Business Context and Reporting Period
Company: Automatic Data Processing, Inc. (ADP)
Filing Date: March 20, 2007 (Report Date: March 21, 2007)
Event: Entry into a Material Definitive Agreement to separate ADP's brokerage services and securities clearing/outsourcing businesses into a new entity, Broadridge Financial Solutions, LLC (Broadridge).
Key Financial Metrics
This filing is a Current Report (Form 8-K) regarding a corporate transaction and does not contain a full set of financial statements. Specific metrics include:
- Debt/Capitalization: Broadridge is required to execute a new credit facility to borrow $690.0 million prior to the distribution.
- Cash Flow/Dividends: Proceeds from the $690.0 million credit facility will be used to pay a dividend to ADP. Additionally, ADP expects to receive approximately $60 million distributed from its Canadian subsidiaries.
- Revenue/Profit: The filing does not provide specific revenue, profit, or margin figures for the current period. It notes that fiscal 2006 results have been updated to reflect the Brokerage Services Group as discontinued operations.
Material Changes Versus Prior Period
Discontinued Operations: ADP has updated its fiscal 2006 financial results to classify the Brokerage Services Group as discontinued operations in anticipation of the spin-off scheduled for March 30, 2007. This represents a significant structural change to the company's reporting segments.
Guidance, Outlook, and Risks
Guidance Update: On March 21, 2007, ADP announced updated fiscal 2007 guidance reflecting the separation of the Brokerage Services Group.
Conditions Precedent: The separation and distribution are subject to several conditions, including:
- Final approval by the ADP Board of Directors.
- SEC declaration of effectiveness for Broadridge's registration statement.
- NYSE acceptance of Broadridge common stock for listing.
- Receipt of a private letter ruling from the IRS confirming the tax-free status of the distribution under Section 355 of the Internal Revenue Code.
- Execution of ancillary agreements (tax allocation, transition services, data center outsourcing, IP transfer, and employee matters).
Risks and Contingencies:
- Termination: ADP retains the sole discretion to terminate or amend the agreement at any time prior to the distribution.
- Indemnification: Broadridge will indemnify ADP for liabilities related to Broadridge's operations and contracts, while ADP will indemnify Broadridge for liabilities related to ADP's operations and specific information in the registration statement.
- Delayed Transfers: Assets or liabilities not transferred on the distribution date will be held in trust, with economic benefits or detriments passed to the intended recipient.
Investor Verification Checklist
- Verify the final approval of the Separation and Distribution by the ADP Board of Directors.
- Confirm the effectiveness of Broadridge's registration statement with the SEC and the absence of any stop orders.
- Check for the issuance of the IRS private letter ruling confirming the tax-free status of the distribution.
- Monitor the execution of the $690.0 million credit facility by Broadridge and the subsequent dividend payment to ADP.
- Review the updated fiscal 2007 guidance and fiscal 2006 restated results (Exhibit 99.1) for specific financial impacts of the discontinued operations.