Skip to content
AnalystLens

Paychex Annual Report, Year Ended May 31, 2007

Filing Date
Filed July 20, 2007
Period End
May 31, 2007
Security
PAYX
In the record · 2016–202610-K1110-Q328-K99

PAYX filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 99 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Jul ’17Jul ’17
  2. Material agreement8-K · Aug ’19Aug ’19
  3. Material agreement8-K · Sep ’21Sep ’21
  4. Leadership change8-K · Jul ’25Jul ’25

01—Abstract

Summary

Summary of the 10-K filed July 20, 2007. Cited figures are marked; the original filing is the authoritative source.

Paychex, Inc. reported fiscal 2007 (year ended May 31, 2007) as a record year: total revenue rose 13% to $1.9 billiona ($1,886,964 thousand), net income rose 11% to $515.4 million, and diluted earnings per share were $1.35.

Service revenue grew 11% to $1,752.9 millionb, led by Human Resource Services revenue, which rose 22% to $396.2 million. Interest on funds held for clients increased 33% to $134.1 million, and the average combined rate earned on funds held for clients and corporate investments rose to 4.0% from 3.2%. The company served approximately 561,000 clients as of May 31, 2007, and reported client retention at a record level of slightly more than 80%.

Profitability was affected by a $38.0 millionc expense charge to increase the litigation reserve, mainly tied to the Rapid Payroll licensee disputes, and $25.7 million of stock-based compensation expense from the adoption of SFAS No. 123(R). Operating income rose 8% to $701.5 million, and operating income excluding interest on funds held for clients, stock-based compensation, and the litigation charge rose 15% to $631.1 million. The company reported total debt of zero, and cash flow from operations rose 11% to $631.2 million.

The filing discloses that a California jury awarded a Rapid Payroll licensee $15.0 milliond in compensatory damages and $11.0 million in punitive damages on June 27, 2007, which the company intends to contest, while the total litigation reserve stood at $32.5 million. Looking ahead, management projected fiscal 2008 total revenue growth of 11% to 13% and net income growth of 18% to 20%. In July 2007 the company declared a quarterly dividend of $0.30 per share, a 43% increase from $0.21, and announced its intention to repurchase up to $1.0 billion of common stock.

02—Key points

Key Highlights

  1. Total revenue increased 13% to $1.9 billion; service revenue rose 11% to $1.75 billion, with Human Resource Services up 22% to $396.2 million.
  2. Net income rose 11% to $515.4 million, and diluted EPS was $1.35, the company's seventeenth consecutive year of record revenue, net income, and diluted EPS.
  3. Operating income rose 8% to $701.5 million, including a $38.0 million litigation reserve charge and $25.7 million of stock-based compensation; excluding those items and interest on client funds, operating income rose 15% to $631.1 million.
  4. Client base grew to approximately 561,000 clients, with record client retention of slightly more than 80%.
  5. Rapid Payroll litigation: a California jury awarded $15.0 million in compensatory and $11.0 million in punitive damages to one remaining licensee; the total litigation reserve was $32.5 million.
  6. Fiscal 2008 outlook projects total revenue growth of 11% to 13% and net income growth of 18% to 20%.
  7. In July 2007 the board raised the quarterly dividend to $0.30 per share from $0.21 and announced an intention to repurchase up to $1.0 billion of common stock.

03—Questions

Frequently Asked Questions

  1. How did Paychex perform financially in fiscal 2007?

    Total revenue rose 13% to $1,886,964 thousand, net income rose 11% to $515,447 thousand, and diluted EPS was $1.35, compared with $1.22 in fiscal 2006. Cash flow from operations increased 11% to $631.2 million.

  2. What one-time items affected fiscal 2007 results?

    The company recorded a $38.0 million expense charge to increase its litigation reserve, which reduced EPS by approximately $0.06, and recognized $25.7 million of stock-based compensation costs after adopting SFAS No. 123(R) on June 1, 2006.

  3. What is the status of the Rapid Payroll litigation?

    The company has settled with 74 of the 76 licensees affected by its 2001 notice to stop supporting their software. One licensee's case was decided in the company's favor and is on appeal. On June 27, 2007, a California jury awarded another licensee $15.0 million in compensatory damages and $11.0 million in punitive damages; the company will seek to reduce or reverse the verdict. The total litigation reserve was $32.5 million as of May 31, 2007.

  4. What are the company's dividend and share repurchase plans?

    In July 2007 the company declared a regular quarterly dividend of $0.30 per share, an increase of 43% from $0.21, and announced its intention to repurchase up to $1.0 billion of Paychex common stock. Dividends paid in fiscal 2007 totaled $301.3 million, or 58% of net income.

  5. What does management expect for fiscal 2008?

    Based on current economic and interest rate conditions, management projects total revenue growth of 11% to 13%, net income growth of 18% to 20%, and an effective income tax rate of approximately 31.5%. Capital purchases are expected to be between $80 million and $85 million.

04—Continue

← View all 10-K filings