCAL 1996 PRESENTATIONS. PAYCHEX, INC. AND SUBSIDIARIES 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 FIRST QUARTER ENDED AUGUST 31, 1995 ROSE 21% TO A RECORD $76,173,000 FROM $62,923,000 A YEAR AGO. THIS INCREASE RESULTED FROM GROWTH OF CLIENTS UTILIZING THE BASIC PAYROLL SERVICE, THE TAXPAY TAX FILING AND PAYMENT SERVICE AND FROM INCREASED SALES OF OTHER ADD-ON PAYROLL SERVICES. REVENUE GAINS WERE ALSO ACHIEVED IN THE HUMAN RESOURCE SERVICES DIVISION. THE COMPANY EXPECTS CONTINUED EXPANSION OF ITS CLIENT BASE FOR ALL PRODUCTS AND SERVICES THROUGHOUT THE YEAR. OPERATING COSTS WERE 29% OF REVENUE IN THE FIRST QUARTER, UP MODESTLY FROM 28% IN THE FIRST QUARTER OF LAST YEAR. FULL YEAR OPERATING COSTS, AS A PERCENTAGE OF REVENUE, ARE EXPECTED TO CONTINUE TO REMAIN RELATIVELY CONSISTENT WITH FISCAL 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES WERE 50% OF REVENUE FOR THE CURRENT QUARTER AS COMPARED TO 51% FOR THE SAME PERIOD LAST YEAR. AS A PERCENTAGE OF REVENUE, EXPENDITURES FOR ADMINISTRATIVE WAGES WERE LOWER THAN LAST YEAR. FURTHERMORE, NON-RECURRING MERGER COSTS INCURRED FOR THE PAY-FONE SYSTEMS, INC. MERGER WERE FULLY ABSORBED IN THE FIRST QUARTER. THE COMPANY EXPECTS SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, AS A PERCENTAGE OF REVENUE, TO BE SLIGHTLY LOWER THAN LAST YEAR. THE EFFECTIVE TAX RATE FOR THE CURRENT QUARTER WAS 28.6%, DOWN FROM 29.6% FOR THE SAME PERIOD LAST YEAR. THE LOWER RATE WAS GENERALLY DUE TO THE 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 CONSISTENT WITH LAST YEAR'S RATE. ON JUNE 15, 1995, THE STOCKHOLDERS OF PAY-FONE SYSTEMS, INC. RECEIVED APPROXIMATELY 332,000 SHARES OF PAYCHEX COMMON STOCK IN A BUSINESS COMBINATION ACCOUNTED FOR AS A POOLING OF INTERESTS. RESULTS OF OPERATIONS PRIOR TO THE MERGER HAVE NOT BEEN RESTATED AS THE EFFECTS WOULD BE IMMATERIAL. ON SEPTEMBER 29, 1995, THE COMPANY ACQUIRED THE PAYROLL COMPANY, INC. IN A BUSINESS COMBINATION WAS ACCOUNTED FOR AS A PURCHASE. THE ACQUISITION WILL NOT HAVE A SIGNIFICANT IMPACT ON PAYCHEX' FINANCIAL POSITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES TOTALED $15,582,000 AND $15,336,000 FOR THE FIRST QUARTER OF 1996 AND 1995, RESPECTIVELY. NET INCOME FOR THE CURRENT QUARTER CONTRIBUTED A RECORD $12,203,000 TO CASH FROM OPERATIONS, UP 28% OVER NET INCOME OF $9,551,000 FOR THE FIRST QUARTER LAST YEAR. INVESTMENT PURCHASES AND SALES INCREASED IN THE CURRENT PERIOD WHEN COMPARED TO THE SAME PERIOD LAST YEAR RESULTING FROM GROWTH IN THE COMPANY'S INVESTMENT PORTFOLIO. CAPITAL EXPENDITURES FOR THE FIRST QUARTER TOTALED $4,939,000. CAPITAL EXPENDITURES FOR THE REMAINDER OF THE YEAR ARE ESTIMATED AT $14,000,000 TO $17,000,000. PROJECTED CASH FLOWS ARE EXPECTED TO BE ADEQUATE TO SUPPORT NORMAL BUSINESS OPERATIONS, PLANNED CAPITAL EXPENDITURES AND DIVIDEND PAYMENTS. FURTHERMORE, THE COMPANY HAS $200,000,000 OF UNSECURED BANK LINES OF CREDIT AVAILABLE FOR ITS USE. AS OF AUGUST 31, 1995, THERE WERE NO OUTSTANDING BORROWINGS UNDER THESE LINES OF CREDIT. PART II. OTHER INFORMATION PAYCHEX, INC. AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: THERE WERE NO EXHIBITS APPLICABLE FOR THE THREE MONTH PERIOD ENDED AUGUST 31, 1995. (B) REPORTS ON FORM 8-K: A FORM 8-K WAS FILED ON AUGUST 25, 1995 ANNOUNCING THE CONSOLIDATED FINANCIAL RESULTS OF PAYCHEX, INC. AND PAY-FONE SYSTEMS, INC. FOR THE TWO MONTH PERIOD ENDED JULY 31, 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 SUBSIDIARIES DATE: OCTOBER 13, 1995 /s/ B. THOMAS GOLISANO ---------------------- B. THOMAS GOLISANO CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER DATE: OCTOBER 13, 1995 /s/ G. THOMAS CLARK ------------------- G. THOMAS CLARK SECRETARY, TREASURER AND SENIOR VICE PRESIDENT OF FINANCE