ADP 2014 Annual Report Download - page 33

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corporate operating purposes. All of our short-term and long-term fixed-income securities are classified as available-for-sale securities.
Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we
also seek to maximize interest income and to minimize the volatility of interest income. Client funds assets are invested in highly liquid, investment-grade
marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents. At J une 30, 2015 ,
approximately 93% of the available-for-sale securities categorized as U.S. Treasury and direct obligations of U.S. government agencies were invested in senior,
unsecured, non-callable debt directly issued by the Federal Home Loan Banks and Federal Farm Credit Banks.
We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing
arrangements to satisfy our short-term funding requirements related to client funds obligations. Our client funds investment strategy is structured to allow us to
average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten
years (in the case of the long portfolio). As part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other
unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. We
minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by impounding, in virtually all instances,
the client’s funds in advance of the timing of payment of such client’s obligation. As a result of this practice, we have consistently maintained the required level of
client funds assets to satisfy all of our obligations.
There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets. Such risks include liquidity risk, including
the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our client funds
obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having
sufficient funds to satisfy all of our client funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our
client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our
$8.25 billion commercial paper program (rated A-1+ by Standard and Poor’s and Prime-1 (P-1) by Moody’s, the highest possible credit ratings), our ability to
execute reverse repurchase transactions ($ 3.25 billion of which is available on a committed basis), and available borrowings under our $8.25 billion committed
credit facilities. The reduced availability of financing during periods of economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to
access short-term debt markets to meet the liquidity needs of our business. In addition to liquidity risk, our investments are subject to interest rate risk and credit
risk, as discussed below.
We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating at time of purchase for
corporate and Canadian provincial bonds is BBB, for asset-backed securities is A A A , and for municipal bonds is A. The maximum maturity at time of purchase
for BBB rated securities is 5 years, for single A rated securities is 7 years, and for A A rated and AAA rated securities is 10 years. Time deposits and commercial
paper must be rated A-1 and/or P-1. Money market funds must be rated AAA /A aa-mf.
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