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Paychex, Inc. Reports Second Quarter Results

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, many of which are outside our control. Our actual results and financial conditions may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance upon any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

  • general market and economic conditions including, among others, changes in U.S. employment and wage levels, changes to new hiring trends, legislative changes to stimulate the economy, changes in short- and long-term interest rates, changes in the fair value and the credit rating of securities held by us, and accessibility of financing;
  • changes in demand for our services and products, ability to develop and market new services and products effectively, pricing changes and the impact of competition;
  • changes in the availability of skilled workers;
  • changes in the laws regulating collection and payment of payroll taxes, professional employer organizations, and employee benefits, including retirement plans, workers’ compensation, health insurance, state unemployment, and section 125 plans;
  • changes in health insurance and workers’ compensation rates and underlying claims trends;
  • changes in technology that adversely affect our products and services and impact our ability to provide timely enhancements to services and products;
  • the possibility of a security breach that disrupts operations or exposes client confidential data;
  • the possibility of failure of our operating facilities, computer systems, and communication systems during a catastrophic event;
  • the possibility of third-party service providers failing to perform their functions;
  • the possibility of a failure of internal controls or our inability to implement business processing improvements;
  • the possibility that we may be subject to liability for violations of employment or discrimination laws by our clients and acts or omissions of client employees who may be deemed to be our agents, even if we do not participate in any such acts or violations; and
  • potentially unfavorable outcomes related to pending legal matters.

Any of these factors, as well as such other factors as discussed in our periodic filings with the SEC, 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, and any forward-looking statement made by us in this document speaks only as of the date on which it is made. We undertake no obligation to update these forward-looking statements after the date of issuance of this press release to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

           

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In millions, except per share amounts)

 
For the three months ended November 30, For the six months ended November 30,
2012   2011 Change 2012   2011 Change
Revenue:  
Payroll service revenue $ 377.0 $ 371.7 1 % $ 762.9 $ 754.0 1 %
Human Resource Services revenue 182.4   163.3   12 % 364.6   333.0   10 %
Total service revenue 559.4 535.0 5 % 1,127.5 1,087.0 4 %
Interest on funds held for clients (1) 10.0   10.7   (8 )% 20.1   21.8   (8 )%
Total revenue 569.4 545.7 4 % 1,147.6 1,108.8 3 %
Expenses:
Operating expenses 164.3 162.7 1 % 328.5 326.8 1 %
Selling, general and administrative expenses 175.1   165.1   6 % 351.1   334.4   5 %
Total expenses 339.4   327.8   4 % 679.6   661.2   3 %
Operating income 230.0 217.9 6 % 468.0 447.6 5 %
Investment income, net (1) 1.9   1.5   22 % 3.8   3.0   26 %
Income before income taxes 231.9 219.4 6 % 471.8 450.6 5 %
Income taxes 84.0   79.0   6 % 170.8   161.3   6 %
Net income $ 147.9   $ 140.4   5 % $ 301.0   $ 289.3   4 %
 
Basic earnings per share $ 0.41 $ 0.39 5 % $ 0.83 $ 0.80 4 %
Diluted earnings per share $ 0.41 $ 0.39 5 % $ 0.83 $ 0.80 4 %
Weighted-average common shares outstanding 363.6 362.4 363.3 362.3
Weighted-average common shares outstanding, assuming dilution 364.4 362.8 364.1 362.8
Cash dividends per common share $ 0.33 $ 0.32 3 % $ 0.65 $ 0.63 3 %
 
     

(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-Q and our Annual Report on Form 10-K, 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.

       

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except per share amount)

 
November 30, 2012 May 31, 2012
ASSETS
Cash and cash equivalents $ 122.6 $ 108.8
Corporate investments 178.6 207.5
Interest receivable 31.0 30.6
Accounts receivable, net of allowance for doubtful accounts 169.3 142.4
Deferred income taxes 1.6
Prepaid income taxes 11.9 5.6
Prepaid expenses and other current assets 39.9   35.2
Current assets before funds held for clients 553.3 531.7
Funds held for clients 3,715.5   4,544.2
Total current assets 4,268.8 5,075.9
Long-term corporate investments 504.3 473.7
Property and equipment, net of accumulated depreciation 351.8 324.3
Intangible assets, net of accumulated amortization 47.0 55.8
Goodwill 517.4 517.4
Deferred income taxes 31.3 29.2
Other long-term assets 3.6   3.3
Total assets $ 5,724.2   $ 6,479.6
 
LIABILITIES
Accounts payable $ 43.6 $ 69.7
Accrued compensation and related items 116.8 130.9
Deferred revenue 2.5 3.0
Deferred income taxes 28.5 13.9
Other current liabilities 32.6   33.8
Current liabilities before client fund obligations 224.0 251.3
Client fund obligations 3,664.6   4,494.4
Total current liabilities 3,888.6 4,745.7
Accrued income taxes 42.8 35.9
Deferred income taxes 46.5 40.6
Other long-term liabilities 48.1   52.9
Total liabilities 4,026.0 4,875.1
 
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; Authorized: 600.0 shares;Issued and outstanding: 363.7 shares as of November 30, 2012and 362.6 shares as of May 31, 2012, respectively. 3.6 3.6
Additional paid-in capital 594.1 561.1
Retained earnings 1,060.8 1,002.1
Accumulated other comprehensive income 39.7   37.7
Total stockholders’ equity 1,698.2   1,604.5
Total liabilities and stockholders’ equity $ 5,724.2   $ 6,479.6
 
     

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)

 
For the six months ended November 30,
2012   2011
OPERATING ACTIVITIES
Net income $ 301.0 $ 289.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on property and equipment and intangible assets 48.3 48.3
Amortization of premiums and discounts on available-for-sale securities, net 27.1 20.8
Stock-based compensation costs 11.5 11.9
Provision for deferred income taxes 17.5 22.9
Provision for allowance for doubtful accounts 0.7 0.3
Net realized gains on sales of available-for-sale securities (0.3 ) (0.2 )
Changes in operating assets and liabilities:
Interest receivable (0.4 ) 1.5
Accounts receivable (27.5 ) (60.7 )
Prepaid expenses and other current assets (11.0 ) (15.8 )
Accounts payable and other current liabilities (41.5 ) (22.6 )
Net change in other assets and liabilities 0.6   1.5  
Net cash provided by operating activities 326.0 297.2
INVESTING ACTIVITIES
Purchases of available-for-sale securities (12,222.3 ) (4,730.6 )
Proceeds from sales and maturities of available-for-sale securities 12,249.8 4,690.6
Net change in funds held for clients’ money market securities and other cash equivalents 777.1 519.9
Purchases of property and equipment (54.5 ) (44.1 )
Acquisition of businesses, net of cash acquired (12.0 ) (1.0 )
Purchases of other assets (0.5 )  
Net cash provided by investing activities 737.6 434.8
FINANCING ACTIVITIES
Net change in client fund obligations (829.8 ) (528.3 )
Dividends paid (236.4 ) (228.4 )
Equity activity related to stock-based awards 16.4   1.8  
Net cash used in financing activities (1,049.8 ) (754.9 )
Increase/(decrease) in cash and cash equivalents 13.8 (22.9 )
Cash and cash equivalents, beginning of period 108.8   119.0  
Cash and cash equivalents, end of period $ 122.6   $ 96.1  




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