EXHIBIT 99.1
PRESS RELEASE OF PAYCHEX, INC. DATED SEPTEMBER 26, 2007
PAYCHEX, INC. REPORTS RECORD FIRST QUARTER RESULTS
September 26, 2007
First Quarter Fiscal 2008 Highlights:
| |
• |
|
Net income increased 12% to $151.1 million and diluted earnings per share increased 14%
to $0.40 per share. |
| |
| |
• |
|
Total revenue increased 10% to $507.1 million. |
| |
| |
• |
|
Payroll service revenue increased 8% to $361.5 million and Human Resource Services
revenue grew 20% to $113.3 million. |
| |
| |
• |
|
Operating income excluding interest on funds held for clients increased 14% to $178.3
million. |
| |
| |
• |
|
The Company’s regular quarterly dividend increased 43% to $0.30 per share from $0.21 per share. |
| |
| |
• |
|
The Company repurchased $396.5 million, or 8.9 million shares, of its common
stock as of August 31, 2007. |
ROCHESTER, NY, September 26, 2007 — Paychex, Inc. (“we,” “our,” or “us”) (NASDAQ:PAYX) today
announced record net income of $151.1 million, or $0.40 diluted earnings per share, for the three
months ended August 31, 2007 (the “first quarter”), a 12% increase over net income of $135.1
million, or $0.35 diluted earnings per share, for the same period last year. Total revenue was
$507.1 million, a 10% increase over $459.4 million for the same period last year.
“We continued our tradition of record financial results as demonstrated by an excellent first
quarter, on track to achieve our eighteenth consecutive year of record revenues and net income,”
commented Jonathan J. Judge, President and Chief Executive Officer of Paychex.
“Our strong balance sheet and liquidity position have allowed us to continue to support our
ongoing operations while returning value to our stockholders in the form of dividends and stock
repurchases. We increased our quarterly dividend by 43% and commenced a program to repurchase $1.0
billion of our common stock, reflecting our confidence in the long-term growth
opportunities of our business. In the first quarter, we repurchased $396.5 million of our common
stock for a total of 8.9 million shares and we expect to complete the stock repurchase program in
2007,” added Mr. Judge.
Payroll service revenue increased 8% to $361.5 million for the first quarter from the same period last year. The
increase was due to client base growth, higher check volume, and price increases.
Human Resource Services revenue increased 20% to $113.3 million for the first quarter from the
same period last year. The growth was generated from the following: retirement services client
base increased 18% to 45,000 clients; comprehensive human resource outsourcing services client
employees increased 22% to 381,000 client employees served; and workers’ compensation insurance
client base increased 19% to 65,000 clients. Additionally, the asset value of the retirement
services client employees’ funds increased 30% to $8.5 billion.
Total expenses increased 9% to $296.5 million for the first quarter from the same period last
year. Growth in total expenses was a result of increases in personnel related to selling to new
clients, retaining clients, and promoting new services.
For the first quarter, our operating income was $210.6 million, an increase of 13% over the
same period last year. Operating income excluding interest on funds held for clients increased 14%
to $178.3 million and improved as a percent of service revenues to 38% from 36% for the same period
last year.
Interest on funds held for clients increased 8% to $32.3 million and corporate investment
income increased 30% to $12.2 million, attributable to higher average interest rates and higher
average investment balances, as summarized below:
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|
|
|
|
|
|
| |
|
| |
|
For the three months ended |
|
| |
|
August 31, |
|
| $ in millions |
|
2007 |
|
|
2006 |
|
| |
Average investment balances: |
|
|
|
|
|
|
|
|
Funds held for clients |
|
$ |
3,094.6 |
|
|
$ |
2,969.2 |
|
Corporate investments |
|
$ |
1,227.6 |
|
|
$ |
1,001.0 |
|
|
|
|
|
|
|
|
|
|
Average interest rates earned: |
|
|
|
|
|
|
|
|
Funds held for clients |
|
|
4.2 |
% |
|
|
4.0 |
% |
Corporate investments |
|
|
4.0 |
% |
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
| |
STOCK REPURCHASE PROGRAM
In July 2007, we announced our program to repurchase up to $1.0 billion of Paychex, Inc.
common stock. Through September 26, 2007, we repurchased 11.2 million shares for a total of $500.0
million. Subject to changes in market conditions, we expect to complete our repurchase program in
2007 and anticipate that our weighted average outstanding shares for the full fiscal year ending
May 31, 2008 (“fiscal 2008”) will be approximately 370 million.
OUTLOOK
Our current outlook for fiscal 2008 has been revised from that
provided in our Annual Report on Form 10-K (“Form 10-K”) for the year ended May 31, 2007, incorporating the
anticipated impact of lower investment income as a result
of funding the stock repurchase program. In addition, this revised guidance reflects the 50 basis
point decrease in the Federal Funds rate announced on September 18, 2007. Our anticipated effective income tax rate increased as a result of the lower expected tax-exempt
income earned on our investment portfolios as well as the adoption of new accounting guidance related to uncertain tax positions. Our projections are
based on current economic and interest rate conditions continuing with no significant changes.
Projected revenue and net income growth is as follows:
| |
|
|
|
|
Payroll service revenue |
|
9% |
– |
10% |
Human Resource Services revenue |
|
20% |
– |
23% |
Total service revenue |
|
11% |
– |
13% |
Interest on funds held for clients |
|
relatively flat |
Total revenue |
|
11% |
– |
13% |
Corporate investment income |
|
(40% |
) – ( |
35%) |
Net income |
|
12% |
– |
14% |
The effective income tax rate is
expected to approximate 32.5%.
CONFERENCE CALL
Interested parties may access the webcast of our Earnings Release Conference Call, scheduled
for September 27, 2007 at 10:30 a.m. Eastern Time, at
www.paychex.com on the Investor Relations
page. The webcast will also be archived on the Investor Relations page for approximately one
month. Our news releases, current financial information, SEC filings, and investor presentation
are also accessible at www.paychex.com. For more information, contact:
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Investor Relations:
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John Morphy, CFO, or
Terri Allen
|
|
585-383-3406 |
|
|
|
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|
Media Inquiries:
|
|
Laura Saxby Lynch
|
|
585-383-3074 |
Page 2 of 5
ABOUT PAYCHEX
Paychex, Inc. is a leading provider of payroll, human resource, and benefits outsourcing
solutions for small- to medium-sized businesses. We offer comprehensive payroll services,
including payroll processing, payroll tax administration, and employee pay services, including
direct deposit, check signing, and Readychex®. Human Resource Services include 401(k)
plan recordkeeping, health insurance, workers’ compensation administration, section 125 plans, a
professional employer organization, time and attendance solutions, and other administrative
services for business. Paychex, Inc. was founded in 1971. With headquarters in Rochester, New
York, the company has more than 100 offices and serves approximately 561,000 payroll clients
nationwide. For more information about Paychex, Inc. and our
products, visit www.paychex.com.
“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain written and oral statements made by us may constitute “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).
Forward-looking statements are identified by such words and phrases as “we expect,” “expected to,”
“estimates,” “estimated,” “current outlook,” “we look forward to,” “would equate to,” “projects,”
“projections,” “projected to be,” “anticipates,” “anticipated,” “we believe,” “could be,” and other
similar phrases. All statements addressing operating performance, events, or developments that we
expect or anticipate 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, those that are
described in our filings with the Securities and Exchange Commission (“SEC”), including the most
recent Form 10-K filed on July 20, 2007. Any of these factors could
cause our actual results to differ materially from our anticipated results. The information
provided in this document is based upon the facts and circumstances known at this time. We
undertake no obligation to update these forward-looking statements to reflect events or
circumstances after the date of issuance of this release, or to reflect occurrence of unanticipated
events.
Page 3 of 5
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the three months ended |
|
|
|
|
| |
|
August 31, |
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
% Change |
|
| |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Payroll service revenue |
|
$ |
361,486 |
|
|
$ |
335,239 |
|
|
|
8 |
% |
Human Resource Services revenue |
|
|
113,329 |
|
|
|
94,304 |
|
|
|
20 |
% |
| |
|
|
|
|
|
|
Total service revenue |
|
|
474,815 |
|
|
|
429,543 |
|
|
|
11 |
% |
Interest on funds held for clients(1) |
|
|
32,315 |
|
|
|
29,831 |
|
|
|
8 |
% |
| |
|
|
|
|
|
|
Total revenue |
|
|
507,130 |
|
|
|
459,374 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
159,315 |
|
|
|
148,084 |
|
|
|
8 |
% |
Selling, general and administrative expenses |
|
|
137,227 |
|
|
|
124,936 |
|
|
|
10 |
% |
| |
|
|
|
|
|
|
Total expenses |
|
|
296,542 |
|
|
|
273,020 |
|
|
|
9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
210,588 |
|
|
|
186,354 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net(1) |
|
|
12,237 |
|
|
|
9,416 |
|
|
|
30 |
% |
| |
|
|
|
|
|
|
Income before income taxes |
|
|
222,825 |
|
|
|
195,770 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
71,750 |
|
|
|
60,689 |
|
|
|
18 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
151,075 |
|
|
$ |
135,081 |
|
|
|
12 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.40 |
|
|
$ |
0.36 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.40 |
|
|
$ |
0.35 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
380,539 |
|
|
|
380,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding,
assuming dilution |
|
|
382,255 |
|
|
|
381,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share(2) |
|
$ |
0.30 |
|
|
$ |
0.16 |
|
|
|
88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(1) |
|
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 our filings
with the SEC, including our Form 10-K and Quarterly Reports on Form 10-Q, as applicable,
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 filings are accessible at our website www.paychex.com.
|
| |
|
|
|
| |
(2) |
|
In October 2006, the Board of Directors declared a 31% increase in the quarterly dividend from $0.16 per share to $0.21 per share.
In July 2007, the Board of Directors declared a 43% increase in the quarterly dividend from $0.21 per share to $0.30 per share. |
Page 4 of 5
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share amount)
| |
|
|
|
|
|
|
|
|
| |
|
August 31, |
|
|
May 31, |
|
| |
|
2007 |
|
|
2007 |
|
| |
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
110,614 |
|
|
$ |
79,353 |
|
Corporate investments(1) |
|
|
338,639 |
|
|
|
511,772 |
|
Interest receivable |
|
|
35,373 |
|
|
|
53,624 |
|
Accounts receivable, net of allowance for doubtful accounts |
|
|
210,982 |
|
|
|
186,273 |
|
Deferred income taxes |
|
|
13,085 |
|
|
|
23,840 |
|
Prepaid income taxes |
|
|
— |
|
|
|
8,845 |
|
Prepaid expenses and other current assets |
|
|
26,098 |
|
|
|
24,515 |
|
| |
|
|
Current assets before funds held for clients |
|
|
734,791 |
|
|
|
888,222 |
|
Funds held for clients(1) |
|
|
3,525,070 |
|
|
|
3,973,097 |
|
| |
|
|
Total current assets |
|
|
4,259,861 |
|
|
|
4,861,319 |
|
Long-term corporate investments(1) |
|
|
510,465 |
|
|
|
633,086 |
|
Property and equipment, net of accumulated depreciation |
|
|
260,943 |
|
|
|
256,087 |
|
Intangible assets, net of accumulated amortization |
|
|
64,767 |
|
|
|
67,213 |
|
Goodwill |
|
|
440,308 |
|
|
|
407,712 |
|
Deferred income taxes |
|
|
15,068 |
|
|
|
15,209 |
|
Other long-term assets |
|
|
6,525 |
|
|
|
5,893 |
|
| |
|
|
Total assets |
|
$ |
5,557,937 |
|
|
$ |
6,246,519 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
91,807 |
|
|
$ |
46,961 |
|
Accrued compensation and related items |
|
|
99,643 |
|
|
|
125,268 |
|
Deferred revenue |
|
|
6,705 |
|
|
|
7,758 |
|
Accrued income taxes |
|
|
47,943 |
|
|
|
— |
|
Litigation reserve |
|
|
25,662 |
|
|
|
32,515 |
|
Other current liabilities |
|
|
45,357 |
|
|
|
42,638 |
|
| |
|
|
Current liabilities before client fund deposits |
|
|
317,117 |
|
|
|
255,140 |
|
Client fund deposits |
|
|
3,528,373 |
|
|
|
3,982,330 |
|
| |
|
|
Total current liabilities |
|
|
3,845,490 |
|
|
|
4,237,470 |
|
Accrued income taxes(2) |
|
|
12,885 |
|
|
|
— |
|
Deferred income taxes |
|
|
7,318 |
|
|
|
9,567 |
|
Other long-term liabilities |
|
|
48,122 |
|
|
|
47,234 |
|
| |
|
|
Total liabilities |
|
|
3,913,815 |
|
|
|
4,294,271 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; Authorized: 600,000 shares;
Issued and outstanding: 374,716 shares as of August 31, 2007,
and 382,151 shares as of May 31, 2007, respectively |
|
|
3,747 |
|
|
|
3,822 |
|
Additional paid-in capital |
|
|
408,883 |
|
|
|
362,982 |
|
Retained earnings(2) |
|
|
1,235,588 |
|
|
|
1,595,105 |
|
Accumulated other comprehensive loss |
|
|
(4,096 |
) |
|
|
(9,661 |
) |
| |
|
|
Total stockholders’ equity |
|
|
1,644,122 |
|
|
|
1,952,248 |
|
| |
|
|
Total liabilities and stockholders’ equity |
|
$ |
5,557,937 |
|
|
$ |
6,246,519 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(1) |
|
The available-for-sale securities within the funds held for clients and corporate
investment portfolios reflected net unrealized losses of $6.3 million as of August 31,
2007, compared with net unrealized losses of $14.9 million as of May 31, 2007. During the
first three months of fiscal 2008, the net unrealized loss position ranged from $24.3
million to $6.3 million. The net unrealized loss position of our combined investment
portfolios was approximately $0.5 million as of September 21, 2007.
|
| |
| |
(2) |
|
Effective June 1, 2007, we adopted Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109.” Upon adoption, we recognized the cumulative effect of our
uncertain tax positions of $8.4 million, with an offsetting decrease to opening retained
earnings. Long-term liabilities on our Consolidated Balance Sheets include a reserve for uncertain tax positions as resolution of these matters is not expected within the
next twelve months.
|
Page 5 of 5