Paychex 2015 Annual Report Download - page 51

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interest rates such as the VRDNs. Assuming a hypothetical increase in longer-term interest rates of 25 basis
points, the resulting potential decrease in fair value for our portfolio of available-for-sale securities as of May 31,
2015, would be in the range of $20.0 million to $25.0 million. Conversely, a corresponding decrease in interest
rates would result in a comparable increase in fair value. This hypothetical increase or decrease in the fair value
of the portfolio would be recorded as an adjustment to the portfolio’s recorded value, with an offsetting amount
recorded in stockholders’ equity. These fluctuations in fair value would have no related or immediate impact on
the results of operations, unless any declines in fair value were considered to be other-than-temporary and an
impairment loss recognized.
Credit risk: We are exposed to credit risk in connection with these investments through the possible
inability of the borrowers to meet the terms of their bonds. We regularly review our investment portfolios to
determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential
valuation concerns. We believe that the investments we held as of May 31, 2015 were not other-than-temporarily
impaired. While $923.0 million of our available-for-sale securities had fair values that were below amortized
cost, we believe that it is probable that the principal and interest will be collected in accordance with the
contractual terms, and that the unrealized losses of $7.5 million was due to changes in interest rates and was not
due to increased credit risk or other valuation concerns. A substantial portion of these securities in an unrealized
loss position as of May 31, 2015 and 2014 held an AA rating or better. We do not intend to sell these investments
until the recovery of their amortized cost basis or maturity, and further believe that it is not more-likely-than-not
that we will be required to sell these investments prior to that time. Our assessment that an investment is not
other-than-temporarily impaired could change in the future due to new developments or changes in our strategies
or assumptions related to any particular investment.
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