Paychex, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Funds Held for Clients and Corporate Investments

Funds Held for Clients and Corporate Investments

3 Months Ended

Aug. 31, 2015

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 consisted of the following:



	August 31, 2015
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	$	1,329.4	$	—	$	—		$	1,329.4
Available-for-sale securities:
Corporate bonds	65.0		0.1		(0.3		)	64.8
General obligation municipal bonds	1,708.7		16.7		(1.9		)	1,723.5
Pre-refunded municipal bonds⁽¹⁾	94.7		1.6		—			96.3
Revenue municipal bonds	950.4		8.3		(1.1		)	957.6
U.S. government agency securities	37.0		0.1		—			37.1
Variable rate demand notes	23.0		—		—			23.0
Total available-for-sale securities	2,878.8		26.8		(3.3		)	2,902.3
Other	13.8		1.0		(0.1		)	14.7
Total funds held for clients and corporate investments	$	4,222.0	$	27.8	$	(3.4	)	$	4,246.4

	May 31, 2015
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	$	1,430.0	$	—	$	—		$	1,430.0
Available-for-sale securities:
General obligation municipal bonds	1,694.0		14.0		(4.3		)	1,703.7
Pre-refunded municipal bonds⁽¹⁾	101.7		1.0		—			102.7
Revenue municipal bonds	960.7		6.1		(3.2		)	963.6
Variable rate demand notes	825.6		—		—			825.6
Total available-for-sale securities	3,582.0		21.1		(7.5		)	3,595.6
Other	12.7		1.5		—			14.2
Total funds held for clients and corporate investments	$	5,024.7	$	22.6	$	(7.5	)	$	5,039.8


⁽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 August 31, 2015 and May 31, 2015 were bank demand deposit accounts, commercial paper, short-term municipal bonds, and money market securities.

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



In millions	August 31, 2015		May 31, 2015
Funds held for clients	$	3,748.4	$	4,273.4
Corporate investments	81.8		366.6
Long-term corporate investments	416.2		399.8
Total funds held for clients and corporate investments	$	4,246.4	$	5,039.8

The Company’s available-for-sale securities reflected a net unrealized gain of $23.5 million as of August 31, 2015 compared with a net unrealized gain of $13.6 million as of May 31, 2015. Included in the net unrealized gain as of August 31, 2015 and May 31, 2015 there were 196 and 280 available-for-sale securities in an unrealized loss position, respectively. The securities in an unrealized loss position were as follows:



	August 31, 2015
	Securities in an unrealized loss position for less than twelve months					Securities in an unrealized loss position for 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:
Corporate bonds	$	(0.3	)	$	42.3	$	—		$	—	$	(0.3	)	$	42.3
General obligation municipal bonds	(1.5		)	298.9		(0.4		)	29.1		(1.9		)	328.0
Revenue municipal bonds	(1.1		)	183.2		—			1.5		(1.1		)	184.7
Total	$	(2.9	)	$	524.4	$	(0.4	)	$	30.6	$	(3.3	)	$	555.0



	May 31, 2015
	Securities in an unrealized loss position for less than twelve months					Securities in an unrealized loss position for 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	$	(3.8	)	$	535.1	$	(0.5	)	$	26.3	$	(4.3	)	$	561.4
Revenue municipal bonds	(3.2		)	361.6		—			—		(3.2		)	361.6
Total	$	(7.0	)	$	896.7	$	(0.5	)	$	26.3	$	(7.5	)	$	923.0

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 it held as of August 31, 2015, that had unrealized losses totaling $3.3 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 the 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 August 31, 2015 and May 31, 2015 held an A 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 on the sales of securities are determined by specific identification of the amortized cost basis of each security. On the Consolidated Statements of Income and Comprehensive Income, realized gains and losses from funds held for clients are included in interest on funds held for clients and realized gains and losses from corporate investments are included in investment income, net. Realized gains were insignificant for the three months ended August 31, 2015 and 2014. There were no realized losses recognized in any of the respective periods.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of August 31, 2015 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.



	August 31, 2015
In millions	Amortized cost		Fair value
Maturity date:
Due in one year or less	$	369.7	$	372.5
Due after one year through three years	697.9		705.8
Due after three years through five years	851.3		858.7
Due after five years	959.9		965.3
Total	$	2,878.8	$	2,902.3

Variable rate demand notes 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.