Quarterly report pursuant to Section 13 or 15(d)

Funds Held for Clients and Corporate Investments

v2.4.0.6
Funds Held for Clients and Corporate Investments
9 Months Ended
Feb. 29, 2012
Funds Held for Clients and Corporate Investments [Abstract]  
Funds held for clients and corporate investments

Note C: Funds Held for Clients and Corporate Investments

Funds held for clients and corporate investments consisted of the following:

 

 

                                 
    February 29, 2012  

In millions

  Amortized
cost
    Gross
unrealized
gains
    Gross
unrealized
losses
    Fair
value
 

Type of issue:

                               

Money market securities and other cash equivalents

  $ 1,190.8     $ —       $ —       $ 1,190.8  

Available-for-sale securities:

                               

General obligation municipal bonds

    1,056.7       43.2       (0.1     1,099.8  

Pre-refunded municipal bonds (1)

    355.9       9.8       —         365.7  

Revenue municipal bonds

    401.2       15.2       —         416.4  

Variable rate demand notes

    1,737.2       —         —         1,737.2  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

    3,551.0       68.2       (0.1     3,619.1  

Other

    8.7       0.6       —         9.3  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total funds held for clients and corporate investments

  $ 4,750.5     $ 68.8     $ (0.1   $ 4,819.2  
   

 

 

   

 

 

   

 

 

   

 

 

 
   
    May 31, 2011  

In millions

  Amortized
cost
    Gross
unrealized
gains
    Gross
unrealized
losses
    Fair
Value
 

Type of issue:

                               

Money market securities and other cash equivalents

  $ 1,372.9     $ —       $ —       $ 1,372.9  

Available-for-sale securities:

                               

General obligation municipal bonds

    1,017.5       33.1       (0.1     1,050.5  

Pre-refunded municipal bonds (1)

    470.5       14.2       —         484.7  

Revenue municipal bonds

    361.6       12.1       —         373.7  

Variable rate demand notes

    828.3       —         —         828.3  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

    2,677.9       59.4       (0.1     2,737.2  

Other

    8.3       0.6       —         8.9  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total funds held for clients and corporate investments

  $ 4,059.1     $ 60.0     $ (0.1   $ 4,119.0  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

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

 

Money market securities and other cash equivalents as of February 29, 2012 and May 31, 2011 include money market funds, U.S. agency discount notes, FDIC-insured deposit accounts, and other bank demand deposit accounts. In addition, included in other cash equivalents as of May 31, 2011 was a municipal bond with a maturity of less than 90 days when acquired. Within bank demand deposit accounts for funds held for clients, the Company maintained $16.9 million as of February 29, 2012 and $16.7 million as of May 31, 2011 in a separately designated account for tax obligations of a partner’s clients.

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

 

 

                 

In millions

  February 29,
2012
    May 31,
2011
 

Funds held for clients

  $ 4,167.0     $ 3,566.7  

Corporate investments

    356.8       345.0  

Long-term corporate investments

    295.4       207.3  
   

 

 

   

 

 

 

Total funds held for clients and corporate investments

  $ 4,819.2     $ 4,119.0  
   

 

 

   

 

 

 

The Company’s available-for-sale securities reflected a net unrealized gain of $68.1 million as of February 29, 2012 compared with a net unrealized gain of $59.3 million as of May 31, 2011. Included in the net unrealized gain as of February 29, 2012 and May 31, 2011, respectively, there were 6 and 15 available-for-sale securities in an unrealized loss position. The securities in an unrealized loss position, all of which were in a loss position for less than twelve consecutive months, were as follows:

 

 

                                 
    February 29, 2012     May 31, 2011  

In millions

  Gross
unrealized
losses
    Fair
value
    Gross
unrealized
losses
    Fair
value
 

Type of issue:

                               

General obligation municipal bonds

  $ (0.1   $ 21.8     $ (0.1   $ 37.3  

Revenue municipal bonds

    —         2.4       —         14.4  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ (0.1   $ 24.2     $ (0.1   $ 51.7  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 February 29, 2012, that had unrealized losses of $0.1 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. All of the securities in an unrealized loss position as of February 29, 2012 and May 31, 2011 held an AA rating or better. The Company intends to hold these investments until the recovery of their amortized cost basis or maturity and it is more likely than not that the Company will not 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, 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 $0.4 million and $0.6 million for the three and nine months ended February 29, 2012. This compares to realized gains of $0.1 million and $0.4 million for the three and nine months ended February 28, 2011. There were no gross realized losses during the related periods.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of February 29, 2012 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.

 

 

                 
    February 29, 2012  

In millions

  Amortized
cost
    Fair
value
 

Maturity date:

               

Due in one year or less

  $ 317.5     $ 321.1  

Due after one year through three years

    604.9       627.8  

Due after three years through five years

    617.1       647.8  

Due after five years

    2,011.5       2,022.4  
   

 

 

   

 

 

 

Total

  $ 3,551.0     $ 3,619.1  
   

 

 

   

 

 

 

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.