SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: June 30, 1998 (Date of earliest event reported) PAYCHEX, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-11330 16-1124166 (State of incorporation) (Commission (IRS Employer File Number) Identification Number) 911 PANORAMA TRAIL SOUTH, ROCHESTER, NEW YORK 14625-0397 (Address of principal executive offices) (Zip Code) (716)385-6666 (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS The registrant's press release dated June 30, 1998, regarding its financial results for the fiscal year ended May 31, 1998, is attached as EXHIBIT A. The registrant also includes the restated segment information reflecting the adoption of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" for the four quarters and years ended May 31, 1998 and 1997. The release with the restated information is attached as EXHIBIT B. 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. Date: June 30, 1998 /s/ B. Thomas Golisano ----------------------- B. Thomas Golisano Chairman, President and Chief Executive Officer Date: June 30, 1998 /s/ John M. Morphy ----------------------- John M. Morphy Vice President, Chief Financial Officer and Secretary EXHIBIT A FOR IMMEDIATE RELEASE John M. Morphy, Chief Financial Officer Paychex, Inc. 716-383-3406 or Jan Shuler 716-383-3406 Paychex, Inc. Access Paychex, Inc. News Releases on the WORLD WIDE WEB http://www.paychex.com or http://www.prnewswire.com PAYCHEX, INC. REPORTS RECORD YEAR END AND FOURTH QUARTER RESULTS ROCHESTER, NY, June 30, 1998 -- Paychex, Inc. (NASDAQ: PAYX) today announced record net income of $102.2 million or $.62 diluted earnings per share for the year ended May 31, 1998, a 36% increase over net income of $75.2 million or $.46 diluted earnings per share for the same period last year. Total service revenues were $493.7 million, an increase of 24% over $399.7 million for the previous fiscal year. For the quarter ended May 31, 1998, net income increased 35% to $28.1 million or $.17 diluted earnings per share as compared to net income of $20.7 million or $.13 diluted earnings per share for the same period last year. Total service revenues were $131.7 million, an increase of 23% over $106.8 million for the same period last year. Effective May 31, 1998, Paychex, Inc., adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Statement requires the Company to report segment financial information consistent with the presentation made to the Company's management for decision-making purposes. Prior quarter and year segment disclosures have been restated to be consistent with the fourth quarter and year ended May 31, 1998. PAYROLL SEGMENT For the year ended May 31, 1998, operating income from payroll services increased 33% to $180.3 million from $135.4 million for the same period last year. Payroll service revenue was $455.2 million, an increase of 23% over $368.9 million for the same period last year. For the quarter ended May 31, 1998, operating income from payroll services increased 29% to $46.7 million from $36.2 million for the fourth quarter last year. Payroll service revenue was $119.6 million, an increase of 21% over $98.9 million for the fourth quarter last year. The increases in revenues and operating income were the result of a 12% year over year increase in the Company's payroll client base and continued growth of the Taxpay and Direct Deposit products. Paychex currently services 293,600 payroll clients, with 220,700 utilizing Taxpay, the Company's tax filing and payment feature, 104,400 taking advantage of the Company's Direct Deposit product and 33,500 using the Company's Check Signing option. HRS-PEO SEGMENT For the year ended May 31, 1998, operating income for the segment increased from $5.6 million to $6.6 million. HRS-PEO service revenue rose to $38.5 million, an increase of 25% over $30.9 million for the same period last year. For the quarter ended May 31, 1998, operating income for the HRS-PEO segment increased from $.5 million to $3.9 million. HRS-PEO service revenue rose to $12.1 million, an increase of 53% over $7.9 million for the fourth quarter last year. The increased revenue for the year and the quarter is directly related to the continued growth of the segment's client bases. As of May 31, 1998, the segment had 6,000 401(k) recordkeeping clients, 16,400 section 125 clients, and 19,200 PEO worksite employees, which represent an increase of 100%, 24%, and 39%, respectively, over the same period last year. The segment's increase in operating income for the quarter ended May 31, 1998, is due to increased revenue and the benefits of consolidating the PEO administrative functions in Rochester, NY. This consolidation was completed at the end of February, 1998. CORPORATE EXPENSES Corporate expenses include the Information Technology, Organizational Development, Finance and Senior Management functions of the Company. For the year ended May 31, 1998, operating expenses increased 18% from $44.3 million to $52.2 million. For the quarter ended May 31, 1998, operating expenses increased 30% from $10.6 million to $13.7 million. The year's increase in expenses is primarily due to additional employees necessary to support the growth of the Company's business segments. The fourth quarter increase relates to additional personnel and increased national marketing efforts, which were commenced in the third quarter of 1998. B. Thomas Golisano, Chairman, President, and Chief Executive Officer of Paychex said, "We are pleased with our excellent financial results for both the year and fourth quarter of fiscal 1998. These results reflect our seventh consecutive year of net income growth of 36% or more. Outstanding new payroll client growth was accompanied by increased utilization of Taxpay, Direct Deposit and other ancillary products. We see growing acceptance of our HRS-PEO products and, as evidenced by our fourth quarter results, anticipate excellent opportunities from this combination of resources and client experience. We look forward to continued success as we expand our client base in the Payroll and HRS-PEO divisions." PAYCHEX, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) For the For the three months ended twelve months ended May 31, May 31, May 31, May 31, 1998 1997 1998 1997 Service revenues: Payroll $119,595 $ 98,910 $455,227 $368,855 HRS-PEO 12,116 7,930 38,477 30,878 ------- ------- ------- ------- Total service revenues 131,711 106,840 493,704 399,733 PEO direct costs billed (A) 136,575 96,756 499,741 334,966 ------- ------- ------- ------- Total revenue 268,286 203,596 993,445 734,699 PEO direct costs (A) 136,575 96,756 499,741 334,966 Operating costs 34,187 30,178 131,731 115,034 Selling, general and administrative expenses 60,605 50,505 227,273 188,074 ------- ------- ------- ------- Operating income 36,919 26,157 134,700 96,625 Investment income 2,645 2,037 9,473 7,031 ------- ------- ------- ------- Income before income taxes 39,564 28,194 144,173 103,656 Income taxes 11,513 7,471 41,954 28,506 ------ ------- ------- ------- Net income $ 28,051 $ 20,723 $102,219 $ 75,150 ======= ======= ======= ======= Basic earnings per share (B)$ .17 $ .13 $ .63 $ .46 ======= ======= ======= ======= Diluted earnings per share (B) $ .17 $ .13 $ .62 $ .46 ======= ======= ======= ======= Weighted-average common shares outstanding (B) 163,162 162,730 163,009 162,002 ======= ======= ======= ======= Weighted-average shares assuming dilution (B) 165,326 164,275 164,813 163,757 ======= ======= ======= ======= Cash dividends per share (B)$ .06 $ .04 $ .22 $ .15 ======= ======= ======= ======= (A) Wages and payroll taxes of PEO worksite employees and their related benefit premiums and claims. (B) Financial information for the periods ended May 31, 1997, have been adjusted for a three-for-two stock split distributed in May 1998. PAYCHEX, INC. CONSOLIDATED BALANCE SHEETS (In thousands) May 31, 1998 1997 ASSETS Current assets: Cash and cash equivalents $ 35,571 $ 50,213 Investments 214,967 132,780 Interest receivable 13,227 10,462 Accounts receivable 54,596 45,527 Deferred income taxes 1,525 2,560 Prepaid expenses and other current assets 4,391 2,486 --------- --------- Current assets before ENS investments 324,277 244,028 Electronic Network Services investments 1,154,501 896,633 --------- --------- Total current assets 1,478,778 1,140,661 Property and equipment - net 64,698 54,178 Deferred income taxes 517 72 Other assets 5,794 6,412 --------- --------- Total assets $1,549,787 $1,201,323 ========= ========= LIABILITIES Current liabilities: Accounts payable $ 10,496 $ 5,649 Accrued compensation and related items 33,649 26,969 Deferred revenue 4,443 4,335 Accrued income taxes 2,628 1,774 Other current liabilities 13,960 11,240 --------- --------- Current liabilities before ENS client deposits 65,176 49,967 Electronic Network Services client deposits 1,150,484 896,080 --------- --------- Total current liabilities 1,215,660 946,047 Other long-term liabilities 4,520 3,734 --------- --------- Total liabilities 1,220,180 949,781 STOCKHOLDERS' EQUITY Common stock, $.01 par value, authorized 300,000 shares Issued: 163,188/1998 and 108,519/1997 1,632 1,085 Additional paid-in capital 46,463 37,531 Retained earnings 278,107 212,387 Accumulated other comprehensive income 3,405 539 --------- --------- Total stockholders' equity 329,607 251,542 --------- --------- Total liabilities and stockholders' equity $1,549,787 $1,201,323 ========= ========= Note: Accumulated other comprehensive income is related to the Company's early adoption of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The adoption of the Statement did not have an effect on the Company's results of operations or financial position. PAYCHEX, INC. BUSINESS SEGMENT INFORMATION (In thousands) The Company has two business segments: Payroll and Human Resource Services-Professional Employer Organization (HRS-PEO). The Payroll segment is engaged in the preparation of payroll checks, internal accounting records, all federal, state and local payroll tax returns, and collection and remittance of payroll obligations for small- to medium-sized businesses. The HRS-PEO segment specializes in providing small- and medium-sized businesses with cost-effective outsourcing solutions for their employee benefits. HRS-PEO products include 401(k) plan recordkeeping services, group benefits and workers' compensation insurance services, section 125 plans, employee handbooks and management services. As an outsourcing solution, HRS-PEO relieves the business owner of human resource administration, employment regulatory compliance, workers' compensation coverage, health care and other employee related responsibilities. Consistent with PEO industry practice, HRS-PEO revenue includes all amounts billed to clients for the services provided. Corporate expenses are primarily related to the Information Technology, Organizational Development, Finance and Senior Management functions of the Company. For the For the three months ended twelve months ended May 31, May 31, May 31, May 31, 1998 1997 1998 1997 Total revenue: Payroll $119,595 $ 98,910 $455,227 $368,855 HRS-PEO revenue: Service revenue 12,116 7,930 38,477 30,878 PEO direct costs billed (A) 136,575 96,756 499,741 334,966 ------- ------- ------- ------- Total HRS-PEO revenue 148,691 104,686 538,218 365,844 ------- ------- ------- ------- Total revenue 268,286 203,596 993,445 734,699 PEO direct costs (A) 136,575 96,756 499,741 334,966 ------- ------- ------- ------- Total revenue less PEO direct costs 131,711 106,840 493,704 399,733 ======= ======= ======= ======= Operating income: Payroll 46,707 36,228 180,265 135,364 HRS-PEO 3,948 480 6,642 5,596 ------- ------- ------- ------- Total operating income 50,655 36,708 186,907 140,960 Corporate expenses 13,736 10,551 52,207 44,335 Investment income 2,645 2,037 9,473 7,031 ------- ------- ------- ------- Income before income taxes $ 39,564 $ 28,194 $144,173 $103,656 ======= ======= ======= ======= (A) Wages and payroll taxes of PEO worksite employees and their related benefit premiums and claims. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain written and oral statements made by the Company's management may constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by such words and phrases as "expects" and "could be." Because they are forward-looking, they should be evaluated in light of important risk factors. These risk factors include 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, professional employer organizations, and employee benefits, including 401(k) plans, workers' compensation, 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, including Year 2000 issues; and changes in short- and long-term interest rates and the credit rating of securities held in the Company's investment portfolios. EXHIBIT B PAYCHEX, INC. RESTATED QUARTERLY SEGMENT RESULTS IN ACCORDANCE WITH ADOPTION OF SFAS No. 131 During the fourth quarter of fiscal year 1998, Paychex, Inc., adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Statement requires the Company to report segment financial information consistent with the presentation made to the Company's management for decision-making purposes. Previously reported prior quarter and year segment disclosures have been restated to be consistent with the fourth quarter and year ended May 31, 1998. Adoption of SFAS No. 131 required the Company's Corporate expenses to be displayed separately. Previous segment disclosure requirements required Corporate expenses to be allocated to the reported segments. Segment information reflecting the adoption of SFAS No. 131 for the four quarters and years ended May 31, 1998 and 1997, is as follows. The Company has two business segments: Payroll and Human Resource Services-Professional Employer Organization (HRS-PEO). The Payroll segment is engaged in the preparation of payroll checks, internal accounting records, all federal, state and local payroll tax returns, and collection and remittance of payroll obligations for small- to medium-sized businesses. The HRS-PEO segment specializes in providing small- and medium-sized businesses with cost-effective outsourcing solutions for their employee benefits. HRS-PEO products include 401(k) plan recordkeeping services, group benefits and workers' compensation insurance services, section 125 plans, employee handbooks and management services. As an outsourcing solution, HRS-PEO relieves the business owner of human resource administration, employment regulatory compliance, workers' compensation coverage, health care and other employee related responsibilities. Consistent with PEO industry practice, HRS-PEO revenue includes all amounts billed to clients for the services provided. Corporate expenses are primarily related to the Information Technology, Organizational Development, Finance and Senior Management functions of the Company. PAYCHEX, INC. BUSINESS SEGMENT INFORMATION RESTATED FOR ADOPTION OF SFAS No. 131 (In thousands) Year ended May 31, 1998 For the twelve months /----------For the three months ended-----------/ ended August 31, November 30, February 28, May 31, May 31, 1997 1997 1998 1998 1998 Total revenue: Payroll $104,865 $108,528 $122,239 $119,595 $455,227 HRS-PEO revenue: Service revenue 8,082 8,645 9,634 12,116 38,477 PEO direct costs billed (A) 105,636 118,048 139,482 136,575 499,741 ------- ------- ------- ------- ------- Total HRS-PEO revenue 113,718 126,693 149,116 148,691 538,218 ------- ------- ------- ------- ------- Total revenue 218,583 235,221 271,355 268,286 993,445 PEO direct costs (A) 105,636 118,048 139,482 136,575 499,741 ------- ------- ------- ------- ------- Total revenue less PEO direct costs 112,947 117,173 131,873 131,711 493,704 ======= ======= ======= ======= ======= Operating income: Payroll 41,234 44,230 48,094 46,707 180,265 HRS-PEO 1,204 994 496 3,948 6,642 ------- ------- ------- ------- ------- Total operating income 42,438 45,224 48,590 50,655 186,907 Corporate expenses 12,081 12,652 13,738 13,736 52,207 Investment income 2,188 2,291 2,349 2,645 9,473 ------- ------- ------- ------- ------- Income before income taxes $ 32,545 $ 34,863 $ 37,201 $ 39,564 $144,173 ======= ======= ======= ======= ======= (A) Wages and payroll taxes of PEO worksite employees and their related benefit premiums and claims. PAYCHEX, INC. BUSINESS SEGMENT INFORMATION RESTATED FOR ADOPTION OF SFAS No. 131 (In thousands) Year ended May 31, 1998 For the twelve months /----------For the three months ended-----------/ ended August 31, November 30, February 28, May 31, May 31, 1996 1996 1997 1997 1997 Total revenue: Payroll $ 84,307 $ 87,704 $ 97,934 $ 98,910 $368,855 HRS-PEO revenue: Service revenue 6,966 7,562 8,420 7,930 30,878 PEO direct costs billed (A) 74,769 74,233 89,208 96,756 334,966 ------- ------- ------- ------- ------- Total HRS-PEO revenue 81,735 81,795 97,628 104,686 365,844 ------- ------- ------- ------- ------- Total revenue 166,042 169,499 195,562 203,596 734,699 PEO direct costs (A) 74,769 74,233 89,208 96,756 334,966 Total revenue less PEO direct costs 91,273 95,266 106,354 106,840 399,733 ======= ======= ======= ======= ======= Operating income: Payroll 31,301 32,583 35,252 36,228 135,364 HRS-PEO 1,539 2,356 1,221 480 5,596 ------- ------- ------- ------- ------- Total operating income 32,840 34,939 36,473 36,708 140,960 Corporate expenses 10,743 11,590 11,451 10,551 44,335 Investment income 1,485 1,745 1,764 2,037 7,031 ------- ------- ------- ------- ------- Income before income taxes $ 23,582 $ 25,094 $ 26,786 $ 28,194 $103,656 ======= ======= ======= ======= ======= (A) Wages and payroll taxes of PEO worksite employees and their related benefit premiums and claims.