How was Broadridge's separation from ADP structured and what did it cost the company?

ADP distributed all Broadridge shares to its shareholders on March 30, 2007, at one Broadridge share for every four ADP shares held on March 23, 2007. Before the spin-off, Broadridge borrowed $690.0 million under $1,190.0 million of new credit facilities and paid that amount to ADP as a dividend. The filing states that ADP incurred most of the separation expenses, while Broadridge recorded separation costs with future benefit, such as stock compensation tied to the distribution and temporary labor costs.

What drove the increase in fiscal 2007 revenue and earnings?

Net revenues increased $204.6 million, or 10.6%, to $2,137.9 million, with growth in all three segments, primarily from internal growth. Investor Communication Solutions net revenues rose $154.2 million, or 11.1%, with distribution revenue up 12.5% on higher volumes and postal rate increases. Earnings from continuing operations before income taxes rose 6.0% to $320.8 million, and the margin declined from 15.7% to 15.0%, which the company attributed to one-time transition costs of $14.0 million.

What risks did management highlight that could affect future results?

The filing cites client consolidation in financial services, with one large client terminating certain services in fiscal 2007 while continuing proxy services. It also highlights SEC proxy rule changes, including the notice and access model and the Universal Rule, which management expects to reduce distribution revenues. Other risks include dependence on ADP as the outsourced data center provider under an agreement expiring June 30, 2012, the company's higher financing costs, and the regulatory capital requirements of its broker-dealer subsidiary, Ridge Clearing & Outsourcing Solutions.

How much debt does Broadridge carry and what are its key terms?

At June 30, 2007, total debt outstanding was $726.9 million, including $370.0 million under a five-year term loan at LIBOR plus 40 to 90 basis points and $247.7 million of 6.125% Senior Notes maturing June 1, 2017, plus $109.2 million of short-term borrowings at Ridge. The company also had a $500.0 million undrawn five-year revolving credit facility. The credit facilities are subject to leverage and interest coverage ratio covenants, and the company stated it was in compliance at June 30, 2007.

What do the operating cash flow figures indicate about the business?

Net cash provided by operating activities was $160.5 million for fiscal 2007, compared with $426.1 million in fiscal 2006. Excluding the Clearing and Outsourcing Solutions segment, operating cash flow was $298.2 million, down $7.2 million. The clearing segment used $137.7 million, mainly because margin loans increased $291.6 million, partly funded by external financing, and a $176.8 million regulatory deposit reserve released in fiscal 2005 had no equivalent in fiscal 2006 or 2007.

BR 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed August 23, 2007. Cited figures are marked; the original filing is the authoritative source.

Broadridge Financial Solutions, Inc. filed its first Form 10-K following its March 30, 2007 spin-off from Automatic Data Processing, Inc. (ADP), in which ADP distributed 100%^a of Broadridge's common stock to ADP shareholders at one share for every four ADP shares.

Before the spin-off, Broadridge paid ADP a $690.0 million^b cash dividend, funded by $1,190.0 million of new credit facilities. The company reports three segments: Investor Communication Solutions, Securities Processing Solutions, and Clearing and Outsourcing Solutions. For fiscal 2007 (ended June 30, 2007), net revenues were $2,137.9 million, up 10.6% from $1,933.3 million, and earnings from continuing operations before income taxes were $320.8 million, up 6.0%.

Net earnings from continuing operations were $197.1 million^c, or $1.42 per diluted share, up 9.2%. The balance sheet at June 30, 2007 showed total assets of $2,678.2 million, long-term debt of $617.7 million, and stockholders' equity of $531.1 million, down from $1,043.2 million a year earlier, reflecting the dividend to ADP. Operating cash flow was $160.5 million, compared with $426.1 million in fiscal 2006, with the decline driven largely by the Clearing and Outsourcing Solutions segment, which used $137.7 million in operating cash.

The company noted that one large client's account statement services were terminated, and that proxy rule changes could affect distribution revenue. Management also disclosed one-time transition costs of $14.0 million^d and public company expenses of $8.0 million for the period from the spin-off to June 30, 2007.

02—Key points

Key Highlights

Spin-off completed March 30, 2007: ADP distributed 100% of Broadridge common stock at one share for every four ADP shares; Broadridge began trading on the NYSE as "BR" on April 2, 2007.
Fiscal 2007 net revenues rose 10.6% to $2,137.9 million; Investor Communication Solutions contributed $1,545.4 million, up 11.1%.
Net earnings from continuing operations were $197.1 million, or $1.42 per diluted share, up 9.2% from $180.5 million in fiscal 2006.
Debt of $617.7 million at June 30, 2007 included a $370.0 million term loan and $247.7 million of 6.125% Senior Notes due 2017, after a $690.0 million dividend paid to ADP at separation.
Operating cash flow fell to $160.5 million from $426.1 million, with the Clearing and Outsourcing Solutions segment using $137.7 million in operating cash.
Client concentration: approximately 24% of fiscal 2007 revenues came from five clients, and the largest single client accounted for between 5-6% of revenues.
Quarterly dividend of $0.06 per share was declared June 2, 2007; the company stated it expects to pay cash dividends, and no stock repurchase plan had been authorized.

03—Questions

Frequently Asked Questions

How was Broadridge's separation from ADP structured and what did it cost the company?
ADP distributed all Broadridge shares to its shareholders on March 30, 2007, at one Broadridge share for every four ADP shares held on March 23, 2007. Before the spin-off, Broadridge borrowed $690.0 million under $1,190.0 million of new credit facilities and paid that amount to ADP as a dividend. The filing states that ADP incurred most of the separation expenses, while Broadridge recorded separation costs with future benefit, such as stock compensation tied to the distribution and temporary labor costs.
What drove the increase in fiscal 2007 revenue and earnings?
Net revenues increased $204.6 million, or 10.6%, to $2,137.9 million, with growth in all three segments, primarily from internal growth. Investor Communication Solutions net revenues rose $154.2 million, or 11.1%, with distribution revenue up 12.5% on higher volumes and postal rate increases. Earnings from continuing operations before income taxes rose 6.0% to $320.8 million, and the margin declined from 15.7% to 15.0%, which the company attributed to one-time transition costs of $14.0 million.
What risks did management highlight that could affect future results?
The filing cites client consolidation in financial services, with one large client terminating certain services in fiscal 2007 while continuing proxy services. It also highlights SEC proxy rule changes, including the notice and access model and the Universal Rule, which management expects to reduce distribution revenues. Other risks include dependence on ADP as the outsourced data center provider under an agreement expiring June 30, 2012, the company's higher financing costs, and the regulatory capital requirements of its broker-dealer subsidiary, Ridge Clearing & Outsourcing Solutions.
How much debt does Broadridge carry and what are its key terms?
At June 30, 2007, total debt outstanding was $726.9 million, including $370.0 million under a five-year term loan at LIBOR plus 40 to 90 basis points and $247.7 million of 6.125% Senior Notes maturing June 1, 2017, plus $109.2 million of short-term borrowings at Ridge. The company also had a $500.0 million undrawn five-year revolving credit facility. The credit facilities are subject to leverage and interest coverage ratio covenants, and the company stated it was in compliance at June 30, 2007.
What do the operating cash flow figures indicate about the business?
Net cash provided by operating activities was $160.5 million for fiscal 2007, compared with $426.1 million in fiscal 2006. Excluding the Clearing and Outsourcing Solutions segment, operating cash flow was $298.2 million, down $7.2 million. The clearing segment used $137.7 million, mainly because margin loans increased $291.6 million, partly funded by external financing, and a $176.8 million regulatory deposit reserve released in fiscal 2005 had no equivalent in fiscal 2006 or 2007.

04—Continue

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