ADP 2015 Annual Report Download - page 37

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Details regarding our overall investment portfolio are as follows:
(In millions)
Years ended June 30,
2016
2015
2014
Average investment balances at cost:
Corporate investments
$ 5,610.1
$ 4,560.4
$ 4,072.4
Funds held for clients
22,418.7
21,798.4
20,726.5
Total
$ 28,028.8
$ 26,358.8
$ 24,798.9
Average interest rates earned exclusive of realized
(gains)/losses on:
Corporate investments
1.1%
1.3%
1.4%
Funds held for clients
1.7%
1.7%
1.8%
Total
1.6%
1.7%
1.7%
Realized gains on available-for-sale securities
$ (5.1)
$ (6.8)
$ (20.4)
Realized losses on available-for-sale securities
10.1
1.9
3.9
Net realized losses/(gains) on available-for-sale securities
$ 5.0
$ (4.9)
$ (16.5)
As of June 30:
Net unrealized pre-tax gains on available-for-sale securities
$ 510.2
$ 216.5
$ 324.4
Total available-for-sale securities at fair value
$ 21,605.0
$ 20,873.8
$ 20,156.5
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the
earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term
investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annualized interest rate earned on our entire portfolio
declined to 1.6% for fiscal 2016 , as compared to 1.7% for fiscal 2015 . A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the
federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term
borrowings would result in approximately a $13 million impact to earnings from continuing operations before income taxes over the ensuing twelve-month period
ending June 30, 2017 . A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances
and any related short-term borrowings would result in approximately a $7 million impact to earnings from continuing operations before income taxes over the
ensuing twelve-month period ending June 30, 2017 .
We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the
securities. We limit credit risk by investing in investment-grade securities, primarily AAA and AA rated securities, as rated by Moody’s, Standard & Poor’s, and
for Canadian securities, DBRS. Approximately 80% of our available-for-sale securities held a AAA or AA rating at June 30, 2016 . In addition, we limit amounts
that can be invested in any security other than U.S. and Canadian government or government agency securities.
We operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in foreign currency exchange
rates that could impact our consolidated results of operations, financial position, or cash flows. We experienced pressure from foreign currency translation on our
revenue and earnings from continuing operations before income taxes in fiscal 2015 and the first three quarters of fiscal 2016. We manage our exposure to these
market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We may use
derivative financial instruments as risk management tools and not for trading purposes. We had no derivative financial instruments outstanding at June 30, 2016 or
2015 .
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