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, 1997
-------------------------------
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, 1997 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, 1997
- ------------------------------ -----------------------------------
(Common Stock, $.01 Par Value) (72,312,009 Shares)
PAYCHEX, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS - FEBRUARY 28, 1997 AND
MAY 31, 1996 3
CONSOLIDATED STATEMENTS OF INCOME - THREE AND NINE MONTHS
ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 5
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
FEBRUARY 28, 1997 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION 14
- --------------------------
SIGNATURES 15
- ----------
PART I. FINANCIAL INFORMATION
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, MAY 31,
1997 1996
------------ -------
ASSETS (UNAUDITED)
(in thousands)
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 47,097 $ 19,999
INVESTMENTS 128,888 102,967
INTEREST RECEIVABLE 8,532 7,385
TRADE ACCOUNTS RECEIVABLE 42,076 42,076
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 3,052 1,903
DEFERRED INCOME TAXES 4,041 1,419
--------- ---------
TOTAL CURRENT ASSETS 233,686 175,749
PROPERTY AND EQUIPMENT
LAND AND IMPROVEMENTS 2,787 2,787
BUILDINGS 24,645 24,145
DATA PROCESSING EQUIPMENT 48,315 43,439
FURNITURE, FIXTURES AND EQUIPMENT 42,774 37,921
LEASEHOLD IMPROVEMENTS 3,429 2,718
--------- ---------
121,950 111,010
LESS ALLOWANCE FOR DEPRECIATION
AND AMORTIZATION 68,468 60,355
--------- ---------
NET PROPERTY AND EQUIPMENT 53,482 50,655
OTHER ASSETS 6,844 4,945
--------- ---------
TOTAL ASSETS $ 294,012 $ 231,349
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONT'D.
FEBRUARY 28, MAY 31,
1997 1996
------------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 3,821 $ 4,183
ACCRUED COMPENSATION AND
RELATED ITEMS 27,669 19,120
RESERVE FOR WORKERS' COMPENSATION 2,014 1,235
ACCRUED INCOME TAXES 4,854 573
OTHER ACCRUED EXPENSES 9,929 5,941
DEFERRED REVENUE 4,836 4,934
--------- ---------
TOTAL CURRENT LIABILITIES 53,123 35,986
OTHER LIABILITIES
DEFERRED INCOME TAXES 141 416
RESERVE FOR WORKERS' COMPENSATION 865 865
CUSTOMER DEPOSITS 1,519 1,038
OTHER LONG-TERM LIABILITIES 1,253 848
--------- ---------
TOTAL LIABILITIES 56,901 39,153
STOCKHOLDERS' EQUITY
COMMON STOCK, $.01 PAR VALUE,
AUTHORIZED 150,000,000 SHARES:
ISSUED 72,312,009 AT FEBRUARY
28, 1997 AND 71,632,456 AT
MAY 31, 1996 723 716
ADDITIONAL CAPITAL 37,313 30,112
RETAINED EARNINGS 199,075 161,368
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 237,111 192,196
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 294,012 $ 231,349
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- --------------------
RESTATED RESTATED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands, except per share amounts)
PAYROLL REVENUE $ 97,934 $ 80,715 $269,945 $228,339
PEO/HRS REVENUE 97,628 72,760 261,158 178,534
-------- -------- -------- --------
TOTAL REVENUE $195,562 $153,475 $531,103 $406,873
-------- -------- -------- --------
PEO/HRS DIRECT COSTS 89,208 66,310 238,210 161,770
OPERATING COSTS 30,233 26,835 84,856 75,010
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 51,099 43,222 137,569 119,622
-------- -------- -------- --------
OPERATING INCOME 25,022 17,108 70,468 50,471
OTHER INCOME 1,764 1,447 4,994 4,298
-------- -------- -------- --------
INCOME BEFORE INCOME
TAXES 26,786 18,555 75,462 54,769
INCOME TAXES 7,500 4,766 21,035 14,724
-------- -------- -------- --------
NET INCOME $ 19,286 $ 13,789 $ 54,427 $ 40,045
======== ======== ======== ========
EARNINGS PER SHARE $ .27 $ .19 * $ .76 $ .56 *
======== ======== ======== ========
CASH DIVIDENDS PER
SHARE $ .09 $ .06 * $ .24 $ .16 *
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING 72,230 71,394 * 71,902 71,206 *
======== ======== ======== ========
* ADJUSTED FOR THREE-FOR-TWO STOCK SPLIT IN MAY, 1996.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAYCHEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-------------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
---- ----
(in thousands)
OPERATING ACTIVITIES
NET INCOME $ 54,427 $ 40,045
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 10,660 10,552
NET CHANGE IN DEFERRED INCOME TAXES (3,372) (1,438)
PROVISION FOR BAD DEBTS 1,186 657
NET REALIZED (GAIN) ON SALES OF
AVAILABLE-FOR-SALE SECURITIES (135) (588)
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
TRADE ACCOUNTS RECEIVABLE (1,187) (232)
ACCRUED INTEREST RECEIVABLE (1,147) 280
PREPAID EXPENSES AND OTHER
CURRENT ASSETS (1,148) (737)
TRADE ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES 16,455 9,007
DEFERRED REVENUE (98) 2,397
RESERVE FOR WORKERS' COMPENSATION 778 2,022
CUSTOMER DEPOSITS 481 254
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 76,900 62,219
INVESTING ACTIVITIES
INVESTMENT PURCHASES OF AVAILABLE-
FOR-SALE SECURITIES (75,460) (100,255)
PROCEEDS FROM SALES OF AVAILABLE-
FOR-SALE SECURITIES 50,205 71,711
PROCEEDS FROM MATURITIES OF AVAILABLE-
FOR-SALE SECURITIES 625 3,787
ADDITIONS TO PROPERTY AND EQUIPMENT,
NET OF DISPOSALS (13,219) (14,183)
NET CHANGE IN OTHER ASSETS (2,167) (618)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (40,016) (39,558)
FINANCING ACTIVITIES
PAYMENTS ON LONG-TERM DEBT -0- (728)
PROCEEDS AND TAX BENEFIT FROM EXERCISE
OF STOCK OPTIONS 7,415 1,973
DIVIDENDS PAID (17,607) (11,418)
OTHER 406 1
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (9,786) (10,172)
--------- ---------
(DECREASE) IN CASH
AND CASH EQUIVALENTS 27,098 12,489
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 19,999 14,812
CASH OBTAINED THROUGH ACQUISITIONS -0- 812
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 47,097 $ 28,113
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
PAYCHEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 1997
A) THE ACCOMPANYING 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, THE INFORMATION FURNISHED
HEREIN REFLECTS ALL ADJUSTMENTS (CONSISTING OF NORMAL, RECURRING
ACCRUALS) WHICH ARE NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS
FOR THE INTERIM PERIOD. OPERATING RESULTS FOR THE THREE AND NINE-MONTH
PERIODS ENDED FEBRUARY 28, 1997 ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS THAT MAY BE EXPECTED FOR THE YEAR ENDED MAY 31, 1997. THE
ACCOMPANYING FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH
FINANCIAL STATEMENTS AND FOOTNOTES PRESENTED IN THE COMPANY'S FORM 10-K
AND ANNUAL REPORT FOR THE YEAR ENDED MAY 31, 1996.
B) ALL OF THE FINANCIAL INFORMATION CONTAINED HEREIN HAS BEEN RESTATED TO
REFLECT THE AUGUST 1996 MERGER OF PAYCHEX AND NATIONAL BUSINESS
SOLUTIONS, INC. AS WELL AS THE FORMATION OF THE PEO/HUMAN RESOURCE
SERVICES BUSINESS SEGMENT IN THE THIRD QUARTER OF FISCAL 1997.
C) DURING THE NINE-MONTH PERIOD ENDING FEBRUARY 28, 1997, 231,508 SHARES
OF STOCK WERE ISSUED UPON EXERCISE OF STOCK OPTIONS.
IN ADDITION, THE COMPANY GRANTED STOCK OPTIONS FOR APPROXIMATELY
793,000 SHARES, INCLUDING APPROXIMATELY 614,000 SHARES RELATED TO A
BROAD BASED STOCK OPTION PLAN FOR IT'S EMPLOYEES.
D) ON AUGUST 26, 1996, THE COMPANY COMPLETED ITS MERGER WITH NATIONAL
BUSINESS SOLUTIONS, INC. (NBS), NOW PAYCHEX BUSINESS SOLUTIONS, INC.
(PBS) A PROFESSIONAL EMPLOYER ORGANIZATION, HEADQUARTERED IN ST.
PETERSBURG, FLORIDA. THE OUTSTANDING COMMON STOCK OF NBS WAS EXCHANGED
FOR 2,934,496 SHARES OF PAYCHEX COMMON STOCK, VALUED AT $140,000,000.
THE TRANSACTION WAS ACCOUNTED FOR AS A POOLING OF INTERESTS; THEREFORE,
PRIOR PERIOD FINANCIAL STATEMENTS HAVE BEEN RESTATED TO REFLECT THIS
MERGER.
PBS IS A LEADING PROFESSIONAL EMPLOYER ORGANIZATION ("PEO"), WHICH
PROVIDES SMALL AND MEDIUM-SIZED BUSINESSES WITH AN OUTSOURCING SOLUTION
TO THE COMPLEXITIES AND COSTS RELATED TO EMPLOYMENT AND HUMAN
RESOURCES.
E) ON AUGUST 29, 1996, THE COMPANY ACQUIRED ALL OF THE OUTSTANDING STOCK
OF THE PAYROLL SERVICE, INC., IN EXCHANGE FOR APPROXIMATELY 55,000
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONT'D.
F) ON NOVEMBER 21, 1996, THE COMPANY ACQUIRED ALL OF THE OUTSTANDING
STOCK OF OLSEN COMPUTER SYSTEMS, INC., NOW PAYCHEX COMPUTER SYSTEMS,
INC., IN EXCHANGE FOR APPROXIMATELY 393,000 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.
G) CERTAIN AMOUNTS FROM THE PRIOR YEAR ARE RECLASSIFIED TO CONFORM TO
FISCAL 1997 PRESENTATIONS.
H) SEGMENT INFORMATION
THE COMPANY OPERATES IN TWO MAJOR SEGMENTS, PAYROLL AND PEO/HUMAN RESOURCE
SERVICES (PEO/HRS). THE PAYROLL SEGMENT IS ENGAGED IN THE PREPARATION OF
PAYROLL CHECKS, INTERNAL ACCOUNTING RECORDS AND ALL FEDERAL, STATE AND LOCAL
PAYROLL TAX RETURNS FOR SMALL TO MEDIUM-SIZED BUSINESSES. THE PEO/HRS SEGMENT
SPECIALIZES IN PROVIDING SMALL AND MEDIUM-SIZED BUSINESSES WITH COST-EFFECTIVE
OUTSOURCING OF HUMAN RESOURCE ADMINISTRATION, EMPLOYMENT REGULATORY
COMPLIANCE, WORKERS' COMPENSATION COVERAGE, HEALTH CARE AND OTHER EMPLOYEE
RELATED RESPONSIBILITIES. CONSISTENT WITH PEO INDUSTRY PRACTICE, REVENUE
INCLUDES ALL AMOUNTS BILLED TO CLIENTS FOR THE SERVICES PROVIDED BY THE
PEO/HRS SEGMENT. PEO/HRS ALSO PROVIDES BUSINESS OWNERS WHO DO NOT CHOOSE TO
BE CO-EMPLOYERS WITH EMPLOYEE HANDBOOKS, SECTION 125 PLANS AND 401(K) PLAN
RECORDKEEPING SERVICES.
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -----------------------------
RESTATED RESTATED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
REVENUE
PAYROLL $ 97,934 $ 80,715 $269,945 $228,339
PEO/HRS 97,628 72,760 261,158 178,534
------------------------- -------------------------
TOTAL REVENUE 195,562 153,475 531,103 406,873
PEO/HRS DIRECT COSTS 89,208 66,310 238,210 161,770
------------------------- -------------------------
REVENUE, LESS PEO/HRS DIRECT COSTS 106,354 87,165 292,893 245,103
OPERATING COSTS
PAYROLL 27,228 24,851 77,353 69,467
PEO/HRS 3,005 1,984 7,503 5,543
------------------------- -------------------------
TOTAL OPERATING COSTS 30,233 26,835 84,856 75,010
SELLING, GENERAL AND ADMIN
PAYROLL 44,821 38,577 121,449 105,541
PEO/HRS 4,488 3,679 11,137 10,439
------------------------- -------------------------
TOTAL SELLING, GENERAL AND ADMIN 49,309 42,256 132,586 115,980
OPERATING INCOME
PAYROLL 25,885 17,287 71,143 53,331
PEO/HRS 927 787 4,308 782
------------------------- -------------------------
TOTAL OPERATING INCOME 26,812 18,074 75,451 54,113
GENERAL CORPORATE EXPENSES 1,790 966 4,983 3,642
OTHER INCOME - NET 1,764 1,447 4,994 4,298
------------------------- -------------------------
INCOME BEFORE TAXES $ 26,786 $ 18,555 $ 75,462 $ 54,769
========================= =========================
PAYCHEX, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis reviews the Company's operating results
for the quarters ended February 28, 1997 and February 29, 1996, and its
financial condition at February 28, 1997. The focus of this review is on the
underlying business reasons for significant changes and trends affecting
revenues, net income, and financial condition. This review should be read in
conjunction with the May 31, 1996 Consolidated Financial Statements, and the
related Notes to Consolidated Financial Statements, as well as Form 8-K filed
on July 9, 1996 which contained audited financial statements of National
Business Solutions, Inc., discussed below. Forward-looking statements in this
management's discussion and analysis are qualified by the cautionary statement
at the end of this discussion. (See Footnote "Other".)
Results of operations for 1997 and 1996 have been restated to reflect Paychex'
August 26, 1996 merger with National Business Solutions, Inc. (NBS) now
Paychex Business Solutions, Inc. (PBS), a Professional Employer Organization
(PEO) headquartered in St. Petersburg, Florida. The transaction was accounted
for as a pooling of interests. Financial information was also restated to
reflect the formation of the PEO/Human Resource Services (PEO/HRS) business
segment during the third quarter of fiscal 1997.
On August 29, 1996 and November 21, 1996, the company acquired all of the
outstanding stock of the Payroll Service, Inc. and Olsen Computer Systems,
Inc., respectively, in exchange for approximately 448,000 total shares. The
business combinations were accounted for as pooling of interests. Results of
operations prior to the mergers have not been restated as the effects would be
immaterial.
Results of Operations
_____________________
Paychex earned a record consolidated net income of $19.3 million or $.27 per
share for the third quarter ended February 28, 1997, up 40% over consolidated
net income of $13.8 million or $.19 per share for the same quarter last year.
Consolidated revenue for the quarter reached $195.6 million, an increase of
27% over $153.5 million for the same period last year.
For the nine months ended February 28, 1997, net income increased 36% to $54.4
million or $.76 per share, compared to net income of $40.0 million or $.56 per
share for the same period last year. Total revenue for the nine month period
reached $531.1 million, an increase of 31% over $406.9 million reported for
the first nine months of the previous fiscal year.
Payroll Segment
_______________
For the quarter ended February 28, 1997, operating income from payroll
services increased 50% to $25.9 million from $17.3 million for the same
quarter last year. Payroll Service revenue was $97.9 million, an increase of
21% over last year's revenue of $80.7 million.
For the nine months ended February 28, 1997, operating income from payroll
services increased 33% to $71.1 million from $53.3 million for the same nine
months last year. Payroll Service revenue was $270.0 million, an increase of
18% over last year's revenue of $228.3 million.
Strong growth in our payroll client base and improved penetration of Taxpay,
Direct Deposit and Check Signing were major contributors to continued record
performance in the third quarter.
Paychex currently serves 256,000 payroll clients, with 169,000 utilizing
Taxpay; 70,000 taking advantage of Direct Deposit for their employees; and
26,000 using our Check Signing option.
Operating costs were 28% and 29% of revenue for the current three and nine
month periods, down from 31% and 30% for the respective periods last year.
Most of the decrease resulted from lower costs, as a percentage of revenue,
associated with delivery, wages and facilities. Full year operating costs, as
a percentage of revenue, are expected to be slightly lower than last year.
(See Footnote "Other".)
Selling, general and administrative expenses were 46% and 45% of revenue for
the three and nine month periods ended February 28, 1997, down from 48% and
46% for the respective periods last year. As a percentage of revenue, wages
were lower in the current quarter and nine month periods, versus the same
periods last year. Selling, general and administrative expenses, as a
percentage of revenue, have been decreasing over the past few years. The
Company expects this trend to continue for the remainder of fiscal 1997. (See
Footnote "Other".)
PEO/Human Resource Services Segment
___________
During the third quarter of fiscal 1997, Paychex Business Solutions, Inc.
(PBS) our PEO and the Human Resource Services Division, formerly included in
the Payroll segment, were combined into one business unit PEO/Human Resource
Services (PEO/HRS). The combination will enhance opportunities to grow the
PEO business as we take full advantage of our more than 100 person Human
Resources Services sales force and the Divison's experience in providing many
clients with 401-K recordkeeping, Section 125 healthcare plans, workers'
compensation, employee handbooks and other human resource services.
For the quarter ended February 28, 1997, operating income from PEO/Human
Resource Services increased 18% to $0.9 million from $0.8 million for the same
quarter last year. Third quarter operations include approximately $0.4
million of start up costs related to the March opening of six PEO offices in
Southern California. PEO/HRS revenue was $97.6 million, an increase of 34%
over last year's revenue of $72.8 million.
Operating income for the nine months ended February 28, 1997 from the PEO/HRS
segment increased 451% to $4.3 million from $0.8 million for the same period
in 1996. Revenues rose to a record $261.2 million, an increase of 46% over
last year's revenue of $178.5 million.
Expansion of the PEO/HRS client base continues to be strong as we now have
12,000 worksite employees representing an increase of 35% over the same time
last year. The HRS 401(k) product services over 2,500 plans an increase of
142% over last year.
PBS now offers PEO/HRS services to Paychex payroll clients in Florida and
Southern California and plans to expand to other select locations. Worksite
employees are expected to continue to increase as PBS expands into new
geographic areas. It is the intention of management to continue to fund the
PEO/HRS expansion program from its operating profits. (See Footnote "Other".)
Liquidity and Capital Resources
_______________________________
Net cash provided by consolidated operating activities totaled $76.9 million
for the nine months ended February 28, 1997 as compared to $62.2 million in
1996. Net income for the period contributed a record $54.4 million,
representing a 36% gain over net income of $40 million achieved for the same
period last year.
Company owned investments and investments of client funds held for Taxpay and
Direct Deposit consist primarily of tax-exempt municipal securities issued by
various governmental agencies and short-term money market securities. At
February 28, 1997, the total client Taxpay and Direct Deposit funds held by
the Company were $936.8 million. The Company continues to control credit and
market risks by investing primarily in AAA and AA rated municipal securities,
by limiting amounts that can be invested in any single instrument, and by
investing in short-to intermediate-term instruments where market value is less
sensitive to interest rate changes.
Capital expenditures for the third quarter and year to date periods totalled
$4.5 million and $14.6 million, respectively. In addition, the Company
completed its planned upgrade of laser printing equipment in branch offices
through a five year operating lease commitment of approximately $10.5 million.
The Company also invested in planned furniture and fixtures expenditures
related to continued growth and expansion of both the Payroll and PEO/HRS
business segments. Capital expenditures for the remainder of the year are
estimated to range between $3 million to $7 million. (See Footnote "Other".)
Projected cash flows are expected to be adequate to support normal business
operations, planned capital expenditures and dividend payments. Furthermore,
the Company has $225 million of unsecured bank lines of credit available for
its use. As of February 28, 1997, there were no outstanding borrowings under
these lines of credit.
Other
_____
In an effort to give investors a well-rounded view of the Company's current
condition and future opportunities, this Form 10-Q includes comments by the
Company's management about future performance and results. Because they are
forward-looking, these forecasts involve uncertainties. They include risks of
general market conditions, including demand for the Company's products and
services, competition, and price levels; changes in the laws regulating
collection and payment of payroll taxes and employee benefits, including
401(k) plans and Section 125 plans; delays in the development and marketing of
new products and services; the possibility of catastrophic events that could
impact the Company's operating facilities, computer technology, and
communication systems; changes in short-and long-term interest rates and the
credit rating of municipal securities held in the Company's investment
portfolios.
PART II. OTHER INFORMATION
All items are either inapplicable or would result in negative responses and,
therefore, have been omitted.
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: MARCH 26, 1997 /s/ B. THOMAS GOLISANO
----------------------
B. THOMAS GOLISANO
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
DATE: March 26, 1997 /s/ JOHN M. MORPHY
----------------------
JOHN M. MORPHY
VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND
SECRETARY