Paychex 2010 Annual Report Download - page 66

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In thousands
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
May 31, 2009
Type of issue:
Money market securities and other cash
equivalents .......................... $1,816,278 $ — $ — $1,816,278
Available-for-sale securities:
General obligation municipal bonds ........ 849,594 32,698 (136) 882,156
Pre-refunded municipal bonds
(1)
.......... 527,864 21,334 (24) 549,174
Revenue municipal bonds ............... 336,675 12,818 (32) 349,461
Variable rate demand notes .............. — — — —
Other equity securities.................. 20 42 — 62
Total available-for-sale securities .......... 1,714,153 66,892 (192) 1,780,853
Other ................................ 7,477 — (1,288) 6,189
Total funds held for clients and corporate
investments ......................... $3,537,908 $66,892 $(1,480) $3,603,320
(1) Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.
(2) Beginning in November 2009, the Company began to invest in variable rate demand notes (“VRDNs”) for the
first time since September 2008.
Included in money market securities and other cash equivalents as of May 31, 2010 and May 31, 2009 are
U.S. agency discount notes, government money market funds, and bank demand deposit accounts.
Classification of investments on the Consolidated Balance Sheets is as follows:
In thousands 2010 2009
May 31,
Funds held for clients ...................................... $3,541,054 $3,501,376
Corporate investments ...................................... 82,496 19,710
Long-term corporate investments .............................. 290,106 82,234
Total funds held for clients and corporate investments ............ $3,913,656 $3,603,320
The Company is exposed to credit risk in connection with these investments through the possible inability of
borrowers to meet the terms of their bonds. In addition, the Company is exposed to interest rate risk, as rate volatility
will cause fluctuations in the fair value of held investments and in the earnings potential of future investments. The
Company follows a conservative investment strategy of optimizing liquidity and protecting principal. The Company
invests primarily in high credit quality securities with AAA and AA ratings and short-term securities with A-1/P-1
ratings. It limits the amounts that can be invested in any single issuer, and invests in short- to intermediate-term
instruments whose fair value is less sensitive to interest rate changes. All the investments held as of May 31, 2010
are traded in active markets. The Company has not and does not utilize derivative financial instruments to manage
interest rate risk.
The Company’s available-for-sale securities reflected a net unrealized gain of $66.6 million as of May 31,
2010 compared with a net unrealized gain of $66.7 million as of May 31, 2009. The gross unrealized losses of
$0.4 million, included in the net unrealized gain as of May 31, 2010, were comprised of 23 available-for-sale
securities, which had a total fair value of $73.6 million. The gross unrealized losses of $0.2 million, included in the
50
PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)