Securities registered pursuant to Section 12(b) of the
Act:
|
None |
|
Securities registered pursuant to Section 12(g) of the
Act:
|
Common Stock, $.01 Par Value |
|
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
| general market and economic conditions, including, among others, changes in United States employment and wage levels, changes in new hiring trends, changes in short- and long-term interest rates, and changes in the market value and the credit rating of securities held by us; | |
| changes in demand for our products and services, ability to develop and market new products and services effectively, pricing changes and the impact of competition, and the availability of skilled workers; | |
| changes in the laws regulating collection and payment of payroll taxes, professional employer organizations, and employee benefits, including retirement plans, workers compensation, state unemployment, and section 125 plans; | |
| changes in our Professional Employer Organization direct costs, including, but not limited to, workers compensation rates and underlying claims trends; | |
| the possibility of failure to keep pace with technological changes and provide timely enhancements to products and services; | |
| the possibility of failure of our operating facilities, computer systems, and communication systems during a catastrophic event; | |
| the possibility of third-party service providers failing to perform their functions; | |
| the possibility of penalties and losses resulting from errors and omissions in performing services; | |
| the possible inability of our clients to meet their payroll obligations; | |
| the possible failure of internal controls or our inability to implement business processing improvements; and | |
| potentially unfavorable outcomes related to pending legal matters. |
Item 1. | Business |
1
| Providing high-quality, timely, accurate, and affordable comprehensive payroll and integrated human resource services. | |
| Delivering these services utilizing a well-trained and responsive work force through a network of local and corporate offices servicing more than 100 of the largest markets in the U.S. and in Germany. | |
| Growing our client base, primarily through the efforts of our direct sales force. | |
| Continually improving client service and maximizing client retention. | |
| Capitalizing on the growth opportunities within our current client base and from new clients, by increasing utilization of our payroll-related and human-resource-related ancillary products and services. | |
| Capitalizing on and leveraging our highly developed technological and operating infrastructure. | |
| Supplementing our growth through strategic acquisition or expansion of service offerings when opportunities arise. |
2
Business size | Estimated market distribution | Paychex, Inc. percentage | ||||||||
(Number of employees) | (7.6 million businesses in areas served) | of client base | ||||||||
1-4 | 73 | % | 39 | % | ||||||
5-19 | 20 | % | 42 | % | ||||||
20-49 | 5 | % | 13 | % | ||||||
50-99 | 1 | % | 4 | % | ||||||
100+ | 1 | % | 2 | % |
| payroll processing; | |
| payroll tax administration services; | |
| employee payment services; | |
| regulatory compliance services (new-hire reporting and garnishment processing); | |
| comprehensive human resource administrative services; | |
| retirement services administration; | |
| workers compensation insurance administration; | |
| employee benefits administration; | |
| time and attendance solutions; and | |
| other human resource products and services. |
3
4
5
6
7
Item 1A. | Risk Factors |
8
9
Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Square feet | |||||
Owned facilities:
|
|||||
Rochester, New York*
|
668,000 | ||||
Other U.S. locations
|
105,000 | ||||
Total owned facilities
|
773,000 | ||||
Leased facilities:
|
|||||
Rochester, New York
|
79,000 | ||||
Other U.S. locations
|
2,040,000 | ||||
Germany
|
1,000 | ||||
Total leased facilities
|
2,120,000 | ||||
* | Includes the 140,000-square -foot building complex of our corporate headquarters located at 911 Panorama Trail South, Rochester, New York 14625. |
Item 3. | Legal Proceedings |
10
Item 4. | Submission of Matters to a Vote of Security Holders |
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
11
Fiscal 2006 | Fiscal 2005 | |||||||||||||||||||||||
Cash | Cash | |||||||||||||||||||||||
Sales prices | dividends | Sales prices | dividends | |||||||||||||||||||||
declared per | declared per | |||||||||||||||||||||||
High | Low | share | High | Low | share | |||||||||||||||||||
First quarter
|
$ | 35.37 | $ | 28.60 | $ | 0.13 | $ | 38.88 | $ | 28.83 | $ | 0.12 | ||||||||||||
Second quarter
|
$ | 43.37 | $ | 32.37 | $ | 0.16 | $ | 34.45 | $ | 29.25 | $ | 0.13 | ||||||||||||
Third quarter
|
$ | 43.20 | $ | 35.52 | $ | 0.16 | $ | 34.57 | $ | 29.69 | $ | 0.13 | ||||||||||||
Fourth quarter
|
$ | 42.37 | $ | 36.11 | $ | 0.16 | $ | 34.69 | $ | 28.88 | $ | 0.13 |
Item 6. | Selected Financial Data |
In thousands, except per share amounts | |||||||||||||||||||||
Year ended May 31, | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Service revenue
|
$ | 1,573,797 | $ | 1,384,674 | $ | 1,240,093 | $ | 1,046,029 | $ | 892,189 | |||||||||||
Interest on funds held for clients
|
100,799 | 60,469 | 54,254 | 53,050 | 62,721 | ||||||||||||||||
Total revenue
|
$ | 1,674,596 | $ | 1,445,143 | $ | 1,294,347 | $ | 1,099,079 | $ | 954,910 | |||||||||||
Operating income
|
$ | 649,571 | $ | 533,775 | $ | 433,315 | $ | 401,041 | $ | 363,694 | |||||||||||
As a % of total revenue
|
39 | % | 37 | % | 33 | % | 36 | % | 38 | % | |||||||||||
Net income
|
$ | 464,914 | $ | 368,849 | $ | 302,950 | $ | 293,452 | $ | 274,531 | |||||||||||
As a % of total revenue
|
28 | % | 26 | % | 23 | % | 27 | % | 29 | % | |||||||||||
Diluted earnings per share
|
$ | 1.22 | $ | 0.97 | $ | 0.80 | $ | 0.78 | $ | 0.73 | |||||||||||
Cash dividends per common share
|
$ | 0.61 | $ | 0.51 | $ | 0.47 | $ | 0.44 | $ | 0.42 | |||||||||||
Purchases of property and equipment
|
$ | 81,143 | $ | 70,686 | $ | 50,562 | $ | 60,212 | $ | 54,378 | |||||||||||
Total assets
|
$ | 5,549,302 | $ | 4,617,418 | $ | 3,950,203 | $ | 3,690,783 | $ | 2,953,075 | |||||||||||
Total debt
|
$ | | $ | | $ | | $ | | $ | | |||||||||||
Stockholders equity
|
$ | 1,654,843 | $ | 1,385,676 | $ | 1,199,973 | $ | 1,077,371 | $ | 923,981 | |||||||||||
Return on stockholders equity
|
30 | % | 28 | % | 28 | % | 29 | % | 32 | % |
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
12
| payroll processing; | |
| payroll tax administration services; | |
| employee payment services; and | |
| other payroll-related services including regulatory compliance (new-hire reporting and garnishment processing). |
| comprehensive human resource administrative services, which include Paychex Premier sm Human Resources (Paychex Premier) and our Professional Employer Organization (PEO); | |
| retirement services administration; | |
| workers compensation insurance administration; | |
| employee benefits administration; | |
| time and attendance solutions; and | |
| other human resource products and services. |
| Net income increased 26% to $464.9 million. | |
| We achieved $1.22 diluted earnings per share in fiscal 2006, an increase of 26%. | |
| Total revenue increased 16% to $1,674.6 million. | |
| Payroll service revenue increased 10% to $1,248.9 million. | |
| Human Resource Services revenue increased 29% to $324.9 million. | |
| Operating income increased 22% to $649.6 million. Operating income excluding interest on funds held for clients increased 16% to $548.8 million. | |
| Cash flow from operations increased 22% to $569.2 million. | |
| Dividends of $231.5 million were paid to stockholders, representing 50% of net income. |
13
Expected | |||||||||||||||||||||||||||||
For fiscal year ended May 31, | 2007 | Change | 2006 | Change | 2005 | Change | 2004 | ||||||||||||||||||||||
Core Payroll (including international)
|
1,190 | 7 | % | 1,115 | 6 | % | 1,050 | 7 | % | 985 | |||||||||||||||||||
MMS payroll
|
225 | 15 | % | 195 | 15 | % | 170 | 13 | % | 150 | |||||||||||||||||||
Human Resources/ Retirement Services
|
285 | 19 | % | 240 | 9 | % | 220 | 10 | % | 200 | |||||||||||||||||||
Paychex Premier and PEO
|
190 | 19 | % | 160 | 14 | % | 140 | 33 | % | 105 | |||||||||||||||||||
Licensed agents for workers compensation and health and
benefits
|
110 | 57 | % | 70 | 40 | % | 50 | 25 | % | 40 | |||||||||||||||||||
Time and attendance solutions
|
35 | 40 | % | 25 | 25 | % | 20 | 100 | % | | |||||||||||||||||||
Total sales representatives
|
2,035 | 13 | % | 1,805 | 9 | % | 1,650 | 12 | % | 1,480 | |||||||||||||||||||
As of May 31, | 2006 | 2005 | 2004 | |||||||||
Retirement Services clients
|
38,000 | 33,000 | 29,000 | |||||||||
Workers compensation insurance clients
|
52,000 | 44,000 | 37,000 | |||||||||
Paychex Premier worksite employees
|
236,000 | 171,000 | 106,000 | |||||||||
PEO worksite employees
|
59,000 | 54,000 | 51,000 |
| Enhanced our 401(k) recordkeeping service, allowing our clients use of our recordkeeping with significantly expanded investment choices. |
14
| Developed an online time and labor management tool to be added to our suite of time and attendance solutions to better serve our MMS clients. | |
| Continued our expansion within Germany. | |
| Expanded our health benefits nationwide, simplifying the process for our clients in obtaining coverage through our network of national and regional insurers. | |
| Released our Health Savings Account product, which serves as a tax savings tool for employers and employees, allowing individuals to save money tax-free to pay for qualified medical expenses now and in the future. This provides a means to manage rising insurance premiums. |
| Payroll service revenue growth is projected to be in the range of 9% to 11%. | |
| Human Resource Services revenue growth is expected to be in the range of 20% to 23%. | |
| Total service revenue growth is projected to be in the range of 11% to 13%. | |
| Interest on funds held for clients is expected to increase approximately 28% to 30%. | |
| Total revenue growth is estimated to be in the range of 12% to 14%. | |
| Corporate investment income is anticipated to increase approximately 45% to 50%. | |
| Stock-based compensation costs will be primarily included in selling, general and administrative expenses and are expected to impact pre-tax and net income in the range of 4% to 5%. |
15
| The effective income tax rate is expected to be approximately 31.0%. | |
| Net income growth is expected to be in the range of 12% to 14%. |
In millions, except per share amounts | 2006 | Change | 2005 | Change | 2004 | ||||||||||||||||
Revenue:
|
|||||||||||||||||||||
Payroll service revenue
|
$ | 1,248.9 | 10 | % | $ | 1,133.5 | 9 | % | $ | 1,040.0 | |||||||||||
Human Resource Services revenue
|
324.9 | 29 | % | 251.2 | 26 | % | 200.1 | ||||||||||||||
Total service revenue
|
1,573.8 | 14 | % | 1,384.7 | 12 | % | 1,240.1 | ||||||||||||||
Interest on funds held for clients
|
100.8 | 67 | % | 60.4 | 11 | % | 54.2 | ||||||||||||||
Total revenue
|
1,674.6 | 16 | % | 1,445.1 | 12 | % | 1,294.3 | ||||||||||||||
Combined operating and SG&A expenses
|
1,025.0 | 12 | % | 911.3 | 6 | % | 861.0 | ||||||||||||||
Operating income
|
649.6 | 22 | % | 533.8 | 23 | % | 433.3 | ||||||||||||||
As a % of total revenue
|
39 | % | 37 | % | 33 | % | |||||||||||||||
Investment income, net
|
25.2 | 103 | % | 12.4 | -25 | % | 16.5 | ||||||||||||||
Income before income taxes
|
674.8 | 24 | % | 546.2 | 21 | % | 449.8 | ||||||||||||||
As a % of total revenue
|
40 | % | 38 | % | 35 | % | |||||||||||||||
Income taxes
|
209.9 | 18 | % | 177.4 | 21 | % | 146.8 | ||||||||||||||
Net income
|
$ | 464.9 | 26 | % | $ | 368.8 | 22 | % | $ | 303.0 | |||||||||||
As a % of total revenue
|
28 | % | 26 | % | 23 | % | |||||||||||||||
Diluted earnings per share
|
$ | 1.22 | 26 | % | $ | 0.97 | 21 | % | $ | 0.80 | |||||||||||
16
Year ended May 31, | |||||||||||||
$ in millions | 2006 | 2005 | 2004 | ||||||||||
Average investment balances:
|
|||||||||||||
Funds held for clients
|
$ | 3,080.3 | $ | 2,759.7 | $ | 2,515.3 | |||||||
Corporate investments
|
840.3 | 599.5 | 446.9 | ||||||||||
Total
|
$ | 3,920.6 | $ | 3,359.2 | $ | 2,962.2 | |||||||
Average interest rates earned (exclusive of realized
gains/losses):
|
|||||||||||||
Funds held for clients
|
3.2 | % | 2.2 | % | 1.7 | % | |||||||
Corporate investments
|
2.9 | % | 2.1 | % | 2.3 | % | |||||||
Combined funds held for clients and corporate investments
|
3.2 | % | 2.2 | % | 1.8 | % | |||||||
Net realized gains/(losses):
|
|||||||||||||
Funds held for clients
|
$ | 0.9 | $ | 0.3 | $ | 11.7 | |||||||
Corporate investments
|
0.1 | (0.1 | ) | 7.4 | |||||||||
Total
|
$ | 1.0 | $ | 0.2 | $ | 19.1 | |||||||
As of May 31, | ||||||||||||
$ in millions | 2006 | 2005 | 2004 | |||||||||
Unrealized losses on available-for-sale securities
|
$ | (22.0 | ) | $ | (9.9 | ) | $ | (4.2 | ) | |||
Federal Funds rate
|
5.00 | % | 3.00 | % | 1.00 | % | ||||||
Three-year AAA municipal securities yield
|
3.65 | % | 2.85 | % | 2.50 | % | ||||||
Total market value of available-for-sale securities
|
$ | 3,852.4 | $ | 3,567.2 | $ | 3,269.9 | ||||||
Average duration of available-for-sale securities (in years)(A)
|
2.0 | 2.1 | 2.1 | |||||||||
Weighted-average yield-to-maturity of available-for-sale
securities(A)
|
3.0 | % | 2.6 | % | 2.3 | % |
(A) | These items exclude the impact of auction rate securities and variable rate demand notes (VRDNs) as they are tied to short-term interest rates. |
| We have continued to see growth in the number of clients utilizing our Retirement Services product. Retirement Services revenue increased 16% for fiscal 2006 and 17% for fiscal 2005 to $106.1 million and $91.4 million, respectively. We serviced over 38,000 and over 33,000 Retirement Services clients at May 31, 2006 and 2005, respectively. |
17
| Sales of our Paychex Premier product, a comprehensive payroll and integrated human resource and employee benefits outsourcing solution for small- to medium-sized businesses, have been strong, as administrative fee revenue from this product increased 57% for fiscal 2006 and 66% for fiscal 2005 to $52.6 million and $33.6 million, respectively. The increases in administrative fee revenue were driven primarily by client growth. Administrative fee revenue in fiscal 2006 also benefited from the implementation of initial enrollment fees, effective May 1, 2005. As of May 31, 2006, our Paychex Premier product serviced over 236,000 client employees, as compared with over 171,000 client employees at May 31, 2005. | |
| Revenue from the PEO product increased 25% for fiscal 2006 and 14% for fiscal 2005 to $67.1 million and $53.7 million, respectively. This was the result of growth in clients and client employees served, price increases, and favorable fluctuations in workers compensation claims experience. As of May 31, 2006, our PEO product serviced approximately 59,000 client employees, as compared with over 54,000 client employees at May 31, 2005. | |
Our PEO product provides essentially the same services as Paychex Premier, except we serve as a co-employer of the clients employees, assume the risks and rewards of workers compensation insurance, and provide more sophisticated health care offerings to PEO clients. The PEO product is available primarily for clients domiciled in Florida and Georgia, where the utilization of PEOs is more prevalent than other areas of the United States (U.S.). Due to the characteristics of the PEO product, the revenue and profits from this product can fluctuate significantly between quarters. These fluctuations primarily relate to the assumption of the risks and rewards of workers compensation insurance and, to a lesser extent, the other offerings unique to the PEO product. The risks and rewards of workers compensation insurance are derived from actuarial changes in estimated losses under workers compensation policies as the result of actual claims experience under our workers compensation policies and changes in workers compensation legislation by the state of Florida. | ||
| Revenue from other Human Resource Services increased 36% for fiscal 2006 and 33% for fiscal 2005 to $99.0 million and $72.5 million, respectively. This was the result of increases in revenue from time and attendance solutions, state unemployment services, and employee handbooks. Other Human Resource Services revenue growth in fiscal 2005 compared to fiscal 2004 also reflected the benefit of revenue from the April 2004 acquisition of Stromberg time and attendance solutions. |
18
In millions | 2006 | Change | 2005 | Change | 2004 | ||||||||||||||||
Compensation-related expenses
|
$ | 656.8 | 15 | % | $ | 571.4 | 12 | % | $ | 510.2 | |||||||||||
Facilities (excluding depreciation) expenses
|
48.3 | 10 | % | 44.1 | -3 | % | 45.3 | ||||||||||||||
Depreciation of property and equipment
|
51.6 | 12 | % | 46.2 | 18 | % | 39.2 | ||||||||||||||
Amortization of intangible assets
|
14.9 | -6 | % | 15.8 | -5 | % | 16.6 | ||||||||||||||
Other expenses
|
253.4 | 8 | % | 233.8 | 9 | % | 213.9 | ||||||||||||||
1,025.0 | 12 | % | 911.3 | 10 | % | 825.2 | |||||||||||||||
Expense charge to increase legal reserve
|
| 0 | % | | -100 | % | 35.8 | ||||||||||||||
Total operating and SG&A expenses
|
$ | 1,025.0 | 12 | % | $ | 911.3 | 6 | % | $ | 861.0 | |||||||||||
As a % of total service revenue
|
65.1 | % | 65.8 | % | 69.4 | % | |||||||||||||||
19
Financial institution | Amount available | Expiration date | ||||||
JP Morgan Chase Bank, N.A.
|
$ | 350 million | February 2007 | |||||
Fleet National Bank, a Bank of America company
|
$ | 250 million | February 2007 | |||||
PNC Bank, National Association
|
$ | 150 million | February 2007 | |||||
Wells Fargo Bank, National Association
|
$ | 150 million | February 2007 |
Payments due by period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
In millions | Total | 1 year | 1-3 years | 4-5 years | 5 years | |||||||||||||||
Operating
leases
(1)
|
$ | 134.2 | $ | 37.6 | $ | 60.1 | $ | 31.6 | $ | 4.9 | ||||||||||
Other purchase
obligations
(2)
|
77.0 | 40.4 | 18.0 | 14.5 | 4.1 | |||||||||||||||
Other
liabilities
(3)
|
1.5 | 0.3 | 0.6 | 0.4 | 0.2 | |||||||||||||||
Total
|
$ | 212.7 | $ | 78.3 | $ | 78.7 | $ | 46.5 | $ | 9.2 | ||||||||||
20
(1) | Operating leases are primarily for office space and equipment used in our branch operations. These amounts do not include future payments under redundant leases related to the acquisitions of Advantage and InterPay, which are included in the table above with other liabilities. |
(2) | Purchase obligations include our estimate of the minimum outstanding commitments under purchase orders to buy goods and services and legally binding contractual arrangements with future payment obligations. Included in the total purchase obligations is $8.2 million of commitments to purchase capital assets. Amounts actually paid under certain of these arrangements may be higher due to variable components of these agreements. |
(3) | The obligations shown as other liabilities represent business acquisition reserves and are reflected in the Consolidated Balance Sheets at May 31, 2006, with $0.3 million in other current liabilities and $1.2 million in other long-term liabilities. Certain deferred compensation plan obligations and other long-term liabilities amounting to $39.4 million are excluded because the timing of actual payments cannot be specifically or reasonably determined due to the variability in assumptions required to project the timing of future payments. |
21
Year ended May 31,
In millions
2006
2005
2004
$
464.9
$
368.8
$
303.0
99.5
106.7
105.6
4.8
(8.9
)
(19.6
)
$
569.2
$
466.6
$
389.0
Year ended May 31, | ||||||||||||
In millions | 2006 | 2005 | 2004 | |||||||||
Net change in funds held for clients and corporate investment
activities
|
$ | (224.0 | ) | $ | (177.3 | ) | $ | (151.8 | ) | |||
Purchases of property and equipment, net of proceeds from the
sale of property and equipment
|
(81.1 | ) | (67.2 | ) | (50.6 | ) | ||||||
Acquisitions of businesses, net of cash acquired
|
(0.7 | ) | (0.4 | ) | (13.2 | ) | ||||||
Purchases of other assets
|
(4.2 | ) | (2.7 | ) | (2.4 | ) | ||||||
Net cash used in investing activities
|
$ | (310.0 | ) | $ | (247.6 | ) | $ | (218.0 | ) | |||
22
Year ended May 31, | ||||||||||||
In millions, except per share amounts | 2006 | 2005 | 2004 | |||||||||
Dividends paid
|
$ | (231.5 | ) | $ | (193.0 | ) | $ | (177.4 | ) | |||
Proceeds from exercise of stock options
|
32.1 | 9.0 | 18.3 | |||||||||
Net cash used in financing activities
|
$ | (199.4 | ) | $ | (184.0 | ) | $ | (159.1 | ) | |||
Cash dividends per common share
|
$ | 0.61 | $ | 0.51 | $ | 0.47 | ||||||
23
| Modified prospective method , in which compensation costs will be recognized in our Consolidated Financial Statements for all awards granted after the date of adoption as well as for the unvested portion of existing awards as of the date of adoption (the Existing Awards), and requires that prior periods not be restated. | |
| Modified retrospective method , which includes the requirements of the modified prospective method described above for new awards and Existing Awards, but also permits entities to restate prior periods based on amounts previously determined under SFAS No. 123 for pro forma disclosures. |
24
| FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R); | |
| FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement 123(R); | |
| FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards; and | |
| FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. |
| SFAS No. 155, Accounting for Certain Hybrid Financial Instruments an Amendment of FASB Statements No. 133 and 140; and | |
| SFAS No. 156, Accounting for Servicing of Financial Assets an Amendment of FASB Statement No. 140. |
25
26
Prepaid | Current | Long-term | ||||||||||
In thousands | expense | liability | liability | |||||||||
2006
|
$ | 3,150 | $ | 7,061 | $ | 18,374 | ||||||
2005
|
$ | 3,702 | $ | 7,164 | $ | 13,963 |
27
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
28
May 31, 2006 | |||||||||
In thousands | Cost | Market value | |||||||
Maturity date:
|
|||||||||
Due in one year or less
|
$ | 545,046 | $ | 542,178 | |||||
Due after one year through three years
|
688,411 | 678,728 | |||||||
Due after three years through five years
|
282,107 | 276,241 | |||||||
Due after five years
|
2,356,196 | 2,352,513 | |||||||
Total available-for-sale securities
|
$ | 3,871,760 | $ | 3,849,660 | |||||
2006 | 2005 | 2004 | |||||||||||
Federal Funds rate beginning of fiscal year
|
3.00 | % | 1.00 | % | 1.25 | % | |||||||
Rate increase/(decrease):
|
|||||||||||||
First quarter
|
0.50 | 0.50 | (0.25 | ) | |||||||||
Second quarter
|
0.50 | 0.50 | | ||||||||||
Third quarter
|
0.50 | 0.50 | | ||||||||||
Fourth quarter
|
0.50 | 0.50 | | ||||||||||
Federal Funds rate end of fiscal year
|
5.00 | % | 3.00 | % | 1.00 | % | |||||||
Three-year AAA municipal securities
yields end of fiscal year
|
3.65 | % | 2.85 | % | 2.50 | % | |||||||
29
30
Item 8. | Financial Statements and Supplementary Data |
Report on Managements Assessment of Internal Control Over
Financial Reporting
|
32 | |||
Report of Independent Registered Public Accounting Firm
|
33 | |||
Report of Independent Registered Public Accounting Firm on
Effectiveness of Internal Control Over Financial Reporting
|
34 | |||
Consolidated Statements of Income for the Years Ended
May 31, 2006, 2005, and 2004
|
35 | |||
Consolidated Balance Sheets as of May 31, 2006 and 2005
|
36 | |||
Consolidated Statements of Stockholders Equity for the
Years Ended May 31, 2006, 2005, and 2004
|
37 | |||
Consolidated Statements of Cash Flows for the Years Ended
May 31, 2006, 2005, and 2004
|
38 | |||
Notes to Consolidated Financial Statements
|
39 | |||
Schedule II Valuation and Qualifying Accounts
for the Years Ended May 31, 2006, 2005, and 2004
|
61 |
31
/s/ Jonathan J. Judge
President and Chief Executive Officer |
/s/ John M. Morphy
Senior Vice President, Chief Financial Officer, and Secretary |
32
33
/s/ Ernst & Young LLP
Table of Contents
34
/s/ Ernst & Young LLP
Table of Contents
Year ended May 31,
2006
2005
2004
$
1,573,797
$
1,384,674
$
1,240,093
100,799
60,469
54,254
1,674,596
1,445,143
1,294,347
560,255
499,025
463,465
464,770
412,343
397,567
1,025,025
911,368
861,032
649,571
533,775
433,315
25,195
12,391
16,469
674,766
546,166
449,784
209,852
177,317
146,834
$
464,914
$
368,849
$
302,950
$
1.23
$
0.97
$
0.80
$
1.22
$
0.97
$
0.80
379,465
378,337
377,371
381,351
379,763
379,524
$
0.61
$
0.51
$
0.47
35
At May 31,
2006
2005
Assets
$
137,423
$
77,669
440,007
225,719
38,139
31,108
189,835
161,849
18,314
19,946
7,574
5,781
21,398
20,587
852,690
542,659
3,591,611
2,979,348
4,444,301
3,522,007
384,481
404,152
234,664
205,319
60,704
71,458
405,842
405,992
12,783
1,213
6,527
7,277
$
5,549,302
$
4,617,418
Liabilities
$
46,668
$
30,385
130,069
106,635
5,809
4,271
15,625
25,271
34,008
28,391
232,179
194,953
3,606,193
2,985,386
3,838,372
3,180,339
15,481
17,545
40,606
33,858
3,894,459
3,231,742
Issued and outstanding: 380,303 shares at May 31,
2006,
and 378,629 shares at May 31, 2005, respectively
3,803
3,786
284,395
240,700
1,380,971
1,147,611
(14,326
)
(6,421
)
1,654,843
1,385,676
$
5,549,302
$
4,617,418
36
Accumulated
Common stock
Additional
other
paid-in
Retained
comprehensive
Shares
Amount
capital
earnings
income/(loss)
Total
376,698
$
3,767
$
198,713
$
846,196
$
28,695
$
1,077,371
302,950
302,950
(31,404
)
(31,404
)
271,546
(177,408
)
(177,408
)
1,270
13
18,257
18,270
10,194
10,194
377,968
3,780
227,164
971,738
(2,709
)
1,199,973
368,849
368,849
(3,712
)
(3,712
)
365,137
(192,976
)
(192,976
)
661
6
9,020
9,026
4,516
4,516
378,629
3,786
240,700
1,147,611
(6,421
)
1,385,676
464,914
464,914
(7,905
)
(7,905
)
457,009
(231,554
)
(231,554
)
1,674
17
32,108
32,125
11,587
11,587
380,303
$
3,803
$
284,395
$
1,380,971
$
(14,326
)
$
1,654,843
37
Year ended May 31,
2006
2005
2004
$
464,914
$
368,849
$
302,950
66,517
62,004
55,837
27,897
28,618
26,079
(7,716
)
9,590
(8,004
)
11,587
4,516
10,194
2,173
2,179
2,941
35,800
1,947
(975
)
(223
)
(19,133
)
(7,031
)
(8,544
)
223
(30,057
)
(28,264
)
(19,622
)
(2,604
)
(3,620
)
(5,288
)
37,740
20,371
9,798
6,788
11,148
(4,720
)
569,233
466,624
389,002
(90,551,938
)
(84,226,693
)
(80,325,156
)
90,227,659
83,895,320
79,963,867
(520,504
)
(37,494
)
119,555
620,807
191,647
89,874
(81,143
)
(70,686
)
(50,562
)
42
3,506
7
(726
)
(444
)
(13,213
)
(4,247
)
(2,742
)
(2,395
)
(310,050
)
(247,586
)
(218,023
)
(231,554
)
(192,976
)
(177,408
)
32,125
9,026
18,270
(199,429
)
(183,950
)
(159,138
)
59,754
35,088
11,841
77,669
42,581
30,740
$
137,423
$
77,669
$
42,581
38
39
40
41
Prepaid | Current | Long-term | ||||||||||
In thousands | expense | liability | liability | |||||||||
2006
|
$ | 3,150 | $ | 7,061 | $ | 18,374 | ||||||
2005
|
$ | 3,702 | $ | 7,164 | $ | 13,963 |
42
Year ended May 31, | ||||||||||||
In thousands, except per share amounts | 2006 | 2005 | 2004 | |||||||||
Net income, as reported
|
$ | 464,914 | $ | 368,849 | $ | 302,950 | ||||||
Deduct: Total stock-based employee compensation expense
determined under fair-value-based method for all awards, net of
related tax effects
|
18,821 | 15,525 | 9,703 | |||||||||
Pro forma net income
|
$ | 446,093 | $ | 353,324 | $ | 293,247 | ||||||
Earnings per share:
|
||||||||||||
Basic as reported
|
$ | 1.23 | $ | 0.97 | $ | 0.80 | ||||||
Basic pro forma
|
$ | 1.18 | $ | 0.93 | $ | 0.78 | ||||||
Diluted as reported
|
$ | 1.22 | $ | 0.97 | $ | 0.80 | ||||||
Diluted pro forma
|
$ | 1.17 | $ | 0.93 | $ | 0.77 |
Year ended May 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Risk-free interest rate
|
4.0 | % | 3.6 | % | 2.8 | % | ||||||
Dividend yield
|
1.6 | % | 1.6 | % | 1.4 | % | ||||||
Volatility factor
|
.31 | .31 | .33 | |||||||||
Expected option term life in years
|
6.4 | 5.0 | 4.7 |
43
| Modified prospective method , in which compensation costs will be recognized in the Companys Consolidated Financial Statements for all awards granted after the date of adoption as well as for the unvested portion of existing awards as of the date of adoption (the Existing Awards), and requires that prior periods not be restated. | |
| Modified retrospective method , which includes the requirements of the modified prospective method described above for new awards and Existing Awards, but also permits entities to restate prior periods based on amounts previously determined under SFAS No. 123 for pro forma disclosures. |
44
| FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R); | |
| FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement 123(R); | |
| FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards; and | |
| FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. |
45
| SFAS No. 155, Accounting for Certain Hybrid Financial Instruments an Amendment of FASB Statements No. 133 and 140; and | |
| SFAS No. 156, Accounting for Servicing of Financial Assets an Amendment of FASB Statement No. 140. |
46
Balance at
Other
Balance at
May 31,
Utilization
reserve
May 31,
In thousands
2005
of reserve
adjustments
2006
$
618
$
427
$
$
191
$
2,490
$
996
$
45
$
1,539
In thousands | Stromberg | |||
Current assets and other long-term assets
|
$ | 723 | ||
Property and equipment
|
2,097 | |||
Intangible assets
|
950 | |||
Goodwill
|
11,757 | |||
Accounts payable and accrued expenses
|
(2,053 | ) | ||
Total purchase price
|
$ | 13,474 | ||
47
Year ended May 31,
In thousands, except per share amounts
2006
2005
2004
$
464,914
$
368,849
$
302,950
379,465
378,337
377,371
$
1.23
$
0.97
$
0.80
$
464,914
$
368,849
$
302,950
379,465
378,337
377,371
1,886
1,426
2,153
381,351
379,763
379,524
$
1.22
$
0.97
$
0.80
2,711
4,918
1,907
May 31, 2006 | |||||||||||||||||
Gross | Gross | ||||||||||||||||
unrealized | unrealized | Market | |||||||||||||||
In thousands | Cost | gains | losses | value | |||||||||||||
Type of issue:
|
|||||||||||||||||
Money market securities and other cash equivalents
|
$ | 557,074 | $ | | $ | | $ | 557,074 | |||||||||
Available-for-sale securities:
|
|||||||||||||||||
General obligation municipal bonds
|
796,543 | 229 | (12,201 | ) | 784,571 | ||||||||||||
Pre-refunded municipal bonds
|
215,491 | 153 | (3,015 | ) | 212,629 | ||||||||||||
Revenue municipal bonds
|
423,922 | 12 | (6,099 | ) | 417,835 | ||||||||||||
Auction rate securities and variable rate demand notes
|
2,136,906 | 94 | | 2,137,000 | |||||||||||||
U.S. government securities
|
301,573 | | (1,272 | ) | 300,301 | ||||||||||||
Other equity securities
|
20 | 57 | | 77 | |||||||||||||
Total available-for-sale securities
|
3,874,455 | 545 | (22,587 | ) | 3,852,413 | ||||||||||||
Other
|
6,148 | 515 | (51 | ) | 6,612 | ||||||||||||
Total funds held for clients and corporate investments
|
$ | 4,437,677 | $ | 1,060 | $ | (22,638 | ) | $ | 4,416,099 | ||||||||
48
May 31, 2005
Gross
Gross
unrealized
unrealized
Market
In thousands
Cost
gains
losses
value
$
36,571
$
$
$
36,571
730,571
1,497
(7,042
)
725,026
196,321
612
(1,112
)
195,821
414,358
697
(3,806
)
411,249
2,060,037
2
2,060,039
175,792
14
(762
)
175,044
20
48
68
3,577,099
2,870
(12,722
)
3,567,247
5,169
254
(22
)
5,401
$
3,618,839
$
3,124
$
(12,744
)
$
3,609,219
In thousands | May 31, 2006 | May 31, 2005 | ||||||
Funds held for clients
|
$ | 3,591,611 | $ | 2,979,348 | ||||
Corporate investments
|
440,007 | 225,719 | ||||||
Long-term corporate investments
|
384,481 | 404,152 | ||||||
Total funds held for clients and corporate investments
|
$ | 4,416,099 | $ | 3,609,219 | ||||
Less than 12 Months | More than 12 Months | |||||||||||||||
Gross | Gross | |||||||||||||||
unrealized | Market | unrealized | Market | |||||||||||||
In thousands | loss | value | loss | value | ||||||||||||
2006
|
$ | (7,724 | ) | $ | 735,610 | $ | (14,863 | ) | $ | 890,076 | ||||||
2005
|
$ | (6,474 | ) | $ | 818,782 | $ | (6,248 | ) | $ | 392,748 | ||||||
49
Year ended May 31, | ||||||||||||
In thousands | 2006 | 2005 | 2004 | |||||||||
Gross realized gains
|
$ | 1,036 | $ | 1,114 | $ | 19,808 | ||||||
Gross realized losses
|
(61 | ) | (891 | ) | (675 | ) | ||||||
Net realized gains
|
$ | 975 | $ | 223 | $ | 19,133 | ||||||
May 31, 2006 | |||||||||
In thousands | Cost | Market value | |||||||
Maturity date:
|
|||||||||
Due in one year or less
|
$ | 545,046 | $ | 542,178 | |||||
Due after one year through three years
|
688,411 | 678,728 | |||||||
Due after three years through five years
|
282,107 | 276,241 | |||||||
Due after five years
|
2,356,196 | 2,352,513 | |||||||
Total available-for-sale securities
|
$ | 3,871,760 | $ | 3,849,660 | |||||
50
May 31,
In thousands
2006
2005
$
3,552
$
3,402
79,875
66,019
134,636
116,465
66,945
58,463
112,733
98,312
47,627
35,958
36,350
29,470
481,718
408,089
247,054
202,770
$
234,664
$
205,319
May 31, | |||||||||
In thousands | 2006 | 2005 | |||||||
Client lists and associate offices license agreements
|
$ | 122,909 | $ | 118,749 | |||||
Other intangible assets
|
4,165 | 4,166 | |||||||
Total intangible assets, gross
|
127,074 | 122,915 | |||||||
Less: Accumulated amortization
|
66,370 | 51,457 | |||||||
Intangible assets, net of accumulated amortization
|
$ | 60,704 | $ | 71,458 | |||||
51
Estimated
In thousands
amortization
Fiscal year ended May 31,
expense
$13,475
$11,736
$ 9,995
$ 8,367
$ 6,592
Shares | ||||||||||||||||
Shares | Exercise | outstanding at | ||||||||||||||
Date of broad-based grant | granted | price | May 31, 2006 | Vesting schedule | ||||||||||||
November 1996
|
3,157,000 | $11.53 | 180,000 | 50% on May 3, 1999, 50% on May 1, 2001 | ||||||||||||
July 1999
|
1,381,000 | $21.46 | 328,000 | 25% each July in 2000 through 2003 | ||||||||||||
October 2001
|
1,295,000 | $33.17 | 579,000 | 25% each October in 2002 through 2005 | ||||||||||||
April 2004
|
1,655,000 | $37.72 | 1,173,000 | 25% each April in 2005 through 2008 |
52
Shares subject
Weighted-average
In thousands, except per share amounts
to options
exercise price
8,871
$23.77
3,429
$34.29
(1,270
)
$14.38
(424
)
$32.89
10,606
$27.93
2,729
$31.54
(661
)
$13.65
(745
)
$34.19
11,929
$29.15
3,860
$34.32
(1,674
)
$19.19
(605
)
$34.72
13,510
$31.61
5,000
$21.31
5,622
$25.50
5,482
$29.49
Options outstanding | Options exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Weighted- | average | Weighted- | ||||||||||||||||||
Shares subject | average | remaining | Shares subject | average | ||||||||||||||||
Range of exercise | to options (in | exercise price | contractual | to options (in | exercise price | |||||||||||||||
prices per share | thousands) | per share | life in years | thousands) | per share | |||||||||||||||
$ 8.71 $17.24
|
719 | $11.59 | 1.0 | 719 | $11.59 | |||||||||||||||
$17.25 $25.78
|
1,191 | $20.85 | 2.8 | 1,191 | $20.85 | |||||||||||||||
$25.79 $34.32
|
8,465 | $31.85 | 8.0 | 1,622 | $30.56 | |||||||||||||||
$34.33 $42.86
|
3,006 | $39.14 | 6.8 | 1,821 | $39.76 | |||||||||||||||
$42.87 $51.38
|
129 | $50.53 | 4.3 | 129 | $50.53 | |||||||||||||||
$ 8.71 $51.38
|
13,510 | $31.61 | 6.8 | 5,482 | $29.49 | |||||||||||||||
53
May 31,
In thousands
2006
2005
$
4,481
$
8,973
2,364
1,826
9,522
7,471
3,589
6,400
7,717
3,431
5,667
3,501
11,242
3,120
658
2,265
2,301
49,967
34,561
11,609
8,684
12,704
10,316
8,973
7,985
711
3,549
354
413
34,351
30,947
$
15,616
$
3,614
Year ended May 31, | |||||||||||||
In thousands | 2006 | 2005 | 2004 | ||||||||||
Current:
|
|||||||||||||
Federal
|
$ | 209,659 | $ | 159,007 | $ | 140,130 | |||||||
State
|
7,909 | 8,720 | 14,708 | ||||||||||
Total current
|
217,568 | 167,727 | 154,838 | ||||||||||
Deferred:
|
|||||||||||||
Federal
|
(7,872 | ) | 9,155 | (7,657 | ) | ||||||||
State
|
156 | 435 | (347 | ) | |||||||||
Total deferred
|
(7,716 | ) | 9,590 | (8,004 | ) | ||||||||
Provision for income taxes
|
$ | 209,852 | $ | 177,317 | $ | 146,834 | |||||||
54
Year ended May 31,
2006
2005
2004
35.0
%
35.0
%
35.0
%
0.8
1.1
2.1
(4.5
)
(3.9
)
(3.8
)
(0.2
)
0.3
(0.7
)
31.1
%
32.5
%
32.6
%
Year ended May 31,
In thousands
2006
2005
2004
$
(11,216
)
$
(5,445
)
$
(30,011
)
3,941
1,878
10,768
(975
)
(223
)
(19,133
)
345
78
6,972
$
(7,905
)
$
(3,712
)
$
(31,404
)
Year ended May 31, | ||||||||||||
In thousands | 2006 | 2005 | 2004 | |||||||||
Income taxes paid
|
$ | 207,632 | $ | 166,903 | $ | 145,710 | ||||||
Tax benefit from the exercise of stock options
|
$ | 11,587 | $ | 4,516 | $ | 10,194 |
55
Financial institution | Amount available | Expiration date | ||||||
JP Morgan Chase Bank, N.A.
|
$350 million | February 2007 | ||||||
Fleet National Bank, a Bank of America company
|
$250 million | February 2007 | ||||||
PNC Bank, National Association
|
$150 million | February 2007 | ||||||
Wells Fargo Bank, National Association
|
$150 million | February 2007 |
56
57
In thousands | ||||
Fiscal year ended May 31, | Minimum lease payments | |||
2007
|
$37,902 | |||
2008
|
$33,687 | |||
2009
|
$27,019 | |||
2010
|
$19,859 | |||
2011
|
$12,100 | |||
Thereafter
|
$ 5,104 |
58
59
Three Months Ended
Fiscal 2006
August 31
November 30
February 28
May 31
Full Year
$
384,415
$
379,028
$
401,883
$
408,471
$
1,573,797
19,300
20,787
28,703
32,009
100,799
403,715
399,815
430,586
440,480
1,674,596
162,820
158,605
160,600
167,546
649,571
4,859
5,552
6,358
8,426
25,195
167,679
164,157
166,958
175,972
674,766
52,651
51,545
52,424
53,232
209,852
$
115,028
$
112,612
$
114,534
$
122,740
$
464,914
$
0.30
$
0.30
$
0.30
$
0.32
$
1.23
$
0.30
$
0.30
$
0.30
$
0.32
$
1.22
378,810
379,268
379,680
380,092
379,465
380,180
381,256
381,751
382,207
381,351
$
0.13
$
0.16
$
0.16
$
0.16
$
0.61
$
112
$
14
$
498
$
351
$
975
Three Months Ended
Fiscal 2005
August 31
November 30
February 28
May 31
Full Year
$
334,203
$
334,876
$
357,094
$
358,501
$
1,384,674
10,772
12,409
16,767
20,521
60,469
344,975
347,285
373,861
379,022
1,445,143
128,668
126,898
135,382
142,827
533,775
2,259
2,751
3,099
4,282
12,391
130,927
129,649
138,481
147,109
546,166
43,206
42,784
45,699
45,628
177,317
$
87,721
$
86,865
$
92,782
$
101,481
$
368,849
$
0.23
$
0.23
$
0.25
$
0.27
$
0.97
$
0.23
$
0.23
$
0.24
$
0.27
$
0.97
378,107
378,265
378,403
378,569
378,337
379,706
379,696
379,814
379,831
379,763
$
0.12
$
0.13
$
0.13
$
0.13
$
0.51
$
177
$
92
$
(170
)
$
124
$
223
(A) | Each quarter is a discrete period and the sum of the four quarters basic and diluted earnings per share amounts may not equal the full year amount. | |
(B) | Total net realized gains/(losses) on the combined funds held for clients and corporate investment portfolios, net of immaterial adjustments related to the reclassification of auction rate securities as described in Note A of the Notes to Consolidated Financial Statements. |
60
Additions/
Balance at
Additions
(deductions)
Balance
beginning
charged to
to other
Costs and
at end of
Description
of year
expenses
accounts (A)
deductions (B)
year
$
2,472
$
2,173
$
$
2,115
$
2,530
$
1,582
$
3,444
$
$
2,505
$
2,521
$
3,262
$
2,179
$
$
2,969
$
2,472
$
1,427
$
2,481
$
$
2,326
$
1,582
$
2,208
$
2,941
$
702
$
2,589
$
3,262
$
2,168
$
2,943
$
(207
)
$
3,477
$
1,427
(A) | Reflects amounts acquired in purchase transactions or adjustments to purchase price allocations. | |
(B) | Uncollectible amounts written off, net of recoveries. |
61
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
Item 10. | Directors and Executive Officers of the Registrant |
Name | Age | Position and business experience | ||||
Jonathan J. Judge
|
52 | Mr. Judge became President and Chief Executive Officer of the Company in October 2004. Prior to joining the Company, from October 2002 through December 2003, he served as President and Chief Executive Officer of Crystal Decisions, Inc., an information management software company. From 2001 to 2002, Mr. Judge was General Manager of IBMs Personal Computing Division. From 1998 to 2001, he headed up the worldwide sales, service, and support functions of IBMs Personal Computing Division and was a member of the worldwide management committee of IBM. Mr. Judge also serves as a director of the Company and is also a director of PMC-Sierra, Inc. |
62
Name
Age
Position and business experience
58
Mr. Morphy joined the Company in October 1995 and was named
Senior Vice President in October 2002. He was named Chief
Financial Officer and Secretary in October 1996. He was Vice
President, Director of Finance from July 1996 to October 2002.
Prior to joining the Company, he served as Chief Financial
Officer and in other senior management capacities for over ten
years at Goulds Pumps, Incorporated, a pump manufacturer.
46
Mr. Mucci joined the Company in March 2002 as a consultant on
operational issues of the Company, including responsibility for
implementation of the Advantage Payroll Services, Inc.
acquisition, and was appointed Senior Vice President, Operations
in October 2002. Prior to joining the Company, he served as
President of Telephone Operations for Frontier Communications, a
telecommunications services provider, and Chief Executive
Officer of Frontier Communications of Rochester, N.Y., a
telecommunications services provider.
53
Mr. Turek has served as Senior Vice President, Sales and
Marketing, since October 2002. From 1989 to October 2002, he was
Vice President, Sales. He has been with the Company since 1981
and has served in various sales and management capacities.
49
Ms. Janik joined the Company in March 2005 as Vice President and
Controller. Prior to joining the Company, she was Senior Vice
President and Chief Financial Officer for Glimcher Realty Trust,
a publicly traded national mall Real Estate Investment Trust,
for a number of years beginning in July 2002. Prior to July
2002, she was Vice President and Treasurer for NCR Corporation,
a technology company.
59
Mr. Kuchta joined the Company in February 1995 and was named
Vice President, Organizational Development in April 1996. From
1993 to 1995, he was principal of his own consulting firm, and
from 1989 to 1993, he served as Vice President of Human
Resources of Fisons Corporation.
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
63
Number of | ||||||||||||
securities | ||||||||||||
Number of | remaining available | |||||||||||
securities to be | for future issuance | |||||||||||
issued upon | Weighted-average | under equity | ||||||||||
exercise of | exercise price of | compensation | ||||||||||
In thousands | outstanding options | outstanding options | plans | |||||||||
Equity compensation plans approved by security holders
|
12,960 | $ | 31.64 | 20,509 | ||||||||
Equity compensation plans not approved by security holders
|
550 | $ | 30.68 | | ||||||||
Total
|
13,510 | $ | 31.61 | 20,509 | ||||||||
Item 13. | Certain Relationships and Related Transactions |
Item 14. | Principal Accountant Fees and Services |
Item 15. | Exhibits and Financial Statement Schedules |
1.
|
Financial Statements and Supplementary Data
See Financial Statements and Supplementary Data Table of Contents at page 31. |
|
2.
|
Financial statement schedules required to be filed by
Item 8 of this Form 10-K include
Schedule II Valuation and Qualifying Accounts.
See Financial Statements and Supplementary Data Table of
Contents at page 31.
All other schedules are omitted as the required matter is not present, the amounts are not significant, or the information is shown in the financial statements or the notes thereto. |
|
3.
|
Exhibits |
(3)(a) | Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3(a) to the Companys Form 10-K filed with the Commission on July 20, 2004. | |||
*
|
(3)(b) | Bylaws, as amended. | ||
#
|
(10)(a) | Paychex, Inc. 1995 Stock Incentive Plan, incorporated herein by reference to Exhibit 4.1 to the Companys Registration Statement on Form S-8, No. 33-64389. |
64
(10)(b)
Paychex, Inc. 1998 Stock Incentive Plan, incorporated herein by
reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-8, No. 333-65191.
(10)(c)
Paychex, Inc. 2002 Stock Incentive Plan, incorporated herein by
reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-8, No. 333-101074.
(10)(d)
Paychex, Inc. 2002 Stock Incentive Plan (as amended and
restated), incorporated herein by reference to Exhibit 4.1
to the Companys Registration Statement on Form S-8,
No. 333-129572.
(10)(e)
Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
effective October 12, 2005) Award Agreement for
Non-Qualified Stock Options, incorporated by reference to
Exhibit 10.3 to the Companys Form 8-K filed with
the Commission on October 17, 2005.
(10)(f)
Paychex, Inc. Non-Qualified Stock Option Agreement, incorporated
by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-8, No. 333-129571.
(10)(g)
Form of Indemnification Agreement for Directors and Officers,
incorporated herein by reference to Exhibit 10.1 to the
Companys Form 10-Q filed with the Commission on
March 21, 2003.
(10)(h)
Paychex, Inc. Indemnification Agreement with B. Thomas Golisano,
incorporated herein by reference to Exhibit 10(g) to the
Companys Form 10-K filed with the Commission on
July 20, 2004.
(10)(i)
Paychex, Inc. Indemnification Agreement with Walter Turek,
incorporated herein by reference to Exhibit 10(h) to the
Companys Form 10-K filed with the Commission on
July 20, 2004.
(10)(j)
Paychex, Inc. Deferred Compensation Plan, incorporated herein by
reference to Exhibit 10(i) to the Companys
Form 10-K filed with the Commission on July 20, 2004.
(10)(k)
Paychex, Inc. Employment Agreement with Jonathan J. Judge dated
October 1, 2004, incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K filed with
the Commission on October 4, 2004.
(10)(l)
Compensation arrangement with B. Thomas Golisano, effective
October 1, 2004, for service as Chairman of the Board of
Directors, incorporated by reference to Exhibit 10(j) to
the Companys Form 10-K filed with the Commission on
July 22, 2005.
(10)(m)
Paychex, Inc. Indemnification Agreement with Jonathan J. Judge,
incorporated by reference to Exhibit 10(k) to the
Companys Form 10-K filed with the Commission on
July 22, 2005.
(10)(n)
Certain compensation information for Jonathan J. Judge,
President and Chief Executive Officer of the Company, is
incorporated herein by reference from the Companys
Form 8-K filed with the Commission on February 10,
2006.
(10)(o)
Paychex, Inc. Officer Performance Incentive Program for the year
ended May 31, 2007.
(21.1)
Subsidiaries of the Registrant.
(23.1)
Consent of Independent Registered Public Accounting Firm.
(24.1)
Power of Attorney.
(31.1)
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(31.2)
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(32.1)
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(32.2)
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* | Exhibit filed with this report |
# | Management contract or compensatory plan |
65
66
EXHIBIT 3(b)
BY-LAWS
OF
PAYCHEX, INC.
ARTICLE I
OFFICES
SECTION 1. The registered office of Paychex, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), shall be located within the State of Delaware.
SECTION 2. The Corporation may also have offices at such places, either within or without the State of Delaware and either within or without the United States of America, as the board of directors may from time to time designate or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware and either within or without the United States of America, as shall be stated in the notice of meeting or in a duly executed waiver thereof.
SECTION 2. The annual meeting of stockholders shall be held on such date and at such hour as shall be designated each year by the board of directors. At such annual meeting, the stockholders shall elect a board of directors and transact such other business as may be properly brought before the meeting.
SECTION 3. Special meetings of stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Corporation's certificate of incorporation, may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
SECTION 4. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders, stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote
thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
SECTION 5. The officer who has charge of the stock transfer books of the Corporation shall prepare and make, at the time and in the manner required by applicable law, a list of stockholders entitled to vote and shall make such list available for such purposes, at such places, at such times and to such persons as required by applicable law. The stock transfer books shall be the only evidence as to the identity of the stockholders entitled to examine the stock transfer books or to vote in person or by proxy at any meeting of stockholders.
SECTION 6. The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders, except as otherwise provided by statute or by the Corporation's certificate of incorporation. The stockholders present and entitled to vote at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders entitled to vote to leave less than a quorum then present and represented provided that the action taken (other than an adjournment) is approved by at least a majority of the holders of stock required to constitute a quorum. Any stockholders' meeting, annual or special, whether or not a quorum is present or represented, may be adjourned from time to time by the vote of the holders of a majority of the stock entitled to vote thereat, the holders of which are either present in person or represented by proxy, or the chairman of the meeting, but in the absence of a quorum no other business may be transacted at such meeting. At any adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified, except for such business as was duly transacted at any earlier meeting. If the adjournment is for more than thirty (30) days, or if after adjournment a new record date is set, a notice of the adjourned meeting shall be given as in the case of an original meeting to each stockholder of record entitled to vote at the meeting.
SECTION 7. At each meeting of stockholders, the Chairman of the Board or, in his absence or inability to act, such other person as the board of directors may have designated shall call to order and act as chairman of the meeting. The Secretary or, in his absence or inability
to act, the person whom the chairman of the meeting shall appoint secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof.
SECTION 8. The order of business and the procedure at all meetings of the stockholders shall be as determined by the chairman of the meeting, unless otherwise prescribed by law or regulation.
SECTION 9. Except as otherwise provided by statute or the Corporation's certificate of incorporation, each holder of common stock of the Corporation shall be entitled at each meeting of stockholders to one (1) vote for each share of such stock standing in his name on the record of stockholders of the Corporation
(a) on the date fixed pursuant to the provisions of Section 7 of Article V of these by-laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by proxy, provided that such proxy shall comply with the requirements of Delaware law. No proxy shall be voted after three (3) years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which, by express provision of statute or of the Corporation's certificate of incorporation or of these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if represented by proxy, and shall state the number of shares voted.
SECTION 10. The board of directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at, and make a written report of, such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or, if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power thereof, the number of shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, certify their determination of the number of shares represented at the meeting and
shall receive votes or ballots, hear, determine and retain for a reasonable period a record of the disposition of, all challenges and questions arising in connection with the right to vote, count and tabulate all votes or ballots, determine the results and perform such acts as are proper to conduct the election or vote with fairness to all stockholders. If more than one inspector has been appointed, the decision, act or certificate of a majority of the inspectors is effective in all respects as the decision, act or certificate of all of the inspectors. On request of the chairman of the meeting, the inspector shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of election with respect to an election of directors. Inspectors need not be stockholders.
SECTION 11. Any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Where corporate action is taken in such manner by less than unanimous written consent, prompt written notice of the taking of such action shall be given to all stockholders who have not consented in writing thereto.
Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by statute to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. The number of directors which shall constitute the whole Board of Directors shall consist of one or more members, the exact number to be fixed from time to time by the board of directors. Except as provided in Sections 9 and 10 of this Article, each director shall be elected by the vote of the majority of the votes cast with respect to the director at any meeting for the election of directors at which a quorum is present, provided that if the number of nominees exceeds the number of directors to be elected, the directors shall be
elected by the vote of a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. For purposes of this Section, a majority of the votes cast means that the number of shares voted "for" the election of a director nominee must exceed the number of votes cast "against" the nominee. If a nominee that is an incumbent director does not receive a required majority of the votes cast, the director shall offer to tender his or her resignation to the Board. The Governance and Compensation Committee shall consider such offer and will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will consider the Committee's recommendation and will determine whether to accept such offer. In making their determinations, the Board and the Committee may consider any factors deemed relevant. The Board shall publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the Board's or the Committee's decisions with respect to his or her resignation. In the event that no nominees for election to the Board receive a required majority of the votes cast, at an annual meeting, a special meeting of stockholders shall be called for an election of directors in the manner provided in these Bylaws. Each director shall hold office until such director's successor is elected and qualified or until such director's earlier resignation or removal.
SECTION 2. The business and affairs of the Corporation shall be managed by or under the direction of the board of directors. The board of directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute, the Corporation's certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders.
SECTION 3. Meetings of the board of directors shall be held at such place or places, within or without the State of Delaware and either within or without the United States of America, as the board of directors may from time to time determine or as shall be specified in the notice of any such meeting.
SECTION 4. The board of directors shall meet for the purpose of
organization, the election of officers and the transaction of other business, as
soon as practicable after each annual meeting of stockholders. Notice of such
meeting need not be given. In the event such annual meeting is not so held, the
annual meeting of the board of directors may be held at such other time, within
or without the State of Delaware and either within or without the United States
of America, as shall be specified in a notice thereof given as provided in
Section 7 of this Article III.
SECTION 5. Regular meetings of the board of directors shall be held at such time and place as the board of directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the board of directors need not be given.
SECTION 6. Special meetings of the board of directors may be called by the Chairman of the Board or the President and shall be called by the Secretary on the written request of a majority of the members of the Board of Directors.
SECTION 7. Notice of each special meeting of the board of directors
shall be given by the President or the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these by-laws, such notice need not state the
purpose or purposes of such meeting. Notice of each such meeting shall be
mailed, postage prepaid, to each director, addressed to him at his residence or
usual place of business, by first class mail, at least two (2) days before the
time of the meeting, or shall be sent addressed to him at such place by
telegraph, cable, telex, telefax, telecopier or other similar means, or be
delivered to him personally or be given to him by telephone or other similar
means, at least twelve (12) hours before the time of the meeting. A written
waiver of notice signed by a director, whether before or after the time stated
therein, shall be deemed equivalent to notice to such director. Attendance of a
director at the meeting shall constitute a waiver of notice of such meeting by
such director, except when such director attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 8. At all meetings of the board of directors, a majority of the total number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business and, except as otherwise expressly required by statute or the Corporation's certificate of incorporation or these by-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors. In the absence of a quorum at any meeting of the board of directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a board and the individual directors shall have no power as such.
SECTION 9. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its tender. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any vacancy in the board of directors caused by such resignation may be filled by a majority vote of the board of directors for the unexpired portion of the term.
SECTION 10. Any director of the Corporation may be removed, at any time, with or without cause, by the affirmative vote of the holders of record of a majority of the outstanding shares of stock entitled to
vote at a meeting of stockholders, and any vacancy in the board of directors caused by any such removal may be filled by the stockholders at said meeting in which the vacancy is created or, if not so filled, by a majority vote of the Board of Directors for the unexpired portion of the term.
SECTION 11. Unless restricted by the Corporation's certificate of incorporation, the board of directors may, by resolution passed by a majority of the entire board of directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, a member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place or any such absent or disqualified member. Except to the extent restricted by statute or the Corporation's certificate of incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all of the powers and authority of the board of directors, including, if such resolution so provides, the power to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to section 253 of Title 8 of the Delaware Code, and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the board of directors and have such name as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors.
SECTION 12. Any action required or permitted to be taken by the board of directors or any committee thereof may be taken without a meeting if all members of the board of directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the board of directors or such committee, as the case may be.
SECTION 13. Any one or more members of the board of directors or any committee of the board of directors may participate in a meeting of the board of directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting.
SECTION 14. A director of the Corporation who is present at a meeting of the board of directors or any committee thereof at which action is taken shall be presumed to have assented to the action taken unless his dissent or abstention there from shall be entered in the minutes of the meeting or unless he shall file a written dissent from such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action.
SECTION 15. The Board of Directors shall have the authority to fix the compensation of directors for services in any capacity.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board held after each annual meeting of stockholders, or as soon thereafter as possible. The board of directors shall elect from among its number a Chairman of the Board. The board of directors shall also elect a President, a Secretary and a Treasurer, who need not be directors. If the board of directors wishes, it may also elect such other officers (including, without limitation, one or more Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person. Each officer shall hold office until his successor shall have been duly elected and qualified, or until his death, resignation or removal, as hereinafter provided. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, shall be filled only by a majority vote of the board of directors for the unexpired portion of the term.
SECTION 2. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its tender. Unless otherwise specified therein, the acceptance of any such registration shall not be necessary to make it effective.
SECTION 3. Any officer of the Corporation may be removed, either with or without cause, at any time, by the board of directors at any meeting thereof, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
SECTION. 4. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 5. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so
authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meeting of the stockholders and the Board of Directors, the President shall be the chief executive and operating officer of the Corporation. He shall perform all duties incident to the office of chief executive and operating officer and such other duties as may from time to time be assigned to him by the Board of directors.
SECTION 6. Each Vice President, if any, shall perform all duties incident to his office and such other duties as from time to time may be assigned to him by the board of directors, the Chairman of the Board or the President.
SECTION 7. The Treasurer shall
(a) be the principal financial officer and principal accounting officer of the Corporation;
(b) have charge and custody of, and be responsible for, all the funds and securities of the Corporation;
(c) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;
(d) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the board of directors or pursuant to its direction;
(e) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;
(f) disburse the funds of the Corporation and supervise the investment of its funds, taking proper vouchers therefore;
(g) render to the board of directors, whenever the board of directors may require, an accounting of the financial condition of the Corporation; and
(h) in general, perform all other duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the board of directors or the President.
SECTION 8. Secretary. The Secretary shall
(a) keep or cause to be kept, in one or more books provided for the purpose, the minutes of all meetings of the board of directors, the committees of the board of directors and the stockholders;
(b) see that all notices are duly given in accordance with the provisions of these by-laws and as required by law;
(c) see that the books, reports, statements certificates and other documents and records required by law to be kept and filed are properly kept and filed; and
(d) in general, perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the board of directors or the President.
SECTION 9. The Assistant Treasurer, if any, or if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors (or, if there be no such determination, then in the order of their election), shall, at the request of the President or the Treasurer or in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties of the Treasurer (and when so acting, shall have the powers of and be subject to the restrictions placed upon the Treasurer in respect of the performance of such duties) and shall perform such other duties as from time to time may be assigned by the board of directors or the President.
SECTION 10. The Assistant Secretary, if any, or if there be more than one, the Assistant Secretaries in the order determined by the board of directors (of, if there be no such determination, then in the order of their election),shall, at the request of the President or the Secretary or in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties of the Secretary (and when so acting, shall have the powers of and be subject to the restrictions placed upon the Secretary in respect of the performance of such duties) and shall perform such other duties as from time to time may be assigned by the board of directors or the President.
SECTION 11. If required by the board of directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the board of directors may require.
SECTION 12. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the board of directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preference and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth, on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 2. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issuance.
SECTION 3. The board of directors may direct that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed. When authorizing the issuance of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond or other indemnity in such amount as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent and vote such stock.
SECTION 5. The board of directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.
SECTION 6. The board of directors may make such additional rules and regulations, not inconsistent with these by-laws, as it may deem expedient concerning the issuance, transfer and registration of certificates for shares of stock of the Corporation.
SECTION 7. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or any allotment of rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors fix a new record date for the adjourned meeting.
SECTION 8. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
INDEMNIFICATION
SECTION 1. To the full extent authorized by law, the Corporation shall indemnify any person made, or threatened to be made, a party in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or is serving or served any other corporation, or any partnership, joint venture, trust, employee benefit plan or other enterprise, in any such capacity at the request of the Corporation ("indemnitee") against expenses (including attorneys' and other fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection therewith.
SECTION 2. Expenses actually and reasonably incurred by an indemnitee in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon an undertaking by or on behalf of such indemnitee to repay such amount if it shall ultimately be determined, by final judicial decision from which there is no further right of appeal, that he is not entitled to be indemnified by the Corporation. To be entitled to such advancement of expenses, the indemnitee shall cooperate in good faith with any request by the Corporation that common counsel be used by parties to such action or proceeding who are similarly situated unless it would be inappropriate to do so because of actual or potential conflicts between the interests of such parties.
SECTION 3. The Corporation may, to the extent authorized by the board of directors, grant rights of indemnification and advancement of expenses to any employee or agent of the Corporation to the full extent
of the provisions of this Article with respect to indemnification and advancement of expenses of directors and officers of the Corporation.
SECTION 4. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which any person covered hereby may be entitled other than pursuant to this Article.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Subject to the provisions of law and the Corporation's certificate of incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the board of directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by law or the Corporation's certificate of incorporation.
SECTION 2. The seal of the Corporation shall be in such form as shall be approved by the board of directors.
SECTION 3. The fiscal year of the Corporation shall begin the first day of June in each year and end on the next succeeding 31st day of May, or otherwise as the board of directors shall determine.
SECTION 4. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the board of directors or by an officer or officers authorized by the board of directors to make such designation.
SECTION 5. The board of directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
SECTION 6. Unless otherwise provided by resolution of the board of directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President, may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances.
SECTION 7. All nouns and pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the context may require.
ARTICLE VIII
AMENDMENTS
SECTION 1. These by-laws may be amended, altered or repealed by the stockholders or by the board of directors.
EXHIBIT 10(o)
PAYCHEX, INC.
OFFICER PERFORMANCE INCENTIVE PROGRAM
FOR THE YEAR ENDING MAY 31, 2007
PLAN DESCRIPTION
1. Participants: Officers of Paychex, Inc.
2. The maximum incentive for the Chief Executive Officer is 120% of base salary plus any bonus awards recommended by the Governance and Compensation Committee and approved by the Board of Directors for over-achievement of operating objectives. The maximum is 80% of base salary for Senior Vice Presidents and 55% for all other Officers.
3. Performance Criteria: The payment of cash bonus awards to participants shall be determined by the Board on a discretionary basis based primarily on how year-over-year revenue growth, year-over-year growth in operating income excluding stock-based compensation and interest on funds held for clients, and improvement in operating income excluding stock-based compensation and interest on funds held for clients as a percentage of service revenues for the fiscal year compared to the goals that are established annually by the Board of Directors.
4. Payment: Incentive payments to be paid in July 2007 after Board approval. Officer must be employed at the fiscal year end to be eligible for any bonus.
5. Changes and Termination: Bonus awards, changes to and termination of the Program is at the sole discretion of the Board.
EXHIBIT 21.1: SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF PAYCHEX, INC. AS OF MAY 31, 2006 JURISDICTION OF NAME OF SUBSIDIARIES INCORPORATION -------------------- --------------- Advantage Payroll Services, Inc. Delaware Business Benefits Administrators, Inc. Massachusetts Paychex Agency, Inc. New York Paychex Business Solutions, Inc. Florida Paychex Deutschland GmbH Germany Paychex Insurance Concepts, Inc. New York Paychex Investment Partnership LP (1) Delaware Paychex Management Corp.(2) New York Paychex of New York LLC (2) Delaware Paychex North America Inc. Delaware Paychex Securities Corporation New York Paychex Time & Attendance Inc. Delaware Prime Real Estate LLC Delaware PXC Inc. New York Rapid Payroll, Inc. California |
(1) Paychex Investment Partnership LP is 1% owned by Paychex, Inc. and 99% owned by PXC Inc.
(2) Paychex of New York LLC and Paychex Management Corp. are 100% owned by Paychex Investment Partnership LP.
Certain subsidiaries, which considered in the aggregate as a single subsidiary, that would not constitute a significant subsidiary, per Regulation S-X, Article 1, as of May 31, 2006, have been omitted from this exhibit.
EXHIBIT 23.1: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements of Paychex, Inc. of our reports dated July 13, 2006 with respect to the consolidated financial statements of Paychex, Inc., Paychex, Inc.'s management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Paychex, Inc., included in this Annual Report (Form 10-K) for the year ended May 31, 2006.
Form Registration Statement No. Description ---- -------------------------- ----------- S-8 No. 33-64389 1995 Stock Incentive Plan S-8 No. 333-65191 1998 Stock Incentive Plan S-8 No. 333-84055 401(k) Incentive Retirement Plan S-8 No. 333-101074 2002 Stock Incentive Plan S-8 No. 333-129571 Non-Qualified Stock Option Agreement S-8 No. 333-129572 2002 Stock Incentive Plan, as amended and restated /s/ Ernst & Young LLP |
Cleveland, Ohio
July 17, 2006
EXHIBIT 24.1: POWER OF ATTORNEY
The undersigned Directors of Paychex, Inc., do hereby constitute and appoint Jonathan J. Judge their true and lawful attorney and agent, to execute the Paychex, Inc., Annual Report on Form 10-K for the fiscal year ended May 31, 2006, for us and in our names as Directors, to comply with the Securities Exchange Act of 1934, and the rules, regulations and requirements of the Securities and Exchange Commission, in connection therewith.
Dated: July 13, 2006 /s/ B. Thomas Golisano ------------------------------- B. Thomas Golisano Dated: July 13, 2006 /s/ David J. S. Flaschen ------------------------------- David J. S. Flaschen Dated: July 13, 2006 /s/ Phillip Horsley ------------------------------- Phillip Horsley Dated: July 13, 2006 /s/ Grant M. Inman ------------------------------- Grant M. Inman Dated: July 13, 2006 /s/ Pamela A. Joseph ------------------------------- Pamela A. Joseph Dated: July 13, 2006 /s/ J. Robert Sebo ------------------------------- J. Robert Sebo Dated: July 13, 2006 /s/ Joseph M. Tucci ------------------------------- Joseph M. Tucci |
EXHIBIT 31.1: CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, JONATHAN J. JUDGE, certify that:
1. I have reviewed this Annual Report on Form 10-K of Paychex, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 21, 2006 /s/ Jonathan J. Judge ------------------------------------- President and Chief Executive Officer |
EXHIBIT 31.2: CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, JOHN M. MORPHY, certify that:
1. I have reviewed this Annual Report on Form 10-K of Paychex, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 21, 2006 /s/ John M. Morphy ---------------------------------------------- Senior Vice President, Chief Financial Officer, and Secretary |
EXHIBIT 32.1: CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Paychex, Inc. (the "Company") on Form 10-K for the fiscal year ended May 31, 2006 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, JONATHAN J. JUDGE, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC upon request.
Date: July 21, 2006 /s/ Jonathan J. Judge ------------------------------------- Jonathan J. Judge President and Chief Executive Officer |
EXHIBIT 32.2: CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Paychex, Inc. (the "Company") on Form 10-K for the fiscal year ended May 31, 2006 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, JOHN M. MORPHY, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC upon request.
Date: July 21, 2006 /s/ John M. Morphy ----------------------------------------------- John M. Morphy Senior Vice President, Chief Financial Officer, and Secretary |