Paychex (PAYX) 8-K Paychex, Inc. Reports Record Third Quarter Results

Exhibit 99.1: PRESS RELEASE OF PAYCHEX, INC. DATED MARCH 28, 2006

PAYCHEX, INC. REPORTS RECORD THIRD QUARTER RESULTS

March 28, 2006

Third Quarter Fiscal 2006 Highlights:

§	Increase of 23% in net income to $114.5 million.
§	Diluted earnings per share was $0.30, an increase of 25%.
§	Total revenues up 15%.
§	Payroll service revenue up 10% to $320.0 million.
§	Human Resource Services revenue grew 24% to $81.9 million.

     ROCHESTER, NY, March 28, 2006 — Paychex, Inc. (the “Company” or “Paychex”) (NASDAQ:PAYX) today announced record net income of $114.5 million, or $0.30 diluted earnings per share, for the three months ended February 28, 2006 (“the third quarter”), a 23% increase over net income of $92.8 million, or $0.24 diluted earnings per share, for the same period last year. Total revenues were $430.6 million, a 15% increase over $373.9 million for the same period last year.

     “We are very pleased with our results for the third quarter, which once again, produced record revenues and earnings. They were in line with our expectations and position us very well to achieve our full year guidance. The third quarter includes our most important selling season when we add approximately one-third of our new payroll clients for the year. We just completed an outstanding selling season and client year end which will position us for a good start in fiscal 2007,” commented Jonathan J. Judge, President and Chief Executive Officer of Paychex.

     Human Resource Services revenue increased 24% to $81.9 million for the third quarter. The increase for the third quarter reflects growth in the following services: Retirement Services increased 15% to $27.6 million, administrative fee revenue from Paychex Premier^(SM)Human Resources increased 54% to $13.0 million, Professional Employer Organization services increased 9% to $17.2 million, and revenues from other Human Resource Services increased 35% to $24.1 million.

     Growth in total expenses was 13% for the third quarter and 11% for the nine months ended February 28, 2006. The third quarter was impacted by higher commissions and bonus expenses as we exceeded our year-to-date sales targets. We also incurred higher expenses in the third quarter through our commitment to continuously improve client service by reducing the number of clients per payroll specialist. For the third quarter, our operating income was $160.6 million, an increase of 19% over the same period last year.

     Increases in interest on funds held for clients and corporate investment income were attributable to higher average interest rates and higher average investment balances, as summarized below:

	For the three months ended						For the nine months ended
	February 28,						February 28,
$ in millions	2006			2005			2006			2005
Average investment balances:
Funds held for clients	$	3,399.6		$	3,013.7		$	2,958.5		$	2,633.0
Corporate investments	$	866.2		$	613.8		$	798.3		$	567.1
Average interest rates earned:
Funds held for clients		3.3	%		2.2	%		3.1	%		2.0	%
Corporate investments		2.9	%		2.2	%		2.7	%		2.0	%

Year-to-Date Fiscal 2006 Highlights:

     The highlights for the nine months ended February 28, 2006 are as follows:

§	Record net income of $342.2 million, or $0.90 diluted earnings per share.
§	Net income and diluted earnings per share increased 28% and 29%, respectively.
§	Total revenues increased 16% to $1,234.1 million.
§	Payroll service revenue was up 10% to $932.5 million.
§	Human Resource Services generated $232.8 million in revenues from the following:

°	Retirement Services revenue grew 16% to $78.0 million.
°	Administrative fee revenue from Paychex Premier(SM)Human Resources increased 64% to $38.0 million.
°	Revenue from Professional Employer Organization services increased 36% to $49.7 million.
°	Revenue from other Human Resource Services increased 34% to $67.1 million.

§	Operating income increased 23% to $482.0 million.
§	Cash flow from operations was $457.9 million.
§	Utilization of tax filing and payment services and employee payment services as of February 28, 2006 was 91% and 68%, respectively.

Outlook:

     Our guidance for the full fiscal year ended May 31, 2006 is provided in our Form 10-Q for the quarter ended February 28, 2006 and has been updated including the effect of the Federal Funds rate increase on January 31, 2006. Total revenue growth is estimated to be in the range of 14% to 16% with net income growth expected to be in the range of 24% to 26%.

CONFERENCE CALL

     Access the webcast of the Paychex, Inc. Third Quarter Earnings Release Conference Call, scheduled for March 29, 2006 at 10:30 a.m. Eastern Time, atwww.paychex.com at the Investor Relations page. Paychex, Inc.’s news releases, current financial information, SEC filings, and investor presentations are also accessible atwww.paychex.com. For more information, contact:

Investor Relations:	John Morphy, CFO, or
	Terri Allen	585-383-3406
Media Inquiries:	Laura Saxby Lynch	585-383-3074

ABOUT PAYCHEX

     Paychex, Inc. is a leading provider of payroll, human resource, and benefits outsourcing solutions for small- to medium-sized businesses. The company offers comprehensive payroll services, including payroll processing, payroll tax administration and employee pay services, including direct deposit, check signing, and Readychex^®. Human Resource Services include 401(k) plan recordkeeping, workers’ compensation administration, section 125 plans, a professional employer organization, time and attendance solutions and other administrative services for business. Paychex was founded in 1971. With headquarters in Rochester, New York, the company has more than 100 offices and serves approximately 522,000 payroll clients nationwide. For more information about Paychex and our products, visitwww.paychex.com.

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“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Certain written and oral statements made by management of Paychex, Inc. and its wholly owned subsidiaries (the “Company” or “Paychex”) may constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements are identified by such words and phrases as “we expect,” “expected to,” “estimates,” “estimated,” “current outlook,” “we look forward to,” “would equate to,” “projects,” “projections,” “projected to be,” “anticipates,” “anticipated,” “we believe,” “could be,” and other similar phrases. All statements addressing operating performance, events, or developments that the Company expects or anticipates will occur in the future, including statements relating to revenue growth, earnings, earnings-per-share growth, or similar projections, are forward-looking statements within the meaning of the Reform Act. Because they are forward-looking, they should be evaluated in light of important risk factors. These risk factors include, but are not limited to, the following risks, as well as those that are described in the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent Form 10-K filed on July 22, 2005: changes in demand for the Company’s products and services, ability to develop and market new products and services effectively, pricing changes and impact of competition, and the availability of skilled workforce; general market and economic conditions, including, among others, changes in United States employment and wage levels, changes in new hiring trends, changes in short- and long-term interest rates, and changes in the market value and the credit rating of securities held by the Company; changes in the laws regulating collection and payment of payroll taxes, professional employer organizations, and employee benefits, including 401(k) plans, workers’ compensation, state unemployment, and section 125 plans; changes in Professional Employer Organization direct costs, including, but not limited to, workers’ compensation rates and underlying claims trends; changes in technology, including use of the Internet; the possibility of failure of the Company’s operating facilities, computer systems, and communication systems during a catastrophic event; the possibility of third-party service providers failing to perform their functions; the possibility of penalties and losses resulting from errors and omissions in performing services; the possible inability of clients to meet payroll obligations; the possibility of failure in internal controls or the inability to implement business processing improvements; and potentially unfavorable outcomes related to pending legal matters. All of these factors could cause the Company’s actual results to differ materially from its anticipated results. The information provided in this document is based upon the facts and circumstances known at this time. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of issuance of this release, or to reflect occurrence of unanticipated events.

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PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)

	For the three months ended							For the nine months ended
	February 28,							February 28,
					%							%
	2006		2005		Change			2006		2005		Change
Revenues:
Payroll service revenue	$	319,992	$	290,972		10	%	$	932,512	$	848,685		10	%
Human Resource Services revenue		81,891		66,122		24	%		232,814		177,488		31	%
Total service revenues		401,883		357,094		13	%		1,165,326		1,026,173		14	%
Interest on funds held for clients (A)		28,703		16,767		71	%		68,790		39,948		72	%
Total revenues		430,586		373,861		15	%		1,234,116		1,066,121		16	%
Expenses:
Operating expenses		145,486		129,847		12	%		414,257		374,291		11	%
Selling, general and administrative expenses		124,500		108,632		15	%		337,834		300,882		12	%
Total expenses		269,986		238,479		13	%		752,091		675,173		11	%
Operating income		160,600		135,382		19	%		482,025		390,948		23	%
Investment income, net (A)		6,358		3,099		105	%		16,769		8,109		107	%
Income before income taxes		166,958		138,481		21	%		498,794		399,057		25	%
Income taxes		52,424		45,699		15	%		156,620		131,689		19	%
Net income	$	114,534	$	92,782		23	%	$	342,174	$	267,368		28	%
Basic earnings per share	$	0.30	$	0.25		20	%	$	0.90	$	0.71		27	%
Diluted earnings per share	$	0.30	$	0.24		25	%	$	0.90	$	0.70		29	%
Weighted-average common shares outstanding		379,680		378,403					379,245		378,257
Weighted-average common shares outstanding, assuming dilution		381,751		379,814					381,055		379,737
Cash dividends per common share	$	0.16	$	0.13		23	%	$	0.45	$	0.38		18	%

Note: Certain prior period amounts have been reclassified to conform to the current period presentation, as more fully described in our Form 10-Q for the quarterly period ended February 28, 2006.

(A) Further information on interest on funds held for clients and investment income, net, and the short- and long-term effects of changing interest rates can be found in the Company’s filings with the Securities and Exchange Commission, including the Company’s Forms 10-K and 10-Q, as applicable, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and subheadings “Results of Operations” and “Market Risk Factors.” These filings are accessible at the Company’s websitewww.paychex.com.

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PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share amount)

	February 28,			May 31,
	2006			2005
ASSETS
Cash and cash equivalents	$	135,718		$	77,669
Corporate investments (A)		798,824			629,871
Interest receivable		28,260			31,108
Accounts receivable, net of allowance for doubtful accounts		155,321			161,849
Deferred income taxes		37,108			21,373
Prepaid income taxes		—			5,781
Prepaid expenses and other current assets		25,379			20,587
Current assets before funds held for clients		1,180,610			948,238
Funds held for clients (A)		3,839,591			2,979,348
Total current assets		5,020,201			3,927,586
Property and equipment, net of accumulated depreciation		223,561			205,319
Intangible assets, net of accumulated amortization		63,650			71,458
Goodwill		405,842			405,992
Other long-term assets		6,341			7,277
Total assets	$	5,719,595		$	4,617,632
LIABILITIES
Accounts payable	$	28,005		$	30,385
Accrued compensation and related items		120,674			106,635
Deferred revenue		5,339			4,271
Accrued income taxes		21,160			—
Legal reserve		21,484			25,271
Other current liabilities		32,274			28,391
Current liabilities before client fund deposits		228,936			194,953
Client fund deposits		3,851,815			2,985,386
Total current liabilities		4,080,751			3,180,339
Deferred income taxes		16,769			17,759
Other long-term liabilities		41,485			33,858
Total liabilities		4,139,005			3,231,956
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; Authorized: 600,000 shares;
Issued and outstanding: 379,773 shares at February 28, 2006,
and 378,629 shares at May 31, 2005, respectively		3,798			3,786
Additional paid-in capital		269,792			240,700
Retained earnings		1,319,074			1,147,611
Accumulated other comprehensive loss		(12,074	)		(6,421	)
Total stockholders’ equity		1,580,590			1,385,676
Total liabilities and stockholders’ equity	$	5,719,595		$	4,617,632

Note: Certain prior period amounts have been reclassified to conform to the current period presentation, as more fully described in our Form 10-Q for the quarterly period ended February 28, 2006.

(A) The available-for-sale securities within the funds held for clients and corporate investment portfolios reflected a net unrealized loss position of $18.6 million at February 28, 2006, compared with a net unrealized loss position of $9.9 million at May 31, 2005. During the nine months ended February 28, 2006, the net unrealized loss position ranged from $21.6 million to $6.1 million. The net unrealized loss position of the Company’s combined investment portfolios was approximately $21.0 million at March 23, 2006.

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