Funds Held for Clients and Corporate Investments
|9 Months Ended|
Feb. 29, 2020
|Funds Held for Clients and Corporate Investments [Abstract]|
|Funds Held for Clients and Corporate Investments||
Note F: Funds Held for Clients and Corporate Investments
Funds held for clients and corporate investments are as follows:
(1) Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.
Included in funds held for clients' money market securities and other cash equivalents as of February 29, 2020 and May 31, 2019 were bank demand deposit accounts, commercial paper, and money market funds. In addition, as of February 29, 2020, certain U.S. government agency and treasury securities with maturities of 90 days or less at acquisition and time deposits were included in funds held for clients' money market securities and other cash equivalents.
Classification of funds held for clients and investments on the Consolidated Balance Sheets is as follows:
Funds held for clients’ money market securities and other cash equivalents is collected from clients before due dates for payroll tax administration services and employee payment services, and is invested until remitted to the applicable tax or regulatory agencies or client employees. Based upon the Company’s intent and its contractual obligation to clients, these funds are considered restricted until they are remitted to fund these client obligations.
The Company’s available-for-sale securities reflected net unrealized gains of $84.1 million and $19.7 million as of February 29, 2020 and May 31, 2019, respectively. Included in the net unrealized gain totals as of February 29, 2020 and May 31, 2019 were two and 269 available-for-sale securities in an unrealized loss position, respectively. The available-for-sale securities with immaterial unrealized losses as of February 29, 2020 included two securities in an unrealized loss position with a fair value totaling $1.4 million for more than twelve months and no securities in an unrealized loss position for less than twelve months. The available-for-sale securities in an unrealized loss position as of May 31, 2019 were as follows:
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 February 29, 2020 that had immaterial gross unrealized losses 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. All of the securities in an unrealized loss position as of February 29, 2020 held an A rating and all of the securities in an unrealized loss position as of May 31, 2019 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, including those developments related to COVID-19, 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 other (expense)/income, net. Realized gains and losses were as follows:
The amortized cost and fair value of available-for-sale securities that had stated maturities as of February 29, 2020 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.
Variable rate demand notes (“VRDNs”) are primarily categorized as due after five years in the table above as the contractual maturities on these securities are typically 20 years 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.