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Commitments and Contingencies
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011
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| Commitments and Contingencies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies |
Note H: Commitments and Contingencies
Lines of credit: As of August 31, 2011, the Company had unused borrowing capacity available under
four uncommitted, secured, short-term lines of credit at market rates of interest with financial
institutions as follows:
The primary uses of the lines of credit would be to meet short-term funding requirements related to
deposit account overdrafts and client fund obligations arising from electronic payment transactions
on behalf of clients in the ordinary course of business, if necessary. No amounts were outstanding
against these lines of credit as of, or during the three months ended, August 31, 2011.
JP Morgan Chase Bank, N.A. and Bank of America, N.A. are also parties to the Company’s irrevocable
standby letters of credit, which are discussed next.
Letters of credit: As of both August 31, 2011 and May 31, 2011, the Company had irrevocable
standby letters of credit available totaling $47.4 million, required to secure
commitments for certain insurance policies. The letters of credit expire at various dates between
December 2011 and July 2012, and are collateralized by securities held in the Company’s investment
portfolios. No amounts were outstanding on these letters of credit as of, or during the three
months ended, August 31, 2011.
Other commitments: The Company enters into various purchase commitments with vendors in the
ordinary course of business. The Company had outstanding commitments to purchase approximately
$10.8 million and $6.0 million of capital assets as of August 31, 2011 and May 31, 2011,
respectively.
In the normal course of business, the Company makes representations and warranties that guarantee
the performance of services under service arrangements with clients. Historically, there have been
no material losses related to such guarantees. In addition, the Company has entered into
indemnification agreements with its officers and directors, which require it to defend and, if
necessary, indemnify these individuals for certain pending or future claims as they relate to their
services provided to the Company.
Paychex currently self-insures the deductible portion of various insured exposures under certain
employee benefit plans. The Company’s estimated loss exposure under these insurance arrangements
is recorded in other current liabilities on the Consolidated Balance Sheets. Historically, the
amounts accrued have not been material. The Company also maintains insurance coverage in addition
to its purchased primary insurance policies for gap coverage for employment practices liability,
errors and omissions, warranty liability, theft and embezzlement, and acts of terrorism; and
capacity for deductibles and self-insured retentions through its captive insurance company.
Contingencies: The Company is subject to various claims and legal matters that arise in the normal
course of its business. These include disputes or potential disputes related to breach of
contract, breach of fiduciary duty, employment-related claims, tax claims, and other matters.
The Company’s management currently believes that resolution of any outstanding legal matters will
not have a material adverse effect on the Company’s financial position or results of operations.
However, legal matters are subject to inherent uncertainties and there exists the possibility that
the ultimate resolution of these matters could have a material adverse impact on the Company’s
financial position and results of operations in the period in which any such effect is recorded.
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