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, 1996
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].
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of 7/31/96 was $2,600,496,887.
The number of shares of Registrant's Common Stock, $.01 par
value, outstanding as of 7/31/96 was 68,720,244.
Documents Incorporated by Reference
- -----------------------------------
Certain specified portions of the registrant's annual report to security
holders for the fiscal year ended May 31, 1996 (the "Annual Report") are
incorporated herein by reference in response to Part II, Items 5 through 8,
inclusive. Certain specified portions of the registrant's definitive proxy
statement to be filed within 120 days after May 31, 1996 (the "Proxy
Statement") are incorporated herein by reference in response to Part III,
Items 10 through 12, inclusive. The Form 8-K filed on July 9, 1996 is
incorporated herein by reference in response to Part IV, Item 14(b).
PAYCHEX, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
PART I Page
Item 1: Business 3
Item 2: Properties 5
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 6
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 6
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
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.
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Paychex is primarily engaged in providing computerized payroll accounting
services to over 234,000 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 55% of its' clients nationwide. This service provides automatic payment
of payroll taxes and electronic 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.
Paylink, a proprietary software package, 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. Currently over 13,800 clients use this feature.
Paychex markets its services principally to small and medium sized businesses
through its 75 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 1994 or 1995 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 1996 and 1995 was approximately $800,000 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.
The Paychex payroll system is an on-line, direct entry computer system which
enables the payroll specialist to simultaneously enter information from the
client while receiving it over the telephone. Payroll processing is
decentralized in 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.
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, coverage and
discrimination 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 are
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.
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 3,950 persons, of which 3,760 are
full time and 190 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.
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 office and distribution 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. Paychex occupies
approximately one half of the building and the remaining space is leased.
The Company leases office space for its branches and sales offices at
various locations throughout the country. On average, branch offices
contain approximately 10,000 square feet and sales offices approximately
850 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, 1996.
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.
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, 1996, 1995
and 1994
Consolidated Balance Sheets - May 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years ended May 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended May 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
2. Schedules called for under Regulation S-X are not submitted because
they are not applicable or not required or because the required
information is not material or is included in the financial statements
or notes thereto.
3. 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
and Form 10-Q filed with the Commission on January 10, 1996.
(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. 1995 Stock Incentive Plan incorporated herein by
reference to the Company's Registration Statement on Form S-8, No.
33-64389.
(10)(d) 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)(e) 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, 1996. 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.
Item 14.(b)
Reports on Form 8-K - The Company did not file any current reports
on Form 8-K during the fourth quarter of the year ended May 31,
1996. On July 9, 1996, the Company filed a Form 8-K announcing
that on June 25, 1996, the Company reached an agreement to merge
with National Business Solutions, Inc. (NBS), headquartered in St.
Petersburg, Florida. The outstanding common stock of NBS will be
exchanged for approximately 3 million shares of Paychex common
stock valued at $140,000,000. The transaction will be accounted
for as a pooling of interests and is pending favorable judgment on
filings made under the Hart-Scott-Rodino Act and approvals required
under the Florida Business Corporations Act.
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 14, 1996 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 14, 1996 By: /s/ B. Thomas Golisano
-----------------------------
B. Thomas Golisano, Chairman,
Chief Executive Officer and Director
Dated: August 14, 1996 By: /s/ G. Thomas Clark
-------------------------------
G. Thomas Clark, Senior Vice President
Finance, Secretary, Treasurer and
Director
Dated: August 14, 1996 By: /s/ Donald W. Brinckman*
-------------------------------
Donald W. Brinckman, Director
Dated: August 14, 1996 By: /s/ Steven D. Brooks*
-------------------------------
Steven D. Brooks, Director
Dated: August 14, 1996 By: /s/ Phillip Horsley*
-------------------------------
Phillip Horsley, Director
Dated: August 14, 1996 By: /s/ Grant M. Inman*
-------------------------------
Grant M. Inman, Director
Dated: August 14, 1996 By: /s/ Harry P. Messina, Jr.*
-------------------------------
Harry P. Messina, Jr., Director
Dated: August 14, 1996 By: /s/ J. Robert Sebo*
-------------------------------
J. Robert Sebo, Director
*By: /s/ B. Thomas Golisano
-------------------------------
B. Thomas Golisano, as Attorney-in-Fact