EXHIBIT 99.1 PRESS RELEASE OF PAYCHEX, INC. DATED MARCH 20, 2003
FOR IMMEDIATE RELEASE
John Morphy, CFO, or Jan Shuler 585-383-3406. Media inquiries,
Laura Saxby Lynch 585-383-3074
Access the Webcast of the Paychex, Inc. Third Quarter Earnings Release
Conference Call scheduled for March 21, 2003 at 11:00 a.m. Eastern Time at
www.paychex.com at the Investor Relations home page.
Paychex, Inc. news releases, current financial information, related SEC
filings and Investor Relations presentation are accessible at the same Web site.
PAYCHEX, INC. REPORTS RECORD THIRD QUARTER RESULTS
ROCHESTER, NY, March 20, 2003 -- Paychex, Inc. (NASDAQ:PAYX) today announced net
income of $71.5 million, or $.19 diluted earnings per share, for the quarter
ended February 28, 2003, a 7% increase over net income of $67.0 million, or $.18
diluted earnings per share, for the same period last year. Total revenues were
$287.8 million, a 19% increase over $242.8 million for the third quarter last
year.
For the nine months ended February 28, 2003, the Company reported record net
income of $222.1 million, or $.59 diluted earnings per share, an 8% increase
over $205.9 million, or $.54 diluted earnings per share, for the same period
last year. Total revenues were $809.3 million, an increase of 14% over $710.6
million for the same period last year.
On September 20, 2002, Paychex completed the acquisition of Advantage Payroll
Services, Inc. ("Advantage"), a comprehensive payroll processor that serves
small- to mid-sized businesses throughout the United States. The Company's
financial results for the nine-month period ended February 28, 2003 include the
results of Advantage since the date of acquisition.
INTERPAY ACQUISITION ANNOUNCED
On March 17, 2003, Paychex announced that it entered into an agreement to
acquire InterPay, Inc., a wholly owned subsidiary of FleetBoston Financial
Corporation ("Fleet"). The purchase price is $155 million in cash. InterPay is a
national payroll and human resource administrative services provider that serves
more than 33,000 small- to medium-sized businesses throughout the United States.
The acquisition is expected to close in early April 2003.
Paychex expects InterPay to contribute approximately $50 million in revenue
during the first 12 months after the acquisition. Paychex anticipates the
acquisition will be slightly dilutive in the fourth quarter ended May 31, 2003,
as the expenses of assimilating the acquisition and amortization of intangible
assets will not be fully offset by anticipated gains realized in the corporate
investment portfolio that will be liquidated in order to fund the acquisition.
Paychex expects future earnings will be accretive as a result of this
acquisition.
SERVICE REVENUES
For the quarter ended February 28, 2003, service revenues, which are comprised
of the Payroll and Human Resource and Benefits product lines, were $274.3
million, an increase of 20% over $228.0 million for the prior year quarter. For
the nine months ended February 28, 2003, service revenues were $769.4 million,
an increase of 16% over $661.6 million for the same period last year.
Payroll service revenue increased 20% and 15% for the third quarter and
nine-month periods to $235.3 million and $660.8 million, respectively. Positive
year-over-year growth in Payroll service revenue resulted from the acquisition
of Advantage, organic client base growth, increased utilization of ancillary
services, and price increases. Payroll service revenue continues to be impacted
by year-over-year decreases in checks per client. The year-over-year reductions
in checks per client (excluding Advantage) for the first through third quarters
of fiscal 2003 were 1.7%, .3%, and .1%, respectively. The reductions for the
first through fourth quarters of fiscal 2002, respectively, were 1.9%, 3.8%,
4.1%, and 2.6%. The Company has adjusted the calculation of checks per client to
eliminate the impact of client payroll frequency. The Company believes this
calculation provides a more accurate indicator of underlying economic demand for
its services.
As of February 28, 2003, 87% of all clients utilized the Company's tax filing
and payment services. The Company's employee payment services were utilized by
59% of its clients. Major Market Services revenue increased 42% for both the
third quarter and nine-month periods to $27.3 million and $73.3 million,
respectively.
Human Resource and Benefits service revenue was $39.0 million and $108.6 million
for the third quarter and nine-month periods, year-over-year increases of 21%
and 23%, respectively. The increases are related primarily to growth in clients
for Retirement Services and in client employees served by the Company's
comprehensive Paychex Administrative Services (PAS) and Professional Employer
Organization (PEO) bundled services. Retirement Services revenue increased 15%
and 20% in the third quarter and nine-month periods to $17.6 million and $49.5
million, respectively.
INTEREST ON FUNDS HELD FOR CLIENTS
Interest on funds held for clients decreased 9% for the third quarter and 19%
for the nine-month period to $13.5 million and $39.9 million, respectively. The
decreases are primarily the result of lower average interest rates earned in
fiscal 2003 and a decrease in net realized gains on the sale of
available-for-sale securities offset somewhat by higher average portfolio
balances from organic client growth and the acquisition of Advantage. Average
portfolio balances for the third quarter and first nine months of fiscal 2003
were $2.37 billion and $2.07 billion, respectively, compared with $1.95 billion
and $1.80 billion in the prior year quarter and nine-month periods. The average
interest rate earned by the funds held for clients portfolio was 2.1% and 2.4%,
respectively, for the third quarter and first nine months of fiscal 2003
compared with 2.6% and 3.1% for the respective prior year periods. Net realized
gains included in interest on funds held for clients were $.7 million and $3.0
million for the third quarter and nine-month periods of fiscal 2003 compared
with net realized gains of $2.3 million and $7.6 million for the respective
prior year periods.
OPERATING INCOME
Consolidated operating, selling, general, and administrative expenses increased
20% in the third quarter and 15% for the nine-month period over the prior year
periods. These increases are due to the acquisition of Advantage and increases
in personnel, information technology, and facility costs to support the growth
of the Company. For the quarter ended February 28, 2003, operating income was
$101.4 million, an increase of 16% over the same period last year. For the nine
months ended February 28, 2003, operating income increased 11% to $303.1
million.
Operating income (excluding interest on funds held for clients) increased 21% in
the third quarter and 18% in the nine-month period to $87.9 million and $263.2
million, respectively. Operating income (excluding interest on funds held for
clients) as a percentage of total service revenues was 32% for the third quarter
and 34% for the nine-month period of fiscal 2003, which was comparable to the
respective prior year periods. Operating income (excluding interest on funds
held for clients) exclusive of the Advantage acquisition as a percentage of
total service revenues was 34% and 36% in the third quarter and nine months,
respectively.
ADVANTAGE
For the third quarter ended February 28, 2003, Advantage revenues included
service revenue of $18.6 million and interest on funds held for clients of $1.4
million. For the nine-month period, Advantage revenues were comprised of $32.7
million of service revenue and $2.6 million of interest on funds held for
clients. Operating, selling, general and administrative expenses for Advantage
totaled $17.0 million and $31.3 million, respectively, for the third quarter and
nine-month periods. Included in these expenses is amortization of intangible
assets of $2.1 million and $3.7 million for the respective quarter and
year-to-date periods.
The acquisition of Advantage resulted in $.01 of earnings per share accretion
since acquisition and is expected to result in $.01 of earnings per share
dilution in the fourth quarter of fiscal 2003. The Company expects the results
of Advantage to be accretive in the next fiscal year.
INVESTMENT INCOME, NET
Investment income, net decreased 55% for the third quarter and 2% for the
nine-month period to $3.8 million and $23.5 million, respectively. The decreases
are due to lower average portfolio balances, lower average interest rates
earned, and the timing of gains realized on the sale of available-for-sale
securities. In the second quarter of fiscal 2003, Paychex realized $7.0 million
of gains related to the sale of corporate investments to fund the acquisition of
Advantage. Average portfolio balances for the corporate investment portfolio
were approximately $495 million and $585 million for the third quarter and nine
months of fiscal 2003 compared to average balances of $697 million and $669
million in the respective prior year periods. The average interest rates earned
for the corporate investment portfolio were 3.2% and 3.3%, respectively, for the
third quarter and first nine months of fiscal 2003 compared with 3.6% and 3.9%
in the respective prior year periods. There were no net realized gains included
in investment income for the third quarter and $9.6 million in net realized
gains for the nine-month period of fiscal 2003. This compares to net realized
gains of $2.4 million and $5.2 million for the respective prior year periods.
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INCOME TAXES
The effective income tax rate was 32.0% for both the third quarter and nine
months ended February 28, 2003, compared to 30.0% and 30.5% for the same periods
last year. These increases are primarily the result of lower levels of
tax-exempt income on funds held for clients and corporate investments.
B. Thomas Golisano, Chairman, President, and Chief Executive Officer of Paychex,
said, "We are very pleased with our financial results for the third quarter of
fiscal 2003. In light of current economic conditions, the Company's
year-over-year increase in operating income (excluding interest on funds held
for clients) of 18% for the first nine months of fiscal 2003 is quite
impressive. Including Advantage, estimated total revenue growth for fiscal 2003
is expected to be in the range of 13% to 15%, with net income growth in the high
single digits. Excluding Advantage, the Company estimates total revenue growth
in fiscal 2003 to be in the range of 8% to 10%, with net income growth slightly
less than total revenue growth. These expectations are based on current economic
and interest rate conditions continuing with no significant changes and exclude
the impact of the acquisition of InterPay."
ABOUT PAYCHEX
Paychex, Inc. is a leading national provider of payroll, human resource, and
benefits outsourcing solutions for small- to medium-sized businesses. The
company offers comprehensive payroll services, including payroll processing,
payroll tax administration, and employee pay services, including direct deposit,
check signing, and Readychex(R). Human resource and benefits outsourcing
services include 401(k) plan recordkeeping, workers' compensation
administration, section 125 plans, a professional employer organization, and
other administrative services for business. Paychex was founded in 1971. With
headquarters in Rochester, New York, the company has more than 100 offices and
serves more than 440,000 payroll clients nationwide.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain written and oral statements made by Paychex, Inc. (the "Company")
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 "we expect," "expected to," "estimates,"
"we look forward to," "would equate to," "projects," "projected to be,"
"anticipates," "we believe," "could be," and other similar phrases. All
statements addressing operating performance, events, or developments that the
Company expects or anticipates will occur in the future, including statements
relating to revenue growth, earnings, earnings per share growth, or similar
projections, are forward-looking statements within the meaning of the Reform
Act. Because they are forward-looking, they should be evaluated in light of
important risk factors. These risk factors include, but are not limited to the
following or those which are described in the Company's SEC filings: general
market and economic conditions, including demand for the Company's products and
services, competition, price levels, availability of internal and external
resources, effective execution of expansion plans and effective integration of
acquisitions; changes in the laws regulating collection and payment of payroll
taxes, professional employer organizations, and employee benefits, including
401(k) plans, workers' compensation, state unemployment, and section 125 plans;
delays in the development, timing of the introduction, and marketing of new
products and services; changes in technology, including use of the Internet; the
possibility of catastrophic events that could impact the Company's operating
facilities, computer systems, and communication systems; the possibility of
third-party service providers failing to perform their functions; the
possibility of penalties and losses resulting from errors and omissions in
performing services; potential damage to the Company's business reputation due
to these and other operational risks; the possible inability of clients to meet
payroll obligations; stock volatility; and changes in short- and long-term
interest rates, changes in market value of available-for-sale securities, and
the credit rating of cash, cash equivalents, and securities held in the
Company's investment portfolios, all of which could cause actual results to
differ materially from anticipated results. The information provided in this
document is based upon the facts and circumstances known at this time.
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PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2003 2002
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REVENUES:
Service revenues $ 274,303 $ 227,964 $ 769,376 $ 661,649
Interest on funds held for clients 13,486 14,836 39,895 48,953
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TOTAL REVENUES 287,789 242,800 809,271 710,602
Operating costs 68,794 56,739 188,356 165,226
Selling, general, and administrative
expenses 117,576 98,844 317,825 273,314
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OPERATING INCOME 101,419 87,217 303,090 272,062
Investment income, net 3,760 8,427 23,546 24,145
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INCOME BEFORE INCOME TAXES 105,179 95,644 326,636 296,207
Income taxes 33,658 28,671 104,524 90,343
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NET INCOME $ 71,521 $ 66,973 $ 222,112 $ 205,864
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BASIC EARNINGS PER SHARE $ .19 $ .18 $ .59 $ .55
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DILUTED EARNINGS PER SHARE $ .19 $ .18 $ .59 $ .54
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WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 376,356 374,922 376,161 374,460
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WEIGHTED-AVERAGE SHARES ASSUMING DILUTION 378,081 378,096 377,982 377,809
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CASH DIVIDENDS PER COMMON SHARE $ .11 $ .11 $ .33 $ .31
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(A) Further information on interest on funds held for clients and investment
income, net and the short- and long-term effects of changing interest rates
can be found in the Company's SEC filings, including Forms 10-K, 10-Q, and
8-K under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and subheadings "Results of
Operations" and "Market Risk Factors." These SEC filings are accessible at
the Company's Web site.
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PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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FEBRUARY 28, MAY 31,
2003 2002
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ASSETS
Cash and cash equivalents $ 169,603 $ 61,897
Corporate investments 382,673 663,316
Interest receivable 18,891 25,310
Accounts receivable, net 98,839 109,858
Prepaid expenses and other current assets 12,347 10,106
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CURRENT ASSETS BEFORE FUNDS HELD FOR CLIENTS 682,353 870,487
Funds held for clients 2,522,082 1,944,087
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TOTAL CURRENT ASSETS 3,204,435 2,814,574
Other assets 7,154 7,895
Property and equipment, net 153,815 121,566
Intangible assets, net 66,453 9,040
Goodwill 243,317 --
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TOTAL ASSETS $ 3,675,174 $ 2,953,075
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LIABILITIES
Accounts payable $ 21,627 $ 14,104
Accrued compensation and related items 57,149 46,819
Deferred revenue 4,885 4,137
Accrued income taxes 16,460 3,140
Deferred income taxes 5,516 9,503
Other current liabilities 20,573 14,810
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CURRENT LIABILITIES BEFORE CLIENT FUND DEPOSITS 126,210 92,513
Client fund deposits 2,492,505 1,930,893
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TOTAL CURRENT LIABILITIES 2,618,715 2,023,406
Other long-term liabilities 13,148 5,688
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TOTAL LIABILITIES 2,631,863 2,029,094
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 600,000 authorized shares
Issued: 376,428 at February 28, 2003 and 375,859 at
May 31, 2002 3,764 3,759
Additional paid-in capital 193,811 185,006
Retained earnings 816,283 718,192
Accumulated other comprehensive income 29,453 17,024
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TOTAL STOCKHOLDERS' EQUITY 1,043,311 923,981
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,675,174 $ 2,953,075
==================================================================================================
(A) The combined funds held for clients and corporate investment portfolio
balances reflected unrealized gains of $46.1 million at February 28, 2003
compared with $26.7 million at May 31, 2002. During the first nine months
of fiscal 2003, the unrealized gain position ranged from approximately
$22.3 million to $46.3 million. The unrealized gain position of the
Company's investment portfolios was approximately $39.7 million at March
19, 2003.
(B) Intangible assets primarily represent client lists and license agreements
with associate offices, which are amortized over periods ranging from 7 to
12 years using either accelerated or straight-line methods. Goodwill
recorded from the purchase of Advantage will not be amortized, but instead
be tested for impairment on an annual basis.
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