Paychex 2012 Annual Report Download - page 48

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in both short-term and longer-term interest rates of 25 basis points, the resulting potential increase in fair value for
our portfolio of available-for-sale securities as of May 31, 2012, would be approximately $16.0 million. Conversely,
a corresponding increase in interest rates would result in a comparable decrease 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 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, 2012 were not other-than-temporarily
impaired. While $180.0 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 loss of $0.3 million was due to changes in interest rates and was not
due to increased credit risk or other valuation concerns. Substantially all of the securities in an unrealized loss
position as of May 31, 2012 and 2011 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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