01—Abstract
Summary
Summary of the 10-K filed July 18, 2008. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. (NASDAQ: PAYX) reports its fiscal 2008 results for the year ended May 31, 2008.
Total revenue rose 10% to $2.07 billiona, service revenue reached $1.93 billion, and operating income increased 18% to $828.3 million. Net income grew 12% to $576.1 million, and diluted earnings per share increased 16% to $1.56. The company describes this as its eighteenth consecutive year of record total revenue, net income, and diluted earnings per share.
Payroll service revenue increased 8% to $1.5 billionb, while Human Resource Services revenue increased 19% to $471.8 million. The filing attributes weaker results in part to a weakening economy and declining interest rates. The Federal Funds rate fell 325 basis points to 2.00% by May 31, 2008, and interest on funds held for clients decreased 2% to $131.8 million.
Combined interest on funds held for clients and investment income, net, decreased 10%. Client base growth slowed to 2.0%, with approximately 572,000 clients at year-end. The company completed a $1.0 billionc stock repurchase program in December 2007, repurchasing 23.7 million shares, and dividends paid totaled $442 million.
The filing also discloses litigation from the Rapid Payroll licensee matters. A jury verdict in one remaining licensee case awarded $15.0 milliond in compensatory damages and an additional $11.0 million in punitive damages, which the company is appealing.
The company maintains a litigation reserve of $23.0 million and management believes resolution will not have a material adverse effect. Management's fiscal 2009 outlook projects total revenue growth of 7% to 9% and net income growth of 2% to 4%.
02—Key points
Key Highlights
- Total revenue increased 10% to $2.07 billion, and service revenue increased 10% to $1.93 billion for fiscal 2008.
- Operating income rose 18% to $828.3 million, and net income increased 12% to $576.1 million.
- Diluted earnings per share increased 16% to $1.56, benefiting from a lower share count after the stock repurchase program.
- Interest on funds held for clients declined 2% to $131.8 million as the Federal Funds rate fell 325 basis points to 2.00%.
- Client base grew to approximately 572,000 clients, up 2.0%, while client retention was approximately 80%.
- The company repurchased 23.7 million shares for $1.0 billion and paid $442 million in dividends, with the quarterly dividend raised to $0.30 per share.
- A $15.0 million compensatory and $11.0 million punitive damages verdict in a Rapid Payroll licensee case is under appeal, with a $23.0 million litigation reserve recorded.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed July 18, 2008Financial Statements
| Revenue | $2.07B |
| SG&A Expenses | $577.32M |
| Operating Expenses | $1.24B |
| Operating Income | $828.27M |
| Net Income | $576.14M |
| EPS (Basic) | $1.56 |
| EPS (Diluted) | $1.56 |
| Shares Outstanding (Basic) | 368.42M |
| Shares Outstanding (Diluted) | 369.53M |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2008?
Total revenue rose 10% to $2.07 billion, operating income increased 18% to $828.3 million, and net income grew 12% to $576.1 million. Diluted earnings per share rose 16% to $1.56.
What drove revenue growth?
Payroll service revenue increased 8% to $1.5 billion, driven by client base growth, higher check volume, price increases, and ancillary service utilization. Human Resource Services revenue increased 19% to $471.8 million, with comprehensive HR outsourcing serving approximately 439,000 client employees.
How did falling interest rates affect the company?
Interest on funds held for clients decreased 2% to $131.8 million, and the combined interest on funds held for clients and investment income, net, decreased 10%. The company's combined portfolio earned an average rate of 3.7%, compared with 4.0% in fiscal 2007.
What is the status of the Rapid Payroll litigation?
A California jury awarded $15.0 million in compensatory damages and $11.0 million in punitive damages to one licensee, and the company is pursuing an appeal. The company's total pending litigation reserve was $23.0 million as of May 31, 2008, and management believes resolution will not have a material adverse effect.
What is the outlook for fiscal 2009?
Management projects total revenue growth of 7% and net income growth of 2% based on current economic and interest rate conditions. Operating income, net of certain items, is expected to grow approximately 13%, and the effective tax rate is expected to be about 34%.
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