SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [fee required]
For the fiscal year ended May 31, 1995
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [no fee required]
Commission file number 0-11330
PAYCHEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1124166
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
911 Panorama Trail South, Rochester, New York 14625 - 0397
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 385-6666
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
------ -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X].
<PAGE>
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of 7/28/95 was $1,410,846,938
The number of shares of Registrant's Common Stock, $.01 par
value, outstanding as of 7/28/95 was 45,263,498.
Documents Incorporated by Reference
-----------------------------------
Certain specified portions of the registrant's annual report to
security holders for the fiscal year ended May 31, 1995 (the
"Annual Report") are incorporated herein by reference in response
to Part II, Items 5 through 8, inclusive, and certain specified
portions of the registrant's definitive proxy statement to be
filed within 120 days after May 31, 1995 (the "Proxy Statement")
are incorporated herein by reference in response to Part III,
Items 10 through 12, inclusive.
<PAGE>
PAYCHEX, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
PART I Page
Item 1: Business 3
Item 2: Properties 6
Item 3: Legal Proceedings 6
Item 4: Submission of Matters to a Vote of Security
Holders 6
PART II
Item 5: Market for the Registrant's Common Equity
and Related Stockholder Matters 6
Item 6: Selected Financial Data 6
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Item 8: Financial Statements and Supplementary Data 7
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 7
PART III
Item 10: Directors and Executive Officers of the
Registrant 7
Item 11: Executive Compensation 7
Item 12: Security Ownership of Certain Beneficial
Owners and Management 7
Item 13: Certain Relationships and Related
Transactions 7
PART IV
Item 14: Exhibits, Financial Statements and Reports
on Form 8-K 7
Signatures 10
<PAGE>
PART I
Item 1. Business.
---------
General
Paychex, Inc. (the "Company" or "Paychex"), a Delaware corporation, was
formed in 1979 through the consolidation of 17 corporations engaged in
providing computerized payroll accounting services.
Principal Products, Services and Markets.
-----------------------------------------
Paychex is primarily engaged in providing computerized payroll accounting
services to approximately 208,000 small to medium sized businesses
nationwide. Paychex believes that in number of clients it is the second
largest payroll accounting service company in the country. The Company
prepares and furnishes paychecks, earnings statements and internal
accounting records such as journals, summaries and earnings histories.
Paychex prepares for its clients all required monthly, quarterly and
annual payroll tax returns for federal, state and local governments. The
TAXPAY feature is utilized by over 50% of its' clients nationwide.
This service provides automatic payment of payroll taxes and filing of
quarterly and annual tax returns. Paychex also provides enhanced payroll
services, including an automatic salary deposit service (Direct Deposit)
which electronically transmits the net payroll for client's employees to
banks throughout the Federal Reserve System. In addition, a digital check
signing and inserting service is offered.
Paychex markets its services principally to small and medium sized
businesses through its 71 branch operating centers and 23 sales offices
located in major metropolitan areas. The Company's market share in branch
processing center territories ranges from 1% to approximately 20%. No
client accounts for as much as 1% of the Company's revenue.
Clients may discontinue Paychex service at will. Approximately 80% of the
businesses which were clients in fiscal year 1993 or 1994 continued to be
clients in the succeeding fiscal year. Ownership changes or business
failures common to small businesses are the primary causes of client loss.
The Company warrants its services, agreeing to reimburse any client for
penalties and interest incurred as a result of a Paychex error. Warranty
expense paid in fiscal years 1994 and 1995 was approximately $160,000 and
$410,000, respectively.
The Company employs payroll specialists who communicate primarily by
telephone with their assigned clients each payroll period to record the
hours worked by each employee and any personnel or compensation changes.
These specialists are trained by Paychex in all facets of payroll
preparation and applicable tax regulations. All information furnished by a
client is handled by someone who is "payroll intelligent" and familiar
with that client's payroll.
<PAGE>
The Paychex payroll system is an on-line, direct entry computer system which
enables the payroll specialist to simultaneously enter information from the
client over the telephone. Payroll processing is decentralized in each of the
Company's branch operating centers while Taxpay and Direct Deposit processing
are centralized at the Company's headquarters. Sales offices utilize a nearby
Company branch operating center for processing.
During 1993, the Company introduced Paylink, a proprietary software
package which enables clients to use their personal computers and modems
to transmit their own payroll data into the local Paychex processing
center at any time without assistance of a payroll specialist. This
product is available in all branch processing centers. Currently over
11,000 clients use this feature.
While payroll is its core business, Paychex also provides human resource
products and services through its HRS division.
HRS markets Cafeteria Plan products approved under Section 125 of the
Internal Revenue Code. The Premium Only Plan allows employees to pay for
certain fringe benefits with pre-tax dollars, with a resultant reduction
of payroll taxes to employers and employees. The Flexible Spending
Account Plan allows client employees to pay for health and dependent care
expenses with pre-tax dollars. All administration, compliance and
coverage tests are provided with these services.
The HRS Division's employee management services and products include
customized employee handbooks, management manuals, job descriptions and
personnel forms. These have been designed to simplify clients' office
processes and enhance their employee benefits programs. Also available is
a measurement and evaluation tool to assist clients in the process of
hiring, training and developing employees and group insurance products
offered in selected geographical areas.
During 1995, the HRS Division introduced a 401(K) Recordkeeping Service to
selected markets. This service provides plan design and implementation,
ongoing compliance with government regulations, employee and employer
reporting and other administrative services.
Products and services of the HRS Division are sold through a separate
sales organization located in most branch offices. Some of the products
and services are available on a nationwide basis through an inside sales
group.
Software Maintenance and Product Development.
---------------------------------------------
The ever-changing mandates of Federal, State and local taxing authorities
compel the Company to continuously update its proprietary software. The
Company is also engaged in developing ongoing enhancements to its software
to meet the changing requirements of its clients and the marketplace.
However, the Company is not engaged, to any significant extent, in basic
software research and development.
<PAGE>
Competition.
------------
The payroll accounting services industry is characterized by intense
competition. The principal competitive factors are price and service.
Paychex believes it has one major competitor that provides computerized
payroll accounting services nationwide. Although this competitor has
historically concentrated on larger employers, it has for several years
marketed directly to the small and medium sized businesses which
constitute the Paychex market. In addition, the Company competes with
other providers of computerized payroll services, including banks and
smaller independent firms.
The Company's principal competition, used by a majority of the businesses
in its market, is manual payroll systems sold by numerous vendors. Some
companies have in-house computer capability to generate their own payroll
documents and reports.
Executive Officers.
-------------------
The information required is set forth in the Company's Proxy Statement and
is incorporated herein by reference.
Employees.
----------
Paychex currently employs approximately 3,500 persons, of which 3,300 are
full time and 200 are part time.
Trademarks.
-----------
The Company has a number of trademarks registered in the U.S. Patent and
Trademark Office including the names PAYCHEX, TAXPAY and PAYLINK. The
Company believes these trademarks are of material importance to its
business.
Seasonality.
------------
There is no significant seasonality to the Company's business, except that
over 30% of new clients added in each of the last two fiscal years have
been added during the third fiscal quarter. Consequently, greater sales
commissions are paid in that quarter, resulting in higher selling expenses
for the third quarter. These expenses, along with additional labor costs
for calendar year-end processing of payroll reports and returns, have
traditionally resulted in lower operating profits for the third quarter as
compared to other quarters.
Item 2. Properties.
-----------
The corporate headquarters, owned by the Company, occupy a 139,000 square
foot office complex in a suburb of Rochester, New York. The Company owns
and occupies a 62,000 square foot distribution and office facility located
within 10 miles of corporate headquarters. The Company also owns a 20,000
square foot office facility in Syracuse, New York. Approximately one-half
of this building is occupied by the Syracuse branch office and the
remaining space is leased. In June, 1995, the Company acquired a 38,000
square foot building (on leased land) as part of the Company's acquisition
of Pay-Fone Systems, Inc., a payroll company located in Van Nuys,
California. Pay-Fone Systems, Inc. occupies approximately two-thirds of
the building and the remaining space is leased.
<PAGE>
The Company leases office space for its branch and sales offices at
various locations throughout the country. On average, branch offices
contain approximately 9,000 square feet and sales offices approximately
650 square feet.
Item 3. Legal Proceedings.
------------------
There are no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended May 31, 1995.
Part II
Item 5. Market for Registrant's Common Equity and Related
-------------------------------------------------
Security Holder Matters.
------------------------
The information required is set forth in the Company's Annual Report under
the heading "Common Stock Data" and is incorporated herein by reference.
Item 6. Selected Financial Data.
------------------------
The information required is set forth in the Company's Annual Report under
the heading "Selected Financial Data" and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
The information required is set forth in the Company's Annual Report under
the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The financial statements required are identified in Item 14 (a), and are
set forth in the Company's Annual Report and incorporated herein by
reference. Supplementary data required is set forth in the Company's
Annual Report under the heading "Quarterly Financial Data" and is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
------------------------------------
There has been no change in accountants or reported disagreements on
accounting principles or practices or financial statement disclosures.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The information required is set forth in the Company's definitive Proxy
Statement in the section entitled "Proposal 1 - Election of Directors"
under the heading "Nominees for Election" and is incorporated herein by
reference.
Item 11. Executive Compensation.
-----------------------
The information required is set forth in the Company's definitive Proxy
Statement in the section entitled "Executive Compensation" and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management.
-----------
The information required is set forth in the Company's definitive Proxy
Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
There were no relationships or related transactions required to be
reported.
Part IV
Item 14. Exhibits, Financial Statements and Reports on
------------------------------------------------------
Form 8-K.
---------
(a) 1. Financial Statements and Supplementary Data
-------------------------------------------
The following financial statements of the Company are incorporated
herein by reference to the Company's Annual Report:
Report of Independent Auditors
Consolidated Statements of Income - Years ended May 31, 1995, 1994
and 1993
Consolidated Balance Sheets - May 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Years ended May 31,
1995, 1994 and 1993
<PAGE>
Consolidated Statements of Cash Flows - Years ended May 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
2. Exhibits
--------
(3) (a) Articles of Incorporation, as amended, incorporated
herein by reference to the Company's Registration
Statement No. 2-85103, Exhibits 3.1 through 3.5 and
Form 8-K filed with the Commission on October 22,
1986 and Form 10-Q filed with the Commission on
January 12, 1989 and Form 10-Q filed with the
Commission on January 13, 1993.
(3) (b) By-Laws, as amended, incorporated herein by reference
to the Company's Registration Statement No. 2-85103,
Exhibit 3.6.
(10)(a) Paychex, Inc. 1987 Stock Incentive Plan, incorporated
herein by reference to the Company's Registration
Statement on Form S-8, No. 33-17780.
(10)(b) Paychex, Inc. 1992 Stock Incentive Plan incorporated
herein by reference to the Company's Registration
Statement on Form S-8, No. 33-52772.
(10)(c) Paychex, Inc. Section 401(k) Incentive Retirement
Plan, incorporated herein by reference to the
Company's Registration Statements on Form S-8, No.
33-19153 and No. 33-52838.
(10) (d) Paychex, Inc. - Pay-Fone Systems, Inc. 1993, 1990, 1987, 1983,
1981 Incentive Stock Option Plans and Director Non-Qualified
Stock Option Agreements incorporated herein by reference to the
Company's Registration Statement on Form S-8, No. 33-60255.
(13) Portions of the Annual Report to Security Holders for the Fiscal
Year ended May 31, 1995. Such report, except for the portions
thereof which are expressly incorporated by reference in this
filing, is furnished for the information of the Commission and
is not to be deemed "filed" as part of this filing.
(19) Previously unfiled documents - none.
(21) Subsidiaries of the registrant.
(23) Consents of experts and counsel.
(24) Powers of Attorney for Directors.
<PAGE>
Item 14.(b)
A Form 8-K was filed on March 22, 1995, reporting that Paychex,
Inc., Paychex Merger Corp., a wholly-owned subsidiary of
Paychex, Inc. and Pay-Fone Systems, Inc. (Pay-Fone) a California
corporation, entered into an Agreement and Plan of Merger
whereby Pay-Fone will merge with Paychex, Inc. in a transaction
involving Paychex, Inc. common stock valued at approximately
$10,475,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PAYCHEX, INC.
Dated: August 18, 1995 By: /s/ B. Thomas Golisano
-----------------------------
B. Thomas Golisano, Chairman,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Dated: August 18, 1995 By: /s/ B. Thomas Golisano
-----------------------------
B. Thomas Golisano, Chairman,
Chief Executive Officer and
Director
Dated: August 18, 1995 By: /s/ G. Thomas Clark
-------------------------------
G. Thomas Clark, Vice President
Finance, Secretary Treasurer and
Director
Dated: August 18, 1995 By: /s/ Donald W. Brinckman*
-------------------------------
Donald W. Brinckman, Director
Dated: August 18, 1995 By: /s/ Phillip Horsley*
-------------------------------
Phillip Horsley, Director
Dated: August 18, 1995 By: /s/ Grant M. Inman*
-------------------------------
Grant M. Inman, Director
Dated: August 18, 1995 By: /s/ Harry P. Messina, Jr.*
-------------------------------
Harry P. Messina, Jr., Director
Dated: August 18, 1995 By: /s/ J. Robert Sebo*
-------------------------------
J. Robert Sebo, Director
*By: /s/ B. Thomas Golisano
-------------------------------
B. Thomas Golisano, as Attorney-in-Fact
<PAGE>
EXHIBIT 13: PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED MAY 31, 1995
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS.
--------------------------------------------------------------------------
The Company's common stock is traded in the over-the-counter market and
quoted on the NASDAQ National Market System under the symbol "PAYX". The
following is the high and low prices and dividends per share as adjusted for
three-for-two stock splits in August, 1993 and May, 1995.
<TABLE>
<CAPTION>
Year Ended May 31 1995 1995 1994 1994
Market Price Dividends Market Price Dividends
Per Share Per Share Per Share Per Share
------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
High Low High Low
1st Quarter $23 $19 $.04 $22 $17 1/8 $.03
2nd Quarter 26 1/8 21 5/8 .06 25 1/8 20 1/2 .04
3rd Quarter 28 23 1/8 .06 27 21 3/8 .04
4th Quarter 32 1/2 26 3/8 .06 26 1/8 21 1/8 .04
</TABLE>
As of June 30, 1995, there were 2,490 stockholders of record of the
Company's common stock. The level of future dividends is necessarily
dependent on the Company's future earnings and cash flow.
SELECTED FINANCIAL DATA.
------------------------
The following table presents Selected Financial Data on the operations and
financial condition of the Company. Dollars are in thousands, except per
share amounts. Per share amounts and average shares outstanding have been
adjusted for three-for-two stock splits in May, 1992, August 1993 and May, 1995.
<TABLE>
<CAPTION>
Operating Data 1995 1994 1993 1992 1991
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $267,176 $224,052 $190,032 $161,272 $137,081
Operating costs 78,611 68,082 60,715 53,243 49,982
Selling, general & adminis-
trative expenses 137,554 119,187 102,660 89,301 73,816
Operating income 51,011 36,783 26,657 18,728 13,283
Percent of revenue 19.0 16.4 14.0 11.6 9.7
Investment income net of
interest expense 3,362 2,203 1,370 819 765
Income before income
taxes 54,373 38,986 28,027 19,547 14,048
Percent of revenue 20.3 17.4 14.7 12.1 10.3
Net income 39,040 28,070 19,955 13,702 9,623
Percent of revenue 14.6 12.5 10.5 8.5 7.0
<PAGE>
Financial Position - End of Year
--------------------------------
Working capital $ 97,558 $ 68,031 $ 46,389 $ 27,884 $ 19,221
Total assets 168,437 129,789 106,920 86,242 70,413
Long-term debt (including
current portion) 728 948 1,634 2,024 2,408
Stockholders' equity 139,932 108,508 85,189 67,405 54,491
Common Stock Data
-----------------
Net income per share .87 .63 .45 .31 .22
Cash dividends per share .22 .15 .10 .07 .06
Average shares outstanding
(in thousands) 44,926 44,789 44,595 44,279 44,064
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
---------------------
The Company achieved another record year of revenue with a 19% increase
over 1994. This compares to an 18% increase in 1994 versus 1993. Growth
of clients utilizing the basic payroll service, the tax filing and payment
feature (Taxpay) and improved interest rates on Taxpay investments were
the major factors for the revenue increase in 1995. The Company provides
payroll services for over 208,000 clients. More than 50% currently use the
Taxpay service, as compared to approximately 43% and 35% in 1994 and 1993,
respectively.
Solid revenue gains were also achieved for the add-on payroll services of
Electronic Salary Deposit and Check Signing and Inserting. In addition,
revenue from the Human Resource Services Division increased more than 50%
over the previous year as more clients utilized the personnel services and
employee benefit products offered. During 1995, the Division introduced a
401(k) recordkeeping service which is now available in all Paychex
branches.
Total company revenue is expected to continue to increase throughout the
next fiscal year as a result of client base growth, modest price increase,
and the continued acceptance of ancillary services.
Operating costs in 1995 decreased to 29% of revenue, from 30% and 32% in
1994 and 1993, respectively. During the current year, the Company
continued its trend of more efficient processing and better cost controls.
As a percentage of revenue, 1995 and 1994 expenses for processing wages,
equipment maintenance charges, depreciation and delivery decreased when
compared to their respective prior years. The Company anticipates fiscal
1996 operating costs, as a percentage of revenue, to remain relatively
consistent with 1995.
Selling general and administrative expenses were 51% of revenue in 1995,
down from 53% and 54% in 1994 and 1993, respectively. Decreased expenses
in the current year resulted from lower general and administrative payroll
and other costs, as a percentage of revenue. For the next fiscal year,
selling, general and administrative expenses are expected to be slightly
lower as a percentage of revenue.
The effective tax rate for 1995 and 1994 was 28% as compared to 29% in
1993. The lower 1994 rate was generally due to the increase of tax exempt
interest income as a percentage of pretax income. In 1994, the 28% rate
included a 1% increase in the Federal statutory rate. This 1994 increase
was more than offset by lower State income taxes and a reduction in
expenses due to the adoption of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". The effective tax rate for next year is
expected to be consistent with the current year's rate and may be modestly
impacted as the level of tax exempt interest income increases.
<PAGE>
Effective June 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". The Company determines the appropriate
classification of investments at the time of purchase and reviews this
designation as of each balance sheet date. For the current year, the
Company classified investments as available-for-sale. As such,
investments are stated at fair market value, with unrealized gain and
losses, net of tax, included in retained earnings. The adoption of the
statement did not have a significant effect on stockholder's equity.
Also effective June 1, 1994, the Company adopted Statement of Financial
Accounting Standard No. 107, "Fair Value Disclosures About Financial
Instruments". In accordance with the Statement, the Company has included
additional disclosure of the fair value of financial instruments in
footnotes A and B of the financial statements.
On March 20, 1995, the Company announced it signed an agreement to merge
with Pay-Fone Systems, Inc., in a business combination accounted for as a
pooling of interests. Upon consummation of the merger on June 15, 1995,
the stockholders of Pay-Fone Systems, Inc. received approximately 357,000
shares of Paychex common stock. The merger will not have a significant
impact of the Company's 1996 financial position and results of operations.
Liquidity and Capital Resources
-------------------------------
Net cash provided by operating activities totaled $48,147,000 in 1995 as
compared to $33,950,000 and $29,298,000 in 1994 and 1993, respectively.
The increase was primarily due to record 1995 net income of $39,040,000,
representing a 39% increase over 1994.
Net cash used in investing activities increased in 1995 when compared to
1994 and 1993 as a higher level of investment purchases continued to
result from growth in the Company's cash provided by operations. Net cash
used in investing activities decreased in 1994 when compared to 1993
resulting from a lower level of investment purchases and the sale of fixed
income securities at favorable gains.
Expenditures for 1995 property and equipment acquisitions were 12,355,000,
which increased modestly from 1994 spending of $11,583,000. The majority
of the increase in 1994 over 1993 capital expenditures of $8,710,000
resulted from the purchase of laser printing equipment and office
furniture and fixtures. Capital expenditures in 1996 are expected to
range between $17,000,000 and $20,000,000. Increased capital spending in
1996 will result primarily from the installation of data processing,
networking, and telecommunication equipment in branch offices. This
spending will enhance the service provided to clients and promote
processing efficiencies.
The quarterly cash dividend payment was increased during the second
quarter of 1995 to $.06 per share. This resulted in an annual dividend
payment of $.22 per share as compared to $.15 in 1994 and $.10 in 1993.
On April 13, 1995, the Company declared a three-for-two stock split on
outstanding shares distributed on May 25, 1995.
Projected cash flows are expected to be adequate to support normal
business operations, planned capital expenditures and dividend payments.
Furthermore, the Company has $200,000,000 of unsecured bank lines of
credit available for its use. As of May 31, 1995, there were no
outstanding borrowings under these lines of credit.
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
Board of Directors
Paychex, Inc.
We have audited the accompanying consolidated balance sheets of Paychex,
Inc. and subsidiary as of May 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Paychex, Inc. and subsidiary at May 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended May 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Notes B and E to the financial statements, the Company
changed its method of accounting for income taxes in fiscal year 1994 and
for investments in fiscal year 1995.
Syracuse, New York /s/ERNST & YOUNG LLP
June 30, 1995
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PAYCHEX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended May 31
-----------------
1995 1994 1993
---- ---- ----
(in thousands, except per
share amounts)
<S> <C> <C> <C>
Revenue $267,176 $224,052 $190,032
Operating costs 78,611 68,082 60,715
Selling, general and
administrative expenses 137,554 119,187 102,660
-------- -------- --------
OPERATING INCOME 51,011 36,783 26,657
Other income (expense)
Investment income 3,534 2,310 1,486
Interest expense (172) (107) (116)
-------- -------- --------
INCOME BEFORE INCOME TAXES 54,373 38,986 28,027
INCOME TAXES 15,333 10,916 8,072
NET INCOME $ 39,040 $ 28,070 $ 19,955
======== ======== ========
NET INCOME PER SHARE $ .87 $ .63 $ .45
======== ======== ========
CASH DIVIDENDS PER SHARE $ .22 $ .15 $ .10
======== ======== ========
Weighted average shares
outstanding 44,926 44,789 44,595
======== ======== =======
</TABLE>
See notes to financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
PAYCHEX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
May 31
------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,942 $ 14,605
Investments 70,753 40,991
Interest Receivable 6,699 4,867
Trade accounts receivable 30,772 22,812
Prepaid expenses and other current assets 1,743 2,291
Deferred income taxes 1,310 1,435
-------- --------
TOTAL CURRENT ASSETS 124,219 87,001
PROPERTY AND EQUIPMENT
Land and improvements 2,779 2,718
Buildings 21,304 21,183
Data processing equipment 33,980 42,818
Furniture, fixtures and equipment 29,135 25,199
Leasehold improvements 1,528 1,070
-------- --------
88,726 92,988
Less allowance for depreciation and
amortization 45,019 50,572
-------- --------
NET PROPERTY AND EQUIPMENT 43,707 42,416
OTHER ASSETS 511 372
-------- --------
TOTAL ASSETS $168,437 $129,789
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
May 31
------
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 3,519 $ 3,487
Accrued compensation and related items 13,162 9,585
Accrued income taxes 682 -0-
Other accrued expenses 6,116 2,906
Deferred revenue 2,977 2,772
Current portion of long-term debt 205 220
------- --------
TOTAL CURRENT LIABILITIES 26,661 18,970
OTHER LIABILITIES
Long-term debt 523 728
Unamortized lease incentives 557 885
Deferred income taxes 764 698
------- --------
TOTAL LIABILITIES 28,505 21,281
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
50,000,000 shares:
Issued 45,031,716 in 1995
and 29,907,406 in 1994 450 299
Additional capital 17,727 15,778
Retained earnings 121,755 92,431
-------- --------
TOTAL STOCKHOLDERS' EQUITY 139,932 108,508
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $168,437 $129,789
======== ========
</TABLE>
See notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PAYCHEX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Common Stock Additional Retained
(in thousands) Shares Issued Amount Capital Earnings Total
--------------------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1992 19,766 198 11,756 55,451 67,405
Exercise of stock options 102 1 1,288 1,289
Tax benefit from stock option
transactions 902 902
Dividends paid (4,362) (4,362)
Net income 19,955 19,955
------ ----- ------- ------- --------
Balance at May 31, 1993 19,868 199 13,946 71,044 85,189
Exercise of stock options 100 1 758 759
Tax benefit from stock option
transactions 1,074 1,074
Shares issued in connection
with three-for-two stock
split 9,939 99 (111) (12)
Dividends paid (6,572) (6,572)
Net income 28,070 28,070
------ ----- ------- ------- --------
Balance at May 31, 1994 29,907 $ 299 $15,778 $92,431 $108,508
Exercise of stock options 116 1 1,261 1,262
Tax benefit from stock option 688 688
transactions
Shares issued in connection
with three-for-two stock
split 15,009 150 (168) ( 18)
Adjustment to the beginning balance
of investments to recognize the
net unrealized holding loss on
available-for-sale securities
(FAS115), net of income taxes
of $140 (206) (206)
Adjustment to unrealized loss
on investments, net of
income taxes of $372 546 546
Dividends paid (9,888) (9,888)
Net income 39,040 38,040
------ ------ ------ ------- ------
Balance at May 31, 1995 45,032 $450 $17,727 $121,755 $139,932
====== ==== ======= ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PAYCHEX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended May 31
-----------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $39,040 $ 28,070 $ 19,955
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 11,040 11,205 10,707
Provision for deferred income taxes (41) (745) (621)
Provision for bad debts 847 762 748
Net realized gain on sales of
available-for-sale securities (26) (266) (134)
Changes in operating assets
and liabilities:
Trade accounts receivable (8,807) (4,685) (1,962)
Accrued interest receivable (1,832) (1,574) (1,253)
Prepaid expenses and other
current assets 548 321 (1,470)
Trade accounts payable and
other current liabilities 7,626 100 2,410
Deferred revenue 205 1,373 837
Change in unamortized lease incentives (453) (611) 81
------ -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 48,147 33,950 29,298
INVESTING ACTIVITIES
Investment purchases of
available-for-sale securities (51,421) (28,604) (32,653)
Proceeds from sales of available-
for-sale securities 20,757 20,381 12,790
Proceeds from maturities of
available-for-sale securities 1,500 590 1,715
Additions to property
and equipment, net of disposals (12,268) (11,321) (8,671)
Net change in other assets (202) 23 (110)
-------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES (41,634) (18,931) (26,929)
FINANCING ACTIVITIES
Payments on long-term debt (220) (686) (390)
Proceeds and tax benefit from exercise
of stock options 1,950 1,833 2,191
Dividends paid (9,888) (6,572) (4,362)
Payment in lieu of issuance of
fractional shares (18) (12) -
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES (8,176) (5,437) (2,561)
<PAGE>
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,663) 9,582 (192)
------- ------- -------
CASH & CASH EQUIVALENTS,
Beginning of Fiscal Year 14,605 5,023 5,215
CASH & CASH EQUIVALENTS,
End of Fiscal Year $12,942 $ 14,605 $ 5,023
======= ======== =======
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAYCHEX, INC. AND SUBSIDIARY
MAY 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business Activities: The Company is an integrated provider of automated
payroll, payroll tax payment and filing and human resource services for
small and medium sized businesses nationwide.
In connection with Taxpay, its automated tax payment and filing service,
the Company collects payroll taxes, files the applicable tax returns, and
pays taxes due to the appropriate taxing authorities. In addition, the
Company's Direct Deposit service collects net payroll from client accounts
and provides automatic salary deposit for employees. During the short
period between collection and payment, the Company invests these client
funds in municipal money market funds and investment grade municipal
securities without significant concentration in any one issuer. The
amount of client funds held by Paychex for the Taxpay and Direct Deposit
services fluctuates significantly during the year. At May 31, 1995 and
1994, the total Taxpay and Direct Deposit funds held by Paychex were
$470,847,000 and $340,675,000, respectively. These client funds and the
related tax and payroll obligations are neither assets nor liabilities of
the Company and, therefore, are not included in the accompanying financial
statements. Related income earned from these investments is included in
revenue.
Principles of Consolidation: On January 1, 1994, the Company created the
Paychex Management Corp. (PMC), a wholly-owned subsidiary, to provide
treasury management services to the parent company. The consolidated
financial statements include the accounts of Paychex, Inc. and PMC. All
intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents: Cash equivalents consist of money market and municipal
bond funds and other investments with a maturity of three months or less
when purchased. Amounts reported in the balance sheet approximate fair
value.
Investments: Investments consist of investment grade municipal securities
issued by various governmental agencies. The fair value of investments is
determined based on information received from an independent pricing
service. Realized gains and losses on sales of investments are based on
cost. No individual issue comprises greater than 1% of total assets.
<PAGE>
Effective June 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities". In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. Investments are classified as
available-for-sale and are recorded at fair value with unrealized gains
and losses reported as a component of stockholders' net equity, net of
applicable taxes. The adoption had no effect on net income. The impact of
adopting FAS 115 was to decrease stockholders' equity by $206,000 (net of
$140,000 of deferred income taxes) at June 1, 1994 to reflect the
unrealized loss on securities at the beginning of the fiscal year.
Also effective June 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 107 (FAS 107), "Fair Value Disclosures About
Financial Instruments". This standard requires disclosure of fair value
information on financial instruments. (See Note B).
Property and Equipment: These assets are stated at cost. Major renewals and
betterments are charged to the property accounts, while replacements and
maintenance and repairs that do not improve or extend the lives of the
respective assets are expensed currently. Depreciation is computed by the
straight-line method over the estimated useful lives of related assets.
Software Development and Enhancement: The Company incurs certain costs to
enhance its computer programs and to maintain them in compliance with
changes in state and federal payroll tax requirements. All such costs are
expensed as incurred. Expenditures for major software purchases are
capitalized and amortized by the straight-line method over the estimated
useful lives of the related assets.
Deferred Revenue: The Company defers revenue on certain services billed
in advance. The revenue is recognized upon completion of these services.
Income Taxes: Effective June 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes". The cumulative effect of the accounting change was not material
to net income for the year ended May 31, 1994.
Prior to the adoption of FAS 109, income tax expense was determined
using the deferred method in accordance with Accounting Principles Board
Opinion 11 (APB 11).
Earnings Per Share: Earnings per share are based on the weighted average
shares outstanding in each year. Common stock equivalents resulting from
stock options have not been included as their impact is not material.
Reclassifications: Certain amounts from prior years are reclassified to
conform to 1995 presentations.
<PAGE>
NOTE B -- INVESTMENTS
In accordance with Statement of Financial Accounting Standards No. 115
(FAS 115), "Accounting for Certain Debt and Equity Securities", the
Company classifies all securities as available-for-sale. The securities
are held at fair value with unrealized gains and losses reported as a
separate component of stockholders' equity, net of taxes.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 31, 1995
Municipal Securities $70,181 $ 681 $ 109 $ 70,753
------------------------------------------------------------------------------------
May 31, 1994
Municipal Securities $40,991 $ 152 $ 498 $ 40,645
------------------------------------------------------------------------------------
</TABLE>
Net realized gains and losses on sales of available-for-sale securities
are included in investment income on the Consolidated Statements of
Income. Gross realized gains and losses for 1995, 1994 and 1993, were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains $ 69 $277 $137
Gross realized losses $ 43 $ 11 $ 3
</TABLE>
The amortized cost and estimated fair value of debt securities at May 31,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
prepay obligations without prepayment penalties.
Estimated
Fair
(in thousands) Cost Value
------------------------------------------------------------------------
Maturity Date
1 Year or less $ 4,742 $ 4,778
1 to 3 Years 12,350 12,377
3 Years and Over 53,089 53,598
----------------------------
Total $ 70,181 $ 70,753
--------------------------
<PAGE>
NOTE C--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31
------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Industrial Revenue Bonds $ 728 $ 948
Less current portion 205 220
------ ------
$ 523 $ 728
------ ------
</TABLE>
The Industrial Revenue Bonds require annual principal payments in
decreasing amounts ranging from $205,000 to $143,000 for the next four
years. Interest payments are required semi-annually in April and October
through 1999. Interest expense for the three year period presented
reflects interest at approximately 6.9%. Among other things, the Company
agreed to maintain certain levels of working capital, tangible net worth
and other income and debt related ratios. The amount reported on the
balance sheet approximates the fair value of the Industrial Revenue Bonds.
The bonds are secured by a $931,000 irrevocable letter of credit.
Land and building with net book value of $1,986,000 are pledged as
collateral for the letter of credit.
The Company has available unsecured lines of credit from various banks
totaling $200,000,000. No amounts were outstanding against the lines of
credit at May 31, 1995.
<PAGE>
NOTE D--STOCKHOLDERS' EQUITY
On April 13, 1995, the Company declared a three-for-two stock split
effected in the form of a 50% stock dividend on outstanding shares
distributed May 25, 1995 to holders of record on May 2, 1995. On July
8, 1993, the Company declared a three-for-two stock split effected in the
form of a 50% stock dividend on outstanding shares distributed August 26,
1993 to holders of record on August 2, 1993. All common share and per
share data included in the financial statements and footnotes are restated
to reflect the stock splits.
The Company reserved 1,687,500 shares of common stock for issuance under
the 1992 Stock Incentive Plan. The 1987 Stock Incentive Plan expired on
August 31, 1992; however, options to purchase 578,303 shares under the
plan remain outstanding. Incentive or non-qualified options may be
granted at prices not less than 100% of the fair market value of the
common stock at the date of the grant, unless the employee owns more than
10% of the outstanding common stock, in which case the option price for
incentive stock options only must not be less than 110% of the fair market
value.
Outstanding options are generally exercisable in cumulative annual
installments ranging from 20% to 50% and expire up to ten years after the
date of grant.
Stock options are not recognized for accounting purposes until they are
exercised, at which time the proceeds are credited to the capital
accounts. With respect to non-qualified options, the Company recognizes a
tax benefit upon exercise in an amount equal to the tax effect of the
difference between the option price and the fair market value of the
common stock. With respect to incentive stock options, tax benefits
arising from disqualifying dispositions are recognized at the time of
disposition. Tax benefits related to stock options are credited to
additional capital.
<PAGE>
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Number of
---------
Equivalent Shares
-----------------
<S> <C>
Balance May 31, 1992 1,134,368
Issued 282,600
Exercised (231,105)
Canceled (28,350)
---------
Balance May 31, 1993 1,157,513
Issued 357,600
Exercised (157,622)
Canceled (33,996)
---------
Balance May 31, 1994 1,323,495
Issued 227,700
Exercised <171,186>
Canceled <44,716>
--------
1,335,293
Balance May 31, 1995
Exercisable May 31, 1995
Prices range from $4.48 to $12.78 695,993
</TABLE>
<PAGE>
NOTE E--INCOME TAXES
Effective June 1, 1993, the Company adopted Statement of Accounting
Standards No. 109, "Accounting for Income Taxes" which recognizes deferred
tax assets and liabilities based on the future tax effects attributable to
differences between the tax basis of an asset or liability and its
reported amount in the financial statements. As allowed under the
statement, prior years' financial statements have not been restated.
Significant components of the deferred tax assets and liabilities
as of May 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Deferred tax assets: 1995 1994
---- ----
<S> <C> <C>
Allowance for bad debts $ 677 $ 544
Accrued vacation pay 1,255 1,084
Reserve for future medical claims 310 268
Other expenses not currently deductible 655 421
------- -------
Total deferred tax assets $ 2,897 $2,317
------
Deferred tax liabilities:
Revenue not subject to current taxes $ 1,297 $ 828
Depreciation 765 692
Other 57 60
Unrealized gain on available-for-sale securities 232 -0-
------- ------
Total deferred tax liabilities $ 2,351 $1,580
------- ------
Net deferred tax assets $ 546 $ 737
------- ------
Classification of Net Deferred Tax Assets:
Current Assets $ 1,310 $1,435
Other Liabilities (764) $ (698)
</TABLE>
<PAGE>
Income tax expense consists of:
<TABLE>
<CAPTION>
Liability Method Deferred Method
1995 1994 1993
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $11,404 $ 8,593 $6,300
State 3,970 3,068 2,393
------- ------- ------
Total Current $15,374 $11,661 $8,693
Deferred:
Federal <31> (662) (495)
State <10> (83) (126)
-------- -------- -------
Total Deferred (credit) <41> (745) (621)
-------- -------- -------
$15,333 $10,916 $8,072
</TABLE>
Below is an analysis reconciling the statutory federal income tax rate to
the effective tax rates shown in the consolidated statements of income:
<TABLE>
<CAPTION>
Liability Method Deferred Method
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of
federal benefit 4.7 5.0 5.3
Tax exempt municipal bond interest <12.2> (11.5) (11.0)
Other items .7 ( .5) .5
------ ------ ------
Effective tax rate 28.2% 28.0% 28.8%
</TABLE>
For the fiscal year ended May 31, 1993, deferred income taxes resulted from
timing differences in the recognition of revenue and expense for tax and
financial reporting purposes. The components of the provision for
deferred taxes were as follows:
<TABLE>
<CAPTION>
1993
----
<S> <C>
Revenue not subject to current tax $ 65
Expenses not currently deductible (493)
Depreciation (184)
Other (9)
------
Total deferred (credit) $(621)
</TABLE>
<PAGE>
NOTE F--COMMITMENTS & CONTINGENCIES
The Company leases office space under the terms of various operating
leases. Certain of the underlying agreements contain incentives
eliminating or modifying lease payments at the inception of the lease.
These incentives are amortized on a straight-line basis over the entire
lease term. Amounts expected to be amortized within the next fiscal year
are included in other accrued expenses. These amounts were $424,000 and
$549,000 at May 31, 1995 and 1994, respectively.
Rental expense for all leases on office facilities amounted to
approximately $10,580,000 in 1995, $9,410,000 in 1994 and $8,321,000 in
1993.
The Company also leases data processing equipment under various operating
leases. These obligations extend through 1997. Related equipment lease
payments were $2,890,000, $1,103,000 and $1,583,000 in 1995, 1994 and
1993, respectively. All leases contain purchase options at prices
representing the fair value of the equipment at the expiration of the
lease term.
Future minimum lease payments under various facilities and equipment
operating leases consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $14,256
1997 11,556
1998 7,386
1999 4,770
2000 2,519
Thereafter 1,783
------
Total minimum lease payments $42,270
</TABLE>
The Company is a defendant in various lawsuits as a result of normal
operations and in the ordinary course of business. Management believes
the outcome of these lawsuits will not have a material effect on the
financial statements.
NOTE G--EMPLOYEE BENEFITS
The Company has a 401(k) Incentive Retirement Plan which allows all
employees with one or more years of service to participate. The Company
currently matches 50% of an employee's voluntary contribution up to a
maximum of 3% of eligible compensation. Company contributions were
$1,815,000 $1,516,000 and $1,229,000 for 1995, 1994 and 1993,
respectively.
<PAGE>
NOTE H--SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid in 1995, 1994 and 1993 was $174,000, $138,000 and $176,000,
respectively. Income tax payments totaled $13,831,000, $11,633,000 and
$7,142,000 in 1995, 1994 and 1993, respectively.
NOTE I -- MERGER AGREEMENT
On March 17, 1995, the Company and Pay-Fone, Inc. agreed in principle that
all of the outstanding common stock of Pay-Fone, Inc., would be acquired by
the Company in a business combination accounted for as a pooling of
interests. Upon consummation of the merger on June 15, 1995, the
stockholders of Pay-Fone Systems, Inc. received approximately 357,000 shares
of Paychex common stock. The merger will not have a significant impact of
the Company's 1996 financial position and results of operations.
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Aug. 31 Nov. 30 Feb. 28 May 31 Year
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1995
Revenue $62,923 $63,766 $68,638 $71,849 $267,176
Operating income 12,902 12,924 11,979 13,206 51,011
Net income 9,551 9,638 9,348 10,503 39,040
Net income per share .21 .22 .21 .23 .87
1994
Revenue $53,330 $54,310 $57,572 $58,840 $224,052
Operating income 9,059 9,638 8,634 9,452 36,783
Net income 6,919 7,103 6,649 7,399 28,070
Net income per share .15 .16 .15 .17 .63
</TABLE>
Note: Per share amounts have been adjusted for three-for-two stock splits in
August 1993 and May 1995.
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of
Name of Subsidiaries Incorporation
-------------------- -----------------
Paychex Management Corp. New York
Pay-Fone Systems, Inc. California
EXHIBIT 23: CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Paychex, Inc. of our report dated June 30, 1995, included in
the fiscal 1995 Annual Report to Shareholders of Paychex, Inc.
We also consent to the incorporation by reference, in the registration
statements outlined below, of our report dated June 30, 1995, with
respect to the consolidated financial statements incorporated herein by
reference of Paychex, Inc. included in the Annual Report
(Form 10-K) for the year ended May 31, 1995.
a. Form S-8 - Paychex, Inc. 1987 Stock Incentive Plan - as filed
with the Securities and Exchange Commission on October 9, 1987
No. 33-17780) together with Post Effective Amendment No. 1
filed on November 13, 1992.
b. Form S-8 - Paychex 401(k) Incentive Retirement Plan - as filed
with the Securities and Exchange Commission on December 18,
1987 (No. 33-19153) together with Post Effective Amendment No.
1 filed November 29, 1988.
c. Form S-8 - Paychex, Inc. 1992 Stock Incentive Plan - as filed
with the Securities and Exchange Commission on October 2, 1992
(No. 33-52772).
d. Form S-8 - Paychex, Inc. 401(k) Incentive Retirement Plan - as
filed with the Securities and Exchange Commission on October
2, 1992 (No. 33-52838).
e. Form S-4 - Paychex, Inc. Registration Statement - as filed with the
Securities and Exchange Commission on April 14, 1995 (No. 33-58619)
together with Post Effective Amendment No. 1 filed May 18, 1995.
f. Form S-8 - Pay-Fone Systems, Inc. 1993, 1990, 1987, 1983, 1981
Incentive Stock Option Plans and Director Non-Qualified Stock Option
Agreements, as filed with the Securities and Exchange Commission on
June 15, 1995 (No. 33-60255).
Syracuse, New York ERNST & YOUNG LLP
August 17, 1995
EXHIBIT 24: POWERS OF ATTORNEY FOR DIRECTORS
The undersigned Directors of Paychex, Inc. do hereby constitute
and appoint B. Thomas Golisano their true and lawful attorney and agent,
to execute the Paychex, Inc. Annual Report on Form 10-K for the fiscal
year ended May 31, 1995, for us and in our names as directors, to comply
with the Securities Exchange Act of 1934, and the rules, regulations and
requirements of the Securities and Exchange Commission, in connection
therewith.
Dated: August 18, 1995
/s/ Donald W. Brinkman
-------------------------
Donald W. Brinkman
/s/ Phillip Horsley
-------------------------
Phillip Horsley
/s/ Grant M. Inman
-------------------------
Grant M. Inman
/s/ Harry P. Messina, Jr.
-------------------------
Harry P. Messina, Jr.
/s/ J. Robert Sebo
-------------------------
J. Robert Sebo
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAY
31,1995 FINANCIAL STATEMENTS OF PAYCHEX, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000723531
<NAME> PAYCHEX, INC.
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<EXCHANGE-RATE> 1
<CASH> 12,942
<SECURITIES> 70,753
<RECEIVABLES> 37,471
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 124,219
<PP&E> 88,726
<DEPRECIATION> 45,019
<TOTAL-ASSETS> 168,437
<CURRENT-LIABILITIES> 26,661
<BONDS> 728
<COMMON> 450
0
0
<OTHER-SE> 139,932
<TOTAL-LIABILITY-AND-EQUITY> 168,437
<SALES> 267,176
<TOTAL-REVENUES> 267,176
<CGS> 216,165
<TOTAL-COSTS> 216,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 54,373
<INCOME-TAX> 15,333
<INCOME-CONTINUING> 39,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,040
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
