UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Paychex, Inc. 401(k)
Incentive Retirement Plan
(Full title of the Plan)
Paychex, Inc.
911 Panorama Trail South
Rochester, NY 14625
(Name and address of issuer of the securities held pursuant
to the Plan and the address of its principal executive office)
Index to Financial Statements, Schedules and Exhibits
Financial Statements Page No.
Report of Independent Auditors 3
Statement of Net Assets Available for 4
Benefits with Fund Information -
December 31, 1998
Statement of Net Assets Available for 5
Benefits with Fund Information -
December 31, 1997
Statement of Changes in Net Assets 6
Available for Benefits with Fund
Information - For the year
ended December 31, 1998
Statement of Changes in Net Assets 7
Available for Benefits with Fund
Information - For the year
ended December 31, 1997
Notes to Financial Statements 8-11
Schedules
Schedule I - Line 27a - Schedule of
Assets Held for Investment
Purposes - December 31, 1998 12
Schedule II - Line 27d - Schedule of
Reportable Transactions - For the
year ended December 31, 1998 13
Exhibits
23 - Consent of Independent Auditors 14
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the Plan Committee has caused this Annual Report to be signed by the
undersigned thereunto duly authorized.
Dated: June 24, 1999
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
(Name of Plan)
By: /s/ Francis G. Provino
___________________________________
Francis G. Provino
401(k) COMMITTEE MEMBER
Report of Independent Auditors
The Plan Committee
Paychex, Inc. 401(k)
Incentive Retirement Plan
Rochester, New York
We have audited the accompanying statements of net assets available for
benefits of Paychex, Inc. 401(k) Incentive Retirement Plan (the Plan) as of
December 31, 1998 and 1997, and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1998 and 1997, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental
schedules of assets held for investment purposes as of December 31, 1998 and
reportable transactions for the year then ended are presented for purposes of
additional analysis and are not a required part of the financial statements
but are supplementary information required by the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974. The Fund Information in the statement of net
assets available for benefits and the statement of changes in net assets
available for benefits is presented for purposes of additional analyses rather
than to present the net assets available for benefits and changes in net
assets available for benefits of each fund. These supplemental schedules are
the responsibility of the Plan's management. The supplemental schedules have
been subjected to the auditing procedures applied in our audits of the
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the financial statements taken as a whole.
May 20, 1999 /s/ Ernst & Young LLP
Syracuse, New York
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
WITH FUND INFORMATION
DECEMBER 31, 1998
(In Thousands)
IRT IRT
Paychex Total Stable 500 Inter-
Combined Stock Return Growth Value Index national Loan
Funds Fund Fund Fund Fund Fund Fund Fund
_________ _________ _________ _________ _________ _________ _________ _________
Investments at fair value:
Paychex, Inc. Common Stock $ 160,277 $ 160,277
INVESCO Funds 46,927 $ 11,030 $ 18,035 $ 14,269 $ 3,593
Global Asset Management Fund 2,953 $ 2,953
Participant Loans Receivable 5,061 $ 5,061
Cash 4,983 4,983
_________ _________ _________ _________ _________ _________ _________ _________
Net assets available for
benefits $ 220,201 $ 165,260 $ 11,030 $ 18,035 $ 14,269 $ 3,593 $ 2,953 $ 5,061
_________ _________ _________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________ _________ _________
See accompanying notes to financial statements.
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
WITH FUND INFORMATION
DECEMBER 31, 1997
(In Thousands)
IRT
Paychex Total Stable Inter-
Combined Stock Return Growth Value national Loan
Funds Fund Fund Fund Fund Fund Fund
_________ _________ _________ _________ _________ _________ _________
Investments at fair value:
Paychex, Inc. Common Stock $ 104,984 $ 104,984
INVESCO Funds 30,061 $ 9,766 $ 11,951 $ 8,344
Global Asset Management Fund 3,251 $ 3,251
Participant Loans Receivable 4,602 $ 4,602
Cash 3,488 3,488
_________ _________ _________ _________ _________ _________ _________
Net assets available for
benefits $ 146,386 $ 108,472 $ 9,766 $ 11,951 $ 8,344 $ 3,251 $ 4,602
_________ _________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________ _________
See accompanying notes to financial statements.
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(In Thousands)
IRT IRT
Paychex Total Stable 500 Inter-
Combined Stock Return Growth Value Index national Loan
Funds Fund Fund Fund Fund Fund Fund Fund
_________ _________ _________ _________ _________ _________ _________ _________
Additions:
Dividends and interest income $ 2,968 $ - $ 565 $ 1,358 $ 585 $ 3 $ 79 $ 378
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 61,965 56,784 754 3,762 - 561 104 -
_________ _________ _________ _________ _________ _________ _________ _________
Total investment income 64,933 56,784 1,319 5,120 585 564 183 378
Contributions:
Participants 13,041 8,003 1,085 1,971 846 416 720
Employer 3,432 2,199 293 511 177 71 181
_________ _________ _________ _________ _________ _________ _________ _________
Total contributions 16,473 10,202 1,378 2,482 1,023 487 901 -
Total additions 81,406 66,986 2,697 7,602 1,608 1,051 1,084 378
Deductions:
Benefits paid to participants (7,591) (4,102) (601) (1,079) (1,168) (37) (264) (340)
Loans to participants - (2,412) (148) (235) (171) (18) (41) 3,025
Loan payments - 1,936 175 231 188 19 55 (2,604)
Interfund transfers - (5,620) (859) (435) 5,468 2,578 (1,132) -
_________ _________ _________ _________ _________ _________ _________ _________
Change in net assets 73,815 56,788 1,264 6,084 5,925 3,593 (298) 459
Net assets available for
benefits at beginning of year 146,386 108,472 9,766 11,951 8,344 - 3,251 4,602
_________ _________ _________ _________ _________ _________ _________ _________
Net assets available for benefits $ 220,201 $ 165,260 $ 11,030 $ 18,035 $ 14,269 $ 3,593 $ 2,953 $ 5,061
_________ _________ _________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________ _________ _________
See accompanying notes to financial statements.
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(In Thousands)
IRT
Paychex Total Stable Inter-
Combined Stock Return Growth Value national Loan
Funds Fund Fund Fund Fund Fund Fund
_________ _________ _________ _________ _________ _________ _________
Additions:
Dividends and interest income $ 4,068 $ - $ 378 $ 2,879 $ 342 $ 140 $ 329
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 36,116 35,197 1,338 (737) - 318 -
_________ _________ _________ _________ _________ _________ _________
Total investment income 40,184 35,197 1,716 2,142 342 458 329
Contributions:
Participants 9,385 6,237 855 1,351 456 486 -
Employer 2,937 1,985 265 413 164 110 -
_________ _________ _________ _________ _________ _________ _________
Total contributions 12,322 8,222 1,120 1,764 620 596 -
_________ _________ _________ _________ _________ _________ _________
Total additions 52,506 43,419 2,836 3,906 962 1,054 329
Deductions:
Benefits paid to participants (6,630) (4,563) (698) (475) (704) (190) -
Loans to participants - (2,059) (202) (211) (173) (52) 2,697
Loan payments - 1,761 182 197 189 39 (2,368)
Interfund transfers - (6,377) 917 780 3,299 1,381 -
_________ _________ _________ _________ _________ _________ _________
Change in net assets 45,876 32,181 3,035 4,197 3,573 2,232 658
Net assets available for
benefits at beginning of year 100,510 76,291 6,731 7,754 4,771 1,019 3,944
_________ _________ _________ _________ _________ _________ _________
Net assets available for benefits $ 146,386 $ 108,472 $ 9,766 $ 11,951 $ 8,344 $ 3,251 $ 4,602
_________ _________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________ _________
See accompanying notes to financial statements.
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A. DESCRIPTION OF THE PLAN
The following description of the Paychex, Inc. (the "Company") 401(k)
Incentive Retirement Plan (the "Plan") is provided for general information
purposes only. More complete information regarding the Plan's provisions may
be found in the plan document.
General - Established July 1, 1984, the Plan is a defined contribution plan,
qualified under Section 401(a) of the Internal Revenue Code (the "Code"),
which includes provisions under Section 401(k) allowing an eligible
participant to direct the employer to contribute a portion of the
participant's compensation to the Plan on a pre-tax basis through payroll
deductions. The Plan is subject to the provisions of the Employer Retirement
Income Security Act of 1974 (ERISA).
Plan Administration - The Plan is administered by the Paychex, Inc. 401(k)
Incentive Retirement Plan Committee (the "Plan Committee") which is appointed
by the Board of Directors of the Company. The Plan's trustee, INVESCO Trust
Company (INVESCO), is responsible for the custody and management of the Plan's
assets.
Eligible Employees - Employees of the Company and its subsidiaries must be
employed for one year in which a minimum of 1,000 hours have been worked to be
eligible for participation in the Plan. The employee becomes eligible to
participate in the Plan on the first day of the month immediately following
the completion of the service requirement.
Contributions - Employees may contribute up to 15% of their compensation
through payroll deductions in increments of 1%, subject to the limit
established by the Code. Discretionary employer contributions are equal to
50% of the participant's elective contribution, but not to exceed 3% of the
participant's compensation. The Company may elect to make an additional
discretionary contribution to the Plan, but has not done so for the years
ended December 31, 1998 and 1997.
Vesting - Each participant is fully vested as to their elective contributions
and rollover contributions as well as any earnings or losses on them.
Employees are fully vested with respect to Company matching contributions upon
completion of three consecutive years of service, disability, death, or
attainment of retirement age, 65.
Participant Accounts - The Trustee maintains an account for each participant,
including participant directed allocations to each investment fund. Each
participant's account is credited with the participant's contribution and
allocations of any employer contribution and Plan earnings, less loans and
withdrawals, based on the direction of the participant.
Investment Options - Upon enrollment in the Plan, a participant may direct
contributions in the following investment options:
Paychex Stock Fund - The Fund consists primarily of Paychex, Inc. common
stock; however, the fund will also contain a small cash component.
Growth Fund - The INVESCO Growth Fund is a mutual fund that primarily invests
in companies that have better-than-average earnings growth potential.
Total Return Fund - The INVESCO Total Return Fund is a mutual fund that
primarily invests in a mix of common stock, fixed and variable rate U.S.
government bonds, and corporate bonds.
IRT Stable Value Fund - The INVESCO Retirement Trust Stable Value Fund is a
mutual fund that consists of a diversified portfolio of high-quality
investment contracts.
IRT 500 Index Fund - The INVESCO Retirement Trust 500 Index Fund is a mutual
fund that invests with the objective of mirroring the total return of the S&P
500 Composite Index. This fund was added as an investment option as of
January 1, 1998.
International Fund - The Global Asset Management International Fund is a
mutual fund that primarily invests in equity securities worldwide, excluding
that of the USA, though it may invest a substantial portion of assets in debt
securities.
Number of Participants - The total number of participants at December 31, 1998
and 1997, was 5,071 and 3,279, respectively. The number of participants is
as follows for each investment option:
December 31,
1998 1997
_____ _____
Paychex Stock Fund 3,535 3,026
Total Return Fund 2,123 1,947
Growth Fund 1,552 1,477
IRT Stable Value Fund 1,212 1,116
IRT 500 Index Fund 574 -
International Fund 901 766
The total number of participants is less than the sum of the number of
participants shown above because many were participating in more than one of
the funds.
Payment of Benefits - Upon termination of service, a participant may elect to
receive either a lump-sum amount equal to the value of the participant's
vested interest in his or her account, or annual installments over a fixed
reasonable period of time.
Forfeited Accounts - Forfeited nonvested accounts are used to reduce future
employer contributions.
Participant Loans Receivable - The Plan allows participants to borrow up to
50% of the vested balance from their account. Payroll deductions are required
to repay the loan within five years, except for loans used for the purchase of
a principal residence, which are required to be repaid within ten years. The
rate of interest is the prime lending rate plus 1% at the time the loan is
disbursed.
Plan Termination - Although it has not expressed any intent to do so, the
Company has the right under the Plan to discontinue its contributions at any
time and to terminate the Plan subject to the provisions of ERISA. In the
event of plan termination, participants will become fully vested in their
account balances.
NOTE B. SUMMARY ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared under
the accrual method of accounting in accordance with generally accepted
accounting principles.
Administrative Expenses - Administrative expenses of the Plan are paid by the
Company.
Investment Valuation and Income Recognition - Investments are stated at their
approximate fair value determined on the basis of a quoted market price, with
the exception of the Stable Value Fund. The value of the Stable Value Fund is
determined in the manner set forth above except that guaranteed income
contracts, annuities, and other assets that provide for benefit payments or
withdrawals on a contractual basis are at book value (cost plus accrued
income). Participant loans receivable are valued at the principal amount
which approximates fair value.
Purchases and sales of securities are recorded on a trade date basis. Net
realized gains or losses upon the sale of investments are based on their
average cost.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date.
Payment of Benefits - Benefits are recorded when paid.
Contributions - Contributions from the Company are accrued for in accordance
with the terms of the Plan. Participant contributions are recorded in the
period the Company makes corresponding payroll deductions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassification - Certain prior year amounts have been reclassified to
conform to current year presentation.
NOTE C. TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 28, 1995, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code of 1986 (the "Code") and that the trust,
therefore, is exempt from taxation under section 501(a) of the Code. Once
qualified, the Plan is required to operate in conformity with the Code and
ERISA to maintain its tax-exempt status. The Plan was amended subsequent to
the IRS determination letter. Therefore, the amendments are not covered by
the determination letter. The Committee is not aware of any course of action
or series of events that have occurred that might adversely affect the Plan's
qualified status.
NOTE D. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
1997 financial statements to the 1997 Form 5500:
December 31, 1997
(In Thousands)
Net assets available for benefits per the Statement
of Net Assets Available for Benefits with Fund
Information $ 146,386
Amounts allocated to withdrawing participants ( 1,036)
____________
Net assets available for benefits per the Form 5500 $ 145,350
____________
____________
The following is a reconciliation of benefits paid to participants per the
1998 financial statements to the 1998 Form 5500:
For the Year Ended
December 31, 1998
(In Thousands)
Benefits paid to Participants per the Statement of
Changes in Net Assets Available for Benefits with
Fund Information $ 7,591
Amounts allocated to withdrawn participants at
December 31, 1997 (1,036)
____________
Benefits paid to participants per the Form 5500 $ 6,553
____________
____________
Amounts allocated to withdrawn participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior to
December 31, but not yet paid as of that date. At December 31, 1998, there
were no unpaid claims outstanding.
SCHEDULE I - LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN
EIN-16-1124166
PLAN-0-40436
DECEMBER 31, 1998
(In Thousands)
Description of Investment
Identity of including Maturity Date,
Party Rate of Interest, Collateral, Current
Involved Par or Maturity Value Cost Value
____________ _____________________________ ___________ ___________
INVESCO* 13,418 shares of Paychex, Inc. $ 70,150 $ 165,260
Stock Fund
INVESCO* 352 shares of the INVESCO
Total Return Fund 9,518 11,030
INVESCO* 2,792 shares of the INVESCO
Growth Fund 15,663 18,035
INVESCO* 14,269 shares of the IRT
Stable Value Fund 14,269 14,269
INVESCO* 125 shares of the IRT 500
Index Fund 3,121 3,593
Global Asset 98 shares of the Global
Management Asset Management Fund 2,922 2,953
Fund, Inc.
Loan Fund Participant Loans Receivable** 0 5,061
__________ ___________
$ 115,643 $ 220,201
__________ ___________
__________ ___________
* Represents party-in-interest
** Loans to participants have various maturity dates
and bear interest at rates ranging from 7% to 11 1/2%.
SCHEDULE II - LINE 27d -SCHEDULE OF REPORTABLE TRANSACTIONS
PAYCHEX, INC. 401(k) INCENTIVE RETIREMENT PLAN (a)
EIN-16-1124166
PLAN-0-40436
YEAR ENDED DECEMBER 31, 1998
(In Thousands)
Identity of Description Current Value Net
Party of Purchase Selling of Asset on Gain or
Involved Asset Price Price Transaction Date (Loss)
____________ _______________________ __________ __________ ________________ __________
INVESCO Paychex, Inc. Stock $ 76,709 $ 76,709
Fund $ 76,706 $ 24,387 $ 52,319
INVESCO INVESCO Total Return Fund $ 8,458 $ 8,458
$ 7,959 $ 6,633 $ 1,326
INVESCO INVESCO Growth Fund $ 11,495 $ 11,495
$ 9,148 $ 8,657 $ 491
INVESCO IRT Stable Value Fund $ 59,373 $ 59,373
$ 53,448 $ 53,448
INVESCO IRT 500 Index Fund $ 7,459 $ 7,459
(a) Represents a series of securities transactions in excess of 5% of plan
assets at the beginning of the year ended December 31, 1998.
EXHIBIT 23 - Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
below, of our report dated May 20, 1999, with respect to the financial
statements and schedules of Paychex, Inc. 401(k) Incentive Retirement Plan
included in this Annual Report (Form 11-K) for the year ended December 31,
1998
a. Form S-8 - Paychex, Inc. 401(k) Incentive Retirement Plan - as
filed with the Securities and Exchange Commission on October 2,
1992 (No.33-52838).
June 24, 1999 /s/ Ernst & Young LLP
Syracuse, New York