Company: PAYX
Filing Date: 2025-03-26
Form Type: 10-Q
Source: 0000950170-25-045216
Chunk: 62

Company: PAYCHEX INC
Filing Date: 2025-03-26
Form: 10-Q
Item: Part I, Item 8
Chunk 62
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 used to repurchase 1.5 million shares of our common stock at a weighted average price of $115.37 per share during the nine months ended February 29, 2024. All repurchases were retired upon acquisition.

MARKET RISK FACTORS

Changes in interest rates and interest rate risk: Funds held for clients are primarily comprised of short-term funds and AFS securities. Corporate investments are primarily comprised of AFS securities. As a result of our investing activities, we are exposed to changes in interest rates that may materially affect our results of operations and financial position. Changes in interest rates will impact the earnings potential of future investments and will cause fluctuations in the fair value of our long-term AFS securities. We follow an investment strategy of protecting principal and optimizing liquidity. A substantial portion of our portfolios is invested in high credit quality securities with ratings of AA or higher, and A-1/P-1 ratings on short-term securities. We invest predominantly in corporate bonds; municipal bonds; U.S. government agency securities; and VRDNs when available in the market. We limit the amounts that can be invested in any single issuer and invest primarily in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes. We manage the AFS securities to a benchmark duration of two to three and one-quarter years.

During the nine months, our primary short-term investment vehicles were U.S. government agency discount notes and bank demand deposit accounts. We have no exposure to high-risk or non-liquid investments. We have insignificant exposure to European investments. 

We periodically utilize derivative financial instruments to manage our interest rate risk. On January 31, 2025, we executed three Swaption Contracts with JPM. The Swaption Contracts qualify as cash flow hedges, have an aggregate notional amount of $3.0 billion, and are being utilized to manage exposure to fluctuations in benchmark interest rates associated with our anticipated issuance of long-term fixed rate debt to fund the planned acquisition of Paycor. The fair value of the Swaption Contracts was $3.4 million as of February 28, 2025.

During the nine months, the average interest rate earned on our combined funds held for clients and corporate cash equivalents and investment portfolios was 3.7% compared to 3.8% for the prior year period. When interest rates are falling, the full impact of lower interest rates will not immediately be reflected in net income due to the interaction of short- and long-term interest rate changes. During a falling interest rate