Paychex 2012 Annual Report Download - page 47

The amortized cost and fair value of available-for-sale securities that had stated maturities as of May 31,
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.
May 31, 2012
In millions Amortized cost Fair value
Maturity date:
Due in one year or less ........................................ $ 323.1 $ 325.8
Due after one year through three years ............................ 619.6 641.0
Due after three years through five years ........................... 630.2 655.7
Due after five years ........................................... 1,426.6 1,436.5
Total ...................................................... $2,999.5 $3,059.0
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.
The Federal Funds rate remained at a range of zero to 0.25% throughout fiscal years 2012, 2011, and 2010.
Calculating the future effects of changing interest rates involves many factors. These factors include, but are
not limited to:
• daily interest rate changes;
• seasonal variations in investment balances;
• actual duration of short-term and available-for-sale securities;
• the proportion of taxable and tax-exempt investments;
• changes in tax-exempt municipal rates versus taxable investment rates, which are not synchronized or
simultaneous; and
• financial market volatility and the resulting effect on benchmark and other indexing interest rates.
Subject to these factors and under normal financial market conditions, a 25-basis-point change in taxable
interest rates generally affects our tax-exempt interest rates by approximately 17 basis points. Under normal
financial market conditions, the impact to earnings from a 25-basis-point change in short-term interest rates
would be in the range of $3.5 million to $4.0 million, after taxes, for a twelve-month period. Such a basis point
change may or may not be tied to changes in the Federal Funds rate.
Our total investment portfolio (funds held for clients and corporate investments) averaged approximately
$4.3 billion for fiscal 2012. Our anticipated allocation is approximately 50% invested in short-term securities and
VRDNs with an average duration of less than 30 days, and 50% invested in available-for-sale securities with an
average duration of two and one-half to three years. For fiscal 2013, we anticipate our average duration on our
available-for-sale securities will increase to over three years.
The combined funds held for clients and corporate available-for-sale securities reflected a net unrealized
gain of $59.5 million as of May 31, 2012, compared with an unrealized gain of $59.3 million as of May 31, 2011.
In determining fair value, we utilize the Interactive Data Pricing Service. During fiscal 2012, the net unrealized
gain on our investment portfolios ranged from $46.4 million to $72.5 million. During fiscal 2011, the net
unrealized gain on our investment portfolios ranged from $41.4 million to $86.2 million. The net unrealized gain
of our investment portfolios was approximately $58.0 million as of July 13, 2012.
As of May 31, 2012 and 2011, we had $3.1 billion and $2.7 billion, respectively, invested in available-for-sale
securities at fair value. The weighted-average yield-to-maturity was 2.2% and 2.6% as of May 31, 2012 and
May 31, 2011, respectively. The weighted-average yield-to-maturity excludes available-for-sale securities tied to
short-term interest rates such as the VRDNs held as of May 31, 2012 and 2011. Assuming a hypothetical decrease
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