ADP 2012 Annual Report Download - page 36

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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 $3.0 billion available to us on a committed basis
under these reverse repurchase agreements. We believe that we currently meet all conditions set forth in the committed reverse repurchase
agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the $3.0 billion
available to us under the committed reverse repurchase agreements. In fiscal 2012 and 2011, we had average outstanding balances under
reverse repurchase agreements of $297.7 million and $505.2 million, respectively, at weighted average interest rates of 0.6% and 0.4%,
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, 2012 and 2011 we had no outstanding obligations under reverse
repurchase agreements.
We have a $2.0 billion, 364-day credit agreement with a group of lenders that matures in June 2013. In addition, we have 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. We also have a $1.5 billion five-year credit facility that matures in June
2017 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 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 funding for general corporate purposes, if necessary. We had no borrowings through June 30, 2012 under the
credit agreements. We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder, 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. Furthermore, we do not hold direct investments in sovereign debt issued by Greece, Ireland, Italy, Portugal, or Spain. We
own AAA rated senior tranches of fixed rate credit card, rate reduction and auto loan receivables, 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 National Mortgage Association ("Fannie Mae"), and Federal Home Loan Mortgage Corporation
("Freddie Mac"). We do not own subordinated debt, preferred stock or common stock of any of these agencies. We do own 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
requirements relating to client funds obligations.
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