How did Paychex perform financially in fiscal 1997?

Paychex reported total revenue of $734.7 million, operating income of $96.6 million, and net income of $75.2 million, or $.70 per share. These were up from $566.4 million, $69.9 million, $55.0 million, and $.51 per share in fiscal 1996. The filing describes fiscal 1997 as the seventh consecutive year of record revenues and net income.

What are the company's two business segments and how large is each?

The Payroll segment prepares payroll checks, tax returns, and tax payments for small- to medium-sized businesses, with service revenue of $368.9 million and operating income of $99.4 million. The HRS-PEO segment provides 401(k) recordkeeping, benefits, and professional employer organization services, with service revenue of $30.9 million and operating income of $4.5 million.

Why did total assets and client deposits increase so much?

Total assets rose to $1.20 billion from $831.6 million, mainly because of Electronic Network Services investments of $896.6 million. These are funds collected for the Taxpay and Direct Deposit products and are offset by equal client deposit liabilities of $896.1 million. The company restated prior periods to show these funds on the balance sheet due to recent changes in case law, with no effect on net income or earnings per share.

What does management expect for fiscal 1998?

Management expects continued growth in revenue, client base, and net income. Payroll revenue and operating income are expected to rise, though revenue and income will be reduced by about $3 million from an IRS Electronic Funds Transfer requirement effective July 1, 1997. The effective tax rate is expected to be 28.5% to 29.5%, compared with 27.0% to 27.5% in the past three years.

Are there any material legal proceedings or significant risks disclosed?

The filing states there are no material pending legal proceedings. It notes that the company is a defendant in various ordinary-course lawsuits that management does not expect to be material. Forward-looking risks cited include market conditions, competition, changes in payroll tax, PEO, and employee benefit laws, and changes in municipal bond credit ratings and interest rates.

PAYX 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed August 15, 1997. Cited figures are marked; the original filing is the authoritative source.

Paychex, Inc. (NASDAQ: PAYX) reported record results for the fiscal year ended May 31, 1997, its seventh consecutive year of record revenues and net income.

Total revenue rose to $734.7 million^a from $566.4 million in fiscal 1996, operating income reached $96.6 million, and net income was $75.2 million, or $.70 per share, compared with $55.0 million, or $.51 per share, a year earlier. The company operates two segments: Payroll, which generated $368.9 million in service revenue and serves over 262,000 small- and medium-sized business clients, and HRS-PEO, which provides 401(k) recordkeeping, benefits and professional employer organization services. The HRS-PEO segment's total revenue of $365.8 million includes $335.0 million of pass-through PEO direct costs billed, so its operating income of $4.5 million is the more meaningful measure of that segment's profitability.

Balance sheet size grew sharply, with total assets of $1.20 billion^b versus $831.6 million, driven largely by Electronic Network Services (ENS) investments of $896.6 million and matching client deposits of $896.1 million tied to the Taxpay and Direct Deposit products. Stockholders' equity increased to $251.5 million, and the company had no debt outstanding and $262.5 million of unused lines of credit at May 31, 1997. Management expects continued growth in revenue, client base and net income in fiscal 1998, though it also flagged an approximately $3 million revenue reduction from an IRS Electronic Funds Transfer requirement effective July 1, 1997, and a higher expected effective tax rate of 28.5% to 29.5%.

The filing states that there are no material pending legal proceedings. Management also said the Year 2000 conversion effort is not expected to be material in cost or effect on results. The company's share repurchase history is not discussed, but its stock traded between $25.50^c and $42.38 during fiscal 1997 following three-for-two stock splits in May 1997 and May 1996.

02—Key points

Key Highlights

Total revenue rose to $734.7 million in fiscal 1997 from $566.4 million in fiscal 1996, and net income increased to $75.2 million from $55.0 million.
Earnings per share were $.70 versus $.51 a year earlier, and the company reported its seventh consecutive year of record revenues and net income.
Payroll segment service revenue was $368.9 million with operating income of $99.4 million, and the company served over 262,000 Payroll clients.
HRS-PEO segment operating income was $4.5 million, up from $1.7 million, on total segment revenue of $365.8 million, most of which is pass-through PEO direct costs billed.
Total assets grew to $1.20 billion, largely reflecting $896.6 million of ENS investments offset by $896.1 million of ENS client deposits.
The company had no outstanding debt, $183.0 million in available cash and investments, and $262.5 million of unused lines of credit at May 31, 1997.
Fiscal 1998 revenue will be reduced by about $3 million from an IRS Electronic Funds Transfer requirement, partly offset by a planned Taxpay price increase.

03—Questions

Frequently Asked Questions

How did Paychex perform financially in fiscal 1997?
Paychex reported total revenue of $734.7 million, operating income of $96.6 million, and net income of $75.2 million, or $.70 per share. These were up from $566.4 million, $69.9 million, $55.0 million, and $.51 per share in fiscal 1996. The filing describes fiscal 1997 as the seventh consecutive year of record revenues and net income.
What are the company's two business segments and how large is each?
The Payroll segment prepares payroll checks, tax returns, and tax payments for small- to medium-sized businesses, with service revenue of $368.9 million and operating income of $99.4 million. The HRS-PEO segment provides 401(k) recordkeeping, benefits, and professional employer organization services, with service revenue of $30.9 million and operating income of $4.5 million.
Why did total assets and client deposits increase so much?
Total assets rose to $1.20 billion from $831.6 million, mainly because of Electronic Network Services investments of $896.6 million. These are funds collected for the Taxpay and Direct Deposit products and are offset by equal client deposit liabilities of $896.1 million. The company restated prior periods to show these funds on the balance sheet due to recent changes in case law, with no effect on net income or earnings per share.
What does management expect for fiscal 1998?
Management expects continued growth in revenue, client base, and net income. Payroll revenue and operating income are expected to rise, though revenue and income will be reduced by about $3 million from an IRS Electronic Funds Transfer requirement effective July 1, 1997. The effective tax rate is expected to be 28.5% to 29.5%, compared with 27.0% to 27.5% in the past three years.
Are there any material legal proceedings or significant risks disclosed?
The filing states there are no material pending legal proceedings. It notes that the company is a defendant in various ordinary-course lawsuits that management does not expect to be material. Forward-looking risks cited include market conditions, competition, changes in payroll tax, PEO, and employee benefit laws, and changes in municipal bond credit ratings and interest rates.

04—Continue

← View all 10-K filings