ADP 2011 Annual Report Download - page 29

Our U.S. and Canadian short
- term funding requirements related to client funds obligations are sometimes obtained on a secured
basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency
securities. These agreements generally have terms ranging from overnight to up to five business days. We have $2 billion available
to us on a committed basis under these reverse repurchase agreements. In fiscal 2011 and 2010, we had average outstanding
balances under reverse repurchase agreements of $505.2 million and $425.0 million, respectively, at weighted average interest rates of
0.4% and 0.2%, respectively. We have successfully borrowed through the use of reverse repurchase agreements on an as needed
basis to meet short - term funding requirements related to client funds obligations. At June 30, 2011 and 2010 we had no outstanding
obligations under reverse repurchase agreements.
In June 2011, we entered into a $2.0 billion, 364
- day credit facility with a group of lenders. The 364 - day facility replaced our prior $2.5
billion 364 - day facility. In addition, we entered into a four - year $3.25 billion credit facility maturing in June 2015 that contains an
accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional
commitments. The four - year facility replaced our prior $2.25 billion five - year credit facility, which expired in June 2011. We also have
an existing three
- year $1.5 billion credit facility maturing in June 2013 that also contains an accordion feature under which the
aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. The interest rate
applicable to the committed borrowings is tied to LIBOR, the federal funds effective rate, or the prime rate depending on the
notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to
pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper
program and to provide funding for general corporate purposes, if necessary. The Company had no borrowings through June 30,
2011 under the credit agreements. We believe that we currently meet all conditions set forth in the revolving credit agreements to
borrow there under, and we are not aware of any conditions that would prevent us from borrowing part or all of the $6.75 billion
available to us under the revolving credit agreements.
Our investment portfolio does not contain any asset
- backed securities with underlying collateral of subprime mortgages, alternative -
A mortgages, sub - prime auto loans or sub - prime home equity loans, collateralized debt obligations, collateralized loan obligations,
credit default swaps, asset
- backed commercial paper, derivatives, auction rate securities, structured investment vehicles or non -
investment grade fixed - income securities. We own AAA rated senior tranches of fixed rate credit card, rate reduction, auto loan and
other asset
- backed securities, secured predominately by prime collateral. All collateral on asset - backed securities is performing as
expected. In addition, we own senior debt directly issued by Federal Home Loan Banks, Federal Farm Credit Banks, Federal Home
Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae"). We do not own
subordinated debt, preferred stock or common stock of any of these agencies. We do own AAA rated mortgage
- backed securities,
which represent an undivided beneficial ownership interest in a group or pool of one or more residential mortgages. These securities
are collateralized by the cash flows of 15
- year and 30 - year residential mortgages and are guaranteed by Fannie Mae and Freddie Mac
as to the timely payment of principal and interest. 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). This investment strategy is supported by our short
- term financing
arrangements necessary to satisfy short
- term funding requirement relating to client funds obligations.
On August 5, 2011, Standard & Poor
’ s (“ S&P ” ) lowered the long - term sovereign credit rating of U.S. Government debt obligations
from AAA to AA+. On August 8, 2011, S&P also downgraded the long
- term credit ratings of U.S. government - sponsored
enterprises. As described above, in Notes 5 and 6 to the consolidated financial statements, and in our discussion of Quantitative and
Qualitative Disclosures about Market Risk, we hold U.S. Treasury and direct obligations of U.S. government agencies and related
securities. We do not have the intent of selling these securities nor are we obligated to sell them as a result of the credit downgrade.
Furthermore, we continue to believe that we will be able to recover the underlying payments of principal and interest due thereon.
Capital expenditures for continuing operations in fiscal 2011 were $184.8 million, as compared to $90.2 million in fiscal 2010 and $167.6
million in fiscal 2009. The capital expenditures in fiscal 2011 related to our data center and other facility improvements were made to
support our operations. We expect capital expenditures in the year ending June 30, 2012 (“
fiscal 2012 ” ) to be between $160 million
and $180 million.
29