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Subject: Companies In The News
Date: Wed, 4 Nov 92 12:45:02 EST
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11/4/92


TITLE Companies In The News #m#ak#m##m#Photo Tom Golisano
here#m#Paychex Increases Its Profits By Adding On New Services
John A. Jones Handling small and medium- sized companies' pay-
rolls is an increasingly profitable business for Paychex Inc. The
company continues to find new ways to take some of the paperwork
off its clients' desks by adding new services.  Paychex, based in
Rochester, N.Y., was formed in 1979 when 17 smaller payroll ac-
counting services consolidated into one company. Since then Pay-
chex has grown into the second-largest payroll accounting company
in the U.S., with over 154,000 clients.


Investor's Business Daily, Financial/Bus. Services ranks 27th,
based on six-month stock- price performance with added weight
given to recent months. In this series, leading companies within
the group are reviewed.  The company's primary service still is
computerized payroll accounting services. It prepares paychecks,
earnings statements and all the necessary internal accounting
records.  Paychex also takes care of the tax paperwork for many
clients, preparing all their required monthly, quarterly and an-
nual payroll tax returns for federal, state and local govern-
ments.

Pays Clients' Tax Bills

Going a step farther, the company's Taxpay service automatically
pays the clients' payroll taxes and files quarterly and annual
tax returns.  For the fiscal first quarter ended Aug. 31, earn-
ings rose 44% to 26 cents a share from 18 cents a year earlier.
Net income was up 50% to $5.1 million from $3.4 million. Revenue
grew 19% to $45.3 million from $38 million.

Earnings for the fiscal year ended May 31 rose 43% to 70 cents a
share from 49 cents the previous year. Net income was up 42% to
$13.7 million from $9.6 million. Revenue rose 18% to $161.3 mil-
lion from $137.1 million.

The company ended its latest year with long-term debt of $1.6
million or 2% of total capital, primarily in industrial revenue
bonds.  Chairman and Chief Executive Tom Golisano, who founded
the company, Tom Golisano

said the first-quarter gains reflected a satisfactory rate of ad-
ding new clients, continued growth of the Taxpay client base and
good expense controls.  He also reported "a modest increase" in
the number of checks processed per client. Over 27% of the
company's payroll clients now take the Taxpay service as well.
Paychex services companies with one to 200 employees, but the
average client company has 14 employees.

While expanding its payroll and tax services, Paychex also has
been adding human resources or personnel services.  G. Thomas
Clark, chief financial officer, said these include employee hand-
books, testing and evaluation programs, standard job descrip-
tions, some benefit programs and other documentation which Pay-
chex can adapt from its database for individual clients' needs.
Paychex also can refer clients to providers of employee insurance
programs, Clark said, but Paychex itself does not act as an in-
surance agent.  The company is upgrading its computer equipment,
converting to Hewlett-Packard workstations and expanding the net-
works at its 70 offices in major metropolitan areas. Capital
spending on this and other projects totaled nearly $13 million
last fiscal year, but Clark said the current year's capital budg-
et is more typical at about $10 million.

The recession slowed Paychex down a bit in fiscal 1991, Clark
said, but the business picked up last year.  "In fiscal 1991 the
average number of checks processed per client dropped slightly,"
he said. "That impacted our revenue and our bottom line. Then it
stabilized during fiscal 1992 and we didn't see any further
deterioration. Starting in late spring we saw a very modest up-
tick."

Beat Analysts' Forecasts

Analysts said the strong earnings gain in the latest quarter ex-
ceeded their expectations and led them to raise their earnings
estimates.  Cato Carpenter, of Alex. Brown & Sons Inc., said Pay-
chex is building its revenues and improving profits by continuing
to offer new services.  The human resources services Paychex is
offering are only at the break-even level now, he said, but the
newer payroll-related services are profitable.  "It appears these
add-on services are particularly profitable," Carpenter said.
"The outlook is for some acceleration in revenue growth and con-
tinued improvement in their profit margins." He noted that Pay-
chex is selling its Taxpay service to 55% of new customers as
part of their original package.

"They expect to see increased penetration, up to 75% of their ex-
isting customer base," Carpenter said.  Other new offerings in-
clude automated salary deposit and digitized signature service,
which prints the client's authorized signature directly on the
paycheck.  Thursday: Credit Acceptance Corp.

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