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: December 19, 2001
(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)
(585) 385-6666
(Registrant's telephone number, including area code)
ITEM 9. REGULATION FD DISCLOSURE
The registrant's press release dated December 19, 2001 is attached. This release
announces the Company's results of operations for the second quarter ended
November 30, 2001.
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: December 19, 2001 /s/ B. Thomas Golisano
-----------------------
B. Thomas Golisano
Chairman, President and
Chief Executive Officer
Date: December 19, 2001 /s/ John M. Morphy
-----------------------
John M. Morphy
Vice President, Chief
Financial Officer and
Secretary
FOR IMMEDIATE RELEASE
John M. Morphy, Chief Financial Officer or Jan Shuler 585-383-3406
Access the Webcast of the Paychex, Inc. Second Quarter Earnings Release
Conference Call scheduled for December 19, 2001 at 11:00 a.m.
Eastern Standard Time at http://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 SECOND QUARTER RESULTS
ROCHESTER, NY, December 19, 2001 -- Paychex, Inc. (NASDAQ: PAYX) today announced
net income of $68.7 million, or $.18 diluted earnings per share, for the quarter
ended November 30, 2001, an 11% increase over net income of $62.1 million, or
$.16 diluted earnings per share, for the same period last year. Total revenues
were $233.0 million, a 12% increase over $208.1 million for the second quarter
last year.
For the six months ended November 30, 2001, the Company reported record net
income of $138.9 million, or $.37 diluted earnings per share, a 15% increase
over $120.8 million, or $.32 diluted earnings per share, for the same period
last year. Total revenues were $467.8 million, an increase of 14% over $412.0
million for the same period last year.
ECONOMIC CONDITIONS
The Company first experienced the effects of the recession during the first
quarter of fiscal 2002, and these effects have heightened during the second
quarter. In response to the declining economic conditions, the Federal Reserve
has lowered the Federal Funds rate eleven times for a cumulative 475 basis point
affect on interest rates. The short- and long-term effect of changing interest
rates is disclosed in detail in the Company's financial statements and recent
SEC filings, which are accessible at the Company's Web site.
After the effects of volatile interest rates, the most significant impact of a
recessionary economy is lower checks per client as existing clients reduce the
size of their work force. During the second quarter of fiscal 2002, the Company
experienced a 4.3% decline in checks per client compared to 2.6% in the first
quarter. During the recession of the early 1990's, the Company experienced an
approximate 3% total reduction in checks per client.
Despite the above factors, income before taxes remained strong at 43% of
revenues during the first half of the year compared with 42% for the same period
last year. If the interest rates and checks per client conditions experienced in
fiscal 2000 had prevailed through fiscal 2001 and the first half of fiscal 2002,
net income growth in fiscal 2001 would have been approximately 25% compared with
a reported 34% growth. Net income growth for the first half of fiscal 2002 would
also have been approximately 25% compared with a reported 15%.
SERVICE REVENUES
For the quarter ended November 30, 2001, service revenues, which are comprised
of the Payroll and Human Resource and Benefits product lines, were $217.5
million, an increase of 14% over $190.7 million for the prior year quarter. For
the six months ended November 30, 2001, service revenues were $433.7 million, an
increase of 15% over $377.2 million for the same period last year.
Payroll service revenue increased 13% to $188.5 million from $167.1 million for
the prior year second quarter. For the six-month period, Payroll service revenue
increased 14% to $377.9 million from $331.7 million for the prior year period.
The increases in Payroll service revenue reflect growth in the client base,
increased utilization of ancillary services and price increases. As of November
30, 2001, 84% of Paychex clients utilized Taxpay(Registered Trademark), the
Company's tax filing and payment feature. The Company's Employee Pay Services,
which includes Direct Deposit, Readychex(Service Mark) and Access Card products,
was utilized by 55% of its clients. Major Market Services revenue increased 56%
and 59% for the second quarter and six-month periods to $16.6 million and $32.2
million, respectively.
Human Resource and Benefits service revenue was $29.0 million, an increase of
23% over $23.6 million for the second quarter last year. For the six-month
period, Human Resource and Benefits service revenue increased 22% to $55.8
million from $45.6 million for the prior year period. 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 30% and 28% in the second quarter and six-month periods to
$13.6 million and $25.9 million, respectively.
INTEREST ON FUNDS HELD FOR CLIENTS
For the quarter ended November 30, 2001, interest on funds held for clients was
$15.5 million, an 11% decrease from $17.4 million for the second quarter last
year. For the six months ended November 30, 2001, interest on funds held for
clients decreased 2% to $34.1 million from $34.8 million. The decreases are the
result of lower interest rates earned in fiscal 2002 offset by net realized
gains on the sale of available-for-sale securities and higher average portfolio
balances. Net realized gains included in interest on funds held for clients were
$2.2 million and $5.4 million for the second quarter and six-month periods of
fiscal 2002 compared with net realized losses of $.1 million and $.2 million for
the respective prior year periods.
OPERATING INCOME
For the quarter ended November 30, 2001, operating income was $91.1 million, a
9% increase over $83.4 million for the second quarter last year. For the six
months ended November 30, 2001, operating income increased 14% to $184.8 million
from $162.3 million in the prior year period. Combined operating and selling,
general and administrative expenses increased 14% in the second quarter and 13%
for the six-month period over the prior year periods. These increases reflect
increases in personnel, information technology and facility costs necessary to
support the growth of the Company.
INVESTMENT INCOME
Investment income for the quarter ended November 30, 2001 increased 37% to $8.2
million from $6.0 million in the second quarter of last year. Investment income
for the six-month period increased 37% to $15.7 million from $11.5 million in
the prior year period. The increases are due to net realized gains on the sale
of available-for-sale securities and higher average daily invested balances
offset by the impact of lower interest rates in fiscal 2002. Net realized gains
included in investment income were $1.8 million and $2.8 million for the second
quarter and six-month periods of fiscal 2002 compared with net realized losses
of $.1 million and $.2 million for the respective prior year periods.
B. Thomas Golisano, Chairman, President and Chief Executive Officer of Paychex,
said, "Given the significant decreases in interest rates and declining economic
conditions, which continue to impact average checks per client, we are pleased
with our results for the second quarter. During these challenging conditions, we
remain focused on increasing our client base, utilization of ancillary services
and controlling expenses. For fiscal 2002, we expect to produce record revenue
and net income with revenue growth in the range of 9% to 11%."
"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. Because they
are forward-looking, they should be evaluated in light of important risk
factors. These risk factors include, but are not limited to, general market and
economic conditions, including demand for the Company's products and services,
availability of internal and external resources, executing expansion plans,
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, 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 technology, and communication systems;
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. The Company assumes no obligation to update
this document for new information subsequent to its issuance.
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
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For the three months ended For the six months ended
November 30, November 30, November 30, November 30,
2001 2000 2001 2000
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Revenues:
Service revenues $217,509 $190,745 $433,685 $377,215
Interest on funds held
for clients 15,479 17,353 34,117 34,766
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Total revenues 232,988 208,098 467,802 411,981
Operating costs 54,731 47,095 108,487 93,022
Selling, general and
administrative expenses 87,174 77,578 174,470 156,708
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Operating income 91,083 83,425 184,845 162,251
Investment income 8,191 5,965 15,718 11,499
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Income before income taxes 99,274 89,390 200,563 173,750
Income taxes 30,576 27,264 61,672 52,994
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Net income $ 68,698 $ 62,126 $138,891 $120,756
================================================================================
Basic earnings per share $ .18 $ .17 $ .37 $ .32
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Diluted earnings per share $ .18 $ .16 $ .37 $ .32
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Weighted-average common shares
outstanding 374,512 372,618 374,237 372,326
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Weighted-average shares
assuming dilution 377,614 377,839 377,672 377,511
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Cash dividends per common
share $ .11 $ .09 $ .20 $ .15
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(A) Certain amounts for the three- and six-month periods ended November 30,
2000 have been reclassified to conform to the current year presentation. In
addition, the Company has changed its segment reporting from two segments
to one segment in fiscal 2002.
(B) Further information on interest on funds held for clients and investment
income can be found in the Company's SEC filings, including recent Form
10-Qs, 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.
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
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November 30, May 31,
2001 2001
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ASSETS
Cash and cash equivalents $ 96,290 $ 45,784
Corporate investments 563,893 568,217
Interest receivable 24,646 28,281
Accounts receivable 112,911 100,640
Prepaid expenses and other current assets 8,330 7,306
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Current assets before funds held for clients 806,070 750,228
Funds held for clients 1,841,370 2,041,045
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Total current assets 2,647,440 2,791,273
Property and equipment - net 107,071 96,078
Intangible assets - net 9,316 9,612
Deferred income taxes -- 1,361
Other assets 8,713 8,872
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Total assets $2,772,540 $2,907,196
================================================================================
LIABILITIES
Accounts payable $ 12,179 $ 16,377
Accrued compensation and related items 38,718 57,418
Deferred revenue 3,344 4,421
Accrued income taxes 3,196 9,783
Deferred income taxes 17,843 4,996
Other current liabilities 15,203 19,282
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Current liabilities before client fund deposits 90,483 112,277
Client fund deposits 1,829,619 2,031,565
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Total current liabilities 1,920,102 2,143,842
Long-term liabilities 5,866 5,512
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Total liabilities 1,925,968 2,149,354
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 600,000 authorized
shares
Issued: 374,740 at November 30, 2001 and
373,647 at May 31, 2001 3,747 3,736
Additional paid-in capital 161,535 139,897
Retained earnings 665,145 601,142
Accumulated other comprehensive income 16,145 13,067
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Total stockholders' equity 846,572 757,842
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Total liabilities and stockholders' equity $2,772,540 $2,907,196
================================================================================
(A) The combined funds held for clients and corporate investment portfolio
balances reflected unrealized gains of $25.3 million at November 30, 2001
compared with $20.5 million at May 31, 2001. Intermediate-term interest
rates have increased slightly since November 30, 2001 resulting in a decline
in the unrealized gain position to approximately $16 million at December
17, 2001.