UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2007
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33220
BROADRIDGE FINANCIAL SOLUTIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 33-1151291 | |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
|
1981 Marcus Avenue Lake Success, NY |
11042 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (516) 472-5400
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer x Accelerated filer ¨ Non-Accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of January 31, 2008 was 140,000,199.
TABLE OF CONTENTS
|
ITEM |
PAGE | |||
|
PART I. |
FINANCIAL INFORMATION | 3 | ||
|
Item 1. |
FINANCIAL STATEMENTS | 3 | ||
|
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 | ||
|
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 27 | ||
|
Item 4. |
CONTROLS AND PROCEDURES | 28 | ||
|
PART II. |
OTHER INFORMATION | 29 | ||
|
Item 1. |
LEGAL PROCEEDINGS | 29 | ||
|
Item 1A. |
RISK FACTORS | 29 | ||
|
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 29 | ||
|
Item 3. |
DEFAULTS UPON SENIOR SECURITIES | 30 | ||
|
Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 30 | ||
|
Item 5. |
OTHER INFORMATION | 30 | ||
|
Item 6. |
EXHIBITS | 30 | ||
2
PART I. FINANCIAL INFORMATION
Broadridge Financial
Solutions, Inc.
Condensed Consolidated and Combined Statements of Earnings
(In millions, except per share amounts)
(Unaudited)
Revenues:
Services revenues
Other
Total revenues
Interest expense from securities operations
Net revenues
Cost of net revenues
Selling, general and administrative expenses
Other expenses, net
Total expenses
Earnings before income taxes
Provision for income taxes
Net earnings
Earnings per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
Dividends declared per common share
na – not applicable
See Notes to Condensed Consolidated and Combined Financial Statements.
3
Broadridge Financial Solutions, Inc.
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
Cash and securities segregated for regulatory purposes and securities deposited with clearing organizations
Accounts receivable, net of allowance for doubtful accounts of $4.3 and $2.6, respectively
Securities clearing receivables, net of allowance for doubtful accounts of $2.1 and $2.1, respectively
Other current assets
Total current assets
Property, plant and equipment, net
Other non-current assets
Goodwill
Intangible assets, net
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Securities clearing payables
Deferred revenues
Short-term borrowings
Total current liabilities
Long-term debt
Other non-current liabilities
Deferred revenues
Total liabilities
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: Authorized, 25.0 shares; issued and outstanding, none
Common stock, $0.01 par value: Authorized, 650.0 shares; issued, 139.9 shares and 139.3 shares, respectively
Additional paid-in capital
Retained earnings
Treasury stock – at cost
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Condensed Consolidated and Combined Financial Statements.
4
Broadridge Financial Solutions, Inc.
Condensed Consolidated and Combined Statements of Cash Flows
(In millions)
(Unaudited)
Cash Flows From Operating Activities
Net earnings
Adjustments to reconcile net earnings to net cash flows provided by operating activities:
Depreciation and amortization
Amortization of other assets
Deferred income taxes
Stock-based compensation expense
Other
Changes in operating assets and liabilities:
Current assets and liabilities:
Decrease in accounts receivable
Decrease in Other current assets
Decrease in Accounts payable
Decrease in Accrued expenses and other current liabilities
Decrease in Deferred revenues
Decrease (increase) in Cash and securities segregated for regulatory purposes and securities deposited with clearing
organizations
Increase in Securities clearing receivables
Increase in Securities clearing payables
Non-current assets and liabilities:
Increase in Other non-current assets
Increase in Other non-current liabilities
Net cash flows provided by (used in) operating activities
Cash Flows From Investing Activities
Capital expenditures
Purchases of intangibles
Acquisition of a business
Net cash flows used in investing activities
Cash Flows From Financing Activities
Net proceeds from short-term debt
Payments on Long-term debt
Dividends paid
Proceeds from exercise of stock options
Purchases of common stock
Payments on notes payable to ADP and ADP affiliates
Net returns of investments to ADP and ADP affiliates
Net cash flows provided by (used in) financing activities
Effect of exchange rate changes on Cash and cash equivalents
Net change in Cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash payments made for interest
Cash payments made for income taxes
Non-cash investing activities:
Increase in liabilities for property, plant and equipment
Transfer of equipment, software and software licenses to ADP
See Notes to Condensed Consolidated and Combined Financial Statements.
5
Broadridge Financial Solutions, Inc.
Notes to Condensed Consolidated and Combined Financial Statements
(Tabular
dollars in millions, except per share amounts)
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
A. Spin-off.
The spin-off of Broadridge Financial Solutions,
Inc. (“Broadridge” or the “Company”), a Delaware corporation, by Automatic Data Processing, Inc. (“ADP” or the “Former Parent”) became effective on March 30, 2007 through a distribution of 100% of the
common stock of the Company to the holders of record of ADP’s common stock (the “Distribution”). The Distribution was effected pursuant to a separation and distribution agreement by which ADP contributed to the Company the
subsidiaries that operated its brokerage services business which includes the businesses described below.
B. Description of
Business
. The Company is a leading global provider of investor communication, securities processing, and clearing and outsourcing solutions to the financial services industry. The Company classifies its operations into the following three
reportable segments:
Investor Communication Solutions
— provides solutions for the processing and distribution of proxy materials to investors, including vote processing,
and for the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions. Investor Communication Solutions also provides financial information distribution and transaction reporting
services to both financial institutions and securities issuers. These services include the processing and distribution of account statements and trade confirmations, traditional and personalized document fulfillment and content management services,
and imaging, archival and workflow solutions.
Securities Processing Solutions
— provides advanced, computerized real-time transaction processing services that automate the securities transaction
lifecycle. Securities Processing Solutions’ products and services include desktop productivity tools and portfolio management, order capture and execution, trade confirmation, settlement and accounting services.
Clearing and Outsourcing Solutions
— provides securities clearing services, which include the process of matching, recording, and processing transaction
instructions and then exchanging payment between counterparties. The Company’s securities clearing solutions also enable clients to finance inventory and margin balances. The Company’s operations outsourcing solutions allow broker-dealers
to outsource certain administrative functions relating to clearing and settlement to the Company, from order entry to trade matching and settlement, while maintaining their ability to finance and capitalize their business.
C. Basis of Presentation
. The Condensed Consolidated and Combined Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of America. These financial statements present the consolidated position of the Company as a separate, stand-alone entity subsequent to the Distribution, presented along
with the historical operations of the brokerage services business on a combined basis which were operated as part of ADP prior to the Distribution. These financial statements include the entities in which the Company directly or indirectly has a
controlling financial interest and various entities in which the Company has investments recorded under the cost and equity methods of accounting. Intercompany balances and transactions have been eliminated. Amounts included in retained earnings
reflect the Company’s earnings subsequent to the Distribution. The Company’s combined results of operations and cash flows for periods prior to the Distribution may not be indicative of its future performance and do not necessarily reflect
what its results of operations and cash flows would have been had the Company operated as a separate, stand-alone entity during the periods presented, including changes in its operations and capitalization as a result of the separation from ADP. The
results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the Company’s
financial statements for the fiscal year ended June 30, 2007 in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007 (the “2007 Annual Report”) filed with the Securities and Exchange
Commission (the “SEC”) on August 23, 2007.
The Condensed Consolidated and Combined Financial Statements for periods prior
to the Distribution include costs for facilities, functions and services used by the Company at shared ADP sites and costs for certain functions and services performed by centralized ADP organizations and directly charged to the Company based on
usage. Following the separation from ADP, the Company performs these functions using internal resources or purchased services, certain of which may be provided by ADP during a transitional period pursuant to the transition services agreement. Refer
to Note 10, “Transactions with Former Parent,” for a detailed description of the Company’s transactions with ADP subsequent to the Distribution. The expenses allocated to the Company for these services are not necessarily indicative
of the expenses that would have been incurred if the Company had been a separate, independent entity and had otherwise managed these functions. The Company’s Condensed Consolidated and Combined Financial Statements include the following
transactions with ADP or ADP affiliates prior to the Distribution:
6
Overhead
Item 1.
FINANCIAL STATEMENTS
Three months ended
December 31,
Six months ended
December 31,
2007
2006
2007
2006
$
450.5
$
416.8
$
886.0
$
842.9
23.9
20.7
48.4
40.1
474.4
437.5
934.4
883.0
9.3
6.2
18.1
11.6
465.1
431.3
916.3
871.4
345.7
333.2
679.9
675.8
62.5
51.1
111.6
101.6
9.6
1.0
18.4
1.6
417.8
385.3
809.9
779.0
47.3
46.0
106.4
92.4
18.4
18.0
41.5
35.9
$
28.9
$
28.0
$
64.9
$
56.5
$
0.21
$
0.20
$
0.47
$
0.41
$
0.21
$
0.20
$
0.46
$
0.41
139.3
138.8
139.2
138.8
140.9
138.8
140.3
138.8
$
0.06
na
$
0.12
na
December 31,
2007
June 30,
2007
$
104.2
$
88.6
3.1
66.4
333.0
502.7
1,665.3
1,241.2
63.2
61.1
2,168.8
1,960.0
77.7
77.4
145.8
129.2
487.2
480.2
31.8
31.4
$
2,911.3
$
2,678.2
$
82.9
$
91.5
184.3
287.9
961.7
915.4
9.8
24.6
426.0
109.2
1,664.7
1,428.6
522.8
617.7
59.3
61.0
54.7
39.8
2,301.5
2,147.1
—
—
1.4
1.4
437.0
412.9
137.7
90.3
(0.5
)
(0.1
)
34.2
26.6
609.8
531.1
$
2,911.3
$
2,678.2
Six Months ended
December 31,
2007
2006
$
64.9
$
56.5
20.2
19.8
4.6
10.3
(15.7
)
(2.3
)
15.0
12.1
2.9
2.7
170.8
59.5
9.1
16.5
(9.1
)
(12.6
)
(83.1
)
(18.0
)
(14.9
)
(6.7
)
63.3
(0.1
)
(424.1
)
(87.2
)
46.4
176.9
(24.6
)
(17.8
)
21.6
7.3
(152.7
)
216.9
(16.6
)
(9.0
)
(1.8
)
(3.3
)
(6.1
)
—
(24.5
)
(12.3
)
295.0
—
(95.0
)
—
(16.8
)
—
9.3
—
(0.4
)
—
—
(31.5
)
—
(138.3
)
192.1
(169.8
)
0.7
(0.1
)
15.6
34.7
88.6
50.1
$
104.2
$
84.8
$
36.3
$
13.2
$
114.8
$
4.1
$
0.8
$
—
—
$
24.0
•
•
•