Document and Company Informatio
Document and Company Information (USD $) | ||
9 Months Ended
Feb. 28, 2010 | Nov. 30, 2008
| |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | PAYCHEX INC | |
Entity Central Index Key | 0000723531 | |
Document Type | 10-Q | |
Document Period End Date | 2010-02-28 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --05-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Public Float | $9,090,512,779 | |
Entity Common Stock, Shares Outstanding | 361,421,034 |
Consolidated Statements of Inco
Consolidated Statements of Income (Unaudited) (USD $) | ||||
In Thousands, except Per Share data | 3 Months Ended
Feb. 28, 2010 | 3 Months Ended
Feb. 28, 2009 | 9 Months Ended
Feb. 28, 2010 | 9 Months Ended
Feb. 28, 2009 |
Revenue: | ||||
Service revenue | $493,790 | $512,196 | $1,463,305 | $1,526,446 |
Interest on funds held for clients | 14,029 | 16,385 | 41,304 | 60,380 |
Total revenue | 507,819 | 528,581 | 1,504,609 | 1,586,826 |
Expenses: | ||||
Operating expenses | 164,508 | 174,503 | 490,502 | 513,646 |
Selling, general and administrative expenses | 175,062 | 156,677 | 462,926 | 442,294 |
Total expenses | 339,570 | 331,180 | 953,428 | 955,940 |
Operating income | 168,249 | 197,401 | 551,181 | 630,886 |
Investment income, net | 1,180 | 1,067 | 3,232 | 6,050 |
Income before income taxes | 169,429 | 198,468 | 554,413 | 636,936 |
Income taxes | 57,422 | 67,678 | 192,936 | 217,195 |
Net income | $112,007 | $130,790 | $361,477 | $419,741 |
Basic earnings per share | 0.31 | 0.36 | $1 | 1.16 |
Diluted earnings per share | 0.31 | 0.36 | $1 | 1.16 |
Weighted-average common shares outstanding | 361,417 | 360,821 | 361,328 | 360,743 |
Weighted-average common shares outstanding, assuming dilution | 361,860 | 360,913 | 361,627 | 360,966 |
Cash dividends per common share | 0.31 | 0.31 | 0.93 | 0.93 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) (USD $) | ||
In Thousands | 9 Months Ended
Feb. 28, 2010 | 12 Months Ended
May. 31, 2009 |
ASSETS | ||
Cash and cash equivalents | $279,261 | $472,769 |
Corporate investments | 115,765 | 19,710 |
Interest receivable | 22,591 | 27,722 |
Accounts receivable, net of allowance for doubtful accounts | 159,131 | 177,958 |
Deferred income taxes | 23,221 | 10,180 |
Prepaid income taxes | 0 | 2,198 |
Prepaid expenses and other current assets | 25,035 | 27,913 |
Current assets before funds held for clients | 625,004 | 738,450 |
Funds held for clients | 4,091,527 | 3,501,376 |
Total current assets | 4,716,531 | 4,239,826 |
Long-term corporate investments | 294,088 | 82,234 |
Property and equipment, net of accumulated depreciation | 264,273 | 274,530 |
Intangible assets, net of accumulated amortization | 68,085 | 76,641 |
Goodwill | 421,559 | 433,316 |
Deferred income taxes | 19,723 | 16,487 |
Other long-term assets | 3,772 | 4,381 |
Total assets | 5,788,031 | 5,127,415 |
LIABILITIES | ||
Accounts payable | 35,081 | 37,334 |
Accrued compensation and related items | 128,745 | 135,064 |
Deferred revenue | 3,792 | 9,542 |
Accrued income taxes | 23,531 | 0 |
Deferred income taxes | 19,463 | 17,159 |
Litigation reserve | 39,096 | 20,411 |
Other current liabilities | 41,314 | 44,704 |
Current liabilities before client fund obligations | 291,022 | 264,214 |
Client fund obligations | 4,021,401 | 3,437,679 |
Total current liabilities | 4,312,423 | 3,701,893 |
Accrued income taxes | 27,305 | 25,730 |
Deferred income taxes | 5,786 | 12,773 |
Other long-term liabilities | 45,397 | 45,541 |
Total liabilities | 4,390,911 | 3,785,937 |
COMMITMENTS AND CONTINGENCIES - NOTE H | ||
STOCKHOLDERS' EQUITY | ||
Common stock, $0.01 par value; Authorized: 600,000 shares; Issued and outstanding: 361,421 shares as of February 28, 2010 and 360,976 shares as of May 31, 2009, respectively | 3,614 | 3,610 |
Additional paid-in capital | 492,008 | 466,427 |
Retained earnings | 852,936 | 829,501 |
Accumulated other comprehensive income | 48,562 | 41,940 |
Total stockholders' equity | 1,397,120 | 1,341,478 |
Total liabilities and stockholders' equity | $5,788,031 | $5,127,415 |
1_Consolidated Balance Sheets (
Consolidated Balance Sheets (Unaudited) (Parenthetical) | ||
Share data in Thousands | Feb. 28, 2010
| May. 31, 2009
|
STOCKHOLDERS' EQUITY | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 600,000 | 600,000 |
Common stock, shares issued | 361,421 | 360,976 |
Common stock, shares outstanding | 361,421 | 360,976 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) (USD $) | ||
In Thousands | 9 Months Ended
Feb. 28, 2010 | 9 Months Ended
Feb. 28, 2009 |
OPERATING ACTIVITIES | ||
Net income | $361,477 | $419,741 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization on property and equipment and intangible assets | 64,894 | 63,164 |
Amortization of premiums and discounts on available-for-sale securities | 25,791 | 16,808 |
Stock-based compensation costs | 19,121 | 19,310 |
Benefit for deferred income taxes | (24,862) | (7,389) |
Provision for allowance for doubtful accounts | 1,847 | 1,819 |
Provision for pending legal matters | 18,700 | |
Net realized gains on sales of available-for-sale securities | (2,289) | (878) |
Changes in operating assets and liabilities: | ||
Interest receivable | 5,131 | 12,480 |
Accounts receivable | 18,050 | 17,713 |
Prepaid expenses and other current assets | 4,588 | 10,748 |
Accounts payable and other current liabilities | 11,369 | 2,592 |
Net change in other assets and liabilities | (801) | 7,215 |
Net cash provided by operating activities | 503,016 | 563,323 |
INVESTING ACTIVITIES | ||
Purchases of available-for-sale securities | (1,267,658) | (16,334,122) |
Proceeds from sales and maturities of available-for-sale securities | 416,348 | 17,616,942 |
Net change in funds held for clients' money market securities and other cash equivalents | (59,857) | (1,480,049) |
Purchases of property and equipment | (41,444) | (53,281) |
Acquisition of businesses, net of cash acquired | (6,466) | |
Proceeds from sale of business | 13,050 | |
Purchases of other assets | (11,295) | (18,097) |
Net cash used in investing activities | (950,856) | (275,073) |
FINANCING ACTIVITIES | ||
Net change in client fund obligations | 583,722 | 305,889 |
Dividends paid | (336,390) | (335,779) |
Proceeds from and excess tax benefit related to exercise of stock options | 7,000 | 5,810 |
Net cash provided by/(used in) financing activities | 254,332 | (24,080) |
(Decrease)/increase in cash and cash equivalents | (193,508) | 264,170 |
Cash and cash equivalents, beginning of period | 472,769 | 164,237 |
Cash and cash equivalents, end of period | $279,261 | $428,407 |
Description of Business and Sig
Description of Business and Significant Accounting Policies | |
9 Months Ended
Feb. 28, 2010 | |
Description of Business and Significant Accounting Policies [Abstract] | |
Description of Business and Significant Accounting Policies | Note A: Description of Business and Significant Accounting Policies Description of business: Paychex, Inc. and its wholly owned subsidiaries (collectively, the Company or Paychex) is a leading provider of comprehensive payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States (U.S.). The Company also has a subsidiary in Germany. Paychex, a Delaware corporation formed in 1979, reports as one segment. Substantially all of the Companys revenue is generated within the U.S. The Company also generates revenue within Germany, which was less than one percent of its total revenue for the nine months ended February28, 2010 and 2009. Long-lived assets in Germany are insignificant in relation to total long-lived assets of the Company as of February28, 2010 and May31, 2009. Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all significant intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for a fair presentation of the results for the interim period. These financial statements should be read in conjunction with the Companys consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Companys Annual Report on Form 10-K as of and for the year ended May 31, 2009 (fiscal 2009). Operating results and cash flows for the nine months ended February28, 2010 are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year ending May31, 2010 (fiscal 2010). The Company has evaluated subsequent events for potential recognition and/or disclosure through March24, 2010, the date of issuance of these financial statements. PEO revenue recognition: Professional Employer Organization (PEO) revenue is included in service revenue and is reported net of direct costs billed and incurred which include wages, taxes, benefit premiums, and claims of PEO worksite employees. Direct costs billed and incurred were $841.6 million and $677.0million for the three months ended February28, 2010 and 2009, respectively, and $2.3billion and $1.9billion for the nine months ended February28, 2010 and 2009, respectively. PEO workers compensation insurance: Workers compensation insurance for PEO worksite employees is provided under a deductible workers compensation policy with a national insurance company. Claims are paid as incurred and the Companys maximum individual claims liability is $1.0million under both its fiscal 2010 and fiscal 2009 policies. As of February28, 2010, the Company had r |
Basic and Diluted Earnings Per
Basic and Diluted Earnings Per Share | |
9 Months Ended
Feb. 28, 2010 | |
Basic and Diluted Earnings Per Share [Abstract] | |
Basic and Diluted Earnings Per Share | Note B: Basic and Diluted Earnings Per Share Basic and diluted earnings per share were calculated as follows: For the three months ended For the nine months ended February 28, February 28, In thousands, except per share amounts 2010 2009 2010 2009 Basic earnings per share: Net income $ 112,007 $ 130,790 $ 361,477 $ 419,741 Weighted-average common shares outstanding 361,417 360,821 361,328 360,743 Basic earnings per share $ 0.31 $ 0.36 $ 1.00 $ 1.16 Diluted earnings per share: Net income $ 112,007 $ 130,790 $ 361,477 $ 419,741 Weighted-average common shares outstanding 361,417 360,821 361,328 360,743 Dilutive effect of common share equivalents at average market price 443 92 299 223 Weighted-average common shares outstanding, assuming dilution 361,860 360,913 361,627 360,966 Diluted earnings per share $ 0.31 $ 0.36 $ 1.00 $ 1.16 Weighted-average anti-dilutive common share equivalents 12,488 14,379 13,506 13,267 Weighted-average common share equivalents that have an anti-dilutive impact are excluded from the computation of diluted earnings per share. Shares of the Companys common stock issued for the three months ended February28, 2010 and 2009 were minimal. For the nine months ended February28, 2010 and 2009, shares of the Companys common stock issued for stock option exercises and vesting of restricted stock and RSUs were 0.4million and 0.3million, respectively. |
Funds Held for Clients and Corp
Funds Held for Clients and Corporate Investments | |
9 Months Ended
Feb. 28, 2010 | |
Funds Held for Clients and Corporate Investments [Abstract] | |
Funds Held for Clients and Corporate Investments | Note C: Funds Held for Clients and Corporate Investments Funds held for clients and corporate investments consisted of the following: February 28, 2010 Gross Gross Amortized unrealized unrealized Fair In thousands cost gains losses value Type of issue: Money market securities and other cash equivalents $ 1,876,136 $ $ $ 1,876,136 Available-for-sale securities: General obligation municipal bonds 917,409 39,167 (8 ) 956,568 Pre-refunded municipal bonds(1) 556,213 22,268 (1 ) 578,480 Revenue municipal bonds 364,458 14,740 (71 ) 379,127 Variable rate demand notes(2) 703,860 703,860 Other equity securities 20 51 71 Total available-for-sale securities 2,541,960 76,226 (80 ) 2,618,106 Other 7,384 151 (397 ) 7,138 Total funds held for clients and corporate investments $ 4,425,480 $ 76,377 $ (477 ) $ 4,501,380 May 31, 2009 Gross Gross Amortized unrealized unrealized Fair In thousands cost gains losses value Type of issue: Money market securities and other cash equivalents $ 1,816,278 $ $ $ 1,816,278 Available-for-sale securities: General obligation municipal bonds 849,594 32,698 (136 ) 882,156 Pre-refunded municipal bonds(1) 527,864 21,334 (24 ) 549,174 Revenue municipal bonds 336,675 12,818 (32 ) 349,461 Variable rate demand notes(2) Other equity securities 20 42 62 Total available-for-sale securities 1,714,153 66,892 (192 ) 1,780,853 Other 7,477 (1,288 ) 6,189 Total funds held for clients and corporate investments $ 3,537,908 $ 66,892 $ (1,480 ) $ 3,603,320 (1) Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations. (2) Beginning in November2009, the Company began to invest in variable rate demand notes (VRDNs) for the first time since September2008. Included in money market securities and other cash equivalents as of February28, 2010 and May31, 2009 are U.S. agency discount notes, government money market funds, and bank demand deposit accounts. Classification of investments on the Consolidated Balance Sheets is as follows: February 28, May 31, In thousands 2010 2009 Funds held for clients $ 4,091,527 $ 3,501,376 Corporate investments 115,765 19,710 Long-term corporate investments 294,088 82,234 Total funds held for clients and corporate investments $ 4,501,380 $ 3,603,320 The Company is exposed to credit risk in connection with these investments through the |
Fair Value Measurements
Fair Value Measurements | |
9 Months Ended
Feb. 28, 2010 | |
Fair Value Measurements [Abstract] | |
Fair Value Measurements | Note D: Fair Value Measurements The carrying values of cash and cash equivalents, accounts receivable, net of allowance for doubtful accounts, and accounts payable approximate fair value due to the short maturities of these instruments. Marketable securities included in funds held for clients and corporate investments consist primarily of securities classified as available-for-sale and are recorded at fair value on a recurring basis. The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into three levels based on reliability, as follows: Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company has the ability to access. Level 2 valuations are based on quoted prices for similar, but not identical, instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or other than quoted prices observable inputs. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement. The following table presents information on the Companys financial assets and liabilities measured at fair value on a recurring basis as of February28, 2010: Quoted Significant prices in other Significant Carrying active observable unobservable value markets inputs inputs In thousands (Fair value) (Level 1) (Level 2) (Level 3) Assets: Available-for-sale securities: General obligation municipal bonds $ 956,568 $ $ 956,568 $ Pre-refunded municipal bonds 578,480 578,480 Revenue municipal bonds 379,127 379,127 Variable rate demand notes 703,860 703,860 Other equity securities 71 71 Total available-for-sale securities $ 2,618,106 $ 71 $ 2,618,035 $ Other securities $ 7,138 $ 7,138 $ $ Liabilities: Other long-term liabilities $ 7,138 $ 7,138 $ $ In determining the fair value of its assets and liabilities, the Company predominately uses the market approach. In determining the fair value of its available-for-sale securities, the Company utilizes the Interactive Data Pricing service. Other securities are comprised of mutual fund investments, which are valued based on quoted market prices. Other long-term liabilities include the liability for the Companys non-qualified and unfunded deferred compensation plans, and are valued based on the quoted market prices for various mutual fund investment choices. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the |
Property and Equipment, Net of
Property and Equipment, Net of Accumulated Depreciation | |
9 Months Ended
Feb. 28, 2010 | |
Property and Equipment, Net of Accumulated Depreciation [Abstract] | |
Property and Equipment, Net of Accumulated Depreciation | Note E: Property and Equipment, Net of Accumulated Depreciation The components of property and equipment, at cost, consisted of the following: February 28, May 31, In thousands 2010 2009 Land and improvements $ 4,200 $ 4,033 Buildings and improvements 83,780 83,386 Data processing equipment 183,874 180,448 Software 172,753 165,959 Furniture, fixtures, and equipment 146,034 143,638 Leasehold improvements 89,863 88,509 Construction in progress 14,279 4,034 Total property and equipment, gross 694,783 670,007 Less: Accumulated depreciation and amortization 430,510 395,477 Property and equipment, net of accumulated depreciation $ 264,273 $ 274,530 Depreciation expense was $16.1million and $48.5million for the three and nine months ended February28, 2010, respectively, as compared with $15.8million and $47.3million for the three and nine months ended February28, 2009, respectively. Within construction in progress, there were costs for software being developed for internal use of $4.2million and $3.4million as of February28, 2010 and May31, 2009, respectively. Capitalization of costs ceases when the software is ready for its intended use, at which time the Company begins amortization of the costs. |
Goodwill and Intangible Assets,
Goodwill and Intangible Assets, Net of Accumulated Amortization | |
9 Months Ended
Feb. 28, 2010 | |
Goodwill and Intangible Assets, Net of Accumulated Amortization [Abstract] | |
Goodwill and Intangible Assets, Net of Accumulated Amortization | Note F: Goodwill and Intangible Assets, Net of Accumulated Amortization The Company had goodwill balances on its Consolidated Balance Sheets of $421.6million as of February28, 2010, and $433.3million as of May31, 2009. The decrease in goodwill was due to divesting of Paychex Time and Attendance Inc. (Stromberg), an immaterial component of the Company. The Company has certain intangible assets with finite lives. The components of intangible assets, at cost, consisted of the following: February 28, May 31, In thousands 2010 2009 Client lists and associate office license agreements $ 193,722 $ 194,887 Other intangible assets 4,935 5,675 Total intangible assets, gross 198,657 200,562 Less: Accumulated amortization 130,572 123,921 Intangible assets, net of accumulated amortization $ 68,085 $ 76,641 Amortization expense relating to intangible assets was $5.5million and $16.4million for the three and nine months ended February28, 2010, respectively, as compared with $5.7million and $15.9 million for the three and nine months ended February28, 2009, respectively. The estimated amortization expense relating to intangible asset balances for the full fiscal year 2010 and the following four fiscal years, as of February28, 2010, is as follows: Estimated In thousands amortization Fiscal year ending May 31, expense 2010 $ 21,872 2011 $ 19,157 2012 $ 16,095 2013 $ 11,223 2014 $ 7,077 |
Comprehensive Income
Comprehensive Income | |
9 Months Ended
Feb. 28, 2010 | |
Comprehensive Income [Abstract] | |
Comprehensive Income | Note G: Comprehensive Income Comprehensive income is comprised of two components: net income and other comprehensive income. Comprehensive income includes all changes in equity during a period except those resulting from transactions with owners of the Company. The change in unrealized gains and losses, net of applicable taxes, related to available-for-sale securities is the primary component reported in accumulated other comprehensive income in the Consolidated Balance Sheets. Comprehensive income, net of related tax effects, is as follows: For the three months ended For the nine months ended February 28, February 28, In thousands 2010 2009 2010 2009 Net income $ 112,007 $ 130,790 $ 361,477 $ 419,741 Other comprehensive (loss)/income: Unrealized (losses)/gains on available-for-sale securities, net of taxes (257 ) 22,241 8,082 27,645 Reclassification adjustment for the net gain on sale of available-for-sale securities realized in net income, net of tax (820 ) (111 ) (1,460 ) (567 ) Total other comprehensive (loss)/income (1,077 ) 22,130 6,622 27,078 Total comprehensive income $ 110,930 $ 152,920 $ 368,099 $ 446,819 As of February28, 2010, accumulated other comprehensive income was $48.6million, which was net of taxes of $27.5million. As of May31, 2009, accumulated other comprehensive income was $41.9 million, which was net of taxes of $24.7million. |
Commitments and Contingencies
Commitments and Contingencies | |
9 Months Ended
Feb. 28, 2010 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | Note H: Commitments and Contingencies Lines of credit: As of February28, 2010, the Company had unused borrowing capacity available under four uncommitted, secured, short-term lines of credit at market rates of interest with financial institutions as follows: Financial institution Amount available Expiration date JP Morgan Chase Bank, N.A. $350 million February 2011 Bank of America, N.A. $250 million February 2011 PNC Bank, National Association $150 million February 2011 Wells Fargo Bank, National Association $150 million February 2011 The primary uses of the lines of credit would be to meet short-term funding requirements related to deposit account overdrafts and client fund obligations arising from electronic payment transactions on behalf of clients in the ordinary course of business, if necessary. No amounts were outstanding against these lines of credit as of, or during the nine months ended, February28, 2010. JP Morgan Chase Bank, N.A. and Bank of America, N.A. are also parties to the Companys irrevocable standby letters of credit, which are discussed below. Letters of credit: As of February28, 2010, the Company also had irrevocable standby letters of credit available totaling $65.3million required to secure commitments for certain insurance policies and bonding requirements. The letters of credit expire at various dates between May2010 and December2012 and are collateralized by securities held in the Companys investment portfolios. No amounts were outstanding on these letters of credit as of, or during the nine months ended, February28, 2010. Other commitments: The Company enters into various purchase commitments with vendors in the ordinary course of business. The Company had outstanding commitments to purchase approximately $9.0million and $4.5million of capital assets as of February28, 2010 and May31, 2009, respectively. During the nine months ended February28, 2010, the Company entered into a multi-year commitment with a vendor to purchase computer systems. The Company guarantees performance of service on annual maintenance contracts for clients who financed their service contracts through a third party. In the normal course of business, the Company makes representations and warranties that guarantee the performance of its services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. In addition, the Company has entered into indemnification agreements with its officers and directors, which require it to defend and, if necessary, indemnify these individuals for certain pending or future claims as they relate to their services provided to the Company. Paychex currently self-insures the deductible portion of various insured exposures under certain employee benefit plans. The Companys estimated loss exposure under these insurance arrangements is recorded in other current liabilities on the Consolidated Balance Sheets. Historically, the amounts accrued have not been material. The Company also maintains insurance coverage in addition to its purchased primary insurance policies for gap cove |
Related Party Transactions
Related Party Transactions | |
9 Months Ended
Feb. 28, 2010 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note I: Related Party Transactions During the three and nine months ended February28, 2010, the Company purchased approximately $0.2 million and $1.8million of data processing equipment and software from EMC Corporation, as compared with $1.4million and $4.0million in the respective prior year periods. The Chairman, President, and Chief Executive Officer of EMC Corporation is a member of the Companys Board. During the nine months ended February28, 2010 and 2009, the Company purchased $0.4million and $0.5million, respectively, of services from Dun Bradstreet Corporation. Purchases for the three months ended February28, 2010 and 2009 were minimal. Jonathan J. Judge, the Companys President and CEO, is a member of the Board of Directors of Dun Bradstreet Corporation. |