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 March 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
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.) | |
|
2 Journal Square Plaza Jersey City, NJ |
07306 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (201) 714-3000
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 ¨ No x
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 ¨ Accelerated filer ¨ Non-Accelerated filer x
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 April 30, 2007 was 139,213,481.
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 | 19 | ||
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 33 | ||
| Item 4. | CONTROLS AND PROCEDURES | 34 | ||
| PART II. | OTHER INFORMATION | 35 | ||
| Item 1. | LEGAL PROCEEDINGS | 35 | ||
| Item 1A. | RISK FACTORS | 35 | ||
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 35 | ||
| Item 3. | DEFAULTS UPON SENIOR SECURITIES | 35 | ||
| Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 35 | ||
| Item 5. | OTHER INFORMATION | 35 | ||
| Item 6. | EXHIBITS | 35 | ||
2
PA RT I. FINANCIAL INFORMATION
| Item 1. | FINANCIAL STATEMENTS |
Broadridge Financial Solutions, Inc.
Condensed Consolidated and Combined Statements of Earnings
(In millions, except per share amounts)
(Unaudited)
|
Three months ended
March 31, |
Nine months ended
March 31, |
||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||
|
Revenues: |
|||||||||||||
|
Services revenues |
$ | 477.6 | $ | 437.1 | $ | 1,320.5 | $ | 1,173.0 | |||||
|
Other |
21.8 | 17.6 | 61.9 | 53.7 | |||||||||
|
Total revenues |
499.4 | 454.7 | 1,382.4 | 1,226.7 | |||||||||
|
Interest expense from securities operations |
6.6 | 4.2 | 18.2 | 11.5 | |||||||||
|
Net revenues |
492.8 | 450.5 | 1,364.2 | 1,215.2 | |||||||||
|
Cost of net revenues |
375.1 | 348.4 | 1,050.9 | 935.3 | |||||||||
|
Selling, general and administrative expenses |
47.6 | 45.0 | 149.2 | 144.1 | |||||||||
|
Other expenses, net |
0.2 | 1.3 | 1.8 | 1.9 | |||||||||
| 422.9 | 394.7 | 1,201.9 | 1,081.3 | ||||||||||
|
Earnings from continuing operations before income taxes |
69.9 | 55.8 | 162.3 | 133.9 | |||||||||
|
Provision for income taxes |
28.0 | 22.5 | 63.9 | 54.0 | |||||||||
|
Net earnings from continuing operations |
41.9 | 33.3 | 98.4 | 79.9 | |||||||||
|
Income (loss) from discontinued operations, net of provision (benefit) for income taxes of $0.2 million and $(8.9) million for the three and nine months ended March 31, 2006, respectively |
— | 0.3 | — | (13.9 | ) | ||||||||
|
Net earnings |
$ | 41.9 | $ | 33.6 | $ | 98.4 | $ | 66.0 | |||||
|
Basic and diluted earnings per share: |
|||||||||||||
|
Basic and diluted earnings per share from continuing operations |
$ | 0.30 | $ | 0.24 | $ | 0.71 | $ | 0.58 | |||||
|
Basic and diluted loss per share from discontinued operations |
— | — | — | (0.10 | ) | ||||||||
|
Basic and diluted earnings per share |
$ | 0.30 | $ | 0.24 | $ | 0.71 | $ | 0.48 | |||||
|
Weighted-average shares outstanding: |
|||||||||||||
|
Basic and diluted |
138.8 | 138.8 | 138.8 | 138.8 | |||||||||
See Notes to Condensed Consolidated and Combined Financial Statements.
3
Broadridge Financial Solutions, Inc.
Condensed Consolidated and Combined Balance Sheets
(In millions, except per share amounts)
|
March 31,
2007 |
June 30,
2006 |
|||||
| (Unaudited) | ||||||
|
Assets |
||||||
|
Current assets: |
||||||
|
Cash and cash equivalents |
$ | 43.2 | $ | 50.1 | ||
|
Cash and securities segregated for regulatory purposes and securities deposited with clearing organizations |
143.2 | 40.3 | ||||
|
Accounts receivable, net |
371.4 | 404.2 | ||||
|
Securities clearing receivables |
940.3 | 836.8 | ||||
|
Other current assets |
115.5 | 74.5 | ||||
|
Total current assets |
1,613.6 | 1,405.9 | ||||
|
Property, plant and equipment, net |
73.5 | 80.7 | ||||
|
Other non-current assets |
126.1 | 111.3 | ||||
|
Goodwill |
479.8 | 480.4 | ||||
|
Intangible assets, net |
33.3 | 56.4 | ||||
|
Total assets |
$ | 2,326.3 | $ | 2,134.7 | ||
|
Liabilities and Stockholders’ Equity |
||||||
|
Current liabilities: |
||||||
|
Accounts payable |
$ | 83.1 | $ | 78.4 | ||
|
Accrued expenses and other current liabilities |
183.7 | 172.9 | ||||
|
Securities clearing payables |
732.8 | 613.6 | ||||
|
Deferred revenues |
37.0 | 9.5 | ||||
|
Notes payable to affiliated parties |
— | 115.9 | ||||
|
Short-term borrowings |
331.0 | — | ||||
|
Total current liabilities |
1,367.6 | 990.3 | ||||
|
Long-term debt |
440.0 | — | ||||
|
Other non-current liabilities |
50.3 | 59.4 | ||||
|
Deferred revenues |
42.9 | 41.8 | ||||
|
Total liabilities |
1,900.8 | 1,091.5 | ||||
|
Commitments and contingencies (Note 14) |
||||||
|
Stockholders’ equity: |
||||||
|
Parent company’s net investment |
— | 998.0 | ||||
|
Preferred stock: Authorized, 25.0 shares; issued and outstanding, none |
— | — | ||||
|
Common stock, $.01 par value: Authorized, 650.0 shares; issued and outstanding, 138.8 shares at March 31, 2007 |
1.4 | — | ||||
|
Additional paid-in capital |
402.4 | — | ||||
|
Accumulated other comprehensive income |
21.7 | 45.2 | ||||
|
Total stockholders’ equity |
425.5 | 1,043.2 | ||||
|
Total liabilities and stockholders’ equity |
$ | 2,326.3 | $ | 2,134.7 | ||
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)
|
Nine months ended
March 31, |
||||||||
| 2007 | 2006 | |||||||
|
Cash Flows From Operating Activities |
||||||||
|
Net earnings |
$ | 98.4 | $ | 66.0 | ||||
|
Adjustments to reconcile net earnings to net cash flows provided by operating activities: |
||||||||
|
Depreciation and amortization |
29.3 | 35.3 | ||||||
|
Amortization of other assets |
14.8 | 18.2 | ||||||
|
Stock-based compensation expense |
18.3 | 17.5 | ||||||
|
Impairment of assets of discontinued operations business |
— | 18.6 | ||||||
|
Other |
4.8 | 1.0 | ||||||
|
Operating activities of discontinued operations |
— | 3.2 | ||||||
|
Changes in operating assets and liabilities, net of effects from the divestiture of a business: |
||||||||
|
Current assets and liabilities: |
||||||||
|
Decrease in accounts receivable |
30.9 | 7.4 | ||||||
|
Increase in other current assets |
(41.8 | ) | (47.8 | ) | ||||
|
Increase in accounts payable |
4.7 | 20.2 | ||||||
|
Increase in accrued expenses and other current liabilities |
10.8 | 25.2 | ||||||
|
Increase in deferred revenue |
28.9 | 32.3 | ||||||
|
(Increase) decrease in cash and securities segregated for regulatory purposes and securities deposited with clearing organizations |
(102.9 | ) | 164.6 | |||||
|
Increase in securities clearing receivables |
(103.5 | ) | (14.6 | ) | ||||
|
Increase in securities clearing payables |
119.2 | 32.4 | ||||||
|
Non-current assets and liabilities: |
||||||||
|
Increase in other non-current assets |
(33.7 | ) | (40.7 | ) | ||||
|
Decrease in other non-current liabilities |
(2.6 | ) | (6.8 | ) | ||||
|
Net cash flows provided by operating activities |
75.6 | 332.0 | ||||||
|
Cash Flows From Investing Activities |
||||||||
|
Capital expenditures |
(19.5 | ) | (23.6 | ) | ||||
|
Purchases of intangibles |
(4.5 | ) | (3.3 | ) | ||||
|
Purchase price adjustments, net of cash acquired |
— | 12.4 | ||||||
|
Proceeds from the sale of a business |
— | 7.5 | ||||||
|
Net cash flows used in investing activities |
(24.0 | ) | (7.0 | ) | ||||
|
Cash Flows From Financing Activities |
||||||||
|
Payment to ADP at separation |
(690.0 | ) | — | |||||
|
Proceeds from revolving credit facility |
250.0 | — | ||||||
|
Proceeds from securities clearing credit facility |
81.0 | — | ||||||
|
Proceeds from issuance of long-term debt |
440.0 | — | ||||||
|
Proceeds from notes payable to ADP and affiliates |
— | 37.4 | ||||||
|
Payments on notes payable to ADP and affiliates |
(115.9 | ) | (18.7 | ) | ||||
|
Net returns of investment to ADP and affiliates |
(23.3 | ) | (289.1 | ) | ||||
|
Net cash flows used in financing activities |
(58.2 | ) | (270.4 | ) | ||||
|
Effect of exchange rate changes on cash and cash equivalents |
(0.3 | ) | (0.2 | ) | ||||
|
Net change in cash and cash equivalents |
(6.9 | ) | 54.4 | |||||
|
Cash and cash equivalents, at beginning of period |
50.1 | 31.6 | ||||||
|
Cash and cash equivalents, end of period |
$ | 43.2 | $ | 86.0 | ||||
|
Supplemental disclosure of cash flow information: |
||||||||
|
Cash payments made for interest |
$ | 20.3 | $ | 12.9 | ||||
|
Cash payments made for income taxes |
$ | 4.9 | $ | 4.7 | ||||
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 pursuant to a separation and distribution agreement by which ADP contributed to the Company the subsidiaries that operated its brokerage services business.
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 reportable segments:
| • |
Investor Communication Solutions — provides solutions for the processing and distribution of proxy materials to investors, as well as vote processing, regulatory reporting, tax reporting and corporate actions/reorganization processing 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 cycle. Securities Processing Solutions’ products and services include productivity tools and portfolio management, order capture and execution, trade confirmation, settlement and accounting services. |
| • |
Clearing and Outsourcing Solutions — provides securities clearing and settlement services which is the process of matching, recording, and processing transaction instructions and then exchanging payments between counterparties. Our securities clearing services enable clients to utilize the Company’s broker-dealer business to finance inventory and margin balances. Our operations outsourcing services allow brokers of all sizes to outsource the administrative functions of trade processing, 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. The Company’s combined results of operations, financial position 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, financial position 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 and distribution from ADP.
In presenting the Condensed Consolidated and Combined Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Condensed Consolidated and Combined Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported
6
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 Combined Financial Statements of the ADP brokerage services business as of and for the year ended June 30, 2006 included in the Company’s registration statement on Form 10 filed with the United States Securities and Exchange Commission (the “SEC”) on December 19, 2006, as amended (the “Form 10”).
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 and distribution 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 15, 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 its affiliates prior to the Distribution: