As filed with the Securities and Exchange Commission on January 31, 1997
Registration No. ____________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PAYCHEX, INC.
__________________________
(Exact name of registrant as specified in its charter)
Delaware 16-1124166
_______________ ________________
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
911 Panorama Trail South
Rochester, New York 14625
(716) 385-6666
__________________________
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)
John M. Morphy
Chief Financial Officer
911 Panorama Trail South
Rochester, New York 14625
(716) 385-6666
__________________________
(Name, address, including zip code and telephone number, including area
code, of agent for service)
Copies To:
Michael H. Messina, Esq. William Mandel, Esq.
Woods, Oviatt, Gilman, Sturman Mandel Buder & Jacobsen
& Clarke LLP 101 Vallejo Street
44 Exchange Street San Francisco, CA 94111
Rochester, New York 14614 (415)781-4400
(716) 987-2821
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box ____
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plan, check the following box X
_____
CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per share(1) aggregate offering price(1) registration fee
___________________________ ______________ ___________________________ ___________________________ ________________
Common Stock, $.01 par value 117,877 $ 46.813 $5,518,176 $ 1,672
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) under the Securities Act of 1933, the estimated
offering price is based on the average of the high and low prices
reported on the Nasdaq National Market on January 29, 1997.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
117,877 Shares
Paychex, Inc.
Common Stock
________________
This Prospectus relates to the resale, from time to time, by the Selling
Stockholders (as defined herein) of up to 117,877 shares (the "Shares") of the
Common Stock $.01 par value ("Common Stock") of Paychex, Inc. ("Paychex" or
the "Company"). The Shares were originally issued by Paychex as part of the
consideration in a certain acquisition transaction. See "RECENT
DEVELOPMENTS." The Shares may be offered to the public from time to time by
the Selling Stockholders for their own account for sale at the prevailing
prices listed on the National Association of Securities Dealers Automated
Quotation (Nasdaq) National Market on the date of sale. See "PLAN OF
DISTRIBUTION". Paychex will receive no part of the proceeds of sales made
hereunder. All expenses of registration incurred in connection with the
offering are being borne by Paychex, but all selling and other expenses
incurred by a Selling Stockholder will be borne by such Selling Stockholder.
Paychex Common Stock is traded on the Nasdaq National Market. On January
30, 1997, the last reported sale price of a share of Paychex common stock was
$47.75.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ____________________.
TABLE OF CONTENTS
Page
Available Information 5
Incorporation of Certain Documents by Reference 6
Prospectus Summary 7
Risk Factors 8
Recent Developments 10
The Company 10
Use of Proceeds 16
Selling Stockholders 16
Description of Paychex Common Stock 18
Plan of Distribution 20
Legal Matters 20
Experts 20
Financial Statements 20
No person is authorized to give any information or to make any representations
other than those contained or incorporated by reference in this Prospectus,
and if given or made, such information or representations should not be relied
upon as having been authorized. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to purchase, the securities offered by
this Prospectus, or the solicitation of a proxy, in any jurisdiction to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any distribution of securities pursuant to
this Prospectus shall, under any circumstances, create any implication that
there has been no change in the information set forth or incorporated herein
by reference or in the affairs of Paychex since the date of this Prospectus.
However, if any material change occurs during the period that this Prospectus
is required to be delivered, this Prospectus will be amended and supplemented
accordingly.
AVAILABLE INFORMATION
Paychex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Copies of such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
Paychex has filed with the SEC a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the shares of Paychex Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the SEC. Such additional information may be
obtained from the SEC's principal office in Washington, D.C.
Reports, proxy statements and other information concerning Paychex can be
inspected at the NASDAQ Stock Market, 1735 K Street, N.W., Washington, D.C.
20006 on which the Paychex Common Stock is listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Paychex with the SEC
pursuant to the Exchange Act, are incorporated herein by reference:
1. Paychex Annual Report on Form 10-K for the year ended May 31, 1996.
2. The Paychex 1996 Proxy Statement;
3. Paychex Quarterly Reports on Form 10-Q for the quarters ended August
31, 1996 as amended and November 30, 1996;
4. Paychex Current Reports on Form 8-K dated June 25, 1996, September
30, 1996, and January 7, 1997, respectively.
All documents subsequently filed by Paychex pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of
filing of such documents. All information appearing in this Prospectus or in
any document incorporated herein by reference is not necessarily complete and
is qualified in its entirety by the information and financial statements
(including notes thereto) appearing in the documents incorporated herein by
reference and should be read together with such information documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. Copies of any such documents, other
than exhibits to such documents which are not specifically incorporated by
reference therein, are available without charge to any person, including any
beneficial owner, to whom this Prospectus is delivered upon written or oral
request to Paychex, 911 Panorama Trail South, Rochester, New York 14625,
Attention Secretary's Department, telephone (716) 385-3406.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
in the documents incorporated herein by reference or elsewhere in this
prospectus.
Paychex Business The Company operates in two major segments,
Payroll and Professional Employer Organization
(PEO). The Payroll segment is engaged in the
preparation of payroll checks, internal
accounting records and all Federal, state and
local payroll tax returns for small to
medium-sized businesses. The Payroll segment
also includes employee handbooks, section 125
plans and 401(k) plan recordkeeping services.
The PEO segment specializes in providing small
and medium-sized businesses with
cost-effective outsourcing solutions for their
employee benefits. As an outsourcing
solution, the PEO relieves the business owner
of human resources administration, employment
regulatory compliance workers' compensation
coverage, health care and other employee
related responsibilities. Consistent with PEO
industry practice, revenue includes all
amounts billed to clients for the services
provided by the PEO.
Address & Telephone Principal executive offices are at 911
Panorama Trail South, Rochester, New York,
14625 with telephone number (716)385-6666.
Paychex, Inc. is a Delaware corporation.
Securities Offered 117,877 shares of common stock are offered by
Selling Stockholders and none of the proceeds
will be received by Paychex.
NASDAQ Symbol PAYX
Common Stock Outstanding
at December 31, 1996 72,148,216 shares
RISK FACTORS
Ownership of the Common Stock offered hereby involves certain risks.
Prospective purchasers should carefully consider the following factors, in
addition to all other information contained in this Prospectus or incorporated
herein by reference.
Payroll/Tax Services
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.
Investment Risks
Company-owned investments and investments of client funds held for Taxpay
and Direct Deposit services consist primarily of municipal securities issued
by various agencies and short-term money market securities. The Company is
exposed to risks in connection with these investments through the possible
inability of the borrowers to meet the terms of the bond contracts and from
movements in interest rates. The Company attempts to limit these risks by
investing primarily in AAA and AA rated municipal securities, and by limiting
amounts that can be invested in any single instrument. In addition, the
investments are held in short-to intermediate-term instruments which limit
sensitivity to interest rate changes.
Professional Employer Services
The Company's subsidiary, Paychex Business Solutions, Inc. ("PBS"), was
acquired August 26, 1996. See "RECENT DEVELOPMENTS" and "THE COMPANY -
Professional Employer Services." The business, although a minor portion of
the Company's current business, represents a significant expansion of the
scope of services previously offered by Paychex and involves risks not
previously encountered. Some of those risks are described below.
Legal Issues Unsettled
PBS's operations are affected by numerous federal, state and local laws
relating to labor, tax, insurance and employment matters and the provision of
managed care services. By entering into an employment relationship with
employees who work at client company locations ("worksite employees"), PBS
assumes certain obligations and responsibilities of an employer under these
laws. Because many of the laws dealing with the employment relationship were
enacted prior to the development of alternative employment arrangements, such
as those provided by professional employer organizations ("PEOs") and other
staffing businesses, many of these laws do not specifically address the
obligations and responsibilities of nontraditional employers. Interpretive
issues concerning such relationships have arisen and remain unsettled.
Uncertainties arising under the Internal Revenue Code of 1986, as amended (the
"Code") include, but are not limited to, the qualified tax status and
favorable tax status of certain benefit plans provided by most PEOs. The PBS
section 125 plan may have to be amended. However, PBS's multiple employer
413(c) plan has already received a favorable determination letter from the
IRS.
Market Concentration
PBS's sales in Florida account for most of its revenues. Accordingly,
while a primary aspect of PBS growth strategy involves expansion outside of
Florida, for the foreseeable future, a significant portion of PBS's revenues
will be subject to economic factors specific to Florida.
Workers Compensation
PBS maintains a large-deductible worker compensation insurance policy
with an insurance carrier. This results in PBS paying substantially all of
the workers compensation claims of its worksite employees. The costs incurred
by PBS are dependent upon the extent that PBS is successful in managing the
severity and frequency of workers compensation injuries and medical claims.
PBS maintains reserves for workers compensation based on periodic reviews of
open claims as well as past claims experience. PBS has elected to be
conservative and as a result, the financial statements of the Company reflect
Workers' Compensation expense based on its maximum contractual obligation.
Health Care
Health care costs, including the medical cost associated with workers
compensation and insurance premiums, are significant to PBS's operating
results. PBS's ability to control such costs is dependent on its skill in
evaluating the medical status of each prospective client's work force and the
effectiveness of its extensive managed care procedures.
Key Personnel
PBS is dependent to a substantial extent upon the continuing efforts and
abilities of certain key management personnel, including Stuart G. Lasher
(the company's Chief Executive Officer). All PBS employees, including its
officers, have executed non-compete and non-disclosure agreements.
Credit
PBS is obligated to pay the wages and salaries of its worksite employees
regardless of whether PBS's clients pay PBS on a timely basis or at all. To
the extent that any client experiences financial difficulty, or is otherwise
unable to meet its obligations as they become due, PBS's financial condition
and results of operations could be adversely affected. Nevertheless, because
of various procedures initiated since inception, PBS has experienced
insignificant amounts of bad debt expense.
Competition
The PEO industry is highly fragmented, with approximately 1,100 companies
providing PEO services. PBS encounters competition from other PEOs and from
single-service and "fee for service" companies such as payroll processing
firms, insurance companies and human resource consultants. The key elements
of competition for a PEO, in addition to the fees it charges, are the quality
of its products (health, workers compensation and 401(k) retirement plans),
the sophistication of its proprietary software system and the implementation
of a client service team for each client.
RECENT DEVELOPMENTS
On August 26, 1996, Paychex acquired National Business Solutions, Inc., a
Florida Corporation which became a wholly-owned subsidiary of Paychex under
the name Paychex Business Solutions, Inc. ("PBS"). The business of PBS is
described below in "THE COMPANY - Professional Employer Services". Unless
otherwise indicated, the term "Company" shall refer to Paychex and all of its
subsidiary corporations.
On November 21, 1996, Paychex acquired Olsen Computer Systems, Inc. a
California corporation which became a wholly-owned subsidiary of Paychex under
the name "Paychex Computer Systems, Inc." ("PCS"). The business of PCS is
described below in "THE COMPANY - Payroll and Human Resource Software
Licensing".
THE COMPANY
Payroll/Tax Services
Paychex is a national payroll processing and payroll tax preparation
company which provides its services to over 245,000 small-to-medium sized
businesses. Paychex believes that in number of clients it is the second
largest payroll accounting service company in the country. Paychex prepares
and furnishes paychecks, earnings statements and internal accounting records
such as journals, summaries and earnings histories. Paychex also prepares for
its clients all required monthly, quarterly and annual payroll tax returns for
federal, state and local governments. Over 60% of its clients nationwide
utilize TAXPAY, a service which provides automatic payment of payroll taxes
and filing of quarterly and annual payroll tax returns. Paychex also provides
enhanced payroll services, including an automatic salary deposit service
(DIRECT DEPOSIT) which electronically transmits the net payroll for a client's
employees to banks throughout the Federal Reserve System and a digital check
signing and inserting service.
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 14,000 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. Its market share in branch processing
center territories ranges from 1% to approximately 20%. No client accounts
for as much as 1% of its revenue.
Clients may discontinue Paychex payroll 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.
Paychex warrants its services, agreeing to reimburse any client for
penalties and interest incurred as a result of a Paychex error. Warranty
expense in fiscal years 1996 and 1995 was approximately $800,000 and $410,000
respectively.
Paychex 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, upon receiving the information from the
client over the telephone, to enter it simultaneously. Payroll processing is
decentralized in each Paychex branch operating center while TAXPAY and DIRECT
DEPOSIT processing are centralized at its headquarters. Sales offices utilize
a nearby branch operating center for processing.
Human Resource Services
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 health insurance benefits with
pre-tax dollars, with a resultant reduction in payroll taxes to employers and
employees. The Flexible Spending Account Plan allows a client's employees to
pay, with pre-tax dollars, health and dependent care expenses not covered by
insurance. All required 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. Group insurance products are offered in
selected geographical areas.
During 1995, the HRS Division introduced a 401(K) RECORDKEEPING SERVICE
to selected markets. This service provides plan 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. Some of the products and services are available on a
nationwide basis through a central telemarketing group.
Paychex employs over 4,100 persons.
Payroll and Human Resource Software Licensing
Paychex Computer Systems, Inc. ("PCS"), a subsidiary of Paychex, Inc. is
a leading developer and provider of PC-based software to payroll service
bureaus offering automated payroll and human resource records management.
Called RAPID PAYROLL, the licensed software can be networked and is capable of
generating complex wage- and job-based reports, including labor distribution,
general ledger, vacation accruals, job costing, tip allocations, 401(k) and
Section 125 calculations and union-related calculations. Clients of service
bureau licensees can access the software by modem to input payroll and human
resource data for processing, to create reports for any time period and even
to print payroll checks. Clients can also view payroll checks and registers
prior to processing.
At December 31, 1996, PCS had licensed its payroll and human resource
software to over 90 service bureaus who have over 17,000 clients throughout
the country. Licensees are generally restricted to using the licensed
software in one location only, but are not otherwise restricted in selling
their services.
Licensees pay an initial fee upon receipt of their licenses and a per
check fee thereafter. Licensees may terminate their licenses without cause on
limited notice to PCS. PCS may terminate a licensee only for cause.
Paychex will be competing with PCS licensees in offering the same or
similar services in those markets where Paychex and PCS licensees have
offices.
PCS is headquartered in Orange County, California and operates service
bureaus in Orange County, California and Las Vegas, Nevada, serving over 250
clients. At December 31, 1996, PCS had 25 employees.
For the 12 months ended December 31, 1996, PCS had revenues of
approximately $2.5 million.
Professional Employer Services
Paychex Business Solutions, Inc. ("PBS), a subsidiary of Paychex, Inc.,
is a leading professional employer organization ("PEO"), which provides small
and medium-sized businesses with an outsourcing solution to the complexities
and costs related to employment and human resources. As of December 31, 1996,
PBS provided professional employer services to over 250 client worksite
employer organizations with over 10,000 employees, primarily in Florida,
Georgia, Tennessee and Texas. No single client accounted for more than 4% of
PBS' 1996 revenue. PBS was among the first PEOs to be licensed by the Florida
Department of Business and Professional Regulation (1992) and the Texas
Department of Licensing and Regulation (1994).
PBS provides professional employer services through five core activities:
(i) human resource administration, (ii) employer regulatory compliance
management, (iii) worker compensation cost containment and safety management,
(iv) employee benefits and related administration and (v) payroll processing
and tax compliance. By engaging PBS to provide these services, clients are
freed to concentrate their resources on their core businesses.
Human Resource Administration. PBS' comprehensive human resource
services reduce the employment-related administrative burdens faced by its
clients, and provide worksite employees with a wide array of benefits
typically offered by large employers. As a professional employer, PBS is
responsible for payroll, payroll tax deposits, payroll tax reporting, employee
file maintenance, unemployment claims, and monitoring and responding to
changing regulatory requirements. PBS develops and administers customized
personnel policies and procedures for each of its clients, relating to, among
other things, recruiting, performance appraisals, discipline and terminations.
PBS also provides recruiting, orientation, training, counseling, substance
abuse awareness and outplacement services for worksite employees.
Employer Regulatory Compliance Management. Under its standard contract,
PBS assumes responsibility for complying with many employment-related
regulatory requirements. In addition, PBS assists its clients in
understanding and complying with other employment-related requirements for
which PBS does not assume responsibility. Laws and regulations applicable to
employers include state and federal tax laws, and discrimination, sexual
harassment and other civil rights laws. When a claim arises, PBS provides
assistance through its human resource department or outside counsel.
Workers Compensation Cost Containment and Safety Management. Workers
compensation is a state-mandated, comprehensive insurance program that
requires employers to fund medical expenses, lost wages and other costs that
result from work-related injuries and illnesses, regardless of fault and
without any copayment by the employee. PBS seeks to control its workers
compensation costs through comprehensive risk evaluation of prospective
clients, the prevention of workplace injuries, early intervention in each
employee injury, intensive management of the medical costs related to such
injuries and the prompt return of employees to work.
PBS seeks to prevent workplace injuries by implementing a wide variety of
training, safety and mandatory drug-free workplace programs (including
pre-employment, random and post accident drug testing). Specific components
of the PBS proprietary managed care system include the prompt identification
and reporting of injuries, the use of PBS's carrier for designated health care
providers, utilization and fee review, telephonic claims and case management,
auditing of bills and other techniques designed to reduce medical costs.
PBS's efforts to return employees to work quickly involve both rehabilitation
services and the placement of employees in transitional, modified-duty
positions until they are able to resume their former positions.
Employee Benefits and Related Administration. PBS currently offers to
worksite employees an employee benefits package which includes several health
care options, such as Preferred Provider Organizations ("PPOs"), Health
Maintenance Organizations ("HMOs"), and Exclusive Provider Organizations
("EPOs"). Supplemental benefit programs offer dental care, vision care,
prescription drugs, an employee assistance plan, mental health benefits and
several life and disability insurance options. PBS also offers 401(K)
retirement savings and cafeteria plans to its eligible employees. In its role
as administrator, PBS delivers participant benefits to worksite employees and
monitors and reviews claims for loss control purposes, as well as
reconciliation of health premium billings and COBRA compliance. PBS believes
that its ability to provide and administer a wide variety of employee benefits
on behalf of its clients tends to mitigate the competitive disadvantage small
and medium-sized businesses normally face in the areas of employee benefit
cost control and employee recruiting and retention.
Payroll Processing and Tax Compliance. PBS offers complete payroll
processing, preparation of payroll checks and direct deposits, federal and
state tax deposits, monthly and quarterly federal and state tax reporting, and
year end W-2 processing and distribution. The Company provides each of its
clients with a payroll reporting package which includes payroll and human
resource reports. At present, each of these reports and the payroll process
used by PBS are different from those used by its parent, Paychex, Inc.
PBS's standard PEO services agreement provides for an initial one year
term, subject to termination by PBS or the client at any time during the first
year upon 60 days' prior written notice, and thereafter annually. Revenues
from professional employer services are based on a pricing model that takes
into account the gross pay of each employee and a mark-up which includes the
estimated costs of federal and state employment taxes, workers compensation,
employee benefits and the human resource administrative services, as well as a
provision for profit. The specific mark-up varies by client based on the
workers compensation classification of the worksite employees and their
eligibility for health care benefits. Accordingly, the Company's average
mark-up percentage will fluctuate based on client mix.
Sales and Marketing
PBS markets its services through a direct sales force experienced in
fields related to one or more of its core services. Since PBS's acquisition
by Paychex in August this year, its sales force and the Paychex Human Resource
Services sales force have been undergoing cross training leading to their
future combination.
PBS generates sales leads from two primary sources: direct sales
efforts and referrals. These leads result in initial presentations to
prospective clients. PBS's sales executives then gather information about the
prospective client and its employees, including job classification, workers
compensation claims history, health insurance claims history, salary and the
desired level of employee benefits. These various factors are reviewed in the
context of PBS's pricing model and client selection guidelines. A client
proposal is prepared and submitted to acceptable clients.
This prospective client screening process plays a vital role in
controlling PBS's cost and limiting exposure to liability. Once a prospective
client accepts PBS's proposal and has passed the PBS due diligence process,
NBS schedules the client conversion process. The PBS Client Services Manager
then assumes the responsibility as team leader for administering the client's
human resources and benefits as well as coordinating the Company's response to
the client's needs for administrative support and responding to any questions
or problems encountered by clients.
Information Technology
PBS's proprietary, integrated, state-of-the-art information systems
enable it to manage costs and deliver comprehensive high quality services.
The systems allow real-time reporting of worksite accidents and injuries,
enabling PBS to promptly implement its managed care techniques and thereby
better control workers compensation and other health care costs. In addition,
PBS has developed a proprietary software product, PRISM, installed on PEO
clients' computers which enables clients to directly enter payroll and other
human resource management data, via modem dial-in. PRISM also allows the
client to interface with automated time clocks, prepare journal entries,
month-end accruals, track accrued compensated absences and customize reports
through exporting of files to spreadsheets or using report writer
capabilities.
Competition
PBS's competitors include (i) traditional in-house human resource
departments, (ii) other PEOs, and (iii) providers of unbundled
employment-related services such as payroll processing firms, temporary
employment firms, commercial insurance brokers, human resource consultants,
workers compensation insurers, HMOs and other specialty managed care
providers.
Competition in the highly fragmented PEO industry is generally on a local
or regional basis. Management believes that the primary elements of
competition are quality of service, choice and quality of benefits, and price.
PBS believes that name recognition, regulatory expertise, financial resources,
risk management and data processing capability distinguish leading PEOs from
the rest of the industry.
PBS believes that barriers to entry into the PEO industry are increasing
and include the following: (i) the complexity of the PEO business and the
need for expertise in multiple disciplines; (ii) the three to five years of
experience required to establish experience ratings in key cost areas of
workers compensation, health insurance and unemployment; and (iii) the need
for sophisticated management information systems to track all aspects of
business in a high-growth environment.
As of December 31, 1996, this subsidiary had approximately 90 corporate
(non-worksite) employees.
PBS maintains four facilities. Its headquarters are located in St.
Petersburg, Florida, in a leased building shared with its Tampa Bay PEO unit.
Three other PEO units are located in leased facilities in Hollywood and
Orlando, Florida, and in Atlanta, Georgia. PBS believes that its current
facilities are adequate for its current needs and that additional suitable
space will be available as required.
USE OF PROCEEDS
Paychex will not receive any proceeds from the sale of the shares offered
hereby.
SELLING STOCKHOLDERS
The following table sets forth, as of December 31, 1996 information with
respect to the Shares that are beneficially owned by the persons listed below
(the "Selling Stockholders").
In connection with its acquisition of Olsen Computer Systems, Inc. on
November 21, 1996 (see "RECENT DEVELOPMENTS"), Paychex issued 392,926 shares
of its Common Stock to the two shareholders of that Company. Each of them
remains employed by that subsidiary, now known as Paychex Computer Systems,
Inc., in the same capacity as during the time prior to the acquisition.
Pursuant to the agreement whereby Paychex acquired Olsen Computer
Systems, Inc., Paychex has filed with the Securities and Exchange Commission
the Registration Statement of which this Prospectus is a part, and has agreed
to use its reasonable best efforts to cause such Registration Statement to
become effective as soon as possible after filing. The agreement contains
mutual indemnification provisions covering this registration and offering.
Paychex has agreed to pay filing fees, costs and expenses associated with the
Registration Statement.
On November 7, 1996, a registration statement with respect to 1,053,272
shares of Paychex common stock became effective. The shares were registered
pursuant to agreements with shareholders of other companies acquired by
Paychex. The shares were offered solely by those shareholders and no proceeds
of that offering were, or are to be, received by Paychex. At January 27,
1997, 965,358 of those registered shares remain unsold.
The Shares, as listed below, may be offered by the Selling Stockholders
named below.
Paychex Shares Paychex Shares
Name and Principal Owned Prior Shares Owned After
Position to Offering (1) Offered Offering (1)
__________________ ___________________ _____________ ________________
Number Percent Number Percent
______ _______ ______ _______
1. Theodore Olsen 262,082 * 78,624 183,458 *
President
Olsen Computer Systems, Inc.
2. Cynthia Olsen 130,844 * 39,253 91,591 *
Vice President
Olsen Computer Systems, Inc.
(1) Represents ownership of the number of shares and percentage of shares
outstanding as of December 31, 1996.
* Less than 1%.
DESCRIPTION OF PAYCHEX COMMON STOCK
Paychex Common Stock consists of 150,000,000 authorized shares with a par
value of $.01 per share. On December 31, 1996, there were 72,148,216 shares
of Paychex Common Stock issued and outstanding.
The holders of Paychex Common Stock are entitled to one vote per share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law, the holders of such shares exclusively
possess all voting power. The Paychex Certificate of Incorporation does not
provide for cumulative voting in the election of directors. The holders of
Paychex Common Stock are entitled to such dividends as may be declared from
time to time by the Paychex Board from funds available therefore, and upon
liquidation, are entitled to receive pro rata all assets of Paychex available
for distribution to such holders. All shares of Paychex Common Stock, when
issued, are fully paid and non-assessable and the holders thereof do not have
preemptive rights.
Section 203 of Delaware Law
The Company is subject to the "business combination" provisions of the
Delaware General Corporation Law. In general, such provisions prohibit a
publicly-held Delaware corporation from engaging in various "Business
combination" transactions with any "interested stockholder," unless (i) the
transaction is approved by the Board of Directors prior to the date the
interested stockholder obtained such status, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or subsequent to such date
the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" is defined to include
mergers, asset sales and other transactions resulting in financial benefit to
a stockholder. In general, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of a corporation's voting stock. The statute could prohibit or
delay mergers or other takeover or change in control attempts with respect to
the Company and, accordingly, may discourage attempts to acquire the Company.
Limitations on Liability and Indemnification of Officers and Directors
The Delaware law provides that a corporation may limit the liability of
each director to the corporation or its stockholders for monetary damages
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The Company's Amended Certificate of Incorporation
provides that, to the fullest extent permitted by Delaware law, no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duties as a director. The effect of
these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as
a director (including breaches resulting from grossly negligent conduct). The
provisions do not exonerate the directors from liability under federal
securities laws nor do they limit the availability of non-monetary relief in
any action or proceeding against a director. In addition, the Amended
Certificate of Incorporation provides that the Company shall, to the fullest
extent not prohibited by Delaware Law, indemnify its officers and directors
against liabilities, cost and expenses as provided by Delaware Law. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or others pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Transfer Agent
The Transfer Agent for the Common Stock is American Stock Transfer and
Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Selling Stockholders may, from time to time, offer and sell all or a
portion of the Shares in broker's transactions (where no solicitation is
involved and no more than the usual and customary broker's commission is
received) and transactions directly with market makers or in a private sale if
approved by Paychex' counsel.
LEGAL MATTERS
The legality of the Paychex Common Stock to be sold in connection with
this registration statement is being passed upon for Paychex by Woods, Oviatt,
Gilman, Sturman & Clarke LLP. As of January 27, 1997, the attorneys in
that firm owned 113,646 shares of Paychex Common Stock and held options to
purchase an additional 23,625 shares. A member of the firm also serves as a
director of Paychex.
EXPERTS
The Consolidated Financial Statements of Paychex, Inc. incorporated by
reference in Paychex, Inc. Annual Report (Form 10-K) for the year ended May
31, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon incorporated by reference therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The supplemental consolidated financial statements of Paychex, Inc. at
May 31, 1996 and 1995, and for each of the three years in the period ended May
31, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The combined balance sheets of National Business Solutions, Inc. as of
December 31, 1995 and 1994, and the related combined statements of earnings
and cash flows for the years then ended, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of Grant
Thornton LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
FINANCIAL STATEMENTS
The financial statements of Olsen Computer Services, Inc. and the pro
forma financial information, both required by Item 11(b) of Form S-3, are not
presented because the business combination is not significant as defined by
Rule 1-02.(w) of Regulation S-X.
CONSOLIDATED FINANCIAL STATEMENTS OF PAYCHEX, INC.
AND SUBSIDIARIES
The following supplemental consolidated financial statements assume a
business combination between Paychex and PBS which qualifies as a pooling of
interests for accounting and financial reporting purposes. The supplemental
consolidated financial statements give retroactive effect to the merger of
Paychex and PBS which was consummated in August 26, 1996. These supplemental
consolidated financial statements will become the historical financial
statements of Paychex, Inc. and Subsidiaries. All supplemental financial
statements are based upon the respective historical consolidated financial
information of Paychex and PBS and should be read in conjunction with such
historical financial statements and the notes thereto, which are incorporated
by reference in this prospectus. For restatement purposes, Paychex audited
consolidated financial statements for each of the three fiscal years in the
period ended May 31, 1996 have been combined with the consolidated financial
statements of PBS for the same periods.
INDEX
Page
Reports of Independent Auditors, Ernst & Young LLP 22
Consolidated Statements of Income
for each of the three years ended
May 31, 1996, 1995, and 1994 23
Consolidated Balance Sheets
as of May 31, 1996 and May 31, 1995 24
Consolidated Statements of Stockholders'
Equity for each of the three years
ended May 31, 1996, 1995, and 1994. 25
Consolidated Statements of Cash Flows
for each of the three years ended May 31, 1996,
1995, and 1994 26
Notes to Consolidated Financial Statements
for each of the three years ended May 31, 1996,
1995 and 1994 27
REPORT OF INDEPENDENT AUDITORS , ERNST & YOUNG LLP
Board of Directors
Paychex, Inc.
We have audited the supplemental consolidated balance sheets of Paychex, Inc.
and subsidiaries (formed as a result of the consolidation of Paychex, Inc.
and National Business Solutions, Inc.) as of May 31, 1996 and 1995 and the
related supplemental consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended May 31, 1996.
The supplemental consolidated financial statements give retroactive effect to
the merger of Paychex, Inc. and National Business Solutions, Inc. on August
26, 1996, which has been accounted for using the pooling of interests method
as described in the notes to the supplemental consolidated financial
statements. These supplemental financial statements are the responsibility of
the management of Paychex, Inc. Our responsibility is to express an opinion
on these supplemental 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 supplemental financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Paychex, Inc. and subsidiaries at May 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1996, after giving retroactive effect
to the merger of National Business Solutions, Inc., as described in the notes
to the supplemental consolidated financial statements, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated 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
August 26, 1996 /s/ Ernst & Young LLP
CONSOLIDATED STATEMENTS OF INCOME
_______________________________________________________________________________________
Year Ended May 31 1996 1995
1994 (in thousands, except per share amounts)
_______________________________________________________________________________________
Payroll revenue $ 325,285 $ 267,176 $ 224,052
PEO revenue 241,158 144,890 99,853
__________________________________________
Total Revenue 566,443 412,066 323,905
PEO direct costs 233,135 139,953 96,952
Operating expenses 101,235 81,663 70,034
Selling, general & administrative expenses 162,151 138,186 119,477
_______________________________________________________________________________________
Operating Income 69,922 52,264 37,442
Other income 5,467 3,458 2,220
__________________________________________
Income Before Income Taxes 75,389 55,722 39,662
Income Taxes 20,354 15,333 10,916
__________________________________________
Net Income $ 55,035 $ 40,389 $ 28,746
__________________________________________
Earnings Per Share $ .77 $ .57 $ .41
Cash Dividends Per Share $ .25 $ .15 $ .10
Weighted Average Shares Outstanding 71,286 70,324 70,118
_______________________________________________________________________________________
Note: Per share amounts and shares outstanding have been adjusted for three-for-two
stock splits in May 1995 and May 1996.
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
___________________________________________________________________________________________
May 31, (In thousands, except share and per share amounts) 1996 1995
___________________________________________________________________________________________
ASSETS
Current Assets
Cash and cash equivalents $ 19,999 $ 14,812
Investments 102,967 70,954
Interest receivable 7,385 6,699
Trade accounts receivable 42,076 34,911
Prepaid expenses and other current assets 1,903 1,851
Deferred income taxes 1,419 1,310
Total Current Assets 175,749 130,537
___________________________________________________________________________________________
Property and Equipment
Land and improvements 2,787 2,779
Buildings 24,145 21,304
Data processing equipment 43,439 34,253
Furniture, fixtures and equipment 37,921 29,277
Leasehold improvements 2,718 1,536
____________________________________________________________________________________________
111,010 89,149
Less allowance for depreciation and amortization 60,355 45,148
_____________________________________________________________________________________________
Net Property and Equipment 50,655 44,001
Other Assets 4,945 523
_____________________________________________________________________________________________
Total Assets $ 231,349 $ 175,061
_____________________________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 4,183 $ 3,679
Accrued compensation and related items 19,120 16,726
Reserve for workers compensation 1,235 613
Accrued income taxes 573 682
Other accrued expenses 5,941 6,206
Deferred revenue 4,934 3,198
Current portion of long-term debt - 205
Total Current Liabilities 35,986 31,309
____________________________________________________________________________________________
Other Liabilities
Deferred income taxes 416 764
Reserve for workers compensation 865 -
Customer deposits 1,038 713
Long-term debt - 523
Other long-term liabilities 848 557
____________________________________________________________________________________________
Total Liabilities 39,153 33,866
____________________________________________________________________________________________
Stockholders' Equity
Common Stock $.01 par value, authorized 150,000,000 shares:
Issued 71,632,456 in 1996 and 46,988,047 in 1995 716 470
Additional Capital 30,112 17,843
Retained Earnings 161,368 122,882
____________________________________________________________________________________________
Total Stockholders' Equity 192,196 141,195
Total Liabilities and Stockholders' Equity $ 231,349 $ 175,061
____________________________________________________________________________________________
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
_______________________________________________________________________________________________________
Common Stock
Shares Additional Retained
(in thousands) Issued Amount Capital Earnings Total
_______________________________________________________________________________________________________
Balance at May 31, 1993 20,738 $ 207 $ 14,047 $ 71,164 $ 85,418
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 10,374 104 (116) (12)
Dividends paid (6,820) (6,820)
Net income 28,746 28,746
Other 15 (56) (41)
_______________________________________________________________________________________________________
Balance at May 31, 1994 31,212 312 15,894 92,918 109,124
_______________________________________________________________________________________________________
Exercise of stock options 116 1 1,261 1,262
Tax benefit from stock option
transactions 688 688
Shares issued in connection with
three-for-two stock split 15,660 157 (175) (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)
Change in unrealized gains and losses
on investments, net of income taxes
of $372 487 487
Dividends paid (10,531) (10,531)
Net income 40,389 40,389
_______________________________________________________________________________________________________
Balance at May 31, 1995 46,988 470 17,843 122,882 141,195
_______________________________________________________________________________________________________
Exercise of stock options 320 3 2,810 2,813
Tax benefit from stock option
transactions 2,671 2,671
Shares issued in connection with
three-for-two stock split 23,652 236 (281) (45)
Shares issued in connection with
the merger of Pay-Fone Systems, Inc. 498 5 2,926 1,866 4,797
Shares issued in connection with the
acquisition of The Payroll Company,
Inc.(d/b/a Payday) 174 2 3,851 3,853
Change in unrealized gains and losses
on investments, net of income taxes
of $338 (449) (449)
Dividends paid (17,685) (17,685)
Net income 55,035 55,035
Other 11 11
_______________________________________________________________________________________________________
Balance at May 31, 1996 71,632 $ 716 $ 30,112 $ 161,368 $ 192,196
_______________________________________________________________________________________________________
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
_______________________________________________________________________________________________________
(in thousands) Year Ended May 31 1996 1995 1994
_______________________________________________________________________________________________________
OPERATING ACTIVITIES
Net income $ 55,035 $ 40,389 $ 28,746
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 14,063 11,099 11,245
Net change in deferred income taxes 45 (41) (745)
Provision for bad debts 1,034 847 762
Net realized gain on sales of available-for-sale securities (709) (26) (266)
Changes in operating assets and liabilities:
Trade accounts receivable (7,455) (10,062) (5,343)
Accrued interest receivable (686) (1,832) (1,574)
Prepaid expenses and other current assets 228 631 274
Trade accounts payable and other current liabilities 1,555 8,146 (38)
Deferred revenue 1,736 352 1,381
Reserve for workers compensation 1,487 613 -
Customer deposits 325 279 92
_______________________________________________________________________________________________________
Net Cash Provided by Operating Activities 66,658 50,395 34,534
_______________________________________________________________________________________________________
INVESTING ACTIVITIES
Investment purchases of available-for-sale securities (135,767) (51,430) (28,658)
Proceeds from sales of available-for-sale securities 99,667 20,757 20,381
Proceeds from maturities of available-for-sale securities 4,787 1,500 590
Additions to property and equipment, net of disposals (17,511) (12,448) (11,405)
Net change in other assets (793) (202) 20
_______________________________________________________________________________________________________
Net Cash Used in Investing Activities (49,617) (41,823) (19,072)
_______________________________________________________________________________________________________
FINANCING ACTIVITIES
Payments on long-term debt (431) (220) (752)
Proceeds and tax benefit from exercise of stock options 5,484 1,950 1,833
Dividends paid (17,685) (10,531) (6,820)
Payment in lieu of issuance of fractional shares (45) (18) (12)
Other 11 - (71)
_______________________________________________________________________________________________________
Net Cash Used in Financing Activities (12,666) (8,819) (5,822)
_______________________________________________________________________________________________________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 4,375 $ (247) $ 9,640
Cash & Cash Equivalents, Beginning of Fiscal Year 14,812 15,059 5,419
Cash obtained through Pay-Fone Acquisition 805 - -
Cash obtained through Payday Acquisition 7 - -
_______________________________________________________________________________________________________
Cash & Cash Equivalents, End of Fiscal Year $ 19,999 $ 14,812 $ 15,059
_______________________________________________________________________________________________________
See Notes to Consolidated Financial Statements.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Payroll 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. 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 government securities,
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, 1996 and 1995, the total Taxpay and Direct Deposit
funds held by Paychex were $590,929,000, and $470,847,000, 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.
Professional Employer Organization (PEO) Activities: Paychex Business
Solutions, Inc. (PBS), previously National Business Solutions, Inc., is
engaged primarily in providing human resource management and personnel
administration services to a diverse client base of small to medium-sized
businesses through a network of branch offices located in Florida and Georgia.
PBS does not have a concentration of clients in any one industry.
In addition, PBS provides certain managed care services, including managed
health care, employee assistance programs, drug-free workplace programs,
comprehensive workers' compensation management, risk management and loss
containment services.
Principles of Consolidation: The consolidated financial statements include
the accounts of Paychex, Inc. and its wholly-owned subsidiaries. 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.
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' 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. 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.
Revenue Recognition: Revenues and the related costs of wages, salaries, and
employment taxes from PBS activities of worksite employees are recognized in
the period in which the employee performs the service. Revenue from Payroll
activities includes those amounts billed for services rendered and investment
income earned from client funds held by Paychex for the Taxpay and Direct
Deposit services.
Accounts Receivable: Accounts receivable consists primarily of amounts billed
to clients for services rendered. In addition, PBS' accounts receivable
includes certain unbilled receivables ($4,040,000 and $1,703,000 in 1996 and
1995, respectively) representing fees for worksite employees from the last pay
period ending date through the financial statement date.
Deferred Revenue: The Company defers revenue on certain services billed in
advance. The revenue is recognized upon completion of these services.
Reserve for Workers' Compensation: Workers' Compensation for PBS employees is
provided under a large deductible insured plan. Since PBS has limited claims
loss experience, the Company elected to record reserves for the deductible
portion of workers compensation claims costs based on the maximum contractual
loss exposure under their workers compensation insurance policy. Management
believes that this is a conservative approach and the reserve is adequate to
meet its obligations for open claims. As historical loss experience becomes
available, the Company will modify its reserve requirements.
Certificates of Deposit, with an aggregate balance of $960,000 and $167,000 at
May 31, 1996 and 1995 were pledged in conjunction with the PBS workers
compensation insurance policy. The Company has a letter of credit in the
amount of $650,000 at May 31, 1996 in conjunction with the workers'
compensation policy. (See Note J).
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.
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.
Cash Dividends Per Share: Cash dividends per share have been restated for
prior years to include the effects of distributions made to the stockholders
of National Business Solutions, Inc. Cash dividends per share as restated
for 1996 were $.25 as compared to $.22 as originally reported. The
restatement had no effect on 1995 and 1994.
Stock-Based Compensation: The Company accounts for its Stock Option Plans
under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees," under which no compensation cost has been recognized.
In October, 1995, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," which defines a fair value method of accounting for stock based
compensation plans, the effects of which can either be disclosed in the notes
to the financial statements or recorded in the income statement. FAS No. 123
requires adoption no later than fiscal years beginning after December 15,
1995. Under this method, compensation is usually determined at the date of
grant and amortized over the vesting period of the grant. The Company has not
yet determined if it will elect to change to the new method, nor has it
determined the effect the new standard will have on net income and earnings
per share should the Company elect to make this change. Adoption of FAS No.
123 will have no effect on the Company's cash flows.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications: Certain amounts from prior years are reclassified to
conform to 1996 presentations.
NOTE B - INVESTMENTS
Cost, unrealized gains and losses, and estimated fair value of securities at
May 31, 1996 and 1995, were as follows:
_________________________________________________________________________________________
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
_________________________________________________________________________________________
May 31, 1996
Municipal securities $ 103,241 $ 233 $ 507 $ 102,967
_________________________________________________________________________________________
May 31, 1995
Municipal securities $ 70,441 $ 681 $ 168 $ 70,954
_________________________________________________________________________________________
Net realized gains and losses on sales of available-for-sale securities are
included in other income on the Consolidated Statements of Income. Gross
realized gains and losses for 1996, 1995 and 1994, were as follows:
________________________________________________________________
(In thousands) 1996 1995 1994
________________________________________________________________
Gross realized gains $ 914 $ 69 $ 277
Gross realized losses $ 205 $ 43 $ 11
The amortized cost and estimated fair value of debt securities at May 31,
1996, 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 $ 2,657 $ 2,704
1 to 3 Years 45,795 45,749
3 Year and Over 54,789 54,514
___________________________________
Total $103,241 $102,967
________________________________________________________________
NOTE C - LONG-TERM DEBT
Long-term debt consists of the following:
________________________________________________________________
May 31 (in thousands) 1996 1995
________________________________________________________________
Industrial Revenue Bonds $ - $ 728
Less current portion - 205
__________________________________
$ - $ 523
_____________________________________________________________________
During the year ended May 31, 1996, operating cash was used to repay the
remaining balance on the Industrial Revenue Bonds.
At May 31, 1996, 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, 1996.
NOTE D - STOCKHOLDERS' EQUITY
The Company declared three-for-two stock splits effected in the form of 50%
stock dividends on outstanding shares on various dates during the fiscal
years ended 1996, 1995 and 1994, as follows:
Stock Dividend Payable to Holders Stock Dividend
Fiscal Year Declaration Dates of Record Distribution Dates
_____________________________________________________________________________
1996 April 11, 1996 May 2, 1996 May 23, 1996
1995 April 13, 1995 May 2, 1995 May 25, 1995
1994 July 8, 1993 August 2, 1993 August 26, 1993
_____________________________________________________________________________
The Company reserved 1,875,000 shares of common stock for issuance under
the 1995 Stock Incentive Plan. The 1992 and 1987 Stock Incentive Plans
expired on August 31, 1995 and 1992, respectively; however, options to
purchase 1,542,508 shares under these plans 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.
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the market value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly,
recognizes no compensation expense for the stock option grants.
A summary of stock option activity is as follows:
______________________________________________________
Number of
Equivalent
Shares
______________________________________________________
Balance May 31, 1993 1,736,270
Issued 536,400
Exercised (236,433)
Canceled (50,994)
______________
Balance May 31, 1994 1,985,243
Issued 341,550
Exercised (256,779)
Canceled (67,074)
______________
Balance May 31, 1995 2,002,940
Issued 496,558
Exercised (480,018)
Canceled (59,572)
______________
Balance May 31, 1996 1,959,908
______________________________________________________
Exercisable May 31, 1996 838,641
Prices range from $2.99 to $18.22
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 standard, prior
years' financial statements have not been restated.
Significant components of the deferred tax assets and liabilities as of
May 31, 1996 and 1995 are as follows (in thousands):
Deferred tax assets: 1996 1995
__________________________________________________________________________
Allowance for bad debts $ 817 $ 677
Accrued vacation pay 1,391 1,255
Reserve for future medical claims 293 310
Other expenses not currently deductible 903 655
Unrealized loss on available-for-sale
securities 106 -
Total deferred tax assets $3,510 $2,897
__________________________________________________________________________
Deferred tax liabilities:
Revenue not subject to current taxes $1,877 $1,297
Depreciation 554 765
Other 76 57
Unrealized gain on available-for-sale
securities - 232
__________________________________________________________________________
Total deferred tax liabilities $2,507 $2,351
__________________________________________________________________________
Net deferred tax assets $1,003 $ 546
__________________________________________________________________________
Classification of Net Deferred Tax Assets:
Current Assets $1,419 $1,310
Other Liabilities $ (416) $ (764)
__________________________________________________________________________
Income tax expense consists of:
__________________________________________________________________________
1996 1995 1994
__________________________________________________________________________
Current:
Federal $ 15,400 $ 11,404 $ 8,593
State 4,952 3,970 3,068
________________________________________
Total Current $ 20,352 $ 15,374 $ 11,661
Deferred:
Federal (18) (31) (662)
State 20 (10) ( 83)
________________________________________
Total Deferred (credit) 2 (41) (745)
________________________________________
$ 20,354 $ 15,333 $ 10,916
__________________________________________________________________________
Below is an analysis reconciling the statutory federal income tax rate to
the effective tax rates shown in the Consolidated Statements of Income. For
the three years included in the Consolidated Statements of Income, National
Business Solutions, Inc. had elected to be taxed as a Subchapter S corporation
under federal and state provisions. Accordingly, no tax provision was
recorded for the corporation in these restated financial statements, resulting
in a reduction of the overall effective tax rate.
__________________________________________________________________________
1996 1995 1994
__________________________________________________________________________
Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
State income taxes, net of federal
benefit 4.3 4.6 4.9
Tax-exempt municipal bond interest (11.3) (11.9) (11.3)
Benefit from PBS income not subject
to tax (1.3) (.9) (.6)
Other items .3 .7 (.5)
_________________________________
Effective Tax Rate 27.0% 27.5% 27.5%
__________________________________________________________________________
NOTE F - COMMITMENTS & CONTINGENCIES
The Company issued a letter of credit in January 1996, in the amount of
$650,000 in conjunction with the workers' compensation insurance policy for
1996. Certificates of deposit totaling $650,000 are collateral to the letter
of credit.
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 $314,000 and $424,000 at May 31, 1996
and 1995, respectively.
Rental expense for all leases on office facilities amounted to
approximately $ 12,888,000 in 1996, $10,707,000 in 1995 and $9,499,000 in
1994.
The Company also leases data processing equipment under various operating
leases. These obligations extend through 2001. Related equipment lease
payments were $ 2,455,000, $1,640,000 and $1,111,000 in 1996, 1995, and 1994,
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):
1997 $12,321
1998 9,882
1999 7,446
2000 5,406
2001 2,480
Thereafter 1,171
________________________________________
Total minimum lease payments $38,706
__________________________________________________________________________
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
position or results of operations of the company.
The Company is contingently liable for the guaranteed appreciation of
unregistered common stock issued as consideration in the September 29, 1995
acquisition of The Payroll Company (d/b/a Payday). The Company guarantees
stock issued at $28.61 and not sold prior to September 29, 2000, will
appreciate by a minimum of 20% to $ 34.33 or by approximately $1,000,000, over
the five year period ending on September 29, 2000. The per share market value
of Paychex stock at May 31, 1996 was $ 44.00 (See Note I).
NOTE G - EMPLOYEE BENEFITS
Paychex 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 $2,127,000, $1,815,000, and
$1,516,000 for 1996, 1995, and 1994, respectively.
PBS sponsors and administers two 401(k) plans and one money purchase plan
on behalf of its worksite and corporate employees. PBS clients, at their
discretion, may contribute a matching contribution on behalf of each
participating worksite employee. Total contributions on behalf of all
employees were $867,000, $690,000 and $240,000 for 1996, 1995 and 1994.
NOTE H - SUPPLEMENTAL CASH FLOW DISCLOSURES
Income tax payments totaled $17,672,000, $13,831,000, and $11,633,000 in
1996, 1995, and 1994, respectively.
NOTE I - MERGER AGREEMENTS
Payroll Mergers
On March 20, 1995, the Company and Pay-Fone Systems, Inc., a payroll
service provider, agreed in principle that all of the outstanding common stock
of Pay-Fone Systems, 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 497,900 shares of Paychex common stock. The merger did not have
a significant impact on the Company's 1996 financial position and results of
operations. As a result, prior year financial statements were not restated.
On September 29, 1995, the Company acquired all of the outstanding stock of
The Payroll Company, Inc. (d/b/a Payday), a payroll services company, in
exchange for approximately 173,800 unregistered shares of Company common stock
with a fair value of $5,000,000 at the date of acquisition. The agreement
included a guarantee that the stock issued in the acquisition, and not sold
prior to September 29, 2000, will appreciate by a minimum of 20% over the five
year period ending on September 29, 2000. (See Note F). The acquisition was
accounted for as a purchase and recorded at the net present value of the
guaranteed $6,000,000 purchase price. Goodwill of approximately $ 4,000,000
was recorded in Other Assets and is amortized on a straight line basis over 10
years.
The results of operations of Payday are included in the accompanying
financial statements from the date of acquisition and did not have a
significant impact on the Company's 1996 financial position and results of
operations.
Merger Subsequent to May 31, 1996
On August 26, 1996, the Company completed its merger with National Business
Solutions, Inc. (NBS), now Paychex Business Solutions, Inc. (PBS) a
professional employer organization headquartered in St. Petersburg, Florida.
The outstanding common stock of NBS was exchanged for 2,934,496 shares of
Paychex common stock, valued at $140,000,000. The transaction was accounted
for as a pooling of interests; therefore, prior period financial statements
have been restated to reflect this merger.
The following is a reconciliation of the amounts of revenue and net income
previously reported with restated amounts:
1996 1995 1994
_________________________________________
REVENUE
Consolidated Paychex, as previously reported $ 325,285 $ 267,176 $ 224,052
Paychex Business Solutions, Inc. 241,158 144,890 99,853
_________________________________________
Consolidated Paychex, as restated $ 566,443 $ 412,066 $ 323,905
=========================================
NET INCOME
Consolidated Paychex, as previously reported $ 52,333 $ 39,040 $ 28,070
Paychex Business Solutions, Inc. 2,702 1,349 676
_________________________________________
Consolidated Paychex, as restated $ 55,035 $ 40,389 $ 28,746
=========================================
EARNINGS PER SHARE $ .77 $ .57 $ .41
=========================================
NOTE J - WORKERS COMPENSATION RESERVES
During 1995, PBS entered into a workers' compensation insurance policy for PEO
employees whereby the maximum individual claims exposure is $350,000 and the
aggregate claims exposure is limited to a percentage of workers' compensation
payroll. As of May 31, 1996, PBS estimates this will result in a maximum
liability of $2,100,000 when claims are ultimately resolved. The Company
believes the reserve is sufficient to meet its obligations for open claims.
The Company estimates that approximately $1,235,000 of the reserve, classified
as a current liability, will be paid out in fiscal 1997. The remaining reserve
of $865,000 is reported as a long-term liability at May 31, 1996.
NOTE K - SEGMENT INFORMATION
For the Year Ended May 31 1996 1995 1994
(in thousands, except per share amounts)
Revenue
Payroll $ 325,285 $ 267,176 $ 224,052
PEO 241,158 144,890 99,853
_____________________________________________
Total Revenue 566,443 412,066 323,905
PEO Direct Costs 233,135 139,953 96,952
_____________________________________________
Revenue, Less PEO Direct Costs 333,308 272,113 226,953
Operating Costs
Payroll 96,758 78,611 68,082
PEO 4,477 3,052 1,952
_____________________________________________
Total Operating Costs 101,235 81,663 70,034
Selling, General and Admin
Payroll 156,496 133,866 115,935
PEO 1,123 632 290
_____________________________________________
Total Selling, General and Admin 157,619 134,498 116,225
Operating Income
Payroll 72,031 54,699 40,035
PEO 2,423 1,253 659
_____________________________________________
Total Operating Income 74,454 55,952 40,694
General Corporate Expenses 4,532 3,688 3,252
Other Income - Net 5,467 3,458 2,220
_____________________________________________
Income Before Taxes $ 75,389 $ 55,722 $ 39,662
_____________________________________________
Identifiable Assets
Payroll $ 220,208 $ 168,437 $ 129,789
PEO 11,141 6,624 4,070
_____________________________________________
Total Identifiable Assets $ 231,349 $ 175,061 $ 133,859
_____________________________________________
Depreciation & Amortization
Payroll $ 13,940 $ 11,040 $ 11,205
PEO 123 59 40
____________________________________________
Total Depreciation & Amortization $ 14,063 $ 11,099 $ 11,245
____________________________________________
Capital Expenditures
Payroll $ 17,286 $ 12,355 $ 11,583
PEO 520 180 84
____________________________________________
Total Capital Expenditures $ 17,806 $ 12,535 $ 11,667
____________________________________________
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Indemnification of Directors and Officers
Pursuant to the Delaware General Corporation Law, the Paychex, Inc.
Certificate of Incorporation exculpates directors from liability to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, but not for (1) breach of the duty of loyalty, (2) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (3) paying a dividend or approving a stock repurchase which
was illegal, or (4) any transaction from which the director derived improper
personal benefit.
Paychex has also entered into an Indemnity Agreement with each of its
directors and executive officers whereby the corporation agrees (a) to
indemnify the other party against all expenses, judgments, fines or penalties,
actually and reasonably incurred in connection with the defense or settlement
of a proceeding to the fullest extent permitted by law and (b) to advance
expenses which the other party undertakes to repay if otherwise reimbursed or
if ultimately determined that he is not entitled to reimbursement.
In addition, Paychex has purchased an insurance policy which provides
coverage for its directors and officers in certain situations where Paychex
cannot directly indemnify such directors and officers.
Item 16. Exhibits and Financial Schedules
Exhibit No. Description
5.1 Opinion of Woods, Oviatt, Gilman & Clarke LLP regarding the
legality of the securities being registered
23.1 Consent of Ernst & Young LLP
23.2 Consent of Grant Thornton LLP
23.3 Consent of Woods, Oviatt, Gilman, Sturman & Clarke LLP
contained in Exhibit 5.1
24.1 Powers of Attorney
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Company pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1993 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Rochester, State of New York, on January 31, 1997.
PAYCHEX, INC.
By: /s/ John M. Morphy
_____________________________________
John M. Morphy, Vice President
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on dates indicated.
Name Title Date
/s/B. Thomas Golisano Chairman of the Board, January 31, 1997
________________________ Chief Executive Officer,
B. Thomas Golisano President and Director
/s/John M. Morphy Vice President, Chief January 31, 1997
________________________ Financial Officer and
John M. Morphy Secretary
* Director January 31, 1997
________________________
Donald W. Brinckman
* Director January 31, 1997
________________________
Steven D. Brooks
* Director January 31, 1997
________________________
G. Thomas Clark
* Director January 31, 1997
________________________
Phillip Horsley
* Director January 31, 1997
________________________
Grant M. Inman
* Director January 31, 1997
________________________
Harry P. Messina, Jr.
* Director January 31, 1997
________________________
J. Robert Sebo
*By: /s/John M. Morphy
___________________________________
John M. Morphy, as Attorney-in-Fact