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: September 15, 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 September 15, 1998, regarding its financial results for the three months ended August 31, 1998, is attached. 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: September 15, 1998 /s/ B. Thomas Golisano ----------------------- B. Thomas Golisano Chairman, President and Chief Executive Officer Date: September 15, 1998 /s/ John M. Morphy ----------------------- John M. Morphy Vice President, Chief Financial Officer and Secretary 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 FIRST QUARTER RESULTS ROCHESTER, NY, September 15, 1998 -- Paychex, Inc. (NASDAQ: PAYX) today announced record net income of $31.4 million or $.19 diluted earnings per share for the first quarter ended August 31, 1998, a 36% increase over net income of $23.1 million or $.14 diluted earnings per share for the same period last year. Total service revenues were $139.3 million, an increase of 23% over $112.9 million for the same period last year. PAYROLL SEGMENT For the quarter ended August 31, 1998, operating income from payroll services increased 31% to $53.9 million from $41.2 million for the same period last year. Payroll service revenue was $128.0 million, an increase of 22% over $104.9 million for the same period last year. The increases in revenues and operating income were the result of an 11% year-over-year increase in the Company's payroll client base and the continued growth of the Taxpay and Direct Deposit products. Paychex currently services 300,900 payroll clients, with 228,900 utilizing Taxpay, the Company's tax filing and payment feature, 112,400 taking advantage of the Company's Direct Deposit product and 35,300 using the Company's Check Signing option. HRS-PEO SEGMENT For the quarter ended August 31, 1998, operating income for the HRS-PEO segment increased 117% to $2.6 million from $1.2 million for the same period last year. HRS-PEO service revenue was $11.3 million, an increase of 40% over $8.1 million for the same period last year. The increases in service revenue and operating income for the quarter were due to the continued expansion of the segment's client bases, which produced higher recurring revenues. As of August 31, 1998, the segment had 6,700 401(k) plan recordkeeping clients, 17,300 section 125 clients, and 19,000 PEO worksite employees, an increase of 86%, 24%, and 31%, respectively, over August 31, 1997 levels. Segment results also benefited from the consolidation of the PEO administrative functions in Rochester, NY, completed in February 1998. CORPORATE EXPENSES Corporate expenses are primarily related to the Information Technology, Organizational Development, Finance and Senior Management functions of the Company. For the quarter ended August 31, 1998, operating expenses increased 23% from $12.1 million to $14.9 million. The period's increase is primarily due to additional employees required to support the continued growth of the Company's business segments, and from increased national marketing efforts, commenced in the third quarter of 1998. B. Thomas Golisano, Chairman, President, and Chief Executive Officer of Paychex said, "First quarter fiscal 1999 is reflective of consistent results achieved the last several years. We reached another milestone as we are now servicing over 300,000 payroll clients. Expansion of our payroll client base and their utilization of our ancillary services continue to generate excellent results. Profits from the HRS-PEO segment continue to improve as we realize the benefits of expansion efforts and optimize the segment's support functions. HRS-PEO results are gradually becoming more important to the total profits of Paychex." PAYCHEX, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) For the three months ended August 31, August 31, 1998 1997 Service revenues: Payroll $127,982 $104,865 HRS-PEO 11,307 8,082 ------- ------- Total service revenues 139,289 112,947 PEO direct costs billed (A) 142,498 105,636 ------- ------- Total revenue 281,787 218,583 PEO direct costs (A) 142,498 105,636 Operating costs 35,885 30,306 Selling, general and administrative expenses 61,761 52,284 ------- ------- Operating income 41,643 30,357 Investment income 2,961 2,188 ------- ------- Income before income taxes 44,604 32,545 Income taxes 13,203 9,471 ------- ------- Net income $ 31,401 $ 23,074 ======= ======= Basic earnings per share (B) $ .19 $ .14 ======= ======= Diluted earnings per share (B) $ .19 $ .14 ======= ======= Weighted-average common shares outstanding (B) 163,277 162,845 ======= ======= Weighted-average shares assuming dilution (B) 165,525 164,441 ======= ======= Cash dividends per common share (B) $ .06 $ .04 ======= ======= (A) Wages and payroll taxes of PEO worksite employees and their related benefit premiums and claims. (B) Financial information for the period ended August 31, 1997, has been adjusted for a three-for-two stock split distributed in May 1998. PAYCHEX, INC. CONSOLIDATED BALANCE SHEETS (In thousands) August 31, May 31, 1998 1998 ASSETS Current assets: Cash and cash equivalents $ 49,519 $ 35,571 Investments 219,350 214,967 Interest receivable 11,759 13,227 Accounts receivable 66,332 54,596 Deferred income taxes - 1,525 Prepaid expenses and other current assets 3,960 4,391 --------- --------- Current assets before ENS investments 350,920 324,277 Electronic Network Services investments 1,110,205 1,154,501 --------- --------- Total current assets 1,461,125 1,478,778 Property and equipment - net 62,986 64,698 Deferred income taxes 866 517 Other assets 5,980 5,794 --------- --------- Total assets $1,530,957 $1,549,787 ========= ========= LIABILITIES Current liabilities: Accounts payable $ 6,589 $ 10,496 Accrued compensation and related items 26,287 33,649 Deferred revenue 3,014 4,443 Accrued income taxes 10,581 2,628 Deferred income taxes 1,511 - Other current liabilities 17,094 13,960 --------- --------- Current liabilities before ENS client deposits 65,076 65,176 Electronic Network Services client deposits 1,103,784 1,150,484 --------- --------- Total current liabilities 1,168,860 1,215,660 Other long-term liabilities 5,110 4,520 --------- --------- Total liabilities 1,173,970 1,220,180 STOCKHOLDERS' EQUITY Common stock, $.01 par value, authorized 300,000 shares Issued: 163,382/ August 31, 1998 and 163,188/ May 31, 1998 1,634 1,632 Additional paid-in capital 49,989 46,463 Retained earnings 299,709 278,107 Accumulated other comprehensive income 5,655 3,405 --------- --------- Total stockholders' equity 356,987 329,607 --------- --------- Total liabilities and stockholders' equity $1,530,957 $1,549,787 ========= ========= 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 three months ended August 31, August 31, 1998 1997 Total revenue: Payroll $127,982 $104,865 HRS-PEO revenue: Service revenue 11,307 8,082 PEO direct costs billed (A) 142,498 105,636 ------- ------- Total HRS-PEO revenue 153,805 113,718 ------- ------- Total revenue 281,787 218,583 PEO direct costs (A) 142,498 105,636 ------- ------- Total revenue less PEO direct costs 139,289 112,947 ======= ======= Operating income: Payroll 53,888 41,234 HRS-PEO 2,611 1,204 ------- ------- Total operating income 56,499 42,438 Corporate expenses 14,856 12,081 Investment income 2,961 2,188 ------- ------- Income before income taxes $ 44,604 $ 32,545 ======= ======= (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.