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 November 30, 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 November 30, 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 November 30,1995 - ------------------------------ ----------------------------------- (Common Stock, $.01 Par Value) (45,583,512 Shares) PAYCHEX, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE - ------------------------------ ---- ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEETS - NOVEMBER 30, 1995 AND MAY 31, 1995 3-4 CONSOLIDATED STATEMENTS OF INCOME - THREE AND SIX MONTHS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994 5 CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - NOVEMBER 30, 1995 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9 PART II. OTHER INFORMATION - -------------------------- ITEM 4.. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 - ---------- PART I. FINANCIAL INFORMATION PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, MAY 31, 1995 1995 ----------- ------- ASSETS (UNAUDITED) (in thousands) CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 8,907 $ 12,942 INVESTMENTS 85,736 70,753 INTEREST RECEIVABLE 7,201 6,699 TRADE ACCOUNTS RECEIVABLE 37,629 30,772 PREPAID EXPENSES AND OTHER CURRENT ASSETS 2,599 1,743 DEFERRED INCOME TAXES -0- 1,310 -------- --------- TOTAL CURRENT ASSETS 142,072 124,219 PROPERTY AND EQUIPMENT LAND AND IMPROVEMENTS 2,787 2,779 BUILDINGS 24,423 21,304 DATA PROCESSING EQUIPMENT 40,955 33,980 FURNITURE, FIXTURES AND EQUIPMENT 35,445 29,135 LEASEHOLD IMPROVEMENTS 2,306 1,528 -------- --------- 105,916 88,726 LESS ALLOWANCE FOR DEPRECIATION AND AMORTIZATION 54,990 45,019 -------- --------- NET PROPERTY AND EQUIPMENT 50,926 43,707 OTHER ASSETS 5,376 511 -------- --------- TOTAL ASSETS $198,374 $ 168,437 ======== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONT'D.
NOVEMBER 30, MAY 31, 1995 1995 ----------- --------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 5,608 $ 3,519 ACCRUED COMPENSATION AND RELATED ITEMS 13,311 13,162 ACCRUED INCOME TAXES 959 682 OTHER ACCRUED EXPENSES 6,558 6,116 DEFERRED REVENUE 3,126 2,977 CURRENT PORTION OF LONG-TERM DEBT -0- 205 ---------- ---------- TOTAL CURRENT LIABILITIES 29,562 26,661 OTHER LIABILITIES LONG-TERM DEBT -0- 523 UNAMORTIZED LEASE INCENTIVES 433 557 DEFERRED INCOME TAXES 391 764 ---------- ---------- TOTAL LIABILITIES 30,386 28,505 STOCKHOLDERS' EQUITY COMMON STOCK, $.01 PAR VALUE, AUTHORIZED 150,000,000 SHARES: ISSUED 45,583,512 AT NOVEMBER 30, 1995 AND 45,031,716 AT MAY 31, 1995 456 450 ADDITIONAL CAPITAL 25,610 17,727 RETAINED EARNINGS 141,922 121,755 --------- ---------- 167,988 139,932 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 198,374 $ 168,437 ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED NOVEMBER 30, NOVEMBER 30, --------------------- -------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (in thousands, except per share amounts) REVENUE $78,232 $63,766 $154,405 $126,689 OPERATING COSTS 23,793 18,399 46,177 36,049 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 37,962 32,443 75,992 64,814 ------- ------- -------- -------- OPERATING INCOME 16,477 12,924 32,236 25,826 OTHER INCOME (EXPENSE) INVESTMENT INCOME 1,391 788 2,747 1,494 INTEREST EXPENSE (17) (22) (41) (63) ------- ------- -------- -------- INCOME BEFORE INCOME TAXES 17,851 13,690 34,942 27,257 INCOME TAXES 5,070 4,052 9,958 8,068 ------- ------- -------- -------- NET INCOME $12,781 $ 9,638 $ 24,984 $ 19,189 ======= ======= ======== ======== NET INCOME PER SHARE $ .28 $ .22 $ .55 $ .43 ======= ======= ======== ======== CASH DIVIDENDS PER SHARE $ .09 $ .06 $ .15 $ .10 ======= ======= ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING 45,513 44,883 45,454 44,875 ======= ======= ======== ======== NOTE: PER SHARE AMOUNTS AND AVERAGE SHARES OUTSTANDING HAVE BEEN ADJUSTED FOR A THREE-FOR-TWO STOCK SPLIT EFFECTIVE MAY, 1995.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, ----------------------------- 1995 1994 ---- ---- (in thousands) OPERATING ACTIVITIES NET INCOME $ 24,984 $ 19,189 ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 7,149 5,321 PROVISION FOR DEFERRED INCOME TAXES 1,354 1,251 PROVISION FOR BAD DEBTS 340 553 NET REALIZED GAIN ON SALES OF AVAILABLE-FOR-SALE SECURITIES (377) (18) CHANGES IN OPERATING ASSETS AND LIABILITIES: TRADE ACCOUNTS RECEIVABLE (6,452) (8,203) INTEREST RECEIVABLE (502) (507) PREPAID EXPENSES AND OTHER CURRENT ASSETS (577) 332 TRADE ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES 1,701 5,166 DEFERRED REVENUE 149 (250) CHANGE IN UNAMORTIZED LEASE INCENTIVES (154) (228) --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 27,615 22,606 INVESTING ACTIVITIES INVESTMENT PURCHASES OF AVAILABLE- FOR-SALE SECURITIES (55,313) (18,647) PROCEEDS FROM SALES OF AVAILABLE- FOR-SALE SECURITIES 38,320 3,021 PROCEEDS FROM MATURITIES OF AVAILABLE- FOR-SALE SECURITIES 3,387 500 ADDITIONS TO PROPERTY AND EQUIPMENT, NET OF NORMAL DISPOSALS (11,501) (5,733) NET CHANGE IN OTHER ASSETS (897) (25) ---------- -------- NET CASH USED IN INVESTING ACTIVITIES (26,004) (20,884) FINANCING ACTIVITIES PAYMENTS ON LONG-TERM DEBT (728) -0- PROCEEDS AND TAX BENEFIT FROM EXERCISE OF STOCK OPTIONS 1,084 193 DIVIDENDS PAID (6,814) (4,487) ----------- -------- NET CASH USED IN FINANCING ACTIVITIES (6,458) (4,294) ----------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (4,847) (2,572) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,942 14,605 CASH OBTAINED FROM PAY-FONE AND THE PAYROLL COMPANY MERGERS 812 -0- ---------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,907 $ 12,033 ========== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAYCHEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOVEMBER 30, 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 SIX-MONTH PERIOD ENDING NOVEMBER 30, 1995, 113,938 SHARES OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS. C) ON JUNE 15, 1995, PAYCHEX ACQUIRED PAY-FONE SYSTEMS, INC. FOR APPROXIMATELY 332,000 SHARES OF PAYCHEX 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. D) ON SEPTEMBER 29, 1995, PAYCHEX ACQUIRED THE PAYROLL COMPANY, INC. FOR APPROXIMATELY 116,000 SHARES OF COMMON STOCK IN A BUSINESS COMBINATION ACCOUNTED FOR AS A PURCHASE. THE PURCHASE DID NOT HAVE A SIGNIFICANT IMPACT ON THE COMPANY'S SECOND QUARTER 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 SECOND QUARTER AND SIX MONTHS ENDED NOVEMBER 30, 1995 ROSE BY 23% TO $78,232,000 AND 22% TO $154,405,000 RESPECTIVELY, WHEN COMPARED TO THE SAME PERIODS LAST YEAR. THESE FAVORABLE REVENUE INCREASES WERE THE RESULT OF CONTINUED GROWTH OF CLIENTS UTILIZING THE BASIC PAYROLL SERVICE, AND THE TAXPAY AND DIRECT DEPOSIT FEATURES. INCREASED SALES OF THE PRODUCTS OFFERED BY THE HUMAN RESOURCE SERVICES DIVISION ALSO CONTRIBUTED TO THESE RECORD REVENUE AMOUNTS. CONTINUED REVENUE GROWTH IS EXPECTED THROUGHOUT THE YEAR. OPERATING COSTS WERE 30% OF REVENUE FOR THE CURRENT THREE AND SIX MONTH PERIODS, UP MODESTLY FROM 29% AND 28% FOR THE RESPECTIVE PRIOR YEAR PERIODS. FULL YEAR OPERATING COSTS, AS A PERCENTAGE OF REVENUE, ARE EXPECTED TO REMAIN RELATIVELY CONSISTENT WITH FISCAL 1995. SELLING, GENERAL AND ADMINISTRATING EXPENSES WERE 49% OF REVENUE FOR THE THREE AND SIX MONTH PERIODS OF THE CURRENT YEAR, DOWN FROM 51% OF REVENUE FOR BOTH PRIOR YEAR PERIODS. FOR THE FULL YEAR, THE COMPANY EXPECTS SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, AS A PERCENTAGE OF REVENUE, TO BE SLIGHTLY LOWER THAN LAST YEAR. THE EFFECTIVE TAX RATES FOR THE CURRENT QUARTER AND SIX MONTH PERIODS WERE 28.4% AND 28.5%, RESPECTIVELY, DOWN FROM 29.6% FOR BOTH PERIODS LAST YEAR. THE LOWER CURRENT YEAR RATES WERE 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. FOR APPROXIMATELY 116,000 SHARES OF COMMON STOCK IN A BUSINESS COMBINATION ACCOUNTED FOR AS A PURCHASE. THE ACQUISITION DID NOT HAVE A SIGNIFICANT IMPACT ON PAYCHEX' SECOND QUARTER FINANCIAL POSITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES NET CASH PROVIDED BY OPERATING ACTIVITIES TOTALED $27,615,000 FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995, UP FROM $22,606,000 FOR THE SAME PERIOD LAST YEAR. THIS GAIN WAS PRIMARILY ATTRIBUTED TO RECORD YEAR-TO-DATE NET INCOME WHICH REACHED $24,984,000, A 30% INCREASE OVER NET INCOME OF $19,189,000 FOR THE SAME PERIOD LAST YEAR. INVESTMENT PURCHASES AND SALES INCREASED IN THE FIRST SIX MONTHS OF THE CURRENT YEAR WHEN COMPARED TO THE SAME PERIOD LAST YEAR DUE TO INCREASED INVESTMENT ACTIVITY. THE COMPANY INCREASED ITS QUARTERLY CASH DIVIDEND PAYMENT FROM $.06 PER SHARE TO $.09 PER SHARE DURING THE CURRENT QUARTER. CAPITAL EXPENDITURES FOR THE SIX-MONTH PERIOD WERE $11,546,000 AND ARE EXPECTED TO RANGE BETWEEN $8,000,000 AND $9,000,000 FOR THE REMAINDER OF 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 $210,000,000 OF UNSECURED BANK LINES OF CREDIT AVAILABLE FOR ITS USE. AS OF NOVEMBER 30, 1995, THERE WERE NO OUTSTANDING BORROWINGS UNDER THESE LINES OF CREDIT. PART II. OTHER INFORMATION PAYCHEX, INC. AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A. AT THE COMPANY'S ANNUAL MEETING OF STOCKHOLDERS HELD ON OCTOBER 5, 1995, THE FOLLOWING PERSONS WERE ELECTED TO THE BOARD OF DIRECTORS: B. THOMAS GOLISANO G. THOMAS CLARK DONALD W. BRINCKMAN STEVEN D. BROOKS PHILLIP HORSLEY GRANT M. INMAN HARRY P. MESSINA, JR. J. ROBERT SEBO B. THE FOLLOWING PROPOSALS WERE APPROVED AT THE COMPANY'S ANNUAL MEETING: AFFIRMATIVE NEGATIVE ABSTAINED VOTES VOTES VOTES ----------- -------- --------- 1. TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED SHARES FROM 50,000,000 TO 150,000,000 33,273,628 5,684,100 141,531 2. TO ADOPT THE PAYCHEX, INC. 1995 STOCK INCENTIVE PLAN, AUTHORIZING THE GRANTING OF OPTIONS TO PURCHASE UP TO 1,250,000 SHARES OF THE COMPANY'S COMMON STOCK 38,072,828 843,815 182,615 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS -------- (3)(i) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION FILED WITH THE DELAWARE SECRETARY OF STATE ON OCTOBER 5, 1995. B. REPORTS ON FORM 8-K ------------------- THERE WERE NO REPORTS ON FORM 8-K FILED DURING THE THREE MONTH PERIOD ENDED NOVEMBER 30, 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: JANUARY 10, 1996 /s/ B. THOMAS GOLISANO ---------------------- B. THOMAS GOLISANO CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER DATE: JANUARY 10, 1996 /s/ G. THOMAS CLARK ------------------- G. THOMAS CLARK SECRETARY, TREASURER AND SENIOR VICE PRESIDENT OF FINANCE