Paychex, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Funds Held for Clients and Corporate Investments

Funds Held for Clients and Corporate Investments

12 Months Ended

May 31, 2013

Funds Held for Clients and Corporate Investments [Abstract]

Funds Held For Clients and Corporate Investments

Funds Held for Clients and Corporate Investments

Funds held for clients and corporate investments are as follows:



	May 31, 2013
In millions	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Type of issue:
Funds held for clients money market securities and other cash equivalents	$	1,137.7	$	—	$	—		$	1,137.7
Available-for-sale securities:
General obligation municipal bonds	1,432.9		27.4		(3.5		)	1,456.8
Pre-refunded municipal bonds⁽¹⁾	201.0		2.9		—			203.9
Revenue municipal bonds	746.1		10.1		(2.2		)	754.0
Variable rate demand notes	1,276.7		—		—			1,276.7
Total available-for-sale securities	3,656.7		40.4		(5.7		)	3,691.4
Other	9.5		1.2		—			10.7
Total funds held for clients and corporate investments	$	4,803.9	$	41.6	$	(5.7	)	$	4,839.8



	May 31, 2012
In millions	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Type of issue:
Funds held for clients money market securities and other cash equivalents	$	2,157.2	$	—	$	—		$	2,157.2
Available-for-sale securities:
General obligation municipal bonds	1,295.0		39.1		(0.2		)	1,333.9
Pre-refunded municipal bonds⁽¹⁾	326.8		7.5		—			334.3
Revenue municipal bonds	487.9		13.2		(0.1		)	501.0
Variable rate demand notes	889.8		—		—			889.8
Total available-for-sale securities	2,999.5		59.8		(0.3		)	3,059.0
Other	8.8		0.5		(0.1		)	9.2
Total funds held for clients and corporate investments	$	5,165.5	$	60.3	$	(0.4	)	$	5,225.4


⁽¹⁾	Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.

Included in money market securities and other cash equivalents as of May 31, 2013 and May 31, 2012 are money market funds and bank demand deposit accounts. Also included in May 31, 2012 were short-term municipal bonds and commercial paper. Within bank demand deposit accounts for funds held for clients, the Company maintained $23.4 million as of May 31, 2013 and $13.7 million as of May 31, 2012 in a separately designated account for tax obligations of a partner’s clients.

Classification of investments on the Consolidated Balance Sheets is as follows:



	May 31,
In millions	2013		2012
Funds held for clients	$	4,072.5	$	4,544.2
Corporate investments	398.2		207.5
Long-term corporate investments	369.1		473.7
Total funds held for clients and corporate investments	$	4,839.8	$	5,225.4

The Company’s available-for-sale securities reflected a net unrealized gain of $34.7 million as of May 31, 2013 compared with a net unrealized gain of $59.5 million as of May 31, 2012. Included in the net unrealized gain as of May 31, 2013 and May 31, 2012, respectively, there were 147 and 35 available-for-sale securities in an unrealized loss position. The securities in an unrealized loss position, were as follows:



	May 31, 2013
	Less than twelve months					More than twelve months				Total
In millions	Gross unrealized losses			Fair value		Gross unrealized losses		Fair Value		Gross unrealized losses			Fair Value
Type of issue:
General obligation municipal bonds	$	(3.5	)	$	349.2	$	—	$	—	$	(3.5	)	$	349.2
Pre-refunded municipal bonds	—			3.1		—		—		—			3.1
Revenue municipal bonds	(2.2		)	225.3		—		2.1		(2.2		)	227.4
Total	$	(5.7	)	$	577.6	$	—	$	2.1	$	(5.7	)	$	579.7



	May 31, 2012
	Less than twelve months					More than twelve months				Total
In millions	Gross unrealized losses			Fair value		Gross unrealized losses		Fair Value		Gross unrealized losses			Fair Value
Type of issue:
General obligation municipal bonds	$	(0.2	)	$	124.4	$	—	$	—	$	(0.2	)	$	124.4
Revenue municipal bonds	(0.1		)	55.6		—		—		(0.1		)	55.6
Total	$	(0.3	)	$	180.0	$	—	$	—	$	(0.3	)	$	180.0

The Company regularly reviews its investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. The Company believes that the investments held as of May 31, 2013 that had unrealized losses of $5.7 million were not other-than-temporarily impaired. The Company believes that it is probable that the principal and interest will be collected in accordance with contractual terms, and that the unrealized losses on these securities were due to changes in interest rates and were not due to increased credit risk or other valuation concerns. A substantial portion of the securities in an unrealized loss position as of May 31, 2013 and May 31, 2012 held an AA rating or better. The Company does not intend to sell these investments until the recovery of their amortized cost basis or maturity, and further believes that it is not more-likely-than-not that it will be required to sell these investments prior to that time. The Company’s assessment that an investment is not other-than-temporarily impaired could change in the future due to new developments or changes in the Company’s strategies or assumptions related to any particular investment.

Realized gains and losses from the sale of available-for-sale securities were as follows:



	Year ended May 31,
In millions	2013		2012		2011
Gross realized gains	$	0.9	$	1.0	$	1.3
Gross realized losses	—		—		—
Net realized gains	$	0.9	$	1.0	$	1.3

The amortized cost and fair value of available-for-sale securities that had stated maturities as of May 31, 2013 are shown below by contractual maturity. Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.



	May 31, 2013
In millions	Amortized cost		Fair value
Maturity date:
Due in one year or less	$	274.3	$	276.2
Due after one year through three years	701.2		718.6
Due after three years through five years	693.4		709.7
Due after five years	1,987.8		1,986.9
Total	$	3,656.7	$	3,691.4

VRDNs are primarily categorized as due after five years in the table above as the contractual maturities on these securities are typically 20 to 30 years. Although these securities are issued as long-term securities, they are priced and traded as short-term instruments because of the liquidity provided through the tender feature.