content: SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549
  
                                     FORM 8-K
  
                                  CURRENT REPORT
                        PURSUANT TO SECTION 13 OR 15(d) OF
                        THE SECURITIES EXCHANGE ACT OF 1934
  
                          Date of Report:  June 25, 2001
                         (Date of earliest event reported)
  
                                   PAYCHEX, INC.
              (Exact name of registrant as specified in its charter)
  
          DELAWARE               0-11330                   16-1124166
  (State of incorporation)     (Commission               (IRS Employer
                               File Number)          Identification Number)
  
  911 PANORAMA TRAIL SOUTH, ROCHESTER, NEW YORK            14625-0397
  (Address of principal executive offices)                 (Zip Code)
  
                                  (716) 385-6666
               (Registrant's telephone number, including area code)
  
  
  ITEM 9.  REGULATION FD DISCLOSURE
  
  The registrant's press release dated June 25, 2001, which reports its financial
  results for the fiscal year ended May 31, 2001, is attached.  In addition, this
  report includes Management's Discussion and Analysis of Financial Condition and
  Results of Operations, which reviews the Company's results of operations for the
  three years ended May 31, 2001, 2000 and 1999, and its financial condition at
  May 31, 2001.
  
  The attached Management's Discussion and Analysis is not a complete and
  comprehensive Management's Discussion and Analysis as required by the
  Securities and Exchange Commission for Annual Reports filed on Form 10-K or
  Quarterly Reports on Form 10-Q.  The Company expects to file its 2001 Form 10-K
  with the Securities and Exchange Commission and mail the 2001 Annual Report to
  Shareholders in August 2001.  The 2001 Annual Report to Shareholders and Form
  10-K will contain a complete set of audited Consolidated Financial Statements
  and Notes to Consolidated Financial Statements and a complete Management's
  Discussion and Analysis of Financial Condition and Results of Operations for
  the Years ended May 31, 2001, 2000 and 1999, and Financial Condition at May 31,
  2001.
  
  All information included in this Form 8-K is qualified by the cautionary
  statement in Exhibit 99.
  
  SIGNATURES
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
                                               PAYCHEX, INC.
  
  Date:     June 25, 2001                      /s/ B. Thomas Golisano
                                               -----------------------
                                               B. Thomas Golisano
                                               Chairman, President and
                                               Chief Executive Officer
  
  
  Date:     June 25, 2001                      /s/ John M. Morphy
                                               -----------------------
                                               John M. Morphy
                                               Vice President, Chief
                                               Financial Officer and
                                               Secretary
  
  
  FOR IMMEDIATE RELEASE
        John M. Morphy, Chief Financial Officer or Jan Shuler 716-383-3406
  
        Access the Webcast of the Paychex, Inc. Year End and Fourth Quarter
          Earnings Release Conference Call scheduled for June 25, 2001 at 11:00
          a.m. Eastern Standard Time at
          http://www.paychex.com/paychex/finance/finance.html.
  
        Paychex, Inc. news releases, current financial information, related SEC
          filings and Investor Relations presentation are accessible at the same
          Web site.
  
  
         PAYCHEX, INC. REPORTS RECORD YEAR-END AND FOURTH QUARTER RESULTS
  
  ROCHESTER, NY, June 25, 2001 -- Paychex, Inc. (NASDAQ: PAYX) today announced
  record net income of $254.9 million, or $.68 diluted earnings per share, for
  the fiscal year ended May 31, 2001, a 34% increase over net income of $190.0
  million, or $.51 diluted earnings per share, for the prior year.  Total
  revenues were $869.9 million, an increase of 19% over $728.1 million for the
  prior year.
  
  For the fourth quarter ended May 31, 2001, net income increased 31% to $67.8
  million, or $.18 diluted earnings per share, as compared to $51.6 million, or
  $.14 diluted earnings per share, for the same period last year.  Total revenues
  were $228.6 million, an increase of 16% over $197.2 million for the prior year
  fourth quarter.
  
  PAYROLL SEGMENT
  
  For the year ended May 31, 2001, operating income for the Payroll segment
  increased 21% to $366.5 million from $303.4 million for the prior fiscal year.
  Total Payroll segment revenues were $772.0 million, an increase of 18% over
  $653.2 million for the prior year.
  
  For the fourth quarter ended May 31, 2001, operating income for the Payroll
  segment increased 17% to $94.4 million from $80.9 million for the same period
  last year.  Total Payroll segment revenues were $201.8 million, an increase of
  15% over $175.6 million for the prior year fourth quarter.
  
  The increases in total Payroll segment revenues and operating income reflect
  continued growth in the client base, increased utilization of ancillary
  services, and leveraging of operating expenses.  In addition, the Payroll
  segment benefited from growth in the interest on funds held for clients due to
  higher daily client balances and net realized gains.  The full year period also
  reflected higher comparable average rates of return.
  
  As of May 31, 2001, 83% of Paychex clients utilized Taxpay (Registered
  Trademark), the Company's tax filing and payment feature.  The Company's
  Employee Pay Services, which includes Direct Deposit, Readychex and Access Card
  products, was utilized by 53% of its clients.  Major Market Services revenue
  increased 56% and 58% for the fourth quarter and the fiscal year to $13.5
  million and $47.4 million, respectively.
  
  HUMAN RESOURCE AND BENEFITS SEGMENT
  
  For the year ended May 31, 2001, operating income for the Human Resource and
  Benefits segment increased 62% from $23.4 million to $37.9 million.  Human
  Resource and Benefits service revenue was $97.9 million, an increase of 31%
  over $74.9 million for the prior fiscal year.  For the fourth quarter ended May
  31, 2001, operating income for the Human Resource and Benefits segment
  increased 73% from $6.3 million to $10.9 million.  Human Resource and Benefits
  service revenue was $26.8 million, an increase of 24% over $21.6 million for
  the fourth quarter last year.
  
  The increases in service revenue and operating income are primarily related to
  increases in clients for 401(k) Recordkeeping, Workers' Compensation
  Insurance, Section 125, PAS and PEO services.  401(k) Recordkeeping revenue
  increased 26% and 36% for the fourth quarter and the full year period to $11.5
  million and $43.0 million, respectively.
  
  CORPORATE EXPENSES
  
  Corporate expenses are primarily related to the Information Technology,
  Organizational Development, Finance, Marketing and Senior Management functions
  of the Company.  For the year ended May 31, 2001, corporate expenses decreased
  0.3% from $67.9 million to $67.7 million.  For the quarter ended May 31, 2001,
  corporate expenses increased 1.7% to $17.8 million from $17.5 million.  The
  relatively flat year-over-year comparisons reflect additional employees and
  other expenditures to support the growth of the Company's service operations
  and sales force offset by lower spending on national marketing efforts and
  other areas in fiscal 2001.
  
  INVESTMENT INCOME
  
  Investment income for fiscal year 2001 increased 66% to $27.3 million from
  $16.5 million in the prior year.  Investment income for the quarter ended May
  31, 2001 increased 74% to $8.5 million from $4.9 million for the fourth quarter
  of fiscal 2000.  The increases are due to higher balances of investments and
  net realized gains on the sale of available-for-sale securities.  The full year
  period also benefited from higher comparable average rates of return.
  
  INCOME TAXES
  
  The income tax rates for the fourth quarter and the year ended May 31, 2001
  were 29.5% and 30.0%, respectively, as compared to 31.0% for the same periods
  last year.
  
  B. Thomas Golisano, Chairman, President and Chief Executive Officer of Paychex,
  said, "We are pleased with our financial results for the fourth quarter and
  fiscal year.  We have completed our eleventh straight year of record revenues
  and net income and our tenth consecutive year of net income growth exceeding
  30%.  These results have been achieved by applying our growth strategy -
  increasing our client base, increasing client utilization of ancillary
  services, developing new services and leveraging our infrastructure.  Looking
  ahead to fiscal 2002, we recognize interest rate reductions will impact
  year-over-year net income growth. However, we expect to continue to generate
  record revenues and net income with total revenue growth in the range of 16% to
  18%."
  
  
                                   PAYCHEX, INC.
                         CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per share amounts)
  
                                        For the three           For the twelve
                                         months ended            months ended
                                      May 31,     May 31,     May 31,     May 31,
                                         2001        2000        2001        2000
                                     --------    --------    --------    --------
  Revenues:
    Payroll                          $179,154    $157,401    $688,650    $594,445
    Human Resource and Benefits        26,801      21,580      97,871      74,874
                                     --------    --------    --------    --------
    Total service revenues            205,955     178,981     786,521     669,319
    Interest on funds held
      for clients                      22,665      18,205      83,336      58,800
                                     --------    --------    --------    --------
    Total revenues                    228,620     197,186     869,857     728,119
  
  Operating costs                      52,954      46,795     200,352     173,481
  Selling, general and
    administrative expenses            88,097      80,593     332,803     295,745
                                     --------    --------    --------    --------
  Operating income                     87,569      69,798     336,702     258,893
  
  Investment income                     8,546       4,925      27,279      16,479
                                     --------    --------    --------    --------
  Income before income taxes           96,115      74,723     363,981     275,372
  
  Income taxes                         28,354      23,164     109,112      85,365
                                     --------    --------    --------    --------
  Net income                         $ 67,761    $ 51,559    $254,869    $190,007
                                     ========    ========    ========    ========
  Basic earnings per share           $    .18    $    .14    $    .68    $    .51
                                     ========    ========    ========    ========
  Diluted earnings per share         $    .18    $    .14    $    .68    $    .51
                                     ========    ========    ========    ========
  Weighted-average common shares
    outstanding                       373,455     371,576     372,777     370,603
                                     ========    ========    ========    ========
  Weighted-average shares assuming
    dilution                          377,397     376,407     377,510     375,081
                                     ========    ========    ========    ========
  Cash dividends per common share    $    .09    $    .06    $    .33    $    .22
                                     ========    ========    ========    ========
  
  (A) Certain amounts for the three- and twelve-month periods ended May 31, 2000
      have been reclassified to conform to the current year presentation.
  
  (B) Further information on interest on funds held for clients and investment
      income can be found in the Company's SEC filings under the caption
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" and subheadings "Results of Operations" and "Market Risk
      Factors." These SEC filings are accessible at the Company's Web site.
  
                                   PAYCHEX, INC.
                            CONSOLIDATED BALANCE SHEETS
                                  (In thousands)
  
                                                         May 31,          May 31,
                                                            2001             2000
                                                      ----------       ----------
  ASSETS
  Cash and cash equivalents                           $   45,784       $   47,136
  Corporate investments                                  568,217          412,357
  Interest receivable                                     28,281           22,436
  Accounts receivable                                    100,640           87,608
  Deferred income taxes                                        -            9,539
  Prepaid expenses and other current assets                7,306            6,531
                                                      ----------       ----------
  Current assets before funds held for clients           750,228          585,607
  Funds held for clients                               2,041,045        1,776,968
                                                      ----------       ----------
  Total current assets                                 2,791,273        2,362,575
                                                      ----------       ----------
  Property and equipment - net                            96,078           75,375
  Goodwill and intangible assets - net                     9,612            5,584
  Deferred income taxes                                    1,361            2,494
  Other assets                                             8,872            9,549
                                                      ----------       ----------
  Total assets                                        $2,907,196       $2,455,577
                                                      ==========       ==========
  LIABILITIES
  Accounts payable                                    $   16,377       $   17,086
  Accrued compensation and related items                  57,418           52,631
  Deferred revenue                                         4,421            4,719
  Accrued income taxes                                     9,783            2,969
  Deferred income taxes                                    4,996               --
  Other current liabilities                               19,282           24,400
                                                      ----------       ----------
  Current liabilities before client funds deposits       112,277          101,805
  Client funds deposits                                2,031,565        1,785,140
                                                      ----------       ----------
  Total current liabilities                            2,143,842        1,886,945
  Long-term liabilities                                    5,512            5,200
                                                      ----------       ----------
  Total liabilities                                    2,149,354        1,892,145
  
  STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 600,000
    authorized shares
    Issued:  373,647/May 31, 2001 and
      371,769/May 31, 2000                                 3,736            3,718
  Additional paid-in capital                             139,897           98,904
  Retained earnings                                      601,142          469,385
  Accumulated other comprehensive income/(loss)           13,067           (8,575)
                                                      ----------       ----------
  Total stockholders' equity                             757,842          563,432
                                                      ----------       ----------
  Total liabilities and stockholders' equity          $2,907,196       $2,455,577
                                                      ==========       ==========
  
  
                                   PAYCHEX, INC.
                           BUSINESS SEGMENT INFORMATION
                                  (In thousands)
  
  The Company has two business segments: Payroll and Human Resource and Benefits.
  The Payroll segment is engaged in the preparation of payroll checks, internal
  accounting records, federal, state and local payroll tax returns, and
  collection and remittance of payroll obligations for small- to medium-sized
  businesses.  The Human Resource and Benefits segment specializes in providing
  small- to medium-sized businesses with cost-effective outsourcing solutions for
  their employee benefits.  Human Resource and Benefits products include 401(k)
  Plan Recordkeeping, Workers' Compensation Insurance Administration, Section 125
  Plan Administration, Group Benefits, State Unemployment Insurance, Employee
  Handbooks and Management Services, Paychex Administrative Services (PAS) and
  Professional Employer Organization (PEO) services.  Corporate expenses are
  primarily related to the Information Technology, Organizational Development,
  Finance, Marketing and Senior Management functions of the Company.
  
                                            For the three        For the twelve
                                            months ended          months ended
                                         May 31,    May 31,    May 31,    May 31,
                                            2001       2000       2001       2000
                                        --------   --------   --------   --------
  Revenues:
    Payroll service revenue             $179,154   $157,401   $688,650   $594,445
    Interest on funds held for clients    22,665     18,205     83,336     58,800
                                        --------   --------   --------   --------
      Total Payroll segment revenues     201,819    175,606    771,986    653,245
    Human Resource and Benefits
      service revenue                     26,801     21,580     97,871     74,874
                                        --------   --------   --------   --------
    Total revenues                      $228,620   $197,186   $869,857   $728,119
                                        ========   ========   ========   ========
  
  Operating income:
    Payroll                             $ 94,377   $ 80,926   $366,498   $303,360
    Human Resource and Benefits           10,948      6,331     37,890     23,395
                                        --------   --------   --------   --------
    Segment operating income             105,325     87,257    404,388    326,755
    Corporate expenses                    17,756     17,459     67,686     67,862
                                        --------   --------   --------   --------
    Total operating income                87,569     69,798    336,702    258,893
  Investment income                        8,546      4,925     27,279     16,479
                                        --------   --------   --------   --------
  Income before income taxes            $ 96,115   $ 74,723   $363,981   $275,372
                                        ========   ========   ========   ========
  
  (A) Certain amounts for the three- and twelve-month periods ended May 31, 2000
      have been reclassified to conform to the current year presentation.
  
  
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS
  
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations reviews the Company's operating results for each of the three fiscal
  years in the period ended May 31, 2001 (fiscal 2001, 2000, and 1999), and its
  financial condition at May 31, 2001.  This review provides additional analysis
  and disclosure than that contained in the Company's June 25, 2001 press
  release, which precedes this discussion.
  
  This review is not a complete and comprehensive discussion and analysis as
  required by the Securities and Exchange Commission for Annual Reports filed on
  Form 10-K or Quarterly Reports on Form 10-Q.  The Company expects to file its
  2001 Form 10-K with the Securities and Exchange Commission and mail the 2001
  Annual Report to Shareholders in August 2001.  The 2001 Annual Report to
  Shareholders will contain a complete set of audited Consolidated Financial
  Statements and Notes to Consolidated Financial Statements and a complete
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations for the Years ended May 31, 2001, 2000 and 1999, and Financial
  Condition at May 31, 2001.
  
  Forward-looking statements in this Management's Discussion and Analysis are
  qualified by the cautionary statement in Exhibit 99, contained in this Form
  8-K.
  
  
                               RESULTS OF OPERATIONS
  -------------------------------------------------------------------------------
  In thousands, except per
    share amounts                        2001  Change      2000  Change      1999
  -------------------------------------------------------------------------------
  Total revenues                     $869,857   19.5%  $728,119   21.9%  $597,296
  Combined operating & SG&A
    expenses                         $533,155   13.6%  $469,226   14.5%  $409,734
  Operating income                   $336,702   30.1%  $258,893   38.0%  $187,562
  Operating margin                      38.7%             35.6%             31.4%
  Income before income taxes         $363,981   32.2%  $275,372   37.6%  $200,143
  Net income                         $254,869   34.1%  $190,007   36.6%  $139,099
  % of total revenues                   29.3%             26.1%             23.3%
  Basic earnings per share           $    .68   33.3%  $    .51   34.2%  $    .38
  Diluted earnings per share         $    .68   33.3%  $    .51   37.8%  $    .37
  ===============================================================================
  
  The financial results for Paychex, Inc. in fiscal 2001 reflect the eleventh
  consecutive year of record service revenues and net income, and the tenth
  consecutive year of net income growth of 30% or more.  The Company's ability to
  grow its client base, increase client utilization of ancillary services,
  develop new services, implement price increases and decrease operating expenses
  as a percent of total revenues has driven the increases in total revenues and
  net income in fiscal 2001 and fiscal 2000.
  
  The increases in combined operating and selling, general and administrative
  (SG&A) expenses reflect increases in personnel, information technology and
  facility costs necessary to support the growth of the Company.  At the end of
  fiscal 2001, the Company had 7,300 employees compared with 6,200 at the end of
  fiscal 2000. In fiscal 2002, combined operating and SG&A costs are expected to
  grow at a rate slightly below the growth rates experienced in fiscal 2001.
  
  The increase in operating income and the improvement in operating margins
  reflect the Company's ability to add profitable ancillary services and leverage
  its infrastructure to grow profits faster than revenue growth.
  
  In fiscal 2001, total revenues and net income benefited from higher comparable
  average rates of interest earned and net realized gains on available-for-sale
  securities related to the funds held for clients and corporate investments
  portfolios.  The recent trend of interest rate reductions is evidenced by the
  Federal Funds rate moving from 6.50% at the beginning of January 2001 to 4.00%
  at the end of May 2001.  Looking ahead to fiscal 2002, the interest rate
  reductions will impact year-over-year net income growth.  The Company expects
  to continue to generate record revenues and net income with total revenue
  growth in the range of 16% to 18%.
  
  In fiscal 2001, 2000 and 1999, the Company had two reportable business
  segments:  Payroll and Human Resource and Benefits.
  
                                  Payroll segment
  -------------------------------------------------------------------------------
  In thousands                           2001  Change      2000  Change      1999
  -------------------------------------------------------------------------------
  Service revenue                    $688,650   15.8%  $594,445   20.6%  $492,914
  Interest on funds held for clients $ 83,336   41.7%  $ 58,800   12.4%  $ 52,335
                                     --------------------------------------------
  Total payroll segment revenues     $771,986   18.2%  $653,245   19.8%  $545,249
  Operating income                   $366,498   20.8%  $303,360   27.9%  $237,236
  Operating margin                      47.5%             46.4%             43.5%
  ===============================================================================
  
  Revenues:  Total Payroll segment revenues include service fees and interest on
  funds held for clients.  Service fee revenue is earned primarily from Payroll,
  Taxpay, Employee Pay Services and other ancillary services.  The Employee Pay
  Services includes the Direct Deposit, Readychex, and Access Card products.  In
  addition to service fees paid by clients, the Company earns interest on Taxpay
  and Employee Pay Services funds that are collected before due dates and
  invested (funds held for clients) until remittance to the applicable tax
  authorities for Taxpay clients and employees of Employee Pay Services clients.
  Interest on funds held for clients is included in total revenues on the
  Consolidated Statements of Income as the collection, holding and remittance of
  these funds is a critical component of providing these particular product
  services.  Interest on funds held for clients also includes net realized gains
  and losses from the sale of available-for-sale securities.
  
  The increases in Payroll service revenue are primarily related to the addition
  of new clients, new services, price increases and increased utilization of
  ancillary services, by both new and existing clients.  At May 31, 2001, 83% of
  Paychex clients utilized Taxpay, the Company's tax filing and payment feature,
  compared with 81% at the end of 2000 and 79% at the end of 1999.  Client
  utilization of the Taxpay product is expected to mature within a range of 83%
  to 87%.  The Company's Employee Pay Services was utilized by 53% of clients at
  May 31, 2001, versus 47% and 42% at May 31, 2000 and 1999, respectively.
  During fiscal 2001 and 2000, the Company continued expansion of its Major
  Market Services (MMS) payroll product offering.  MMS is now available in
  approximately one-half the markets served by the Company.  MMS revenues totaled
  $47.4 million, $30.0 million and $19.3 million in fiscal 2001, 2000 and 1999,
  respectively.  This represents year-over-year revenue growth of 58% for fiscal
  2001 and 55% for fiscal 2000.  Employee Pay Services and MMS are expected to
  provide continuing revenue growth opportunities for fiscal 2002 and beyond.  In
  fiscal 2001, the Company introduced new payroll product enhancements including
  Employee Garnishments and "After-The-Fact" payroll.  Fiscal 2002's percentage
  growth in Payroll service revenue is expected to be in the range of 16% to 18%.
  
  In fiscal 2001 and 2000, interest on funds held for clients increased due to
  growth in the utilization of Taxpay and Employee Pay Services by new and
  existing clients and higher average daily balances.  Average daily portfolio
  balances for funds held for clients were approximately  $1.7 billion, $1.4
  billion, and $1.1 billion in fiscal 2001, 2000, and 1999, respectively.  The
  significantly higher percentage growth in interest on funds held for clients in
  fiscal 2001 reflects the benefit of higher comparable average rates of return
  and net realized gains on the sale of available-for-sale securities.  In fiscal
  2001, interest on funds held for clients included net realized gains of $5.7
  million compared with net realized losses of $2.9 million and net realized
  gains of $2.4 million in fiscal 2000 and 1999, respectively.  During the third
  and fourth quarters of fiscal 2001, market rates of interest declined
  significantly with the Federal Funds rate decreasing 2.50 percentage points
  during the period.  Due to the decrease in interest rates, the Company expects
  that interest on funds held for clients in fiscal 2002 will be lower than in
  fiscal 2001.  For further discussion of interest rates and related risks, refer
  to the "Market Risk Factors" section of this review.
  
  Operating income: Operating income for 2001 and 2000 increased as a result of
  the increases in Payroll service revenue and interest on funds held for clients
  and continued leveraging of the segment's operating expense base as evidenced
  by the improvement in operating margins year-over-year.
  
  Effective September 1, 1999, the Company increased its sales force compensation
  package by approximately $6.0 million on an annualized basis to increase the
  retention and quality of its payroll sales representatives.  This compensation
  increase resulted in additional expense of approximately $4.5 million in fiscal
  2000 and $1.5 million in the first quarter of fiscal 2001 when compared to the
  prior years.
  
                            Human Resource and Benefits
  -------------------------------------------------------------------------------
  In thousands                           2001   Change     2000   Change     1999
  -------------------------------------------------------------------------------
  Service revenue                     $97,871    30.7%  $74,874    43.9%  $52,047
  Operating income                    $37,890    62.0%  $23,395   111.3%  $11,072
  Operating margin                      38.7%             31.2%             21.3%
  ===============================================================================
  
  Revenues:  The significant increases in service revenue for 2001 and 2000 are
  primarily related to increasing 401(k) Recordkeeping, Workers' Compensation
  Insurance Administration and Section 125 clients, and PAS and PEO client
  employees serviced.  At May 31, 2001, over 19,000 clients utilized the
  Company's 401(k) Recordkeeping service, and over $1.7 billion of client
  employee funds were managed externally.  The growth in 401(k) clients reflects
  the continuing interest of small- to medium-sized businesses in offerering
  retirement savings benefits to their employees.  401(k) Recordkeeping revenues
  were $43.0 million, $31.5 million and $19.7 million in fiscal 2001, 2000 and
  1999, respectively.  This represents year-over-year growth of 36% in fiscal
  2001 and 60% in fiscal 2000. The Company continued to expand its Workers'
  Compensation Insurance Administration product, which provides insurance for
  qualified clients through leading insurance providers and a reporting method to
  stabilize their cash flows throughout the year.
  
  In fiscal 2000, the Company began a nationwide expansion of its Paychex
  Administrative Services (PAS) product, a combined package of payroll, employer
  compliance, employee benefit administration, and risk management outsourcing
  services designed to make it easier for small businesses to manage their
  payroll and related benefit costs.  Expansion efforts continued throughout
  fiscal 2001, and the PAS product is now available nationwide.   The Company
  operates a Professional Employer Organization (PEO) which provides the same
  combined package of services as the PAS product, but as a co-employer of the
  client's employees.  The Company's PEO service is primarily focused in the
  states of Florida and Georgia where PEO's are popular and operate under an
  attractive regulatory environment.  At the end of fiscal 2001, the PAS and PEO
  products serviced over 60,000 client employees.
  
  Operating income:  For 2001 and 2000, the increases in operating income are
  primarily related to the service revenue gains and the leveraging of operating
  expenses.
  
  Full-year fiscal 2002's Human Resource and Benefits service revenue is expected
  to grow at a rate slightly higher than in fiscal 2001.  Fiscal 2002's
  quarter-over-quarter percentage comparisons in Human Resource and Benefits
  revenue and operating income may vary significantly throughout the year, and
  any one particular quarter's results may not be indicative of expected
  full-year results.
  
                                Corporate expenses
  -------------------------------------------------------------------------------
  In thousands                           2001    Change     2000  Change     1999
  -------------------------------------------------------------------------------
  Corporate expenses                  $67,686      -.3%  $67,862   11.7%  $60,746
  ===============================================================================
  
  Corporate expenses are primarily related to the Information Technology,
  Organizational Development, Finance, Marketing, and Senior Management functions
  of the Company. Corporate expenses have increased primarily due to additional
  employees and other expenditures required to support the continued growth of
  the Company's service operations and sales force.  In fiscal 2001, these
  increases were offset by lower spending on national marketing efforts and other
  areas, resulting in a relatively flat growth year-over-year.  Looking forward,
  the Company expects the growth in corporate expenses to be in the range of 10%
  to 13% in fiscal 2002.
  
                                 Investment income
  -------------------------------------------------------------------------------
  In thousands                           2001    Change     2000  Change     1999
  -------------------------------------------------------------------------------
  Investment income                   $27,279     65.5%  $16,479   31.0%  $12,581
  ===============================================================================
  
  Investment income primarily represents earnings from the Company's cash and
  cash equivalents and investments in available-for-sale securities.  Investment
  income does not include interest on funds held for clients, which are recorded
  within the Payroll segment and total revenue.  The increases in investment
  income in fiscal 2001 and 2000 are primarily due to the increase in average
  daily invested balances generated from increases in overall cash flows.
  Average daily balances invested were $.6 billion, $.4 billion and $.3 billion
  for fiscal 2001, 2000 and 1999, respectively.  Fiscal 2001 also benefited from
  higher comparable average rates of return and net realized gains on
  available-for-sale securities.  In fiscal 2001, investment income included net
  realized gains on available-for-sale securities of $1.7 million compared to net
  realized losses of $0.8 million in fiscal 2000 and net realized gains of $0.5
  million in fiscal 1999. During the third and fourth quarters of fiscal 2001,
  market rates of interest declined significantly with the Federal Funds rate
  decreasing 2.50 percentage points during the period.  As a result of the
  decrease in interest rates, investment income for fiscal 2002 is expected to
  grow at a rate significantly lower than in fiscal 2001.  Refer to the "Market
  Risk Factors" section of this review for further discussion of interest rates
  and the related risks.
  
                                   Income taxes
  -------------------------------------------------------------------------------
  In thousands                           2001  Change      2000  Change      1999
  -------------------------------------------------------------------------------
  Income taxes                       $109,112   27.8%   $85,365   39.8%   $61,044
  Effective income tax rate             30.0%             31.0%             30.5%
  ===============================================================================
  
  The change in the effective income tax rate in 2001 is due to the growth in
  tax-exempt income exceeding the growth in taxable income and other tax
  reduction opportunities. Tax-exempt income is derived primarily from income
  earned on municipal debt securities.  Fiscal 2002's effective income tax rate
  is expected to approximate 31.0%.
  
  
                          LIQUIDITY AND CAPITAL RESOURCES
  
                               Operating activities
  -------------------------------------------------------------------------------
  In thousands                         2001  Change       2000  Change       1999
  -------------------------------------------------------------------------------
  Operating cash flows             $304,938   22.5%   $249,028   43.0%   $174,120
  ===============================================================================
  
  The increases in operating cash flows resulted primarily from the achievement
  of higher net income.  Projected operating cash flows are expected to
  adequately support normal business operations, forecasted growth, purchases of
  property and equipment and dividend payments.  At May 31, 2001, the Company had
  $614 million in available cash and corporate investments.  The Company also had
  $140 million of available, uncommitted, unsecured lines of credit and $350
  million available under an uncommitted, secured line of credit.
  
                               Investing activities
  -------------------------------------------------------------------------------
  In thousands                         2001  Change       2000  Change       1999
  -------------------------------------------------------------------------------
  Net funds held for clients
    and corporate investment
    activities                    $(144,270)     --  $(144,322)  74.5%  $ (82,724)
  Purchases of property and
    equipment                       (45,250)  32.5%    (34,154)  54.4%    (22,116)
  Proceeds from the sale of
    property and equipment               32      --      1,266      --         12
  Purchases of other assets          (8,290)  19.0%     (6,964)  94.0%     (3,590)
                                  -----------------------------------------------
  Net cash used in investing
    activities                    $(197,778)   7.4%  $(184,174)  69.9%  $(108,418)
  ===============================================================================
  
  Funds held for clients and corporate investments: Funds held for clients are
  primarily comprised of short-term funds and available-for-sale debt securities,
  and corporate investments are primarily comprised of available-for-sale debt
  securities.
  
  The reported amount of funds held for clients will vary significantly based
  upon the timing of collecting client funds, and the related remittance of funds
  to the applicable tax authorities for Taxpay clients and employees of clients
  utilizing Employee Pay Services. Corporate investments have increased due to
  the investment of growing cash balances provided by operating activities offset
  by purchases of property and equipment and dividend payments. At May 31, 2001
  the total available-for-sale portfolio included unrealized gains of $20.5
  million, compared to a portfolio at May 31, 2000 that included unrealized
  losses of $13.4 million.  Additional discussion of interest rates and related
  risks is included in the "Market Risk Factors" section of this review.
  
  Purchases of property and equipment:  To support the Company's client and
  ancillary product growth, investments are regularly made in data processing
  equipment and software, and for the expansion and upgrade of various branch
  facilities.  In fiscal 2001, the Company made purchases of property and
  equipment of $45.3 million compared with $34.2 million of purchases in fiscal
  2000.  In May 2001, the Company purchased a 135,000 square foot office facility
  in Rochester for approximately $5.0 million.  This facility will house a
  centralized information technology data center and various other support
  functions.  As a result of this purchase, the Company has delayed previously
  announced plans to construct a new 300,000 square foot building at an estimated
  cost of $40 million.  During fiscal 2000, the Company sold an office facility
  in California for $1.2 million and purchased a branch office facility in
  Pennsylvania for $6.1 million.  Purchases of property and equipment in fiscal
  2002 are expected to be in the range of $35 million to $40 million. Fiscal 2002
  depreciation expense is projected to be approximately $28 million.
  
  Effective June 1, 1999, the Company adopted Statement of Position (SOP) 98-1,
  "Accounting for the Costs of Computer Software Developed or Obtained for
  Internal Use."  The SOP requires the capitalization of internal use computer
  software costs if certain criteria are met, including all external direct costs
  for materials and services and certain payroll and related fringe benefit
  costs. Prior to fiscal 2000, the Company expensed as incurred certain payroll
  and related fringe benefit costs to develop and enhance its internal computer
  programs and software.  The effect of adopting the SOP increased net income by
  approximately $3.2 million and $2.4 million for the years ended May 31, 2001
  and May 31, 2000, respectively.
  
                               Financing activities
  -------------------------------------------------------------------------------
  In thousands, except per
    share amounts                    2001   Change       2000   Change       1999
  -------------------------------------------------------------------------------
  Dividends paid                $(123,112)   50.9%   $(81,583)   50.9%   $(54,055)
  Proceeds from exercise of
    stock options                  14,600    29.9%     11,242   103.1%      5,535
  Other                                --       --        (69)   13.1%        (61)
                                -------------------------------------------------
  Net cash used in financing
    activities                  $(108,512)   54.1%   $(70,410)   44.9%   $(48,581)
  -------------------------------------------------------------------------------
  Cash dividends per common
    share                       $     .33    50.0%   $    .22    46.7%   $    .15
  ===============================================================================
  
  Dividends paid:  On October 10, 2000 and October 7, 1999, the Company increased
  its quarterly cash dividend rate per share by 50%.  Future dividends are
  dependent on the Company's future earnings and cash flow.  The Company has
  declared three-for-two stock splits effected in the form of 50% stock dividends
  on outstanding shares in May of 2000 and 1999.
  
  Proceeds from exercise of stock options:  The increase in proceeds from the
  exercise of stock options is primarily due to an increase in the number of
  shares exercised and higher comparable exercise prices per share.  The Company
  has recognized a tax benefit from the exercise of stock options of $26.4
  million, $19.4 million and $16.3 million for fiscal 2001, fiscal 2000 and
  fiscal 1999, respectively.  This tax benefit reduces the accrued income tax
  liability and increases additional paid-in capital, with no impact on the
  expense amount for income taxes.
  
                                MARKET RISK FACTORS
  
  Interest rate risk: Funds held for clients are primarily comprised of
  short-term funds and available-for-sale debt securities, and corporate
  investments are primarily comprised of available-for-sale debt securities.  The
  Company's available-for-sale debt securities are exposed to interest rate risk
  as interest rate volatility will cause fluctuations in the market value of held
  investments and the earnings potential of future investments. Decreases in
  interest rates normally increase the market value of the available-for-sale
  securities, while increases in interest rates decrease the market value of the
  available-for-sale securities.  The Company's available-for-sale securities and
  short-term funds are exposed to earnings risk from changes in interest rates,
  as rate volatility will cause fluctuations in the earnings potential of future
  investments.  Decreases in interest rates quickly decrease earnings from
  short-term funds, and over time decrease earnings from the available-for-sale
  securities portfolio.  Increases in interest rates have the opposite earnings
  effect on the available-for-sale securities and short-term funds.  Earnings
  from the available-for-sale securities do not reflect changes in rates until
  the investments are sold or mature, and the proceeds are reinvested at current
  rates.  The immediate impact of changing interest rates on earnings from
  short-term funds may be temporarily offset by realized gains or losses from
  transactions in the Company's available-for-sale portfolio.  The Company
  estimates that the earnings effect of a 25 basis point change in interest rates
  (17 basis points for tax-exempt investments) at this point in time would equate
  to approximately $3.0 million for fiscal 2002.
  
  The Company directs investments towards high credit-quality, tax-exempt
  securities to mitigate the risk that earnings from the portfolio could be
  adversely impacted by changes in interest rates in the near term.  The Company
  invests in short- to intermediate-term, fixed-rate municipal and government
  securities, which typically have lower interest rate volatility, and manages
  the securities portfolio to a benchmark duration of 2.5 to 3.0 years. The
  Company does not utilize derivative financial instruments to manage interest
  rate risk.
  
  The recent trend in interest rates has been toward interest rate reductions
  versus interest rate increases during fiscal 2000.  The following table
  summarizes the changes in the Federal Funds rate over the last three years:
  
  --------------------------------------------------------------------------------
                                                       2001       2000       1999
  --------------------------------------------------------------------------------
  Federal Funds rate - beginning of fiscal year       6.50%      4.75%      5.50%
  Rate increase/(decrease):
    First quarter                                        -        .50          -
    Second quarter                                       -        .25       (.75)
    Third quarter                                    (1.00)       .25          -
    Fourth quarter                                   (1.50)       .75          -
                                                     ------      -----      -----
  Federal Funds rate - end of fiscal year             4.00%      6.50%      4.75%
  ================================================================================
  Three Year "AAA" Municipal Securities
    Yields at May 31:                                 3.44%      4.96%      3.85%
  ================================================================================
  
  Calculating the future effects of changing interest rates involves many
  factors.  These factors include, but are not limited to, daily interest rate
  changes, seasonal variations in investment balances, actual duration of short
  and intermediate-term investments, the proportionate mix of taxable and
  tax-exempt investments, and changes in tax-exempt municipal rates versus
  taxable investment rates - which are not synchronized or simultaneous.  Subject
  to these factors, a 25 basis point change generally affects the Company's
  tax-exempt interest rates by approximately 17 basis points.  Realized gains are
  more prevalent in a decreasing rate environment and realized losses are more
  prevalent in an increasing rate environment.  During fiscal 2001, the Company's
  total investment portfolio averaged approximately $2.3 billion compared with an
  average of $1.8 billion for fiscal 2000.  The total investment portfolio is
  expected to average $2.6 billion in fiscal 2002.  The Company's normal and
  anticipated allocation is approximately 50% invested in short-term securities
  with a duration of less than 30 days and 50% invested in intermediate-term
  municipal securities with an average duration of three years.
  
  As of May 31, 2001, the available-for-sale securities included unrealized gains
  of $20.5 million, compared with a portfolio at May 31, 2000 that included
  unrealized losses of $13.4 million.  In fiscal 2000, the available-for-sale
  portfolio had a market value less than its cost basis as a result of the upward
  trend in interest rates throughout the year.  The decreasing interest rate
  environment in fiscal 2001 resulted in the improvement in the market value of
  the available-for-sale portfolio.  As of May 31, 2001 and May 31, 2000, the
  Company had $1.3 billion and $1.0 billion invested in available-for-sale
  securities at fair value, with weighted average yields to maturity of 4.3% and
  4.5%, respectively.  Assuming a hypothetical decrease in interest rates of 25
  basis points given the May 31, 2001 securities portfolios, the resulting
  potential increases in fair value would be in the range of $7.5 million to $8.5
  million.  Conversely, a corresponding increase in interest rates would result
  in a comparable decrease in fair value.  This hypothetical decrease or increase
  in the fair value of the portfolio would be recorded as an adjustment to the
  portfolio's recorded value, with an offsetting amount recorded in stockholders'
  equity, with no related or immediate impact to the results of operations.
  
  Credit risk:  The Company is exposed to credit risk in connection with these
  investments through the possible inability of the borrowers to meet the terms
  of the bonds.  The Company attempts to limit credit risk by investing primarily
  in AAA and AA rated securities and A-1 rated short-term securities, and by
  limiting amounts that can be invested in any single instrument.  At May 31,
  2001, approximately 98% of the available-for-sale securities held an AA rating
  or better, and all short-term securities classified as cash equivalents held an
  A-1 or equivalent rating.
  
                                       OTHER
  
  Recently issued accounting standards: In December 1999, the Securities and
  Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
  Recognition in Financial Statements."  This SAB formalizes the SEC's position
  on application of revenue recognition rules.  The Company adopted SAB No. 101
  in the fourth quarter of fiscal 2001 with no material impact on the Company's
  results of operations or financial position.
  
  In June 1998, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
  Instruments and Hedging Activities."  This statement was most recently amended
  in June 2000 by Statement of Financial Accounting Standard No. 138 "Accounting
  for Certain Derivative Instruments and Certain Hedging Activities - An
  Amendment to FASB Statement No. 133."  These statements are collectively
  referred to as SFAS 133.  This statement establishes accounting and reporting
  standards for derivative instruments and for hedging activities and is
  effective for fiscal years beginning after June 15, 2000.  The Company will
  adopt the provisions of SFAS No. 133 in the first quarter of fiscal 2002.  The
  Company currently does not utilize derivative instruments and does not expect
  that adoption of SFAS No. 133 will have a significant effect on its
  consolidated results of operations or financial position.
  
  
  Exhibit 99:  "Safe Harbor" Statement under the Private Securities Litigation
                Reform Act of 1995.
  
               "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
                           LITIGATION REFORM ACT OF 1995
  
  Certain written and oral statements made by Paychex, Inc., (the "Company")
  management may constitute "forward-looking statements" as defined in the
  Private Securities Litigation Reform Act of 1995.  Forward-looking statements
  are identified by such words and phrases as  "we expect", "expected to",
  "estimates", "we look forward to", "would equate to", "are projected at", "we
  believe", "could be" and other similar phrases.  Because they are
  forward-looking, they should be evaluated in light of important risk factors.
  These risk factors include, but are not limited to, general market and economic
  conditions, including demand for the Company's products and services,
  availability of internal and external resources, executing expansion plans,
  competition, and price levels; changes in the laws regulating collection and
  payment of payroll taxes, professional employer organizations, and employee
  benefits, including 401(k) plans, workers' compensation, state unemployment,
  and section 125 plans; delays in the development, timing of the introduction,
  and marketing of new products and services; changes in technology including the
  use of the Internet; the possibility of catastrophic events that could impact
  the Company's operating facilities, computer technology and communication
  systems; and changes in short- and long-term interest rates, changes in market
  value of available-for-sale securities and the credit rating of cash, cash
  equivalents, and securities held in the Company's investment portfolios, all of
  which could cause actual results to differ materially from anticipated results.
  The information provided in this document is based upon the facts and
  circumstances known at this time.  The Company assumes no obligation to update
  this document for new information subsequent to its issuance.
metadata_documents: [{"type": "8-K", "sequence": "1", "filename": "payx8k.txt", "description": "PAYCHEX, INC. FORM 8-K FILING", "secsgml_size_bytes": 53372}]
metadata_filer: {"company-data": {"conformed-name": "PAYCHEX INC", "cik": "0000723531", "assigned-sic": "8700", "irs-number": "161124166", "state-of-incorporation": "DE", "fiscal-year-end": "0531"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-11330", "film-number": "1666167"}, "business-address": {"street1": "911 PANORAMA TRAIL S", "city": "ROCHESTER", "state": "NY", "zip": "14625-0397", "phone": "7163856666"}, "mail-address": {"street1": "911 PANORAMA TRAIL SOUTH", "city": "ROCHESTER", "state": "NY", "zip": "14625-0397"}}
text: SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549
  
                                     FORM 8-K
  
                                  CURRENT REPORT
                        PURSUANT TO SECTION 13 OR 15(d) OF
                        THE SECURITIES EXCHANGE ACT OF 1934
  
                          Date of Report:  June 25, 2001
                         (Date of earliest event reported)
  
                                   PAYCHEX, INC.
              (Exact name of registrant as specified in its charter)
  
          DELAWARE               0-11330                   16-1124166
  (State of incorporation)     (Commission               (IRS Employer
                               File Number)          Identification Number)
  
  911 PANORAMA TRAIL SOUTH, ROCHESTER, NEW YORK            14625-0397
  (Address of principal executive offices)                 (Zip Code)
  
                                  (716) 385-6666
               (Registrant's telephone number, including area code)
  
  ITEM 9.  REGULATION FD DISCLOSURE
  
  The registrant's press release dated June 25, 2001, which reports its financial
  results for the fiscal year ended May 31, 2001, is attached.  In addition, this
  report includes Management's Discussion and Analysis of Financial Condition and
  Results of Operations, which reviews the Company's results of operations for the
  three years ended May 31, 2001, 2000 and 1999, and its financial condition at
  May 31, 2001.
  
  The attached Management's Discussion and Analysis is not a complete and
  comprehensive Management's Discussion and Analysis as required by the
  Securities and Exchange Commission for Annual Reports filed on Form 10-K or
  Quarterly Reports on Form 10-Q.  The Company expects to file its 2001 Form 10-K
  with the Securities and Exchange Commission and mail the 2001 Annual Report to
  Shareholders in August 2001.  The 2001 Annual Report to Shareholders and Form
  10-K will contain a complete set of audited Consolidated Financial Statements
  and Notes to Consolidated Financial Statements and a complete Management's
  Discussion and Analysis of Financial Condition and Results of Operations for
  the Years ended May 31, 2001, 2000 and 1999, and Financial Condition at May 31,
  2001.
  
  All information included in this Form 8-K is qualified by the cautionary
  statement in Exhibit 99.
  
  SIGNATURES
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
                                               PAYCHEX, INC.
  
  Date:     June 25, 2001                      /s/ B. Thomas Golisano
                                               -----------------------
                                               B. Thomas Golisano
                                               Chairman, President and
                                               Chief Executive Officer
  
  Date:     June 25, 2001                      /s/ John M. Morphy
                                               -----------------------
                                               John M. Morphy
                                               Vice President, Chief
                                               Financial Officer and
                                               Secretary
  
  FOR IMMEDIATE RELEASE
        John M. Morphy, Chief Financial Officer or Jan Shuler 716-383-3406
  
        Access the Webcast of the Paychex, Inc. Year End and Fourth Quarter
          Earnings Release Conference Call scheduled for June 25, 2001 at 11:00
          a.m. Eastern Standard Time at
          http://www.paychex.com/paychex/finance/finance.html.
  
        Paychex, Inc. news releases, current financial information, related SEC
          filings and Investor Relations presentation are accessible at the same
          Web site.
  
         PAYCHEX, INC. REPORTS RECORD YEAR-END AND FOURTH QUARTER RESULTS
  
  ROCHESTER, NY, June 25, 2001 -- Paychex, Inc. (NASDAQ: PAYX) today announced
  record net income of $254.9 million, or $.68 diluted earnings per share, for
  the fiscal year ended May 31, 2001, a 34% increase over net income of $190.0
  million, or $.51 diluted earnings per share, for the prior year.  Total
  revenues were $869.9 million, an increase of 19% over $728.1 million for the
  prior year.
  
  For the fourth quarter ended May 31, 2001, net income increased 31% to $67.8
  million, or $.18 diluted earnings per share, as compared to $51.6 million, or
  $.14 diluted earnings per share, for the same period last year.  Total revenues
  were $228.6 million, an increase of 16% over $197.2 million for the prior year
  fourth quarter.
  
  PAYROLL SEGMENT
  
  For the year ended May 31, 2001, operating income for the Payroll segment
  increased 21% to $366.5 million from $303.4 million for the prior fiscal year.
  Total Payroll segment revenues were $772.0 million, an increase of 18% over
  $653.2 million for the prior year.
  
  For the fourth quarter ended May 31, 2001, operating income for the Payroll
  segment increased 17% to $94.4 million from $80.9 million for the same period
  last year.  Total Payroll segment revenues were $201.8 million, an increase of
  15% over $175.6 million for the prior year fourth quarter.
  
  The increases in total Payroll segment revenues and operating income reflect
  continued growth in the client base, increased utilization of ancillary
  services, and leveraging of operating expenses.  In addition, the Payroll
  segment benefited from growth in the interest on funds held for clients due to
  higher daily client balances and net realized gains.  The full year period also
  reflected higher comparable average rates of return.
  
  As of May 31, 2001, 83% of Paychex clients utilized Taxpay (Registered
  Trademark), the Company's tax filing and payment feature.  The Company's
  Employee Pay Services, which includes Direct Deposit, Readychex and Access Card
  products, was utilized by 53% of its clients.  Major Market Services revenue
  increased 56% and 58% for the fourth quarter and the fiscal year to $13.5
  million and $47.4 million, respectively.
  
  HUMAN RESOURCE AND BENEFITS SEGMENT
  
  For the year ended May 31, 2001, operating income for the Human Resource and
  Benefits segment increased 62% from $23.4 million to $37.9 million.  Human
  Resource and Benefits service revenue was $97.9 million, an increase of 31%
  over $74.9 million for the prior fiscal year.  For the fourth quarter ended May
  31, 2001, operating income for the Human Resource and Benefits segment
  increased 73% from $6.3 million to $10.9 million.  Human Resource and Benefits
  service revenue was $26.8 million, an increase of 24% over $21.6 million for
  the fourth quarter last year.
  
  The increases in service revenue and operating income are primarily related to
  increases in clients for 401(k) Recordkeeping, Workers' Compensation
  Insurance, Section 125, PAS and PEO services.  401(k) Recordkeeping revenue
  increased 26% and 36% for the fourth quarter and the full year period to $11.5
  million and $43.0 million, respectively.
  
  CORPORATE EXPENSES
  
  Corporate expenses are primarily related to the Information Technology,
  Organizational Development, Finance, Marketing and Senior Management functions
  of the Company.  For the year ended May 31, 2001, corporate expenses decreased
  0.3% from $67.9 million to $67.7 million.  For the quarter ended May 31, 2001,
  corporate expenses increased 1.7% to $17.8 million from $17.5 million.  The
  relatively flat year-over-year comparisons reflect additional employees and
  other expenditures to support the growth of the Company's service operations
  and sales force offset by lower spending on national marketing efforts and
  other areas in fiscal 2001.
  
  INVESTMENT INCOME
  
  Investment income for fiscal year 2001 increased 66% to $27.3 million from
  $16.5 million in the prior year.  Investment income for the quarter ended May
  31, 2001 increased 74% to $8.5 million from $4.9 million for the fourth quarter
  of fiscal 2000.  The increases are due to higher balances of investments and
  net realized gains on the sale of available-for-sale securities.  The full year
  period also benefited from higher comparable average rates of return.
  
  INCOME TAXES
  
  The income tax rates for the fourth quarter and the year ended May 31, 2001
  were 29.5% and 30.0%, respectively, as compared to 31.0% for the same periods
  last year.
  
  B. Thomas Golisano, Chairman, President and Chief Executive Officer of Paychex,
  said, "We are pleased with our financial results for the fourth quarter and
  fiscal year.  We have completed our eleventh straight year of record revenues
  and net income and our tenth consecutive year of net income growth exceeding
  30%.  These results have been achieved by applying our growth strategy -
  increasing our client base, increasing client utilization of ancillary
  services, developing new services and leveraging our infrastructure.  Looking
  ahead to fiscal 2002, we recognize interest rate reductions will impact
  year-over-year net income growth. However, we expect to continue to generate
  record revenues and net income with total revenue growth in the range of 16% to
  18%."
  
                                   PAYCHEX, INC.
                         CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per share amounts)
  
                                        For the three           For the twelve
                                         months ended            months ended
                                      May 31,     May 31,     May 31,     May 31,
                                         2001        2000        2001        2000
                                     --------    --------    --------    --------
  Revenues:
    Payroll                          $179,154    $157,401    $688,650    $594,445
    Human Resource and Benefits        26,801      21,580      97,871      74,874
                                     --------    --------    --------    --------
    Total service revenues            205,955     178,981     786,521     669,319
    Interest on funds held
      for clients                      22,665      18,205      83,336      58,800
                                     --------    --------    --------    --------
    Total revenues                    228,620     197,186     869,857     728,119
  
  Operating costs                      52,954      46,795     200,352     173,481
  Selling, general and
    administrative expenses            88,097      80,593     332,803     295,745
                                     --------    --------    --------    --------
  Operating income                     87,569      69,798     336,702     258,893
  
  Investment income                     8,546       4,925      27,279      16,479
                                     --------    --------    --------    --------
  Income before income taxes           96,115      74,723     363,981     275,372
  
  Income taxes                         28,354      23,164     109,112      85,365
                                     --------    --------    --------    --------
  Net income                         $ 67,761    $ 51,559    $254,869    $190,007
                                     ========    ========    ========    ========
  Basic earnings per share           $    .18    $    .14    $    .68    $    .51
                                     ========    ========    ========    ========
  Diluted earnings per share         $    .18    $    .14    $    .68    $    .51
                                     ========    ========    ========    ========
  Weighted-average common shares
    outstanding                       373,455     371,576     372,777     370,603
                                     ========    ========    ========    ========
  Weighted-average shares assuming
    dilution                          377,397     376,407     377,510     375,081
                                     ========    ========    ========    ========
  Cash dividends per common share    $    .09    $    .06    $    .33    $    .22
                                     ========    ========    ========    ========
  
  (A) Certain amounts for the three- and twelve-month periods ended May 31, 2000
      have been reclassified to conform to the current year presentation.
  
  (B) Further information on interest on funds held for clients and investment
      income can be found in the Company's SEC filings under the caption
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" and subheadings "Results of Operations" and "Market Risk
      Factors." These SEC filings are accessible at the Company's Web site.
  
                                   PAYCHEX, INC.
                            CONSOLIDATED BALANCE SHEETS
                                  (In thousands)
  
                                                         May 31,          May 31,
                                                            2001             2000
                                                      ----------       ----------
  ASSETS
  Cash and cash equivalents                           $   45,784       $   47,136
  Corporate investments                                  568,217          412,357
  Interest receivable                                     28,281           22,436
  Accounts receivable                                    100,640           87,608
  Deferred income taxes                                        -            9,539
  Prepaid expenses and other current assets                7,306            6,531
                                                      ----------       ----------
  Current assets before funds held for clients           750,228          585,607
  Funds held for clients                               2,041,045        1,776,968
                                                      ----------       ----------
  Total current assets                                 2,791,273        2,362,575
                                                      ----------       ----------
  Property and equipment - net                            96,078           75,375
  Goodwill and intangible assets - net                     9,612            5,584
  Deferred income taxes                                    1,361            2,494
  Other assets                                             8,872            9,549
                                                      ----------       ----------
  Total assets                                        $2,907,196       $2,455,577
                                                      ==========       ==========
  LIABILITIES
  Accounts payable                                    $   16,377       $   17,086
  Accrued compensation and related items                  57,418           52,631
  Deferred revenue                                         4,421            4,719
  Accrued income taxes                                     9,783            2,969
  Deferred income taxes                                    4,996               --
  Other current liabilities                               19,282           24,400
                                                      ----------       ----------
  Current liabilities before client funds deposits       112,277          101,805
  Client funds deposits                                2,031,565        1,785,140
                                                      ----------       ----------
  Total current liabilities                            2,143,842        1,886,945
  Long-term liabilities                                    5,512            5,200
                                                      ----------       ----------
  Total liabilities                                    2,149,354        1,892,145
  
  STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, 600,000
    authorized shares
    Issued:  373,647/May 31, 2001 and
      371,769/May 31, 2000                                 3,736            3,718
  Additional paid-in capital                             139,897           98,904
  Retained earnings                                      601,142          469,385
  Accumulated other comprehensive income/(loss)           13,067           (8,575)
                                                      ----------       ----------
  Total stockholders' equity                             757,842          563,432
                                                      ----------       ----------
  Total liabilities and stockholders' equity          $2,907,196       $2,455,577
                                                      ==========       ==========
  
                                   PAYCHEX, INC.
                           BUSINESS SEGMENT INFORMATION
                                  (In thousands)
  
  The Company has two business segments: Payroll and Human Resource and Benefits.
  The Payroll segment is engaged in the preparation of payroll checks, internal
  accounting records, federal, state and local payroll tax returns, and
  collection and remittance of payroll obligations for small- to medium-sized
  businesses.  The Human Resource and Benefits segment specializes in providing
  small- to medium-sized businesses with cost-effective outsourcing solutions for
  their employee benefits.  Human Resource and Benefits products include 401(k)
  Plan Recordkeeping, Workers' Compensation Insurance Administration, Section 125
  Plan Administration, Group Benefits, State Unemployment Insurance, Employee
  Handbooks and Management Services, Paychex Administrative Services (PAS) and
  Professional Employer Organization (PEO) services.  Corporate expenses are
  primarily related to the Information Technology, Organizational Development,
  Finance, Marketing and Senior Management functions of the Company.
  
                                            For the three        For the twelve
                                            months ended          months ended
                                         May 31,    May 31,    May 31,    May 31,
                                            2001       2000       2001       2000
                                        --------   --------   --------   --------
  Revenues:
    Payroll service revenue             $179,154   $157,401   $688,650   $594,445
    Interest on funds held for clients    22,665     18,205     83,336     58,800
                                        --------   --------   --------   --------
      Total Payroll segment revenues     201,819    175,606    771,986    653,245
    Human Resource and Benefits
      service revenue                     26,801     21,580     97,871     74,874
                                        --------   --------   --------   --------
    Total revenues                      $228,620   $197,186   $869,857   $728,119
                                        ========   ========   ========   ========
  
  Operating income:
    Payroll                             $ 94,377   $ 80,926   $366,498   $303,360
    Human Resource and Benefits           10,948      6,331     37,890     23,395
                                        --------   --------   --------   --------
    Segment operating income             105,325     87,257    404,388    326,755
    Corporate expenses                    17,756     17,459     67,686     67,862
                                        --------   --------   --------   --------
    Total operating income                87,569     69,798    336,702    258,893
  Investment income                        8,546      4,925     27,279     16,479
                                        --------   --------   --------   --------
  Income before income taxes            $ 96,115   $ 74,723   $363,981   $275,372
                                        ========   ========   ========   ========
  
  (A) Certain amounts for the three- and twelve-month periods ended May 31, 2000
      have been reclassified to conform to the current year presentation.
  
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS
  
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations reviews the Company's operating results for each of the three fiscal
  years in the period ended May 31, 2001 (fiscal 2001, 2000, and 1999), and its
  financial condition at May 31, 2001.  This review provides additional analysis
  and disclosure than that contained in the Company's June 25, 2001 press
  release, which precedes this discussion.
  
  This review is not a complete and comprehensive discussion and analysis as
  required by the Securities and Exchange Commission for Annual Reports filed on
  Form 10-K or Quarterly Reports on Form 10-Q.  The Company expects to file its
  2001 Form 10-K with the Securities and Exchange Commission and mail the 2001
  Annual Report to Shareholders in August 2001.  The 2001 Annual Report to
  Shareholders will contain a complete set of audited Consolidated Financial
  Statements and Notes to Consolidated Financial Statements and a complete
  Management's Discussion and Analysis of Financial Condition and Results of
  Operations for the Years ended May 31, 2001, 2000 and 1999, and Financial
  Condition at May 31, 2001.
  
  Forward-looking statements in this Management's Discussion and Analysis are
  qualified by the cautionary statement in Exhibit 99, contained in this Form
  8-K.
  
                               RESULTS OF OPERATIONS
  -------------------------------------------------------------------------------
  In thousands, except per
    share amounts                        2001  Change      2000  Change      1999
  -------------------------------------------------------------------------------
  Total revenues                     $869,857   19.5%  $728,119   21.9%  $597,296
  Combined operating & SG&A
    expenses                         $533,155   13.6%  $469,226   14.5%  $409,734
  Operating income                   $336,702   30.1%  $258,893   38.0%  $187,562
  Operating margin                      38.7%             35.6%             31.4%
  Income before income taxes         $363,981   32.2%  $275,372   37.6%  $200,143
  Net income                         $254,869   34.1%  $190,007   36.6%  $139,099
  % of total revenues                   29.3%             26.1%             23.3%
  Basic earnings per share           $    .68   33.3%  $    .51   34.2%  $    .38
  Diluted earnings per share         $    .68   33.3%  $    .51   37.8%  $    .37
  ===============================================================================
  
  The financial results for Paychex, Inc. in fiscal 2001 reflect the eleventh
  consecutive year of record service revenues and net income, and the tenth
  consecutive year of net income growth of 30% or more.  The Company's ability to
  grow its client base, increase client utilization of ancillary services,
  develop new services, implement price increases and decrease operating expenses
  as a percent of total revenues has driven the increases in total revenues and
  net income in fiscal 2001 and fiscal 2000.
  
  The increases in combined operating and selling, general and administrative
  (SG&A) expenses reflect increases in personnel, information technology and
  facility costs necessary to support the growth of the Company.  At the end of
  fiscal 2001, the Company had 7,300 employees compared with 6,200 at the end of
  fiscal 2000. In fiscal 2002, combined operating and SG&A costs are expected to
  grow at a rate slightly below the growth rates experienced in fiscal 2001.
  
  The increase in operating income and the improvement in operating margins
  reflect the Company's ability to add profitable ancillary services and leverage
  its infrastructure to grow profits faster than revenue growth.
  
  In fiscal 2001, total revenues and net income benefited from higher comparable
  average rates of interest earned and net realized gains on available-for-sale
  securities related to the funds held for clients and corporate investments
  portfolios.  The recent trend of interest rate reductions is evidenced by the
  Federal Funds rate moving from 6.50% at the beginning of January 2001 to 4.00%
  at the end of May 2001.  Looking ahead to fiscal 2002, the interest rate
  reductions will impact year-over-year net income growth.  The Company expects
  to continue to generate record revenues and net income with total revenue
  growth in the range of 16% to 18%.
  
  In fiscal 2001, 2000 and 1999, the Company had two reportable business
  segments:  Payroll and Human Resource and Benefits.
  
                                  Payroll segment
  -------------------------------------------------------------------------------
  In thousands                           2001  Change      2000  Change      1999
  -------------------------------------------------------------------------------
  Service revenue                    $688,650   15.8%  $594,445   20.6%  $492,914
  Interest on funds held for clients $ 83,336   41.7%  $ 58,800   12.4%  $ 52,335
                                     --------------------------------------------
  Total payroll segment revenues     $771,986   18.2%  $653,245   19.8%  $545,249
  Operating income                   $366,498   20.8%  $303,360   27.9%  $237,236
  Operating margin                      47.5%             46.4%             43.5%
  ===============================================================================
  
  Revenues:  Total Payroll segment revenues include service fees and interest on
  funds held for clients.  Service fee revenue is earned primarily from Payroll,
  Taxpay, Employee Pay Services and other ancillary services.  The Employee Pay
  Services includes the Direct Deposit, Readychex, and Access Card products.  In
  addition to service fees paid by clients, the Company earns interest on Taxpay
  and Employee Pay Services funds that are collected before due dates and
  invested (funds held for clients) until remittance to the applicable tax
  authorities for Taxpay clients and employees of Employee Pay Services clients.
  Interest on funds held for clients is included in total revenues on the
  Consolidated Statements of Income as the collection, holding and remittance of
  these funds is a critical component of providing these particular product
  services.  Interest on funds held for clients also includes net realized gains
  and losses from the sale of available-for-sale securities.
  
  The increases in Payroll service revenue are primarily related to the addition
  of new clients, new services, price increases and increased utilization of
  ancillary services, by both new and existing clients.  At May 31, 2001, 83% of
  Paychex clients utilized Taxpay, the Company's tax filing and payment feature,
  compared with 81% at the end of 2000 and 79% at the end of 1999.  Client
  utilization of the Taxpay product is expected to mature within a range of 83%
  to 87%.  The Company's Employee Pay Services was utilized by 53% of clients at
  May 31, 2001, versus 47% and 42% at May 31, 2000 and 1999, respectively.
  During fiscal 2001 and 2000, the Company continued expansion of its Major
  Market Services (MMS) payroll product offering.  MMS is now available in
  approximately one-half the markets served by the Company.  MMS revenues totaled
  $47.4 million, $30.0 million and $19.3 million in fiscal 2001, 2000 and 1999,
  respectively.  This represents year-over-year revenue growth of 58% for fiscal
  2001 and 55% for fiscal 2000.  Employee Pay Services and MMS are expected to
  provide continuing revenue growth opportunities for fiscal 2002 and beyond.  In
  fiscal 2001, the Company introduced new payroll product enhancements including
  Employee Garnishments and "After-The-Fact" payroll.  Fiscal 2002's percentage
  growth in Payroll service revenue is expected to be in the range of 16% to 18%.
  
  In fiscal 2001 and 2000, interest on funds held for clients increased due to
  growth in the utilization of Taxpay and Employee Pay Services by new and
  existing clients and higher average daily balances.  Average daily portfolio
  balances for funds held for clients were approximately  $1.7 billion, $1.4
  billion, and $1.1 billion in fiscal 2001, 2000, and 1999, respectively.  The
  significantly higher percentage growth in interest on funds held for clients in
  fiscal 2001 reflects the benefit of higher comparable average rates of return
  and net realized gains on the sale of available-for-sale securities.  In fiscal
  2001, interest on funds held for clients included net realized gains of $5.7
  million compared with net realized losses of $2.9 million and net realized
  gains of $2.4 million in fiscal 2000 and 1999, respectively.  During the third
  and fourth quarters of fiscal 2001, market rates of interest declined
  significantly with the Federal Funds rate decreasing 2.50 percentage points
  during the period.  Due to the decrease in interest rates, the Company expects
  that interest on funds held for clients in fiscal 2002 will be lower than in
  fiscal 2001.  For further discussion of interest rates and related risks, refer
  to the "Market Risk Factors" section of this review.
  
  Operating income: Operating income for 2001 and 2000 increased as a result of
  the increases in Payroll service revenue and interest on funds held for clients
  and continued leveraging of the segment's operating expense base as evidenced
  by the improvement in operating margins year-over-year.
  
  Effective September 1, 1999, the Company increased its sales force compensation
  package by approximately $6.0 million on an annualized basis to increase the
  retention and quality of its payroll sales representatives.  This compensation
  increase resulted in additional expense of approximately $4.5 million in fiscal
  2000 and $1.5 million in the first quarter of fiscal 2001 when compared to the
  prior years.
  
                            Human Resource and Benefits
  -------------------------------------------------------------------------------
  In thousands                           2001   Change     2000   Change     1999
  -------------------------------------------------------------------------------
  Service revenue                     $97,871    30.7%  $74,874    43.9%  $52,047
  Operating income                    $37,890    62.0%  $23,395   111.3%  $11,072
  Operating margin                      38.7%             31.2%             21.3%
  ===============================================================================
  
  Revenues:  The significant increases in service revenue for 2001 and 2000 are
  primarily related to increasing 401(k) Recordkeeping, Workers' Compensation
  Insurance Administration and Section 125 clients, and PAS and PEO client
  employees serviced.  At May 31, 2001, over 19,000 clients utilized the
  Company's 401(k) Recordkeeping service, and over $1.7 billion of client
  employee funds were managed externally.  The growth in 401(k) clients reflects
  the continuing interest of small- to medium-sized businesses in offerering
  retirement savings benefits to their employees.  401(k) Recordkeeping revenues
  were $43.0 million, $31.5 million and $19.7 million in fiscal 2001, 2000 and
  1999, respectively.  This represents year-over-year growth of 36% in fiscal
  2001 and 60% in fiscal 2000. The Company continued to expand its Workers'
  Compensation Insurance Administration product, which provides insurance for
  qualified clients through leading insurance providers and a reporting method to
  stabilize their cash flows throughout the year.
  
  In fiscal 2000, the Company began a nationwide expansion of its Paychex
  Administrative Services (PAS) product, a combined package of payroll, employer
  compliance, employee benefit administration, and risk management outsourcing
  services designed to make it easier for small businesses to manage their
  payroll and related benefit costs.  Expansion efforts continued throughout
  fiscal 2001, and the PAS product is now available nationwide.   The Company
  operates a Professional Employer Organization (PEO) which provides the same
  combined package of services as the PAS product, but as a co-employer of the
  client's employees.  The Company's PEO service is primarily focused in the
  states of Florida and Georgia where PEO's are popular and operate under an
  attractive regulatory environment.  At the end of fiscal 2001, the PAS and PEO
  products serviced over 60,000 client employees.
  
  Operating income:  For 2001 and 2000, the increases in operating income are
  primarily related to the service revenue gains and the leveraging of operating
  expenses.
  
  Full-year fiscal 2002's Human Resource and Benefits service revenue is expected
  to grow at a rate slightly higher than in fiscal 2001.  Fiscal 2002's
  quarter-over-quarter percentage comparisons in Human Resource and Benefits
  revenue and operating income may vary significantly throughout the year, and
  any one particular quarter's results may not be indicative of expected
  full-year results.
  
                                Corporate expenses
  -------------------------------------------------------------------------------
  In thousands                           2001    Change     2000  Change     1999
  -------------------------------------------------------------------------------
  Corporate expenses                  $67,686      -.3%  $67,862   11.7%  $60,746
  ===============================================================================
  
  Corporate expenses are primarily related to the Information Technology,
  Organizational Development, Finance, Marketing, and Senior Management functions
  of the Company. Corporate expenses have increased primarily due to additional
  employees and other expenditures required to support the continued growth of
  the Company's service operations and sales force.  In fiscal 2001, these
  increases were offset by lower spending on national marketing efforts and other
  areas, resulting in a relatively flat growth year-over-year.  Looking forward,
  the Company expects the growth in corporate expenses to be in the range of 10%
  to 13% in fiscal 2002.
  
                                 Investment income
  -------------------------------------------------------------------------------
  In thousands                           2001    Change     2000  Change     1999
  -------------------------------------------------------------------------------
  Investment income                   $27,279     65.5%  $16,479   31.0%  $12,581
  ===============================================================================
  
  Investment income primarily represents earnings from the Company's cash and
  cash equivalents and investments in available-for-sale securities.  Investment
  income does not include interest on funds held for clients, which are recorded
  within the Payroll segment and total revenue.  The increases in investment
  income in fiscal 2001 and 2000 are primarily due to the increase in average
  daily invested balances generated from increases in overall cash flows.
  Average daily balances invested were $.6 billion, $.4 billion and $.3 billion
  for fiscal 2001, 2000 and 1999, respectively.  Fiscal 2001 also benefited from
  higher comparable average rates of return and net realized gains on
  available-for-sale securities.  In fiscal 2001, investment income included net
  realized gains on available-for-sale securities of $1.7 million compared to net
  realized losses of $0.8 million in fiscal 2000 and net realized gains of $0.5
  million in fiscal 1999. During the third and fourth quarters of fiscal 2001,
  market rates of interest declined significantly with the Federal Funds rate
  decreasing 2.50 percentage points during the period.  As a result of the
  decrease in interest rates, investment income for fiscal 2002 is expected to
  grow at a rate significantly lower than in fiscal 2001.  Refer to the "Market
  Risk Factors" section of this review for further discussion of interest rates
  and the related risks.
  
                                   Income taxes
  -------------------------------------------------------------------------------
  In thousands                           2001  Change      2000  Change      1999
  -------------------------------------------------------------------------------
  Income taxes                       $109,112   27.8%   $85,365   39.8%   $61,044
  Effective income tax rate             30.0%             31.0%             30.5%
  ===============================================================================
  
  The change in the effective income tax rate in 2001 is due to the growth in
  tax-exempt income exceeding the growth in taxable income and other tax
  reduction opportunities. Tax-exempt income is derived primarily from income
  earned on municipal debt securities.  Fiscal 2002's effective income tax rate
  is expected to approximate 31.0%.
  
                          LIQUIDITY AND CAPITAL RESOURCES
  
                               Operating activities
  -------------------------------------------------------------------------------
  In thousands                         2001  Change       2000  Change       1999
  -------------------------------------------------------------------------------
  Operating cash flows             $304,938   22.5%   $249,028   43.0%   $174,120
  ===============================================================================
  
  The increases in operating cash flows resulted primarily from the achievement
  of higher net income.  Projected operating cash flows are expected to
  adequately support normal business operations, forecasted growth, purchases of
  property and equipment and dividend payments.  At May 31, 2001, the Company had
  $614 million in available cash and corporate investments.  The Company also had
  $140 million of available, uncommitted, unsecured lines of credit and $350
  million available under an uncommitted, secured line of credit.
  
                               Investing activities
  -------------------------------------------------------------------------------
  In thousands                         2001  Change       2000  Change       1999
  -------------------------------------------------------------------------------
  Net funds held for clients
    and corporate investment
    activities                    $(144,270)     --  $(144,322)  74.5%  $ (82,724)
  Purchases of property and
    equipment                       (45,250)  32.5%    (34,154)  54.4%    (22,116)
  Proceeds from the sale of
    property and equipment               32      --      1,266      --         12
  Purchases of other assets          (8,290)  19.0%     (6,964)  94.0%     (3,590)
                                  -----------------------------------------------
  Net cash used in investing
    activities                    $(197,778)   7.4%  $(184,174)  69.9%  $(108,418)
  ===============================================================================
  
  Funds held for clients and corporate investments: Funds held for clients are
  primarily comprised of short-term funds and available-for-sale debt securities,
  and corporate investments are primarily comprised of available-for-sale debt
  securities.
  
  The reported amount of funds held for clients will vary significantly based
  upon the timing of collecting client funds, and the related remittance of funds
  to the applicable tax authorities for Taxpay clients and employees of clients
  utilizing Employee Pay Services. Corporate investments have increased due to
  the investment of growing cash balances provided by operating activities offset
  by purchases of property and equipment and dividend payments. At May 31, 2001
  the total available-for-sale portfolio included unrealized gains of $20.5
  million, compared to a portfolio at May 31, 2000 that included unrealized
  losses of $13.4 million.  Additional discussion of interest rates and related
  risks is included in the "Market Risk Factors" section of this review.
  
  Purchases of property and equipment:  To support the Company's client and
  ancillary product growth, investments are regularly made in data processing
  equipment and software, and for the expansion and upgrade of various branch
  facilities.  In fiscal 2001, the Company made purchases of property and
  equipment of $45.3 million compared with $34.2 million of purchases in fiscal
  2000.  In May 2001, the Company purchased a 135,000 square foot office facility
  in Rochester for approximately $5.0 million.  This facility will house a
  centralized information technology data center and various other support
  functions.  As a result of this purchase, the Company has delayed previously
  announced plans to construct a new 300,000 square foot building at an estimated
  cost of $40 million.  During fiscal 2000, the Company sold an office facility
  in California for $1.2 million and purchased a branch office facility in
  Pennsylvania for $6.1 million.  Purchases of property and equipment in fiscal
  2002 are expected to be in the range of $35 million to $40 million. Fiscal 2002
  depreciation expense is projected to be approximately $28 million.
  
  Effective June 1, 1999, the Company adopted Statement of Position (SOP) 98-1,
  "Accounting for the Costs of Computer Software Developed or Obtained for
  Internal Use."  The SOP requires the capitalization of internal use computer
  software costs if certain criteria are met, including all external direct costs
  for materials and services and certain payroll and related fringe benefit
  costs. Prior to fiscal 2000, the Company expensed as incurred certain payroll
  and related fringe benefit costs to develop and enhance its internal computer
  programs and software.  The effect of adopting the SOP increased net income by
  approximately $3.2 million and $2.4 million for the years ended May 31, 2001
  and May 31, 2000, respectively.
  
                               Financing activities
  -------------------------------------------------------------------------------
  In thousands, except per
    share amounts                    2001   Change       2000   Change       1999
  -------------------------------------------------------------------------------
  Dividends paid                $(123,112)   50.9%   $(81,583)   50.9%   $(54,055)
  Proceeds from exercise of
    stock options                  14,600    29.9%     11,242   103.1%      5,535
  Other                                --       --        (69)   13.1%        (61)
                                -------------------------------------------------
  Net cash used in financing
    activities                  $(108,512)   54.1%   $(70,410)   44.9%   $(48,581)
  -------------------------------------------------------------------------------
  Cash dividends per common
    share                       $     .33    50.0%   $    .22    46.7%   $    .15
  ===============================================================================
  
  Dividends paid:  On October 10, 2000 and October 7, 1999, the Company increased
  its quarterly cash dividend rate per share by 50%.  Future dividends are
  dependent on the Company's future earnings and cash flow.  The Company has
  declared three-for-two stock splits effected in the form of 50% stock dividends
  on outstanding shares in May of 2000 and 1999.
  
  Proceeds from exercise of stock options:  The increase in proceeds from the
  exercise of stock options is primarily due to an increase in the number of
  shares exercised and higher comparable exercise prices per share.  The Company
  has recognized a tax benefit from the exercise of stock options of $26.4
  million, $19.4 million and $16.3 million for fiscal 2001, fiscal 2000 and
  fiscal 1999, respectively.  This tax benefit reduces the accrued income tax
  liability and increases additional paid-in capital, with no impact on the
  expense amount for income taxes.
  
                                MARKET RISK FACTORS
  
  Interest rate risk: Funds held for clients are primarily comprised of
  short-term funds and available-for-sale debt securities, and corporate
  investments are primarily comprised of available-for-sale debt securities.  The
  Company's available-for-sale debt securities are exposed to interest rate risk
  as interest rate volatility will cause fluctuations in the market value of held
  investments and the earnings potential of future investments. Decreases in
  interest rates normally increase the market value of the available-for-sale
  securities, while increases in interest rates decrease the market value of the
  available-for-sale securities.  The Company's available-for-sale securities and
  short-term funds are exposed to earnings risk from changes in interest rates,
  as rate volatility will cause fluctuations in the earnings potential of future
  investments.  Decreases in interest rates quickly decrease earnings from
  short-term funds, and over time decrease earnings from the available-for-sale
  securities portfolio.  Increases in interest rates have the opposite earnings
  effect on the available-for-sale securities and short-term funds.  Earnings
  from the available-for-sale securities do not reflect changes in rates until
  the investments are sold or mature, and the proceeds are reinvested at current
  rates.  The immediate impact of changing interest rates on earnings from
  short-term funds may be temporarily offset by realized gains or losses from
  transactions in the Company's available-for-sale portfolio.  The Company
  estimates that the earnings effect of a 25 basis point change in interest rates
  (17 basis points for tax-exempt investments) at this point in time would equate
  to approximately $3.0 million for fiscal 2002.
  
  The Company directs investments towards high credit-quality, tax-exempt
  securities to mitigate the risk that earnings from the portfolio could be
  adversely impacted by changes in interest rates in the near term.  The Company
  invests in short- to intermediate-term, fixed-rate municipal and government
  securities, which typically have lower interest rate volatility, and manages
  the securities portfolio to a benchmark duration of 2.5 to 3.0 years. The
  Company does not utilize derivative financial instruments to manage interest
  rate risk.
  
  The recent trend in interest rates has been toward interest rate reductions
  versus interest rate increases during fiscal 2000.  The following table
  summarizes the changes in the Federal Funds rate over the last three years:
  
  --------------------------------------------------------------------------------
                                                       2001       2000       1999
  --------------------------------------------------------------------------------
  Federal Funds rate - beginning of fiscal year       6.50%      4.75%      5.50%
  Rate increase/(decrease):
    First quarter                                        -        .50          -
    Second quarter                                       -        .25       (.75)
    Third quarter                                    (1.00)       .25          -
    Fourth quarter                                   (1.50)       .75          -
                                                     ------      -----      -----
  Federal Funds rate - end of fiscal year             4.00%      6.50%      4.75%
  ================================================================================
  Three Year "AAA" Municipal Securities
    Yields at May 31:                                 3.44%      4.96%      3.85%
  ================================================================================
  
  Calculating the future effects of changing interest rates involves many
  factors.  These factors include, but are not limited to, daily interest rate
  changes, seasonal variations in investment balances, actual duration of short
  and intermediate-term investments, the proportionate mix of taxable and
  tax-exempt investments, and changes in tax-exempt municipal rates versus
  taxable investment rates - which are not synchronized or simultaneous.  Subject
  to these factors, a 25 basis point change generally affects the Company's
  tax-exempt interest rates by approximately 17 basis points.  Realized gains are
  more prevalent in a decreasing rate environment and realized losses are more
  prevalent in an increasing rate environment.  During fiscal 2001, the Company's
  total investment portfolio averaged approximately $2.3 billion compared with an
  average of $1.8 billion for fiscal 2000.  The total investment portfolio is
  expected to average $2.6 billion in fiscal 2002.  The Company's normal and
  anticipated allocation is approximately 50% invested in short-term securities
  with a duration of less than 30 days and 50% invested in intermediate-term
  municipal securities with an average duration of three years.
  
  As of May 31, 2001, the available-for-sale securities included unrealized gains
  of $20.5 million, compared with a portfolio at May 31, 2000 that included
  unrealized losses of $13.4 million.  In fiscal 2000, the available-for-sale
  portfolio had a market value less than its cost basis as a result of the upward
  trend in interest rates throughout the year.  The decreasing interest rate
  environment in fiscal 2001 resulted in the improvement in the market value of
  the available-for-sale portfolio.  As of May 31, 2001 and May 31, 2000, the
  Company had $1.3 billion and $1.0 billion invested in available-for-sale
  securities at fair value, with weighted average yields to maturity of 4.3% and
  4.5%, respectively.  Assuming a hypothetical decrease in interest rates of 25
  basis points given the May 31, 2001 securities portfolios, the resulting
  potential increases in fair value would be in the range of $7.5 million to $8.5
  million.  Conversely, a corresponding increase in interest rates would result
  in a comparable decrease in fair value.  This hypothetical decrease or increase
  in the fair value of the portfolio would be recorded as an adjustment to the
  portfolio's recorded value, with an offsetting amount recorded in stockholders'
  equity, with no related or immediate impact to the results of operations.
  
  Credit risk:  The Company is exposed to credit risk in connection with these
  investments through the possible inability of the borrowers to meet the terms
  of the bonds.  The Company attempts to limit credit risk by investing primarily
  in AAA and AA rated securities and A-1 rated short-term securities, and by
  limiting amounts that can be invested in any single instrument.  At May 31,
  2001, approximately 98% of the available-for-sale securities held an AA rating
  or better, and all short-term securities classified as cash equivalents held an
  A-1 or equivalent rating.
  
                                       OTHER
  
  Recently issued accounting standards: In December 1999, the Securities and
  Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
  Recognition in Financial Statements."  This SAB formalizes the SEC's position
  on application of revenue recognition rules.  The Company adopted SAB No. 101
  in the fourth quarter of fiscal 2001 with no material impact on the Company's
  results of operations or financial position.
  
  In June 1998, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
  Instruments and Hedging Activities."  This statement was most recently amended
  in June 2000 by Statement of Financial Accounting Standard No. 138 "Accounting
  for Certain Derivative Instruments and Certain Hedging Activities - An
  Amendment to FASB Statement No. 133."  These statements are collectively
  referred to as SFAS 133.  This statement establishes accounting and reporting
  standards for derivative instruments and for hedging activities and is
  effective for fiscal years beginning after June 15, 2000.  The Company will
  adopt the provisions of SFAS No. 133 in the first quarter of fiscal 2002.  The
  Company currently does not utilize derivative instruments and does not expect
  that adoption of SFAS No. 133 will have a significant effect on its
  consolidated results of operations or financial position.
  
  Exhibit 99:  "Safe Harbor" Statement under the Private Securities Litigation
                Reform Act of 1995.
  
               "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
                           LITIGATION REFORM ACT OF 1995
  
  Certain written and oral statements made by Paychex, Inc., (the "Company")
  management may constitute "forward-looking statements" as defined in the
  Private Securities Litigation Reform Act of 1995.  Forward-looking statements
  are identified by such words and phrases as  "we expect", "expected to",
  "estimates", "we look forward to", "would equate to", "are projected at", "we
  believe", "could be" and other similar phrases.  Because they are
  forward-looking, they should be evaluated in light of important risk factors.
  These risk factors include, but are not limited to, general market and economic
  conditions, including demand for the Company's products and services,
  availability of internal and external resources, executing expansion plans,
  competition, and price levels; changes in the laws regulating collection and
  payment of payroll taxes, professional employer organizations, and employee
  benefits, including 401(k) plans, workers' compensation, state unemployment,
  and section 125 plans; delays in the development, timing of the introduction,
  and marketing of new products and services; changes in technology including the
  use of the Internet; the possibility of catastrophic events that could impact
  the Company's operating facilities, computer technology and communication
  systems; and changes in short- and long-term interest rates, changes in market
  value of available-for-sale securities and the credit rating of cash, cash
  equivalents, and securities held in the Company's investment portfolios, all of
  which could cause actual results to differ materially from anticipated results.
  The information provided in this document is based upon the facts and
  circumstances known at this time.  The Company assumes no obligation to update
  this document for new information subsequent to its issuance.