UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ý☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
For the Fiscal Year Ended June 30, 20172020
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001- 33220
BROADRIDGE FINANCIAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| | 33-1151291 | | | | | | |
| Delaware | | 33-1151291 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
5 DAKOTA DRIVE LAKE SUCCESS, NY | | 11042 |
| LAKE SUCCESS | | |
| New York | | |
| (Address of principal executive offices) | | (Zip code) |
(516) 472-5400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | |
| Title of Each Class: | Trading Symbol | Name of Each Exchange on Which Registered: |
| Common Stock, par value $0.01 per share | BR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ý Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company ¨
☐ Emerging Growth Company ¨ ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
The aggregate market value, as of December 31, 2016,2019, of common stock held by non-affiliates of the registrant was approximately $7,774,721,987.$14,072,861,236.
As of July 31, 2017,2020, there were 116,475,417115,161,503 shares of the registrant’s common stock outstanding (excluding 37,985,71039,299,624 shares held in treasury), par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the fiscal year end of June 30, 20172020 are incorporated by reference into Part III.
TABLE OF CONTENTS
TABLE OF CONTENTS
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PART I.
Forward-Looking Statements
This Annual Report on Form 10-K of Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”) may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words such as “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, are forward-looking statements. In particular, information appearing under “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include:
•the potential impact and effects of the Covid-19 pandemic (“Covid-19”) on the business of Broadridge, Broadridge’s results of operations and financial performance, any measures Broadridge has and may take in response to Covid-19 and any expectations Broadridge may have with respect thereto;
•the success of Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”) in retaining and selling additional services to its existing clients and in obtaining new clients;
•Broadridge’s reliance on a relatively small number of clients, the continued financial health of those clients, and the continued use by such clients of Broadridge’s services with favorable pricing terms;
any•a material security breach or cybersecurity attack affecting the information of Broadridge security affecting its clients’ customer information;Broadridge’s clients;
•changes in laws and regulations affecting Broadridge’s clients or the services provided by Broadridge;
•declines in participation and activity in the securities markets;
•the failure of our outsourced data center services providerBroadridge’s key service providers to provide the anticipated levels of service;
•a disaster or other significant slowdown or failure of Broadridge’s systems or error in the performance of Broadridge’s services;
•overall market and economic conditions and their impact on the securities markets;
•Broadridge’s failure to keep pace with changes in technology and the demands of its clients;
the•Broadridge’s ability to attract and retain key personnel;
•the impact of new acquisitions and divestitures; and
•competitive conditions.
There may be other factors that may cause our actual results to differ materially from the forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the “Risk Factors” section of this Annual Report on Form 10-K for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form 10-K. We disclaim any obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
ITEM 1. Business
Overview
Broadridge, Financial Solutions, Inc. (“Broadridge” or the “Company”), a Delaware corporation and a part of the S&P 500® Index (“S&P”), is a global fintechfinancial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, mutual fundsasset and wealth managers and corporate issuers. Our services include investor and customer communications, securities processing, and data and analytics solutions. In short, we provide the infrastructure that helps the financial services industry operate. With over 50 years of experience, including over 10 years as an independent public company, we provide financial services firms with advanced, dependable, scalable and cost-effective integrated systems.solutions and an important infrastructure that powers the financial services industry. Our systemssolutions enable better financial lives by powering investing, governance and communications and help reduce the need for our clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities. We deliver a broad range of solutions that help our clients better serve their retail and institutional customers across the entire investment lifecycle, including pre-trade, trade, and post-trade processing functionality.
Our businesses operate in two reportable segments: Investor Communication Solutionsservices include investor communications, securities processing, data and Global Technologyanalytics, and Operations.customer communications solutions. We serve a large and diverse client base across four client groups: capital markets,banks/broker-dealers, asset management firms/mutual funds, wealth management firms and corporations.
corporate issuers. For capital markets firms, we help our clients lower costs and improve the effectiveness of their trade and account processing operations with support for middle-their operational technologies, and back-office operations,their administration, finance, and risk and compliance. Forcompliance requirements. We serve asset management firms weby meeting their critical needs for shareholder communications and by providing investment operations technology to support cross-asset, multi-currency investing across a range of brokers and executing venues from a single technology and operating solution.their investment decisions. For wealth management firms,clients, we provide advisorsan integrated platform with tools to create a better investorthat optimize advisor productivity, enhance client experience, while also delivering a more streamlined, efficient, and effective process. Wedigitize enterprise operations. For our corporate issuer clients, we help corporations manage every aspect of their shareholder communications—fromcommunications, including registered and beneficial proxy processing, to annual meeting support, and transfer agency services. Our customer communication solutions help companies transform their essential communications such as billsservices and statements into engaging, personalized experiences.financial disclosure document creation, management and SEC filing services.
We operate our business in two reportable segments: Investor Communication Solutions and Global Technology and Operations.
Investor Communication Solutions
We offer Bank/Broker-Dealerprovide governance and communications solutions through our Investor Communication Solutions business segment to the following financial services clients: banks/broker-dealers, asset management firms/mutual funds, wealth management firms and corporate issuers. In addition to financial services firms, our Customer Communication Solutions, Corporate Issuer Solutions, Advisor SolutionsCommunications business also serves companies in the healthcare, insurance, consumer finance, telecommunications, utilities and Mutual Fund and Retirement Solutions through this segment. other service industries.
A large portion of our Investor Communication Solutions business involves the processing and distribution of proxy materials to investors in equity securities and mutual funds, as well as the facilitation of related vote processing. In fiscal year 2017, we processed approximately 80% of the outstanding shares in the United States ProxyEdge® (“U.S.”ProxyEdge”) in the performance of our proxy services. ProxyEdge®,is our innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that helps ensure the voting participation of the largest stockholders of many companies. In addition, we provide corporations with registered proxy services as well as registrar, stock transfer and record-keeping services. We also provide the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help our clients meet their regulatory compliance needs.
We provide customer communication solutions to companies in the financial services, healthcare, insurance, consumer finance, telecommunications, utilities, retail banking and other service industries. The Broadridge Communications CloudSM, launched in 2016, provides multi-channel communications delivery, communications management, information management and control and administration capabilities that enable and enhance our clients’ communications with their customers. We process and distribute our clients’ essential communications including transactional (e.g., bills and statements), regulatory (e.g., explanations of benefits, notices, and trade confirmations) and marketing (e.g., direct mail) communications through print and digital channels. In fiscal year 2017, we processed over 5 billion investor and customer communications.
Our advisor solutions enable firms, financial advisors, wealthFor asset managers and insurance agents to better engage with customers through cloud-basedretirement service providers, we offer data-driven solutions and an end-to-end platform for content management, composition, and multi-channel distribution of regulatory, marketing, and customer communication tools.transactional information. Our marketing ecosystem integrates data content and technologyanalytics solutions provide investment product distribution data, analytical tools, insights, and research to drive new client acquisitionenable asset managers to optimize product distribution across retail and cross-sell opportunities through the creation of sales and educational content, including seminars and a library of financial planning topics as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Our advisor solutions also help advisors optimize their practice management through customer and account data aggregation and reporting. We currently support over 150,000 professionals at more than 250 financial firms with our advisor solutions.
Our mutual fund and retirement solutions are a full range of tools for mutual funds, exchange traded fundinstitutional channels globally. Through Matrix Financial Solutions, Inc. (“ETF”Matrix”) providers, and asset management firms. They include data-driven technology solutions for data management, analytics, investment accounting, marketing and customer communications. In addition,, we provide mutual fund trade processing
services for retirement service providers, third partythird-party administrators, financial advisors, banks and wealth management professionalsprofessionals.
In addition, we provide public corporations and mutual funds with a full suite of solutions to help manage their annual meeting process, including registered and beneficial proxy distribution and processing services, proxy and annual report document management solutions, virtual shareholder meeting services, and solutions that help them gain insight into their shareholder base through our subsidiary, Matrix Financial Solutions, Inc. (“Matrix”shareholder data services. We also offer financial reporting document composition and management solutions, SEC disclosure and filing services, and registrar, stock transfer and record-keeping services through Broadridge Corporate Issuer Solutions.
We provide customer communications solutions which include print and digital solutions, content management, postal optimization, and fulfillment services. These services include customer communications management capabilities through the Broadridge Communications CloudSM platform (the “Communications Cloud”). Through one point of integration, the Communications Cloud helps companies create, deliver, and manage multi-channel communications and customer engagement. The platform includes data-driven composition tools, identity and preference management, multi-channel optimization and digital communication experience, archive and information management, digital and print delivery, and analytics and reporting tools.
Global Technology and Operations
We are thea leading middle- and back-officeglobal provider of securities processing platformsolutions for North Americancapital markets, wealth management, and global broker-dealers.asset management firms. We offer a suite of advanced computerized real-time transaction processing servicessolutions that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, margin, cash management, clearance and settlement, asset servicing, reference data management, reconciliations, securities financing and accounting. collateral optimization, compliance and regulatory reporting, and portfolio accounting and custody-related services.
Our core post-trade services help financial institutions and investment managers efficiently and cost-effectively consolidate their books and records, gather and service assets under management and manage risk, thereby enabling them to focus on their core business activities. Provided on a software as a service (“SaaS”) basis within large user communities, our platformtechnology is a global market solution, clearingprocessing clearance and settlingsettlement in over 80100 countries. Our multi-asset, multi-market, multi-entity and multi-currency solutions support real-time global tradingtrade processing of equity, fixed income, mutual fund, foreign exchange, and exchange traded derivative securities in established and emerging markets.s. We process on average over $5$8 trillion in equity and fixed income trades per day of United States of America (“U.S.”) and Canadian securities.
Our comprehensive wealth management platform offers capabilities across the entire wealth management lifecycle and streamlines all aspects of wealth management services, including account management, fee management and client on-boarding. The wealth management platform enables full-service, regional and independent broker-dealers and investment advisors to better engage with customers through digital marketing and customer communications tools. We also integrate data, content and technology to drive new customer acquisition, support holistic advice and cross-sell opportunities through the creation of sales and educational content, including seminars as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Our advisor solutions help advisors optimize their practice management through customer and account data aggregation and reporting. We currently support over 200,000 professionals at more than 300 financial firms with our wealth management solutions.
We offer buy-side technology solutions for the global investment management industry, including portfolio management, compliance and operational workflow solutions for hedge funds, family offices, investment managers and the providers that service this space. Through our Managed Services, we provide business process outsourcing services known as our Managed Services solution. These servicesthat support the entire trade lifecycle operations of our buy- and sell-side clients’ businesses includingthrough a combination of our technology and our operations expertise. We also provide support for advisor, investor and compliance workflow.
Our Strategy
We earn our clients’ confidence every day by delivering real business value through leading technology-driven solutions that help our clients get ahead of today’s challenges and capitalize on future growth opportunities. Our solutions harness people, technology and insights to help transform our clients’ businesses by enriching customer engagement, navigating risk, optimizing efficiency and growing revenue.
As financial institutions look to transform and mutualize their securities clearing, record-keeping,mission-critical but non-differentiating operational and custody-relatedsupport functions, we have the proven technology, scale, innovation, experience and, most importantly, the clients to achieve this goal and meet their needs. We define our market opportunity in our strong and growing global businesses in both governance and communications and capital markets, with an additional growth platform in wealth and investment management. Our growth strategy is based on the following key components.
Our business model.
We deliver multi-client technology and managed services primarily through common SaaS-based operations platforms. We increasingly create layers of value by driving network benefits to our clients, providing deep data and analytics solutions, and offering a suite of digital capabilities on a single platform. All of this translates into our core value proposition to be a trusted provider of technology and managed services across a range of analytical, operational and reporting functions. Our SaaS offerings allow our clients executeto mutualize development expenses and clearour solutions integrate global data services to provide globally-consistent insight to functions and requirements within the financial services industry.
Strong positions in a large and growing financial services market.
Our deep industry knowledge enables our clients to successfully solve complex technological challenges, and inspires trust among and brings novel perspectives to our clients. While financial services firms have historically kept much of their securities transactionstechnology infrastructure work in-house, there are two significant trends working in favor of Broadridge. In aggregate, financial service firms globally are spending more on technology, and engage usthe respective budgets allocated are consistently growing year-over-year. Moreover, these firms are devoting a growing percentage of this spend to performthird-party technology, operations, and services. Broadridge, as a number of related administrative back-office functions,trusted outside partner, can undertake streamlining and better integrate this infrastructure and processes. We expect the efficiencies that result from such undertaking by Broadridge will lead to growth in the market for our solutions.
Three attractive growth platforms.
Our growth platforms address important and significant client needs as record-keepingdescribed below. Through our integrated solutions and reconciliations. In this capacity,services and our scalable infrastructure, we believe we are notbest positioned to meet them.
•Governance. We provide a strong network through our governance platform that links broker-dealers, public companies, mutual funds, shareholders, and regulators. We continue to grow our governance solutions by continuing to transform content and delivery and improve product capabilities to drive higher investor engagement. We aim to be an integral partner to asset managers and retirement service providers by offering data-driven solutions that help them grow revenue, reduce costs and maintain compliance. We are also expanding our capabilities to better serve the broker-dealerneeds of record.issuers and we are driving the next generation of digital communications while optimizing print and mail services through advanced technology.
•Capital Markets. Global institutions have a strong need to simplify their complex technology environment, and our SaaS-based global, multi-asset class technology platform addresses this need. We are driving global post-trade management to create transformation opportunities to simplify our clients’ operations, improve performance, evolve to global operating models, adopt new technologies, and enable our clients to better manage their data.
•Wealth Management. Wealth management clients including full-service, regional and independent broker-dealers, investment advisors, insurance companies and retirement solutions providers are all undergoing unprecedented change. These firms are in need of partners to help them navigate the demographic shift of advisors and investors, the large generational transference of wealth and the aging of the client experience and operational technologies that are essential to their business. These market dynamics are driving the need to more seamlessly integrate technology and processes and access to data-centric digital wealth solutions to better service advisors and investors. This can only be achieved by modernizing their core technology infrastructure. To address this need, we have developed a holistic wealth management platform solution that provides seamless systems and data integration capabilities and enables firms to improve advisor productivity, investor experience and operational process efficiencies.
On-ramp for next-generation technologies.
Our clients understand that next-generation technology is a key driving force for change and efficiency and there is a need among our client base to leverage this technology to address their critical business challenges. However, they face obstacles in creating the right investment and, more importantly, in applying the right talent and intellectual capital, which may be focused on their most differentiating functions. This continues to create opportunities for Broadridge to assist in the areas where we have scale and domain expertise, which includes digital, cloud, blockchain, and artificial intelligence technologies.
High engagement and client-centric culture.
Broadridge is client-centric and has created and grown multi-entity infrastructures across a variety of functions with high client satisfaction. Broadridge conducts a client satisfaction survey for each of its major business units annually, the results of which are a component of all Broadridge associates’ compensation because of the importance of client retention to the achievement of Broadridge’s revenue goals.
We have also built a culture where we focus on having engaged and knowledgeable associates to serve clients well, which in turn creates a real and sustainable advantage. Supporting this excellent client delivery takes engaged associates, and we are passionate about creating an environment in which every associate can thrive and build their knowledge and skills. All of this creates a culture that benefits our associates, our clients, and our stockholders.
History and Development of Our Company
Broadridge has over 50 years of history in providing innovative solutions to financial services firms and publicly-held companies. We are the former Brokerage Services division of Automatic Data Processing, Inc. (“ADP”)., which opened for business in 1962 with one client, processing an average of 300 trades per night. In 1979, ADP expanded its U.S.-based securities processing solutions to process Canadian securities. Broadridge was incorporated in Delaware as a wholly-owned subsidiary of ADP on March 29, 2007 in anticipation of our spin-off from ADP. We spun off from ADP and began operating as an independent public company on March 30, 2007. Our company has over 50 yearsIn January 2019, Timothy C. Gokey succeeded Richard J. Daly as Chief Executive Officer of history in providing innovative solutions to financial services firms and publicly-held companies. In 1962, the Brokerage Services division of ADP opened for business with one client, processing an average of 300 trades per night. In 1979, we expanded our U.S.-based securities processing solutions to process Canadian securities.Broadridge.
We made significant additions to our Global Technology and Operations business through two key acquisitions in the mid-1990s. In 1995, we acquired a London-based provider of multi-currency clearance and settlement services, to become a global supplier of transaction processing services. In 1996, we acquired a provider of institutional fixed income transaction processing systems.
Investor Communication Solutions
We began offering our proxy services in 1989. The proxy services business, which started what has become our Investor Communication Solutions business, leveraged the information processing systems and infrastructure of our Global Technology and Operations business. Our proxy services offering attracted 31 major clients in its first year of operations. In 1992, we acquired The Independent Election Corporation of America which further increased our proxy services capabilities. By 1999, we were handling over 90% of the investor communication distributions for securities held of record by banks and broker-dealers in the U.S. — from proxy statements to annual reports. During the 1990s, we expanded our proxy services business to serve security owners of Canadian and United Kingdom issuers and we began offering a complete outsourced solution for international proxies.
In 1994, we began offering ProxyEdge, our innovative electronic proxy delivery and voting solution for institutional investors that helps ensure the participation of the largest stockholders of many companies. In 1998, having previously provided print and distribution services as an accommodation to our securities processing and proxy clients, we decided to focus onbegan offering account statement and reporting services. In 2001, we developed and released an electronic document distribution and archiving solution of all investor communications. In 2010, we entered
We have made several acquisitions to improve and expand the transfer agency businesssolutions offered through an acquisition of a provider of registrar, stock transfer and record-keeping services.
In fiscal year 2011, we acquired three businesses in theour Investor Communication Solutions segment. In August 2010,For our asset management clients, we acquired NewRiver, Inc. (“NewRiver”), a leaderAccess Data Corp. in 2009 to build-out our data and analytics offerings. We made additional acquisitions adding new global data, insight, and compliance capabilities for our global asset management clients.
We continued to expand our services for asset managers and mutual fund electronic investor disclosure solutions. In December 2010, we acquired Forefield, Inc. (“Forefield”), a leading providerfunds through the acquisition of real-time sales, education and client communication solutions for financial institutions and their advisors. In January 2011, we acquired Matrix, a provider of mutual fund trade processing services for retirement service providers, third party administrators, financial advisors, banks and wealth management professionals.professionals in 2011. Matrix’s back-office,operational, trust, custody, trading and mutual fund and ETFexchanged traded funds (“ETFs”) settlement services are integrated into our product suite thereby strengtheningstrengthened Broadridge’s role as a provider of data processing and distribution channel solutions to the mutual fund industry.
We increased the breadth of Matrix’s offerings and enhanced its operational scale through the acquisition of a trade processing business and the acquisition of retirement plan custody and trust assets from TD Ameritrade Trust Company (“TD Ameritrade”), a subsidiary of TD Ameritrade Holding Company. In fiscal year 2010,addition, we acquired City Networks Ltd, a leading software and services provider of reconciliation, multi-asset process automation and operational risk managementexpanded our North American fund industry solutions to the global financial services industry. In fiscal year 2012, the Company acquired Paladyne Systems, Inc., now known as Broadridge Investment Management Solutions, a provider of buy-side technologywith European fund compliance solutions for the global investment management industry. Both of these businesses are part of our Global Technology and Operations segment.
In fiscal year 2014, we completedthrough the acquisitions of two businesses in the Investor Communication Solutions segment. FundAssist Limited (“FundAssist”) and FundsLibrary Limited (“FundsLibrary”).
In July 2013,2016, we acquired Bonaire Software Solutions, LLC (“Bonaire”), a leading provider of fee calculation, billing, and revenue and expense management solutions for asset managers including institutional asset managers, wealth managers, mutual funds, bank trusts, hedge funds and capital markets firms. In February 2014, we acquired Emerald Connect, LLC (“Emerald”), a leading provider of websites and relatedexpanded our communications solutions for financial advisors.
In fiscal year 2015, we completed the acquisitions of three businesses in the Investor Communication Solutions segment. In March 2015, we acquired Direxxis LLC (“Direxxis”), a provider of cloud-based marketing solutions and services for financial advisors. In April 2015, we acquired the trade processing business of the Wilmington Trust Retirement and Institutional Services unit of M&T Bank Corporation (“WTRIS”). This business has been combined with our mutual fund and ETF trade processing platform. In June 2016, we acquired the Fiduciary Services and Competitive Intelligence unit (“FSCI”) from Thomson Reuters’ Lipper division, now known as Broadridge Fund Information Services. This acquisition expanded the Company’s enterprise data and analytics solutions for mutual fund manufacturers, ETF issuers, and fund administrators, adding new global data and research capabilities.
Also in fiscal year 2015, we completedthrough the acquisition of one business in the Global Technology and Operations segment. In December 2014, we acquired TwoFour Systems LLC (“TwoFour Systems”), now known as Broadridge FX and Liquidity Solutions, a provider of real-time foreign exchange solutions for capital market firms.
In fiscal year 2016, we acquired one business in each of the Investor Communication Solutions and Global Technology and Operations segments. In November 2015, we acquired QED Financial Systems, Inc. (“QED”), a provider of investment accounting solutions that serves public sector institutional investors. In June 2016, we acquired 4sight Financial Software Limited (“4sight Financial”), a global provider of securities financing and collateral management systems to financial institutions.
In fiscal year 2017, the Investor Communication Solutions segment acquired one business and completed one asset acquisition, and we acquired two businesses in the Global Technology and Operations segment.
In July 2016, Broadridge acquired the North American Customer Communications (“NACC”) business of DST Systems, Inc. NACC is, which was renamed Broadridge Customer Communications and integrated into our then existing customer communications business. The combination further enhanced our position as a leading provider of customer communication services including print and digital communicationcommunications.
In 2017, we added to our corporate issuer solutions contentwith the acquisition of Summit Financial Disclosure, LLC (“Summit”), a full-service financial document management postal optimization,solutions provider. We integrated Summit’s document composition and fulfillment. The NACCregulatory filing services with our proxy voting and shareholder communications services to create an end-to-end solution for corporate issuers that spans the entire corporate disclosure lifecycle from private funding, through capital markets transactions and year-round SEC reporting and communications to shareholders.
In 2019, we acquired Fi360, Inc. (“Fi360”) a provider of fiduciary and Securities and Exchange Commission (the “SEC”) Regulation Best Interest (“Regulation BI”) solutions for the wealth and retirement industry. Fi360 enhances our retirement solutions by providing wealth and retirement advisors with fiduciary tools that complement our Matrix trust and trading platform.
Global Technology and Operations
Our Global Technology and Operations business is parthas evolved over the past 50 years from being a processer of U.S. and Canadian securities to a global provider of multi-market, multi-asset class, multi-entity and multi-currency technology solutions and services. This evolution has occurred through a combination of ongoing organic product development and focused acquisitions that have expanded and enhanced the capabilities of our customersolutions and the markets we serve.
We made significant additions to our Global Technology and Operations business through two key acquisitions in the mid-1990s. In 1995, we acquired a London-based provider of multi-currency clearance and settlement services, to become a global supplier of transaction processing services. In 1996, we acquired a provider of institutional fixed income transaction processing systems.
Our Managed Services business was launched in 2005 with the acquisition of the Bank of America Corporation’s U.S. Clearing and BrokerDealer Services business. Over the years, we have expanded the asset class, geographic and market segment coverage of our Managed Services. Expanded asset classes include futures, over-the-counter derivatives, and non-dollar and fixed income securities. In addition, we added fee billing for all asset classes and we now support asset managers and entities outside the U.S.
For our capital markets solutions, we added reconciliations and matching capabilities with the acquisition of CityNetworks Ltd. in 2010. We broadened our global securities financing and collateral management capabilities through the acquisitions of 4sight Financial Software Limited and Anetics, Inc. in 2016. In 2017, we acquired Message Automation Limited, extending our regulatory and compliance capabilities for capital markets firms. Most recently, we acquired Shadow Financial Systems, Inc. (“Shadow Financial”) in 2019, which added a market-ready solution for exchanges, inter-dealer brokers and proprietary trading firms, as well as additional capabilities in exchange traded derivatives and cryptocurrency.
For our wealth management solutions, we have made a series of acquisitions that have broadened our suite of wealth-focused technology and advisor communications businesssolutions for broker-dealers, independent broker-dealers and is known as Broadridge Customer Communications.
banks. In September2010, we acquired Forefield, Inc., which has been consolidated with Emerald Connect, LLC, acquired in 2014, to provide financial advisors with content and tools to communicate with their customers. In 2016, Broadridge acquired intellectual property assets from Inveshare, Inc. (“Inveshare”) and concurrently entered into a development agreement with an affiliate of Inveshare to use these assets to develop blockchain technology applications for Broadridge’s proxy business. Broadridge also granted Inveshare a perpetual license to the acquired technology assets.
In November 2016, Broadridgewe acquired M&O Systems, Inc., and in 2019 we acquired Financial Database Services, Inc. These acquisitions have made Broadridge the leading provider of advisor compensation management solutions, as well as strengthened our compliance and advisor onboarding capabilities. In 2019, we acquired Rockall Technologies Limited (“M&O”Rockall”). M&O is and expanded our core front-to-back wealth management capabilities, providing innovative securities-based lending (“SBL”) and collateral management technology solutions to help commercial banks manage risk and optimize clients’ securities lending and financing needs. In 2019, we acquired RPM Technologies (“RPM”), a Canadian provider of enterprise wealth management software solutions and services. The addition of RPM’s state-of-the-art technology platforms builds upon our Canadian wealth management business, providing a solution set for the retail banking sector with enhanced mutual fund and deposit manufacturing capabilities.
For our asset management solutions, we expanded our securities processing solutions to service buy-side firms with the acquisition of Paladyne Systems in 2011, a provider of SaaS-based compensationan integrated operational solutions platform that provides hedge funds, hedge fund administrators, and asset management firms with mission critical applications to streamline and relatedmanage their businesses. In 2013, we expanded our suite of asset management solutions through the acquisition of Bonaire Software Solutions, LLC, a provider of fee calculation, billing, and revenue and expense management solutions. In 2015, we acquired QED Financial Systems, Inc., a provider of investment accounting and data management solutions to institutional investors and asset management firms. In 2019, we acquired ClearStructure Financial Technology, LLC (“ClearStructure”), a global provider of portfolio management solutions for broker-dealers and registered investment advisors, and is now known as Broadridge Advisor Compensation Solutions.the private debt markets.
In March 2017, Broadridge acquired Message Automation Limited (“MAL”). MAL is a specialist provider of post-trade control solutions for sell-side and buy-side firms. The Company previously owned 25% of MAL through its acquisition of City Networks Ltd in fiscal year 2010, and purchased the remaining 75% of the company.
The Broadridge Business
Investor Communication Solutions
A majority of publicly-traded shares are not registered in companies’ records in the names of their ultimate beneficial owners. Instead, a substantial majority of all public companies’ shares are held in “street name,” meaning that they are held of record by broker-dealers or banks through their depositories. Most street name shares are registered in the name “Cede & Co.,” the name used by The Depository Trust and Clearing Corporation (“DTCC”), which holds shares on behalf of its participant
broker-dealers and banks. These participant broker-dealers and banks (which are known as “Nominees” because they hold securities in name only) in turn hold the shares on behalf of their clients, the individual beneficial owners. Nominees, upon request, are required to provide companies with lists of beneficial owners who do not object to having their names, addresses, and share holdings supplied to companies, so called “non-objecting beneficial owners” (or “NOBOs”). Objecting beneficial owners (or “OBOs”) may be contacted directly only by the broker-dealer or bank.
Because DTCC’s role is only that of custodian, a number of mechanisms have been developed in order to pass the legal rights it holds as the record owner (such as the right to vote) to the beneficial owners. The first step in passing voting rights down the chain is the “omnibus proxy,” which DTCC executes to transfer its voting rights to its participant Nominees.
Under applicable rules, Nominees must deliver proxy materials to beneficial owners and request voting instructions. A large number of Nominees have contracted out the administrative processes of distributing proxy materials and tabulating voting instructions to us. Nominees accomplish this by entering agreements with us and by transferring to us via powers of attorney the authority to execute a proxy, which authority they receive from DTCC (via omnibus proxy). Through our agreements with Nominees for the provision of beneficial proxy services, we take on the responsibility of ensuring that the account holders of Nominees receive proxy materials, and that their voting instructions are conveyed to the companies conducting solicitations. In addition, we take on the responsibility of ensuring that these services are fulfilled in accordance with each company’s requirements with respect to its particular solicitation. In order for us to provide the beneficial proxy services effectively, we interface and coordinate directly with each company to ensure that the services are performed in an accurate and acceptable manner.
Given the large number of Nominees involved in the beneficial proxy process resulting from the large number of beneficial shareholders, we play a unique, central and integral role in ensuring that the beneficial proxy process occurs without issue. Because it would be impracticable and would also increase the costs for companies to work with all of the Nominees through which their shares are held beneficially, companies work with us for the performance of all the tasks and processes necessary to ensure that proxy materials are distributed to all beneficial owners and that their votes are accurately reported.
Securities and Exchange Commission (the “SEC”) rules require public companies to reimburse Nominees for the expense of distributing stockholder communications to beneficial owners of securities held in street name. The reimbursement rates are set forth in the rules of self-regulatory organizations (“SROs”), including the New York Stock Exchange (“NYSE”). We bill public companies for the proxy services performed, collect the fees and remit to the Nominee its portion of the fees. In addition, the NYSE rules establish fees specifically for the services provided by intermediaries in the proxy process, such as Broadridge.
We also compile NOBO lists on behalf of Nominees in response to requests from issuers. The preparation of NOBO lists is subject to reimbursement by the securities issuers requesting such lists to the broker-dealers. The reimbursement rates are based on the number of NOBOs on the list produced pursuant to NYSE or other SRO rules. The rules also provide for certain fees to be paid to third party intermediaries who compile NOBO lists. We function as an intermediary in the NOBO process.
We also provide proxy distribution, vote tabulation, and various additional investor communication tools and services to institutional investors, corporate issuers, investment companies and financial advisors.
The Investor CommunicationsCommunication Solutions segment’s revenues represented approximately 83%, 77%, and 75%80% of our total Revenues in fiscal years 2017, 2016,2020 and 2015, respectively. These2019, respectively, which gives effect to the foreign exchange impact from revenues generated in currencies other than the U.S. dollar. See “Analysis of Reportable Segments — Revenues” under “Item 701. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The services include the following:
Bank/Broker-Dealerand solutions provided through our Investor Communication Solutions. segment serve the following client groups:
Banks/Broker-Dealers
We handle the entire proxy materials distribution and voting process for our capital markets clients on-linebank and in real-time, from coordination with third party entities to ordering, inventory maintenance, mailing, tracking and vote tabulation.broker-dealer clients. We offer traditional hard copy and electronic proxy delivery services for the electronic delivery of proxy materials to investors and collection of consents; maintenance of a database that contains the delivery method preferences of our clients’ customers; posting of documents on the Internet; e-mail notification to investors notifying them that proxy materials are available; and proxy voting over the Internet, mobile devices and tablets. We also have the ability to combine stockholder communications for multiple stockholders residing at the same address which we accomplish by having ascertained the delivery preferences of investors. In addition, we provide a complete outsourced solution for the processing of international proxies.proxies with the ability to process proxy voting in over 120 international markets.
A majority of publicly-traded shares are not registered in companies’ records in the names of their ultimate beneficial owners. Instead, a substantial majority of all public companies’ shares are held in “street name,” meaning that they are held of record by broker-dealers or banks through their depositories. Most street name shares are registered in the name “Cede & Co.,” the name used by The Depository Trust and Clearing Corporation (“DTCC”), which holds shares on behalf of its participant broker-dealers and banks. These participant broker-dealers and banks (which are known as “Nominees” because they hold securities in name only) in turn hold the shares on behalf of their clients, the individual beneficial owners. Nominees, upon request, are required to provide companies with lists of beneficial owners who do not object to having their names, addresses, and shareholdings supplied to companies, so called “non-objecting beneficial owners” (or “NOBOs”). Objecting beneficial owners (or “OBOs”) may be contacted directly only by the broker-dealer or bank. As DTCC’s role is only as the custodian, a number of mechanisms have been developed in order to pass the legal rights it holds as the record owner (such as the right to vote) to the beneficial owners. The first step in passing voting rights down the chain is the “omnibus proxy,” which DTCC executes to transfer its voting rights to its participant Nominees. Under applicable rules, Nominees must deliver proxy materials to beneficial owners and request voting instructions.
Given the large number of Nominees involved in the beneficial proxy process resulting from the large number of beneficial shareholders, we play a unique, central and integral role in ensuring that the beneficial proxy process occurs without issue for both Nominees and companies. A large number of Nominees have contracted out the processes of distributing proxy materials and tabulating voting instructions to us. Nominees accomplish this by entering into agreements with Broadridge and transferring to us via powers of attorney the authority to execute a proxy, which authority the Nominee receives from the DTCC via an omnibus proxy. Through our agreements with Nominees for the provision of beneficial proxy services, we take on the responsibility of ensuring that the account holders of Nominees receive proxy materials, that their voting instructions are conveyed to the companies conducting solicitations and that these services are fulfilled in accordance with each company’s requirements with respect to its particular solicitation. In order for us to provide the beneficial proxy services effectively, we interface and coordinate directly with each company to ensure that the services are performed in an accurate and acceptable manner. With respect to companies, as it would be impracticable and would also increase the costs for companies to work with all of the Nominees through which their shares are held beneficially, companies work with us for the performance of all the tasks and processes necessary to ensure that proxy materials are distributed to all beneficial owners and that their votes are accurately reported.
The SEC rules require public companies to reimburse Nominees for the expense of distributing stockholder communications to beneficial owners of securities held in street name. The reimbursement rates are set forth in the rules of self-regulatory organizations (“SROs”), including the New York Stock Exchange (“NYSE”). We bill public companies for the proxy services performed, collect the fees and remit to the Nominee its portion of the fees. In addition, the NYSE rules establish fees specifically for the services provided by intermediaries in the proxy process, such as Broadridge. We also compile NOBO lists on behalf of Nominees in response to requests from corporate issuers. The preparation of NOBO lists is subject to reimbursement by the securities issuers requesting such lists to the broker-dealers. The reimbursement rates are based on the number of NOBOs on the list produced pursuant to NYSE or other SRO rules. The rules also provide a complete reorganization communications solutionfor certain fees to notify investors of reorganizations or corporate action events suchbe paid to third-party intermediaries who compile NOBO lists. We function as tender offers, mergers and acquisitions, bankruptcies, and class action lawsuits.an intermediary in the NOBO process.
We provide institutional investors with a suite of services to manage the entire proxy voting process, including fulfilling their fiduciary obligations and meeting their reporting needs, such asneeds. ProxyEdge is our workflowinnovative electronic proxy delivery and voting solution for institutional investors and financial advisors that integrates ballots for positions held across multiple custodians and presents them under a single proxy. Voting can be instructed for the entire position, by account vote group or on an individual account basis either manually or automatically based on the recommendations of participating governance research providers. ProxyEdge also provides for client reporting and regulatory
reporting. ProxyEdge can be utilized for meetings of U.S. and Canadian companies and for meetings in many non-North American countries based on the holdings of our global custodian clients. ProxyEdge is offered in several languages and there are currently approximately 5,900over 5,600 ProxyEdge users worldwide.
In addition to our proxy services, we provide our bank and broker-dealer clients with regulatory communications services including prospectus delivery services. Our proprietary extraction, normalization and presentment capabilities from the SEC’s EDGAR database have enabled us to provide our bank and broker-dealer and asset management clients with an on-demand solution for prospectus post-sale fulfillment. This process provides efficiency for our clients as it reduces their reliance on offset print and fund delivered inventory. We provide portfolio-specific solutions for the retirement and annuity markets. We have integrated this functionality into additional capabilities to offer an efficient fulfillment model for regulatory and compliance distributions.
We also offer a complete reorganization communications solution to notify investors of reorganizations or corporate action events such as tender offers, mergers and acquisitions, bankruptcies, and class action lawsuits. We also offer our Mailbox products-Advisorproducts - Advisor Mailbox™ and Investor Mailbox®-which - which support and complement any investor communication strategy. Our Investor Mailbox solution provides the electronic delivery of investor communications to our clients’ websites or mobile apps, enabling investor access to regulatory delivery notices, day-to-day account and investment information and convenient response tools. Our Advisor Mailbox is an electronic communications platform for financial advisors that delivers immediate electronic access to the communications and documents sent to such advisors’ customers. Advisor Mailbox streamlines multiple communication paths for all investor-related documents into a single-visit portal that is integrated onto an advisor’s platform.
Asset Management Firms/Mutual Funds
We provide a full range of data-driven solutions that help our asset management and retirement services clients grow revenue, operate efficiently, and maintain compliance. Our regulatory communications solutions enable global asset managers to communicate with large audiences of investors efficiently and reliably by centralizing all investor communications through one resource. We provide composition, printing, filing, and distribution services for regulatory reports, prospectuses and proxy materials, as well as proxy solicitation services. We manage the entire communications process with both registered and beneficial stockholders. Our marketing and transactional communications solutions provide a content management and multi-channel distribution platform for marketing and sales communications for asset managers and retirement service providers. In addition, our data and analytics solutions provide investment product distribution data, analytical tools, and insights and research to enable asset managers to optimize product distribution across retail and institutional channels globally.
We also provide taxmutual fund and ETF trade processing services for retirement service providers, third-party administrators, financial advisors, banks and wealth management professionals through Matrix. Matrix’s operational, trust, custody, trading and mutual fund and ETF settlement services are integrated into our product suite thereby strengthening Broadridge’s role as a provider of insight, technology and managed services to financial services firms that support their various daily workflows, supervisory control and client reporting requirements for information reporting (e.g., Forms 1099 and 1042-S), with a focus on securities and fund processing and clearance operations. Our tax data services provide tax content and datathe asset management including securities tax classifications and reclassifications, calculations of original issue discount and other accrual and cost basis adjusting events. Our tax managed services provide technology and client reporting, including print and electronic distribution and archival.
Our NewRiver business provides important capabilities for the broker-dealer and retirement and annuity markets. Specifically, NewRiver’s proprietary extraction, normalization and presentment capabilities from the SEC’s EDGAR database have enabled us to enhance our prospectus post-sale fulfillment operations by moving to an on-demand solution. This process provides efficiency for our clients as it reduces their reliance on offset print and fund delivered inventory. Broadridge has also been able to leverage the intellectual property in this business to provide portfolio-specific solutions for the retirement and annuity markets. Through our integration of this functionality into our existing capabilities, we offer a new and efficient fulfillment model for regulatory and compliance mailings.industry.
Our Global Securities Class Action (“GSCA”) solution is a securities class action monitoring, notification, and filing service for broker-dealers, trust banks, hedge funds, mutual funds and the advisor markets.
Corporate Issuers
We believe that blockchain distributed ledger technology has the potentialprovide governance and communications services to transform everything from proxies to stock exchanges to the trading of foreign currencies and commodities. Blockchain activity has dramatically increased in the financial services industry, with most market participants acknowledging the technology’s transformative potential and testing its feasibility, while also acknowledging the significant amount of technological and business complexity required to adapt existing infrastructure to leverage blockchain’s benefits. Recognizing this market context, as part of our blockchain strategy we are focusing on our proxy services, while we also explore the benefits blockchain can bring to the clients of our other services. To help execute this strategy, in addition to our internal development efforts, we have invested in start-up companies, acquired the technology assets of Inveshare, and have been co-innovating with our clients and other market participants.
Customer Communication Solutions. We provide multi-channel customer communication solutions to companies in the financial services, healthcare, insurance, consumer finance, telecommunications, utilities, retail banking and other service industries. The Broadridge Communications Cloud, launched in 2016, provides for the delivery of essential communications including transactional (e.g., bills and statements), regulatory (e.g., explanations of benefits, notices, and trade confirmations) and marketing (e.g., direct mail) communications across print and digital channels from one platform. The Communications Cloud enables our clients to leverage data, analytics and workflow tools to create personalized digital and print communications. The Communications Cloud’s advanced reporting and archive capabilities provide companies with insight into customer behavior to help our clients enhance future communications with their customers. In July 2016, we acquired the NACC business of DST Systems, Inc. NACC is a leading provider of customer communication services, including print and digital communication solutions, content management, postal optimization, and fulfillment. The NACC business is part of our customer communications business and is known as Broadridge Customer Communications.
Corporate Issuer Solutions.corporate issuers. We are the largest processor and provider of investor communication solutions to public companies through the performance of beneficial proxy services. We also provide disclosure solutions and transfer agency services for our bankproviding corporate issuers a single source solution that spans the entire corporate disclosure and broker-dealer clients. We offer our corporate issuer clients many tools to facilitate theirshareholder communications with investors such as Internetlifecycle.
Our governance and telephone proxy voting, electronic delivery of corporate filings, and householding of communications to stockholders at the same address. One of our opportunities for growth in the Investor Communication Solutions segment involves serving corporate issuer clients in providing communications services to registered stockholders—that is, stockholders who do not hold their shares throughinclude a broker-dealer in street name and instead hold their shares directly on the books and recordsfull suite of the issuer. We also offer proxyannual meeting solutions:
•Proxy services to non-North American corporate issuers in connection with their general and special meetings of stockholders. Our
corporate issuer services include ShareLink®, which provides– we provide complete project management for the entire annual meeting process including registered and beneficial proxy materials distribution, vote processing and registered proxy process.tabulation through our ShareLink® tool.
We also provide registrar, stock transfer and record-keeping services. Our strategy in the transfer agency business is to address the needs public companies have expressed for more efficient and reliable stockholder record maintenance and communication services. We are accomplishing this by leveraging our investor communications and securities processing capabilities to enable us to deliver enhanced transfer agency services to corporate issuers. In addition, we offer issuers and their shareholders the ability to migrate their shareholders’ holdings from registered to beneficial ownership, thereby creating efficiencies for issuers and greater convenience for their shareholders.
Our •Virtual Shareholder Meeting™ service provides corporate issuers with the ability to host theirMeeting™ – electronic annual meeting electronicallymeetings on the Internet, either on a stand-alone basis, or in conjunction with their physicalin-person annual meeting where permitted by state corporate law. As the provider of beneficial shareholder proxy processing on behalf of many banks and brokerage firms, we providemeetings, including shareholder validation and voting services to companies that want to hold virtual meetings. Our Shareholder Forum™ solution is an online venue that offers public companiesand the ability for shareholders to host structured, controlled communicationask questions and for management to respond during the meetings.
•We also offer tools for corporate issuers to help them better engage with their shareholders on a timely and regular basis. Validated shareholders can submit questions, answer surveysother stakeholders in preparation ofconnection with the annual meeting and year-round, and communicate in various ways with a corporation.
In fiscal year 2014, we introduced Shareholder Data Services, a platform integrating three new capabilities for corporate issuers: an analytics engine for obtaining a comprehensive view of a company’s shareholder base - both registered and beneficial shareholders; custom targeted communications for reaching discrete shareholder segments based on specific criteria; and response reporting for evaluating results of targeted reminder mailings to shareholders. Shareholder Data Services enables companies to better plan and prepare for the proxy process by leveraging information about historical patterns of shareholder participation and behavior in the design of communication strategies with targeted segments of shareholders. Companies can also monitor progress of their proxy voting and easily take action when voting requirements or voting thresholds are at risk. Combined with the ability to measure their shareholders’ response to communications, this product suite also enables companies to capture valuable aggregated voting behavior data as a basis for on-going investor communications initiatives.
To further complement our Shareholder Data Services, we introduced an Enhanced Packaging service for annual meeting materials in 2015. Enhanced Packaging offers windowed envelope options enabling issuers to engage their shareholders before they even open the envelope through call-to-action messaging, product highlights or simply showcasing the annual report. Higher shareholder engagement through Enhanced Packaging creates opportunity for issuers to improve proxy voting participation as well as increase brand loyalty.on an ongoing basis throughout the year. These services include data and analytics tools to help issuers understand their shareholder base and voting behavior.
Advisor Solutions. We deliver business critical data, technology productsOur disclosure solutions provide compliance reporting and marketingtransactional reporting services to financial advisors. We have created a suite of solutions throughfor public companies including the acquisitionfollowing:
•Proxy Materials Document Composition and combination of four businesses - Forefield, Emerald, InvestigoDistribution – proxy and Direxxis - to form a single business unit, Broadridge Advisor Solutions. These solutions enable firms, financial advisors, wealth managers,annual report design and insurance agents to better engage with customers through cloud-based marketingdigitization, SEC filing, printing and customer communication tools. Our marketing ecosystem integrates data, contentweb hosting services.
•Annual and technology to drive new client acquisitionTransactional SEC Filing Services – typesetting, printing and cross-sell opportunities through the creation of salesSEC filing services for capital markets transactions such as initial public offerings, spin-offs, acquisitions, and educational content, including seminars and a library of financial planning topicssecurities offerings, as well as customizable advisor websites, search engine marketingyear-round SEC reporting including document composition, EDGARization and electronic and print newsletters. Our advisor solutions also help advisors optimize their practice management through customer and account data aggregation and reporting.
Our advisor solutions provide financial planning knowledge that enables timely, accurate and meaningful communications among financial institutions, advisors and their customers. We have expanded our services portfolio to leverage our industry leading financial content for use by financial services firms in their social media content libraries. We continue to develop new applications that further the goal of creating timely, accurate and meaningful communications for both advisors and their customers. For example, our Women’s Resource Center, which contains a broad selection of content for both the advisor and their customer, focuses specifically on the requirements and challenges faced by women investors.
Our data aggregation solution helps advisors manage and build client relationships by providing customer account data aggregation, performance reporting, household grouping, automated report creation, document storage, and integration with popular financial planning and productivity applications.
XBRL tagging. In addition, our advisor solutions enable financial institutionswe provide transaction support services such as virtual deal rooms and their advisors to advise, educate and communicate with their customers and prospects through mobile-responsive, content-rich websites, print and digital newsletters, comprehensive and topic-specific seminars, targeted email marketing, and direct mail services to invite clients to seminars and other events.translation services.
We also provide data-driven, cloud-based marketing solutions to broker-dealers, financial advisors, insurersregistrar, stock transfer and other firms with large distributed salesforces.record-keeping services through our transfer agency services. Our marketing operationstransfer agency services address the needs public companies have for more efficient and automation platform enables firms to manage marketing activities efficiently across field officesreliable stockholder record maintenance and branch locations using consistent standards. The platform provides unique data and analytical capabilities designed to increase marketing and sales effectiveness.
Mutual Fund and Retirement Solutions. We provide a full range of tools that enable mutual funds to communicate with large audiences of investors efficiently, reliably, and often with substantial cost savings. Our solutions allow mutual funds to centralize all investor communications through one resource. We also provide printing and mailing of regulatory reports, prospectuses and proxy materials, as well as proxy solicitationcommunication services. In addition, we distributeprovide corporate actions services including acting as the exchange agent, paying agent, or tender agent in support of acquisitions, initial public offerings and other significant corporate transactions. We also provide abandoned property compliance and reporting services.
Customer Communications Solutions
We support financial services, healthcare, insurance, consumer finance, telecommunications, utilities, and other service industries with their customer communications management strategies for transactional (statements and bills), marketing (personalized microsites and direct mail) and regulatory communications (proxies and informational materialsexplanation of benefits). These services include print and digital solutions, content management, postal optimization, and fulfillment services.
Through the Communications Cloud, our clients can:
•utilize flexible and scalable composition options to create on-demand enrollment materials for mutual fund investorsrelevant content that drives customer action (apply, enroll, service, click, vote, pay and retirement plan providers. Our position in the industry enables usmore);
•manage and consolidate customer profiles, preferences and consents;
•optimize content across channels to manage the entire communications process with both registeredaccelerate delivery, reduce costs, and beneficial stockholders. Our Data Aggregation and Analysis platform provides comprehensive data gathering and data management solutions. Our software is delivered as a service and assists mutual funds and investment managers in processing commission and distribution payments, calculating fee revenue, monitoring their compliance withhelp them meet regulatory requirements and assembling shareholderquality controls on customer communications;
•store and intermediaryretrieve communications with best-in-class security;
•deliver communications across channels, including print, website and mobile apps, secure email, personal cloud, and online banking, and send notifications via email, short message service (SMS) and push/app; and
•gain comprehensive reporting and analytics to improve communications and increase engagement based on customer behaviors.
International Solutions
We provide regulatory and communications solutions addressing clients’ needs within Europe, the Middle East and Africa (“EMEA”) and the Asia-Pacific region (“APAC”). Our offerings help clients address evolving requirements for stronger governance, greater transparency and improved insights derived from data analytics. These solutions are a direct extension of our U.S. and Canadian businesses and in many cases serve the same client base. Our international solutions help clients sharpen focus on their core businesses while helping them maintain regulatory compliance, reduce costs, improve efficiency and gain data insights.
Our Global Proxy solution includes services similar to those provided by our U.S. and Canadian proxy businesses. In September 2020, the European Union will adopt the Shareholder Rights Directive II (“SRD II”), which will increase engagement between corporate issuers and beneficial owners. We have designed and implemented a SRD II component of our Global Proxy solution for both custodians and wealth managers.
Our fiscal year 2020 acquisition of FundsLibrary has added the capabilities to provide fund document and data dissemination in the European market. FundsLibrary links fund managers to distributors and investors to provide complete, accurate and timely information supporting fund sales. The solution helps fund managers increase distribution opportunities, comply with both United Kingdom domestic and European Union regulations such as Solvency II and MiFID II, and makes information easily accessible for investors in digital format. FundsLibrary has been combined with the FundAssist business we acquired in 2018 to form to better drive their sales strategy and marketing programs. Our financial accountingFund Communication Solutions. The combined solution provides privatefunds with a single, integrated provider to manage data, perform calculations, compose documents, manage regulatory compliance and public asset managers with software tools to effectively manage their revenue and expenses.disseminate information across multiple jurisdictions.
In fiscal year 2015, we expanded our suite of enterprise data and analytics solutions for mutual fund manufacturers, ETF issuers, and fund administrators, and added new global data and research capabilities with the acquisition of the FSCI business from Thomson Reuters’ Lipper division, now known as Broadridge Fund Information Services.11
In addition, we provide mutual fund processing services for third party administrators, financial advisors, banks and wealth management professionals through our subsidiary, Matrix. Our back-office, trust, custody, trading and mutual fund and ETF settlement services are integrated into our product suite, thereby strengthening our role as a provider of data processing and distribution channel solutions to the mutual fund industry. In fiscal year 2015, we expanded the Matrix retirement solutions offering through the acquisition of the trade processing business of M&T Bank Corporation’s WTRIS unit.
We expanded our offerings to provide asset managers with investment accounting solutions in fiscal year 2016 with the acquisition of QED. QED complements the front- and back-office solutions that we provide to the global asset management community including; portfolio management, data and analytics, revenue and expense management, trade processing and shareholder communication solutions.
Global Technology and Operations
Transactions involving securities and other financial market instruments originate with an investor, who places an order with a broker who in turn routes that order to an appropriate market for execution. At that point, the parties to the transaction coordinate payment and settlement of the transaction through a clearinghouse. The records of the parties involved must then be updated to reflect completion of the transaction. Tax, custody, accounting and record-keeping requirements must be complied with in connection with the transaction and the customer’s account information must correctly reflect the transaction. The accurate processing of trading activity and custody activity requires effective automation and information flow across multiple systems and functions within the brokerage firm and across the systems of the various parties that participate in the execution of a transaction.
Our Global Technology and Operations businesssegment provides servicessolutions that automate the securities transaction lifecycle of equity, mutual fund, fixed income, foreign exchange and option securities trading operations,exchange traded derivatives, from order capture and execution through trade confirmation, margin, cash management, clearing and settlement, custodyreference data management, reconciliations, securities financing and accounting.collateral management, asset servicing, compliance and regulatory reporting, portfolio accounting and custody-related services. Our services facilitate the automation of straight-through-processingsolutions provide automated straight through processing operations and enable buy- and sell-side financial institutions and investment managers to efficiently and cost-effectively consolidate their books and records, gather and service assets under management, focus on their core businesses, and manage risk. With our multi-market, multi-asset class, multi-entity and multi-currency capabilities, we support trading activitiesprovide post-trade processing on a global basis.
Our Broadridge Investment Management Solutions business provides buy-side technology solutions for the global investment management industry. Broadridge Investment Management Solutions provides front-, middle-, and back-office solutions such as order management, data warehousing, reporting, reference data management, risk management and portfolio accounting to hedge funds, family offices, investment managers and the providers that service this space (prime brokers, hedge fund administrators and custodians). The client base for these services includes start-up or emerging managers through some of the largest global hedge fund complexes and global administrators. We have integrated our business process outsourcing expertise with Broadridge Investment Management Solutions to offer a set of managed services to the buy-side of the industry. The Broadridge Investment Management Solutions business has enhanced the asset classes we service and expanded our global footprint and market coverage.
In fiscal year 2015, we acquired TwoFour Systems, now known as Broadridge FX and Liquidity Solutions, a provider of real-time foreign exchange solutions for banks and broker-dealers, to address the rising demand for advanced foreign exchange and cash management technology among financial institutions.
In fiscal year 2016, we acquired 4sight Financial, a global provider of securities financing and collateral management systems to financial institutions. 4sight Financial is part of our Broadridge Securities Financing and Collateral Management solutions, helping our clients optimize financing decisions across different asset categories, automate the securities financing lifecycle and control risk.
In fiscal year 2017, we acquired M&O, now known as Broadridge Advisor Compensation Solutions, a provider of SaaS-based compensation management and related solutions for broker-dealers and registered investment advisors, and MAL, a provider of post-trade governance, risk and compliance control solutions for sell-side and buy-side firms.
The Global Technology and Operations segment’s revenues represented approximately 19%, 25%,26% and 26%23% of our total Revenues in fiscal years 2017, 2016,2020 and 2015, respectively. These services2019, respectively, which gives effect to the foreign exchange impact from revenues generated in currencies other than the U.S. dollar. See “Analysis of Reportable Segments — Revenues” under “Item 701. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Services and solutions offered through the Global Technology and Operations segment include the following:
North American Securities Processing
Capital Markets Solutions.
We provide a set of sophisticated, multi-entity and multi-currency systems that support real-time processing of securities transactions in North American equities, options, fixed income securities, and mutual funds. Brokerage Processing Services (“BPS”) is ourOur core multi-currency back-officepost-trade processing system that supportssystems support real-time processing of primarily equity and option transactions in the U.S. and Canadian markets. BPSOur post-trade processing platform is provided on a SaaS basis and handles everythingthe entire securities processing cycle from order management to clearance, settlement and custody, and assists our clients in meeting their regulatory reporting and other back-officepost-trade requirements. BPS is provided on a SaaS basis. We also offer a version of BPS for processing Canadian securities. In addition to our BPS offering, we provide specialized transaction processing tools and services for small to mid-market financial firms in Canada.
We also
In addition, we provide the most comprehensive fixed income transaction processing capabilities to support clearance, settlement, custody, P&L reporting and regulatory reporting for domestic and foreign fixed income instruments. Our solution includes extensive support for mortgage-backed securities and other structured products. It is a multi-currency, multi-entity solution that provides real-time position and balance information, in addition to detailed accounting, financing, collateral management, and repurchase agreement (repo) functionality. The solution offers real-time straight through processing capabilities, enterprise-wide integration and a robust technology infrastructure-allinfrastructure - all focused on supporting firms specializing in the fixed-income marketplace. These transaction processing
Wealth Management Solutions
We deliver business critical data, technology solutions and marketing services are complementedto enable full-service, regional and independent broker-dealers and investment advisors to better engage with front- and middle-office solutions forcustomers to help grow their business. We offer an integrated open-architecture wealth management tools,platform through which we provide enhanced data-centric capabilities to improve the overall client experience across the entire wealth management lifecycle including advisor, investor and operational workflows. This comprehensive wealth management platform streamlines all aspects of the service model, allowing our clients to digitally-onboard customers, manage advisor compensation for multiple products and service models, and seamlessly transfer and service accounts. We also provide solutions for reconciliations, securities lending, reference data management, and enterprise workflow management.management; as well as advisor desktop applications and reporting solutions including cloud-based marketing and customer communication tools.
In addition, we provide data-driven, digitalsolutions to broker-dealers, financial advisors, insurers and other firms with large distributed salesforces. Our data aggregation solution helps financial advisors manage and build client relationships by providing customer account data aggregation, performance reporting, household grouping, automated report creation, document storage, and integration with popular financial planning and productivity applications. Our marketing operations and automation platform enables firms to manage marketing activities efficiently across field offices and branch locations using consistent standards. The platform provides unique data and analytical capabilities designed to increase marketing and sales effectiveness. We integrate data, content and technology to drive new client acquisition and cross-sell opportunities through the creation of sales and educational content, including seminars and a library of financial planning topics as well as customizable advisor websites, search engine marketing and electronic and print newsletters.
Our digital marketing and content capabilities leverage analytics and machine-learning to enable financial advisors and wealth management firms to grow their businesses and deepen relationships with their clients. Financial advisors and wealth management firms can tap into our digital tools and library of multi-channel content to personalize touchpoints to engage their clients and prospects across digital channels including websites, social media, e-mail and mobile.
Asset Management Solutions
We provide buy-side technology solutions for the global investment management industry. Our asset management solutions are portfolio management, compliance and operational support solutions such as order management, data warehousing, reporting, reference data management, risk management and portfolio accounting for hedge funds, family offices, investment managers and the providers that service this space including prime brokers, hedge fund administrators and custodians. The client base for these services includes institutional asset managers, public funds, start-up or emerging managers through some of the largest global hedge fund complexes and global fund administrators. We have integrated our business process outsourcing expertise with our investment management solutions to offer a set of managed services to asset management firms.
Managed Services
Our business process outsourcing services support the operations of our buy- and sell-side clients’ businesses. These services combine our technology with our operations expertise to support the entire trade lifecycle, including securities clearing and settlement, reconciliations, record-keeping, asset servicing, and custody-related functions.
International Securities Processing Solutions.
We provide advanced real-time, multi-asset and multi-currency post-trade processing solutions to support the processing of a broad range of equity, fixed income, foreign exchange and exchange traded derivative securities for global financial institutions. We primarily offer these services on a SaaS basis and support clearance and settlement activities in over 8090 countries with direct connectivity solutions in the major markets.
We have also acquired and developed a series of solutions that are directly adjacent to our post-trade processing services. These transaction processing services are complemented by our middle-office solutions for reconciliations, securities lending,include reference data management, securities financing, securities-based lending, collateral management, trade and enterprise workflow management.transaction reporting, reconciliations, financial messaging and asset servicing. Our solutions can be deployed as a complete post-trade service as well as discrete components within the architecture ofsupporting financial institutions.
In 2013, we entered a strategic alliance with Accenture plc (“Accenture”) and launched Accenture Post-Trade Processing, combining Accenture’s global business process outsourcing capabilities and global capital markets industry expertise with Broadridge’s leading post-trade securities processing technology. The solution provides post-trade processing and technology services to support settlement, books and records, asset servicing, operational management and control, real-time data access and administrative accounting. It is designed to help banks operating in Europe and the Asia Pacific region reduce post-trade processing costs, adapt to new regulations and technology, and quickly and efficiently launch new products and enter new markets.
Managed Services Solution. We also provide business process outsourcing services known as our Managed Services solution. These services support the operations of our clients’ businesses including their securities clearing, record-keeping, and custody-related functions. Our clients execute and clear their securities transactions and engage us to perform a number of related administrative back-office functions, such as record-keeping and reconciliations. In this capacity, we are not the broker-dealer of record.
Broadridge’s Integrated Solutions
Our core systems for processing equity, option, and mutual fund transactions in the U.S. markets can also be combined with our specialized systems for processing fixed income and international securities transactions. These specialized securities
processing services can be fully integrated with our Managed Services solution. In addition, our clients can integrate our securities processing and Managed Services solution with our other services including: (i) the processing of trade confirmations and account statements, delivered in paper or digitally; (ii) equity and mutual fund prospectus processing; (iii) data archival and reporting solutions; (iv) automated workflow tools that help our clients streamline their securities processing and operations activities; and (v) a full suite of wealth management products including data aggregation tools, end-customer websites, broker desktop, financial planning and modeling tools, performance reporting and portfolio accounting.
Clients
We serve a large and diverse client base across four client groups: capital markets,banks/broker-dealers, asset management firms/mutual funds, corporate issuers and wealth management and corporations.firms. Our clients in the financial services industry include retail and institutional brokerage firms, global banks, mutual funds, asset managers, insurance companies,annuity companies, institutional investors, specialty trading firms, clearing firms, third partythird-party administrators, hedge funds, and financial advisors. Our corporate issuer clients are typically publicly held companies. In addition to financial services firms, our customer communicationsCustomer Communications business services other corporate clients in the healthcare, insurance, consumer finance, telecommunications, utilities, retail and other service industries with their essential communications.
In fiscal year 2017,2020, we:
•processed approximately 80% of the outstanding shares in the U.S. in the performance of our proxy services;
•processed over 56 billion investor and customer communications through print and digital channels;
•processed on average over $5$8 trillion in equity and fixed income trades per day of U.S. and Canadian securities; and
•provided fixed income trade processing services to 1819 of the 2324 primary dealers of fixed income securities in the U.S.
In fiscal year 2017,2020, we derived approximately 20% of our consolidated revenues from five clients. Our largest single client accounted for approximately 6% of our consolidated revenues.
Competition
We operate in a highly competitive industry. Our Investor Communication Solutions business competes with companies that provide investor communication and corporate governance solutions including proxy services providers, transfer agents, who handle communication services to registered (non-beneficial) securities holders, proxy advisory firms, proxy solicitation firms and other proxy services providers.financial printers. We also face competition from numerous firms in the compiling, printing and electronic distribution of transaction confirmations, account statements, bills, and other customer communications. Our Global Technology and Operations business principally competes with brokerage firms that perform their trade processing in-house, and with numerous other outsourcing vendors. Our back-office support services offered through this segment also compete with very large financial institutions that manage their own back-office record-keeping operations. In many cases, clients engage us only to perform certain functions, such as back-office processing, and do not outsource their other functions such as clearing operations support that we would also perform for them.
Technology
We have several information processing systems which serve as the core foundation of our technology platform. We leverage these systems in order to provide our services. We are committed to maintaining extremely high levels of quality service through our skilled technical employees and the use of our technology within an environment that seeks continual improvement.
Our mission-critical applications are designed to provide high levels of availability, scalability, reliability, and flexibility. They operate on industry standard enterprise architecture platforms that provide high degrees of horizontal and vertical scaling. This scalability and redundancy allows us to provide high degrees of system availability. In March 2010, we entered into an Information Technology Services Agreement (the “IT Services Agreement”) with International Business Machines Corporation (“IBM”), under which was amended and restated in 2019 (the “Amended IT Services Agreement”). Under the Amended IT Services Agreement, IBM performs a broad range of technology services including supporting our mainframe, midrange, open systems, network and data center operations, as well as providing disaster recovery services.
In March 2014, the Company and IBM United Kingdom Limited (“IBM UK”) entered into an Information Technology Services Agreement (the “EU IT Services Agreement”), under which was amended in 2019 (the “Amended EU IT Services Agreement”). Under the Amended EU IT Services Agreement, IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia.
In 2019, we entered into an information technology agreement with IBM for private cloud services (the “IBM Private Cloud Agreement”) under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks.
Most of our systems and applications process in Tier III+ and Tier IVhighly resilient data centers. Tier III+ and Tier IV data centers that employ multiple active power and cooling distribution paths, redundant components, and are capable of providing 99.995%
availability. Tier III+ and Tier IVAdditionally, the data centers provide infrastructure capacity and capability to permit any planned activity without disruption to the critical load, and can sustain at least one worst-case, unplanned failure or event with no critical load impact. Our geographically dispersed processing centers also provide disaster recovery and business continuity processing.
Product Development. Our products and services are designed with reliability, availability, scalability, and flexibility so that we can fully meet our clients’ processing needs. These applications are built in a manner which allows us to meet the breadth and depth of requirements of our financial services industry clients in a highly efficient manner. We continually upgrade, enhance, and expand our existing products and services taking into account input from clients, industry-wide initiatives and regulatory changes affecting our clients.
Intellectual Property. We own a portfolio of more than 110 U.S. and non-U.S. patent and patent applications. We also own registered marks for our trade name and own or have applied for trademark registrations for many of our services and products. We regard our products and services as proprietary and utilize internal security practices and confidentiality restrictions in contracts with employees, clients, and others for protection. We believe that we are the owner or in some cases, the licensee, of all intellectual property and other proprietary rights necessary to conduct our business.
Cybersecurity
Our information security program is designed to meet the needs of our clients who entrust us with their sensitive information. Our program includes encryption, data masking technology, data loss prevention technology, authentication technology, entitlement management, access control, anti-malware software, and transmission of data over private networks, among other systems and procedures designed to protect against unauthorized access to information, including by cyber-attacks. In addition, we conduct regular security awareness training as well as testing for our employees.
To further demonstrate our commitment to maintaining the highest levels of quality service, information security, and client satisfaction within an environment that fosters continual improvement, most of our business units and our core applications and facilities for the provision of many services including our proxy services, U.S. equity and fixed income securities processing services, and IBM’s data centers, are International Organization for Standardization (“ISO”) 27001 certified. This security standard specifies the requirements for establishing, implementing, operating, monitoring, reviewing, maintaining and improving a documented Information Security Management System within the context of the organization’s overall business risks. It specifies the requirements for the implementation of security controls customized to the needs of individual organizations. This standard addresses confidentiality, access control, vulnerability, business continuity, and risk assessment.
Additionally, Broadridge is utilizing the National Institute of Standards and Technology Framework for Improving Critical Infrastructure Cybersecurity (the “NIST Framework”) issued by the U.S. government in 2014 and updated in 2018, as a guideline to manage our cybersecurity-related risk. The NIST Framework outlines 98 information108 subcategories of security measurescontrols and outcomes over five functions - Identify, Protect, Detect, Respondfunctions: identify, protect, detect, respond and Recover. Also, our operations facilities are ISO 9001:2000 certified.recover.
Regulation
The securities and financial services industries are subject to extensive regulation in the U.S. and in other jurisdictions. As a matter of public policy, regulatory bodies in the U.S. and the rest of the world are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of investors participating in those markets. Due to the nature of our services and the markets we serve, these regulatory bodies impact our businesses in the following various manners.
In the U.S., the securities and financial services industries are subject to regulation under both federal and state laws. At the federal level, the SEC regulates the securities industry, along with the Financial Industry Regulatory Authority, Inc. (“FINRA”), the various stock exchanges, and other SROs. The Department of Labor (“DOL”) regulatesenforces the Employee Retirement Income Security Act of 1974 (“ERISA”) regulations on fiduciaries and organizations that provide services to retirement plans. Our Investor Communication Solutions and Global Technology and Operations businesses are generally not directly subject to laws and regulations that are specifically applicable to financial institutions. However,plans such as Matrix. As a provider of services to financial institutions and issuers of securities, our services, such as our proxy distribution and shareholder report processing and distribution services, are provided in a manner to assist our clients in complying with the laws and regulations to which they are subject. As a result, the services we provide may be required to change as applicable laws and regulations are adopted or revised. We monitor legislative and rulemaking activity by the SEC, FINRA, DOL, the stock exchanges and other regulatory bodies that may impact our services, and if new laws or regulations are adopted or changes are made to existing laws or regulations applicable to our services, we expect to adapt our business practices and service offerings to continue to assist our clients in fulfilling their obligations under new or modified requirements.
Certain aspects of our business are subject to regulatory compliance or oversight. As a provider of technology services to financial institutions, certain aspects of our U.S. operations are subject to regulatory oversight and examination by the Federal Financial Institutions Examination Council (“FFIEC”), an interagency body of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration and various state regulatory authorities, under its regulatory authority to examine financial institutions’ technology service providers.authorities. Periodic examinations by the FFIEC generally include areas such as data privacy, disaster recovery, information security, and third partythird-party vendor management to identify potential risks related to our services that could adversely affect our banking and financial services clients.
In addition, our business process outsourcing, mutual fund processing and transfer agency solutions, as well as the entities providing those services, are subject to regulatory oversight. Our business process outsourcing and mutual fund processing services are performed by a broker-dealer, Broadridge Business Process Outsourcing, LLC (“BBPO”). BBPO is registered with the SEC, is a member of FINRA and is required to participate in the Securities Investor Protection Corporation (“SIPC”). Although BBPO’s FINRA membership agreement allows it to engage in clearing, and the retailing of corporate securities in addition to mutual fund retailing on a wire order basis, BBPO does not clear customer transactions, process any retail business or carry customer accounts. BBPO is subject to regulations concerning many aspects of its business, including trade practices, capital requirements, record retention, money laundering prevention, the protection of customer funds and customer securities, and the supervision of the conduct of directors, officers and employees. A failure to comply with any of these laws, rules or regulations could result in censure, fine, the issuance of cease-and-desist orders, or the suspension or revocation of SEC or FINRA authorization granted to allow the operation of its business or disqualification of its directors, officers or employees. Recently, thereThere has been increasedcontinual regulatory scrutiny of the securities industry including the outsourcing by firms of their operations or functions. This oversight could result in the future enactment of more restrictive laws or rules with respect to business process outsourcing. As a registered broker-dealer and member of FINRA, BBPO is subject to the Uniform Net Capital Rule 15c3-1 of the Securities Exchange Act of 1934, as amended, (“Rule 15c3-1”), which requires BBPO to maintain a minimum net capital amount. At June 30, 2017,2020, BBPO was in compliance with this capital requirement.
BBPO, as a “Managing Clearing Member” of the Options Clearing Corporation (the “OCC”), is also subject to OCC Rule 309(b) with respect to the business process outsourcing services that it provides to other OCC “Managed Clearing Member” broker-dealers. OCC Rule 309(b) requires that BBPO maintain a minimum net capital amount. At June 30, 2017,2020, BBPO was in compliance with this capital requirement.
In addition,
Matrix Trust Company a subsidiary of Matrix (“Matrix Trust Company”Trust”), is a Colorado State non-depository trust company and National Securities Clearing Corporation trust member, whose primary business is to provide cash agent, custodial and directed or non-discretionary trusttrustee services to institutional customers.customers, and investment management services to collective investment trust funds (“CITs”). As a result, Matrix Trust Company is subject to various regulatory capital requirements administered by the Colorado Division of Banking and the Arizona Department of Financial Institutions, as well as the National Securities Clearing Corporation. Specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, when applicable, must be met. At June 30, 2017,2020, Matrix Trust Company was in compliance with its capital requirements. In addition, in connection with the offering of CITs, Matrix Trust acts as a discretionary trustee and an ERISA fiduciary. CITs are subject to regulation by the IRS, federal and state banking regulators, and ERISA, which impose a number of duties on persons who are fiduciaries under ERISA. Matrix Trust is also subject to regulation by the Colorado Division of Banking and the Arizona Department of Financial Institutions which regulate the CITs pursuant to Office of the Comptroller of the Currency regulation.
Our transfer agency business, Broadridge Corporate Issuer Solutions, is subject to certain SEC rules and regulations, including annual reporting, examination, internal controls, proper securitysafeguarding of issuer and disposal of shareholder informationfunds and securities, and obligations relating to its operations. Our transfer agency business has been formally approved by the NYSE to act as a transfer agent or registrar for issuers of NYSE listed securities and as a result, it is subject to certain NYSE requirements concerning operational standards. Furthermore, it is also subject to U.S. Internal Revenue Service (the “IRS”) regulations, as well as certain provisions of the Gramm-Leach-Bliley Act (“GLBA”) and the Federal Trade Commission’s (the “FTC”) regulations with respect to maintenance of information security safeguards. In addition, certain state laws govern certain services performed by our transfer agency business.
In addition, our regulated businesses are required to comply with anti-money laundering laws and regulations, such as, in the U.S., the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the “BSA”), and the BSA implementing regulations of the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury. A variety of similar anti-money laundering requirements apply in other countries.
Privacy and Information Security Regulations
The processing and transfer of personal information is required to provide certain of our services. Data privacy laws and regulations in the U.S. and foreign countries apply to the access, collection, transfer, use, storage, and destruction of personal information. In the U.S., our financial institution clients are required to comply with privacy regulations imposed under the Gramm-Leach-Bliley Act,GLBA, in addition to other regulations. As a processor of personal information in our role as a provider of services to financial institutions, we are required tomust comply with privacy regulations and are bound by similar limitations on disclosurethe FTC’s Safeguards Rule implementing certain provisions of theGLBA with respect to maintenance of information received from our clients as apply to the financial institutions themselves. security safeguards.
We also perform services for healthcare companies and are, therefore, subject to compliance with laws and regulations regarding healthcare information, including in the U.S., the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). We also perform credit-related services and agree to comply with payment card standards, including the Payment Card Industry Data Security Standard (“PCIDSS”).Standard. In addition, federal and state privacy and information security laws, and consumer protection laws, which apply to businesses that collect or process personal information, also apply to our businesses.
Privacy laws and regulations may require notification to affected individuals, federal and state regulators, and consumer reporting agencies in the event of a security breach that results in unauthorized access to, or disclosure of, certain personal information. Privacy laws outside the U.S. may be more restrictive and may require different compliance requirements than U.S. laws and regulations, and may impose additional duties on us in the performance of our services.
There has been increased public attention regarding the use of personal information and data transfer, accompanied by legislation, regulations and regulationsenforcement activity intended to strengthen data protection, information security and consumer and personal privacy. We and certain of our affiliates are certified under the EU-US and Swiss-US Privacy Shield Framework which provides a mechanism to comply with data protection requirements when transferring personal data from the European Union and Switzerland to the U.S. As a processor of personal information in our role as a provider of services to financial institutions, we are also subject to the jurisdiction of the FTC with respect to its enforcement of the Privacy Shield Framework.
The law in these areasthis area continues to develop and the changing nature of privacy laws in the U.S., the European Union and elsewhere could impact our processing of personal information of our employees and on behalf of our clients. The European Union Parliament adopted athe comprehensive general data privacy regulation (the “GDPR”) in May 2016 that will replace the current EUGeneral Data Protection Directive and related country-specific legislation. The GDPR will become fullyRegulation (“GDPR”) that became effective in May 2018. The California Consumer Privacy Act (“CCPA”), which became effective as of January 2020, creates new individual privacy rights for California consumers and places additional privacy and security obligations on entities handling certain personal data of consumers or households. We are analyzinghave been following the GDPRCCPA and its developments, including recent amendments, the release of proposed regulations, and the new CCPA ballot initiative scheduled for some time in the future. In our role as a service provider under CCPA, we help facilitate clients in their compliance obligations, in addition to determine its potential effects onconfirming compliance by our business practices,own vendors.
We continually monitor the privacy and are awaiting additional anticipated guidance from European Union regulators. Whileinformation security laws and regulations and while we believe that Broadridge iswe are compliant with itsour regulatory responsibilities, information security threats continue to evolve resulting in increased risk and exposure. In addition, legislation, regulation, litigation, court rulings, or other events could expose Broadridge to increased costs, liability, and possible damage to our reputation.
Legal Compliance
Regulations issued by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury place prohibitions and restrictions on all U.S. citizens and entities, including the Company, with respect to transactions by U.S. persons with specified countries and individuals and entities identified on OFAC's sanctions lists and Specially Designated Nationals and Blocked Persons List (for example, individuals and companies owned or controlled by, or acting for or on behalf of, countries subject to certain economic and trade sanctions, as well as terrorists, terrorist organizations and narcotics traffickers identified by OFAC under programs that are not country specific). Similar requirements apply to transactions and dealings with persons and entities specified in lists maintained in other countries. We have developed procedures and controls that are designed to monitor and address legal and regulatory requirements and developments to protect against having direct business dealings with such prohibited countries, individuals or entities.
Compliance with laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions. Our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include import and export requirements, trade restrictions and embargoes, data privacy requirements, labor laws, tax laws, anti-competition regulations, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting bribery and other improper payments or inducements, such as the U.K. Bribery Act. Although we have implemented policies, procedures and training designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors, vendors and agents will not take actions in violation of our policies or applicable laws and regulations, particularly as we expand our operations, including through acquisitions of businesses that were not previously subject to and may not have familiarity with laws and regulations applicable to us or compliance policies similar to ours. Any violations of sanctions or export control regulations or other laws could subject us to civil or criminal penalties, including the imposition of substantial fines and interest or prohibitions on our ability to offer our products and services to one or more countries, and could also damage our reputation, our international expansion efforts and our business, and negatively impact our operating results.
Seasonality
Processing and distributing proxy materials and annual reports to investors in equity securities and mutual funds comprises a large portion of our Investor Communication Solutions business. We process and distribute the greatest number of proxy materials and annual reports during our third and fourth fiscal quarter (the second quarter of the calendar year).quarters. The recurring periodic activity of this business is linked to significant filing deadlines imposed by law on public reporting companies and mutual funds.companies. Historically, this has caused our revenues, operating income, net earnings, and cash flows from operating activities to be higher in our fourth fiscal quarter than in any other quarter. TheBeginning on July 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” and its related amendments (collectively “ASU No. 2014-09”), resulting in the majority of our revenues from equity proxy services being recognized in the third and fourth fiscal quarters. Notwithstanding the impact of ASU No. 2014-09, the seasonality of our revenues makes it difficult to estimate future operating results based on the results of any specific fiscal quarter and could affect an investor’s ability to compare our financial condition, results of operations, and cash flows on a fiscal quarter-by-quarter basis.
Employees
At June 30, 2017,2020, we had over 10,00012,000 employees. None of our employees are subject to collective bargaining agreements governing their employment with our company. We believe that our employee relations are good.
Segment and Geographic Area Financial Information
You can find financial information regarding our reportable segments and our geographic areas in Note 18, “Financial Data By Segment” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K.
Available Information
Our headquarters are located at 5 Dakota Drive, Lake Success, New York 11042, and our telephone number is (516) 472-5400.
We maintain an Investor Relations website on the Internet at www.broadridge-ir.com. We make available free of charge, on or through this website, our annual, quarterly and current reports, and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC. To access these reports, just click on the “SEC Filings” link found at the top of our Investor Relations page. You can also access our Investor Relations page through our main website at www.broadridge.com by clicking on the “Investor Relations” link, which is located at the top of our homepage. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report filed with or furnished to the SEC.
ITEM 1A. Risk Factors
You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K or incorporated by reference herein. Based on the information currently known to us, we believe that the following information identifies the material riskmost significant factors affecting our company. However, additional risks and uncertainties not currently known to us or that we currently believe to be immaterial may also adversely affect our business.
If any of the following risks and uncertainties develop into actual events, they could have a material adverse effect on our business, financial condition, or results of operations.
The current Covid-19 pandemic may negatively impact our business, results of operations and financial performance.
The current Covid-19 pandemic is having a significant effect on the world economy, which has created significant uncertainties. These uncertainties include, but are not limited to, the adverse effects of the pandemic on the economy, our employees, our clients and our third-party service providers and the general impact of recession in the U.S. The Covid-19 pandemic has created significant volatility, uncertainty and business and economic disruption.Any of the following factors, or other cascading effects of the Covid-19 pandemic that are not currently foreseeable, could negatively affect our operations and performance of our services, increase our costs, and negatively impact our sales, results of operations and our liquidity position, possibly to a significant degree:
•The Covid-19 pandemic and the stay-at-home orders and quarantine rules resulting from the pandemic have had an impact on our ability to perform our services and the operations of our facilities. Our ability to provide our services and solutions could continue to be negatively impacted, including as a result of our employees or our clients’ and vendors’ employees working remotely, or due to business slowdown or interruption caused by the illness of our employees or the safety measures implemented to prevent the illness of our employees such as the potential closures of offices and facilities. In addition, a resurgence of the Covid-19 virus in the areas where we operate could result in additional stay-at-home orders being put in place. Our inability or failure to properly perform our services could cause us to incur expenses including service penalties, lose revenues, lose clients or damage our reputation.
•We have taken several measures in response to Covid-19, including adopting strict social distancing and cleaning measures in our production facilities, taking the temperature of production-related employees in affected areas, and instituting remote work for many of our employees. We may take further actions in our facilities as may be required by government authorities or as we determine are in the best interests of our employees, clients, and vendors. There is no certainty that such measures will be sufficient to mitigate the risks posed by Covid-19 or will be satisfactory to government authorities.
•We are a global company and our business is highly dependent on the financial services industry and exchanges and market centers, particularly in North America. The current pandemic continues to adversely impact global commercial activity in many countries, including the U.S., and has contributed to significant volatility in financial markets. An extended period of market disruption or closures, or a prolonged economic downturn (including whether there is a resurgence or second wave of infections) could negatively impact our business and financial results. We have experienced a decrease in demand for certain of our services and a delay or reduction in our sales which could continue if the economic downturn is prolonged or it causes financial stress for our clients. We could also experience a delay in onboarding our clients. Further, the decline in market activity has resulted in decreased assets under administration negatively impacting our mutual fund processing business. In addition, lower interest rates have negatively impacted our mutual fund processing and transfer agency businesses.
•The technological resources and infrastructure used by us, as well as the third-party service providers and vendors who support us, such as internet capacity may be strained due to the increase in the number of remote users. In addition, we may face increased cybersecurity risks due to the number of employees who are working remotely in regions impacted by stay-at-home orders or observing quarantine safety measures. Increased levels of remote access may create additional opportunities for cybercriminals to attempt to exploit vulnerabilities, and employees may be more susceptible to phishing and social engineering attempts due to increased stress caused by the crisis and from balancing family and work responsibilities at home.
•We rely on third-party service providers and vendors to provide critical systems and services such as data center services and materials needed for the production and delivery of our print services, and the Covid-19 pandemic could present heightened or novel risks with respect to the continuity of our critical vendors’ services or ability to supply materials including the possibility of closure or business interruption.
•There is a potential risk that members of our senior management team and/or our board of directors could become incapacitated or otherwise unable to perform their duties for an extended period of time due to illness resulting from the Covid-19 pandemic.
There are no comparable recent events which may provide guidance as to the effect of the Covid-19 pandemic, and, as a result, its ultimate impact is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy and the full impact will depend on numerous evolving factors that are outside our control. However, the effects could have a material adverse effect on our business, results of operations and financial performance.
Consolidation in the financial services industry could adversely affect our revenues by eliminating some of our existing and potential clients and could make us increasingly dependent on a more limited number of clients.
Mergers or consolidations of financial institutions could reduce the number of our clients and potential clients. If our clients merge with or are acquired by other firms that are not our clients, or firms that use fewer of our services, they may discontinue or reduce the use of our services. In addition, it is possible that the larger financial institutions resulting from mergers or consolidations could decide to perform in-house some or all of the services that we currently provide or could provide. Any of these developments could have a material adverse effect on our business and results of operations.
A large percentage of our revenues are derived from a small number of clients in the financial services industry.
In fiscal year 2017,2020, we derived approximately 20%20% of our consolidated revenues from our five largest clients and approximately 58%52% of the revenues of our Global Technology and Operations segment from the 15 largest clients in that segment. Our largest single client accounted for approximately 6% of our consolidated revenues.revenues in fiscal year 2020. While these clients generally work with multiple business segments, the loss of business from any of these clients due to merger or consolidation, financial difficulties or bankruptcy, or the termination or non-renewal of contracts wouldcould have a material adverse effect on our revenues and results of operations. Also, in the event a client experiences financial difficulties or bankruptcy resulting in a reduction in their demand for our services or loss of the client’s business, in addition to losing the revenue from that client, the Companywe would be required to write-off any investments made by the Companyus in connection with that client, including costs incurred to set up or convert a client’s systems to function with our technology. Such costs for all clients represented approximately 5% 9% of the Company’sour total assets as of June 30, 2017.2020.
Under a number of our contracts, our clients have the opportunity to renegotiate their contracts with us and to consider whether to renew their contracts or engage one of our competitors to provide services. If we are not successful in achieving high renewal rates with favorable terms, particularly with these clients, our revenues from such renewals and the associated earnings could be negatively impacted.
Security breaches or cybersecurity attacks could adversely affect our ability to operate, could result in personal, confidential or proprietary information being misappropriated, and may cause us to be held liable or suffer harm to our reputation.
We process and transfer sensitive data, including personal information, valuable intellectual property and other proprietary or confidential data provided to us by our clients, which include financial institutions, public companies, mutual funds, and healthcare providers.companies. We also handle personal information of our employees in connection with their employment. We maintain systems and procedures including encryption, authentication technology, data loss prevention technology, entitlement management, access control and anti-malware software, and transmission of data over private networks to protect against unauthorized access to physical and electronic information, including by cyber-attacks.
In certain circumstances, third partyour third-party vendors such as our data center services provider may have access to sensitive data including personal information. It is also possible that a third partythird-party vendor could intentionally or inadvertently disclose sensitive data including personal information, and weinformation. We require our third partythird-party vendors to have appropriate security controls if they have access to the personal information of our clients’ customers. However, despite those safeguards, it is possible that unauthorized individuals could improperly access our systems or those of our vendors, or improperly obtain or disclose the sensitive data including personal information that we or our vendors process or handle.
Many of our services are provided through the Internet which increases our exposure to potential cybersecurity attacks. We have experienced cybersecurity threats to our information technology infrastructure and have experienced non-material cyber-attacks, attempts to breach our systems and other similar incidents. Such prior events have not had a material impact on our financial condition, results of operations or liquidity. However, futureFuture threats could cause harm to our business and our reputation and challenge our ability to provide reliable service, as well as negatively impact our results of operations materially. Our insurance coverage may not be adequate to cover all the costs related to cybersecurity attacks or disruptions resulting from such events.
Any security breach resulting in the unauthorized use or disclosure of certain personal information could put individuals at risk of identity theft and financial or other harm and result in costs to the Companyus in investigation, remediation, legal defense and in liability to parties who are financially harmed. We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by such breaches. For example, laws may require notification to regulators, clients or employees and enlisting credit monitoring or identity theft protection in the event of a privacy breach. A cybersecurity attack could also be directed at our systems and result in interruptions in our operations or delivery of services to
our clients and their customers. Furthermore, a material security breach could cause us to lose revenues, lose clients or cause damage to our reputation.
Changes inOur clients are subject to complex laws and regulations, and new laws or regulations and/or changes to whichexisting laws or regulations could impact our clients are subject couldand, in turn, adversely affect our ability to conductimpact our business or may reduce our profitability.
We provide technology solutions to financial services firms that are generally subject to extensive regulation in the U.S. and in other jurisdictions. As a provider of services to financial institutions and issuers of securities, our services are provided in a manner designed to assist our clients in complying with the laws and regulations to which they are subject. Therefore, our services, includingsuch as our proxy and shareholder report distribution and processing and customer communications services, are particularly sensitive to changes in laws and regulations governing the financial services industry and the securities markets. In addition,
Our services and the fees we perform services for clients in the healthcare, insurance and telecommunications industries, which are also highly regulated.
Changes in laws and regulations may impactcharge our clients for certain services are subject to change if applicable SEC or stock exchange rules or regulations are amended, or new laws or regulations are adopted, which could result in a way that could adversely affect us. For example,negative impact on our business and financial results.
In addition, new regulations governing our clients could result in significant expenditures that could cause them to reduce their use of our services, seek to renegotiate existing agreements, or cease or curtail their operations, all of which could adversely impact our business. Also, changes in regulations could change the quantity or format of, or eliminate the need for, certain types of communications. Further, an adverse regulatory action that changes a client’s business or adversely affects its financial condition, could decrease their ability to purchase, or their demand for, our products and services. The loss of business from our larger clients could have a material adverse effect on our revenues and results of operations.
Changes in
Our business and results of operations may be adversely affected if we do not comply with legal and regulatory requirements that apply to our services or businesses, and new laws or regulations and/or changes to existing laws or regulations to which we are subject may adversely affect our ability to conduct our business or may reduce our profitability.
The legislative and regulatory environment of the financial services industry is continuously changing. The SEC, FINRA, DOL and various stock exchanges, and other U.S. and foreign governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws and regulations. These legislative and regulatory initiatives may adversely affect the way in which we conduct our business and may make our business less
profitable. Also, changes in the interpretation or enforcement of existing laws and regulations by those entities may adversely affect our business.
As Further, as a provider of technology services to financial institutions, certain aspects of our U.S. operations are subject to regulatory oversight and examination by the FFIEC. Periodic examinations by the FFIEC generally include areas such as data privacy, disaster recovery, information security, and third party vendor management to identify potential risks related to our services that could adversely affect our banking and financial services clients. A sufficiently unfavorable review from the FFIEC could have a material adverse effect on our business.
In addition, our
Our business process outsourcing, mutual fund processing and transfer agency solutions as well as the entities providing those services are subject to regulatory oversight. Our provision of these services must comply with applicable rules and regulations of the SEC, FINRA, DOL and various stock exchanges, and other regulatory bodies charged with safeguarding the integrity of the securities markets and other financial markets and protecting the interests of investors participating in these markets. If we fail to comply with any applicable regulations in performing those services, we could lose our clients, be subject to suits for breach of contract or to governmental proceedings, censures and fines, our reputation could be harmed, and we could be limited in our ability to obtain new clients.
Our
In addition, in connection with the offering of CITs, Matrix Trust acts as a discretionary trustee and ERISA fiduciary. ERISA and the applicable provisions of the federal tax laws impose a number of duties on persons who are fiduciaries under ERISA. As a result, we may face the risk of lawsuits and regulatory proceedings resulting from a breach of Matrix Trust’s fiduciary responsibilities.
For a description of the aspects of our business process outsourcing and mutual fund processing servicesthat are performed by BBPO, an SEC registered broker-dealer and a member of FINRA. BBPO is subject to regulations concerning many aspectsregulatory compliance or oversight, please refer to Part I, “Item 1. Business - Regulation” of its business, including trade practices, capital requirements, record retention, money laundering prevention, the protection of customer funds and customer securities, and the supervision of the conduct of directors, officers and employees. A failure to comply with any of these laws, rules or regulations could result in censures, fines, the issuance of cease-and-desist orders, or the suspension or revocation of SEC or FINRA authorization granted to allow the operation of its business or disqualification of its directors, officers or employees. Our transfer agency business is subject to SEC, NYSE, and other federal and state laws and regulations.this Annual Report on Form 10-K for a more detailed discussion.
Our ability to comply with these regulations depends largely upon the maintenance of an effective compliance system which can be time consuming and costly, as well as our ability to attract and retain qualified compliance personnel.
As a provider of data and business processing solutions, our systems contain a significant amount of sensitive data, including personal information, related to our clients, customers of our clients, and our employees. We are, therefore, subject to compliance obligations under federal, state and foreign privacy and information security laws, including in the U.S., the Gramm-Leach-Bliley ActGLBA, HIPAA, the CCPA, and the Health Insurance PortabilityGDPR in the EU, and Accountability Actwe are subject to penalties for failure to comply with such regulations. Such penalties could have a material adverse effect on our financial condition, results of 1996.operations, or cash flows. There has been increased public attention regarding the use of personal information, accompanied by legislation and regulations intended to strengthen data
protection, information security and consumer and personal privacy. The law in these areas continues to develop, the number of jurisdictions adopting such laws continues to increase and these laws may be inconsistent from jurisdiction to jurisdiction. Furthermore, the changing nature of privacy laws in the U.S., the European Union and elsewhere could impact our processing of personal information of our employees and on behalf of our clients. While we believe that Broadridge is compliant with its regulatory responsibilities, information security threats continue to evolve resulting in increased risk and exposure and increased costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by such breaches.
For a description of privacy and information security regulations affecting us, please refer to Part I, “Item 1. Business - Regulations - Privacy and Information Security Regulations” of this Annual Report on Form 10-K for a more detailed discussion.
Our ability to comply with regulations depends largely upon the maintenance of an effective compliance system which can be time consuming and costly, as well as our ability to attract and retain qualified compliance personnel.
Our revenues may decrease due to declines in the levels of participation and activity in the securities markets.
We generate significant revenues from the transaction processing fees we earn from our services. These revenue sources are substantially dependent on the levels of participation and activity in the securities markets. The number of unique securities positions held by investors through our clients and our clients’ customer trading volumes reflect the levels of participation and activity in the markets, which are impacted by market prices, and the liquidity of the securities markets, among other factors. OverVolatility in the past several years, the U.S. and foreign securities markets have experienced significant volatility. Suddenand sudden sharp or gradual but sustained declines in market participation and activity can result in reduced investor communications activity, including reduced proxy and event-driven communications processing such as mutual fund proxy, mergers and acquisitions and other special corporate event communications processing, and reduced trading volumes. In addition, our event-driven fee revenues are based on the number of special events and corporate transactions we process. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. As such, the timing and level of event-driven activity and its potential impact on our revenues and earnings are difficult to forecast. The occurrence of any of these events would likely result in reduced revenues and decreased profitability from our business operations.
We purchasemay be adversely impacted by a significant portionfailure of third-party service providers to perform their functions.
We rely on relationships with third parties, including our service providers and other vendors for certain functions. If we are unable to effectively manage our third-party relationships and the agreements under which our third-party vendors operate, our financial results or reputation could suffer. We rely on these third parties, including our data center and cloud services including disaster recovery capabilities, fromproviders, to provide services in a timely and accurate manner and to adequately address their own cybersecurity risks. Failure by these third party data center services provider, and if our data center services provider failsparties to adequately perform the data centertheir services as expected could result in material interruptions in our operations, and negatively impact our services resulting in a material adverse effect on our business and financial results.
Certain of our businesses rely on a single or a limited number of service providers or vendors. Changes in the business condition (financial or otherwise) of these service providers or vendors could impact their provision of services to us or they may no longer be able to provide services to us at all, which could have a material adverse effect on our business and financial results. In such circumstances, we cannot be certain that we will be able to replace our key third-party vendors in a timely manner necessaryor on terms commercially reasonable to meetus given, among other reasons, the scope of responsibilities undertaken by some of our clients’ requirements,providers, the depth of their experience and their familiarity with our operations generally.
If we change a significant vendor, an existing provider makes significant changes to the way it conducts its operations, or is acquired, or we seek to bring in-house certain services performed today by third parties, we may experience unexpected disruptions in the provision of our solutions, which could have a material adverse effect on our business and financial results.
Furthermore, certain third-party services providers or vendors may have access to sensitive data including personal information, valuable intellectual property and other proprietary or confidential data provided to us by our clients. It is possible that a third-party vendor could intentionally or inadvertently disclose sensitive data including personal information, which could have a material adverse effect on our business and financial results and damage our reputation.
We rely on the United States Postal Service (“USPS”) and other third-party carriers to deliver communications and changes in our relationships with these carriers or an increase in postal rates or shipping costs may adversely impact demand for our products and services and could have an adverse impact on our business and results of operations.
We rely upon the USPS and third-party carriers, including the United Parcel Service, for timely delivery of communications on behalf of our clients. As a result, we are subject to carrier disruptions due to factors that are beyond our control, including employee strikes, inclement weather, increased fuel costs and suspension of delivery of communications to certain countries as a result of the Covid-19 pandemic. Any failure to deliver communications to or on behalf of our clients in a timely and accurate manner may damage our reputation and brand and could cause us to lose clients. In addition, the USPS has incurred significant financial losses in recent years and may, as a result, implement significant changes to the breadth or frequency of its mail delivery causing disruptions in the service. If our relationship with any of these third-party carriers is terminated or impaired, or if any of these third parties are unable to distribute communications, we would be required to use alternative, and possibly more expensive, carriers to complete our distributions on behalf of our clients. We may be unable to engage alternative carriers on a timely basis or on acceptable terms, if at all, which could have an adverse effect on our business. In addition, future increases in postal rates or shipping costs, as well as changes in customer preferences, may result in decreased demand for our traditional printed and mailed communications resulting in an adverse effect on our business, financial condition and results of operations may be harmed.operations.
IBM provides us with data center services that include supporting our mainframe, midrange, open systems, network and data center operations, as well as disaster recovery services. As a result, we currently purchase a significant portion of our data center services, including disaster recovery capabilities, from IBM. If IBM fails to adequately perform the data center services in the manner necessary to meet our clients’ requirements, our business, financial condition and results of operations may be harmed.
In the event of a disaster, our disaster recovery and business continuity plans may fail, which could result in the loss of client data and adversely interrupt operations.
Our operations are dependent on our ability to protect our infrastructure against damage from catastrophe, natural disaster, or severe weather including events resulting from unauthorized security breach, power loss, telecommunications failure, terrorist attack, pandemic, or other events that could have a significant disruptive effect on our operations. We have disaster recovery and business continuity plans in place in the event of system failure due to any of these events and we test our plans regularly. In addition, our data center services provider also has disaster recovery plans and procedures in place. However, we cannot be certain that our plans, or those of our data center services provider, will be successful in the event of a disaster. If our disaster recovery or business continuity plans are unsuccessful in a disaster recovery scenario, we could potentially lose client data or experience material adverse interruptions to our operations or delivery of services to our clients, and we could be liable to parties who are financially harmed by those failures. In addition, such failures could cause us to lose revenues, lose clients or damage our reputation.
Any slowdown or failure of our computer or communications systems or those of our data center services provider could impact our ability to provide services to our clients and support our internal operations and could subject us to liability for losses suffered by our clients or their customers.
Our services depend on our ability to store, retrieve, process, and manage significant databases, and to receive and process transactions and investor communications through a variety of electronic systems such as the Internet.systems. Our systems, those of our data center and cloud services provider,providers, or any other systems with which oursour systems interact could slow down significantly or fail for a variety of reasons, including:
•computer viruses or undetected errors in internal software programs or computer systems;
•direct or indirect hacking or denial of service cybersecurity attacks;
•inability to rapidly monitor all system activity;
•inability to effectively resolve any errors in internal software programs or computer systems once they are detected;
•heavy stress placed on systems during peak times;times or due to high volumes or volatility; or
•power or telecommunications failure, fire, flood, pandemic or any other disaster.
While we monitor system loads and performance and implement system upgrades to handle predicted increases in trading volume and volatility, we may not be able to predict future volume increases or volatility accurately or that our systems and those of our data center services providerand cloud services providers will be able to accommodate these volume increases or volatility without failure or degradation. In addition, we may not be able to prevent cybersecurity attacks on our systems. Moreover, because we have outsourced our data center operations and use third-party cloud services for storage of certain data, the operation, performance and performancesecurity functions of the data center and the cloud system involve factors beyond our control. Any significant degradation or failure of our computer systems, communications systems or any other systems in the performance of our services could cause our clients or their customers to suffer delays in their receipt of our services. These delays could cause substantial losses for our clients or their customers, and we could be liable to parties who are financially harmed by those failures. In addition, such failures could cause us to lose revenues, lose clients or damage our reputation.
Operational
The inability to properly perform our services or operational errors in the performance of our services could lead to liability for claims, client loss and result in reputational damage.
The inability or the failure to properly perform our services could result in our clients and/or certain of our subsidiaries that operate regulated businesses being subjected to losses including censures, fines, or other sanctions by applicable regulatory authorities, and we could be liable to parties who are financially harmed by those errors. In addition, suchthe inability to properly perform our services or errors in the performance of our services could cause us to incur expenses including service penalties, lose revenues, lose clients or damage our reputation.
General economic and political conditions and broad trends in business and finance that are beyond our control may contribute to reduced levels of activity in the securities markets, which could result in lower revenues from our business operations.
The
Our services are impacted by the number of unique securities positions held by investors through our clients, the level of investor communications activity we process on behalf of our clients, trading volumes, market prices, and liquidity of the securities marketsmarkets. These factors are in turn affected by general national and international economic and political conditions, and broad trends in business and finance that result in changes in participation and activity in the securities markets. For example, the Covid-19 pandemic continues to adversely impact global commercial activity and has contributed to a general economic recession, adversely impacting our clients and the markets. These factors include:
•economic, political and market conditions;
•legislative and regulatory changes;
•the availability of short-term and long-term funding and capital;
•the level and volatility of interest rates;
•currency values and inflation;
•financial well-being of our clients; and
•national, state, and local taxation levels affecting securities transactions.
These factors are beyond our control and may contribute to reduced levels of participation and activity in the securities markets. Our revenues have historically been largely driven by transaction processing based on levels of participation and activity in the securities markets. Accordingly, any significant reduction in participation and activity in the securities markets would likely result in lower revenues from our business operations.
If the operational systems and infrastructure that we depend on fail to keep pace with our growth, we may experience operating inefficiencies, client dissatisfaction and lost revenue opportunities.
The growth of our business and expansion of our client base may place a strain on our management and operations. We believe that our current and anticipated future growth will require the implementation of new and enhanced communications and information systems, the training of personnel to operate these systems, and the expansion and upgrade of core technologies. While many of our systems are designed to accommodate additional growth without redesign or replacement, we may nevertheless need to make significant investments in additional hardware and software to accommodate growth. In addition, we cannot assure you that we will be able to predict the timing or rate of this growth accurately or expand and upgrade our systems and infrastructure on a timely basis.
Our growth has required and will continue to require increased investments in management personnel and systems, financial systems and controls, and office facilities. We cannot assure you that we will be able to manage or continue to manage our future growth successfully. If we fail to manage our growth, we may experience operating inefficiencies, dissatisfaction among our client base, and lost revenue opportunities.
If we are unable to respond to the demands of our existing and new clients, or adapt to technological changes or advances, our ability to reach our revenue goals or maintain our profitabilitybusiness and future growth could be diminished.impacted.
The global financial services industry is characterized by increasingly complex and integrated infrastructures and products, new and changing business models and rapid technological and regulatory changes. Our clients’ needs and demands for our products and services evolve with these changes. Our future success will depend, in part, on our ability to respond to our clients’ demands for new services, capabilities and technologies on a timely and cost-effective basis,basis. We also need to adapt to technological advancements such as digital and distributed ledger or blockchain technologies and cloud computing and keep pace with changing regulatory standards and to address our clients’ increasingly sophisticated requirements. Transitioning to these new technologies may be disruptive to our resources and the services we provide and may increase our reliance on third-party service providers such as our cloud services provider.
In addition, we run the risk of disintermediation due to emerging technologies, including distributed ledger or blockchain technologies. If we fail to adapt or keep pace with new technologies in a timely manner, it could harm our ability to compete, decrease the value of our products and services to our clients, and harm our business and impact our future growth.
Intense competition could negatively affect our ability to maintain or increase our market share and profitability.
The markets for our products and services continue to evolve and are highly competitive. We compete with a number of firms that provide similar products and services. In addition, our securities processing solutions compete with our clients’ in-house capabilities to perform competitive functions. Our competitors may be able to respond more quickly to new or changing opportunities, technologies, and client requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to clients and adopt more aggressive pricing policies than we will be able to offer or adopt. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies, including international providers of similar products and services to ours. There can be no assurances that we will be able to compete effectively with current or future competitors. If we fail to compete effectively, our market share could decrease and our business, financial condition, and results of operations could be materially harmed.
We rely on the United States Postal Service (“USPS”) and other third party carriers to deliver communications and changes in our relationships with these carriers or an increase in postal rates or shipping costs may adversely impact demand for our products and services and could have an adverse impact on our business and results of operations.
We rely upon the USPS and third party carriers, including FedEx and UPS, for timely delivery of communications on behalf of our clients. As a result, we are subject to carrier disruptions due to factors that are beyond our control, including employee strikes, inclement weather and increased fuel costs. Any failure to deliver communications to our clients in a timely and accurate manner may damage our reputation and brand and could cause us to lose clients. In addition, the USPS has incurred significant financial losses in recent years and may, as a result, implement significant changes to the breadth or frequency of its mail delivery. If our relationship with any of these third party carriers is terminated or impaired, or if any of these third parties are unable to distribute communications, we would be required to use alternative, and possibly more expensive, carriers to complete our distributions on behalf of our clients. We may be unable to engage alternative carriers on a timely basis or on acceptable terms, if at all, which could have an adverse effect on our business. In addition, future increases in postal rates or shipping costs, as well as changes in customer preferences, may result in decreased demand for our traditional printed and mailed communications resulting in an adverse effect on our business, financial condition and results of operations.
Our business, financial position, and results of operations could be harmed by adverse rating actions by credit rating agencies.
If the credit ratings of our outstanding indebtedness are downgraded, or if rating agencies indicate that a downgrade may occur, our business, financial position, and results of operations could be adversely affected and perceptions of our financial strength could be damaged. A downgrade would have the effect of increasing our borrowing costs and could decrease the availability of funds we are able to borrow, adversely affecting our business, financial position, and results of operations. In addition, a downgrade could adversely affect our relationships with our clients. For further information with respect to our borrowing costs, see Note 12,13, “Borrowings” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K.
We may be unable to attract and retain key personnel.
Our continued success depends on our ability to attract and retain key personnel such as our senior management and other qualified personnel including highly skilled technical employees to conduct our business. The marketSkilled and experienced personnel in the areas where we compete are in high demand, and competition for such experienced senior managers and other qualified personneltheir talents is extremely competitive.intense. There can be no assurance that we will be successful in our efforts to recruit and retain the required key personnel. If we are unable to attract and retain qualified individuals or our recruiting and retention costs increase significantly, our operations and financial results could be materially adversely affected.
The inability to identify, obtain and retain important intellectual property rights to technology could harm our business.
Our success depends in part upon the development, licensing, and acquisition of systems and applications to conduct our business. Our success will increasingly depend in part on our ability to identify, obtain and retain intellectual property rights to technology, both for internal use as well as for use in providing services to our clients, through internal development, acquisition, licensing from others, or alliances with others. Our inability to identify, obtain and retain rights to certain technology on favorable terms and conditions would make it difficult to conduct business, or to timely introduce new and innovative products and services, which could harm our business, financial condition, and results of operations.
Our products and services, and the products and services provided to us by third parties, may infringe upon intellectual property rights of third parties, and any infringement claims could require us to incur substantial costs, distract our management, or prevent us from conducting our business.
Although we attempt to avoid infringing upon known proprietary rights of third parties, we are subject to the risk of claims alleging infringement of third partythird-party proprietary rights. If in response to a third partythird-party infringement allegation, we were to determine that we require a license to such third party’sthird-party’s proprietary rights, then we may be unable to obtain such license on commercially reasonable terms. Additionally, third parties that provide us with products or services that are integral to the conduct of our business may also be subject to similar infringement allegations from others, which could prevent such third parties from continuing to provide these products or services to us. In either of these events, we may need to undertake substantial reengineering of our products or services in order to continue offering them, and we may not succeed in doing so. In addition, any claim of infringement could cause us to incur substantial costs defending such claim, even if the claim is baseless, and could distract our management from our business. Furthermore, a party asserting such an infringement claim could secure a judgment against us that requires us to pay substantial damages, grants such party injunctive relief, or grants other court ordered remedies that could prevent us from conducting our business.
Acquisitions and integrating such acquisitions create certain risks and may affect operating results.
We frequently engage
As part of our overall business strategy, we may make acquisitions and strategic investments in companies, technologies or products, or enter joint ventures. These transactions and expect to continue to engage in, business acquisitions. The acquisition andthe integration of businessesacquisitions involve a number of risks. The core risks are in the areas of:
•valuation: finding suitable businesses to acquire at affordable valuations or on other acceptable terms; competition for acquisitions from other potential acquirors, and negotiating a fair price for the business based on inherently limited due diligence reviews;
•integration: managing the complex process of integrating the acquired company’s people, products, technology, and other assets, and converting their financial, information security, privacy and other systems and controls to meet our standards, so as to realize the projected value of the acquired company and the synergies projected to be realized in connection with the acquisition; and
•legacy issues: protecting against actions, claims, regulatory investigations, losses, and other liabilities related to the predecessor business.
Also, the process of integrating these businesses may disrupt our business and divert our resources. These risks may arise for a number of reasons including, for example:
•finding suitable businesses to acquire at affordable valuations or on other acceptable terms;
•competition for acquisitions from other potential acquirors;
•incurring unforeseen obligations or liabilities in connection with such acquisitions;
•devoting unanticipated financial and management resources to an acquired business;
•borrowing money from lenders or selling equity or debt securities to the public to finance future acquisitions on terms that may be adverse to us;
•loss of clients of the acquired business;
•entering markets where we have minimal prior experience; and
•experiencing decreases in earnings as a result of non-cash impairment charges.
In addition, international acquisitions often involve additional or increased risks including, for example:
•geographically separated organizations, systems, and facilities;
•integrating personnel with diverse business backgrounds and organizational cultures;
•complying with foreignnon-U.S. regulatory requirements;
•enforcing intellectual property rights in some foreignnon-U.S. countries; and
•general economic and political conditions.
We may incur non-cash goodwill impairment charges in the future.
As a result of past acquisitions, we carry a significant goodwill balance on our balance sheet. Goodwill accounted for approximately 34% of the total assets on our balance sheet as of June 30, 2020. We expect to engage in additional acquisitions, which will likely result in our recognition of additional goodwill. We test goodwill for impairment annually as of March 31st and at other times if events have occurred or circumstances exist that indicate the carrying value of goodwill may no longer be recoverable. Although no indications of a goodwill impairment have been identified, there can be no assurance that we will not incur impairment charges in the future, particularly in the event of a prolonged economic recession. A significant non-cash goodwill impairment could have a material adverse effect on our results of operations.
We operate internationally and our operations could be adversely impacted by local legal, economic, political and other conditions.
A portion of our revenue is generated outside the U.S. and in recent years, we have expanded our operations, entered strategic alliances, and acquired businesses outside the U.S. Also, our business is highly dependent on the global financial services industry and exchanges and market centers around the world. Changes in theCompliance with foreign and U.S. laws or policies of the countries in which we operate, orand regulations that are applicable to our international operations could cause us to incur higher than anticipated costs, and inadequate enforcement of laws or policies such as those protecting intellectual property, could affect our business and the company’sCompany’s overall results of operations. Our operations also could be affected by economic and political changes in those countries, particularly in those with developing economies, and by macroeconomic changes, including recessions, inflation and currency fluctuations between the U.S. dollar and non-U.S. currencies.
For example, the United Kingdom’s withdrawal from the European Union (“Brexit”) became effective on January 31, 2020. A transition period will apply until the end of 2020 (or later, if extended) during which the pre-Brexit legal regime will continue to apply while the United Kingdom and European Union negotiate rules that will apply to their future relationship. It is unknown how that future relationship will be structured which is likely to lead to differing laws and regulations in the United Kingdom and European Union and further global economic, trade and regulatory uncertainty. This continued uncertainty surrounding the withdrawal, has caused, and may continue to cause, economic uncertainty including volatility in global stock markets and currency exchange rate fluctuations, resulting in a decline in the value of the British pound relative to the U.S. dollar. Brexit may also negatively impact our clients with operations in the United Kingdom, which may cause them to reduce their spending on our solutions and services.
In addition, our operations and our ability to deliver our services to our clients could be adversely impacted if there is instability, disruption or destruction in certain geographic regions including as a result of natural or man-made disasters, wars, terrorist activities, or any widespread outbreak of an illness, pandemic or other local or global health issue.
Our mutual fund processing
Certain of our services may be exposed to risk from our counterparties and third parties.
In the normal course of business, our
Our mutual fund and exchange traded fund processing services and our transfer agency services involve the settlement of transactions on behalf of our customersclients and third parties. With these activities, we may be exposed to risk in the event our clients, or other broker-dealers, banks, clearing organizations, or depositories are unable to fulfill contractual obligations. Failure to settle a transaction may affect our ability to conduct these services or may reduce their profitability as a result of the reputational risk associated with failure to settle.
Our revenues are subject to seasonal variations because we process and distribute the greatest number of proxy materials and annual reports in our third and fourth fiscal quarter.quarters.
Processing and distributing proxy materials and annual reports to investors in equity securities and mutual funds comprises a large portion of our Investor Communication Solutions business. We process and distribute the greatest number of proxy materials and annual reports during our third and fourth fiscal quarter.quarters. The recurring periodic activity of this business is linked to significant filing deadlines imposed by law on public reporting companies and mutual funds. Historically, this has causedcompanies. This causes our revenues, operating income, net earnings, and cash flows from operating activities to be higher in our third and fourth fiscal quarter than in any other fiscal quarter.quarters. The seasonality of our revenues makes it difficult to estimate future operating results based on the results of any specific fiscal quarter and could affect an investor’s ability to compare our financial condition, results of operations, and cash flows on a fiscal quarter-by-quarter basis.
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ITEM 1B. | Unresolved Staff Comments. |
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
We operate our business primarily from 5869 facilities. We own a 20,000 square foot facility in Mount Laurel, New Jersey, where we perform certain product development functions. We lease three facilities in Edgewood, New York, and facilities in El Dorado Hills, California; South Windsor, Connecticut; Kansas City, Missouri; Coppell, Texas; and Markham, Canada, with a combined space of 643,0652.2 million square feet which are used in connection with our Investor Communication Solutions business. We also lease a facility in Newark, New Jersey, which houses our principal Global Technology and Operations business operations. We also lease space at 5460 additional locations, subject to customary lease arrangements, including a facility in Lake Success, New York, that serves as our corporate headquarters.arrangements. Our leases expire on a staggered basis. We believe our facilities are currently adequate for their intended purposes and are adequately maintained.
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ITEM 3. | Legal Proceedings. |
ITEM 3. Legal Proceedings
In the normal course of business, the Company is subject to claims and litigation. While the outcome of any claim or litigation is inherently unpredictable, the Company believes that the ultimate resolution of these matters will not, individually or in the aggregate, result in a material impact on its financial condition, results of operations, or cash flows.
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ITEM 4. | Mine Safety Disclosures. |
ITEM 4. Mine Safety Disclosures
Not applicable.
PART II.
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ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock began trading “regular way” on the NYSE under the symbol “BR” on April 2, 2007. There were 11,72910,172 stockholders of record of the Company’s common stock as of July 31, 2017.2020. This figure excludes the beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. The following table presents the high and low closing prices of the Company’s common stock on the NYSE as well as the cash dividends per share of common stock declared during the fiscal quarters indicated:
|
| | | | | | | | | | | |
| Common Stock Market Price | High | | Low | | Dividends Declared |
| Fiscal Year 2017 | | | | | |
| First Quarter | $ | 71.41 |
| | $ | 65.37 |
| | $ | 0.33 |
|
| Second Quarter | 67.92 |
| | 60.56 |
| | 0.33 |
|
| Third Quarter | 70.60 |
| | 65.74 |
| | 0.33 |
|
| Fourth Quarter | 77.65 |
| | 66.66 |
| | 0.33 |
|
| Fiscal Year 2016 | | | | | |
| First Quarter | $ | 57.13 |
| | $ | 50.61 |
| | $ | 0.30 |
|
| Second Quarter | 59.90 |
| | 52.57 |
| | 0.30 |
|
| Third Quarter | 59.31 |
| | 49.64 |
| | 0.30 |
|
| Fourth Quarter | 65.36 |
| | 58.52 |
| | 0.30 |
|
Dividend Policy
We expect to pay cash dividends on our common stock. On August 9, 2017,10, 2020, our Board of Directors increased our quarterly cash dividend by $0.035 per share to $0.365$0.575 per share, an increase in our expected annual dividend amount from $1.32$2.16 to $1.46$2.30 per share. However, theThe declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors, and will depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, legal requirements, regulatory constraints, industry practice, and other factors that the Board of Directors deems relevant.
As a holding company, substantially all our assets being comprised of the capital stock of our subsidiaries, our ability to pay dividends will be dependent on our receiving dividends from our operating subsidiaries. Our subsidiaries through which we provide our business process outsourcing and mutual fund processing services, are regulated and may be subject to restrictions on their ability to pay dividends to us. We do not believe that these restrictions are significant enough to impact the Company’s ability to pay dividends.
Performance Graph
The following graph compares the cumulative total return on Broadridge common stock from June 30, 20122015 to June 30, 2017,2020, with the comparable cumulative return of the: (i) S&P 500 Index and (ii) S&P 400 MidCap Index, and (iii) S&P 400500 Information Technology Index. The graph assumes $100 was invested on June 30, 20122015 in our common stock and in each of the indices and assumes that all cash dividends are reinvested. The table below the graph shows the dollar value of those investments as of the dates in the graph. The comparisons in the graph are required by the SEC and are not intended to forecast or be indicative of future performance of our common stock.
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that Broadridge specifically incorporates it by reference into such filing.
Comparison of Five Year Cumulative Total Return Among Broadridge Financial Solutions, Inc., S&P 500 Index, S&P 400 MidCap Index and S&P 400500 Information Technology Index (in dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2015 | | June 30, 2016 | | June 30, 2017 | | June 30, 2018 | | June 30, 2019 | | June 30, 2020 |
| Broadridge Financial Solutions. Inc. Common Stock | | $ | 100.00 | | | $ | 133.19 | | | $ | 157.32 | | | $ | 243.33 | | | $ | 274.52 | | | $ | 276.52 | |
| S&P 500 Index | | $ | 100.00 | | | $ | 103.98 | | | $ | 122.58 | | | $ | 140.19 | | | $ | 154.79 | | | $ | 166.38 | |
| S&P 500 Information Technology Index | | $ | 100.00 | | | $ | 104.79 | | | $ | 140.30 | | | $ | 184.22 | | | $ | 210.63 | | | $ | 286.23 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2012 | | June 30, 2013 | | June 30, 2014 | | June 30, 2015 | | June 30, 2016 | | June 30, 2017 |
| Broadridge Financial Solutions. Inc. Common Stock Value | | $ | 100.00 |
| | $ | 128.68 |
| | $ | 206.28 |
| | $ | 253.49 |
| | $ | 337.62 |
| | $ | 398.79 |
|
| S&P 500 Index Value | | $ | 100.00 |
| | $ | 120.58 |
| | $ | 150.24 |
| | $ | 161.38 |
| | $ | 167.81 |
| | $ | 197.83 |
|
| S&P 400 MidCap Index Value | | $ | 100.00 |
| | $ | 125.10 |
| | $ | 156.63 |
| | $ | 166.62 |
| | $ | 168.83 |
| | $ | 200.16 |
|
| S&P 400 Information Technology Index Value | | $ | 100.00 |
| | $ | 113.61 |
| | $ | 141.62 |
| | $ | 157.37 |
| | $ | 152.53 |
| | $ | 201.09 |
|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table contains information about our purchases of our equity securities for each of the three months during our fourth fiscal quarter ended June 30, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of
Shares Purchased (1) | | | Average Price
Paid per Share | | Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs (2) | | Maximum Number of Shares that May Yet Be Purchased
Under the Plans or Programs (2) |
| April 1, 2020 – April 30, 2020 | 198,432 | | | | $ | 91.32 | | | — | | | 9,586,545 | |
| May 1, 2020 – May 31, 2020 | 5,479 | | | | 116.02 | | | — | | | 9,586,545 | |
| June 1, 2020 – June 30, 2020 | 1,015 | | | | 121.63 | | | — | | | 9,586,545 | |
| Total | 204,926 | | | | $ | 92.13 | | | — | | | |
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2) |
| April 1, 2017 – April 30, 2017 | 310,517 |
| (1) | | $ | 67.89 |
| | — |
| | 5,147,953 |
|
| May 1, 2017 – May 31, 2017 | 831,250 |
| | | 73.40 |
| | 831,250 |
| | 4,316,703 |
|
| June 1, 2017 – June 30, 2017 | 631,467 |
| | | 76.20 |
| | 631,467 |
| | 3,685,236 |
|
| Total | 1,773,234 |
| | | $ | 73.43 |
| | 1,462,717 |
| | |
| |
(1) | Represents shares purchased from employees to pay taxes related to the vesting of restricted stock units. |
| |
(2) | During the fiscal quarter ended June 30, 2017, the Company repurchased 1,462,717 shares of common stock at an average price per share of $74.61 under its share repurchase program. At June 30, 2017, there were 3,685,236(2)During the fiscal quarter ended June 30, 2020, the Company did not repurchase shares of common stock under its share repurchase program. At June 30, 2020, there were 9,586,545 shares remaining available for repurchase under its share repurchase program. The share repurchases will be made in the open market or privately negotiated transactions in compliance with applicable legal requirements and other factors. |
In addition, on August 2, 2017, the Company's Board of Directors authorized the repurchase of up to an additional 6.3 million shares of Broadridge common stock. Any share repurchases will be made in the open market or privately negotiated transactions in compliance with applicable legal requirements and other factors. With this authorization, the Company currently has approximately 10.0 million shares available for repurchase under its share repurchase program.
| |
ITEM 6. | Selected Financial Data |
ITEM 6. Selected Financial Data
The following selected financial data is derived from our Consolidated Financial Statements and should be read in conjunction with our Consolidated Financial Statements, the accompanying Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | |
| | (in millions, except for per share amounts) | | | | | | | | | |
| Statements of Earnings Data | | | | | | | | | | |
| Revenues (a) | $ | 4,529.0 | | | $ | 4,362.2 | | | $ | 4,329.9 | | | $ | 4,142.6 | | | $ | 2,897.0 | | |
| Operating income (a) | 624.9 | | | 652.7 | | | 598.1 | | | 534.0 | | | 502.3 | | |
| Earnings before income taxes (a) | 579.5 | | | 607.3 | | | 561.0 | | | 488.1 | | | 468.9 | | |
| Net earnings (a) | 462.5 | | | 482.1 | | | 427.9 | | | 326.8 | | | 307.5 | | |
| Basic earnings per share (a) | $ | 4.03 | | | $ | 4.16 | | | $ | 3.66 | | | $ | 2.77 | | | $ | 2.60 | | |
| Diluted earnings per share (a) | $ | 3.95 | | | $ | 4.06 | | | $ | 3.56 | | | $ | 2.70 | | | $ | 2.53 | | |
| Basic Weighted-average shares outstanding | 114.7 | | | 115.9 | | | 116.8 | | | 118.0 | | | 118.3 | | |
| Diluted Weighted-average shares outstanding | 117.0 | | | 118.8 | | | 120.4 | | | 120.8 | | | 121.6 | | |
| Cash dividends declared per common share | $ | 2.16 | | | $ | 1.94 | | | $ | 1.46 | | | $ | 1.32 | | | $ | 1.20 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | |
| | (in millions) | | | | | | | | | |
| Balance Sheet Data | | | | | | | | | | |
| Cash and cash equivalents | $ | 476.6 | | | $ | 273.2 | | | $ | 263.9 | | | $ | 271.1 | | | $ | 727.7 | | |
| Total current assets (a) | 1,328.0 | | | 1,042.3 | | | 991.1 | | | 989.6 | | | 1,289.1 | | |
| Property, plant and equipment, net | 161.6 | | | 189.0 | | | 204.1 | | | 198.1 | | | 112.2 | | |
| Total assets (a)(b) | 4,889.8 | | | 3,880.7 | | | 3,304.7 | | | 3,149.8 | | | 2,872.7 | | |
| Total current liabilities (a)(b) | 1,341.0 | | | 802.6 | | | 777.3 | | | 744.9 | | | 692.9 | | |
| Long-term debt, excluding current portion | 1,387.6 | | | 1,470.4 | | | 1,053.4 | | | 1,102.1 | | | 890.7 | | |
| Total liabilities (a)(b) | 3,543.2 | | | 2,753.2 | | | 2,210.4 | | | 2,146.0 | | | 1,827.3 | | |
| Total stockholders’ equity (a)(b) | 1,346.5 | | | 1,127.5 | | | 1,094.3 | | | 1,003.8 | | | 1,045.5 | | |
(a)The Company adopted ASU No. 2014-09 on July 1, 2018, using the modified retrospective transition method with the cumulative effect of initially applying ASU No. 2014-09 recognized at the date of initial application. Accordingly, financial statement periods prior to July 1, 2018 have not been restated for the effects of ASU No. 2014-09. See Note 2, “Summary of Significant Accounting Policies”, and Note 3, “Revenue Recognition” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for details of the Company’s adoption of ASU No. 2014-09.
(b)The Company adopted ASU No. 2016-02 “Leases”, as amended, on July 1, 2019, by recognizing a right-of-use (“ROU”) asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the period of adoption. The adoption of ASU No. 2016-02, as amended, did not have a material impact on the Consolidated Statements of Earnings, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Cash Flows, or the Consolidated Statements of Stockholders’ Equity. Under this method of adoption, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. See Note 2, “Summary of Significant Accounting Policies”, and Note 8, “Leases” in our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for details of the Company’s adoption of ASU No. 2016-02, as amended.
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| | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| | (in millions, except for per share amounts) |
| Statements of Earnings Data | | | | | | | | | | |
| Revenues | $ | 4,142.6 |
| | $ | 2,897.0 |
| | $ | 2,694.2 |
| | $ | 2,558.0 |
| | $ | 2,430.8 |
| |
| Operating income | 531.6 |
| | 500.3 |
| | 466.9 |
| | 418.2 |
| | 337.1 |
| |
| Earnings before income taxes | 488.1 |
| | 468.9 |
| | 438.9 |
| | 395.5 |
| | 323.2 |
| |
| Net earnings | 326.8 |
| | 307.5 |
| | 287.1 |
| | 263.0 |
| | 212.1 |
| |
| Basic earnings per share (a) | $ | 2.77 |
| | $ | 2.60 |
| | $ | 2.39 |
| | $ | 2.20 |
| | $ | 1.74 |
| |
| Diluted earnings per share (a) | $ | 2.70 |
| | $ | 2.53 |
| | $ | 2.32 |
| | $ | 2.12 |
| | $ | 1.69 |
| |
| Basic Weighted-average shares outstanding | 118.0 |
| | 118.3 |
| | 119.9 |
| | 119.6 |
| | 121.9 |
| |
| Diluted Weighted-average shares outstanding | 120.8 |
| | 121.6 |
| | 124.0 |
| | 124.1 |
| | 125.4 |
| |
| Cash dividends declared per common share | $ | 1.32 |
| | $ | 1.20 |
| | $ | 1.08 |
| | $ | 0.84 |
| | $ | 0.72 |
| |
|
| | | | | | | | | | | | | | | | | | | | |
| | June 30, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| | (in millions) |
| Balance Sheet Data | | | | | | | | | | |
| Cash and cash equivalents | $ | 271.1 |
| | $ | 727.7 |
| | $ | 324.1 |
| | $ | 347.6 |
| | $ | 266.0 |
| |
| Total current assets | 989.6 |
| | 1,289.1 |
| | 861.4 |
| | 880.6 |
| | 807.0 |
| |
| Property, plant and equipment, net | 198.1 |
| | 112.2 |
| | 97.3 |
| | 88.3 |
| | 80.9 |
| |
| Total assets (b) | 3,149.8 |
| | 2,872.7 |
| | 2,364.8 |
| | 2,188.0 |
| | 2,017.7 |
| |
| Total current liabilities (b) | 744.9 |
| | 692.9 |
| | 508.9 |
| | 484.4 |
| | 469.5 |
| |
| Long-term debt, excluding current portion (b) | 1,102.1 |
| | 890.7 |
| | 686.0 |
| | 520.1 |
| | 524.0 |
| |
| Total liabilities (b) | 2,146.0 |
| | 1,827.3 |
| | 1,437.0 |
| | 1,226.3 |
| | 1,201.7 |
| |
| Total stockholders’ equity | 1,003.8 |
| | 1,045.5 |
| | 927.8 |
| | 961.7 |
| | 816.0 |
| |
| |
(a) | The computation of basic earnings per share is based on the Company’s Net earnings divided by the Basic Weighted-average shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented date are exercised and restricted stock units have vested. |
| |
(b) | Effective in the first quarter of fiscal year 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has applied this guidance on a retrospective basis and accordingly, the Consolidated Balance Sheets as of June 30, 2016, 2015, 2014 and 2013, respectively, have been updated to reflect this new classification. |
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ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion summarizes the significant factors affecting the results of operations and financial condition of Broadridge during the fiscal years ended June 30, 2017, 2016,2020 and 20152019, and should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein. Certain information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words such as “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Our actual results, performance or achievements may differ materially from the results discussed in this Item 7 because of various factors, including those set forth elsewhere herein. See “Forward-Looking Statements” and “Risk Factors” included in ItemPart 1 of this Annual Report on Form 10-K.
The discussion summarizing the significant factors affecting the results of operations and financial condition of Broadridge during the fiscal year ended June 30, 2018 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year 2019 (the “2019 Annual Report”), which was filed with the Securities and Exchange Commission on August 6, 2019. DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS
Broadridge, a Delaware corporation and a part of the S&P 500® Index, is a global fintechfinancial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, mutual fundsasset and wealth managers and corporate issuers. Our services include investor communications, securities processing, data and analytics, and customer communications securities processing, and data and analytics solutions. In short, we provide the infrastructure that helps the financial services industry operate. With over 50 years of experience, including over 10 years as an independent public company, we provide financial services firms with advanced, dependable, scalable and cost-effective integrated systems.solutions and an important infrastructure that powers the financial services industry. Our systemssolutions enable better financial lives by powering investing, governance and communications and help reduce the need for our clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities. We deliver a broad range of solutions that help our clients better serve their retail and institutional customers across the entire investment lifecycle, including pre-trade, trade, and post-trade processing functionality.
Our businesses operate in two reportable segments: Investor Communication Solutions and Global Technology and Operations. We serve a large and diverse client base across four client groups: capital markets, asset management, wealth management and corporations.
Investor Communication Solutions
Our Bank/Broker-Dealer
We provide governance and communications solutions through our Investor Communication Solutions business segment to the following financial services clients: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. In addition to financial services firms, our Customer Communication Solutions, Corporate Issuer Solutions, Advisor SolutionsCommunications business also serves companies in the healthcare, insurance, consumer finance, telecommunications, utilities and Mutual Fund and Retirement Solutions are provided by the Investor Communication Solutions segment. other service industries.
A large portion of our Investor Communication Solutions business involves the processing and distribution of proxy materials to investors in equity securities and mutual funds, as well as the facilitation of related vote processing. ProxyEdge®, is our innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that helps ensure the voting participation of the largest stockholders of many companies. In addition, we provide corporations with registered proxy services as well as registrar, stock transfer and record-keeping services. We also provide the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help our clients meet their regulatory compliance needs.
We provide customer communication solutions to companies in the financial services, healthcare, insurance, consumer finance, telecommunications, utilities, retail banking and other service industries. The Broadridge Communications Cloud, launched in 2016, provides multi-channel communications delivery, communications management, information management and control and administration capabilities that enable and enhance our clients’ communications with their customers. We process and distribute our clients’ essential communications including transactional (e.g., bills and statements), regulatory (e.g., explanations of benefits, notices, and trade confirmations) and marketing (e.g., direct mail) communications through print and digital channels.
Our advisor solutions enable firms, financial advisors, wealthFor asset managers and insurance agents to better engage with customers through cloud-basedretirement service providers, we offer data-driven solutions and an end-to-end platform for content management, composition, and multi-channel distribution of regulatory, marketing, and customer communication tools.transactional information. Our marketing ecosystem integrates data content and technologyanalytics solutions provide investment product distribution data, analytical tools, insights, and research to drive new client acquisitionenable asset managers to optimize product distribution across retail and cross-sell opportunities through the creation of sales and educational content, including seminars and a library of financial planning topics as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Our advisor solutions also help advisors optimize their practice management through customer and account data aggregation and reporting.
Our mutual fund and retirement solutions are a full range of tools for mutual funds, exchange traded fund (“ETF”) providers, and asset management firms. They include data-driven technology solutions for data management, analytics, investment accounting, marketing and customer communications. In addition,institutional channels globally. Through Matrix, we provide mutual fund trade processing
services for retirement service providers, third party administrators, financial advisors, banks and wealth management professionalsprofessionals.
In addition, we provide public corporations and mutual funds with a full suite of solutions to help manage their annual meeting process, including registered and beneficial proxy distribution and processing services, proxy and annual report document management solutions, virtual shareholder meeting services, and solutions that help gain insight into their shareholder base through our subsidiary, Matrix Financial Solutions, Inc. (“Matrix”).shareholder data services. We also offer financial reporting document composition and management solutions, SEC disclosure and filing services, and registrar, stock transfer and record-keeping services through Broadridge Corporate Issuer Solutions.
We provide customer communications solutions which include print and digital solutions, content management, postal optimization, and fulfillment services. These services include customer communications management capabilities through the Broadridge Communications Cloud platform. Through one point of integration, the Communications Cloud helps companies create, deliver, and manage multi-channel communications and customer engagement. The platform includes data-driven composition tools, identity and preference management, multi-channel optimization and digital communication experience, archive and information management, digital and print delivery, and analytics and reporting tools.
Global Technology and Operations
Our Global Technology
We are a leading global provider of securities processing solutions for capital markets, wealth management, and Operations business offers a suite ofasset management firms. We offer advanced computerized real-time transaction processing servicessolutions that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, margin, cash management, clearance and settlement, asset servicing, reference data management, reconciliations, securities financing and accounting. collateral optimization, compliance and regulatory reporting, and portfolio accounting and custody-related services.
Our core post-trade services help financial institutions and investment managers efficiently and cost-effectively consolidate their books and records, gather and service assets under management and manage risk, thereby enabling them to focus on their core business activities. Our multi-asset, multi-market, multi-entity and multi-currency solutions support real-time global tradingtrade processing of equity, fixed income, mutual fund, foreign exchange, and exchange traded derivative securities in establishedderivatives.
Our comprehensive wealth management platform offers capabilities across the entire wealth management lifecycle and emerging markets. In addition,streamlines all aspects of wealth management services, including account management, fee management and client on-boarding. The wealth management platform enables full-service, regional and independent broker-dealers and investment advisors to better engage with customers through digital marketing and customer communications tools. We also integrate data, content and technology to drive new customer acquisition, support holistic advice and cross-sell opportunities through the creation of sales and educational content, including seminars as well as customizable advisor websites, search engine marketing and electronic and print newsletters.Our advisor solutions help advisors optimize their practice management through customer and account data aggregation and reporting.
We offer buy-side technology solutions for the global investment management industry, including portfolio management, compliance and operational workflow solutions for hedge funds, family offices, investment managers and the providers that service this space. Through our Managed Services, solution supportswe provide business process outsourcing services that support the entire trade lifecycle operations of our buy- and sell-side clients’ businesses including their securities clearing, record-keeping,through a combination of our technology and custody-related functions.our operations expertise and we provide support for advisor, investor and compliance workflow.
ACQUISITIONS
Assets acquired and liabilities assumed in business combinations are recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition date based upon the estimated fair values at such date. The results of operations of the business acquired by the Company are included in the Company’s Consolidated Statements of Earnings since the respective date of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed is allocated to Goodwill.
Pro forma supplemental financial information for all acquisitions is not provided as the impact of these acquisitions on the Company’s operating results was not material for any acquisition individually or in the aggregate.
The following represents the fiscal year 2020 acquisitions:
Fiscal Year 20172020 Acquisitions:
BUSINESS COMBINATIONS
NACC
Financial information on each transaction is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shadow Financial | | Fi360 | | Clear-Structure | | Funds-Library | | Total |
| | (in millions) | | | | | | | | |
| Cash payments, net of cash acquired | | $ | 35.6 | | | $ | 116.0 | | | $ | 59.1 | | | $ | 69.6 | | | $ | 280.3 | |
| Deferred payments, net | | 2.9 | | | 3.5 | | | 2.6 | | | — | | | 9.0 | |
| Contingent consideration liability | | — | | | — | | | 7.0 | | | — | | | 7.0 | |
| Aggregate purchase price | | $ | 38.5 | | | $ | 119.5 | | | $ | 68.7 | | | $ | 69.6 | | | $ | 296.3 | |
| | | | | | | | | | |
| Net tangible assets acquired / (liabilities assumed) | | $ | (0.2) | | | $ | (7.9) | | | $ | 0.6 | | | $ | (3.3) | | | $ | (10.8) | |
| Goodwill | | 17.6 | | | 84.4 | | | 44.2 | | | 39.1 | | | 185.3 | |
| Intangible assets | | 21.1 | | | 43.1 | | | 23.9 | | | 33.8 | | | 121.8 | |
| Aggregate purchase price | | $ | 38.5 | | | $ | 119.5 | | | $ | 68.7 | | | $ | 69.6 | | | $ | 296.3 | |
Shadow Financial
In July 2016,October 2019, we acquired Shadow Financial, a provider of multi-asset class post-trade solutions for the Company’s Investor Communication Solutions segmentcapital markets industry. The acquisition builds upon Broadridge’s post-trade processing capabilities by adding a market-ready solution for exchanges, inter-dealer brokers and proprietary trading firms. In addition, the acquisition adds capabilities across exchange traded derivatives and cryptocurrency.
•Goodwill is tax deductible.
•Intangible assets acquired the net assetsconsist primarily of customer relationships and software technology, which are being amortized over a seven-year life and five-year life, respectively.
The allocation of the North American Customer Communications (“NACC”) businesspurchase price will be finalized upon completion of DST Systems, Inc.,the analysis of the fair values of the acquired business’ assets and liabilities.
Fi360
In November 2019, we acquired Fi360, a leading provider of fiduciary and Regulation BI solutions for the wealth and retirement industry, including the accreditation and continuing education for the Accredited Investment Fiduciary® Designation, the leading designation focused on fiduciary responsibility. The acquisition enhances Broadridge’s retirement solutions by providing wealth and retirement advisors with fiduciary tools that will complement its Matrix trust and trading platform. The acquisition also further strengthens Broadridge’s data and analytics tools and solutions suite that enable asset managers to grow their businesses by providing greater transparency into the retirement market.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer communication services including printrelationships and digital communication solutions, content management, postal optimization,software technology, which are being amortized over a seven-year life and fulfillment. five-year life, respectively.
The NACC business is partallocation of our customer communications business and is known as Broadridge Customer Communications. The aggregatethe purchase price was $410.0 million in cash, or $406.2 million netwill be finalized upon completion of cashthe analysis of the fair values of the acquired business’ assets and other closing adjustments.liabilities.
ClearStructure
In November 2016, the Company’s Global Technology and Operations segment2019, we acquired M&O Systems, Inc. (“M&O”). M&O isClearStructure, a global provider of SaaS-based compensationportfolio management and related solutions for broker-dealersthe private debt markets. ClearStructure’s component services enhance Broadridge’s existing multi-asset class, front-to-back office asset management technology suite, providing Broadridge clients with a capability to access the public and registered investment advisors, and is now known as Broadridge Advisor Compensation Solutions. The aggregate purchase price was $24.9 million in cash, consisting of $22.4 million of cash payments net of cash acquired as well as a $2.5 million note payable to the sellers that will be settled in the future.private markets.
MAL
In March 2017, the Company’s Global Technology and Operations segment acquired Message Automation Limited (“MAL”), which is a specialist provider of post-trade control solutions for sell-side and buy-side firms. •The Company previously owned 25% of MAL through its acquisition of City Networks Ltd in fiscal year 2010, and purchased the remaining 75% of the company for an aggregate purchase price of $24.8 million in cash, consisting of $20.1 million of cash payments net of cash acquired, a $3.2 million note payable to the sellers that will be settled in the future, and a contingent consideration liability with an acquisition date fair valueis payable through fiscal year 2023 upon the achievement by the acquired business of $1.4 million. certain revenue targets, and has a maximum potential pay-out of $12.5 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of the Company’s 25% pre-existing investment in MAL was determined to be $9.6 million, implied bycontingent consideration liability at June 30, 2020 is $7.0 million.
•Goodwill is primarily tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and five-year life, respectively.
The allocation of the aggregate purchase price will be finalized upon completion of the remaining 75% purchased, which resulted inanalysis of the fair values of the acquired business’ assets and liabilities, and is still subject to a non-cash, nontaxable gain on investment of $9.3 million (“MAL investment gain”), included as part of Other non-operating (income) expenses, net.working capital adjustment.
ASSET ACQUISITION
Purchase of Intellectual Property
FundsLibrary
In September 2016,February 2020, we acquired FundsLibrary, a provider of fund document and data dissemination in the Company’s Investor Communication Solutions segment acquired intellectual property assets from InveshareEuropean market. FundsLibrary's solutions enable fund managers to increase distribution opportunities and concurrently entered into a development agreementhelp them comply with an affiliate of Inveshare to use these assets to develop blockchain technology applications for Broadridge’s proxyregulations such as Solvency II and MiFID II. The business will be combined with FundAssist, Broadridge's existing European funds regulatory communications business. The combined solution provides funds with a single, integrated provider to manage data, perform calculations, compose documents, manage regulatory compliance and disseminate information across multiple jurisdictions.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and three-year life, respectively.
The allocation of the purchase price was $95.0 million, which consisted of a $90.0 million cash paymentwill be finalized upon closingcompletion of the acquisition and a $5.0 million obligation payable which the Company expects to pay by September 2017, plus an additional deferred payment of $40.0 million to an affiliate of Inveshare upon deliveryanalysis of the new blockchain technology applications, whichfair values of the Company expectsacquired business’ assets and liabilities, and is still subject to pay by September 2018.a working capital adjustment.
The following represents the fiscal year 2019 acquisitions:
Fiscal Year 20162019 Acquisitions:
QED
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Rockall | | RPM | | TD Ameritrade* | | Total |
| | (in millions) | | | | | | |
| Cash payments, net of cash acquired | | $ | 34.9 | | | $ | 258.3 | | | $ | 61.5 | | | $ | 354.7 | |
| Deferred payments, net | | 0.5 | | | 40.9 | | | — | | | 41.4 | |
| Contingent consideration liability | | 7.0 | | | 0.8 | | | — | | | 7.9 | |
| Aggregate purchase price | | $ | 42.4 | | | $ | 300.1 | | | $ | 61.5 | | | $ | 404.0 | |
| | | | | | | | |
| Net tangible assets acquired / (liabilities assumed) | | $ | (2.9) | | | $ | 6.8 | | | $ | — | | | $ | 3.9 | |
| Goodwill | | 31.1 | | | 181.6 | | | 27.1 | | | 239.8 | |
| Intangible assets | | 14.2 | | | 111.7 | | | 34.4 | | | 160.3 | |
| Aggregate purchase price | | $ | 42.4 | | | $ | 300.1 | | | $ | 61.5 | | | $ | 404.0 | |
* Broadridge acquired the retirement plan custody and trust assets from TD Ameritrade Trust Company.
Rockall
In November 2015, the Company’s Investor Communication Solutions segmentMay 2019, we acquired QED,Rockall, a provider of investment accountingSBL and collateral management solutions that serves public sector institutional investors.for wealth management firms and commercial banks. The aggregate purchase price was $15.5 million, consisting of $13.3 million of cash payments, a $1.5 million note payableacquisition expands Broadridge's core front-to-back office wealth capabilities, providing innovative SBL and collateral management technology solutions to the sellers that will be settled in the future, as well as ahelp firms manage risk and optimize clients' securities lending and financing needs.
•The contingent consideration liability with an acquisition dateis payable over the next two years upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $10.1 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of $0.7the contingent consideration liability at June 30, 2020 is $7.6 million.
4sight Financial•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a four-year life and six-year life, respectively.
•In the first quarter of fiscal year 2020, the Company settled deferred payment obligations totaling $0.5 million.
RPM
In June 2016, the Company’s Global Technology and Operations segment2019, we acquired 4sight Financial,RPM, a globalCanadian provider of securities financingenterprise wealth management software solutions and collateralservices. The addition of RPM’s state-of-the-art technology platforms builds upon our Canadian wealth management systems to financial institutions. business, providing a solution set for the retail banking sector with enhanced mutual fund and deposit manufacturing capabilities.
•The aggregate purchase price was $39.6 million, consisting of $36.0 million of cash payments, as well as a contingent consideration liability with an acquisition dateis payable over the next two years upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $3.7 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of $3.6 million.
Fiscal Year 2015 Acquisitions:
TwoFour Systems LLC
In December 2014, the Company’s Global Technology and Operations segment acquired TwoFour Systems LLC, now known as Broadridge FX and Liquidity Solutions, a provider of real-time foreign exchange solutions for banks and broker-dealers. The aggregate purchase price was $32.7 million, consisting of $31.6 million of cash payments as well as a contingent consideration liability with an acquisition date fair valueat June 30, 2020 is $0.8 million.
•Goodwill is partially tax deductible.
•Intangible assets acquired consist primarily of $1.1software technology and customer relationships, which are being amortized over a five-year life and seven-year life, respectively.
•In the first quarter of fiscal year 2020, the Company settled deferred payment obligations totaling $40.9 million.
Direxxis LLC
In March 2015, the Company’s Investor Communication Solutions segment acquired Direxxis LLC, a provider of cloud-based marketing solutionsRetirement Plan Custody and services for financial advisors. The aggregate purchase price was $34.5 million, consisting of $33.3 million of cash payments as well as a contingent consideration liability with an acquisition date fair value of $1.2 million.
Trade Processing Business of WTRIS
In April 2015, the Company’s Investor Communication Solutions segment acquired the trade processing business of the WTRIS unit of M&T Bank Corporation. The acquired business is being combined with Broadridge’s mutual fund and ETF trade processing platform. The aggregate purchase price was $73.2 million, consisting of $61.0 million of cash payments as well as a contingent consideration liability with an acquisition date fair value of $12.2 million.
FSCI Unit of Thomson Reuters’ Lipper divisionTrust Assets from TD Ameritrade
In June 2015, the Company’s Investor Communication Solutions segment2019, Broadridge acquired the FSCI unitretirement plan custody and trust assets from Thomson Reuters’ Lipper division, now known as Broadridge Fund Information Services.TD Ameritrade Trust Company, a subsidiary of TD Ameritrade Holding Company. The acquisition expands the Company’s enterprise data and analyticsBroadridge's suite of solutions for mutual fund manufacturers, ETF issuers,the growing qualified and fundnon-qualified retirement plan services market and the support it provides for third-party administrators, adding new global datafinancial advisors, record-keepers, banks, and research capabilities. The purchase price was $77.0 million.brokers.
•Goodwill is tax deductible.
•Intangible assets acquired consist of customer relationships, which are being amortized over a seven-year life.
BASIS OF PRESENTATION
The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”)GAAP in the United States of America (“U.S.”). and in accordance with the SEC requirements for Annual Reports on Form 10-K. These financial statements present the consolidated position of the Company and include the entities in which the Company directly or indirectly has a controlling financial interest as well as various entities in which the Company has investments recorded under either the cost or equity methodsmethod of accounting.accounting as well as certain marketable and non-marketable securities. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding. Certain prior period amounts have been reclassified to conform to the current year presentation where applicable, except as it relates to (i) ASU No. 2016-02, as amended “Leases” (“ASU No. 2016-02”), (ii) ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-09”), (iii) ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU No. 2016-01”), and (iv) ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU No. 2018-02”), as described further below.
In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Management continually evaluates the accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates, by their nature, are based on judgment, available information, and historical experience and are believed to be reasonable. However, actual amounts and results could differ from those estimates made by management. In management’s opinion, the Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of results reported. The results of operations reported for the periods presented are not necessarily indicative of the results of operations for subsequent periods.
Effective July 1, 2019, the Company adopted ASU No. 2016-02, “Leases” and its related amendments (collectively referred to as “ASU 2016-02, as amended”) by recognizing a ROU asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the first quarterperiod of fiscal year 2017,adoption. Under this method of adoption, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. Additional information about the impact of the Company's adoption of ASU No. 2016-02, as amended is included in Note 2, “Summary of Significant Accounting Policies” and Note 8, “Leases” to the Consolidated Financial Statements.
Effective July 1, 2018, we adopted ASU No. 2014-09 using the modified retrospective transition approach applied to all contracts. Under this transition approach, we have not restated the prior period Consolidated Financial Statements presented to the current period presentation. Additional information about the Company’s revenue recognition policies and the related impact of the adoption of ASU No. 2014-09 is included in Note 2, “Summary of Significant Accounting Policies” and Note 3, “Revenue Recognition”.
Effective July 1, 2018, we adopted ASU No. 2016-01, which requires changes in the fair value of publicly traded equity securities for which we do not have significant influence to be recorded as part of Net earnings rather than as Other comprehensive income (loss), net. In addition, equity investments that do not have a readily determinable fair value will be recorded at cost less impairment as further adjusted for observable price changes in orderly transactions for identical or similar investments of the issuer. We adopted ASU No. 2016-01 using the modified-retrospective transition approach by recording the cumulative effect of previously unrecognized gains or losses on publicly traded equity securities to retained earnings as of July 1, 2018. The provisions of ASU No. 2016-01 relative to equity investments that do not have a readily determinable fair value have been applied prospectively. The Consolidated Financial Statements have not been revised ourfor periods prior to July 1, 2018. The impact of adopting ASU No. 2016-01 resulted in a reclassification of less than $0.1 million in unrealized gains, net from accumulated other comprehensive loss to retained earnings as of July 1, 2018.
Effective July 1, 2018, we adopted ASU No. 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects associated with the change in the U.S. federal corporate tax rate resulting from the U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017. The adoption of ASU No. 2018-02 resulted in an increase to retained earnings of $1.5 million.
Effective July 1, 2018, we adopted ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU No. 2017-07”) whereby we revised its presentation in the Consolidated Statements of Earnings to separately present Interest expense, net. Previously, Interest expense,reflect the non-service cost components of net was reportedbenefit cost as part of Non-operating expenses,Other non-operating income (expenses), net, and was not separately presented in the Consolidated Statementswhich were previously recorded as part of Earnings.Total operating expenses. All prior period information has been conformed to the current period presentation. See Note 4, “Interest Expense, Net,” to our Consolidated Financial Statements under Item 8 of Part II of this Annual report on Form 10-K for details of the Company’s Interest expense, net, Note 5, “Other Non-Operating (Income) Expenses, Net,” to our Consolidated Financial Statements under Item 8 of Part II of this Annual report on Form 10-K for details of the Company’s Other non-operating (income) expenses, net, and Note 19, “Quarterly Financial Results (Unaudited),” to our Consolidated Financial Statements under Item 8 of Part II of this Annual report on Form 10-K for details of our Operating income.
Effective in the first quarter of fiscal year 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has applied this guidance on a retrospective basis and accordingly, the Consolidated Balance Sheet under Item 8 of Part II of this Annual report on Form 10-K as of June 30, 2016 has been updated to reflect this new classification, which resulted in a decrease in Other non-current assets of $7.1 million, a decrease in Long-term debt, excluding current portion of $7.0 million and a decrease of $0.1 million in Current portion of long-term debt at June 30, 2016.
CRITICAL ACCOUNTING POLICIES
We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates, by their nature, are based on judgment, available information, and historical experience and are believed to be reasonable. However, actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below.
Goodwill. We review the carrying value of all our goodwill by comparing the carrying value of our reporting units to their fair values. We are required to perform this comparison at least annually or more frequently if circumstances indicate a possible impairment. When determining fair value of a reporting unit, we utilize the income approach which considers a discounted future cash flowsflow analysis using various assumptions, including projections of revenues based on assumed long-term growth rates, estimated costs and appropriate discount rates based on the particular reporting unit’s weighted-average cost of capital. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows based on forecasted earnings before interest and taxes, and the weighted-average costselection of capital and the terminal value growth rate and discount rate assumptions. The weighted-average cost of capital takes into account the relative weight of each component of our consolidated capital structure (equity and long-term debt). Our estimates of long-term growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of our routine, long-range planning process.
Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined. We had $1,159.3$1,674.5 million of goodwill as of June 30, 2017.2020. Given the significance of our goodwill, an adverse change to the fair value of one of our reporting units could result in an impairment charge, which could be material to our earnings.
The Company performs a sensitivity analysis under Step 1 of the goodwill impairment test assuming hypothetical reductions in the fair values of our reporting units. A 10% change in our estimates of projected future operating cash flows,
discount rates, or terminal value growth rates used in our calculations of the fair values of the reporting units would not result in an impairment of our goodwill.
Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). The Company is subject to regular examination of its income tax returns by the U.S. federal, state and foreign tax authorities. A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements. The Company has estimated foreign net operating loss carryforwards of approximately $14.8$13.1 million as of June 30, 20172020 of which $1.3$1.5 million expiresare subject to expiration in 2018the June 30, 2020 through 2027 andJune 30, 2028 period. The remaining $11.6 million of which $13.5 millioncarryforwards has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately $26.4$37.0 million of which expire in 2018$16.9 million can be utilized through 2030.June 30, 2030 with the balance of $20.2 million having an indefinite utilization period. U.S. federal net operating loss carryforwards resulting from tax losses beginning with the fiscal year ended June 30, 2019 have an indefinite carryforward under the Tax Act. The Company did not realize any federal net operating losses for the fiscal year ended June 30, 2020.
Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that the Company will not be able to utilize the deferred tax assets attributable to net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings. The Company has recorded valuation allowances of $9.3$6.7 million and $9.8$3.3 million at June 30, 20172020 and 2016,2019, respectively. The determination as to whether a deferred tax asset will be recognized is made on a jurisdictional basis and is based on the evaluation of historical taxable income or loss, projected future taxable income, carryforward periods, scheduled reversals of deferred tax liabilities and tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The assumptions used to project future taxable income requires significant judgment and are consistent with the plans and estimates used to manage the underlying businesses.
On the same date that the Tax Act was enacted, December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided the Company with up to one year to finalize accounting for the impacts of the Tax Act. Under SAB 118, the Company finalized the prior year estimate of the net tax impact to the Company arising from the enactment of the Tax Act, and recognized a tax benefit of approximately $0.5 million in the fiscal year ended June 30, 2019.
Share-based Payments. Accounting for stock-based compensation requires the measurement of stock-based compensation expense based on the fair value of the award on the date of grant. We determine the fair value of stock options issued by using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of our stock price and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. Determining these assumptions are subjective and complex, and therefore, a change in the assumptions utilized could impact the calculation of the fair value of our stock options. A hypothetical change of five percentage points applied to the volatility assumption used to determine the fair value of the fiscal year 20172020 stock option grants would result in approximately a $1.6$2.4 million change in total pre-tax stock-based compensation expense for the fiscal year 20172020 grants, which would be amortized over the vesting period. A hypothetical change of one year in the expected life assumption used to determine the fair value of the fiscal year 20172020 stock option grants would result in approximately a $0.5$0.8 million change in the total pre-tax stock-based compensation expense for the fiscal year 20172020 grants, which would be amortized over the vesting period. A hypothetical change of one percentage point in the forfeiture rate assumption used for the fiscal year 20172020 stock option grants would result in approximately a $0.1 million change in the total pre-tax stock-based compensation expense for the fiscal year 20172020 grants, which would be amortized over the vesting period. A hypothetical one-half percentage point change in the dividend yield
assumption used to determine the fair value of the fiscal year 20172020 stock option grants would result in approximately a $0.7$0.9 million change in the total pre-tax stock-based compensation expense for the fiscal year 20172020 grants, which would be amortized over the vesting period.
KEY PERFORMANCE INDICATORS
Management focuses on a variety of key indicators to plan, measure and evaluate the Company’s business and financial performance. These performance indicators include Revenue and Recurring fee revenue as well as not generally accepted accounting principles measures (“Non-GAAP”) of Adjusted Operating income, Adjusted Net earnings, Adjusted Diluted earnings per share, Free Cash flow, and Closed sales. In addition, management focuses on select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth, as defined below.
Refer to the section “Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures” for a reconciliation of Adjusted Operating income, Adjusted Net earnings, Adjusted Diluted earnings per share, and Free Cash flow to the most directly comparable generally accepted accounting principles (“GAAP”) measures, and an explanation for why these Non-GAAP metrics provide useful information to investors and how management uses these Non-GAAP metrics for operational and financial decision-making. Refer to the section “Results of Operations” for a description of Closed sales and an explanation of why Closed sales is a useful performance metric for management and investors.
Revenues
Revenues are primarily generated from fees for processing and distributing investor communications and fees for technology-enabled services and solutions. The Company monitors revenue in each of our two reportable segments as a key measure of success in addressing our clients’ needs. Fee revenues are derived from both recurring and event-driven activity. The level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven fee revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services as well as Matrix administrative services.
Recurring fee revenue growth represents the Company’s total annual fee revenue growth, less growth from event-driven fee revenues. We distinguish recurring fee revenue growth between organic and acquired:
•Organic – We define organic revenue as the recurring fee revenue generated from Net New Business and internal growth.
•Acquired – We define acquired revenue as the recurring fee revenue generated from acquired services in the first twelve months following the date of acquisition. This type of growth comes as a result of our strategy to purchase, integrate, and leverage the value of assets we acquire.
Revenues and Recurring fee revenue are useful metrics for investors in understanding how management measures and evaluates the Company’s ongoing operational performance. See “Results of Operations” as well as Note 2 “Summary of Significant Accounting Policies” and Note 3, “Revenue Recognition” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K.
Record Growth and Internal Trade Growth
The Company uses select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth in evaluating its business results and identifying trends affecting its business. Record Growth is defined as stock record growth and interim record growth which measure the estimated annual change in total positions eligible for equity proxy materials and mutual fund and exchange traded fund interim communications, respectively, for equities and mutual fund position data reported to Broadridge in both the current and prior year periods. Internal Trade Growth represents the estimated change in trade volumes for Broadridge securities processing clients whose contracts are linked to trade volumes and who were on Broadridge’s trading platforms in both the current and prior year periods. Record Growth and Internal Trade Growth are useful non-financial metrics for investors in understanding how management measures and evaluates Broadridge’s ongoing operational performance within its Investor Communication Solutions and Global Technology and Operations reportable segments, respectively.
The key performance indicators for the fiscal years ended June 30, 2020, and 2019, are as follows:
| | | | | | | | | | | |
| Select Operating Metrics | | |
| | | |
| Years Ended June 30, | | |
| 2020 | | 2019 |
| | | |
| | | |
| Record Growth | | | |
| Equity proxy | 10 | % | | 6 | % |
| Mutual fund interims | 2 | % | | 9 | % |
| Internal Trade Growth | | | |
| Equity | 8 | % | | 6 | % |
| Fixed Income | 12 | % | | 5 | % |
RESULTS OF OPERATIONS
The following discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments refer to the fiscal year ended June 30, 20172020 compared to the fiscal year ended June 30, 2016, and the fiscal year ended June 30, 2016 compared to the fiscal year ended June 30, 2015.2019. The Analysis of Consolidated Statements of Earnings should be read in conjunction with the Analysis of Reportable Segments, which provides more detailed discussions concerning certain components of the Consolidated Statements of Earnings. Discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments for the fiscal year ended June 30, 2019 compared to the fiscal year ended June 30, 2018 is disclosed in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2019 Annual Report.
The following references are utilized in the discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments:
“Amortization of Acquired Intangibles and Purchased Intellectual Property” and “Acquisition and Integration Costs” represent certain non-cash amortization expenses associated with acquired intangible assets and purchased intellectual property assets, andas well as certain transaction and integration costs associated with the Company’s acquisition activities, respectively.
“IBM Private Cloud Charges” represent a charge on the hardware assets to be transferred to IBM and other charges related to the IBM Private Cloud Agreement.
“Gain on Sale of a Joint Venture Investment” represents a non-operating, cash gain on the sale of one of the Company’s joint venture investments.
“Covid-19 Related Expenses” represents certain non-recurring expenses associated with the Covid-19 pandemic.
“Net New Business” refers to recurring revenue from closedClosed sales less recurring revenue from client losses.
The following definitions describe the Company’s Revenues:
Fee revenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity. In addition, the level of recurring and event-driven activity we process directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. The types of services we provide that comprise event-driven activity are:
•Mutual Fund Proxy: The proxy and related services we provide to mutual funds when certain events occur requiring a shareholder vote including changes in directors, sub-advisors, fee structures, investment restrictions, and mergers of funds.
•Mutual Fund Communications: Mutual fund communications services consist primarily of the distribution on behalf of mutual funds of supplemental information required to be provided to the annual mutual fund prospectus as a result of certain triggering events such as a change in portfolio managers. In addition, mutual fund communications consist of notices and marketing materials such as newsletters.
•Proxy Contests and Specials, Corporate Actions, and Other: The proxy services we provide in connection with shareholder meetings driven by special events such as proxy contests, mergers and acquisitions, and tender/exchange offers.
Event-driven fee revenues are based on the number of special events and corporate transactions we process. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. As such, the timing and level of event-driven activity and its potential impact on revenues and earnings are difficult to forecast.
Generally, mutual fund proxy activity has been subject to a greater level of volatility than the other components of event-driven activity. During fiscal year 2017,2020, mutual fund proxy fee revenues were 19% higher35% lower than the prior fiscal year while during fiscal years 2016 and 2015,year 2019 mutual fund proxy revenues were 22% higher and 2%14% lower than the prior fiscal year, respectively.year. Although it is difficult to forecast the levels of event-driven activity, we expect that the portion of fee revenues derived from mutual fund proxy activity may continue to experience volatility in the future.
Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services as well as Matrix administrative services.
Distribution cost of revenues consists primarily of postage-related expenses incurred in connection with our Investor Communication Solutions segment, as well as Matrix administrative services expenses. These costs are reflected in Cost of revenues.
Closed sales represent an estimate of the expected annual recurring fee revenue for new client contracts that were signed by Broadridge in the current reporting period. Closed sales does not include event-driven or distribution activity. We consider contract terms, expected client volumes or activity, knowledge of the marketplace and experience with our clients, among other factors, when determining the estimate. Management uses Closed sales to measure the effectiveness of our sales and marketing programs, as an indicator of expected future revenues and as a performance metric in determining incentive compensation.
Closed sales is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for revenue or other income statement data prepared in accordance with GAAP. Closed sales is a useful metric for investors in understanding how management measures and evaluates our ongoing operational performance.
The inherent variability of transaction volumes and activity levels can result in some variability of amounts reported as actual achieved Closed sales. For fiscal years prior to fiscal year 2017, we tracked actual revenues achieved during the first year that the client contract was fully implemented and compared this to the previously reported Closed sales amount, this process was used to calibrate metrics used in incentive compensation and will be used to estimate future allowance adjustments. Larger Closed sales can take up to 12 to 24 months or longer to convert to revenues, particularly for the services provided by our Global Technology and Operations segment.
Beginning in the For fiscal yearyears ended June 30, 2017,2020 and 2019, we have reportedare reporting Closed sales net of a 3.5%4.0% allowance adjustment, in lieu of our previous practice of adjusting for actual performance in subsequent periods.adjustment. Consequently, our reported Closed sales amounts willare not be adjusted for actual revenues achieved because these adjustments are estimated in the period the sale is reported. The allowance adjustment was determined by reviewingWe assess the reported Closed sales amounts for the prior five fiscal years based on estimated revenues at signing and comparing those amounts to the revenues achieved one year after the clients went live on the services. Cumulatively during the five years from fiscal year 2012 through fiscal year 2016, we reported Closed sales of $689.3 million based on estimates at signing, while revenues achieved one year after go-live were $665.2 million, resulting in revaluation losses of $24.1 million or a realized loss experience of 3.5%. We will assess this allowance amount at the end of each fiscal year to establish the appropriate allowance for the subsequent year using the trailing five years actual data referenced earlier as the starting point, normalized for outlying factors, if any, to enhance the accuracy of the allowance.
For the fiscal years ended June 30, 2017, 20162020 and 2015,2019, Closed sales which includes contributions from NACC in fiscal year 2017, were $188.5 million, $150.9$238.9 million and $146.4$233.3 million, respectively. The fiscal yearyears ended June 30, 2017 is2020 and 2019, are net of an allowance adjustment of $6.8 million.$10.0 million and $9.7 million, respectively.
In March 2020, the World Health Organization declared the outbreak of Covid-19 as a pandemic, which continues to spread throughout the world including the U.S., India, Canada, Europe and other locations where we operate. Developments have occurred rapidly with respect to the spread of Covid-19 and its impact on human health and businesses. To date, the Covid-19 pandemic has negatively impacted the global economy, created significant financial market volatility, disrupted global supply chains, and resulted in a significant number of deaths and infections worldwide. In response, several countries worldwide enacted fiscal stimulus packages while central banks increased monetary stimulus, both designed to help mitigate the negative macroeconomic effects of Covid-19. In addition, several national, state and local governments have placed restrictions on people from gathering in groups or interacting within a certain physical distance (i.e. social distancing) and in certain cases, have ordered businesses to close, limit operations or mandate that people stay at home.
The Company’s operations, both our Investor Communication Solutions and Global Technology and Operations segments, are critical components of the overall financial markets infrastructure in the U.S. and globally. As a result, we have been permitted to continue operating in all jurisdictions in which we conduct business (in most cases remotely), including in jurisdictions that have mandated the closure of certain businesses. Accordingly, the Company has taken several measures designed to protect the health of our employees and to minimize our operational disruption and resulting provision of services to our clients from the Covid-19 pandemic, including adopting strict social distancing and cleaning measures in our production facilities, taking the temperature of production-related employees in affected areas on a daily basis as a prerequisite to entering our facilities, load balancing of client jobs between various facilities, and instituting work from home protocols for employees not involved in production operations, amongst other measures.
To date, there has not been a material impact as a result of Covid-19 on our consolidated revenues and pre-tax income. The Company processed above average levels of equity and fixed income trades in the third and fourth quarters of fiscal 2020 for our financial services clients, many of whom themselves have experienced higher levels of trading activity from market volatility caused by the Covid-19 pandemic, partially offset by lower internal growth in certain aspects of our Investor Communication Solutions business. In addition, all of our production-related facilities remain operational and are continuing to provide ongoing services to our clients. Further, we have not experienced any significant supply-chain issues as our critical vendors have also remained operational and continue to meet their on-going service level requirements. We continue to actively engage with our clients to assist with their service demands, including our clients’ needs for any supplemental operational services and/or changes to existing service requirements in response to the Covid-19 pandemic.
Notwithstanding the foregoing, we are unable to precisely predict the impact that Covid-19 will have in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our clients, and other factors identified in Part I, Item 1A. “Risk Factors” in this Form 10-K. Given these uncertainties, Covid-19 could disrupt the business of certain of our clients, decrease our clients’ demand for our services, impact our business operations and our ability to execute on our associated business strategies and initiatives, and adversely impact our consolidated results of operations and/or our financial condition in the future. We will continue to closely monitor and evaluate the nature and extent of the impact of Covid-19 to our business, consolidated results of operations, and financial condition.
On August 5, 2020, the SEC proposed modifications to the mutual fund and exchange-traded fund disclosure framework (the “Fund Disclosure Proposal”).The Fund Disclosure Proposal is intended to provide a disclosure framework that would better serve the needs of retail investors. Among the modifications proposed are the requirement for streamlined shareholder reports with concise and visually engaging content which would replace prospectus updates, and improvements to prospectus disclosure.Adoption and implementation of the Fund Disclosure Proposal amendments as proposed could have an impact on our services, business and financial results. We will closely monitor and evaluate the progress of the Fund Disclosure Proposal and its potential impact on our business. Please see our “Risk Factors” in Part I, Item 1A. of this Form 10-K for more information.
ANALYSIS OF CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Year 20172020 Compared to Fiscal Year 20162019
The table below presents Consolidated Statements of Earnings data for the fiscal years ended June 30, 20172020 and 2016,2019, and the dollar and percentage changes between periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | | |
| | 2020 | | 2019 | | Change | | | |
| | | | | | ($) | | (%) | |
| | (in millions, except for per share amounts) | | | | | | | |
| Revenues | $ | 4,529.0 | | | $ | 4,362.2 | | | $ | 166.9 | | | 4 | | |
| Cost of revenues | 3,265.1 | | | 3,131.9 | | | 133.2 | | | 4 | | |
| Selling, general and administrative expenses | 639.0 | | | 577.5 | | | 61.5 | | | 11 | | |
| Total operating expenses | 3,904.1 | | | 3,709.5 | | | 194.7 | | | 5 | | |
| | | | | | | | |
| Operating income | 624.9 | | | 652.7 | | | (27.8) | | | (4) | | |
| Margin | 13.8 | % | | 15.0 | % | | | | (1.2) | | pts |
| Interest expense, net | (58.8) | | | (41.8) | | | (17.0) | | | 41 | | |
| Other non-operating income (expenses), net | 13.4 | | | (3.7) | | | 17.1 | | | NM | |
| Earnings before income taxes | 579.5 | | | 607.3 | | | (27.7) | | | (5) | | |
| Provision for income taxes | 117.0 | | | 125.2 | | | (8.1) | | | (7) | | |
| Effective tax rate | 20.2 | % | | 20.6 | % | | | | (0.4) | | pts |
| Net earnings | $ | 462.5 | | | $ | 482.1 | | | $ | (19.6) | | | (4) | | |
| Basic earnings per share | $ | 4.03 | | | $ | 4.16 | | | $ | (0.13) | | | (3) | | |
| Diluted earnings per share | $ | 3.95 | | | $ | 4.06 | | | $ | (0.11) | | | (3) | | |
| | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | |
| Basic | 114.7 | | 115.9 | | | | | |
| Diluted | 117.0 | | 118.8 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Years Ended June 30, |
| | 2017 | | 2016 | | Change |
| | ($) | | (%) |
| | (in millions, except for per share amounts) |
| Revenues | $ | 4,142.6 |
| | $ | 2,897.0 |
| | $ | 1,245.5 |
| | 43 |
| |
| Cost of revenues | 3,109.6 |
| | 1,975.9 |
| | 1,133.7 |
| | 57 |
| |
| Selling, general and administrative expenses | 501.4 |
| | 420.9 |
| | 80.5 |
| | 19 |
| |
| Total operating expenses | 3,611.0 |
| | 2,396.8 |
| | 1,214.2 |
| | 51 |
| |
| | | | | | | | | |
| Operating income | 531.6 |
| | 500.3 |
| | 31.3 |
| | 6 |
| |
| Margin | 12.8 | % | | 17.3 | % | | | | (4.5 | ) | pts |
| Interest expense, net | 42.7 |
| | 25.7 |
| | 16.9 |
| | 66 |
| |
| Other non-operating (income) expenses, net | 0.8 |
| | 5.6 |
| | (4.9 | ) | | (86 | ) | |
| Earnings before income taxes | 488.1 |
| | 468.9 |
| | 19.2 |
| | 4 |
| |
| Provision for income taxes | 161.4 |
| | 161.4 |
| | (0.1 | ) | | — |
| |
| Effective tax rate | 33.1 | % | | 34.4 | % | | | | (1.3 | ) | pts |
| Net earnings | $ | 326.8 |
| | $ | 307.5 |
| | $ | 19.3 |
| | 6 |
| |
| Basic earnings per share | $ | 2.77 |
| | $ | 2.60 |
| | $ | 0.17 |
| | 7 |
| |
| Diluted earnings per share | $ | 2.70 |
| | $ | 2.53 |
| | $ | 0.17 |
| | 7 |
| |
Revenues. Revenues for the fiscal year ended June 30, 2017 were $4,142.6 million, an increase of $1,245.5 million, or 43%, compared to $2,897.0 million for the fiscal year ended June 30, 2016. Revenues from acquisitions contributed $1,092.1 million of this total increase, with NACC revenues contributing $1,067.1 million. The $1,245.5 million increase was driven by an increase in distribution revenues of $690.2 million, or 80%, which includes $642.9 million of NACC distribution revenues, and an increase in recurring fee revenues of $555.9 million, or 29%. The higher recurring fee revenues of $555.9 million reflected: contributions from our recent acquisitions (24 pts), including $424.2 million from the NACC acquisition, gains from Net New Business (4 pts) and internal growth (2 pts). Event-driven revenues increased by $19.5 million, or 10%. Fluctuations in foreign currency exchange rates negatively impacted total revenues by $20.1 million.
Total operating expenses. Total operating expenses for the fiscal year ended June 30, 2017 were $3,611.0 million, an increase of $1,214.2 million, or 51%, compared to $2,396.8 million for the fiscal year ended June 30, 2016.
Cost of revenues for the fiscal year ended June 30, 2017 were $3,109.6 million, an increase of $1,133.7 million, or 57%, compared to $1,975.9 million for the fiscal year ended June 30, 2016. The increase was primarily attributable to acquisitions. Fluctuations in foreign currency exchange rates decreased cost of revenues by $16.6 million.
Selling, general and administrative expenses for the fiscal year ended June 30, 2017 were $501.4 million, an increase of $80.5 million, or 19%, compared to $420.9 million for the fiscal year ended June 30, 2016. The increase was primarily due to acquisitions.
Operating income. Operating income for the fiscal year ended June 30, 2017 was $531.6 million, an increase of $31.3 million, or 6%, compared to $500.3 million for the fiscal year ended June 30, 2016. Operating income margins decreased to 12.8% for the fiscal year ended June 30, 2017, compared to 17.3% for the fiscal year ended June 30, 2016, primarily due to the acquisition of NACC.
Interest expense, net. Interest expense, net for the fiscal year ended June 30, 2017 was $42.7 million, an increase of $16.9 million, or 66%, compared to $25.7 million for the fiscal year ended June 30, 2016. The increase was primarily due to an increase in interest expense of $16.3 million from higher Long-term borrowings.
Other non-operating (income) expenses, net. Other non-operating expenses, net for the fiscal year ended June 30, 2017 were $0.8 million, a decrease of $4.9 million, or 86%, compared to $5.6 million of Other non-operating expenses, net for the fiscal year ended June 30, 2016, primarily due to the $9.3 million MAL investment gain, partially offset by higher expense of $4.3 million related to fluctuations in foreign currency exchange rates.
Earnings before income taxes. Earnings before income taxes for the fiscal year ended June 30, 2017 were $488.1 million, an increase of $19.2 million, or 4%, compared to $468.9 million for the fiscal year ended June 30, 2016.
Provision for income taxes. The Provision for income taxes and effective tax rates for the fiscal year ended June 30, 2017 were $161.4 million and 33.1%, compared to $161.4 million and 34.4%, for the fiscal year ended June 30, 2016, respectively. The effective tax for the fiscal year ended June 30, 2017 was impacted by the recognition of the non-cash, nontaxable $9.3 million MAL investment gain. Excluding that investment gain, the effective tax rate for the fiscal year ended June 30, 2017 was 33.7%. In addition to the tax benefit from the MAL investment gain, the effective tax rate also declined as a result of a $2.2 million increase in the current year accrual for the Section 199 domestic production activities deduction relating to prior tax years. The effective tax rate was also positively impacted by approximately 20 basis points due to a more favorable mix of geographical income.
Net earnings and Basic and Diluted earnings per share. Net earnings for the fiscal year ended June 30, 2017 were $326.8 million, an increase of $19.3 million, or 6%, compared to $307.5 million for the fiscal year ended June 30, 2016.
Basic and Diluted earnings per share for the fiscal year ended June 30, 2017 were $2.77 and $2.70, respectively, compared to $2.60 and $2.53 for the fiscal year ended June 30, 2016, respectively.
Fiscal Year 2016 Compared to Fiscal Year 2015
The table below presents Consolidated Statements of Earnings data for the fiscal years ended June 30, 20162020 and 2015,2019, and the dollar and percentage changes between periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | |
| 2020 | | 2019 | | Change | | |
| | | | | | $ | | % |
| | ($ in millions) | | | | | | |
| Recurring fee revenues | $ | 3,036.3 | | | $ | 2,760.3 | | | $ | 275.9 | | | 10 | |
| Event-driven fee revenues | 178.0 | | | 244.5 | | | (66.5) | | | (27) | |
| Distribution revenues | 1,451.2 | | | 1,459.8 | | | (8.6) | | | (1) | |
| Foreign currency exchange | (136.4) | | | (102.4) | | | (34.0) | | | NM |
| Total | $ | 4,529.0 | | | $ | 4,362.2 | | | $ | 166.9 | | | 4 | |
| NM - Not meaningful | | | | | | | |
| Points of Growth | | | | | | |
| Net New Business | | Internal Growth | | Acquisitions | | Total |
| Recurring fee revenue Growth Drivers | 4pts | | 1pt | | 6pts | | 10 | % |
|
| | | | | | | | | | | | | | | | |
| | | Years Ended June 30, |
| | | 2016 | | 2015 | | Change |
| | | ($) | | (%) |
| | | (in millions, except for per share amounts) |
| Revenues | | $ | 2,897.0 |
| | $ | 2,694.2 |
| | $ | 202.8 |
| | 8 |
| |
| Cost of revenues | | 1,975.9 |
| | 1,828.2 |
| | 147.7 |
| | 8 |
| |
| Selling, general and administrative expenses | | 420.9 |
| | 399.1 |
| | 21.8 |
| | 5 |
| |
| Total operating expenses | | 2,396.8 |
| | 2,227.3 |
| | 169.5 |
| | 8 |
| |
| | | | | | | | | | |
| Operating income | | 500.3 |
| | 466.9 |
| | 33.4 |
| | 7 |
| |
| Margin | | 17.3 | % | | 17.3 | % | | | | — |
| pts |
| Interest expense, net | | 25.7 |
| | 22.6 |
| | 3.2 |
| | 14 |
| |
| Other non-operating (income) expenses, net | | 5.6 |
| | 5.4 |
| | 0.2 |
| | 4 |
| |
| Earnings before income taxes | | 468.9 |
| | 438.9 |
| | 30.0 |
| | 7 |
| |
| Provision for income taxes | | 161.4 |
| | 151.8 |
| | 9.6 |
| | 6 |
| |
| Effective tax rate | | 34.4 | % | | 34.6 | % | | | | (0.2 | ) | pts |
| Net earnings | | $ | 307.5 |
| | $ | 287.1 |
| | $ | 20.4 |
| | 7 |
| |
| Basic earnings per share | | $ | 2.60 |
| | $ | 2.39 |
| | $ | 0.21 |
| | 9 |
| |
| Diluted earnings per share | | $ | 2.53 |
| | $ | 2.32 |
| | $ | 0.21 |
| | 9 |
| |
Revenues. Revenues•Recurring fee revenue growth was primarily driven by acquisitions that were not in the prior year period, as well as 4pts of Organic growth primarily from Net New Business. Internal growth was slightly positive with positive growth in our Global Technology and Operations segment driven by higher trading volumes resulting from market volatility, partially offset by negative internal growth in our Investor Communication Solutions segment.
•Event-driven fee revenues decreased $66.5 million, or 27%, primarily due to decreased activity in mutual fund proxy, equity special meetings, and equity contests.
•Distribution revenues decreased $8.6 million, or 1%, to $1,451.2 million primarily due to the decrease in Event-driven fee revenues.
•Currencies negatively impacted revenues by $34.0 million due to a combination of foreign acquisitions, continued international revenue growth, and the strengthening of the U.S. dollar against other currencies.
Total operating expenses. Operating expenses increased $194.7 million, or 5%, to $3,904.1 million from $3,709.5 million as a result of:
•Cost of revenues - The increase of $133.2 million in cost of revenues primarily reflected higher operating costs from acquisitions and related amortization expense and charges associated with the IBM Private Cloud Agreement, partially offset by certain lower operational expenses.
•Selling, general and administrative expenses - The increase of $61.5 million in selling, general, and administrative expenses primarily reflected the impact of acquisitions and higher compensation expense.
•Currencies positively impacted total operating expenses by $31.3 million due to a combination of foreign acquisitions, the strengthening of the U.S. dollar against other currencies, and continued international operating expense growth.
Operating income margin of 13.8% for the fiscal year ended June 30, 2016 were $2,897.0 million, an increase of $202.8 million, or 8%, compared to $2,694.2 million2020 declined 120 bps from 15.0% for the fiscal year ended June 30, 2015. The $202.8 million increase was driven by: (i) increased recurring fee revenues2019 partly due to charges associated with the IBM Private Cloud Agreement. However, Adjusted Operating income margin of $154.7 million or 9% increase; (ii) increased distribution revenues of $54.4 million or 7% increase; (iii) increased event-driven fee revenues of $26.6 million or 15% increase, partially offset by (iv) fluctuations in foreign currency denominated revenues that negatively impacted revenues by $32.9 million. The higher recurring fee revenues of $154.7 million reflected gains from Net New Business (4 pts), contributions from acquisitions (3 pts) and internal growth (1 pt). The higher distribution revenues of $54.4 million include $19.3 million from acquisitions.
Total operating expenses. Total operating expenses17.5% for the fiscal year ended June 30, 2016 were $2,396.8 million, an increase of $169.5 million, or 8%, compared to $2,227.3 million2020 increased 40 bps on higher recurring revenues from 17.1% for the fiscal year ended June 30, 2015.2019, which excludes certain charges associated with the IBM Private Cloud Agreement and certain other Non-GAAP adjustments. See “Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures.”
CostInterest expense, net. Interest expenses, net, was $58.8 million, an increase of revenues for$17.0 million from $41.8 million in the fiscal year ended June 30, 2016 were $1,975.9 million, an2019. The increase of $147.7$17.0 million or 8%, compared to $1,828.2 million for the fiscal year ended June 30, 2015. The increase primarily reflects: (i) higher labor costs of $41.4 million; (ii) higher distribution cost of revenues of $45.9 million driven by the increase in distribution revenues; (iii) higher cost of fee revenues related to acquisitions of $44.8 million; and (iv) higher production related operating expenses driven mostly by the increase in recurring and event-driven fee revenues. Fluctuations in foreign currency exchange rates decreased cost of fee revenues by $25.1 million. The higher distribution cost of revenues of $45.9 million includes $19.3 million from acquisitions.
Selling, general and administrative expenses for the fiscal year ended June 30, 2016 were $420.9 million, an increase of $21.8 million, or 5%, compared to $399.1 million for the fiscal year ended June 30, 2015. The increase was primarily due to (i) higher costs related to acquisitions of $15.7 million; (ii) higher performance-based compensation expense of $6.8 million and (iii) higher selling and marketing expenses of $2.9 million as the Company continued to focus on increasing its sales capabilities, partially offset by (iv) lower professional services fees of $5.1 million.
Operating income. Operating income for the fiscal year ended June 30, 2016 was $500.3 million, an increase of $33.4 million, or 7%, compared to $466.9 million for the fiscal year ended June 30, 2015. The increase is due to higher revenues, partially offset by higher operating expenses including $6.5 million of increased amortization expense from acquired intangibles. Operating income margins was unchanged at 17.3% for the fiscal year ended June 30, 2016 and 2015, respectively.
Interest expense, net. Interest expense, net for the fiscal year ended June 30, 2016 was $25.7 million, an increase of $3.2 million, or 14%, compared to $22.6 million for the fiscal year ended June 30, 2015. The increase was primarily due to an increase in interest expense of $3.0 million from higher Long-term borrowings primarily related to our revolving credit facility.acquisitions.
Other non-operating (income) expenses,income (expenses), net. Other non-operating income, net for the fiscal year ended June 30, 2020 was $13.4 million, an increase of $17.1 million, compared to $3.7 million of Other non-operating expenses, net for the fiscal year ended June 30, 2016 were $5.6 million, an2019. The increase of $0.2$17.1 million or 4%,was primarily due to higher investment gains as compared to $5.4the prior year period.
Provision for income taxes.
•Effective tax rate for the fiscal year ended June 30, 2020 - 20.2%.
•Effective tax rate for the fiscal year ended June 30, 2019 - 20.6%.
The decrease in the effective tax rate for the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019 was primarily driven by higher discrete tax benefits, partially offset by lower excess tax benefits of $15.6 million for the fiscal year ended June 30, 2015.
Earnings before income taxes. Earnings before income taxes for the fiscal year ended June 30, 2016 were $468.9 million, an increase of $30.0 million, or 7%,2020 compared to $438.9$19.3 million for the fiscal year ended June 30, 2015. The increase is primarily due to higher revenues, partially offset by higher operating and non-operating expenses.2019.
Provision for income taxes. The Provision for income taxes and the effective tax rates for the fiscal year ended June 30, 2016 were $161.4 million and 34.4%, respectively, compared to $151.8 million and 34.6%, for the fiscal year ended June 30, 2015, respectively. The decrease in the effective tax rate was primarily attributable to a greater recognition of tax benefits in fiscal year 2016 for the current year federal research and development tax credit and the Section 199 domestic production activities deduction.
Net earnings and Basic and Diluted earnings per share. Net earnings for the fiscal year ended June 30, 2016 were $307.5 million, an increase of $20.4 million, or 7%, compared to $287.1 million for the fiscal year ended June 30, 2015. The increase in Net earnings reflects higher revenues, and improvement in pre-tax margins as discussed above.
Basic and Diluted earnings per share for the fiscal year ended June 30, 2016 were $2.60, an increase of $0.21, or 9%, and $2.53, an increase of $0.21, or 9%, respectively, compared to $2.39 and $2.32 for the fiscal year ended June 30, 2015, respectively.
ANALYSIS OF REPORTABLE SEGMENTS
Broadridge has two reportable business segments: (1) Investor Communication Solutions and (2) Global Technology and Operations.
The primary component of “Other” are certain gains, losses, corporate overhead expenses and non-operating expenses that have not been allocated to the reportable segments, such as interest expense. Foreign currency exchange is a reconciling item between the actual foreign currency exchange rates and the constant foreign currency exchange rates used for internal management reporting.
Certain corporate expenses, as well as certain centrally managed expenses, are allocated based upon budgeted amounts in a reasonable manner. Because the Company compensates the management of its various businesses on, among other factors, segment profit, the Company may elect to record certain segment-related operating and non-operating expense items in Other rather than reflect such items in segment profit.
Revenues43
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| 2017 vs. 2016 | | 2016 vs. 2015 |
| | 2017 | | 2016 | | 2015 | | $ | | % | | $ | | % |
| | | | | | | | ($ in millions) | | | | | | |
| Investor Communication Solutions | $ | 3,421.4 |
| | $ | 2,220.4 |
| | $ | 2,030.2 |
| | $ | 1,201.0 |
| | 54 | | $ | 190.2 |
| | 9 |
| Global Technology and Operations | 802.7 |
| | 738.0 |
| | 692.5 |
| | 64.6 |
| | 9 | | 45.5 |
| | 7 |
| Other | — |
| | — |
| | — |
| | — |
| |
| | — |
| | — |
| Foreign currency exchange | (81.5 | ) | | (61.4 | ) | | (28.5 | ) | | (20.1 | ) | | 33 | | (32.9 | ) | | 115 |
| Total | $ | 4,142.6 |
| | $ | 2,897.0 |
| | $ | 2,694.2 |
| | $ | 1,245.5 |
| | 43 | | $ | 202.8 |
| | 8 |
Earnings (Loss) before Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| 2017 vs. 2016 | | 2016 vs. 2015 |
| | 2017 | | 2016 | | 2015 | | $ | | % | | $ | | % |
| | | | | | | | ($ in millions) | | | | | | |
| Investor Communication Solutions | $ | 421.0 |
| | $ | 409.1 |
| | $ | 381.4 |
| | $ | 11.9 |
| | 3 | | $ | 27.7 |
| | 7 |
|
| Global Technology and Operations | 169.6 |
| | 135.4 |
| | 120.3 |
| | 34.2 |
| | 25 | | 15.1 |
| | 13 |
|
| Other | (110.5 | ) | | (79.0 | ) | | (73.5 | ) | | (31.5 | ) | | 40 | | (5.5 | ) | | 7 |
|
| Foreign currency exchange | 8.1 |
| | 3.4 |
| | 10.7 |
| | 4.7 |
| | 138 | | (7.3 | ) | | (68 | ) |
| Total | $ | 488.1 |
| | $ | 468.9 |
| | $ | 438.9 |
| | $ | 19.2 |
| | 4 | | $ | 30.0 |
| | 7 |
|
Investor CommunicationIn connection with an organizational change made in the first quarter of fiscal year 2020, in order to further align and enhance our portfolio of services, the results for the Company’s wealth management Advisor Solutions
Revenues
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| 2017 vs. 2016 | | 2016 vs. 2015 |
| | 2017 | | 2016 | | 2015 | | $ | | % | | $ | | % |
| | | | | | | | ($ in millions) | | | | | | |
| Recurring fee revenues | $ | 1,648.5 |
| | $ | 1,157.3 |
| | $ | 1,048.1 |
| | $ | 491.2 |
| | 42 | | $ | 109.2 |
| | 10 |
| Event-driven revenues | 218.9 |
| | 199.4 |
| | 172.8 |
| | 19.5 |
| | 10 | | 26.6 |
| | 15 |
| Distribution revenues | 1,554.0 |
| | 863.7 |
| | 809.3 |
| | 690.2 |
| | 80 | | 54.4 |
| | 7 |
| Total | $ | 3,421.4 |
| | $ | 2,220.4 |
| | $ | 2,030.2 |
| | $ | 1,201.0 |
| | 54 | | $ | 190.2 |
| | 9 |
Fiscal Year 2017 Compared to Fiscal Year 2016
Revenues. services that were previously reported in our Investor Communication Solutions segment’s Revenuesreportable segment are now reported within the Global Technology and Operations reportable segment. As a result, our prior period segment results for the fiscal year ended June 30, 20172019 have been revised to reflect this change, which resulted in transferring $42.8 million of revenues and $2.2 million of earnings before income taxes between reportable segments, respectively.
Revenues
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | |
| 2020 | | 2019 | | Change | | |
| | | | | $ | | % |
| | ($ in millions) | | | | | | |
| Investor Communication Solutions | $ | 3,491.3 | | | $ | 3,468.3 | | | $ | 23.0 | | | 1 | |
| Global Technology and Operations | 1,174.2 | | | 996.3 | | | 177.9 | | | 18 | |
| Foreign currency exchange | (136.4) | | | (102.4) | | | (34.0) | | | NM |
| Total | $ | 4,529.0 | | | $ | 4,362.2 | | | $ | 166.9 | | | 4 | |
NM - Not meaningful
Earnings Before Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | |
| 2020 | | 2019 | | Change | | |
| | | | | $ | | % |
| | ($ in millions) | | | | | | |
| Investor Communication Solutions | $ | 464.1 | | | $ | 506.2 | | | $ | (42.1) | | | (8) | |
| Global Technology and Operations | 245.0 | | | 212.5 | | | 32.5 | | | 15 | |
| Other | (146.3) | | | (130.9) | | | (15.4) | | | 12 | |
| Foreign currency exchange | 16.8 | | | 19.4 | | | (2.7) | | | NM |
| Total | $ | 579.5 | | | $ | 607.3 | | | $ | (27.7) | | | (5) | |
NM - Not meaningful
Investor Communication Solutions
Fiscal Year 2020 Compared to Fiscal Year 2019
Revenues increased $23.0 million to $3,491.3 million from $3,468.3 million, and earnings before income taxes decreased $42.1 million to $464.1 million from $506.2 million as a result of:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | |
| 2020 | | 2019 | | Change | | |
| | | | | $ | | % |
| ($ in millions) | | | | | | |
| Revenues | | | | | | | |
| Recurring fee revenues | $ | 1,862.0 | | | $ | 1,764.0 | | | $ | 98.0 | | | 6 | |
| Event-driven fee revenues | 178.0 | | | 244.5 | | | (66.5) | | | (27) | |
| Distribution revenues | 1,451.2 | | | 1,459.8 | | | (8.6) | | | (1) | |
| Total | $ | 3,491.3 | | | $ | 3,468.3 | | | $ | 23.0 | | | 1 | |
| | | | | | | |
| Earnings before Income Taxes | | | | | | | |
| Earnings before income taxes | $ | 464.1 | | | $ | 506.2 | | | $ | (42.1) | | | (8) | |
| Pre-tax Margin | 13.3 | % | | 14.6 | % | | | | |
| | | | | | | |
| Points of Growth | | | | | | |
| Net New Business | | Internal Growth | | Acquisitions | | Total |
| Recurring fee revenue Growth Drivers | 4pts | | -1pt | | 2pts | | 6 | % |
For the fiscal year ended June 30, 2020:
•Recurring fees grew 6% driven by Organic growth and growth from acquisitions. Organic growth reflected continued growth from new sales. Internal growth was down 1pt as 10% position growth in annual equity proxy communications and 2% for mutual fund and exchange traded funds interims was offset by lower customer communications volumes and lower revenue from other services.
•Lower event-driven fee revenues were $3,421.4due to decreased activity in mutual fund proxy, equity special meetings, and equity contests.
•Lower distribution revenues resulted from the decrease in event-driven fee revenues, which more than offset the impact of higher recurring fee revenues.
•The earnings decrease of $42.1 million anwas due to lower event-driven activity more than offsetting the contribution from higher recurring fee revenues.
•Pre-tax margins decreased by 1.3 percentage points to 13.3% from 14.6%.
Global Technology and Operations
Fiscal Year 2020 Compared to Fiscal Year 2019
Revenues increased $177.9 million to $1,174.2 million from $996.3 million, and earnings before income taxes increased $32.5 million to $245.0 million from $212.5 million as a result of:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | | | |
| 2020 | | 2019 | | Change | | |
| | | | | $ | | % |
| | ($ in millions) | | | | | | |
| Revenues | | | | | | | |
| Recurring fee revenues | $ | 1,174.2 | | | $ | 996.3 | | | $ | 177.9 | | | 18 | |
| | | | | | | |
| Earnings before Income Taxes | | | | | | | |
| Earnings before income taxes | $ | 245.0 | | | $ | 212.5 | | | $ | 32.5 | | | 15 | |
| Pre-tax Margin | 20.9 | % | | 21.3 | % | | | | |
| | | | | | | |
| Points of Growth | | | | | | |
| Net New Business | | Internal Growth | | Acquisitions | | Total |
| Recurring fee revenue Growth Drivers | 4pts | | 3pts | | 11pts | | 18 | % |
For the fiscal year ended June 30, 2020:
•Recurring fees grew 18% driven by growth from acquisitions, including software license sales, and Organic growth. Organic growth was driven by both Net New Business and Internal growth, as internal growth was driven by higher trading volumes resulting from market volatility.
•The earnings increase was due to higher revenues from acquisitions and higher organic revenues, partially offset by the impact of $1,201.0 million, or 54%, comparedexpenditures to $2,220.4implement and support new business and the amortization of acquired intangibles. Pre-tax margins decreased by 0.4 percentage points to 20.9% from 21.3%.
Other
Loss before income taxes was $146.3 million for the fiscal year ended June 30, 2016. Revenues from the NACC acquisition contributed $1,067.1 million of this total increase. The increase was attributable to higher recurring fee revenues of $491.2 million, higher event-driven fee revenues of $19.5 million and higher distribution revenues of $690.2 million.
The higher recurring fee revenues of $491.2 million, or 42%, reflected: (i) contributions from the NACC acquisition (37 pts), (ii) Net New Business (4 pts), and (iii) internal growth (2 pts). Higher event-driven fee revenues were the result of increased mutual fund proxy and proxy contests. Position growth compared to the same period in the prior year, which is a component of internal growth, was 4% for mutual fund interims and 8% for annual equity proxy communications. Revenue contribution from position growth was offset by lower activity in other products.
Earnings before income taxes. Earnings before income taxes for the fiscal year ended June 30, 2017 were $421.0 million,2020, an increase of $11.9$15.4 million, or 3%12%, compared to $409.1$130.9 million for the fiscal year ended June 30, 2016. 2019.
•The earnings increaseincreased loss before income taxes was primarily due to charges associated with the IBM Private Cloud Agreement and higher revenues,interest expense versus the prior year period, partially offset by higher operating expenses, which includes higher amortization expenses related to acquired intangibleslower compensation expense and purchased intellectual property as well as higher integration costs related to NACC. Pre-tax margins decreased by 6.1 percentage points to 12.3%.
Fiscal Year 2016 Compared to Fiscal Year 2015
Revenues. Investor Communication Solutions segment’s Revenues for the fiscal year ended June 30, 2016 were $2,220.4 million, an increase of $190.2 million, or 9%, compared to $2,030.2 million for the fiscal year ended June 30, 2015. The increase was attributable to higher recurring fee revenues of $109.2 million, higher event-driven fee revenues of $26.6 million and higher distribution revenues of $54.4 million.
Higher recurring fee revenues of 10% were attributable to: (i) contributions from our recent acquisitions (5 pts); (ii) Net New Business primarily driven by increases in revenues from closed sales (5 pts); and (iii) internal growth (1 pt). Position growth compared to the same period in the prior year, which is a component of internal growth, was 3% for annual equity
proxy communications and 4% for mutual fund interims and was the primary driver behind internal growth. Higher event-driven fee revenues were the result of increased mutual fund proxy and corporate re-organization communications activity.
Earnings before income taxes. Earnings before income taxes for the fiscal year ended June 30, 2016 were $409.1 million, an increase of $27.7 million, or 7%, compared to $381.4 million for the fiscal year ended June 30, 2015. Pre-tax margins decreased by 0.4 percentage points to 18.4% primarily due to (i) higher operating expenses, and (ii) incremental operating and intangible amortization costs related to acquisitions, partially offset by (iii) earnings from higher recurring and event-driven revenues.
Global Technology and Operations
Fiscal Year 2017 Compared to Fiscal Year 2016
Revenues. Global Technology and Operations segment’s Revenues for the fiscal year ended June 30, 2017 were $802.7 million, an increase of $64.6 million, or 9%, compared to $738.0 million for the fiscal year ended June 30, 2016. The 9% increase was attributable to: (i) higher Net New Business (5 pts), (ii) revenue from recent acquisitions (3 pts) and (iii) internal growth from higher trade and non-trade activity levels partially offset by contract renewals (1 pt).
Earnings before income taxes. Earnings before income taxes for the fiscal year ended June 30, 2017 were $169.6 million, an increase of $34.2 million, or 25%, compared to $135.4 million for the fiscal year ended June 30, 2016. The earnings increase was primarily due to higher organic revenues and efficiency initiatives, partially offset by the impact of recent acquisitions. Pre-tax margins increased by 2.8 percentage points from 18.3% to 21.1%.
Fiscal Year 2016 Compared to Fiscal Year 2015
Revenues. Global Technology and Operations segment’s Revenues for the fiscal year ended June 30, 2016 were $738.0 million, an increase of $45.5 million, or 7%, compared to $692.5 million for the fiscal year ended June 30, 2015. The increase was attributable to: (i) higher Net New Business from closed sales (3 pts); (ii) internal growth from increased usage of products and services as well as trading activity, partially offset by contract renewals (2 pts); and (iii) revenue from our recent acquisitions (1 pt).
Earnings before income taxes. Earnings before income taxes for the fiscal year ended June 30, 2016 were $135.4 million, an increase of $15.1 million, or 13%, compared to $120.3 million for the fiscal year ended June 30, 2015. Pre-tax margins increased by 0.9 percentage points from 17.4% to 18.3% for the fiscal year ended June 30, 2016 primarily due to higher revenues from closed sales and internal growth partially offset by incremental operating costs and the impact of recent acquisitions.
Other
Fiscal Year 2017 Compared to Fiscal Year 2016
Revenues. There were no significant reportable Revenues in our Other segment for the periods presented.
Loss before income taxes. Loss before income taxes was $110.5 million for the fiscal year ended June 30, 2017, an increase of $31.5 million, or 40%, compared to $79.0 million for the fiscal year ended June 30, 2016. The increased loss was primarily due to an increase in net interest expense of $16.9 million, higher expense related to efficiency initiatives, increased foreign currency transaction losses of $4.3 million, a reduction in the fair value of our obligation under contingent acquisition consideration arrangements of $4.9 million in the prior year and a gain on sale of an asset in the prior fiscal year, partially offset by the $9.3 million MAL investment gain.investments.
Fiscal Year 2016 Compared to Fiscal Year 2015
Revenues. There were no significant reportable Revenues in our Other segment for the periods presented.
Loss before income taxes. Loss before income taxes was $79.0 million for the fiscal year ended June 30, 2016, an increase of $5.5 million, or 7%, compared to $73.5 million for the fiscal year ended June 30, 2015. The increased loss was mainly due to higher compensation expenses, which includes increased severance costs of $9.2 million and an increase in interest expense, partially offset by a reduction in the fair value of our obligation under contingent acquisition consideration arrangements of $4.9 million.
Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures
The Company’s results in this Annual Report on Form 10-K are presented in accordance with U.S. GAAP except where otherwise noted. In certain circumstances, results have been presented that are not generally accepted accounting principles measures (“Non-GAAP”).in Non-GAAP measures. These Non-GAAP measures are Adjusted Operating income, Adjusted Operating income margin, Adjusted Net earnings, Adjusted earnings per share, and Free cash flow. These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results.
The Company believes our Non-GAAP financial measures help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that Non-GAAP measures provide consistency in its financial reporting and facilitates investors’ understanding of the Company’s operating results and trends by providing an additional basis for comparison. Management uses these Non-GAAP financial measures to, among other things, evaluate our ongoing operations, for internal planning and forecasting purposes and in the calculation of performance-based compensation. In addition, and as a consequence of the importance of these Non-GAAP financial measures in managing our business, the Company’s Compensation Committee of the Board of Directors incorporates Non-GAAP financial measures in the evaluation process for determining management compensation.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Earnings and Adjusted Earnings Per Share
These Non-GAAP measures reflect Operating income, Operating income margin, Net earnings, and Diluted earnings per share, as adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items that management believes are not indicative of our ongoing operating performance. These adjusted measures exclude the impact ofof: (i) Amortization of Acquired Intangibles and Purchased Intellectual Property, (ii) Acquisition and Integration Costs, (iii) IBM Private Cloud Charges, (iv) the Gain on Sale of a Joint Venture Investment, and the MAL investment gain.(v) Covid-19 Related Expenses. Amortization of Acquired Intangibles and Purchased Intellectual Property represents non-cash amortization expenses associated with the Company's acquisition activities. Acquisition and Integration Costs represent certain transaction and integration costs associated with the Company’s acquisition activities. IBM Private Cloud Charges represent a charge on the hardware assets to be transferred to IBM and other charges related to the IBM Private Cloud Agreement. The Gain on Sale of a Joint Venture Investment represents a non-operating, cash gain on the sale of one of the Company’s joint venture investments. Covid-19 Related Expenses represents certain non-recurring expenses associated with the Covid-19 pandemic.
We exclude AmortizationIBM Private Cloud Charges, Gain on Sale of Acquired Intangiblesa Joint Venture Investment, and Purchased Intellectual Property, AcquisitionCovid-19 Related Expenses from our Adjusted Operating income and Integration Costs and the MAL investment gain from theseother earnings measures because excluding such information provides us with an understanding of the results from the primary operations of our business and these items do not reflect ordinary operations or earnings. ManagementWe also exclude the impact of Amortization of Acquired Intangibles and Purchased Intellectual Property, as these non-cash amounts are significantly impacted by the timing and size of individual acquisitions and do not factor into the Company's capital allocation decisions, management compensation metrics or multi-year objectives. Furthermore, management believes these measures may be useful to an investor in evaluating the underlying operating performancethat this adjustment enables better comparison of our business.results as Amortization of Acquired Intangibles and Purchased Intellectual Property will not recur in future periods once such intangible assets have been fully amortized. Although we exclude Amortization of Acquired Intangibles and Purchased Intellectual Property from our adjusted earnings measures, our management believes that it is important for investors to understand that these intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets.
Free Cash Flows
In addition to the Non-GAAP financial measures discussed above, we provide Free cash flow information because we consider Free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated that could be used for dividends, share repurchases, strategic acquisitions, and other discretionary investments.investments, as well as debt servicing. Free cash flow is a Non-GAAP financial measure and is defined by the Company as Net cash flows provided by operating activities less Capital expenditures as well as Software purchases and capitalized internal use software.
Set forth below is a reconciliation of such Non-GAAP measures to the most directly comparable GAAP measures (unaudited):
| | | | | | | | | | | | | | |
| | | Years ended June 30, | | |
| | | 2020 | | 2019 |
| | | (in millions) | | |
| Operating income (GAAP) | | $ | 624.9 | | | $ | 652.7 | |
| Adjustments: | | | | |
| Amortization of Acquired Intangibles and Purchased Intellectual Property | | 122.9 | | | 87.4 | |
| Acquisition and Integration Costs | | 12.5 | | | 6.4 | |
| IBM Private Cloud Charges | | 32.0 | | | — | |
| Covid-19 Related Expenses | | 2.4 | | | — | |
| Adjusted Operating income (Non-GAAP) | | $ | 794.8 | | | $ | 746.5 | |
| Operating income margin (GAAP) | | 13.8 | % | | 15.0 | % |
| Adjusted Operating income margin (Non-GAAP) | | 17.5 | % | | 17.1 | % |
| | | | | | | | | | | Years ended June 30, | |
| | | Years ended June 30, | | | 2020 | | 2019 |
| | | 2017 | | 2016 | | 2015 | | | (in millions) | |
| | | (in millions) | |
| Operating income (GAAP) | | $ | 531.6 |
| | $ | 500.3 |
| | $ | 466.9 |
| |
| Net earnings (GAAP) | | Net earnings (GAAP) | | $ | 462.5 | | | $ | 482.1 | |
| Adjustments: | | | | | | | Adjustments: | | | | |
| Amortization of Acquired Intangibles and Purchased Intellectual Property | | 72.6 |
| | 31.8 |
| | 25.3 |
| Amortization of Acquired Intangibles and Purchased Intellectual Property | | 122.9 | | | 87.4 | |
| Acquisition and Integration Costs | | 19.1 |
| | 5.0 |
| | 5.0 |
| Acquisition and Integration Costs | | 12.5 | | | 6.4 | |
| Adjusted Operating income (Non-GAAP) | | $ | 623.3 |
| | $ | 537.1 |
| | $ | 497.2 |
| |
| IBM Private Cloud Charges | | IBM Private Cloud Charges | | 32.0 | | | — | |
| Covid-19 Related Expenses | | Covid-19 Related Expenses | | 2.4 | | | — | |
| Gain on Sale of a Joint Venture Investment | | Gain on Sale of a Joint Venture Investment | | (6.5) | | | — | |
| Taxable adjustments | | Taxable adjustments | | 163.4 | | | 93.8 | |
| | Tax impact of adjustments (a) | | Tax impact of adjustments (a) | | (37.4) | | | (22.3) | |
| Adjusted Net earnings (Non-GAAP) | | Adjusted Net earnings (Non-GAAP) | | $ | 588.5 | | | $ | 553.6 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Net earnings (GAAP) | | $ | 326.8 |
| | $ | 307.5 |
| | $ | 287.1 |
|
| Adjustments: | | | | | | |
| Amortization of Acquired Intangibles and Purchased Intellectual Property | | 72.6 |
| | 31.8 |
| | 25.3 |
|
| Acquisition and Integration Costs | | 19.1 |
| | 5.0 |
| | 5.0 |
|
| MAL investment gain (a) | | (9.3 | ) | | — |
| | — |
|
| Tax impact of adjustments | | (30.9 | ) | | (12.7 | ) | | (10.5 | ) |
| Adjusted Net earnings (Non-GAAP) | | $ | 378.3 |
| | $ | 331.7 |
| | $ | 306.9 |
|
| | | | | | | | | | | | | | |
| | | Years ended June 30, | | |
| | | 2020 | | 2019 |
| | | | | |
| Diluted earnings per share (GAAP) | | $ | 3.95 | | | $ | 4.06 | |
| Adjustments: | | | | |
| Amortization of Acquired Intangibles and Purchased Intellectual Property | | 1.05 | | | 0.74 | |
| Acquisition and Integration Costs | | 0.11 | | | 0.05 | |
| IBM Private Cloud Charges | | 0.27 | | | — | |
| Covid-19 Related Expenses | | 0.02 | | | — | |
| Gain on Sale of a Joint Venture Investment | | (0.06) | | | — | |
| Taxable adjustments | | 1.40 | | | 0.79 | |
| | | | |
| | | | |
| Tax impact of adjustments (a) | | (0.32) | | | (0.19) | |
| Adjusted earnings per share (Non-GAAP) | | $ | 5.03 | | | $ | 4.66 | |
(a) RepresentsCalculated using the GAAP effective tax rate, adjusted to exclude $15.6 million of excess tax benefits (“ETB”) associated with stock-based compensation for the fiscal year ended June 30, 2020, and $19.3 million of ETB associated with stock-based compensation for the fiscal year ended June 30, 2019. For purposes of calculating the Adjusted earnings per share, the same adjustments were made on a non-cash, nontaxable gain on investment.per share basis.
| | | | | | | | | | | | | | |
| | | Years ended June 30, | | |
| | | 2020 | | 2019 |
| | | (in millions) | | |
| Net cash flows provided by operating activities (GAAP) | | $ | 598.2 | | | $ | 617.0 | |
| Capital expenditures and Software purchases and capitalized internal use software | | (98.7) | | | (72.6) | |
| Free cash flow (Non-GAAP) | | $ | 499.5 | | | $ | 544.4 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | |
| Diluted earnings per share (GAAP) | | $ | 2.70 |
| | $ | 2.53 |
| | $ | 2.32 |
|
| Adjustments: | | | | | | |
| Amortization of Acquired Intangibles and Purchased Intellectual Property | | 0.60 |
| | 0.26 |
| | 0.20 |
|
| Acquisition and Integration Costs | | 0.16 |
| | 0.04 |
| | 0.04 |
|
| MAL investment gain | | (0.08 | ) | | — |
| | — |
|
| Tax impact of adjustments | | (0.26 | ) | | (0.10 | ) | | (0.08 | ) |
| Adjusted earnings per share (Non-GAAP) | | $ | 3.13 |
| | $ | 2.73 |
| | $ | 2.47 |
|
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Net cash flows provided by operating activities (GAAP) | | $ | 515.9 |
| | $ | 437.7 |
| | $ | 431.4 |
|
| Capital expenditures and Software purchases and capitalized internal use software | | (113.7 | ) | | (75.5 | ) | | (66.0 | ) |
| Free cash flow (Non-GAAP) | | $ | 402.2 |
| | $ | 362.2 |
| | $ | 365.4 |
|
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consisted of the following: | | | | | June 30, | | | June 30, | |
| | | 2017 | | 2016 | | | 2020 | | 2019 |
| | | (in millions) | | | (in millions) | |
| | | | | | |
| Cash and cash equivalents: | | | | | Cash and cash equivalents: | |
| Domestic cash | | $ | 86.8 |
| | $ | 497.3 |
| Domestic cash | | $ | 291.2 | | | $ | 95.5 | |
| Cash held by foreign subsidiaries | | 126.2 |
| | 174.3 |
| Cash held by foreign subsidiaries | | 118.6 | | | 99.8 | |
| Cash held by regulated entities | | 58.1 |
| | 56.1 |
| Cash held by regulated entities | | 66.8 | | | 77.9 | |
| Total cash and cash equivalents | | $ | 271.1 |
| | $ | 727.7 |
| Total cash and cash equivalents | | $ | 476.6 | | | $ | 273.2 | |
At June 30, 20172020 and 2016,2019, Cash and cash equivalents were $271.1$476.6 million and $727.7$273.2 million, respectively. Total stockholders’ equity was $1,003.8$1,346.5 million and $1,045.5$1,127.5 million at June 30, 20172020 and 2016,2019, respectively. At June 30, 2017, net working capital was $244.6 million, compared to $596.2 million at June 30, 2016. At the current time, and in future periods, we expect cash generated by our operations, together with existing cash, cash equivalents, and borrowing capacityborrowings from the capital markets, to be sufficient to cover cash needs for working capital, capital expenditures, strategic acquisitions, dividends and common stock repurchases.
As of June 30, 2017, $126.2 million Given the volatility in the rapidly changing market and economic conditions related to the Covid-19 pandemic, we will continue to evaluate the nature and extent of the $271.1 millionimpact of Cashthe Covid-19 pandemic on our business and cash equivalents was held by our foreign subsidiaries, and $58.1 million of Cash and cash equivalents was held by regulated entities. financial position.
We expect existing domestic cash, cash equivalents, and cash flows from operations together withand borrowing capacity to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, debt repayment schedules, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. In addition, we expect existing foreign cash, cash equivalents, cash flows from operations and borrowing capacity to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If these funds are needed for our operations in the U.S., we wouldmay be required to accrue and pay U.S.additional foreign taxes to repatriate these funds. However, our current planswhile we may do so at a future date, the Company does not demonstrate a need to repatriate themfuture foreign earnings to fund our U.S. operations, as we consider these funds to be permanently reinvested outside the U.S.operations.
Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expiration
Date | | Principal amount outstanding at June 30, 2020 | | Carrying value at June 30, 2020 | | Carrying value at June 30, 2019 | | Unused
Available
Capacity | | Fair Value at June 30, 2020 |
| | | | | (in millions) | | | | | | |
| Current portion of long-term debt | | | | | | | | | | | |
| Fiscal 2014 Senior Notes (a) | September 2020 | | $ | 400.0 | | | $ | 399.9 | | | $ | — | | | — | | | $ | 402.1 | |
| Total | | | $ | 400.0 | | | $ | 399.9 | | | $ | — | | | — | | | $ | 402.1 | |
| | | | | | | | | | | |
| Long-term debt, excluding current portion | | | | | | | | | | | |
| Fiscal 2019 Revolving Credit Facility: | | | | | | | | | | | |
| U.S. dollar tranche | March 2024 | | $ | — | | | $ | — | | | $ | 360.0 | | | $ | 1,100.0 | | | $ | — | |
| Multicurrency tranche | March 2024 | | 149.8 | | | 149.8 | | | 215.7 | | | 250.2 | | | 149.8 | |
| Total Revolving Credit Facility | | | $ | 149.8 | | | $ | 149.8 | | | $ | 575.7 | | | $ | 1,350.2 | | | $ | 149.8 | |
| | | | | | | | | | | |
| Fiscal 2014 Senior Notes (a) | September 2020 | | — | | | — | | | 399.2 | | | — | | | — | |
| Fiscal 2016 Senior Notes | June 2026 | | 500.0 | | | 496.1 | | | 495.5 | | | — | | | 554.3 | |
| Fiscal 2020 Senior Notes | December 2029 | | 750.0 | | | 741.7 | | | — | | | — | | | 803.6 | |
| Total Senior Notes | | | $ | 1,250.0 | | | $ | 1,237.8 | | | $ | 894.7 | | | $ | — | | | $ | 1,357.8 | |
| | | | | | | | | | | |
| Total long-term debt | | | $ | 1,399.8 | | | $ | 1,387.6 | | | $ | 1,470.4 | | | $ | 1,350.2 | | | $ | 1,507.7 | |
| | | | | | | | | | | |
| Total debt | | | $ | 1,799.8 | | | $ | 1,787.5 | | | $ | 1,470.4 | | | $ | 1,350.2 | | | $ | 1,909.7 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Expiration Date | | Par value at June 30, 2017 | | Carrying value at June 30, 2017 | | Carrying value at June 30, 2016 (a) | | Unused
Available
Capacity | | Fair Value at June 30, 2017 |
| | | | | | (in millions) | | |
| Current portion of long-term debt | | | | | | | | | | | |
| Fiscal 2007 Senior Notes | June 2017 | | $ | — |
| | $ | — |
| | $ | 124.8 |
| | $ | — |
| | $ | — |
|
| | | | $ | — |
| | $ | — |
| | $ | 124.8 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| Long-term debt, excluding current portion | | | | | | | | | | | |
| Fiscal 2017 Revolving Credit Facility | February 2022 | | $ | 210.0 |
| | $ | 210.0 |
| | $ | — |
| | $ | 790.0 |
| | $ | 210.0 |
|
| Fiscal 2014 Senior Notes | September 2020 | | 400.0 |
| | 397.9 |
| | 397.2 |
| | — |
| | 419.1 |
|
| Fiscal 2016 Senior Notes | June 2026 | | 500.0 |
| | 494.1 |
| | 493.5 |
| | — |
| | 494.6 |
|
| | | | $ | 1,110.0 |
| | $ | 1,102.1 |
| | $ | 890.7 |
| | $ | 790.0 |
| | $ | 1,123.7 |
|
| | | | | | | | | | | | |
| Total debt | | | $ | 1,110.0 |
| | $ | 1,102.1 |
| | $ | 1,015.5 |
| | $ | 790.0 |
| | $ | 1,123.7 |
|
(a) On July 1, 2016, the Company adopted ASU 2015-03 on a retrospective basis and accordingly, the Consolidated Balance Sheet as of June 30, 2016 has been updated to reflect this new classification, which resulted in a decrease in Other non-current assets of $7.1 million, a decrease in The Fiscal 2014 Senior Notes were reclassified from Long-term debt excluding current portion of $7.0 million and a decrease of $0.1 million into Current portion of long-term debt at June 30, 2016.in September 2019 to reflect the remaining maturity of less than a year.
Future principal payments on the Company’s outstanding debt are as follows: | | | Years ending June 30, | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | Years ending June 30, | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| (in millions) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 400.0 |
| | $ | 210.0 |
| | $ | 500.0 |
| | $ | 1,110.0 |
| (in millions) | | $ | 400.0 | | | $ | — | | | $ | — | | | $ | 149.8 | | | $ | — | | | $ | 1,250.0 | | | $ | 1,799.8 | |
On February 6, 2017, theThe Company entered intohas a $1.0$1.5 billion five-year revolving credit facility (the “Fiscal 20172019 Revolving Credit Facility”), which is comprised of a $900.0 million$1.1 billion U.S. dollar tranche and an $100.0a $400.0 million multicurrency tranche, and which replaced the $750.0 million five-year revolving credit facility entered into during August 2014 (the “Fiscal 2015 Revolving Credit Facility”) (together the “Revolving Credit Facilities”).tranche. Borrowings under the Fiscal 20172019 Revolving Credit Facility bear interest at LIBOR plus 100101.5 basis points. In addition, the Fiscal 20172019 Revolving Credit Facility has an annual facility fee equal to 12.511.0 basis points on the entire facility, similar to the previous Fiscal 2015 Revolving Credit Facility. The annual facility fees for the Revolving Credit Facilities totaled $1.1 million for the fiscal year ended June 30, 2017. As of June 30, 2017, the Company had $210.0 million in outstanding borrowings and had unused available capacity of $790.0 million under the Fiscal 2017 Revolving Credit Facility. The facility is scheduled to expire in February 2022.facility.
On June 1, 2017 the Company repaid in full the $125.0 million in Fiscal 2007 Senior Notes that were outstanding at their maturity date, using available cash.
At June 30, 2017, the carrying value of the Company’s outstanding Long-term debt was $1,102.1 million, consisting of: (i) borrowings on the Fiscal 2017 Revolving Credit Facility of $210.0 million, (ii) senior notes of $397.9 million ($400.0 million principal amount less $0.3 million of unamortized bond discount and $1.9 million of unamortized debt issuance costs) due September 2020 and (iii) senior notes of $494.1 million ($500.0 million principal amount less $1.9 million of unamortized
bond discount and $4.0 million of unamortized debt issuance costs) due June 2026. The Fiscal 20172019 Revolving Credit Facility and senior notes are senior unsecured obligations of the Company and are ranked equally in right of payment. Interest on the senior notes due September 2020 is payable semiannually on March 1st and September 1stof each year based on a fixed per annum rate equal to 3.95%. Interest on the senior notes due June 2026 is payable semiannually on June 27th and December 27th of each year based on a fixed per annum rate equal to 3.40%. Interest on the senior notes due 2029 is payable semiannually on June 1st and December 1st each year based on a fixed per annum rate equal to 2.90%.
Our liquidity position may be negatively affected by changes in general economic conditions, regulatory requirements and access to the capital markets, which may be limited if we were to fail to renew any of the credit facilities on their renewal dates or if we were to fail to meet certain covenants.ratios.
Please refer to Note 12,13, “Borrowings” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for a more detailed discussion.
Cash Flows
Fiscal Year 20172020 Compared to Fiscal Year 20162019
|
| | | | | | | | | | | |
| | Years Ended June 30, |
| | 2017 | | 2016 | | $ Change |
| | (in millions) |
| | |
| Net cash flows provided by operating activities | $ | 515.9 |
| | $ | 437.7 |
| | $ | 78.2 |
|
| | | | | | |
| Net cash flows used in investing activities | $ | (659.3 | ) | | $ | (136.9 | ) | | $ | (522.4 | ) |
| | | | | |
|
| Net cash flows provided by (used in) financing activities | $ | (311.7 | ) | | $ | 108.6 |
| | $ | (420.3 | ) |
| | | | | |
|
| Free cash flows: |
| |
| | |
| Net cash flows provided by operating activities (GAAP) | $ | 515.9 |
| | $ | 437.7 |
| | $ | 78.2 |
|
| Capital expenditures and Software purchases and capitalized internal use software | (113.7 | ) | | (75.5 | ) | | (38.2 | ) |
| Free cash flows (Non-GAAP) | $ | 402.2 |
| | $ | 362.2 |
| | $ | 40.0 |
|
| | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | | | |
| | 2020 | | 2019 | | $ Change |
| | (in millions) | | | | |
| | | | | | |
| Net cash flows provided by operating activities | $ | 598.2 | | | $ | 617.0 | | | $ | (18.7) | |
| | | | | |
| Net cash flows used in investing activities | $ | (441.7) | | | $ | (433.5) | | | $ | (8.1) | |
| | | | | |
| Net cash flows provided by (used in) financing activities | $ | 51.2 | | | $ | (173.1) | | | $ | 224.3 | |
The increasedecrease in cash provided by operating activities of $78.2$18.7 million was due to: (i) an increase in net earningsprimarily reflects increased scaling of $19.3 million, (ii) increased cash provided by working capital of $31.3 million,client-related platform implementation and (iii) increased non-cash expense add-backs of $42.1 million,development, partially offset by (iv) increased cash used in long-term assets and liabilities of $14.5 million driven by client implementations and prepaid broker fees.
The increase in Free cash flow of $40.0 million was driven by an increase in Net cash flows provided by operating activities of $78.2 million partially offset by increased capital expendituresfrom higher revenues, cash collections and software purchases and capitalized internal use software of $38.2 million.working capital.
The increase in cash used in investing activities of $522.4$8.1 million primarily reflects increased investments of $395.7 million in acquisitions and $90.0 million in purchased intellectual property.
Thean increase in cash used in financing activities of $420.3 million reflects: (i) a $223.0 million increase in the purchase of common stock, (ii) a $125.0 million repayment of short term borrowings, (iii) a $122.9 million decrease in net proceeds from borrowings in the current year compared to the prior fiscal year,capital expenditures and (iv) a $14.0 million increase in dividends paid,software purchases, partially offset by cash provided by: (i) a $36.2 million increaselower acquisition spend in the proceeds from stock option exercises, and (ii) a $19.2 million increase in excess tax benefits from the exercise and vesting of stock-based compensation awards.
Fiscal Year 2016 Compared to Fiscal Year 2015
|
| | | | | | | | | | | |
| | Years Ended June 30, |
| | 2016 | | 2015 | | $ Change |
| | (in millions) |
| | |
| Net cash flows provided by operating activities | $ | 437.7 |
| | $ | 431.4 |
| | $ | 6.3 |
|
| | | | | | |
| Net cash flows used in investing activities | $ | (136.9 | ) | | $ | (276.4 | ) | | $ | 139.5 |
|
| | | | | | |
| Net cash flows provided by (used in) financing activities | $ | 108.6 |
| | $ | (158.3 | ) | | $ | 266.9 |
|
| | | | | | |
| Free cash flows: | | | | | |
| Net cash flows provided by operating activities (GAAP) | $ | 437.7 |
| | $ | 431.4 |
| | $ | 6.3 |
|
| Capital expenditures and Software purchases and capitalized internal use software | (75.5 | ) | | (66.0 | ) | | (9.5 | ) |
| Free cash flows (Non-GAAP) | $ | 362.2 |
| | $ | 365.4 |
| | $ | (3.2 | ) |
The increase in cash provided by operatingfinancing activities of $6.3$224.3 million was due to: (A) $42.4 million of increased cash provided by (i) an increase in net earnings of $20.4 million; combined with (ii) an increase in non-cash expense add-backs and other adjustments of $10.5 million; and (iii)primarily reflects a decrease in working capitalthe repurchase of $11.5 million, notwithstanding the collection of a $26.1 million tax refund by a Canadian subsidiary in the prior year that did not recur; offset by: (B) $36.1 million of increased cash used in non-current assets and liabilities due primarily to long-term client contracts.
The decrease in free cash flows of $3.2 million was driven by an increase in Net cash flows provided by operating activities of $6.3 million,common stock, partially offset by increased capital expenditures, software purchases and capitalized internal use software of $9.5 million.
Thea decrease in cash used in investing activities of $139.5 million primarily reflects lower spending of $149.9 million on acquisitions in the current fiscal year as compared to the prior fiscal year, partially offset by higher capital expenditures and purchases of intangibles of $9.5 million in the current fiscal year as compared to the prior fiscal year.
The increased cash provided by financing activities of $266.9 million reflects a $181.9 million decrease in the purchases of common stock in the current fiscal year compared to the prior fiscal year and an increase in net proceeds from borrowings of $167.9 million in the current year compared to the prior fiscal year, partially offset by a decrease of $37.3 million in proceeds from stock options the current fiscal year as compared to the prior fiscal year, a decrease of $19.2 million in excess tax benefits from the issuance of stock-based compensation awards and a $15.9 millionan increase in dividends paid.
Income Taxes
The Company, headquartered in the U.S., is routinely examined by the IRS and is also routinely examined by the tax authorities in the U.S. states and foreign countries in which it conducts business. The tax years under audit examination vary by tax jurisdiction. The Company regularly considers the likelihood of assessments in each of the jurisdictions resulting from examinations. To the extent the Company determines it has potential tax assessments in particular tax jurisdictions, the Company has established tax reserves which it believes are adequate in relation to the potential assessments. Once established, reserves are adjusted when there is more information available, when an event occurs necessitating a change to the reserves or the statute of limitations for the relevant taxing authority to examine the tax position has expired. The resolution of tax matters should not have a material effect on the financial condition of the Company or on the Company’s Consolidated Statements of Earnings for a particular future period.
Defined Benefit Pension Plans
The Company sponsors a Supplemental Officer Retirement Plan (the “Broadridge SORP”“SORP”). The Broadridge SORP is a nonqualified ERISA defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key officers upon retirement based upon the officers’ years of service and compensation. The Broadridge SORP is currently unfunded. The Broadridge SORP was closed to new participants beginning in fiscal year 2015.
The Company also sponsors a Supplemental Executive Retirement Plan (the “Broadridge SERP”“SERP”). The Broadridge SERP is also a nonqualified ERISA defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key executives upon retirement based upon the executives’ years of service and compensation. The Broadridge SERP is currently unfunded. The Broadridge SERP was closed to new participants beginning in fiscal year 2015.
The amounts chargedSORP and SERP are effectively funded with assets held in a Rabbi Trust. The assets invested in the Rabbi Trust are to expense bybe used in part to fund benefit payments to participants under the Companyterms of the plans. The Rabbi Trust is irrevocable and no portion of the trust funds may be used for theseany purpose other than the delivery of those assets to the participants, except that assets held in the Rabbi Trust would be subject to the claims of the Company’s general creditors in the event of bankruptcy or insolvency of the Company. The SORP and SERP are nonqualified plans were:
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| SORP | | $ | 3.6 |
| | $ | 3.2 |
| | $ | 2.7 |
|
| SERP | | 0.7 |
| | 0.6 |
| | 0.6 |
|
| Total | | $ | 4.3 |
| | $ | 3.8 |
| | $ | 3.3 |
|
The benefit obligation to the Company under these plans at June 30, 2017, 20162020 and 20152019 was:
| | | | | Years ended June 30, | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | |
| | | (in millions) | | | (in millions) | |
| SORP | | $ | 35.4 |
| | $ | 30.0 |
| | $ | 25.3 |
| SORP | | $ | 53.8 | | | $ | 45.5 | | |
| SERP | | 4.3 |
| | 3.6 |
| | 2.7 |
| SERP | | 6.0 | | | 5.4 | | |
| Total | | $ | 39.7 |
| | $ | 33.6 |
| | $ | 28.0 |
| Total | | $ | 59.8 | | | $ | 50.8 | | |
Other Post-retirement Benefit Plan
The Company sponsors an Executive Retiree Health Insurance Plan. It is a post-retirement benefit plan pursuant to which the Company helps defray the health care costs of certain eligible key executive retirees and qualifying dependents, based upon the retirees’ age and years of service, until they reach the age of 65. The plan is currently unfunded.
The amounts chargedbenefit obligation to expense by the Company forunder this plan were:at June 30, 2020 and 2019 was:
| | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | |
| | | (in millions) | | | | |
| Executive Retiree Health Insurance Plan | | $ | 4.5 | | | $ | 5.2 | | | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Executive Retiree Health Insurance Plan | | $ | 0.3 |
| | $ | 0.3 |
| | $ | 0.2 |
|
In accordance with the Payment of Gratuity Act of 1972, the Company sponsors a post-employment defined benefit plan (the “Gratuity Plan”) covering all employees in India who are eligible under the terms of their employment. The Gratuity Plan is required by local law and provides a lump sum payment to vested employees upon retirement, death, incapacitation, or termination of employment based on the respective employee’s salary and the tenure of employment. The Gratuity Plan is currently unfunded.
The benefit obligation to the Company under this plan at June 30, 2017, 20162020 and 20152019 was:
| | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | |
| | | (in millions) | | | | |
| The Gratuity Plan | | $ | 6.4 | | | $ | 5.8 | | | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Executive Retiree Health Insurance Plan | | $ | 4.9 |
| | $ | 4.2 |
| | $ | 3.9 |
|
Contractual Obligations
The following table summarizes our contractual obligations to third parties as of June 30, 20172020 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | | | | | | | | | | | |
| | | Total | | Less than 1
Year | | 1-3 Years | | 4-5 Years | | After 5
Years | | | |
| | | | | | | (in millions) | | | | | | | |
| Debt(1) | | $ | 1,799.8 | | | $ | 400.0 | | | $ | — | | | $ | 149.8 | | | $ | 1,250.0 | | | | |
| Interest and facility fee on debt(2) | | 325.7 | | | 45.7 | | | 86.1 | | | 80.7 | | | 113.1 | | | | |
| Facility and equipment operating leases(3) | | 378.2 | | | 44.5 | | | 80.9 | | | 72.3 | | | 180.6 | | | | |
| Purchase obligations(4) | | 580.8 | | | 93.4 | | | 173.4 | | | 144.0 | | | 170.0 | | | | |
| Capital commitment to fund investment(5) | | — | | | — | | | — | | | — | | | — | | | | |
| Uncertain tax positions(6) | | — | | | — | | | — | | | — | | | — | | | | |
| Total(7) | | $ | 3,084.5 | | | $ | 583.6 | | | $ | 340.4 | | | $ | 446.8 | | | $ | 1,713.7 | | | | |
(1)These amounts represent the principal repayments of Long-term debt and are included on our Consolidated Balance Sheets. See Note 13, “Borrowings” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for additional information about our Borrowings and related matters.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| | | Total | | Less than 1 Year | | 1-3 Years | | 4-5 Years | | After 5 Years |
| | | | | | | (in millions) | | | | |
| Debt(1) | | $ | 1,110.0 |
| | $ | — |
| | $ | — |
| | $ | 610.0 |
| | $ | 500.0 |
|
| Interest and facility fee on debt(2) | | 226.0 |
| | 37.8 |
| | 75.6 |
| | 44.6 |
| | 68.0 |
|
| Facility and equipment operating leases(3) | | 316.1 |
| | 40.5 |
| | 65.7 |
| | 53.9 |
| | 155.9 |
|
| Software licensing(4) | | 37.9 |
| | 16.9 |
| | 19.7 |
| | 1.3 |
| | — |
|
| Purchase obligations(5) | | 421.8 |
| | 66.4 |
| | 125.1 |
| | 119.0 |
| | 111.2 |
|
| Capital commitment to fund an equity method investment(6) | | 2.8 |
| | 2.8 |
| | — |
| | — |
| | — |
|
| Uncertain tax positions(7) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Inveshare technology purchase(8)........................................ | | 40.0 |
| | — |
| | 40.0 |
| | — |
| | — |
|
| Total(9) | | $ | 2,154.4 |
| | $ | 164.4 |
| | $ | 326.2 |
| | $ | 828.7 |
| | $ | 835.1 |
|
(3)We enter into operating leases in the normal course of business relating to facilities and equipment. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance, real estate taxes and related executory costs, and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts and if we enter into additional operating lease agreements. See Note 8, “Leases” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for additional information about our Leases and related matters.
| |
(1) | These amounts represent the principal repayments of Long-term debt and are included on our Consolidated Balance Sheets. As of June 30, 2017, we had $1,102.1 million of carrying value outstanding debt consisting of senior notes of $397.9 million principal amount due September 2020, senior notes of $494.1 million principal amount due June 2026, and $210.0 million outstanding on our Fiscal 2017 Revolving Credit Facility due February 2022. See Note 12, “Borrowings” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for additional information about our Borrowings and related matters. |
| |
(2) | Includes estimated future interest payments on our long-term debt and interest and facility fee on the revolving credit facility. Interest on the Senior Notes due 2020 is based on a fixed per annum rate equal to 3.95%. Interest on the Senior Notes due 2026 is based on a fixed per annum rate equal to 3.40%. Interest on the Fiscal 2017 Revolving Credit Facility is calculated at LIBOR plus 100 basis points. An interest rate of 1.79% was used to estimate future interest payments for this portion of our long-term debt. The Fiscal 2017 Revolving Credit Facility also has an annual facility fee equal to 12.5 basis points on the entire facility. |
| |
(3) | Included in these amounts are various facilities and equipment leases. We enter into operating leases in the normal course of business relating to facilities and equipment. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts and if we enter into additional operating lease agreements. |
| |
(4) | These amounts represent various software license agreements. We enter into software licenses in the normal course of business. |
| |
(5) | Purchase obligations relate to payments to IBM related to the IT Services Agreement entered into in March 2010 that expires in June 2024, the EU IT Services Agreement entered into in March 2014 that expires in October 2023, and purchase and maintenance agreements on our software, equipment and other assets. |
| |
(6) | This amount represents a capital commitment to fund an equity method investment. |
| |
(7) | Due to the uncertainty related to the timing of the reversal of uncertain tax positions, only uncertain tax benefits related to certain settlements have been provided in the table above. The Company is unable to make reasonably reliable estimates related to the timing of the remaining net unrecognized tax benefit liability of $16.6 million (inclusive of interest). See Note 15, “Income Taxes” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for further detail. |
| |
(8) | The Company expects to pay $40.0 million to an affiliate of Inveshare by September 2018 upon delivery of certain new blockchain technology applications. See Note 6, “Acquisitions” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for additional information. |
| |
(9) | Certain executive post-retirement benefit obligations reported in our Consolidated Balance Sheets in the amount of $44.5 million as of June 30, 2017 were not included in the table above due to the uncertainty of the timing of these future payments.(4)Purchase obligations relate to payments to IBM related to the Amended IT Services Agreement that expires in June 2027, the IBM Private Cloud Agreement that expires in March 2030, and the Amended EU IT Services Agreement that expires in June 2029, as well as software license agreements including hosted software arrangements, and software and hardware maintenance and support agreements. (5)The Company has a future commitment to fund $3.5 million to an investee. (6)Due to the uncertainty related to the timing of the reversal of uncertain tax positions, only uncertain tax benefits related to certain settlements have been provided in the table above. The Company is unable to make reasonably reliable estimates related to the timing of the remaining gross unrecognized tax benefit liability of $40.7 million (inclusive of interest). See Note 17, “Income Taxes” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for further detail. (7)Certain post-employment benefit obligations reported in our Consolidated Balance Sheets in the amount of $70.7 million as of June 30, 2020 were not included in the table above due to the uncertainty of the timing of these future payments. |
Data Center Agreements
In March 2010, the Company and International Business Machines Corporation (“IBM”)IBM entered into an Information Technologythe IT Services Agreement, (the “IT Services Agreement”), under which IBM provides certain aspects of the Company’s
information technology infrastructure. Under the IT Services Agreement, IBM provides a broad range of technology services to the Company including supporting its mainframe, midrange, open systems, network and data center operations, as well as providing disaster recovery services. The Company has the option of incorporating additional services into the agreement over time. The migration of the data center processing to IBM was completed in August 2012. The IT Services Agreement would have expired on June 30, 2022, but a two-year extension was signed in March 2015, amending the expiration date to June 30, 2024. In December 2019, the Company and IBM amended and restated the IT Services Agreement and entered into the Amended IT Services Agreement, which now expires on June 30, 2024.2027. The Company has the right tooption of incorporating additional services into the Amended IT Services Agreement over time. The Company may renew the initial term of the Amended IT Services Agreement for up to one additional 12-month term. Commitmentsperiod. Fixed minimum commitments remaining under this agreement at June 30, 20172020 are $392.5$251.7 million through fiscal year 2024,2027, the final year of the Amended IT Services Agreement.
In December 2019, the Company and IBM entered into an information technology agreement for private cloud services (“the IBM Private Cloud Agreement”) under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks. The IBM Private Cloud Agreement has an initial term of approximately 10 years and three months, expiring on March 31, 2030. As a result of the IBM Private Cloud Agreement, the Company transferred certain of its employees in April 2020 to IBM and its affiliates, and such transferred employees are expected to continue providing services to the Company on behalf of IBM under the IBM Private Cloud Agreement. Pursuant to the IBM Private Cloud Agreement, the Company has agreed to transfer the ownership of certain Company-owned hardware (the “Hardware”) located at Company facilities worldwide along with the Company’s maintenance agreements (“Maintenance Contracts”) associated with the Hardware to IBM. The transfer of the Hardware and Maintenance Contracts to IBM is expected to close no later than September 30, 2020. The Company concluded that the Hardware qualifies as assets held for sale since the Company has committed to a plan of disposal expected to be completed within a year, and therefore, has recorded the Hardware at fair value less costs to dispose based on the expected selling price to IBM (a Level 3 fair value measurement as defined in Note 7, “Fair Value of Financial Instruments” to the Company's Consolidated Financial Statements). Accordingly, the Company has recorded a non-cash pre-tax charge of $30.4 million for the fiscal year ended June 30, 2020, equal to the difference between the Hardware’s carrying value and estimated fair value less costs to dispose, included as part of Cost of revenues on the Company’s Consolidated Statements of Earnings and is included in Other for purposes of the Company's segment reporting. As of June 30, 2020, the Hardware classified as assets held for sale has a carrying amount of $18.0 million and is included in the Company’s Other current assets line item on the Consolidated Balance Sheets. Fixed minimum commitments remaining under the IBM Private Cloud Agreement at June 30, 2020 are $236.7 million through March 31, 2030, the final year of the contract.
In March 2014, the Company and IBM United Kingdom Limited (“IBM UK”) entered into an Information Technologythe EU IT Services Agreement, (the “EU IT Services Agreement”), under which IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia. The EU IT Services Agreement expireswould have expired in October 2023. In December 2019, the Company amended the existing EU IT Services Agreement and entered into the Amended EU IT Services Agreement whereby the Company will migrate from the existing dedicated on-premise solution to a managed Broadridge private cloud environment provided by IBM, as well as extended the term of the EU IT Services Agreement to June 2029. The Company has the right to renew the initial term of the Amended EU IT Services Agreement for up to one additional 12-month termperiod or one additional 24-month term. Commitmentsperiod. Fixed minimum commitments remaining under this agreementthe Amended EU IT Services Agreement at June 30, 20172020 are $29.3$23.9 million through fiscal year 2024,2029, the final year of the contract.
The following table summarizes the total expenses related to these agreements:
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| IT Services Agreement | | $ | 99.3 |
| | $ | 98.5 |
| | $ | 95.3 |
|
| EU IT Services Agreement | | 5.5 |
| | 7.5 |
| | 4.6 |
|
| Total expenses | | $ | 104.8 |
| | $ | 106.0 |
| | $ | 99.9 |
|
The Company has capitalized $62.0 million, including $2.6 million in fiscal year 2017, related to the build-out of the IBM data center in Other non-current assets, with a net book value of $36.8 million at June 30, 2017. The Company capitalized $5.3 million related to the build-out of the IBM UK data center in Other non-current assets, with a net book value of $3.3 million at June 30, 2017. The asset balance declined by $0.6 million due to the impact of foreign exchange during the fiscal year ended June 30, 2017.
The following table summarizes the total amortization expense of capitalized costs related to these agreements:agreements as of June 30, 2020:
| | | | | | | | | | | | | | | | | | | | |
| | | Amended IT Services Agreement | | Amended EU IT Services Agreement | | Total |
| | | (in millions) | | | | |
| Capitalized costs, beginning balance | | $ | 62.3 | | | $ | 5.0 | | | $ | 67.3 | |
| Capitalized costs incurred | | 0.3 | | | 1.6 | | | 1.8 | |
| Impact of foreign currency exchange | | — | | | (0.2) | | | (0.2) | |
| Total capitalized costs, ending balance | | 62.6 | | | 6.3 | | | 68.9 | |
| Total accumulated amortization | | (40.1) | | | (4.3) | | | (44.4) | |
| Net Deferred IBM Costs | | $ | 22.5 | | | $ | 2.0 | | | $ | 24.5 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| IT Services Agreement | | $ | (4.6 | ) | | $ | (4.3 | ) | | $ | (5.1 | ) |
| EU IT Services Agreement | | (0.4 | ) | | (0.6 | ) | | (0.4 | ) |
| Total expenses | | $ | (5.0 | ) | | $ | (4.8 | ) | | $ | (5.5 | ) |
At June 30, 2020, the Company has a future commitment to fund $3.5 million to one of the Company’s investees.
Other Commercial Commitments
The Company’s Fiscal 2017 Revolving Credit Facility has a total available capacity of $1.0 billion. There were $210.0 million of outstanding borrowings under the Fiscal 2017 Revolving Credit Facility at June 30, 2017 and an unused capacity of $790.0 million.Agreements
Certain of the Company’s subsidiaries haveestablished unsecured, uncommitted lines of credit with banks. There were no outstanding borrowings under these lines of credit at June 30, 2017.2020.
Off-Balance Sheet Arrangements
It is not the Company’s business practice to enter into off-balance sheet arrangements. However, the Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations, and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading purposes. The Company was not a party to any derivative financial instruments at June 30, 2017, 20162020 and 2015.2019. In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company’s products and services. The Company does not expect any material losses related to such representations and warranties, or collateral arrangements.
NEW ACCOUNTING PRONOUNCEMENTSRecently-issued Accounting Pronouncements
Please refer to Note 2, “Summary of Significant Accounting Policies—T. New Accounting Pronouncements”Policies” and Note 8, “Leases” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for a discussion on the impact of the adoption of new accounting pronouncements.
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ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk |
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
In the ordinary course of business, the financial position of the Company is routinely subject to certain market risks, notably the effects of changes in interest rates and foreign currency exchange rates. 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 for risk management purposes.activities. As a result, the Company does not anticipate any material losses from these risks. The Company was not a party to any derivative financial instrument as of June 30, 20172020 and 2016,2019, respectively.
Interest Rate Risk
As of June 30, 2017, $210.02020, $149.8 million, or approximately 19%8%, of the Company’s total outstanding debt balance of $1,102.1$1,787.5 million is based on floating interest rates. Our $210.0$149.8 million in variable rate debt at June 30, 20172020 consists of our revolving credit facility, which bears interest at LIBOR plus 100101.5 basis points on borrowed amounts, plus an additional annual facility fee equal to 12.511.0 basis points on the entire facility. We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our earnings of a change in market interest rates on amounts borrowed from the revolving credit facility during the fiscal year ended June 30, 2017.2020. Assuming a hypothetical increase of one hundred basis points in interest rates on our variable rate debt during the fiscal year ended June 30, 2017,2020, our pre-tax earnings would have decreased by approximately $1.5$5.8 million for the fiscal year ended June 30, 2017.2020; however, this would have been offset by interest earned on cash balances.
Foreign Currency Risk
While the substantial majority of our business is conducted within the U.S., approximately 9%12% of our fiscal year 20172020 revenues were earned outside of the U.S. and approximately 18%23% of our total consolidated assets as of June 30, 20172020 resided in our foreign subsidiaries. Our revenue generating operations outside of the U.S. primarily reside in Canada and the United Kingdom. As a result, we have a certain degree of foreign currency exposure to exchange rate fluctuations associated with our non-U.S. revenue generating operations, primarily with respect to the Canadian dollar and the British pound.
We manage our foreign currency risk primarily by incurring, to the extent practicable, operating and financing expenses in the local currency in the countries in which we operate. We do not hedge our operating results against currency movement as they are primarily translational in nature. For the fiscal year ended June 30, 2017,2020, a hypothetical 10% decrease in the value of the Canadian dollar and British pound versus the U.S. dollar would have resulted in a decrease in our total pre-tax earnings of approximately $8.7$13.1 million. A hypothetical 10% decrease in the value of the Canadian dollar and British pound versus the U.S. dollar at June 30, 20172020 would have resulted in a decrease to our total assets of approximately $46.3$84.3 million.
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ITEM 8. | Financial Statements and Supplementary Data |
ITEM 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
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| | | | |
| Consolidated Financial Statements | |
| |
| |
| |
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| |
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| Financial Statement Schedule | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Stockholders of
Broadridge Financial Solutions, Inc.
5 Dakota Drive
Lake Success, NY 11042
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Broadridge Financial Solutions, Inc. and subsidiaries (the “Company”) as of June 30, 20172020 and 2016, and2019, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2017. Our audits also included2020, and the related notes and the financial statement schedule listed in the Index at Item 15.15 (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of June 30, 2017,2020, based on criteria established in Internal Control—Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Changes in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases as of July 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842).
Basis for Opinions
The Company’s management is responsible for these financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.
As described We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessmentaccordance with the internal control over financial reporting atU.S. federal securities laws and the North American Customer Communications business acquired from DST Systems, Inc. (NACC), which was acquired on July 1, 2016applicable rules and whose financial statements constitute 16% of total assets and 26% of total revenuesregulations of the consolidated financial statement amounts as ofSecurities and forExchange Commission and the year ended June 30, 2017. Accordingly, our audit did not include the internal control over financial reporting at NACC.PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
InCritical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion such consolidated financial statements present fairly, in all material respects,on the financial position of Broadridge Financial Solutions, Inc. and subsidiaries as of June 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements, taken as a whole, present fairly, in all material respects,and we are not, by communicating the information set forth therein. Also, in ourcritical audit matter below, providing a separate opinion the Company maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2017, based on the criteria established in Internal Control—Integrated Framework(2013) issued bycritical audit matter or on the Committee of Sponsoring Organizations of the Treadway Commission.accounts or disclosures to which it relates.
| | |
| Goodwill - Refer to Notes 2 and 9 to the financial statements |
Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the income approach, which considers a discounted future cash flow analysis using various assumptions, including projections of revenues based on assumed long-term growth rates and projections of earnings before income tax (“EBIT”), estimated costs and appropriate discount rates based on the particular reporting unit’s weighted-average cost of capital. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows based on forecasted EBIT margins, including future revenues, and the selection of the terminal value growth rate and the discount rate assumptions.
The goodwill balance was $1,674.5 million as of June 30, 2020, which is allocated among various reporting units. During fiscal year 2020, the Company performed the required impairment tests of Goodwill and determined that there was no impairment. The Company also performed a sensitivity analysis under Step 1 of the goodwill impairment test assuming hypothetical reductions in the fair values of the reporting units.
We identified goodwill as a critical audit matter because of the significant estimates and assumptions management makes to estimate the fair value of certain reporting units and the sensitivity of these reporting units’ operations to changes in demand. Auditing the fair value of certain of the reporting units involved a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, as it relates to evaluating whether management’s judgments in determining whether the projected future operating cash flows based on forecasted EBIT margins, including future revenues, and the selection of terminal value growth rate and discount rate were appropriate.
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How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the projected future operating cash flows based on forecasted EBIT margins, including future revenues, and the selection of the terminal value growth rate and discount rate for certain of the reporting units included the following, among others: •We tested the effectiveness of controls over goodwill, including those over the projected future operating cash flows based on forecasted EBIT margins, including future revenues, and the selection of the terminal value growth rate. •We performed a sensitivity analysis on the future cash flows to determine what revenue and EBIT growth rate is needed to cause an impairment for each reporting unit. •We evaluated the reasonableness of management’s projected future operating cash flows based on forecasted EBIT margins, including future revenues by comparing to (1) historical results for significant reporting units, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases, analyst and industry reports of the Company and companies in its peer group. •We considered the impact of changes in the regulatory environment on management’s forecasts. •With the assistance of our fair value specialists, we evaluated the selection of the terminal value growth rate and the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing those to the rates selected by management.
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/S/s/ DELOITTE & TOUCHELLP
New York, New York
August 10, 201711, 2020
We have served as the Company's auditor since 2007.
Broadridge Financial Solutions, Inc.
Consolidated Statements of Earnings
(In millions, except per share amounts)
| | | | | Years ended June 30, | | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | | 2020 | | 2019 | | 2018 |
| Revenues | | $ | 4,142.6 |
| | $ | 2,897.0 |
| | $ | 2,694.2 |
| | Revenues | (Note 3) | | $ | 4,529.0 | | | $ | 4,362.2 | | | $ | 4,329.9 | |
| Operating expenses: | | | | | | | | Operating expenses: | | | | | | |
| Cost of revenues | | 3,109.6 |
| | 1,975.9 |
| | 1,828.2 |
| | Cost of revenues | | 3,265.1 | | | 3,131.9 | | | 3,167.4 | |
| Selling, general and administrative expenses | | 501.4 |
| | 420.9 |
| | 399.1 |
| | Selling, general and administrative expenses | | 639.0 | | | 577.5 | | | 564.5 | |
| Total operating expenses | | 3,611.0 |
| | 2,396.8 |
| | 2,227.3 |
| | Total operating expenses | | 3,904.1 | | | 3,709.5 | | | 3,731.8 | |
| Operating income | | 531.6 |
| | 500.3 |
| | 466.9 |
| | Operating income | | 624.9 | | | 652.7 | | | 598.1 | |
| Interest expense, net | | 42.7 |
| | 25.7 |
| | 22.6 |
| | Interest expense, net | (Note 5) | | (58.8) | | | (41.8) | | | (38.6) | |
| Other non-operating (income) expenses, net | | 0.8 |
| | 5.6 |
| | 5.4 |
| | |
| Other non-operating income (expenses), net | | Other non-operating income (expenses), net | | 13.4 | | | (3.7) | | | 1.5 | |
| Earnings before income taxes | | 488.1 |
| | 468.9 |
| | 438.9 |
| | Earnings before income taxes | | 579.5 | | | 607.3 | | | 561.0 | |
| Provision for income taxes | | 161.4 |
| | 161.4 |
| | 151.8 |
| | Provision for income taxes | (Note 17) | | 117.0 | | | 125.2 | | | 133.1 | |
| Net earnings | | $ | 326.8 |
| | $ | 307.5 |
| | $ | 287.1 |
| | Net earnings | | $ | 462.5 | | | $ | 482.1 | | | $ | 427.9 | |
| | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 2.77 |
| | $ | 2.60 |
| | $ | 2.39 |
| | Basic earnings per share | | $ | 4.03 | | | $ | 4.16 | | | $ | 3.66 | |
| Diluted earnings per share | | $ | 2.70 |
| | $ | 2.53 |
| | $ | 2.32 |
| | Diluted earnings per share | | $ | 3.95 | | | $ | 4.06 | | | $ | 3.56 | |
| | | | | | | | | | | | | | |
| Weighted-average shares outstanding: | | | | | | | | Weighted-average shares outstanding: | |
| Basic | | 118.0 |
| | 118.3 |
| | 119.9 |
| | Basic | (Note 4) | | 114.7 | | | 115.9 | | | 116.8 | |
| Diluted | | 120.8 |
| | 121.6 |
| | 124.0 |
| | Diluted | (Note 4) | | 117.0 | | | 118.8 | | | 120.4 | |
Amounts may not sum due to rounding.
See notes to consolidated financial statements.
Broadridge Financial Solutions, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
| | | | | Years ended June 30, | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| Net earnings | | $ | 326.8 |
| | $ | 307.5 |
| | $ | 287.1 |
| Net earnings | | $ | 462.5 | | | $ | 482.1 | | | $ | 427.9 | |
| Other comprehensive income (loss), net: | | | | | | | Other comprehensive income (loss), net: | |
| Foreign currency translation adjustments | | (17.0 | ) | | (15.4 | ) | | (30.2 | ) | Foreign currency translation adjustments | | (26.4) | | | (15.0) | | | 5.7 | |
| Net unrealized gains (losses) on available-for-sale securities, net of taxes of ($0.6), $0.4 and ($0.1) for the years ended June 30, 2017, 2016 and 2015, respectively | | 1.0 |
| | (0.7 | ) | | 0.1 |
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| Pension and post-retirement liability adjustment, net of taxes of $1.0, $0.8 and $0.7 for the years ended June 30, 2017, 2016 and 2015, respectively | | (1.6 | ) | | (1.3 | ) | | (1.1 | ) | |
| Net losses on securities, net of taxes of $0.0, $0.0 and $1.2 for the years ended June 30, 2020, 2019 and 2018, respectively | | Net losses on securities, net of taxes of $0.0, $0.0 and $1.2 for the years ended June 30, 2020, 2019 and 2018, respectively | | — | | | — | | | (2.6) | |
| Pension and post-retirement liability adjustment, net of taxes of $0.9, $0.9 and $(0.4) for the years ended June 30, 2020, 2019 and 2018, respectively | | Pension and post-retirement liability adjustment, net of taxes of $0.9, $0.9 and $(0.4) for the years ended June 30, 2020, 2019 and 2018, respectively | | (2.8) | | | (2.7) | | | 0.9 | |
| Total other comprehensive income (loss), net | | (17.6 | ) | | (17.3 | ) | | (31.2 | ) | Total other comprehensive income (loss), net | | (29.2) | | | (17.7) | | | 3.9 | |
| Comprehensive income | | $ | 309.2 |
| | $ | 290.2 |
| | $ | 255.9 |
| Comprehensive income | | $ | 433.3 | | | $ | 464.3 | | | $ | 431.9 | |
Amounts may not sum due to rounding.
See notes to consolidated financial statements.
Broadridge Financial Solutions, Inc.
Consolidated Balance Sheets
(In millions, except per share amounts)
| | | | | June 30,
2017 | | June 30,
2016 | | June 30,
2020 | | June 30,
2019 |
| Assets | | | | | Assets | | | | |
| Current assets: | | | | | Current assets: | |
| Cash and cash equivalents | | $ | 271.1 |
| | $ | 727.7 |
| Cash and cash equivalents | | $ | 476.6 | | | $ | 273.2 | |
| Accounts receivable, net of allowance for doubtful accounts of $3.7 and $2.3, respectively | | 589.5 |
| | 453.4 |
| |
| Accounts receivable, net of allowance for doubtful accounts of $9.8 and $2.6, respectively | | Accounts receivable, net of allowance for doubtful accounts of $9.8 and $2.6, respectively | | 711.3 | | | 664.0 | |
| Other current assets | | 129.0 |
| | 108.0 |
| Other current assets | | 140.1 | | | 105.2 | |
| Total current assets | | 989.6 |
| | 1,289.1 |
| Total current assets | | 1,328.0 | | | 1,042.3 | |
| Property, plant and equipment, net | | 198.1 |
| | 112.2 |
| Property, plant and equipment, net | (Note 9) | | 161.6 | | | 189.0 | |
| Goodwill | | 1,159.3 |
| | 999.3 |
| Goodwill | (Note 10) | | 1,674.5 | | | 1,500.0 | |
| Intangible assets, net | | 486.4 |
| | 210.3 |
| Intangible assets, net | (Note 10) | | 583.8 | | | 556.2 | |
| Other non-current assets | | 316.4 |
| | 261.8 |
| Other non-current assets | (Note 11) | | 1,141.9 | | | 593.1 | |
| Total assets | | $ | 3,149.8 |
| | $ | 2,872.7 |
| Total assets | | $ | 4,889.8 | | | $ | 3,880.7 | |
| | | | | | |
| Liabilities and Stockholders’ Equity | | | | | Liabilities and Stockholders’ Equity | | | | |
| Current liabilities: | | | | | Current liabilities: | |
| Current portion of long-term debt | | $ | — |
| | $ | 124.8 |
| Current portion of long-term debt | (Note 13) | | $ | 399.9 | | | $ | — | |
| Accounts payable | | 167.2 |
| | 133.2 |
| |
| Accrued expenses and other current liabilities | | 495.3 |
| | 352.2 |
| |
| Deferred revenues | | 82.4 |
| | 82.7 |
| |
| Payables and accrued expenses | | Payables and accrued expenses | (Note 12) | | 829.9 | | | 711.7 | |
| Contract Liabilities | | Contract Liabilities | | 111.2 | | | 90.9 | |
| Total current liabilities | | 744.9 |
| | 692.9 |
| Total current liabilities | | 1,341.0 | | | 802.6 | |
| Long-term debt, excluding current portion | | 1,102.1 |
| | 890.7 |
| |
| Long-term debt | | Long-term debt | (Note 13) | | 1,387.6 | | | 1,470.4 | |
| Deferred taxes | | 82.0 |
| | 61.6 |
| Deferred taxes | (Note 17) | | 126.8 | | | 86.7 | |
| Deferred revenues | | 74.3 |
| | 70.3 |
| |
| Contract Liabilities | | Contract Liabilities | | 175.4 | | | 160.7 | |
| Other non-current liabilities | | 142.7 |
| | 111.8 |
| Other non-current liabilities | (Note 14) | | 512.4 | | | 232.8 | |
| Total liabilities | | 2,146.0 |
| | 1,827.3 |
| Total liabilities | | 3,543.2 | | | 2,753.2 | |
| Commitments and contingencies (Note 16) | |
| |
| |
| Commitments and contingencies | | Commitments and contingencies | (Note 18) | | | | |
| Stockholders’ equity: | |
| | | Stockholders’ equity: | |
| Preferred stock: Authorized, 25.0 shares; issued and outstanding, none | | — |
| | — |
| |
| Common stock, $0.01 par value: Authorized, 650.0 shares; issued, 154.5 and 154.5 shares, respectively; outstanding, 116.5 and 118.3 shares, respectively | | 1.6 |
| | 1.6 |
| |
| Preferred stock: Authorized, 25.0 shares; issued and outstanding, NaN | | Preferred stock: Authorized, 25.0 shares; issued and outstanding, NaN | | — | | | — | |
| Common stock, $0.01 par value: Authorized, 650.0 shares; issued, 154.5 and 154.5 shares, respectively; outstanding, 115.1 and 114.3 shares, respectively | | Common stock, $0.01 par value: Authorized, 650.0 shares; issued, 154.5 and 154.5 shares, respectively; outstanding, 115.1 and 114.3 shares, respectively | | 1.6 | | | 1.6 | |
| Additional paid-in capital | | 987.6 |
| | 901.2 |
| Additional paid-in capital | | 1,178.5 | | | 1,109.3 | |
| Retained earnings | | 1,469.4 |
| | 1,297.8 |
| Retained earnings | | 2,302.6 | | | 2,087.7 | |
| Treasury stock, at cost: 38.0 and 36.2 shares, respectively | | (1,398.9 | ) | | (1,116.9 | ) | |
| Treasury stock, at cost: 39.3 and 40.2 shares, respectively | | Treasury stock, at cost: 39.3 and 40.2 shares, respectively | | (2,035.7) | | | (1,999.8) | |
| Accumulated other comprehensive loss | | (55.8 | ) | | (38.2 | ) | Accumulated other comprehensive loss | (Note 19) | | (100.4) | | | (71.2) | |
| Total stockholders’ equity | | 1,003.8 |
| | 1,045.5 |
| Total stockholders’ equity | | 1,346.5 | | | 1,127.5 | |
| Total liabilities and stockholders’ equity | | $ | 3,149.8 |
| | $ | 2,872.7 |
| Total liabilities and stockholders’ equity | | $ | 4,889.8 | | | $ | 3,880.7 | |
Amounts may not sum due to rounding.
See notes to consolidated financial statements.
Broadridge Financial Solutions, Inc.
Consolidated Statements of Cash Flows
(In millions)
| | | | | Years ended June 30, | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| Cash Flows From Operating Activities | | | | | | | Cash Flows From Operating Activities | | | | | | |
| Net earnings | | $ | 326.8 |
| | $ | 307.5 |
| | $ | 287.1 |
| Net earnings | | $ | 462.5 | | | $ | 482.1 | | | $ | 427.9 | |
| Adjustments to reconcile Net earnings to Net cash flows provided by operating activities: | | | | | | | Adjustments to reconcile Net earnings to Net cash flows provided by operating activities: | |
| Depreciation and amortization | | 68.6 |
| | 52.6 |
| | 49.3 |
| Depreciation and amortization | | 73.8 | | | 85.2 | | | 82.1 | |
| Amortization of acquired intangibles and purchased intellectual property | | 72.6 |
| | 31.8 |
| | 25.3 |
| Amortization of acquired intangibles and purchased intellectual property | | 122.9 | | | 87.4 | | | 81.4 | |
| Amortization of other assets | | 31.9 |
| | 26.6 |
| | 29.7 |
| Amortization of other assets | | 102.6 | | | 87.4 | | | 48.5 | |
| Write-down of long lived assets | | Write-down of long lived assets | | 30.4 | | | — | | | — | |
| Stock-based compensation expense | | 46.1 |
| | 43.1 |
| | 38.6 |
| Stock-based compensation expense | | 60.8 | | | 58.4 | | | 55.1 | |
| Deferred income taxes | | (14.7 | ) | | (5.9 | ) | | 0.6 |
| Deferred income taxes | | 29.0 | | | (3.5) | | | (9.3) | |
| Excess tax benefits from stock-based compensation awards | | (40.6 | ) | | (21.3 | ) | | (40.5 | ) | |
| Other | | 0.5 |
| | (4.6 | ) | | 8.8 |
| Other | | (26.9) | | | (37.6) | | | (21.2) | |
| Changes in operating assets and liabilities, net of assets and liabilities acquired: | | | | | | | Changes in operating assets and liabilities, net of assets and liabilities acquired: | |
| Current assets and liabilities: | | | | | | | Current assets and liabilities: | |
| Increase in Accounts receivable, net | | (44.4 | ) | | (5.3 | ) | | (4.2 | ) | Increase in Accounts receivable, net | | (33.5) | | | (34.9) | | | (18.6) | |
| (Increase) decrease in Other current assets | | 5.6 |
| | (12.5 | ) | | 14.0 |
| |
| Increase in Accounts payable | | 16.2 |
| | 6.2 |
| | 1.9 |
| |
| Increase in Accrued expenses and other current liabilities | | 119.2 |
| | 69.6 |
| | 30.6 |
| |
| Increase (decrease) in Deferred revenues | | (4.5 | ) | | 2.9 |
| | 7.1 |
| |
| Increase in Other current assets | | Increase in Other current assets | | (17.9) | | | (7.3) | | | (7.6) | |
| Increase (decrease) in Payables and accrued expenses | | Increase (decrease) in Payables and accrued expenses | | 58.6 | | | (10.9) | | | 9.6 | |
| Increase in Contract liabilities | | Increase in Contract liabilities | | 12.2 | | | 15.1 | | | 20.8 | |
| Non-current assets and liabilities: | |
| | | | | Non-current assets and liabilities: | | | |
| Increase in Other non-current assets | | (90.7 | ) | | (59.5 | ) | | (45.3 | ) | Increase in Other non-current assets | | (352.7) | | | (188.3) | | | (83.5) | |
| Increase in Other non-current liabilities | | 23.2 |
| | 6.5 |
| | 28.4 |
| Increase in Other non-current liabilities | | 76.4 | | | 83.8 | | | 108.3 | |
| Net cash flows provided by operating activities | | 515.9 |
| | 437.7 |
| | 431.4 |
| Net cash flows provided by operating activities | | 598.2 | | | 617.0 | | | 693.6 | |
| Cash Flows From Investing Activities | | | | | | | Cash Flows From Investing Activities | | | | | | |
| Capital expenditures | | (85.4 | ) | | (57.7 | ) | | (50.3 | ) | Capital expenditures | | (62.7) | | | (50.6) | | | (76.7) | |
| Software purchases and capitalized internal use software | | (28.3 | ) | | (17.8 | ) | | (15.7 | ) | Software purchases and capitalized internal use software | | (36.0) | | | (22.0) | | | (21.2) | |
| Acquisitions, net of cash acquired | | (448.7 | ) | | (53.0 | ) | | (202.9 | ) | Acquisitions, net of cash acquired | | (339.1) | | | (354.7) | | | (108.3) | |
| Purchase of intellectual property | | (90.0 | ) | | — |
| | — |
| Purchase of intellectual property | | — | | | — | | | (40.0) | |
| Equity method investment | | (6.0 | ) | | (4.9 | ) | | (7.5 | ) | |
| Other investing activities | | (0.9 | ) | | (3.4 | ) | | — |
| Other investing activities | | (3.8) | | | (6.3) | | | (3.1) | |
| Net cash flows used in investing activities | | (659.3 | ) | | (136.9 | ) | | (276.4 | ) | Net cash flows used in investing activities | | (441.7) | | | (433.5) | | | (249.3) | |
| Cash Flows From Financing Activities | | | | | | | Cash Flows From Financing Activities | | | | | | |
| Repayments on Senior notes | | (125.0 | ) | | — |
| | — |
| |
| Proceeds from Long-term debt | | 500.0 |
| | 807.9 |
| | 320.0 |
| |
| Repayments on Long-term debt | | (290.0 | ) | | (475.0 | ) | | (155.0 | ) | |
| Excess tax benefit from stock-based compensation awards | | 40.6 |
| | 21.3 |
| | 40.5 |
| |
| Debt proceeds | | Debt proceeds | | 1,621.9 | | | 803.1 | | | 340.0 | |
| Debt repayments | | Debt repayments | | (1,292.8) | | | (387.4) | | | (390.0) | |
| Dividends paid | | (152.2 | ) | | (138.2 | ) | | (122.3 | ) | Dividends paid | | (241.0) | | | (211.2) | | | (165.8) | |
| Purchases of Treasury stock | | (342.8 | ) | | (119.8 | ) | | (301.7 | ) | Purchases of Treasury stock | | (69.3) | | | (397.8) | | | (277.1) | |
| Proceeds from exercise of stock options | | 60.9 |
| | 24.8 |
| | 62.1 |
| Proceeds from exercise of stock options | | 41.8 | | | 31.1 | | | 52.0 | |
| Payment of contingent consideration liabilities | | (0.7 | ) | | (8.9 | ) | | — |
| |
| Costs related to amendment of revolving credit facility | | (1.8 | ) | | — |
| | (1.9 | ) | |
| Costs related to issuance of bonds | | (0.7 | ) | | (3.6 | ) | | — |
| |
| Other financing activities | | Other financing activities | | (9.4) | | | (10.8) | | | (9.0) | |
| Net cash flows provided by (used in) financing activities | | (311.7 | ) | | 108.6 |
| | (158.3 | ) | Net cash flows provided by (used in) financing activities | | 51.2 | | | (173.1) | | | (449.9) | |
| Effect of exchange rate changes on Cash and cash equivalents | | (1.6 | ) | | (5.7 | ) | | (20.2 | ) | Effect of exchange rate changes on Cash and cash equivalents | | (4.3) | | | (1.1) | | | (1.6) | |
| Net change in Cash and cash equivalents | | (456.7 | ) | | 403.7 |
| | (23.5 | ) | Net change in Cash and cash equivalents | | 203.4 | | | 9.2 | | | (7.2) | |
| Cash and cash equivalents, beginning of fiscal year | | 727.7 |
| | 324.1 |
| | 347.6 |
| Cash and cash equivalents, beginning of fiscal year | | 273.2 | | | 263.9 | | | 271.1 | |
| Cash and cash equivalents, end of fiscal year | | $ | 271.1 |
| | $ | 727.7 |
| | $ | 324.1 |
| Cash and cash equivalents, end of fiscal year | | $ | 476.6 | | | $ | 273.2 | | | $ | 263.9 | |
| Supplemental disclosure of cash flow information: | | | | | | | Supplemental disclosure of cash flow information: | | | | | | |
| Cash payments made for interest | | $ | 43.1 |
| | $ | 26.7 |
| | $ | 24.1 |
| Cash payments made for interest | | $ | 58.5 | | | $ | 43.4 | | | $ | 40.5 | |
| Cash payments made for income taxes, net of refunds | | $ | 113.4 |
| | $ | 122.4 |
| | $ | 85.4 |
| Cash payments made for income taxes, net of refunds | | $ | 100.9 | | | $ | 119.5 | | | $ | 177.6 | |
| Non-cash investing and financing activities: | | | | | | | Non-cash investing and financing activities: | |
| Accrual of unpaid property, plant, equipment and software | | $ | 17.7 |
| | $ | 7.0 |
| | $ | 0.8 |
| Accrual of unpaid property, plant, equipment and software | | $ | 13.9 | | | $ | 8.7 | | | $ | 6.2 | |
| Acquisition related obligations | | $ | 7.1 |
| | $ | 5.9 |
| | $ | 14.5 |
| |
| Obligations related to the purchase of intellectual property | | $ | 5.0 |
| | $ | — |
| | $ | — |
| |
| Unpaid deferred financing costs related to the issuance of bonds | | $ | — |
| | $ | 0.7 |
| | $ | — |
| |
Amounts may not sum due to rounding.
See notes to consolidated financial statements.
Broadridge Financial Solutions, Inc.
Consolidated Statements of Stockholders’ Equity
(In millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | Additional
Paid-In
Capital | | Retained
Earnings | | Treasury
Stock | | Accumulated
Other
Comprehensive
Income
(Loss) | | Total
Stockholders’
Equity |
| | | Shares | | Amount | | | | | | | | | | |
| Balances, July 1, 2017 | | 154.5 | | | $ | 1.6 | | | $ | 987.6 | | | $ | 1,469.4 | | | $ | (1,398.9) | | | $ | (55.8) | | | $ | 1,003.8 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | 427.9 | | | — | | | 3.9 | | | 431.9 | |
| Stock option exercises and excess tax benefits | | — | | | — | | | 51.5 | | | — | | | — | | | — | | | 51.5 | |
| Stock-based compensation | | — | | | — | | | 54.7 | | | — | | | — | | | — | | | 54.7 | |
| Treasury stock acquired (2.4 shares) | | — | | | — | | | — | | | — | | | (277.1) | | | — | | | (277.1) | |
| Treasury stock reissued (2.3 shares) | | — | | | — | | | (45.3) | | | — | | | 45.3 | | | — | | | — | |
| Common stock dividends ($1.46 per share) | | — | | | — | | | — | | | (170.4) | | | — | | | — | | | (170.4) | |
| Balances, June 30, 2018 | | 154.5 | | | 1.6 | | | 1,048.5 | | | 1,727.0 | | | (1,630.8) | | | (51.9) | | | 1,094.3 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | 482.1 | | | — | | | (17.7) | | | 464.3 | |
| Cumulative effect of changes in accounting principle (a) | | — | | | — | | | — | | | 102.8 | | | — | | | (1.5) | | | 101.3 | |
| Stock option exercises | | — | | | — | | | 31.3 | | | — | | | — | | | — | | | 31.3 | |
| Stock-based compensation | | — | | | — | | | 58.3 | | | — | | | — | | | — | | | 58.3 | |
| Treasury stock acquired (3.5 shares) | | — | | | — | | | — | | | — | | | (397.8) | | | — | | | (397.8) | |
| Treasury stock reissued (1.4 shares) | | — | | | — | | | (28.8) | | | — | | | 28.8 | | | — | | | — | |
| Common stock dividends ($1.94 per share) | | — | | | — | | | — | | | (224.2) | | | — | | | — | | | (224.2) | |
| Balances, June 30, 2019 | | 154.5 | | | 1.6 | | | 1,109.3 | | | 2,087.7 | | | (1,999.8) | | | (71.2) | | | 1,127.5 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | 462.5 | | | — | | | (29.2) | | | 433.3 | |
| Cumulative effect of changes in accounting principle (b) | | — | | | — | | | — | | | 0.2 | | | — | | | — | | | 0.2 | |
| Stock option exercises | | — | | | — | | | 42.1 | | | — | | | — | | | — | | | 42.1 | |
| Stock-based compensation | | — | | | — | | | 60.6 | | | — | | | — | | | — | | | 60.6 | |
| Treasury stock acquired (0.6 shares) | | — | | | — | | | — | | | — | | | (69.3) | | | — | | | (69.3) | |
| Treasury stock reissued (1.5 shares) | | — | | | — | | | (33.5) | | | — | | | 33.5 | | | — | | | — | |
| Common stock dividends ($2.16 per share) | | — | | | — | | | — | | | (247.8) | | | — | | | — | | | (247.8) | |
| Balances, June 30, 2020 | | 154.5 | | | $ | 1.6 | | | $ | 1,178.5 | | | $ | 2,302.6 | | | $ | (2,035.7) | | | $ | (100.4) | | | $ | 1,346.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity |
| | | Shares | | Amount | |
| Balances, July 1, 2014 | | 154.5 |
| | $ | 1.6 |
| | $ | 810.7 |
| | $ | 973.9 |
| | $ | (834.8 | ) | | $ | 10.3 |
| | $ | 961.7 |
|
| Comprehensive income (loss) | | — |
| | — |
| | — |
| | 287.1 |
| | — |
| | (31.2 | ) | | 255.9 |
|
| Stock option exercises and excess tax benefits | | — |
| | — |
| | 102.6 |
| | — |
| | — |
| | — |
| | 102.6 |
|
| Stock-based compensation | | — |
| | — |
| | 38.3 |
| | — |
| | — |
| | — |
| | 38.3 |
|
| Treasury stock acquired (5.7 shares) | | — |
| | — |
| | — |
| | — |
| | (301.7 | ) | | — |
| | (301.7 | ) |
| Treasury stock reissued (4.4 shares) | | — |
| | — |
| | (96.1 | ) | | — |
| | 96.1 |
| | — |
| | — |
|
| Common stock dividends ($1.08 per share) | | — |
| | — |
| | — |
| | (129.0 | ) | | — |
| | — |
| | (129.0 | ) |
| Balances, June 30, 2015 | | 154.5 |
| | 1.6 |
| | 855.5 |
| | 1,132.0 |
| | (1,040.4 | ) | | (20.9 | ) | | 927.8 |
|
| Comprehensive income (loss) | | — |
| | — |
| | — |
| | 307.5 |
| | — |
| | (17.3 | ) | | 290.2 |
|
| Stock option exercises and excess tax benefits | | — |
| | — |
| | 46.2 |
| | — |
| | — |
| | — |
| | 46.2 |
|
| Stock-based compensation | | — |
| | — |
| | 42.8 |
| | — |
| | — |
| | — |
| | 42.8 |
|
| Treasury stock acquired (2.1 shares) | | — |
| | — |
| | — |
| | — |
| | (119.8 | ) | | — |
| | (119.8 | ) |
| Treasury stock reissued (2.2 shares) | | — |
| | — |
| | (43.3 | ) | | — |
| | 43.3 |
| | — |
| | — |
|
| Common stock dividends ($1.20 per share) | | — |
| | — |
| | — |
| | (141.7 | ) | | — |
| | — |
| | (141.7 | ) |
| Balances, June 30, 2016 | | 154.5 |
| | 1.6 |
| | 901.2 |
| | 1,297.8 |
| | (1,116.9 | ) | | (38.2 | ) | | 1,045.5 |
|
| Comprehensive income (loss) | | — |
| | — |
| | — |
| | 326.8 |
| | — |
| | (17.6 | ) | | 309.2 |
|
| Stock option exercises and excess tax benefits | | — |
| | — |
| | 101.2 |
| | — |
| | — |
| | — |
| | 101.2 |
|
| Stock-based compensation | | — |
| | — |
| | 45.9 |
| | — |
| | — |
| | — |
| | 45.9 |
|
| Treasury stock acquired (4.9 shares) | | — |
| | — |
| | — |
| | — |
| | (342.8 | ) | | — |
| | (342.8 | ) |
| Treasury stock reissued (3.1 shares) | | — |
| | — |
| | (60.7 | ) | | — |
| | 60.7 |
| | — |
| | — |
|
| Common stock dividends ($1.32 per share) | | — |
| | — |
| | — |
| | (155.2 | ) | | — |
| | — |
| | (155.2 | ) |
| Balances, June 30, 2017 | | 154.5 |
| | $ | 1.6 |
| | $ | 987.6 |
| | $ | 1,469.4 |
| | $ | (1,398.9 | ) | | $ | (55.8 | ) | | $ | 1,003.8 |
|
(a)Primarily reflects the adoption of accounting standards as described in Note 3, “Revenue Recognition.”
(b)Reflects the adoption of accounting standards as described in Note 2, “Summary of Significant Accounting Policies.”
Amounts may not sum due to rounding.
See notes to consolidated financial statements.
Broadridge Financial Solutions, Inc.
Notes to Consolidated Financial Statements
| |
NOTE 1. | BASIS OF PRESENTATION |
NOTE 1. BASIS OF PRESENTATION
A.Description of Business.Business. Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”), a Delaware corporation and a part of the S&P 500® Index (“S&P”), is a global fintechfinancial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, mutual fundsasset and wealth managers and corporate issuers. OurBroadridge’s services include investor communications, securities processing, data and analytics, and customer communications securities processing, and data and analytics solutions. In short, we provide the infrastructure that helps the financial services industry operate. With over 50 years of experience, including 10 years as an independent public company, we provide financial services firms with advanced, dependable, scalable and cost-effective integrated systems. Our systems help reduce the need for clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities. We deliver a broad range of solutions that help our clients better serve their retail and institutional customers across the entire investment lifecycle, including pre-trade, trade, and post-trade processing functionality.
The Company operates in two reportable segments: Investor Communication Solutions and Global Technology and Operations. Broadridge serves a large and diverse client base across four client groups: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. For capital markets firms, Broadridge helps clients lower costs and improve the effectiveness of their trade and account processing operations with support for their operational technologies, and their administration, finance, risk and compliance requirements. Broadridge serves asset management firms by meeting their critical needs for shareholder communications and by providing investment operations technology to support their investment decisions. For wealth management and corporations.
| |
• | Investor Communication Solutions—Broadridge offers Bank/Broker-Dealer Investor Communication Solutions, Customer Communication Solutions, Corporate Issuer Solutions, Advisor Solutions and Mutual Fund and Retirement Solutions in this segment. A large portion of Broadridge’s Investor Communication Solutions business involves the processing and distribution of proxy materials to investors in equity securities and mutual funds, as well as the facilitation of related vote processing. ProxyEdge®, Broadridge’s innovative electronic proxy delivery and voting solution for institutional investors and financial advisors, helps ensure the participation of the largest stockholders of many companies. In addition, Broadridge provides corporations with registered proxy services as well as registrar, stock transfer and record-keeping services. Broadridge also provides the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help its clients, meet their regulatory compliance needs.
|
Broadridge provides customer communicationan integrated platform with tools that optimize advisor productivity, enhance client experience and digitize enterprise operations. For corporate issuer clients, Broadridge helps manage every aspect of their shareholder communications, including registered and beneficial proxy processing, annual meeting support, transfer agency services and financial disclosure document creation, management and United States of America (“U.S.”) Securities and Exchange Commission (the “SEC”) filing services.
The Company operates in 2 reportable segments: Investor Communication Solutions (“ICS”) and Global Technology and Operations (“GTO”).
•Investor Communication Solutions - Broadridge provides governance and communications solutions through its Investor Communication Solutions business segment to the following financial services clients: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. In addition to financial services firms, Broadridge’s Customer Communications business also serves companies in the financial services, healthcare, insurance, consumer finance, telecommunications, utilities, retail banking and other service industries. The Broadridge Communications Cloud, launched
A large portion of Broadridge’s ICS business involves the processing and distribution of proxy materials to investors in 2016, provides multi-channel communications delivery, communications management, information managementequity securities and control and administration capabilities that enable and enhance our clients’ communications with their customers. Broadridge processes and distributes our clients’ essential communications including transactional (e.g., bills and statements), regulatory (e.g., explanations of benefits, notices, and trade confirmations) and marketing (e.g., direct mail) communications through print and digital channels.
Broadridge’s advisor solutions enable firms, financial advisors, wealth managers, and insurance agents to better engage with customers through cloud-based marketing and customer communication tools. Broadridge’s marketing ecosystem integrates data, content and technology to drive new client acquisition and cross-sell opportunities through the creation of sales and educational content, including seminars and a library of financial planning topicsmutual funds, as well as customizable advisor websites, search enginethe facilitation of related vote processing. ProxyEdge® (“ProxyEdge”) is Broadridge’s innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that helps ensure the voting participation of the largest stockholders of many companies. Broadridge also provides the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help its clients meet their regulatory compliance needs.
For asset managers and retirement service providers, Broadridge offers data-driven solutions and an end-to-end platform for content management, composition, and multi-channel distribution of regulatory, marketing, and electronictransactional information. Broadridge’s data and print newsletters. Broadridge’s advisoranalytics solutions also help advisorsprovide investment product distribution data, analytical tools, insights, and research to enable asset managers to optimize their practice management through customerproduct distribution across retail and account data aggregation and reporting.
Broadridge’s mutual fund and retirement solutions are a full range of tools for mutual funds, exchange traded fundinstitutional channels globally. Through Matrix Financial Solutions, Inc. (“ETF”Matrix”) providers, and asset management firms. They include data-driven technology solutions for data management, analytics, investment accounting, marketing and customer communications. In addition,, Broadridge provides mutual fund trade processing services for retirement service providers, third partythird-party administrators, financial advisors, banks and wealth management professionals through its subsidiary, Matrix Financial Solutions, Inc.
professionals.
In July 2016,addition, Broadridge acquired the North American Customer Communications (“NACC”) businessprovides public corporations and mutual funds with a full suite of DST Systems, Inc. NACC is a leading provider ofsolutions to help manage their annual meeting process, including registered and beneficial proxy distribution and processing services, proxy and annual report document management solutions, virtual shareholder meeting services and solutions that help them gain insight into their shareholder base through Broadridge’s shareholder data services. Broadridge also offers financial reporting document composition and management solutions, SEC disclosure and filing services, and registrar, stock transfer and record-keeping services through Broadridge Corporate Issuer Solutions.
We provide customer communication services includingcommunications solutions which include print and digital communication solutions, content management, postal optimization, and fulfillment. The NACC business is part of the Company’sfulfillment services. These services include customer communications businessmanagement capabilities through the Broadridge Communications CloudSM platform (the “Communications Cloud”). Through one point of integration, the Communications Cloud helps companies create, deliver, and is now known as Broadridge Customer Communications.manage multi-channel communications and customer engagement. The platform includes data-driven composition tools, identity and preference management, multi-channel optimization and digital communication experience, archive and information management, digital and print delivery, and analytics and reporting tools.
In September 2016, Broadridge acquired intellectual property assets from Inveshare, Inc. (“Inveshare”) and concurrently entered into a development agreement with an affiliate of Inveshare to use these assets to develop blockchain technology applications for Broadridge’s proxy business. Broadridge also granted Inveshare a perpetual
license to the acquired technology assets.
•Global Technology and Operations—- Broadridge is a leading global provider of securities processing solutions for capital markets, wealth management, and asset management firms. Broadridge offers a suite of advanced computerized real-time transaction processing servicessolutions that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, margin, cash management, clearance and settlement, asset servicing, reference data management, reconciliations, securities financing and accounting. collateral optimization, compliance and regulatory reporting, and portfolio accounting and custody-related services.
Broadridge’s core post-trade services help financial institutions and investment managers efficiently and cost-effectively consolidate their books and records, gather and service assets under management and manage risk, thereby enabling them to focus on their core business activities. Broadridge’s multi-asset, multi-market, multi-entity and multi-currency solutions support real-time global tradingtrade processing of equity, fixed income, mutual fund, foreign exchange, and exchange traded derivative securities in establishedderivatives.
Broadridge’s comprehensive wealth management platform offers capabilities across the entire wealth management lifecycle and emerging markets. In addition,streamlines all aspects of wealth management services, including account management, fee management and client on-boarding. The wealth management platform enables full-service, regional and independent broker-dealers and investment advisors to better engage with customers through digital marketing and customer communications tools. Broadridge also integrates data, content and technology to drive new customer acquisition, support holistic advice and cross-sell opportunities through the creation of sales and educational content, including seminars as well as customizable advisor websites, search engine marketing and electronic and print newsletters.Broadridge’s advisor solutions help advisors optimize their practice management through customer and account data aggregation and reporting.
Broadridge offers buy-side technology solutions for the global investment management industry, including portfolio management, compliance and operational workflow solutions for hedge funds, family offices, investment managers and the providers that service this space.Through Broadridge’s Managed Services, solution supportsBroadridge provides business process outsourcing services that support the entire trade lifecycle operations of ourits buy- and sell-side clients’ businesses including their securities clearing, record-keeping,through a combination of its technology and custody-related functions.
operations expertise. Broadridge also provides support for advisor, investor and compliance workflow.
In November 2016, Broadridge acquired M&O Systems, Inc. (“M&O”). M&O is a provider of SaaS-based compensation management and related solutions for broker-dealers and registered investment advisors, and is now known as Broadridge Advisor Compensation Solutions.
In March 2017, Broadridge acquired Message Automation Limited (“MAL”). MAL is a specialist provider of post-trade control solutions for sell-side and buy-side firms. The Company previously owned 25% of MAL through its acquisition of City Networks Ltd in fiscal year 2010, and purchased the remaining 75% of the company.
B. Consolidation and Basis of Presentation. The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”). and in accordance with the SEC requirements for Annual Reports on Form 10-K. These financial statements present the consolidated position of the Company and include the entities in which the Company directly or indirectly has a controlling financial interest as well as various entities in which the Company has investments recorded under either the cost or equity methodsmethod of accounting.accounting as well as certain marketable and non-marketable securities. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding. Certain prior period amounts have been reclassified to conform to the current year presentation where applicable, except as it relates to (i) Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02 “Leases”, as amended (“ASU No. 2016-02”), (ii) No. 2014-09 “Revenue from Contracts with Customers” and its related amendments (collectively “ASU No. 2014-09”), (iii) ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU No. 2016-01”), and (iv) ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU No. 2018-02”), as described further below.
Effective July 1, 2019, the Company adopted ASU No. 2016-02, as amended, by recognizing a right-of-use (“ROU”) asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the first quarterperiod of fiscal year 2017,adoption. Under this method of adoption, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. Additional information about the impact of the Company’s adoption of ASU No. 2016-02, as amended, is included in Note 2, “Summary of Significant Accounting Policies” and Note 8, “Leases”.
Effective July 1, 2018, the Company adopted ASU No. 2014-09 using the modified retrospective transition approach applied to all contracts. Under this transition approach, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. Additional information about the Company’s revenue recognition policies and the related impact of the adoption of ASU No. 2014-09 is included in Note 2, “Summary of Significant Accounting Policies” and Note 3, “Revenue Recognition”.
Effective July 1, 2018, the Company adopted ASU No. 2016-01, which requires changes in the fair value of publicly traded equity securities for which the Company does not have significant influence to be recorded as part of Net earnings rather than as Other comprehensive income (loss), net. In addition, equity investments that do not have a readily determinable fair value will be recorded at cost less impairment as further adjusted for observable price changes in orderly transactions for identical or similar investments of the issuer. The Company adopted ASU No. 2016-01 using the modified-retrospective transition approach by recording the cumulative effect of previously unrecognized gains or losses on publicly traded equity securities to retained earnings as of July 1, 2018. The provisions of ASU No. 2016-01 relative to equity investments that do not have a readily determinable fair value have been applied prospectively. The Consolidated Financial Statements have not been revised for periods prior to July 1, 2018. The impact of adopting ASU No. 2016-01 resulted in a reclassification of less than $0.1 million in unrealized gains, net from accumulated other comprehensive loss to retained earnings as of July 1, 2018.
Effective July 1, 2018, the Company adopted ASU No. 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects associated with the change in the U.S. federal corporate tax rate resulting from the U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017. The adoption of ASU No. 2018-02 resulted in an increase to retained earnings of $1.5 million.
Effective July 1, 2018, the Company adopted ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU No. 2017-07”) whereby the Company revised theits presentation in the Consolidated Statements of Earnings to separately present Interest expense, net. Previously, Interest expense,reflect the non-service cost components of net was reportedbenefit cost as part of Non-operating expenses,Other nonoperating income (expenses), net, and was not separately presented in the Consolidated Statementswhich were previously recorded as part of Earnings.Total operating expenses. All prior period information has been conformed to the current period presentation. See Note 4, “Interest Expense, Net,” for details of the Company’s Interest expense, net, Note 5, “Other Non-Operating (Income) Expenses, Net,” for details of the Company’s Other non-operating (income) expenses, net, and Note 19, “Quarterly Financial Results (Unaudited),” for details of the Company’s Operating income.
Effective in the first quarter of fiscal year 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has applied this guidance on a retrospective basis and accordingly, the Consolidated Balance Sheet as of June 30, 2016 has been updated to reflect this new classification, which resulted in a decrease in Other non-current assets of $7.1 million, a decrease in Long-term debt, excluding current portion of $7.0 million and a decrease of $0.1 million in Current portion of long-term debt at June 30, 2016.
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NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Use of Estimates. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes thereto. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions and judgment that are believed to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates. The use of estimates in specific accounting policies is described further in the notes to the Consolidated Financial Statements, as appropriate.
B. Revenue Recognition.ASU No. 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle is that an entity recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company’s revenues from clients are primarily generated from fees for providing services.investor communications and technology-enabled services and solutions. Revenues are recognized for the two2 reportable segments as follows:
•Investor Communication Solutions—Revenues are generated primarily from processing and distributing investor communications and other related services as well as vote processing and tabulation. The Company typically enters into agreements with clients to provide services on a fee for service basis. Fees received from the rendering of servicesfor processing and distributing investor communications are generally variably priced and recognized as revenue inover time as the period in whichCompany provides the services have been providedto clients based on the number of units processed, which coincides with the pattern of value transfer to the client. Broadridge works directly with corporate issuers (“Issuers”) and when collectability is reasonably assured. Revenuesmutual funds to ensure that the account holders of the Company’s bank and broker clients, who are also the shareholders of Issuers and mutual funds, receive the appropriate investor communications materials and that the services are fulfilled in accordance with each Issuer’s and mutual fund’s requirements. Broadridge works directly with the Issuers and mutual funds to resolve any issues that may arise. As such, Issuers and mutual funds are viewed as the customer of the Company’s services. As a result, revenues for
distribution services as well as proxy materials fulfillment services are recorded in revenueRevenue on a gross basis with corresponding costs including amounts remitted to nomineesthe broker-dealers and banks (referred to as “Nominees”) recorded in Cost of revenues. Fees for the Company’s investor communications services arrangements are typically billed and paid on a monthly basis following the delivery of the services. The Company also offers certain hosted service arrangements that can be priced on a fixed and/or variable basis for which revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client on a monthly basis based on the number of transactions processed or units delivered, in the case of variable priced arrangements, or a fixed monthly fee in the case of fixed price arrangements, in each case which coincides with the pattern of value transfer to the client. These services may be billed in a variety of payment frequencies depending on the specific arrangement.
•Global Technology and Operations—Revenues are generated primarily from fees for transaction processing.trade processing and related services. Revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client. The Company’s arrangements for processing and related services typically consist of an obligation to provide specific services to its clients on a when and if needed basis (a stand ready obligation) with revenue recognized from the satisfaction of the performance obligations on a monthly basis generally in the amount billable to the client. These services are generally provided under variable priced arrangements based on volume of service and can include minimum monthly usage fees. Client service agreements often include up-front consideration as well as ain addition to the recurring fee for transactiontrade processing. Up-front implementation fees, as well as certain enhancements to existing technology platforms, are deferred and recognized on a straight-line basis over the longer of the respective service term of the contract orwhich corresponds to the expected customer relationship period, whichtiming of transfer of value to the client that commences after client acceptance when the processing term begins. Fees receivedIn addition, revenue is also generated from processingthe fulfillment of professional services engagements which are generally priced on a time and outsourcing servicesmaterials or fixed price basis, and are recognized as revenue in the period in which the services have been rendered and when collectability is reasonably assured.
Revenue arrangements with multiple deliverables are evaluatedprovided to determine if the deliverables (items) should be divided into more than one unitclient which corresponds to the timing of account. An item should generally be considered a separate unittransfer of accounting if both of the following criteria are met: 1) the delivered item(s) has value to the customerclient. Finally, the Company recognizes license revenues from software term licenses installed on clients’ premises upon delivery and acceptance of the software license, assuming a standalone basis;contract is deemed to exist. Software term license revenue is not a significant portion of the Company’s revenues.
The Company uses the following methods, inputs, and 2)assumptions in determining amounts of revenue to recognize:
Identification of Performance Obligations
For revenue arrangements containing multiple goods or services, the Company accounts for the individual goods or services as a separate performance obligation if they are distinct, the good or service is separately identifiable from other items in the arrangement, includesand if a general right of return relativeclient can benefit from it on its own or with other resources that are readily available to the delivered item(s), deliveryclient. If these criteria are not met, the promised goods or services are accounted for as a combined performance of the undelivered item(s) is considered probable and substantially in our control. obligation.
Transaction Price
Once separate units of accountingperformance obligations are determined, the arrangement considerationtransaction price is allocated atto the inception ofindividual performance obligations within a contract. If the arrangement to all deliverables usingcontracted prices reflect the relative standalone selling pricesfor the individual performance obligations, no allocations are made. Otherwise, the Company uses the relative selling price method. Relative sellingmethod to allocate the transaction price, is obtained from sources such as vendor-specific objective evidence, which is based on the separate sellingobservable price forof a good or service when the Company sells that good or aservice separately in similar item.circumstances and to similar clients. If such evidence is unavailable, the Company uses the best estimate of the selling price, which includes various internal factors such as pricing strategy and market factors. A significant portion of the Company’s multi-element arrangements isperformance obligations are generated from variable transaction,transactions with volume based fees and includeincludes services that are delivered at the same time. The Company recognizes revenue related to these arrangements over time as the services are provided.provided to the client. While many of the Company’s contracts contain some component of variable consideration, the Company only recognizes variable consideration that is not expected to reverse. The Company allocates variable payments to distinct services in an overall contract when the variable payment relates specifically to that particular service and for which the variable payment reflects what the Company expects to receive in exchange for that particular service. As a result, the Company generally allocates and recognizes variable consideration in the period it has the contractual right to invoice the client.
As described above, our most significant performance obligations involve variable consideration which constitutes the majority of our revenue streams. The Company’s variable consideration components meet the criteria in ASU No. 2014-09 for exclusion from disclosure of the remaining transaction price allocated to unsatisfied performance obligations as does any contracts with clients with an original duration of one year or less. The Company has contracts with clients that vary in length depending on the nature of the services and contractual terms negotiated with the client, and they generally extend over a multi-year period.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue. Distribution revenues associated with shipping and handling activities are accounted for as a fulfillment activity and recognized as the related services or products are transferred to the client. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between client payment and the transfer of goods or services is expected to be one year or less.
C. Cash and Cash Equivalents. Investment securities with an original maturity of 90 days or less are considered cash equivalents. The fair value of the Company’s Cash and cash equivalents approximates carrying value due to their short term nature.
D. Financial Instruments. Substantially all of the financial instruments of the Company other than Long-term debt are carried at fair values, or at carrying amounts that approximate fair values because of the short maturity of the instruments. The carrying value of the Company’s long-term fixed-rate senior notes represent the face value of the long-term fixed-rate senior notes net of the unamortized discount and net of the associated unamortized debt issuance cost. The fair value of the Company’s long-term fixed-rate senior notes is based on quoted market prices. Refer to Note 12,13, “Borrowings,” for a further description of the Company’s long-term fixed-rate senior notes.
E. Property, Plant and Equipment. Property, plant and equipment is initially recorded at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of assets are as follows:
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| Equipment | | 3 to 57 years |
| Buildings and Building Improvements | | 105 to 20 years |
| Furniture and fixtures | | 4 to 7 years |
Refer to Note 8,9, “Property, Plant and Equipment, Net”, for a further description of the Company’s Property, plant and equipment, net.
F. Available-For-Sale Equity Securities. Available-for-sale equity securities Securities are non-derivatives that are reflected in Other non-current assets in the Consolidated Balance Sheets, unless management intends to dispose of the investment within twelve months of the end of the reporting period, in which case they are reflected in Other current assets in the Consolidated Balance Sheets. These investments are in entities over which the Company does not have control, joint control, or significant influence, for which the investmentsinfluence. Securities that have a readily determinable fair value are initially recognized and carried at fair value. Unrealized holding gainsSecurities without a readily determinable fair value are initially recognized at cost and losses, netsubsequently carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in transactions for an identical or similar investment of tax, on available-for-sale securities are excluded from earnings and are included in Other comprehensive income (loss), net. Realized gains and losses on available-for-sale securities are included in Other Non-Operating (Income) Expenses, Net, and when applicable, are reportedthe same issuer, such as a reclassification adjustment, net of tax, as a component of Other comprehensive income (loss), net.
Declinessubsequent capital raising transactions. Changes in the value of securities with or without a readily determinable fair value are recorded in the Consolidated Statements of available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to theirEarnings. In determining whether a security without a readily determinable fair value. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses,value is impaired, management considers (1) the length of time and the extentqualitative factors to which the fair value has been less than cost, (2)identify an impairment including the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.issuer.
G. Inventories. Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventory balances of $17.2$21.5 million and $8.2$21.1 million, consisting of forms and envelopes used in the mailing of proxy and other materials to our customers, are reflected in Other current assets in the Consolidated Balance Sheets at June 30, 20172020 and 2016,2019, respectively.
H. Deferred Client Conversion and Start-Up Costs. Direct costs that are incurred to set up or convert a client’s systems to function with the Company’s technology, that are expected to be recovered, are generally deferred and recognized on a straight-line basis over the service term of the arrangement to which the costs relate, which commences after client acceptance when the processing term begins. ToThe Company evaluates the extentcarrying value of deferred client conversion and start-up costs for impairment on the basis of whether these costs are fully recoverable from the expected future undiscounted net operating cash flows of the client to which the deferred costs exceed related implementation fee revenues, such excess costs are amortized over the service term of the contract. Deferred costs up to the amount of the related implementation fees are recognized and capitalized over the longer of the respective service term of the contract or expected customer relationship period.relate. These deferred costs are reflected in Other non-current assets in the Consolidated Balance Sheets at June 30, 20172020 and 2016,June 30, 2019, respectively. Refer to Note 10,11, “Other Non-Current Assets” for a further description of the Company’s Deferred client conversion and start-up costs.
I. Deferred Sales Commission Costs. The Company defers incremental costs to obtain a client contract that it expects to recover, which consists of sales commissions incurred, only if the contract is executed. Deferred sales commission costs are amortized on a straight-line basis using a portfolio approach consistent with the pattern of transfer of the goods or services to which the asset relates, which also considers expected customer lives. As a practical expedient, the Company recognizes the sales commissions as an expense when incurred if the amortization period of the sales commission asset that the entity otherwise would have recognized is one year or less. The Company evaluates the carrying value of deferred sales commission costs for impairment on the basis of whether these costs are fully recoverable from the expected future undiscounted net operating cash flows of the portfolio of clients to which the deferred sales commission costs relate. Refer to Note 11, “Other Non-Current Assets” for a further description of the Company’s Deferred sales commission costs.
J. Deferred Data Center Costs. Data center costs relate to conversion costs associated with our principal data center systems and applications. Costs directly related to the activities necessary to make the data center usable for its intended purpose are deferred and amortized over the life of the contract on a straight-line basis commencing on the date the data center has achieved full functionality. These deferred costs are reflected in Other non-current assets in the Consolidated Balance Sheets at June 30, 20172020 and 2016,2019, respectively. Refer to Note 10,11, “Other Non-Current Assets” for a further description of the Company’s Deferred data center costs.
K. Goodwill. The Company does not amortize goodwill but instead tests goodwill for impairment at the reporting unit level at least annually or more frequently if circumstances indicate possible impairment. The Company tests for goodwill impairment annually in the fourth quarter of the fiscal year, using the March 31 financial statement balances. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the income approach, which considers a discounted future cash flow analysis using various assumptions, including projections of revenues based on assumed long-term growth rates, estimated costs and appropriate discount rates based on the particular reporting unit’s weighted-average cost of capital. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows based on forecasted earnings before interest and taxes, and the selection of the terminal value growth rate and discount rate assumptions. The weighted-average cost of capital takes into account the relative weight of each component of our consolidated capital structure (equity and long-term debt). The estimates of long-term growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of the Company’s routine, long-range planning process. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined. Refer to Note 9,10, “Goodwill and Intangible Assets, Net” for a further description on the Company’s accounting for goodwill.
K.L. Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the estimated undiscounted future cash flows expected to be generated by the asset (or asset group). If the carrying amount of an asset (or asset group) exceeds its expected estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset (or asset group) exceeds its fair value. Intangible assets with finite lives are amortized primarily on a straight-line basis over their estimated useful lives and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Refer to Note 8,9, “Property, Plant and Equipment, Net” for a further description of the Company’s Property, plant and equipment, net. Refer to Note 6, “Acquisitions” and Note 9,10, “Goodwill and Intangible Assets, Net” for a further discussiondescription of the Company’s Intangible assets, net.
L.M. Equity Method Investments.The Company’s investments resulting in a 20% to 50% ownership interest are accounted for using the equity method of accounting when the ability to exercise significant influence is maintained by the Company. The Company’s share of net income or losses of equity method investments is included in losses/(income) from equity method investments in Other Non-Operating (Income) Expenses, Net.non-operating income (expenses), net. Equity method investments are included in Other non-current assets. Equity method investments are reviewed for impairment by assessing if a decline in market value of the investment below the carrying value is other than temporary, which considers the intent and ability to retain the investment, the length of time and extent that the market value has been less than cost, and the financial condition of the investee.
M.N. Foreign Currency Translation and Transactions. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars based on exchange rates in effect at the end of each period. Revenues and expenses are translated at average exchange rates during the periods. Currency transaction gains or losses are included in Non-operating expenses,income (expenses), net. Gains or losses from balance sheet translation are included in Accumulated other comprehensive income (loss).
N.O. Distribution Cost of Revenues. Distribution cost of revenues consists primarily of postage related expenses incurred in connection with ourthe Company’s Investor Communication Solutions segment, as well as Matrix Financial Solutions, Inc. administrative services expenses. These costs are reflected in Cost of revenues in the Consolidated Statements of Earnings.
O.P. Stock-Based Compensation. The Company accounts for stock-based compensation by recognizing the measurement of stock-based compensation expense in Net earningsthe Consolidated Statements of Earnings based on the fair value of the award on the date of grant. For stock options issued, the fair value of each stock option was estimated on the date of grant using a binomial option-pricing model.
The binomial model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. For restricted stock units, the fair value of the award is based on the current fair value of the Company’s stock on the date of grant less the present value of future expected dividends discounted at the risk-free-rate derived from the U.S. Treasury yield curve in effect at the time of grant. Refer to Note 13,15, “Stock-Based Compensation” for a further description of the Company’s stock-based compensation.
Q. Internal Use Software. Expenditures for major software purchases and software developed or obtained for internal use are capitalized and amortized generally over a three-three- to five-yearfive-year period on a straight-line basis. For software developed or obtained for internal use, the Company’s accounting policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to direct time spent on such projects. Costs associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are expensed as incurred. The Company also expenses internal costs related to minor upgrades and enhancements, as it is impractical to separate these costs from normal maintenance activities. Refer to Note 9,10, “Goodwill and Intangible assets, Net” for a further description of the Company��sCompany’s capitalized software.
Q.R. Income Taxes. The Company accounts for income taxes under the asset and liability method, which establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements or tax returns. Deferred tax assets and liabilities are recognized based on temporary differences between the consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
Judgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that the Company will not be able to utilize the deferred tax assets attributable to net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings. The determination as to whether a deferred tax asset will be recognized is made on a jurisdictional basis and is based on the evaluation of historical taxable income or loss, projected future taxable income, carryforward periods, scheduled reversals of deferred tax liabilities and tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The assumptions used to project future taxable income requires significant judgment and are consistent with the plans and estimates used to manage the underlying businesses. Refer to Note 15,17, “Income Taxes” for a further description of the Company’s income taxes.
R.S. Advertising Costs. Advertising costscosts are expensed at the time the advertising takes place. Total advertising costs were $4.2$6.8 million, $2.4$4.1 million and $2.4$6.3 million for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, respectively.
S.T. Concentration of Risk. The majority of our clients operate in the financial services industry. In the fiscal years 2017, 2016ended June 30, 2020, 2019 and 2015,2018, we derived approximately 20%, 25%22% and 25%21% of our consolidated revenues from our five largest clients in that particular fiscal year, respectively, the majority of whom operate in the financial services industry.respectively. Our largest single client in each of our fiscal year 2017, 2016years 2020, 2019 and 20152018 accounted for approximately 6%, 7% and 6% of our consolidated revenues, respectively.revenues.
T.U. New Accounting Pronouncements. In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the
Recently Adopted Accounting for Goodwill Impairment” (“ASU No. 2017-04”). ASU No. 2017-04 removes Step 2 of the current goodwill impairment test, which currently requires a hypothetical purchase price allocation if the fair value of a reporting unit were to be less than its book value, for purposes of determining the amount of goodwill impaired. Under ASU No. 2017-04, the Company would now recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds the fair value of the reporting unit; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. ASU No. 2017-04 will be effective for the Company beginning in the first quarter of fiscal 2021, to be applied on a prospective basis. The pending adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business” (“ASU No. 2017-01”).
ASU No. 2017-01 narrows the definition of a business, in part by concluding that an integrated set of assets and activities (referred to as a “set”) is not a business when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets. ASU No. 2017-01 is effective for the Company beginning in the first quarter of fiscal year 2019, to be applied on a prospective basis. The pending adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including presenting the excess tax benefit or deficit from the exercise or vesting of share-based payments in the income statement, a revision to the criteria for classifying an award as equity or liability, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. In addition, ASU No. 2016-09 eliminates the excess tax benefit from the assumed proceeds calculation under the treasury stock method for purposes of calculating diluted shares. ASU No. 2016-09 is effective for the Company beginning in the first quarter of fiscal year 2018. Certain provisions of ASU No. 2016-09 are required to be adopted prospectively, most notably the requirement to recognize the excess tax benefit or deficit in the income statement, while other provisions of ASU No. 2016-09 require modified retrospective application or in some cases full retrospective application. The most significant impact of the pending adoption of this guidance on the Company’s Consolidated Financial Statements, specifically the Company’s Consolidated Statements of Earnings, will largely be dependent upon the intrinsic value of the Company’s share-based compensation awards at the time of exercise or vesting and may result in more variability in the Company’s effective tax rates and Net earnings, and may also impact the dilution of common stock equivalents. For the fiscal years ending June 30, 2017, 2016 and 2015, the Company recorded $40.6 million, $21.3 million and $40.5 million, respectively, to consolidated equity as excess tax benefits from share-based compensation awards. In addition, upon adoption of ASU No. 2016-09, the Company will classify the excess tax benefit or deficit as an operating activity in the Consolidated Statements of Cash Flows rather than as a financing activity.
Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“as subsequently amended by ASU No. 2016-02”2018-10, “Codification Improvements to Topic 842, Leases,” ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” and ASU No. 2018-20, “Leases (Topic 842): Narrow Scope Improvements for Lessors" (collectively referred to herein as “ASU No. 2016-02, as amended”). Under ASU No. 2016-02, as amended, all lease arrangements, with certain limited exceptions, exceeding a twelve monthtwelve-month term must now be recognized as assets and liabilities on the balance sheet of the lessee by recording a right-of-useROU asset and corresponding lease obligation generally equal to the present value of the future lease payments over the lease term. Further, the income statement will reflect lease expense for leases classified as operating and amortization/interest expense for leases classified as financing, determined using classification criteria substantially similar to the current lease guidance for distinguishing between an operating and capital lease. ASU No. 2016-02, as amended, also contains certain additional qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU No. 2016-02, isas amended, was effective for the Company in the first quarter of fiscal year 2020 and will becould have been adopted onusing either a modified retrospective basis which will requirerequired adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently evaluatingstatements, or by recognizing a cumulative-effect adjustment to the impactopening balance of retained earnings at the pending adoptiondate of ASU No. 2016-02 on the Company’s Consolidated Financial Statements.initial application.
70
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU No. 2016-01”), which provides guidance for the recognition, measurement, presentation and disclosure of financial assets and liabilities. Under ASU No. 2016-01, changes in the fair value of publicly traded equity securities for which the Company does not have significant influence would be recorded as part of Net earnings rather than as Other comprehensive income (loss), net. In addition, equity investments that do not have a readily determinable fair value will be recorded at cost less impairment as further adjusted for observable price changes in orderly transactions for identical or similar investments of the issuer. ASU No. 2016-01 is effective for the Company beginning
Accordingly, in the first quarter of fiscal year 2019. The pending2020, the Company adopted ASU No. 2016-02, as amended, by recognizing a ROU asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the period of adoption. Under this method of adoption, of this guidance isthe Company has not expected to have a material impact onrestated the Company’sprior period Consolidated Financial Statements.
In November 2015,Statements presented to the FASB issued ASU No. 2015-17, “Balance Sheet Classificationcurrent period presentation. The Company elected the transition package of Deferred Taxes” (“ASU No.
2015-17”). The amendmentsthree practical expedients permitted under the transition guidance in ASU No. 2015-17 require entities that present2016-02, as amended, to not reassess prior conclusions related to whether (i) a classified balance sheet to classify all deferred tax liabilitiescontract contains a lease, (ii) the classification of an existing lease, and assets as a noncurrent amount. The amendments in ASU No. 2015-17 are effective for the Company in the first quarter of fiscal year 2018, applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The pending adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU No. 2015-05”). ASU No. 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should
account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU No. 2015-05 does not change(iii) the accounting for initial direct costs. The Company also elected accounting policies to (i) not separate the non-lease components of a customer’s accountingcontract from the lease component to which they relate, and (ii) not recognize assets or liabilities for service contracts. Followingleases with a term of twelve months or less and no purchase option that the Company is reasonably certain of exercising.
On the Consolidated Balance Sheet as of July 1, 2019, the adoption of ASU No. 2015-05, all software licenses within its scope are accounted for consistent with other licenses of intangible assets. The Company adopted No. 2015-05 effective2016-02, as amended, resulted in the first quarterrecognition of fiscal year 2017 prospectivelylease liabilities of $252.0 million and ROU assets of $235.4 million, which include the impact of existing deferred rents and tenant improvement allowances for operating leases, as well as a cumulative-effect adjustment to all arrangements entered into or materially modified after the effective date.opening balance of retained earnings of $0.2 million. The adoption of this guidanceASU No. 2016-02, as amended, did not have a material impact on the Company’s Consolidated Financial Statements.Statements of Earnings, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Cash Flows, or the Consolidated Statements of Stockholders’ Equity.
In May 2014,Effective July 1, 2018, the FASB issuedCompany adopted ASU No. 2014-09. ASU No. 2014-09 “Revenueoutlines a single comprehensive model for entities to use in accounting for revenue arising from Contractscontracts with Customers” (“ASU No. 2014-9”), to supersede nearly all existingcustomers and supersedes most prior revenue recognition guidance, under U.S. GAAP.including industry specific requirements. It also includes guidance on accounting for the incremental costs of obtaining and costs incurred to fulfill a contract with a customer. The core principle of ASU No. 2014-09the revenue model is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expectedto which the entity expects to be receivedentitled in exchange for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2014-09 also requires certain enhanced disclosures, including disclosures on the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers - Deferral of the Effective Date,” which defers the effective date
The Company identified certain impacts of ASU No. 2014-09 by one year, with an option that would permit companies to adopt the standard as early as the original effective date. As a result, ASU No. 2014-09 will be effective for the Company as of the first quarter of fiscal year 2019 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU No. 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU No. 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU No. 2014-09.
In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU No. 2016-08”), which provides clarifying implementation guidance to the principal versus agent provisions of ASU No. 2014-09.
In April 2016, the FASB issued ASU No. 2016-10 “Identifying Performance Obligations and Licensing” (“ASU No. 2016-10”), which provides clarifying implementation guidance for applying ASU No. 2014-09 with respect to identifying performance obligations and the accounting for licensing arrangements.
In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU No. 2016-12”), which provides certain clarifying guidance for ASU No. 2014-09 relative to treatment of sales taxes, noncash consideration, collectibility and certain aspects of transitional guidance.
In December 2016, the FASB issued ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”, which provides certain technical corrections for ASU No. 2014-09 including the impairment testing of capitalized contract costs, disclosure of remaining performance obligations, and certain other matters.
Each of ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20 have the same effective date as ASU No. 2014-09. The Company has not yet elected a transition method. While the Company is still in the process of evaluating the full impact of the pending adoption of ASU No. 2014-09 and related amendments on its Consolidated Financial Statements and related disclosures, including assessing the need for system or process changes or enhancements, to date the Company has identified certain expected impacts of the new standard on its Consolidated Financial Statements. Specifically, under ASU No. 2014-09, the Company expects to capitalizenow capitalizes certain sales commissions, as well as capitalizeand it capitalizes certain additional costs that are part of setting up or converting a client’s systems to function with the Company’s technology, both of which are currentlywere previously expensed. Additionally, the Company expects to recognizenow recognizes proxy revenue predominantlyprimarily at the time of proxy materials distribution to the client’s shareholders rather than on the date of the client’s shareholder meeting, which is typically 30 days after the proxy materials distribution. Other expected changes to the timing of revenue recognition include deferral of revenue from certain transaction processing platform enhancements as well as acceleration of revenue from certain multi-year software license arrangements that are currentlywas previously recognized over the term of the software subscription.
The Company adopted ASU No. 2014-09 effective July 1, 2018 using the modified retrospective transition method applied to all contracts, which resulted in a cumulative-effect increase in the opening balance of retained earnings of $101.3 million, most notably related to the deferral of incremental sales commissions incurred in obtaining contracts in prior periods. Under this transition approach, the Company did not restate the prior period Consolidated Financial Statements presented. See Note 3, “Revenue Recognition” for additional information about the Company’s revenue recognition policies.
U.Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU No. 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements under GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU No. 2018-15 will be effective for the Company beginning in the first quarter of fiscal year 2021. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The pending adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses” (“ASU No. 2016-13”), which prescribes an impairment model for most financial instruments based on expected losses rather than incurred losses. Under this model, an estimate of expected credit losses over the contractual life of the instrument is to be recorded as of the end of a reporting period as an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial instrument. ASU No. 2016-13 is effective for the Company in the first quarter of fiscal year 2021. For most instruments, entities must apply the standard using a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The pending adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
V. Subsequent Events. In preparing the accompanying Consolidated Financial Statements, the Company has reviewed events that have occurred after June 30, 20172020 through the date of issuance of the Consolidated Financial Statements. Refer to Note 20,22, “Subsequent Events” for a description of the Company’s subsequent events.
NOTE 3. REVENUE RECOGNITION
Disaggregation of Revenue
The Company has presented below its revenue disaggregated by product line and by revenue type within each of its Investor Communication Solutions and Global Technology and Operations reportable segments.
Fee revenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity. In addition, the level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven fee revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services, as well as Matrix administrative services.
| | | | | | | | | | | |
| Fiscal Year Ended June 30, 2020 | | Fiscal Year Ended June 30, 2019 |
| (in millions) | | (in millions) |
| Investor Communication Solutions | | | |
| Equity proxy | $ | 473.3 | | | $ | 437.0 | |
| Mutual fund and exchange traded funds (“ETF”) interims | 284.6 | | | 265.9 | |
| Customer communications and fulfillment | 735.4 | | | 736.4 | |
| Other ICS | 368.7 | | | 324.8 | |
| Total ICS Recurring fee revenues | 1,862.0 | | | 1,764.0 | |
| | | |
| Equity and other | 79.5 | | | 107.3 | |
| Mutual funds | 98.5 | | | 137.2 | |
| Total ICS Event-driven fee revenues | 178.0 | | | 244.5 | |
| | | |
| Distribution revenues | 1,451.2 | | | 1,459.8 | |
| | | |
| Total ICS Revenues | $ | 3,491.3 | | | $ | 3,468.3 | |
| | | |
| Global Technology and Operations | | | |
| Equities and other | $ | 996.2 | | | $ | 831.7 | |
| Fixed income | 178.0 | | | 164.6 | |
| Total GTO Recurring fee revenues | 1,174.2 | | | 996.3 | |
| | | |
| Foreign currency exchange | (136.4) | | | (102.4) | |
| | | |
| Total Revenues | $ | 4,529.0 | | | $ | 4,362.2 | |
| | | |
| Revenues by Type | | | |
| Recurring fee revenues | $ | 3,036.3 | | | $ | 2,760.3 | |
| Event-driven fee revenues | 178.0 | | | 244.5 | |
| Distribution revenues | 1,451.2 | | | 1,459.8 | |
| Foreign currency exchange | (136.4) | | | (102.4) | |
| Total Revenues | $ | 4,529.0 | | | $ | 4,362.2 | |
Contract Balances
The following table provides information about contract assets and liabilities:
| | | | | | | | | | | |
| June 30,
2020 | | June 30,
2019 |
| (in millions) | | |
| Contract assets | $ | 81.9 | | | $ | 47.5 | |
| Contract liabilities | $ | 286.6 | | | $ | 251.6 | |
Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and certain other client contracts. Contract liabilities represent consideration received or receivable from clients before the transfer of control occurs (deferred revenue). Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
During the fiscal year ended June 30, 2020, contract assets increased primarily due to an increase in software term license revenues recognized but not yet invoiced, while contract liabilities increased primarily due to recent acquisitions and the timing of client payments. The Company recognized $141.2 million of revenue during the fiscal year ended June 30, 2020 that was
included in the contract liability balance as of June 30, 2019. The Company recognized $96.4 million of revenue during the fiscal year ended June 30, 2019 that was included in the contract liability balance as of July 1, 2018.
| |
NOTE 3. | EARNINGS PER SHARE |
NOTE 4. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing the Company’s Net earnings by the basic Weighted-average shares outstanding for the periods presented. The Company calculates diluted EPS using the treasury stock method, which reflects the potential dilution that could occur if outstanding stock options at the presented date are exercised and restricted stock unit awards have vested.
As of June 30, 2017, 20162020, 2019 and 2015,2018, the computation of diluted EPS did not include 0.5 million, 0.70.4 million and 0.91.1 million options to purchase Broadridge common stock, respectively, as the effect of their inclusion would have been anti-dilutive.
The following table sets forth the denominators of the basic and diluted EPS computations:
| | | | | Years ended June 30, | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | (in millions) | |
| Weighted-average shares outstanding: | | | | | | | Weighted-average shares outstanding: | |
| Basic | | 118.0 |
| | 118.3 |
| | 119.9 |
| Basic | | 114.7 | | | 115.9 | | | 116.8 | |
| Common stock equivalents | | 2.8 |
| | 3.4 |
| | 4.1 |
| Common stock equivalents | | 2.3 | | | 2.9 | | | 3.5 | |
| Diluted | | 120.8 |
| | 121.6 |
| | 124.0 |
| Diluted | | 117.0 | | | 118.8 | | | 120.4 | |
The following table sets forth the computation of basic EPS utilizing Net earnings for the following fiscal yearyears and the Company’s basic Weighted-average shares outstanding:
| | | | | Years ended June 30, | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| | | (in millions, except per share amounts) | | | (in millions, except per share
amounts) | |
| Net earnings | | $ | 326.8 |
| | $ | 307.5 |
| | $ | 287.1 |
| Net earnings | | $ | 462.5 | | | $ | 482.1 | | | $ | 427.9 | |
| Basic Weighted-average shares outstanding | | 118.0 |
| | 118.3 |
| | 119.9 |
| Basic Weighted-average shares outstanding | | 114.7 | | | 115.9 | | | 116.8 | |
| Basic EPS | | $ | 2.77 |
| | $ | 2.60 |
| | $ | 2.39 |
| Basic EPS | | $ | 4.03 | | | $ | 4.16 | | | $ | 3.66 | |
The following table sets forth the computation of diluted EPS utilizing Net earnings for the following fiscal yearyears and the Company’s diluted Weighted-average shares outstanding:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions, except per share
amounts) | | | | |
| Net earnings | | $ | 462.5 | | | $ | 482.1 | | | $ | 427.9 | |
| Diluted Weighted-average shares outstanding | | 117.0 | | | 118.8 | | | 120.4 | |
| Diluted EPS | | $ | 3.95 | | | $ | 4.06 | | | $ | 3.56 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions, except per share amounts) |
| Net earnings | | $ | 326.8 |
| | $ | 307.5 |
| | $ | 287.1 |
|
| Diluted Weighted-average shares outstanding | | 120.8 |
| | 121.6 |
| | 124.0 |
|
| Diluted EPS | | $ | 2.70 |
| | $ | 2.53 |
| | $ | 2.32 |
|
| |
NOTE 4. | INTEREST EXPENSE, NET |
NOTE 5. INTEREST EXPENSE, NET
Interest expense, net consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Interest expense on borrowings | | $ | (62.5) | | | $ | (45.9) | | | $ | (42.4) | |
| Interest income | | 3.7 | | | 4.2 | | | 3.8 | |
| Interest expense, net | | $ | (58.8) | | | $ | (41.8) | | | $ | (38.6) | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Interest expense on borrowings | | $ | 44.7 |
| | $ | 28.4 |
| | $ | 25.4 |
|
| Interest income | | (2.0 | ) | | (2.6 | ) | | (2.8 | ) |
| Interest expense, net | | $ | 42.7 |
| | $ | 25.7 |
| | $ | 22.6 |
|
| |
NOTE 5. | OTHER NON-OPERATING (INCOME) EXPENSES, NET |
Other non-operating (income) expenses, net consisted of the following:NOTE 6. ACQUISITIONS
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Losses from equity method investments | | $ | 5.2 |
| | $ | 5.1 |
| | $ | 5.5 |
|
| Foreign currency transaction (gain) loss | | 4.8 |
| | 0.5 |
| | (0.1 | ) |
| MAL investment gain | | (9.3 | ) | | — |
| | — |
|
| Other non-operating (income) expenses, net | | $ | 0.8 |
| | $ | 5.6 |
| | $ | 5.4 |
|
Assets acquired and liabilities assumed in business combinations are recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition date based upon the estimated fair values at such date. The results of operations of the businessbusinesses acquired by the Company are included in the Company’s Consolidated Statements of Earnings sincebeginning on the respective datedates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed is allocated to Goodwill.
The Company is providing pro forma supplemental information for the NACC acquisition as the Company deemed this acquisition to be material to the Company’s operating results.
Pro forma supplemental financial information for all acquisitions excluding NACC, is not provided as the impact of these acquisitions on the Company’s operating results financial position or cash flows was not material for any acquisition individually.individually or in the aggregate.
The following represents the fiscal year 2020 acquisitions:
Fiscal Year 20172020 Acquisitions:
BUSINESS COMBINATIONS
NACC
Financial information on each transaction is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shadow Financial | | Fi360 | | Clear-Structure | | Funds-Library | | Total |
| | (in millions) | | | | | | | | |
| Cash payments, net of cash acquired | | $ | 35.6 | | | $ | 116.0 | | | $ | 59.1 | | | $ | 69.6 | | | $ | 280.3 | |
| Deferred payments, net | | 2.9 | | | 3.5 | | | 2.6 | | | — | | | 9.0 | |
| Contingent consideration liability | | — | | | — | | | 7.0 | | | — | | | 7.0 | |
| Aggregate purchase price | | $ | 38.5 | | | $ | 119.5 | | | $ | 68.7 | | | $ | 69.6 | | | $ | 296.3 | |
| | | | | | | | | | |
| Net tangible assets acquired / (liabilities assumed) | | $ | (0.2) | | | $ | (7.9) | | | $ | 0.6 | | | $ | (3.3) | | | $ | (10.8) | |
| Goodwill | | 17.6 | | | 84.4 | | | 44.2 | | | 39.1 | | | 185.3 | |
| Intangible assets | | 21.1 | | | 43.1 | | | 23.9 | | | 33.8 | | | 121.8 | |
| Aggregate purchase price | | $ | 38.5 | | | $ | 119.5 | | | $ | 68.7 | | | $ | 69.6 | | | $ | 296.3 | |
Shadow Financial Systems, Inc. (“Shadow Financial”)
In July 2016,October 2019, the Company’s Investor Communication Solutions segmentCompany acquired the net assets of NACC, Shadow Financial, a leading provider of customer communication services including printmulti-asset class post-trade solutions for the capital markets industry. The acquisition builds upon Broadridge’s post-trade processing capabilities by adding a market-ready solution for exchanges, inter-dealer brokers and digital communication solutions, content management, postal optimization,proprietary trading firms. In addition, the acquisition adds capabilities across exchange traded derivatives and fulfillment.cryptocurrency. Shadow Financial is included in our GTO reportable segment.
The aggregate purchase price was $410.0 million in cash, or $406.2 million net of cash acquired and other closing adjustments. Net tangible assets acquired in the transaction were $52.2 million. This acquisition resulted in $135.7 million of •Goodwill which is primarily tax deductible.
•Intangible assets acquired which totaled $218.3 million, consist primarily of customer relationships and software technology, which are being amortized over a ten-yearseven-year life and seven-yearfive-year life, respectively. The results of NACC’s operations were included in the Company’s Consolidated Financial Statements in this Annual Report on Form 10-K from the date of acquisition.
The following summarizes the allocation of the purchase price forwill be finalized upon completion of the NACC acquisition (in millions):
|
| | | |
| | NACC |
| | |
| Accounts receivable, net | $ | 89.1 |
|
| Other current assets | 19.5 |
|
| Property, plant and equipment | 45.0 |
|
| Intangible assets | 218.3 |
|
| Goodwill | 135.7 |
|
| Other non-current assets | 1.6 |
|
| Accounts payable | (14.3 | ) |
| Accrued expenses and other current liabilities | (62.9 | ) |
| Deferred taxes | (21.9 | ) |
| Deferred revenue | (1.1 | ) |
| Other long term liabilities | (2.9 | ) |
| Consideration paid, net of cash acquired | $ | 406.2 |
|
Unaudited Pro Forma Financial Information
The unaudited pro forma condensed consolidated resultsanalysis of operations in the table below are provided for illustrative purposes only and summarize the combined resultsfair values of operations of Broadridge and NACC. For purposes of this pro forma presentation, the acquisition of NACC is assumed to have occurred on July 1, 2015. The pro forma financial information for all periods presented also includes the estimated business combination accounting effects resulting from this acquisition, notably amortization expense from the acquired intangiblebusiness’ assets interest expense from a recent bond offering, the proceeds of which were used to fund the acquisition, and certain integration related expenses.liabilities.
This unaudited pro forma financial information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had actually occurred on July 1, 2015, nor of the results of operations that may be obtained in the future.
|
| | | | | | | |
| | Years ended June 30, |
| | 2017 | | 2016 |
| | |
| Revenues | $ | 4,142.6 |
| | $ | 4,059.3 |
|
| Net earnings | $ | 335.6 |
| | $ | 312.4 |
|
| | | | |
| Basic earnings per share | $ | 2.84 |
| | $ | 2.64 |
|
| Diluted earnings per share | $ | 2.78 |
| | $ | 2.57 |
|
M&O
In November 2016,2019, the Company’s Global Technology and Operations segmentCompany acquired M&O. M&O isFi360, a provider of SaaS-based compensation managementfiduciary and relatedRegulation Best Interest solutions for broker-dealersthe wealth and registered investmentretirement industry, including the accreditation and continuing education for the Accredited Investment Fiduciary® Designation, the leading designation focused on fiduciary responsibility. The acquisition enhances Broadridge’s retirement solutions by providing wealth and retirement advisors with fiduciary tools that complement its Matrix trust and trading platform. The acquisition also further strengthens Broadridge’s data and analytics tools and solutions suite that enable asset managers to grow their businesses by providing greater transparency into the retirement market. Fi360 is now known as Broadridge Advisor Compensation Solutions. The aggregate purchase price was $24.9 millionincluded in cash, consisting of $22.4 million of cash payments as well as a $2.5 million note payable to the sellers that will be settled in the future. Net tangible liabilities assumed in the transaction were $3.5 million. This acquisition resulted in $17.2 million of our ICS reportable segment.
•Goodwill which is not tax deductible.
•Intangible assets acquired which totaled $11.2 million, consist primarily of customer relationships and acquired software technology, which are being amortized over a seven-yearseven-year life and six-yearfive-year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities.
MALClearStructure Financial Technology, LLC (“ClearStructure”)
In March 2017,November 2019, the Company’s Global Technology and Operations segmentCompany acquired MAL, which isClearStructure, a specialistglobal provider of post-trade controlportfolio management solutions for sell-sidethe private debt markets. ClearStructure’s component services enhances Broadridge’s existing multi-asset class, front-to-back office asset management technology suite, providing Broadridge clients with a capability to access the public and buy-side firms. The Company previously owned 25% of MAL through its acquisition of City Networks Ltdprivate markets. ClearStructure is included in fiscal year 2010, and purchased the remaining 75% of the company for an aggregate purchase price of $24.8 million in cash, consisting of $20.1 million of cash payments net of cash acquired, a $3.2 million note payable to the sellers that will be settled in the future, and a contingent consideration liability with an acquisition date fair value of $1.4 million. our GTO reportable segment.
•The contingent consideration liability is payable over the next four yearsthrough fiscal year 2023 upon the achievement by the acquired business of certain revenue targets, and earnings targets. The contingent consideration liability has a maximum potential pay-out of $2.8$12.5 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of the Company’s 25% pre-existing investment in MAL was determined to be $9.6 million, implied by the aggregate purchase price of the remaining 75% purchased, which resulted in a non-cash, nontaxable gain on investment of $9.3 million (“MAL investment gain”), included as part of Other non-operating (income) expenses, net. Net tangible liabilities assumed in the transaction were $2.9contingent consideration liability at June 30, 2020 is $7.0 million. This acquisition resulted in $22.6 million of
•Goodwill which is notprimarily tax deductible.
•Intangible assets acquired which totaled $14.7 million, consist primarily of customer relationships and acquired software technology, which are being amortized over a seven-yearseven-year life and five-yearfive-year life, respectively.
ASSET ACQUISITION
PurchaseThe allocation of Intellectual Property
In September 2016, the Company’s Investor Communication Solutions segment acquired intellectual property assets from Inveshare and concurrently entered into a development agreement with an affiliate of Inveshare to use these assets to develop blockchain technology applications for Broadridge’s proxy business. The purchase price was $95.0 million, which consisted of a $90.0 million cash paymentwill be finalized upon closingcompletion of the acquisitionanalysis of the fair values of the acquired business’ assets and liabilities, and is still subject to a $5.0 million obligation payable whichworking capital adjustment.
FundsLibrary Limited (“FundsLibrary”)
In February 2020, the Company expectsacquired FundsLibrary, a provider of fund document and data dissemination in the European market. FundsLibrary's solutions enable fund managers to pay by September 2017, plus an additional deferred paymentincrease distribution opportunities and help them comply with regulations such as Solvency II and MiFID II. The business will be combined with FundAssist Limited (“FundAssist”), Broadridge's existing European funds regulatory communications business. The combined solution provides funds with a single, integrated provider to manage data, perform calculations, compose documents, manage regulatory compliance and disseminate information across multiple jurisdictions. FundsLibrary is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of $40.0 million to an affiliate of Inveshare upon deliverycustomer relationships and software technology, which are being amortized over a seven-year life and three-year life, respectively.
The allocation of the new blockchain technology applications, whichpurchase price will be finalized upon completion of the Company expectsanalysis of the fair values of the acquired business’ assets and liabilities, and is still subject to pay by September 2018.a working capital adjustment.
The following represents the fiscal year 2019 acquisitions:
Fiscal Year 20162019 Acquisitions:
QED
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Rockall | | RPM | | TD Ameritrade* | | Total |
| | (in millions) | | | | | | |
| Cash payments, net of cash acquired | | $ | 34.9 | | | $ | 258.3 | | | $ | 61.5 | | | $ | 354.7 | |
| Deferred payments, net | | 0.5 | | | 40.9 | | | — | | | 41.4 | |
| Contingent consideration liability | | 7.0 | | | 0.8 | | | — | | | 7.9 | |
| Aggregate purchase price | | $ | 42.4 | | | $ | 300.1 | | | $ | 61.5 | | | $ | 404.0 | |
| | | | | | | | |
| Net tangible assets acquired / (liabilities assumed) | | $ | (2.9) | | | $ | 6.8 | | | $ | — | | | $ | 3.9 | |
| Goodwill | | 31.1 | | | 181.6 | | | 27.1 | | | 239.8 | |
| Intangible assets | | 14.2 | | | 111.7 | | | 34.4 | | | 160.3 | |
| Aggregate purchase price | | $ | 42.4 | | | $ | 300.1 | | | $ | 61.5 | | | $ | 404.0 | |
* Broadridge acquired the retirement plan custody and trust assets from TD Ameritrade Trust Company.
Rockall Technologies Limited (“Rockall”)
In November 2015,May 2019, the Company’s Investor Communication Solutions segment acquired QED,Company completed the acquisition of Rockall, a provider of investment accountingsecurities-based lending (“SBL”) and collateral management solutions that serves public sector institutional investors.for wealth management firms and commercial banks. The aggregate purchase price was $15.5 million, consisting of $13.3 million of cash payments, a $1.5 million note payableacquisition expanded Broadridge's core front-to-back office wealth capabilities, providing innovative SBL and collateral management technology solutions to the sellers that will be settledhelp commercial banks manage risk and optimize clients' securities lending and financing needs. Rockall is included in the future, as well as aour GTO reportable segment.
•The contingent consideration liability with an acquisition dateis payable over the next two years upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $10.1 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of $0.7the contingent consideration liability at June 30, 2020 is $7.6 million.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a four-year life and six-year life, respectively.
•In the first quarter of fiscal year 2020, the Company settled deferred payment obligations totaling $0.5 million.
RPM Technologies (“RPM”)
In June 2019, Broadridge acquired RPM, a provider of enterprise wealth management software solutions and services. The addition of RPM’s state-of-the-art technology platforms builds upon our Canadian wealth management business, providing a solution set for the retail banking sector with enhanced mutual fund and deposit manufacturing capabilities. RPM is included in our GTO reportable segment.
•The contingent consideration liability is payable over the next two years upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $3.7 million thatupon the achievement in full of the defined financial targets by the acquired business.
•The fair value of the contingent consideration liability at June 30, 2020 is $0.8 million.
•Goodwill is partially tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a five-year life and seven-year life, respectively.
•In the first quarter of fiscal year 2020, the Company settled deferred payment obligations totaling $40.9 million.
Retirement Plan Custody and Trust Assets from TD Ameritrade
In June 2019, Broadridge acquired the retirement plan custody and trust assets from TD Ameritrade Trust Company, a subsidiary of TD Ameritrade Holding Company. The acquisition expands Broadridge's suite of solutions for the growing qualified and non-qualified retirement plan services market and the support it provides for third-party administrators, financial advisors, record-keepers, banks, and brokers. This acquisition is included in our ICS reportable segment.
•Goodwill is tax deductible.
•Intangible assets acquired consist of customer relationships, which are being amortized over a seven-year life.
The following represents the fiscal year 2018 acquisitions:
Fiscal Year 2018 Acquisitions:
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Summit | | ActivePath | | FundAssist | | Total |
| | (in millions) | | | | | | |
| Cash payments, net of cash acquired | | $ | 26.4 | | | $ | 21.8 | | | $ | 41.3 | | | $ | 89.5 | |
| Deferred payments, net | | 1.4 | | | 2.4 | | | — | | | 3.8 | |
| Contingent consideration liability (acquisition date fair value) | | 2.7 | | | — | | | 6.4 | | | 9.2 | |
| Aggregate purchase price | | $ | 30.6 | | | $ | 24.2 | | | $ | 47.7 | | | $ | 102.5 | |
| | | | | | | | |
| Net tangible assets acquired / (liabilities assumed) | | $ | 0.2 | | | $ | (10.0) | | | $ | (1.9) | | | $ | (11.7) | |
| Goodwill | | 18.5 | | | 28.7 | | | 29.2 | | | 76.3 | |
| Intangible assets | | 12.0 | | | 5.6 | | | 20.4 | | | 38.0 | |
| Aggregate purchase price | | $ | 30.6 | | | $ | 24.2 | | | $ | 47.7 | | | $ | 102.5 | |
Summit Financial Disclosure, LLC (“Summit”)
In October 2017, the Company acquired Summit, a full service financial document management solutions provider, including document composition and regulatory filing services. Summit is included in our ICS reportable segment.
•The contingent consideration liability is payable over the next three years upon the achievement by the acquired business of certain revenue and earnings targets. The contingent consideration liabilitytargets, and has a maximum potential pay-out of $3.5$11.0 million upon the achievement in full of the defined financial targets by the acquired business. Net tangible liabilities assumed in
•The fair value of the transaction were $0.4contingent consideration liability at June 30, 2020 is $7.3 million. This acquisition resulted in $11.1 million of
•Goodwill which is primarily tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which totaled $4.8 million,are being amortized over a five-year life and seven-year life, respectively.
ActivePath Solutions LTD “(ActivePath”)
In March 2018, the Company acquired ActivePath, a digital technology company with technology that enhances the consumer experience associated with consumer statements, bills and regulatory communications. ActivePath is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a five-year life and two-year life, respectively.
FundAssist Limited (“FundAssist”)
In May 2018, the Company acquired FundAssist, a regulatory, marketing and sales solutions service provider to the global investments industry. FundAssist is included in our ICS reportable segment.
•The contingent consideration liability contains a revenue component which will be settled in fiscal year 2021, based on the achievement of a defined revenue target by the acquired business.
•The fair value of the contingent consideration liability at June 30, 2020 is $5.3 million.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a ten-yearsix-year life and seven-yearfive-year life, respectively.
ASSET ACQUISITION
Purchase of Intellectual Property
In fiscal year 2017,February 2018, the Company decreasedpaid $40.0 million to an affiliate of Inveshare, Inc. (“Inveshare”) for the contingent consideration liability by $0.2 million. The fair valuedelivery of blockchain technology applications, as contemplated as part of the remaining contingent consideration liability at June 30, 2017 is $0.5 million.Company’s acquisition of intellectual property assets from Inveshare.
4sight Financial
In June 2016, the Company’s Global Technology and Operations segment acquired 4sight Financial, a global provider of securities financing and collateral management systems to financial institutions. The aggregate purchase price was $39.6 million, consisting of $36.0 million of cash payments, as well as a contingent consideration liability with an acquisition date fair value of $3.6 million that is payable over the next three years upon the achievement by the acquired business of certain revenue and earnings targets. The contingent consideration liability has a maximum potential pay-out of $14.5 million upon the achievement in full of the defined financial targets by the acquired business. Net tangible liabilities assumed in the transaction were $11.7 million. This acquisition resulted in $24.5 million of Goodwill, which is not tax deductible. Intangible assets acquired, which totaled $26.8 million, consist of customer relationships and software technology, which are being amortized over a ten-year life and six-year life, respectively.
During the first quarter of fiscal year 2017, goodwill was reduced by $1.8 million for the settlement of post close working capital adjustments.
Fiscal Year 2015 Acquisitions:
TwoFour Systems LLC
In December 2014, the Company’s Global Technology and Operations segment acquired TwoFour Systems LLC, now known as Broadridge FX and Liquidity Solutions, a provider of real-time foreign exchange solutions for banks and broker-dealers. The aggregate purchase price was $32.7 million, consisting of $31.6 million of cash payments as well as a contingent consideration liability with an acquisition date fair value of $1.1 million that is payable over the next three years upon achievement by the acquired business of certain defined financial targets. The contingent consideration liability has a maximum potential pay-out of $8.3 million upon the achievement in full of the defined financial targets by the acquired business. Net tangible liabilities assumed in the transaction were $3.3 million. This acquisition resulted in $25.5 million of Goodwill, which is primarily tax deductible. Intangible assets acquired, which totaled $10.5 million, consist primarily of acquired software technology and customer relationships, which are being amortized over a seven-year life and ten-year life, respectively.
In fiscal year 2016, the Company made a partial pay-out on the contingent consideration liability of $0.8 million. The fair value of the remaining contingent consideration liability at June 30, 2017 is $0.3 million.
Direxxis LLC
In March 2015, the Company’s Investor Communication Solutions segment acquired Direxxis LLC, a provider of cloud-based marketing solutions and services for financial advisors. The aggregate purchase price was $34.5 million, consisting of $33.3 million of cash payments as well as a contingent consideration liability with an acquisition date fair value of $1.2 million that is payable over the next three years upon the achievement by the acquired business of certain defined financial targets. The contingent consideration liability has a maximum potential pay-out of $5.5 million upon the achievement in full of the defined financial targets by the acquired business. Net tangible assets acquired in the transaction were $0.3 million. This acquisition resulted in $20.6 million of Goodwill, which is tax deductible, and $13.6 million of intangible assets, consisting primarily of acquired customer relationships and software technology, which are being amortized over a ten-year life and five-year life, respectively.
In fiscal year 2017, the Company made a partial pay-out on the contingent consideration liability of $0.7 million and increased the contingent consideration liability by an additional $0.2 million. The fair value of the remaining contingent consideration liability at June 30, 2017 is $0.7 million.
Trade Processing Business of WTRIS
In April 2015, the Company’s Investor Communication Solutions segment acquired the trade processing business of the WTRIS unit of M&T Bank Corporation. The acquired business is being combined with Broadridge’s mutual fund and ETF trade processing platform. The aggregate purchase price was $73.2 million, consisting of $61.0 million of cash payments as well as a contingent consideration liability with an acquisition date fair value of $12.2 million. The contingent consideration liability contains various components which could be settled over a period not to exceed twenty-four months from the acquisition date, based on the achievement of the defined financial targets by the acquired business. Net tangible assets acquired in the transaction were $4.8 million. This acquisition resulted in $39.1 million of Goodwill, which is tax deductible, and $29.3 million of intangible assets, consisting of acquired customer relationships and software technology, which are being amortized over a ten-year life and seven-year life, respectively.
During the first quarter of fiscal year 2016, goodwill was reduced by $0.9 million for the settlement of post close working capital adjustments.
During the second quarter of fiscal year 2016, the fair value of the contingent consideration was decreased by $0.8 million. During the fourth quarter of fiscal year 2016, the Company made a partial pay-out on the liability of $7.9 million, and decreased the contingent consideration liability by an additional $3.1 million based upon a review and measurement period adjustment. During the second quarter of fiscal year 2017, the Company decreased the contingent consideration liability by an additional $0.4 million to zero.
FSCI Unit of Thomson Reuters’ Lipper division
In June 2015, the Company’s Investor Communication Solutions segment acquired the FSCI unit from Thomson Reuters’ Lipper division, now known as Broadridge Fund Information Services. The acquisition expands the Company’s enterprise data and analytics solutions for mutual fund manufacturers, ETF issuers, and fund administrators, adding new global data and research capabilities. The purchase price was $77.0 million. Net tangible assets acquired in the transaction were $3.8 million.
This acquisition resulted in $38.8 million of Goodwill, which is tax deductible, and $34.4 million of intangible assets, consisting primarily of acquired customer relationships, which is being amortized over a ten-year life.
During the first quarter of fiscal year 2016, goodwill was reduced by $1.4 million for the settlement of post close working capital adjustments.
NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
|
| | | | | | | |
| Level 1 | | Quoted market prices in active markets for identical assets and liabilities. |
| | |
| Level 2 | | Observable market-based inputs other than quoted prices in active markets for identical assets and liabilities. |
| | |
| Level 3 | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 and Level 2 instruments, as applicable, based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The Company holds available-for-sale securities issued by a non-public entity for which the lowest level of significant inputs is unobservable. On a recurring basis, the Company uses pricing models and similar techniques for which the determination of fair value requires significant judgment by management. Accordingly, the Company classifies the available-for-sale securities as Level 3 in the table below.
The fair value of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the table below.
The following tables set forth the Company’s financial assets and liabilities at June 30, 20172020 and 2016,2019, respectively, which are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (in millions) | | | | | | |
| Assets: | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Money market funds (1) | | $ | 150.1 | | | $ | — | | | $ | — | | | $ | 150.1 | |
| Other current assets: | | | | | | | | |
| Securities | | 0.5 | | | — | | | — | | | 0.5 | |
| Other non-current assets: | | | | | | | | |
| Securities | | 102.0 | | | — | | | — | | | 102.0 | |
| Total assets as of June 30, 2020 | | $ | 252.7 | | | $ | — | | | $ | — | | | $ | 252.7 | |
| Liabilities: | | | | | | | | |
| Contingent consideration obligations | | $ | — | | | $ | — | | | $ | 33.1 | | | $ | 33.1 | |
| Total liabilities as of June 30, 2020 | | $ | — | | | $ | — | | | $ | 33.1 | | | $ | 33.1 | |
| | | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (in millions) | | | (in millions) | |
| Assets: | |
| |
| |
| |
| Assets: | |
| Cash and cash equivalents: | |
| |
| |
| |
| Cash and cash equivalents: | |
| Money market funds(1) | | $ | 37.9 |
| | $ | — |
| | $ | — |
| | $ | 37.9 |
| |
| Money market funds (1) | | Money market funds (1) | | $ | 68.1 | | | $ | — | | | $ | — | | | $ | 68.1 | |
| Other current assets: | |
| |
| |
| |
| Other current assets: | |
| Available-for-sale securities | | 0.1 |
| | — |
| | — |
| | 0.1 |
| |
| Securities | | Securities | | 0.4 | | | — | | | — | | | 0.4 | |
| Other non-current assets: | |
| |
| |
| |
| Other non-current assets: | |
| Available-for-sale securities | | 50.6 |
| | — |
| | 1.1 |
| | 51.7 |
| |
| Total assets as of June 30, 2017 | | $ | 88.6 |
| | $ | — |
| | $ | 1.1 |
| | $ | 89.8 |
| |
| Securities | | Securities | | 81.8 | | | — | | | — | | | 81.8 | |
| Total assets as of June 30, 2019 | | Total assets as of June 30, 2019 | | $ | 150.3 | | | $ | — | | | $ | — | | | $ | 150.3 | |
| Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
| Contingent consideration obligations | | $ | — |
| | $ | — |
| | $ | 6.7 |
| | $ | 6.7 |
| Contingent consideration obligations | | $ | — | | | $ | — | | | $ | 28.4 | | | $ | 28.4 | |
| Total liabilities as of June 30, 2017 | | $ | — |
| | $ | — |
| | $ | 6.7 |
| | $ | 6.7 |
| |
| Total liabilities as of June 30, 2019 | | Total liabilities as of June 30, 2019 | | $ | — | | | $ | — | | | $ | 28.4 | | | $ | 28.4 | |
(1)Money market funds include money market deposit account balances of $150.1 million and $30.1 million as of June 30, 2020 and 2019, respectively.
|
| | | | | | | | | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (in millions) |
| Assets: | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | |
| Money market funds(1) | | $ | 121.0 |
| | $ | — |
| | $ | — |
| | $ | 121.0 |
|
| Other current assets: | | | | | | | | |
| Available-for-sale securities | | 0.1 |
| | — |
| | — |
| | 0.1 |
|
| Other non-current assets: | | | | | | | | |
| Available-for-sale securities | | 34.4 |
| | — |
| | 1.1 |
| | 35.5 |
|
| Total assets as of June 30, 2016 | | $ | 155.5 |
| | $ | — |
| | $ | 1.1 |
| | $ | 156.6 |
|
| Liabilities: | | | | | | | | |
| Contingent consideration obligations | | $ | — |
| | $ | — |
| | $ | 5.5 |
| | $ | 5.5 |
|
| Total liabilities as of June 30, 2016 | | $ | — |
| | $ | — |
| | $ | 5.5 |
| | $ | 5.5 |
|
| |
(1) | Money market funds include money market deposit account balances less than $0.1 million and $91.0 million as of June 30, 2017 and 2016, respectively. |
The following table sets forth an analysis of changes during fiscal years 20172020 and 20162019 in Level 3 financial liabilities of the Company:
| | | | | June 30, | | June 30, | |
| | | 2017 | | 2016 | | 2020 | | 2019 |
| | | (in millions) | | | (in millions) | |
| Beginning balance | | $ | 5.5 |
| | $ | 15.7 |
| Beginning balance | | $ | 28.4 | | | $ | 18.6 | |
| Additional contingent consideration incurred | | 2.8 |
| | 3.6 |
| Additional contingent consideration incurred | | 7.0 | | | 7.9 | |
| Decrease in contingent consideration liability | | (0.6 | ) | | (4.9 | ) | |
| Net increase in contingent consideration liability | | Net increase in contingent consideration liability | | 1.0 | | | 3.6 | |
| Foreign currency impact on contingent consideration liability | | (0.4 | ) | | — |
| Foreign currency impact on contingent consideration liability | | (0.7) | | | (0.6) | |
| Payments | | (0.7 | ) | | (8.9 | ) | Payments | | (2.6) | | | (1.0) | |
| Ending balance | | $ | 6.7 |
| | $ | 5.5 |
| Ending balance | | $ | 33.1 | | | $ | 28.4 | |
The Company did not incur any Level 3 fair value asset impairments during fiscal years 2017, 2016, and 2015.year 2020 or fiscal year 2019. Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments between levels. The Company’s policy is to record transfers between levels if any, as of the beginning of the fiscal year.
NOTE 8. LEASES
The Company’s leases consist primarily of real estate leases in locations where the Company maintains operations, and are classified as operating leases.
The Company evaluates each lease and service arrangement at inception to determine if the arrangement is, or contains, a lease. A lease exists if the Company obtains substantially all of the economic benefits of and has the right to control the use of an asset for a period of time. The lease term begins on the commencement date, which is the date the Company takes possession of the leased property and also classifies the lease as either operating or finance, and may include options to extend or terminate the lease if exercise of the option to extend or terminate the lease is considered to be reasonably certain. The Company’s options to extend or terminate a lease generally do not exceed five years. The lease term is used both to determine lease classification as an operating or finance lease and to calculate straight-line lease expense for operating leases. The weighted average remaining operating lease term as of June 30, 2020 was 10 years.
ROU assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of fixed lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. Certain leases require the Company to pay taxes, insurance, maintenance, and/or other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature (e.g. based on actual costs incurred). These variable lease costs are recognized as a variable lease expense when incurred. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate to measure the lease liability and the associated ROU asset at commencement date. The incremental borrowing rate was determined based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate. The weighted average discount rate used in measurement of the Company’s operating lease liabilities as of June 30, 2020 was 3.1%.
Supplemental Balance Sheet Information
| | | | | |
| June 30,
2020 |
| (In millions) |
| Assets: | |
| Operating lease ROU assets (a) | $ | 292.6 | |
| |
| Liabilities: | |
| Operating lease liabilities (a) - Current | $ | 35.3 | |
| Operating lease liabilities (a) - Non-current | 288.3 | |
| Total Operating lease liabilities | $ | 323.5 | |
_________
(a)Operating lease assets are included within Other non-current assets, and operating lease liabilities are included within Payables and accrued expenses (current portion) and Other non-current liabilities (non-current portion) in the Company’s Consolidated Balance Sheets as of June 30, 2020.
Components of Lease Cost (a)
| | | | | |
| Fiscal Year Ended
June 30, 2020 |
| (In millions) |
| Operating lease cost | $ | 40.9 | |
| Variable lease cost | 24.4 | |
_________
(a)Lease cost is included within Cost of revenues and Selling, general and administrative expenses, dependent upon the nature and use of the ROU asset, in the Company’s Consolidated Statements of Earnings.
Supplemental Cash Flow Information
| | | | | |
| Fiscal Year Ended
June 30, 2020 |
| (In millions) |
| Cash paid for amounts included in the measurement of lease liabilities | |
| Operating cash outflows from operating leases | $ | 26.9 | |
| ROU assets obtained in exchange for operating lease liabilities | $ | 89.6 | |
Maturity of Lease Liabilities under Accounting Standards Codification (“ASC”) 842 (Leases)
Future rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2020:
| | | | | |
| Operating Leases |
| Years Ending June 30, | (In millions) |
| 2021 | $ | 44.5 | |
| 2022 | 41.6 | |
| 2023 | 39.3 | |
| 2024 | 37.2 | |
| 2025 | 35.0 | |
| Thereafter | 180.6 | |
| Total lease payments | 378.2 | |
| Less: Discount Amount | 54.7 | |
| Present value of operating lease liabilities | $ | 323.5 | |
Maturity of Lease Liabilities under ASC 840 (Leases)
Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2019:
| | | | | |
| Years Ending June 30, | (In millions) |
| 2020 | $ | 46.8 | |
| 2021 | 45.2 | |
| 2022 | 39.5 | |
| 2023 | 35.9 | |
| 2024 | 34.7 | |
| Thereafter | 204.4 | |
| Total lease payments | $ | 406.5 | |
Rent expense for all operating leases was $49.0 million and $50.4 million during the year ended June 30, 2019 and 2018, respectively.
| |
NOTE 8. | PROPERTY, PLANT AND EQUIPMENT, NET |
NOTE 9. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at cost and Accumulated depreciation at June 30, 20172020 and 20162019 are as follows:
| | | | | June 30, | | | June 30, | |
| | | 2017 | | 2016 | | | 2020 | | 2019 |
| | | (in millions) | | | (in millions) | |
| Property, plant and equipment: | | | | | Property, plant and equipment: | |
| Land and buildings | | $ | 2.6 |
| | $ | 2.5 |
| Land and buildings | | $ | 2.6 | | | $ | 2.6 | |
| Equipment | | 425.4 |
| | 341.2 |
| Equipment | | 269.1 | | | 435.6 | |
| Furniture, leaseholds and other | | 139.1 |
| | 177.0 |
| Furniture, leaseholds and other | | 196.9 | | | 174.6 | |
| | | 567.1 |
| | 520.6 |
| | 468.6 | | | 612.9 | |
| Less: Accumulated depreciation | | (369.0 | ) | | (408.4 | ) | Less: Accumulated depreciation | | (307.0) | | | (423.9) | |
| Property, plant and equipment, net | | $ | 198.1 |
| | $ | 112.2 |
| Property, plant and equipment, net | | $ | 161.6 | | | $ | 189.0 | |
In fiscal years 20172020 and 2016,2019, Property, plant and equipment and Accumulated depreciation were each reduced by $91.7$33.9 million and $24.2$32.8 million, respectively, for asset retirements related to fully depreciated property, plant and equipment no longer in use.
Depreciation expense for Property, plant and equipment for the years ended June 30, 2017, 20162020, 2019 and 20152018 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Depreciation expense for Property, plant and equipment | | $ | 50.6 | | | $ | 65.8 | | | $ | 63.4 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Depreciation expense for property, plant and equipment | | $ | 53.5 |
| | $ | 38.7 |
| | $ | 38.0 |
|
| |
NOTE 9. | GOODWILL AND INTANGIBLE ASSETS, NET |
NOTE 10. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in Goodwill for the fiscal years ended June 30, 20172020 and 20162019 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Investor
Communication
Solutions | | Global
Technology and
Operations | | Total |
| | | (in millions) | | | | |
| Goodwill, gross, at July 1, 2018 | | $ | 884.4 | | | $ | 370.5 | | | $ | 1,254.9 | |
| Transfers (a) | | (2.8) | | | 2.8 | | | — | |
| Additions | | 27.3 | | | 220.4 | | | 247.7 | |
| Fair value adjustments (b) | | 7.4 | | | — | | | 7.4 | |
| Foreign currency translation and other | | (3.2) | | | (6.8) | | | (10.0) | |
| Accumulated impairment losses | | — | | | — | | | — | |
| Goodwill, net, at June 30, 2019 | | $ | 913.1 | | | $ | 586.9 | | | $ | 1,500.0 | |
| | | | | | |
| Goodwill, gross, at June 30, 2019 | | $ | 913.1 | | | $ | 586.9 | | | $ | 1,500.0 | |
| Additions | | 131.6 | | | 69.9 | | | 201.5 | |
| Foreign currency translation and other | | (5.1) | | | (13.0) | | | (18.1) | |
| Fair value adjustments (b) | | (0.2) | | | (8.8) | | | (9.0) | |
| Accumulated impairment losses | | — | | | — | | | — | |
| Goodwill, net, at June 30, 2020 | | $ | 1,039.5 | | | $ | 635.0 | | | $ | 1,674.5 | |
|
| | | | | | | | | | | | |
| | | Investor Communication Solutions | | Global Technology and Operations | | Total |
| | | (in millions) |
| Goodwill, gross, at July 1, 2015 | | $ | 681.4 |
| | $ | 289.1 |
| | $ | 970.5 |
|
| Additions | | 11.1 |
| | 26.3 |
| | 37.5 |
|
| Fair value adjustments | | (2.3 | ) | | — |
| | (2.3 | ) |
| Foreign currency translation and other | | (0.4 | ) | | (5.9 | ) | | (6.3 | ) |
| Accumulated impairment losses | | — |
| | — |
| | — |
|
| Goodwill, net, at June 30, 2016 | | $ | 689.7 |
| | $ | 309.6 |
| | $ | 999.3 |
|
| | | | | | | |
| Goodwill, gross, at June 30, 2016 | | $ | 689.7 |
| | $ | 309.6 |
| | $ | 999.3 |
|
| Additions | | 135.7 |
| | 39.8 |
| | 175.5 |
|
| Fair value adjustments | | — |
| | (0.5 | ) | | (0.5 | ) |
| Foreign currency translation and other | | (4.4 | ) | | (10.5 | ) | | (14.9 | ) |
| Accumulated impairment losses | | — |
| | — |
| | — |
|
| Goodwill, net, at June 30, 2017 | | $ | 821.0 |
| | $ | 338.4 |
| | $ | 1,159.3 |
|
(b) Fair value adjustments includes adjustments to goodwill as part of finalization of the purchase price allocations.
Additions for the fiscal year ended June 30, 20172020 include $135.7$17.6 million, $17.2$84.4 million, $44.2 million and $22.6$39.1 million for the acquisitions of NACC, M&OShadow Financial, Fi360, ClearStructure and MAL,FundsLibrary, respectively. Additions for the fiscal year ended June 30, 20162019 include $11.1$31.1 million, $181.6 million and $23.3$27.1 million for the acquisitions of QEDRockall, RPM and 4sight Financial,TD Ameritrade, respectively.
Fair value adjustments for fiscal year 2017 primarily represent reductions in goodwill of $1.8 million for 4Sight related to the settlement of post-closing working capital adjustments, partially offset by a $1.2 million increase in the fair value of the contingent consideration liability for 4Sight that resulted from the finalization of the purchase price allocation in fiscal year 2017. Fair value adjustments for fiscal year 2016 represent reductions in goodwill of $0.9 million for WTRIS and $1.4 million for FSCI related to the settlement of post-closing working capital adjustments (see Note 6, “Acquisitions”).
During fiscal years 2017, 20162020, 2019 and 2015,2018, the Company performed the required impairment tests of Goodwill and determined that there was no0 impairment. The Company also performs a sensitivity analysis under Step 1 of the goodwill impairment test assuming hypothetical reductions in the fair values of the reporting units. A 10% change in our estimates of projected future operating cash flows, discount rates, or terminal value growth rates, which are the most significant estimates used in our calculations of the fair values of the reporting units, would not result in an impairment of our goodwill.
Intangible assets at cost and accumulated amortization at June 30, 20172020 and 20162019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, | | | | | | | | | | |
| | | 2020 | | | | | | 2019 | | | | |
| | | Original
Cost | | Accumulated
Amortization | | Intangible
Assets, net | | Original
Cost | | Accumulated
Amortization | | Intangible
Assets, net |
| | | (in millions) | | | | | | | | | | |
| Software licenses | | $ | 137.9 | | | $ | (115.7) | | | $ | 22.2 | | | $ | 125.8 | | | $ | (101.7) | | | $ | 24.1 | |
| Acquired software technology | | 196.8 | | | (109.7) | | | 87.1 | | | 164.7 | | | (85.5) | | | 79.3 | |
| Customer contracts and lists | | 644.5 | | | (274.2) | | | 370.3 | | | 549.6 | | | (207.4) | | | 342.1 | |
| Acquired intellectual property | | 136.6 | | | (90.9) | | | 45.7 | | | 135.0 | | | (63.8) | | | 71.2 | |
| Other intangibles | | 92.3 | | | (34.0) | | | 58.3 | | | 63.6 | | | (24.1) | | | 39.5 | |
| | $ | 1,208.1 | | | $ | (624.4) | | | $ | 583.8 | | | $ | 1,038.7 | | | $ | (482.5) | | | $ | 556.2 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, |
| | | 2017 | | 2016 |
| | | Original
Cost | | Accumulated
Amortization | | Intangible
Assets, net | | Original
Cost | | Accumulated
Amortization | | Intangible
Assets, net |
| | | (in millions) |
| Software licenses | | $ | 124.6 |
| | $ | (91.1 | ) | | $ | 33.6 |
| | $ | 110.1 |
| | $ | (76.7 | ) | | $ | 33.5 |
|
| Acquired software technology | | 106.9 |
| | (65.1 | ) | | 41.9 |
| | 91.0 |
| | (52.1 | ) | | 38.9 |
|
| Customer contracts and lists | | 435.3 |
| | (128.3 | ) | | 307.0 |
| | 213.9 |
| | (86.3 | ) | | 127.6 |
|
| Acquired intellectual property | | 95.0 |
| | (15.0 | ) | | 80.0 |
| | — |
| | — |
| | — |
|
| Other intangibles | | 38.1 |
| | (14.2 | ) | | 24.0 |
| | 23.0 |
| | (12.7 | ) | | 10.3 |
|
| | | $ | 800.0 |
| | $ | (313.6 | ) | | $ | 486.4 |
| | $ | 438.0 |
| | $ | (227.8 | ) | | $ | 210.3 |
|
In fiscal years 2017 and 2016,year 2020 there were 0 asset retirements related to fully amortized intangibles. In fiscal year 2019, intangible assets and accumulated amortization were reduced by $0.6$0.2 million and $1.1 million, respectively, for asset retirements related to fully amortized intangibles.
Other intangibles consist of capitalized internal use software and the following intangible assets acquired in business acquisitions: intellectual property, purchased rights, covenants, patents, and trademarks. All of the intangible assets have finite lives and as such, are subject to amortization.
The weighted-average remaining useful life of the intangible assets is as follows:
| | | | | | | | |
| | |
| | Weighted-Average Remaining Useful Life (Years) |
Software licenses | | 3.2 |
| Acquired software technology | | 4.12.8 |
| Software licenses | | 2.2 |
| Customer contracts and lists | | 7.95.5 |
| Acquired intellectual property | | 4.21.9 |
| Other intangibles | | 4.74.2 |
| Total weighted-average remaining useful life | | 6.54.5 |
Amortization of intangibles for the years ended June 30, 2017, 20162020, 2019 and 20152018 was as follows:
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Amortization expense for intangible assets | | $ | 87.7 |
| | $ | 45.8 |
| | $ | 36.6 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Amortization expense for intangible assets | | $ | 146.1 | | | $ | 106.8 | | | $ | 100.2 | |
Estimated remaining amortization expenses of the Company’s existing intangible assets for the next five fiscal years and thereafter are as follows:
| | | | | | | | |
| Years Ending June 30, | | (in millions) |
| 2021 | | $ | 150.5 | |
| 2022 | | 125.2 | |
| 2023 | | 103.3 | |
| 2024 | | 84.9 | |
| 2025 | | 65.0 | |
| Thereafter | | 54.8 | |
|
| | | | |
| Years Ending June 30, | | (in millions) |
| 2018 | | $ | 93.4 |
|
| 2019 | | 82.3 |
|
| 2020 | | 76.3 |
|
| 2021 | | 69.2 |
|
| 2022 | | 48.7 |
|
| Thereafter | | 116.5 |
|
| |
NOTE 10. | OTHER NON-CURRENT ASSETS |
NOTE 11. OTHER NON-CURRENT ASSETS
Other non-current assets consisted of the following:
| | | | | June 30, | | | June 30, | |
| | | 2017 | | 2016 | | | 2020 | | 2019 |
| | | (in millions) | | | (in millions) | |
| Deferred client conversion and start-up costs | | $ | 162.4 |
| | $ | 139.4 |
| Deferred client conversion and start-up costs | | $ | 433.8 | | | $ | 254.7 | |
| Deferred data center costs | | 40.1 |
| | 43.1 |
| |
| ROU assets (a) | | ROU assets (a) | | 292.6 | | | — | |
| Deferred sales commissions costs | | Deferred sales commissions costs | | 104.4 | | | 95.5 | |
| Contract assets (b) | | Contract assets (b) | | 81.9 | | | 47.5 | |
| Deferred data center costs (c) | | Deferred data center costs (c) | | 24.5 | | | 29.0 | |
| Long-term investments | | 63.4 |
| | 48.5 |
| Long-term investments | | 141.6 | | | 100.4 | |
| Long-term broker fees | | 24.2 |
| | 12.4 |
| Long-term broker fees | | 32.8 | | | 35.3 | |
| Other (a) | | 26.4 |
| | 18.4 |
| |
| Other | | Other | | 30.2 | | | 30.6 | |
| Total | | $ | 316.4 |
| | $ | 261.8 |
| Total | | $ | 1,141.9 | | | $ | 593.1 | |
(a) On July 1, 2016,ROU assets represent the Company adopted ASU 2015-03 onCompany’s right to an underlying asset for the lease term. Please refer to Note 8, “Leases” for a retrospective basisfurther discussion.
(b) Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and accordingly,certain other client contracts.
(c) Represents deferred data center costs associated with the Consolidated BalanceCompany’s information technology services agreements with International Business Machines Corporation (“IBM”). Please refer to Note 18, “Contractual Commitments, Contingencies and Off-Balance Sheet asArrangements” for a further discussion.
The total amount of deferred client conversion and start-up costs and deferred sales commission costs amortized in Operating expenses for the fiscal year ended June 30, 2016 has been updated to reflect this new classification, which resulted in a decrease in Other non-current assets of $7.1 million, a decrease in Long-term debt, excluding current portion of $7.02020 and 2019 was $76.2 million and a decrease of $0.1$65.7 million, in Current portion of long-term debt at June 30, 2016.respectively.
NOTE 12. PAYABLES AND ACCRUED EXPENSES | |
NOTE 11. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expensesPayables and other current liabilitiesaccrued expenses consisted of the following:
| | | | | | | | | | | | | | |
| | | June 30, | | |
| | | 2020 | | 2019 |
| | | (in millions) | | |
| Accounts payable | | $ | 151.8 | | | $ | 133.7 | |
| Employee compensation and benefits | | 260.4 | | | 232.2 | |
| Accrued broker fees | | 109.5 | | | 87.0 | |
| Accrued dividend payable | | 62.2 | | | 55.4 | |
| Managed services administration fees | | 59.4 | | | 53.1 | |
| Customer deposits | | 44.5 | | | 34.8 | |
| Accrued taxes | | 38.5 | | | 68.9 | |
| Operating lease liabilities | | 35.3 | | | — | |
| Other | | 68.6 | | | 46.6 | |
| Total | | $ | 829.9 | | | $ | 711.7 | |
|
| | | | | | | | |
| | | June 30, |
| | | 2017 | | 2016 |
| | | (in millions) |
| Employee compensation and benefits | | $ | 221.2 |
| | $ | 181.2 |
|
| Accrued broker fees | | 79.5 |
| | 65.4 |
|
| Accrued taxes | | 80.2 |
| | 49.9 |
|
| Accrued dividend payable | | 37.9 |
| | 34.9 |
|
| Customer deposits | | 39.5 |
| | — |
|
| Other | | 37.1 |
| | 20.7 |
|
| Total | | $ | 495.3 |
| | $ | 352.2 |
|
NOTE 13. BORROWINGS
Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expiration
Date | | Principal amount outstanding at June 30, 2020 | | Carrying value at June 30, 2020 | | Carrying value at June 30, 2019 | | Unused
Available
Capacity | | Fair Value at June 30, 2020 |
| | | | | (in millions) | | | | | | |
| Current portion of long-term debt | | | | | | | | | | | |
| Fiscal 2014 Senior Notes (a) | September 2020 | | $ | 400.0 | | | $ | 399.9 | | | $ | — | | | — | | | $ | 402.1 | |
| Total | | | $ | 400.0 | | | $ | 399.9 | | | $ | — | | | — | | | $ | 402.1 | |
| | | | | | | | | | | |
| Long-term debt, excluding current portion | | | | | | | | | | | |
| Fiscal 2019 Revolving Credit Facility: | | | | | | | | | | | |
| U.S. dollar tranche | March 2024 | | $ | — | | | $ | — | | | $ | 360.0 | | | $ | 1,100.0 | | | $ | — | |
| Multicurrency tranche | March 2024 | | 149.8 | | | 149.8 | | | 215.7 | | | 250.2 | | | 149.8 | |
| Total Revolving Credit Facility | | | $ | 149.8 | | | $ | 149.8 | | | $ | 575.7 | | | $ | 1,350.2 | | | $ | 149.8 | |
| | | | | | | | | | | |
| Fiscal 2014 Senior Notes (a) | September 2020 | | — | | | — | | | 399.2 | | | — | | | — | |
| Fiscal 2016 Senior Notes | June 2026 | | 500.0 | | | 496.1 | | | 495.5 | | | — | | | 554.3 | |
| Fiscal 2020 Senior Notes | December 2029 | | 750.0 | | | 741.7 | | | — | | | — | | | 803.6 | |
| Total Senior Notes | | | $ | 1,250.0 | | | $ | 1,237.8 | | | $ | 894.7 | | | $ | — | | | $ | 1,357.8 | |
| | | | | | | | | | | |
| Total long-term debt | | | $ | 1,399.8 | | | $ | 1,387.6 | | | $ | 1,470.4 | | | $ | 1,350.2 | | | $ | 1,507.7 | |
| | | | | | | | | | | |
| Total debt | | | $ | 1,799.8 | | | $ | 1,787.5 | | | $ | 1,470.4 | | | $ | 1,350.2 | | | $ | 1,909.7 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Expiration Date | | Par value at June 30, 2017 | | Carrying value at June 30, 2017 | | Carrying value at June 30, 2016 (a) | | Unused
Available
Capacity | | Fair Value at June 30, 2017 |
| | | | | | (in millions) | | |
| Current portion of long-term debt | | | | | | | | | | | |
| Fiscal 2007 Senior Notes | June 2017 | | $ | — |
| | $ | — |
| | $ | 124.8 |
| | $ | — |
| | $ | — |
|
| | | | $ | — |
| | $ | — |
| | $ | 124.8 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| Long-term debt, excluding current portion | | | | | | | | | | | |
| Fiscal 2017 Revolving Credit Facility | February 2022 | | $ | 210.0 |
| | $ | 210.0 |
| | $ | — |
| | $ | 790.0 |
| | $ | 210.0 |
|
| Fiscal 2014 Senior Notes | September 2020 | | 400.0 |
| | 397.9 |
| | 397.2 |
| | — |
| | 419.1 |
|
| Fiscal 2016 Senior Notes | June 2026 | | 500.0 |
| | 494.1 |
| | 493.5 |
| | — |
| | 494.6 |
|
| | | | $ | 1,110.0 |
| | $ | 1,102.1 |
| | $ | 890.7 |
| | $ | 790.0 |
| | $ | 1,123.7 |
|
| | | | | | | | | | | | |
| Total debt | | | $ | 1,110.0 |
| | $ | 1,102.1 |
| | $ | 1,015.5 |
| | $ | 790.0 |
| | $ | 1,123.7 |
|
(a) On July 1, 2016, the Company adopted ASU 2015-03 on a retrospective basis and accordingly, the Consolidated Balance Sheet as of June 30, 2016 has been updated to reflect this new classification, which resulted in a decrease in Other non-current assets of $7.1 million, a decrease in The Fiscal 2014 Senior Notes were reclassified from Long-term debt excluding current portion of $7.0 million and a decrease of $0.1 million into Current portion of long-term debt at June 30, 2016.in September 2019 to reflect the remaining maturity of less than a year.
Future principal payments on the Company’s outstanding debt are as follows: | | | Years ending June 30, | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | Years ending June 30, | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| (in millions) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 400.0 |
| | $ | 210.0 |
| | $ | 500.0 |
| | $ | 1,110.0 |
| (in millions) | | $ | 400.0 | | | $ | — | | | $ | — | | | $ | 149.8 | | | $ | — | | | $ | 1,250.0 | | | $ | 1,799.8 | |
Fiscal 20172019 Revolving Credit Facility: On February 6, 2017,March 18, 2019, the Company entered into an amended and restated $1.0$1.5 billion five-yearfive-year revolving credit facility (the “Fiscal 20172019 Revolving Credit Facility”), which replaced the $750.0 million five-year$1.0 billion five-year revolving credit facility entered into during August 2014February 2017 (the “Fiscal 20152017 Revolving Credit Facility”) (together the “Revolving Credit Facilities”). The Fiscal 20172019 Revolving Credit Facility is comprised of a $900.0 million$1.1 billion U.S. dollar tranche and a $100.0$400.0 million multicurrency tranche. At June 30, 2017, the Company had $210.0 million in outstanding borrowings and had unused available capacity of $790.0 million under the Fiscal 2017 Revolving Credit Facility.
The weighted-average interest rate on the Revolving Credit Facilities was 1.79%2.59%, 1.30%3.26% and 1.18%2.44% for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, respectively. The fair value of the variable-rate Fiscal 20172019 Revolving Credit Facility borrowings at June 30, 20172020 approximates carrying value and has been classified as a Level 2 financial liability.liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Borrowings under the Fiscal 20172019 Revolving Credit Facility can be made in tranches up to 360 days and bear interest at LIBOR plus 100101.5 basis points. In addition, the Fiscal 20172019 Revolving Credit Facility has an annual facility fee equal to 12.511.0 basis points on the entire facility, similar to the previous Fiscal 2015 Revolving Credit Facility. The annual facility fees for the Revolving Credit Facilities totaled $1.1 million and $1.0 million for the fiscal years ended June 30, 2017 and June 30, 2016, respectively. The Company incurred $1.8 million in costs to establish the Fiscal 2017 Revolving Credit Facility. As of June 30, 2017, $2.7 million of these costs remain to be amortized (including $0.2 million and $0.8 million of issuance costs from the Fiscal 2012 Revolving Credit Facility and Fiscal 2015 Revolving Credit Facility, respectively). Such costs are capitalized in Other non-current assets in the Consolidated Balance Sheets and are being amortized to Interest expense, net on a straight-line basis, which approximates the effective interest method, over the term of this facility.
The Company may voluntarily prepay, in whole or in part and without premium or penalty, borrowings under the Fiscal 20172019 Revolving Credit Facility at any time.in accordance with individual drawn loan maturities. The Fiscal 20172019 Revolving Credit Facility is subject to certain covenants, including a leverage ratio. At June 30, 2017,2020, the Company is in compliance with the financialall covenants of the Fiscal 20172019 Revolving Credit Facility.
87
Fiscal 2007 Senior Notes: In May 2007, the Company completed an offering of $250.0 million in aggregate principal amount of senior notes (the “Fiscal 2007 Senior Notes”). During the fiscal year ended June 30, 2009, the Company purchased $125.0 million principal amount of the Fiscal 2007 Senior Notes (including $1.0 million unamortized bond discount) pursuant to a cash tender offer for such notes. On June 1, 2017 the Company repaid in full the $125.0 million in Fiscal 2007 Senior Notes that were outstanding at their maturity date, using available cash.
The Company incurred $1.9 million in debt issuance costs to establish the Fiscal 2007 Senior Notes. These costs were capitalized and amortized to Interest expense, net on a straight-line basis over the ten year term. At June 30, 2016, the costs remaining to be amortized related to the Fiscal 2007 Senior Notes was $0.1 million and was presented as a direct deduction from the carrying value of the Fiscal 2007 Senior Notes. The fair value of the fixed-rate Fiscal 2007 Senior Notes at June 30, 2016 was $129.1 million based on quoted market prices and was previously classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Fiscal 2014 Senior Notes: In August 2013, the Company completed an offering of $400.0 million in aggregate principal amount of senior notes (the “Fiscal“Fiscal 2014 Senior Notes”Notes”). The Fiscal 2014 Senior Notes will mature on September 1, 2020 and bear interest at a rate of 3.95% per annum. Interest on the Fiscal 2014 Senior Notes is payable semi-annually in arrears on March 1st and September 1st of each year. The Fiscal 2014 Senior Notes were issued at a price of 99.871% (effective yield to maturity of 3.971%). The indenture governing the Fiscal 2014 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money and to enter into certain sale-leaseback transactions. At June 30, 2017,2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2014 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2014 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2014 Senior Notes in whole or in part at any time before their maturity. The Company incurred $4.3 million in debt issuance costs to establish the Fiscal 2014 Senior Notes. These costs have been capitalized and are being amortized to Interest expense, net on a straight-line basis over the seven-year term. As of June 30, 2017 and June 30, 2016, $1.9 million and $2.5 million, respectively, of debt issuance costs remain to be amortized and have been presented as a direct deduction from the carrying value of the Fiscal 2014 Senior Notes. The fair value of the fixed-rate Fiscal 2014 Senior Notes at June 30, 20172020 and 20162019 was $419.1$402.1 million and $427.6$405.4 million, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Fiscal 2016 Senior Notes: In June 2016, the Company completed an offering of $500.0 million in aggregate principal amount of senior notes (the “Fiscal 2016 Senior Notes”). The Fiscal 2016 Senior Notes will mature on June 27, 2026 and bear interest at a rate of 3.40% per annum. Interest on the Fiscal 2016 Senior Notes is payable semi-annually in arrears on June 27 and December 27 of each year. The Fiscal 2016 Senior Notes were issued at a price of 99.589% (effective yield to maturity of 3.449%). The indenture governing the Fiscal 2016 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money, to enter into certain sale-leaseback transactions, and to engage in mergers or consolidations and transfer or lease all or substantially all of our assets. At June 30, 2017,2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2016 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2016 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2016 Senior Notes in whole or in part at any time before their maturity. The Company incurred $4.5 million in debt issuance costs to establish the Fiscal 2016 Senior Notes. These costs have been capitalized and are being amortized to Interest expense, net on a straight-line basis, which approximates the effective interest method, over the ten-year term. As of June 30, 2017 and June 30, 2016, $4.0 million and $4.5 million, respectively, of debt issuance costs remain to be amortized and have been presented as a direct deduction from the carrying value of the Fiscal 2016 Senior Notes. The fair value of the fixed-rate Fiscal 2016 Senior Notes at June 30, 20172020 and June 30, 20162019 was $494.6$554.3 million and $507.9$509.8 million, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Fiscal 2020 Senior Notes: In December 2019, the Company completed an offering of $750.0 million in aggregate principal amount of senior notes (the “Fiscal 2020 Senior Notes”). The Fiscal 2020 Senior Notes will mature on December 1, 2029 and bear interest at a rate of 2.90% per annum. Interest on the Fiscal 2020 Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year. The Fiscal 2020 Senior Notes were issued at a price of 99.717% (effective yield to maturity of 2.933%). The indenture governing the Fiscal 2020 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money, to enter into certain sale-leaseback transactions, and to engage in mergers or consolidations and transfer or lease all or substantially all of our assets. At June 30, 2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2020 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2020 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2020 Senior Notes in whole or in part at any time before their maturity. The fair value of the fixed-rate Fiscal 2020 Senior Notes at June 30, 2020 was $803.6 million, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
The Fiscal 20172019 Revolving Credit Facility, Fiscal 2014 Senior Notes, Fiscal 2016 Senior Notes and Fiscal 20162020 Senior Notes are senior unsecured obligations of the Company and are ranked equally in right of payment.
In addition, certain of the Company’s subsidiaries established unsecured, uncommitted lines of credit with banks. As of June 30, 20172020 and 2016,2019, respectively, there were no0 outstanding borrowings under these lines of credit.
NOTE 14. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consisted of the following:
| | | | | | | | | | | |
| June 30, | | |
| 2020 | | 2019 |
| (in millions) | | |
| Operating lease liabilities | $ | 288.3 | | | $ | — | |
| Post-employment retirement obligations | 144.3 | | | 130.8 | |
| Non-current income taxes | 37.4 | | | 40.5 | |
| Acquisition related contingencies | 17.6 | | | 26.3 | |
| Other | 24.8 | | | 35.3 | |
| Total | $ | 512.4 | | | $ | 232.8 | |
| |
NOTE 13. | STOCK-BASED COMPENSATION |
NOTE 15. STOCK-BASED COMPENSATION
Incentive Equity Awards. The Broadridge Financial Solutions, Inc. 2007 Omnibus Award Plan (the “2007 Plan”) providesand 2018 Omnibus Award Plan (the “2018 Plan”) provide for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock awards, stock bonuses and performance compensation awards to employees, non-employee directors, and other key individuals who perform services for the Company. The 2018 Plan was approved by shareholders in November 2018 and replaced the 2007 Plan. The accounting for stock-based compensation requires the measurement of stock-based compensation expense to be recognized in Net earningsthe Consolidated Statements of Earnings based on the fair value of the
award on the date of grant. In accordance with the 2007 Plan and 2018 Plan, the Company’s stock-based compensation consists of the following:
Stock Options: Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s common stock on the dates of grant. Stock options are generally issued under a graded vesting schedule, meaning that they vest ratably over four years, and have a term of 10 years. A portion of the stock options granted in fiscal year 20142018 have a cliff vesting schedule meaning that they fully vest in four years from the grant date and have a term of 10 years. Compensation expense for stock options under a graded vesting schedule is recognized over the requisite service period for each separately vesting portion of the stock option award. Compensation expense for stock options under a cliff vesting schedule is recognized equally over the four year vesting period of four years with 25 percent of the cost recognized over each 12 monthmonths period net of estimated forfeitures.
Time-based Restricted Stock Units: The Company has a time-based restricted stock unit (“RSU”) program under which RSUs representing the right to receive one1 share of the Company’s common stock for each vested RSU are granted. Time-based RSUs typically vest two and one-half years from the date of grant. The Company records stock compensation expense for time-based RSUs net of estimated forfeitures on a straight-line basis over the vesting period.
Performance-based Restricted Stock Units: The Company has a performance-based RSU program under which RSUs representing the right to receive one1 share of the Company’s common stock for each vested RSU are granted. RSUs vest upon the achievement by the Company of specific performance metrics. The Company records stock compensation expense for performance-based RSUs net of estimated forfeitures on a straight-line basis over the performance period, plus a subsequent vesting period, which typically totals approximately two and one-half years from the date of grant.
The activity related to the Company’s incentive equity awards for the fiscal years ended June 30, 2017, 20162020, 2019 and 20152018 consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Stock Options | | Time-based RSUs | | Performance-based RSUs |
| | | Number of Options | | Weighted Average Exercise Price | | Number of Shares | | Weighted Average Grant-Date Fair Value | | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Balances at July 1, 2014 | | 9,847,291 |
| | $ | 23.73 |
| | 1,866,408 |
| | $ | 25.69 |
| | 662,282 |
| | $ | 26.30 |
|
| Granted | | 1,075,759 |
| | 50.10 |
| | 748,582 |
| | 39.66 |
| | 254,440 |
| | 35.89 |
|
| Exercised (a) | | (3,140,921 | ) | | 19.79 |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of RSUs (b) | | — |
| | — |
| | (945,506 | ) | | 21.89 |
| | (357,515 | ) | | 21.29 |
|
| Expired/forfeited | | (108,182 | ) | | 26.49 |
| | (143,024 | ) | | 29.81 |
| | (11,342 | ) | | 30.27 |
|
| Balances at June 30, 2015 | | 7,673,947 |
| | $ | 29.00 |
| | 1,526,460 |
| | $ | 34.51 |
| | 547,865 |
| | $ | 33.94 |
|
| Granted | | 679,995 |
| | 52.51 |
| | 574,889 |
| | 52.28 |
| | 262,292 |
| | 50.79 |
|
| Exercised (a) | | (1,192,266 | ) | | 20.83 |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of RSUs (b) | | — |
| | — |
| | (758,964 | ) | | 31.30 |
| | (264,868 | ) | | 30.30 |
|
| Expired/forfeited | | (102,609 | ) | | 34.32 |
| | (139,489 | ) | | 40.45 |
| | (76,773 | ) | | 23.43 |
|
| Balances at June 30, 2016 | | 7,059,067 |
| | $ | 32.57 |
| | 1,202,896 |
| | $ | 44.34 |
| | 468,516 |
| | $ | 47.15 |
|
| Granted | | 568,465 |
| | 67.15 |
| | 531,301 |
| | 64.38 |
| | 225,731 |
| | 64.52 |
|
| Exercised (a) | | (2,384,449 | ) | | 25.44 |
| | — |
| | — |
| | — |
| | — |
|
| Vesting of RSUs (b) | | — |
| | — |
| | (586,617 | ) | | 40.00 |
| | (171,082 | ) | | 38.50 |
|
| Expired/forfeited | | (105,442 | ) | | 36.13 |
| | (72,987 | ) | | 53.74 |
| | (52,303 | ) | | 50.38 |
|
| Balances at June 30, 2017 (c) | | 5,137,641 |
| | $ | 39.63 |
| | 1,074,593 |
| | $ | 55.98 |
| | 470,862 |
| | $ | 58.26 |
|
| |
(a) | Stock options exercised during the fiscal years ended June 30, 2017, 2016 and 2015 had intrinsic values of $104.7 million, $41.3 million and $86.2 million, respectively. |
| |
(b) | Time-based RSUs that vested during the fiscal years ended June 30, 2017, 2016 and 2015 had a total fair value of $39.8 million, $44.9 million and $51.5 million, respectively. Performance-based RSUs that vested during the fiscal years ended June 30, 2017, 2016 and 2015 had a total fair value of $11.6 million, $15.6 million and $19.2 million, respectively. |
| |
(c) | As of June 30, 2017, the Company’s outstanding stock options using the fiscal year-end share price of $75.56 (approximately 5.1 million shares) had an aggregate intrinsic value of $184.6 million. As of June 30, 2017, the Company’s outstanding “in the money” vested stock options using the fiscal year-end share price of $75.56 (approximately 2.7 million shares) had an aggregate intrinsic value of $121.7 million. As of June 30, 2017, time-based RSUs and performance-based |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Stock Options | | | | Time-based
RSUs | | | | Performance-based
RSUs | | |
| | | Number
of
Options | | Weighted
Average
Exercise
Price | | Number
of
Shares | | Weighted
Average
Grant-Date
Fair Value | | Number
of
Shares | | Weighted
Average
Grant-Date
Fair Value |
| Balances at July 1, 2017 | | 5,137,641 | | | $ | 39.63 | | | 1,074,593 | | | $ | 55.98 | | | 470,862 | | | $ | 58.26 | |
| Granted | | 1,079,442 | | | 93.42 | | | 456,217 | | | 78.86 | | | 198,485 | | | 76.71 | |
| Exercised (a) | | (1,654,877) | | | 31.09 | | | — | | | — | | | — | | | — | |
| Vesting of RSUs (b) | | — | | | — | | | (463,561) | | | 52.86 | | | (150,068) | | | 52.96 | |
| Expired/forfeited | | (83,918) | | | 42.89 | | | (84,850) | | | 60.18 | | | (123,590) | | | 43.00 | |
| Balances at June 30, 2018 | | 4,478,288 | | | $ | 55.69 | | | 982,399 | | | $ | 67.72 | | | 395,689 | | | $ | 74.29 | |
| Granted | | 528,978 | | | 98.72 | | | 360,147 | | | 121.11 | | | 133,213 | | | 116.53 | |
| Exercised (a) | | (784,372) | | | 39.94 | | | — | | | — | | | — | | | — | |
| Vesting of RSUs (b) | | — | | | — | | | (430,270) | | | 63.97 | | | (198,420) | | | 64.50 | |
| Expired/forfeited | | (21,280) | | | 94.14 | | | (92,977) | | | 76.57 | | | (4,705) | | | 80.57 | |
| Balances at June 30, 2019 | | 4,201,614 | | | $ | 63.85 | | | 819,299 | | | $ | 92.15 | | | 325,777 | | | $ | 97.43 | |
| Granted | | 501,192 | | | 117.43 | | | 340,006 | | | 118.74 | | | 110,260 | | | 120.09 | |
| Exercised (a) | | (905,231) | | | 46.47 | | | — | | | — | | | — | | | — | |
| Vesting of RSUs (b) | | — | | | — | | | (408,716) | | | 78.76 | | | (176,900) | | | 77.19 | |
| Expired/forfeited | | (26,788) | | | 88.01 | | | (50,591) | | | 113.07 | | | (7,541) | | | 80.24 | |
| Balances at June 30, 2020 (c) | | 3,770,787 | | | $ | 74.97 | | | 699,998 | | | $ | 111.37 | | | 251,596 | | | $ | 122.11 | |
(a)Stock options exercised during the fiscal years ended June 30, 2020, 2019 and 2018 had intrinsic values of $68.9 million, $65.8 million and $116.3 million, respectively.
(b)Time-based RSUs that vested during the fiscal years ended June 30, 2020, 2019 and 2018 had a total fair value of $38.4 million, $45.4 million and $50.6 million, respectively. Performance-based RSUs that vested during the fiscal years ended June 30, 2020, 2019 and 2018 had a total fair value of $16.5 million, $21.7 million and $19.1 million, respectively.
(c)As of June 30, 2020, the Company’s outstanding stock options using the fiscal year-end share price of $126.19 had an aggregate intrinsic value of $193.1 million. As of June 30, 2020, the Company’s outstanding “in the money” vested stock options using the fiscal year-end share price of $126.19 had an aggregate intrinsic value of $145.8 million. As of June 30, 2020, time-based RSUs and performance-based RSUs expected to vest using the fiscal year-end share price of $75.56$126.19 (approximately 1.00.7 million and 0.40.2 million shares, respectively) had an aggregate intrinsic value of $76.2$83.7 million and $33.8$30.3 million, respectively. Performance-based RSUs granted in the table above represent initial target awards, and performance adjustments for (i) change in shares issued based upon attainment of performance goals determined in the period, and (ii) estimated change in shares issued resulting from attainment of performance goals to be determined at the end of the prospective performance period.
The tables below summarize information regarding the Company’s outstanding and exercisable stock options as of June 30, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options | | | | | | |
| | | Options
Outstanding | | Weighted
Average
Remaining
Contractual
Term
(in years) | | Weighted
Average
Exercise
Price Per Share | | Aggregate Intrinsic Value (in millions) (a) |
| Range of Exercise Prices | | | | | | | | |
| $0.01 to $35.00 | | 383,527 | | | 2.14 | | $ | 22.66 | | | |
| $35.01 to $50.00 | | 428,000 | | | 3.57 | | $ | 37.69 | | | |
| $50.01 to $65.00 | | 602,156 | | | 5.02 | | $ | 52.56 | | | |
| $65.01 to $80.00 | | 333,869 | | | 6.52 | | $ | 67.32 | | | |
| $80.01 to $95.00 | | 999,436 | | | 7.46 | | $ | 93.40 | | | |
| $95.01 to $110.00 | | 522,607 | | | 8.55 | | $ | 98.67 | | | |
| $110.01 to $125.00 | | 501,192 | | | 9.59 | | $ | 117.43 | | | |
| | 3,770,787 | | | 6.44 | | $ | 74.97 | | | $ | 193.1 | |
|
| | | | | | | | | | | | | |
| | | Outstanding Options |
| | | Options Outstanding | | Weighted
Average
Remaining
Contractual
Term
(in years) | | Weighted
Average
Exercise
Price Per Share | | Aggregate Intrinsic Value (in millions) (a) |
| Range of Exercise Prices | |
| $0.01 to $20.00 | | 186,895 |
| | 1.45 | | $ | 16.64 |
| | |
| $20.01 to $40.00 | | 2,878,142 |
| | 5.60 | | $ | 29.59 |
| | |
| $40.01 to $60.00 | | 1,504,139 |
| | 8.02 | | $ | 51.27 |
| | |
| $60.01 to $70.00 | | 568,465 |
| | 9.61 | | $ | 67.15 |
| | |
| | | 5,137,641 |
| | 6.60 | | $ | 39.63 |
| | $ | 184.6 |
|
|
| | | | | | | | | | | | | |
| | | Exercisable Options |
| Range of Exercise Prices | | Options Exercisable | | Weighted
Average
Remaining
Contractual
Term
(in years) | | Weighted
Average
Exercise
Price Per Share | | Aggregate Intrinsic Value (in millions) (a) |
| $0.01 to $20.00 | | 186,895 |
| | 1.45 | | $ | 16.64 |
| | |
| $20.01 to $40.00 | | 1,932,907 |
| | 5.11 | | $ | 25.99 |
| | |
| $40.01 to $60.00 | | 583,304 |
| | 7.87 | | $ | 50.79 |
| | |
| $60.01 to $70.00 | | 40,048 |
| | 9.39 | | $ | 64.89 |
| | |
| | | 2,743,154 |
| | 5.51 | | $ | 31.19 |
| | $ | 121.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Exercisable Options | | | | | | |
| Range of Exercise Prices | | Options
Exercisable | | Weighted
Average
Remaining
Contractual
Term
(in years) | | Weighted
Average
Exercise
Price Per Share | | Aggregate Intrinsic Value
(in millions) (a) |
| $0.01 to $35.00 | | 383,527 | | | 2.14 | | $ | 22.66 | | | |
| $35.01 to $50.00 | | 428,000 | | | 3.57 | | $ | 37.69 | | | |
| $50.01 to $65.00 | | 602,156 | | | 5.02 | | $ | 52.56 | | | |
| $65.01 to $80.00 | | 203,014 | | | 6.51 | | $ | 67.32 | | | |
| $80.01 to $95.00 | | 239,017 | | | 7.28 | | $ | 93.13 | | | |
| $95.01 to $110.00 | | 146,286 | | | 8.47 | | $ | 99.61 | | | |
| $110.01 to $125.00 | | 22,211 | | | 9.37 | | $ | 119.37 | | | |
| | 2,024,211 | | | 4.88 | | $ | 54.15 | | | $ | 145.8 | |
(a) Calculated using the closing stock price on the last trading day of fiscal year 20172020 of $75.56,$126.19, less the option exercise price, multiplied by the number of instruments.
Stock-based compensation expense of $46.1$60.8 million, $43.1$58.4 million, and $38.6$55.1 million was recognized in the Consolidated Statements of Earnings for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, respectively, as well as related tax benefits of $15.9$13.5 million $15.4, $13.5 million, and $14.5$15.7 million, respectively.
As of June 30, 2017,2020, the total remaining unrecognized compensation cost related to non-vested stock options and RSU awards amounted to $10.0$14.9 million and $41.9$45.6 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 2.21.9 years and 1.5 years, respectively.
In April 2013, the Company began reissuing treasury stock to satisfy stock option exercises and issuances under the Company’s RSU awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. The Company repurchased 4.60.4 million shares in fiscal year 20172020 under our share repurchase program as compared to 1.73.2 million shares repurchased in fiscal year 2016,2019, which excludes shares withheld by the Company to cover payroll taxes on the vesting of RSU awards, which are also accounted for as treasury stock. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.
The following table presents the assumptions used to determine the fair values of the stock option grants using the Binomial options pricing model during the fiscal years ended June 30, 2017, 20162020, 2019 and 2015:2018:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended
June 30, 2020 | | Fiscal Year Ended
June 30, 2019 | | Fiscal Year Ended
June 30, 2018 |
| Graded Vesting | | | | | | |
| Risk-free interest rate | | 1.5 | % | | 2.5 | % | | 2.7 | % |
| Dividend yield | | 1.8 | % | | 2.0 | % | | 1.6 | % |
| Weighted-average volatility factor | | 23.0 | % | | 26.0 | % | | 23.8 | % |
| Weighted-average expected life (in years) | | 5.7 | | 5.9 | | 6.5 |
| Weighted-average fair value (in dollars) | | $ | 21.49 | | | $ | 22.12 | | | $ | 22.16 | |
| | | | | | | | |
| | Fiscal Year Ended
June 30, 2018 |
| Cliff Vesting | | |
| Risk-free interest rate | | 2.7 | % |
| Dividend yield | | 1.6 | % |
| Weighted-average volatility factor | | 23.8 | % |
| Weighted-average expected life (in years) | | 6.0 |
| Weighted-average fair value (in dollars) | | $ | 21.65 | |
|
| | | | | | | | | |
| | | Fiscal Year Ended
June 30, 2017 | | Fiscal Year Ended
June 30, 2016 | | Fiscal Year Ended
June 30, 2015 |
| Graded Vesting | | | | | | |
| Risk-free interest rate | | 2.1 | % | | 1.4 | % | | 1.8 | % |
| Dividend yield | | 2.0 | % | | 2.3 | % | | 2.1 | % |
| Weighted-average volatility factor | | 23.1 | % | | 26.7 | % | | 24.2 | % |
| Weighted-average expected life (in years) | | 6.5 |
| | 6.5 |
| | 6.9 |
|
| Weighted-average fair value (in dollars) | | $13.74 | | $10.82 | | $10.21 |
| |
NOTE 14. | EMPLOYEE BENEFIT PLANS |
NOTE 16. EMPLOYEE BENEFIT PLANS
A. Defined Contribution Savings Plans. The Company sponsors a 401(k) savings plan covering eligible U.S. employees of the Company. This plan provides a base contribution plus Company matching contributions on a portion of employee contributions.
An Executive Retirement and Savings Plan (the “ERSP”) was adopted effective January 1, 2015 for those executives who are not participants in the Broadridge SORP or Broadridge SERP (defined below). The ERSP is a defined contribution plan that allows eligible full-time U.S. employees to defer compensation until a later date and the Company will match a portion of the deferred compensation above the qualified defined contribution compensation and deferral limitations.
The costs recorded by the Company for these plans were:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| 401(k) savings plan | | $ | 42.6 | | | $ | 35.5 | | | $ | 34.4 | |
| ERSP | | 2.5 | | | 2.3 | | | 1.9 | |
| Total | | $ | 45.1 | | | $ | 37.8 | | | $ | 36.3 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| 401(k) savings plan | | $ | 35.2 |
| | $ | 27.3 |
| | $ | 24.9 |
|
| ERSP | | 1.8 |
| | 1.2 |
| | 0.4 |
|
| Total | | $ | 37.0 |
| | $ | 28.5 |
| | $ | 25.3 |
|
B. Defined Benefit Pension Plans. The Company sponsors a Supplemental Officer Retirement Plan (the “Broadridge SORP”“SORP”). The Broadridge SORP is a nonqualified ERISA defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key officers upon retirement based upon the officers’ years of service and compensation. The Broadridge SORP is currently unfunded. The Broadridge SORP was closed to new participants beginning in fiscal year 2015.
The Company also sponsors a Supplemental Executive Retirement Plan (the “Broadridge SERP”“SERP”). The Broadridge SERP is also a nonqualified ERISA defined benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key executives upon retirement based upon the executives’ years of service and compensation. The Broadridge SERP is currently unfunded. The Broadridge SERP was closed to new participants beginning in fiscal year 2015.
The SORP and SERP are effectively funded with assets held in a Rabbi Trust. The assets invested in the Rabbi Trust are to be used in part to fund benefit payments to participants under the terms of the plans. The Rabbi Trust is irrevocable and no portion of the trust funds may be used for any purpose other than the delivery of those assets to the participants, except that assets held in the Rabbi Trust would be subject to the claims of the Company’s general creditors in the event of bankruptcy or insolvency of the Company. The SORP and SERP are nonqualified plans for federal tax purposes and for purposes of Title I of ERISA. The Rabbi Trust assets had a value of $54.5 million at June 30, 2020 and $41.9 million at June 30, 2019 and are included in Other non-current assets in the accompanying Consolidated Balance Sheets.
The amounts charged to expense by the Company for these plans were:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| SORP | | $ | 4.8 | | | $ | 3.9 | | | $ | 4.3 | |
| SERP | | 0.4 | | | 0.5 | | | 0.6 | |
| Total | | $ | 5.2 | | | $ | 4.4 | | | $ | 4.9 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| SORP | | $ | 3.6 |
| | $ | 3.2 |
| | $ | 2.7 |
|
| SERP | | 0.7 |
| | 0.6 |
| | 0.6 |
|
| Total | | $ | 4.3 |
| | $ | 3.8 |
| | $ | 3.3 |
|
The benefit obligation to the Company under these plans at June 30, 2017, 20162020, 2019 and 20152018 was:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| SORP | | $ | 53.8 | | | $ | 45.5 | | | $ | 38.3 | |
| SERP | | 6.0 | | | 5.4 | | | 4.5 | |
| Total | | $ | 59.8 | | | $ | 50.8 | | | $ | 42.8 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| SORP | | $ | 35.4 |
| | $ | 30.0 |
| | $ | 25.3 |
|
| SERP | | 4.3 |
| | 3.6 |
| | 2.7 |
|
| Total | | $ | 39.7 |
| | $ | 33.6 |
| | $ | 28.0 |
|
C. Other Post-retirement Benefit Plan. The Company sponsors an Executive Retiree Health Insurance Plan. It is a post-retirement benefit plan pursuant to which the Company helps defray the health care costs of certain eligible key executive retirees and qualifying dependents, based upon the retirees’ age and years of service, until they reach the age of 65. The plan is currently unfunded.
The amounts charged to expense by the Company for this plan were:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Executive Retiree Health Insurance Plan | | $ | 0.5 | | | $ | 0.5 | | | $ | 0.4 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Executive Retiree Health Insurance Plan | | $ | 0.3 |
| | $ | 0.3 |
| | $ | 0.2 |
|
The benefit obligation to the Company under this plan at June 30, 2017, 20162020, 2019 and 20152018 was:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Executive Retiree Health Insurance Plan | | $ | 4.5 | | | $ | 5.2 | | | $ | 5.3 | |
D. Other Post-employment Benefit Obligations. The Company sponsors a post-employment plan (the “Gratuity Plan”) covering all employees in India who are eligible under the terms of their employment. The Gratuity Plan is required by local law and provides a lump sum payment to vested employees upon retirement, death, incapacitation, or termination of employment based on the respective employee’s salary and the tenure of employment. The Gratuity Plan is currently unfunded.
The amounts charged to expense by the Company for this plan were:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| The Gratuity Plan | | $ | 1.0 | | | $ | 1.3 | | | $ | 1.0 | |
The benefit obligation to the Company under this plan at June 30, 2020, 2019 and 2018 was:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| The Gratuity Plan | | $ | 6.4 | | | $ | 5.8 | | | $ | 5.0 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Executive Retiree Health Insurance Plan | | $ | 4.9 |
| | $ | 4.2 |
| | $ | 3.9 |
|
Earnings before income taxes shown below are based on the geographic location to which such earnings are attributable.
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Earnings before income taxes: | | | | | | |
| U.S. | | $ | 492.4 | | | $ | 526.4 | | | $ | 450.0 | |
| Foreign | | 87.2 | | | 80.8 | | | 111.1 | |
| Total | | $ | 579.5 | | | $ | 607.3 | | | $ | 561.0 | |
|
| | | | | | | | | | | | |
| | | Years Ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Earnings before income taxes: | | | | | | |
| U.S. | | $ | 398.6 |
| | $ | 389.2 |
| | $ | 365.4 |
|
| Foreign | | 89.5 |
| | 79.7 |
| | 73.5 |
|
| Total | | $ | 488.1 |
| | $ | 468.9 |
| | $ | 438.9 |
|
The Provision for income taxes consists of the following components: | | | | | Years Ended June 30, | | | Years Ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | (in millions) | |
| Current: | | | | | | | Current: | |
| U.S. Domestic | | $ | 138.2 |
| | $ | 134.9 |
| | $ | 120.8 |
| U.S. Domestic | | $ | 46.7 | | | $ | 88.8 | | | $ | 89.4 | |
| Foreign | | 24.8 |
| | 23.9 |
| | 19.8 |
| Foreign | | 33.1 | | | 24.7 | | | 43.4 | |
| State | | 13.0 |
| | 8.5 |
| | 10.6 |
| State | | 8.3 | | | 15.1 | | | 9.6 | |
| Total current | | 176.0 |
| | 167.3 |
| | 151.2 |
| Total current | | 88.1 | | | 128.7 | | | 142.4 | |
| Deferred: | | | | | | | Deferred: | |
| U.S. Domestic | | (7.9 | ) | | (7.4 | ) | | 4.5 |
| U.S. Domestic | | 33.1 | | | 2.2 | | | (13.6) | |
| Foreign | | (4.2 | ) | | (0.4 | ) | | (0.9 | ) | Foreign | | (10.7) | | | (2.8) | | | 4.9 | |
| State | | (2.5 | ) | | 1.9 |
| | (3.0 | ) | State | | 6.5 | | | (2.9) | | | (0.6) | |
| Total deferred | | (14.7 | ) | | (5.9 | ) | | 0.6 |
| Total deferred | | 29.0 | | | (3.5) | | | (9.3) | |
| Total Provision for income taxes | | $ | 161.4 |
| | $ | 161.4 |
| | $ | 151.8 |
| Total Provision for income taxes | | $ | 117.0 | | | $ | 125.2 | | | $ | 133.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended June 30, | | | | | | | | | | |
| | | 2020 | | % | | 2019 | | % | | 2018 | | % |
| | | (in millions) | | | | | | | | | | |
| Provision for income taxes at U.S. statutory rate | | $ | 121.7 | | | 21.0 | | | $ | 127.5 | | | 21.0 | | | $ | 157.4 | | | 28.1 | |
| Increase (decrease) in Provision for income taxes from: | | | | | | | | | | | | |
| State taxes, net of federal tax | | 11.3 | | | 1.9 | | | 12.0 | | | 2.0 | | | 9.4 | | | 1.7 | |
| Foreign tax differential | | 3.2 | | | 0.6 | | | 3.8 | | | 0.6 | | | (2.4) | | | (0.4) | |
| Valuation allowances | | 2.4 | | | 0.4 | | | 0.4 | | | 0.1 | | | (5.0) | | | (0.9) | |
| Stock-based compensation - excess tax benefits (“ETB”) | | (15.6) | | | (2.7) | | | (19.3) | | | (3.2) | | | (40.9) | | | (7.3) | |
| Tax Act Items | | — | | | — | | | (0.5) | | | (0.1) | | | 15.4 | | | 2.7 | |
| Other | | (5.9) | | | (1.0) | | | 1.3 | | | 0.2 | | | (0.8) | | | (0.1) | |
| Total Provision for income taxes | | $ | 117.0 | | | 20.2 | | | $ | 125.2 | | | 20.6 | | | $ | 133.1 | | | 23.7 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended June 30, |
| | | 2017 | | % | | 2016 | | % | | 2015 | | % |
| | | (in millions) |
| Provision for income taxes at U.S. statutory rate | | $ | 170.8 |
| | 35.0 |
| | $ | 164.1 |
| | 35.0 |
| | $ | 153.6 |
| | 35.0 |
|
| Increase (decrease) in Provision for income taxes from: | | | | | | | | | | | | |
| State taxes, net of federal tax | | 6.7 |
| | 1.4 |
| | 7.0 |
| | 1.5 |
| | 5.8 |
| | 1.3 |
|
| Foreign taxes | | (6.9 | ) | | (1.4 | ) | | (5.6 | ) | | (1.2 | ) | | (5.1 | ) | | (1.2 | ) |
| Valuation allowances | | (0.6 | ) | | (0.1 | ) | | (0.3 | ) | | (0.1 | ) | | (0.9 | ) | | (0.2 | ) |
| Non taxable investment gain | | (3.3 | ) | | (0.7 | ) | | — |
| | — |
| | — |
| | — |
|
| Other | | (5.3 | ) | | (1.1 | ) | | (3.8 | ) | | (0.7 | ) | | (1.6 | ) | | (0.3 | ) |
| Total Provision for income taxes | | $ | 161.4 |
| | 33.1 |
| | $ | 161.4 |
| | 34.4 |
| | $ | 151.8 |
| | 34.6 |
|
The Provision for income taxes and effective tax rates for the fiscal year ended June 30, 20172020 were $161.4$117.0 million and 33.1%20.2%, compared to $161.4$125.2 million and 34.4%20.6%, for the fiscal year ended June 30, 2016,2019, respectively. The effective tax for the fiscal year ended June 30, 2017 was impacted by the recognition of the non-cash, nontaxable $9.3 million MAL investment gain. Excluding that investment gain,decrease in the effective tax rate for the fiscal year ended June 30, 2017 was 33.7%. In addition2020 compared to the tax benefit from the MAL investment gain, the effective tax rate also declined as a resultfiscal year ended June 30, 2019 was primarily driven by higher discrete benefits, partially offset by lower ETB of a $2.2$15.6 million increase in the current year accrual for the Section 199 domestic production activities deduction relatingfiscal year ended June 30, 2020 compared to prior tax years. The effective tax rate was also positively impacted by approximately 20 basis points due to a more favorable mix of geographical income.$19.3 million for the fiscal year ended June 30, 2019.
The Provision for income taxes and the effective tax rates for the fiscal year ended June 30, 20162019 were $161.4$125.2 million and 34.4%20.6%, respectively, compared to $151.8$133.1 million and 34.6%23.7%, for the fiscal year ended June 30, 2015,2018, respectively. The decrease in the effective tax rate was primarily attributable to a greater recognition of tax benefits infor the fiscal year 2016 annualized effective tax rate for the current year federal research and development (R&D) tax credit and the Section 199 domestic production activities deduction (the Section 199 deduction)ended June 30, 2019 compared to the recognition of such tax benefits in the annualized rate for fiscal year 2015. The additional benefits in the fiscal year 2016 annualizedended June 30, 2018 is primarily due to a reduced statutory U.S. federal tax rate for the R&Das well as a prior period net tax credit and the Section 199 deduction compared to fiscal year 2015 resulted in a decrease in the rate of approximately 34 basis points. In addition, the Company recognized more cumulative discrete tax benefits in fiscal year 2016 compared to fiscal year 2015, yielding an additional benefit of approximately 2 basis pointscharge relating to the rate. The cumulative discrete tax benefits in fiscal year 2016 related primarily to larger discrete tax benefits for prior years US federal R&D tax credits andenactment of the prior year Section 199 deduction. The gross tax benefit of approximately 36 basis points from the greater recognition in fiscal year 2016 for tax benefits in the annualized rate and excess cumulative discrete items compared to fiscal year 2015 wasTax Act, partially offset by the recognition of lower ETB attributable to stock-based compensation compared to the ETB recognized in fiscal year 2015ended June 30, 2018. In the fiscal year ending June 30, 2019, the Company’s federal corporate statutory income tax rate was 21.0% compared to a blended tax rate of additional US28.1% for the prior fiscal year. In addition, notwithstanding the reduction in the federal corporate statutory income tax expense (a decreaserate for the fiscal year ended June 30, 2018, the Tax Act required the Company to accrue a transition tax on earnings of certain foreign subsidiaries at December 31, 2017, and which in turn led to the accrual of applicable foreign withholding taxes to repatriate such earnings subject to the transition tax. At June 30, 2018 the Company estimated the transition tax and applicable foreign withholding taxes to be approximately $30.8 million, partially offset by a benefit of approximately 16 basis points$15.3 million relating to the rate) attributable to a one-time dividend from a foreign affiliate that was a party to a legal entity reorganization. In fiscal year 2016, the Company’s foreign earnings were approximately 17% of total company earnings before income taxes as compared to fiscal year 2015 when the Company’s foreign earnings were also approximately 17% of total company earnings before income taxes. The geographical mix of income may impact the effective tax rate in future periods as the geographical mixremeasurement of the Company’s business changes.net deferred tax liabilities. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided the Company with up to one year to finalize accounting for the impacts of the Tax Act. Under SAB 118, the Company finalized the prior year estimate of the transition tax and applicable withholding taxes and recognized a tax benefit of approximately $0.5 million in the fiscal year ended June 30, 2019. In addition to the lower corporate tax rate, the Tax Act introduced two new federal tax provisions relating to foreign source earnings, (i) a minimum tax on global intangible low-tax income (“GILTI”) and (ii) a deduction for foreign-derived intangible income (“FDII”). Both provisions were effective beginning with the fiscal year ended June 30, 2019, and on a net basis generated a tax benefit of approximately $1.8 million.
As of June 30, 2017,2020, the Company had approximately $430.4$525.4 million of accumulated earnings and profits attributable to foreign subsidiaries. The Company considers $265.0 million of accumulated earnings attributable to foreign subsidiaries. The Company considers such earnings assubsidiaries to be permanently reinvested outside the U.S. and therefore, provides no additional taxes that could occur upon repatriation. Ithas not determined the cost to repatriate such earnings since it is not practicable to determinecalculate the amount of income taxes payable in the event all such foreign earnings are repatriated. The Company does not consider the remaining $260.4 million of accumulated earnings to be permanently reinvested outside the U.S. The Company has accrued approximately $8.9 million of foreign withholding taxes and $0.6 million of state income taxes attributable to such earnings.
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company’s deferred tax assets and liabilities at June 30, 20172020 and 20162019 were as follows:
| | | | | June 30, | | | June 30, | |
| | | 2017 | | 2016 | | | 2020 | | 2019 |
| | | (in millions) | | | (in millions) | |
| Classification: | | | | | Classification: | |
| Current deferred tax assets (included in Other current assets) | | $ | 26.1 |
| | $ | 19.3 |
| |
| Long-term deferred tax assets (included in Other non-current assets) | | 2.7 |
| | 1.5 |
| Long-term deferred tax assets (included in Other non-current assets) | | $ | 2.6 | | | $ | 5.5 | |
| Current deferred tax liabilities (included in Accrued expenses and other current liabilities) | | (0.8 | ) | | (0.8 | ) | |
| Long-term deferred tax liabilities | | (82.0 | ) | | (61.6 | ) | Long-term deferred tax liabilities | | (126.8) | | | (86.7) | |
| Net deferred tax liabilities | | $ | (54.0 | ) | | $ | (41.6 | ) | Net deferred tax liabilities | | $ | (124.2) | | | $ | (81.3) | |
| Components: | | | | | Components: | | | | |
| Deferred tax assets: | | | | | Deferred tax assets: | |
| Accrued expenses not currently deductible | | $ | 5.6 |
| | $ | 4.0 |
| Accrued expenses not currently deductible | | $ | 3.1 | | | $ | 3.2 | |
| Depreciation | | 18.8 |
| | 21.1 |
| |
| Compensation and benefits not currently deductible | | 70.3 |
| | 56.0 |
| Compensation and benefits not currently deductible | | 59.1 | | | 57.6 | |
| Net operating and capital losses | | 20.4 |
| | 21.6 |
| Net operating and capital losses | | 16.4 | | | 11.1 | |
| Tax credits | | 4.4 |
| | 4.8 |
| Tax credits | | 7.7 | | | 7.5 | |
| Other | | 6.8 |
| | 5.1 |
| Other | | 9.1 | | | 6.1 | |
| Total deferred tax assets | | 126.3 |
| | 112.6 |
| Total deferred tax assets | | 95.5 | | | 85.6 | |
| Less: Valuation allowances | | (9.3 | ) | | (9.8 | ) | Less: Valuation allowances | | (6.7) | | | (3.3) | |
| Deferred tax assets, net | | 117.0 |
| | 102.8 |
| Deferred tax assets, net | | 88.8 | | | 82.2 | |
| Deferred tax liabilities: | | | | | Deferred tax liabilities: | | | | |
| Goodwill and identifiable intangibles | | 141.4 |
| | 120.3 |
| Goodwill and identifiable intangibles | | 112.8 | | | 100.9 | |
| Depreciation | | Depreciation | | 17.3 | | | 10.1 | |
| Net deferred expenses | | 20.2 |
| | 16.5 |
| Net deferred expenses | | 66.5 | | | 33.6 | |
| Unremitted earnings | | Unremitted earnings | | 9.5 | | | 12.2 | |
| Other | | 9.4 |
| | 7.6 |
| Other | | 7.0 | | | 6.8 | |
| Deferred tax liabilities | | 171.0 |
| | 144.4 |
| Deferred tax liabilities | | 213.0 | | | 163.5 | |
| Net deferred tax liabilities | | $ | (54.0 | ) | | $ | (41.6 | ) | Net deferred tax liabilities | | $ | (124.2) | | | $ | (81.3) | |
The Company has estimated foreign net operating loss carryforwards of approximately $14.8$13.1 million as of June 30, 20172020 of which $1.3$1.5 million expires in 2018the June 30, 2020 through 2027June 30, 2028 period, and of which $13.5$11.6 million has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately $26.4$37.0 million of which expire in 2018$16.9 million can be utilized through 2030.June 30, 2030 with the balance of $20.2 million having an indefinite utilization period.
Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that the Company will not be able to utilize the deferred tax assets attributable to net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings. The Company has recorded valuation allowances of $9.3$6.7 million and $9.8$3.3 million at June 30, 20172020 and 2016,2019, respectively. The determination as to whether a deferred tax asset will be recognized is made on a jurisdictional basis and is based on the evaluation of historical taxable income or loss, projected future taxable income, carryforward periods, scheduled reversals of deferred tax liabilities and tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The assumptions used to project future taxable income require significant judgment and are consistent with the plans and estimates used to manage the underlying businesses.
In the next twelve months, the Company does not expect a material change to its net reserve balance for unrecognized tax benefits.
The following table summarizes the activity related to the Company’s gross unrecognized tax positions:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended
June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Beginning balance | | $ | 40.2 | | | $ | 22.8 | | | $ | 18.7 | |
| Gross increase related to prior period tax positions | | 0.5 | | | 17.3 | | | 3.5 | |
| Gross increase related to current period tax positions | | 5.9 | | | 2.8 | | | 3.0 | |
| Gross decrease related to prior period tax positions | | (9.5) | | | (2.6) | | | (2.4) | |
| Ending balance | | $ | 37.1 | | | $ | 40.2 | | | $ | 22.8 | |
|
| | | | | | | | | | | | |
| | | Fiscal Year Ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Beginning balance | | $ | 18.2 |
| | $ | 24.4 |
| | $ | 26.6 |
|
| Gross increase related to prior period tax positions | | 0.6 |
| | 0.6 |
| | 0.5 |
|
| Gross increase related to current period tax positions | | 2.7 |
| | 2.6 |
| | 2.4 |
|
| Gross decrease related to prior period tax positions | | (2.8 | ) | | (9.4 | ) | | (5.1 | ) |
| Ending balance | | $ | 18.7 |
| | $ | 18.2 |
| | $ | 24.4 |
|
As of June 30, 2017, 20162020, 2019 and 20152018, the net reserve for unrecognized tax positions recorded by the Company that is included in the preceding table of gross unrecognized tax positions was $13.4$33.8 million, $12.9$33.4 million, and $12.7$19.4 million respectively, and if reversed in full, would favorablyaffect the effective tax rate by these amounts, respectively.
The $2.8$9.5 million, $9.4$2.6 million and $5.1$2.4 million gross decreases in fiscal years 2017, 20162020, 2019 and 2015,2018, respectively, for prior period tax positions related to certain tax audit settlements and certain state, federal and foreign statute of limitation expirations.
During the fiscal year ended June 30, 2017,2020, the Company adjusted accrued interest by approximately $(0.2)less than $0.1 million as a result of a favorable audit settlement and recognized a total liability for interest on unrecognized tax positions of $3.2$3.6 million; in the fiscal year ended June 30, 2016,2019, the Company adjusted accrued interest by approximately $(0.3)$(0.1) million as a result of a favorable audit settlement and recognized a total liability of $3.4 million;$3.6 million for interest on unrecognized tax positions; in the fiscal year ended June 30, 20152018 the Company adjusted accrued interest by approximately $0.1$0.5 million and recognized a total liability of $5.0$3.7 million for penalties and interest.interest on unrecognized tax positions.
The Company is regularly subject to examination of its income tax returns by U.S. Federal, state and foreign income tax authorities. The tax years that are currently open and could be subject to income tax audits for U.S. federal and most state and local jurisdictions are fiscal years ending June 30, 20142013 through June 30, 2017,2020, and for Canadian operations that could be subject to audit in Canada, fiscal years ending June 30, 20132015 through June 30, 2017.2020. A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.
| |
NOTE 16. | CONTRACTUAL COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ARRANGEMENTS |
NOTE 18. CONTRACTUAL COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ARRANGEMENTS
Data Center Agreements
In March 2010, the Company and International Business Machines Corporation (“IBM”)IBM entered into an Information Technology Services Agreement (the “IT Services Agreement”), under which IBM provides certain aspects of the Company’s information technology infrastructure. Under the IT Services Agreement, IBM provides a broad range of technology services to the Company including supporting its mainframe, midrange, open systems, network and data center operations, as well as providing disaster recovery services. The Company has the option of incorporating additional services into the agreement over time. The migration of the data center processing to IBM was completed in August 2012. The IT Services Agreement would have expired on June 30, 2022. In2022, but a two-year extension was signed in March 2015, amending the expiration date to June 30, 2024. In December 2019, the Company signed a two-year extension toand IBM amended and restated the IT Services Agreement (the “Amended IT Services Agreement”), which now expires on June 30, 2024.2027. The Company has the right tooption of incorporating additional services into the Amended IT Services Agreement over time. The Company may renew the term of the Amended IT Services Agreement for up to one1 additional 12-month term. Commitmentsperiod. Fixed minimum commitments remaining under this agreementthe Amended IT Services Agreement at June 30, 20172020 are $392.5$251.7 million through fiscal year 2024,2027, the final year of the Amended IT Services Agreement.
In December 2019, the Company and IBM entered into an information technology agreement for private cloud services (the “IBM Private Cloud Agreement”) under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks. The IBM Private Cloud Agreement has an initial term of approximately 10 years and three months, expiring on March 31, 2030.As a result of the IBM Private Cloud Agreement, the Company transferred certain of its employees in April 2020 to IBM and its affiliates, and such transferred employees are expected to continue providing services to the Company on behalf of IBM under the IBM Private Cloud Agreement. Pursuant to the IBM Private Cloud Agreement, the Company has agreed to transfer the ownership of certain Company-owned hardware (the “Hardware”) located at Company facilities worldwide along with the Company’s maintenance agreements (“Maintenance Contracts”) associated with the Hardware to IBM. The transfer of the Hardware and Maintenance Contracts to IBM is expected to close no later than September 30, 2020. The Company concluded that the Hardware qualifies as assets held for sale since the Company has committed to a plan of disposal expected to be completed within a year, and therefore, has recorded the Hardware at fair value less costs to dispose based on the expected selling price to IBM (a Level 3 fair value measurement as defined in Note 7, “Fair Value of Financial Instruments”). Accordingly, the Company has recorded a non-cash pre-tax charge of $30.4 million for the year ended June 30, 2020, equal to the difference between the Hardware’s carrying value and estimated fair value less costs to dispose, included as part of Cost of revenues on the Company’s Consolidated Statements of Earnings and is included in Other for purposes of the Company's segment reporting. As of June 30, 2020, the Hardware classified as assets held for sale has a carrying amount of $18.0 million and is included in the Company’s Other current assets line item on the Consolidated Balance Sheets. Fixed minimum commitments remaining under the IBM Private Cloud Agreement at June 30, 2020 are $236.7 million through March 31, 2030, the final year of the contract.
In March 2014, the Company and IBM United Kingdom Limited (“IBM UK”) entered into an Information Technology Services Agreement (the “EU IT Services Agreement”), under which IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia. The EU IT Services Agreement expireswould have expired in October 2023. In December 2019, the Company amended the existing EU IT Services Agreement whereby the Company will migrate from the existing dedicated on-premise solution to a managed Broadridge private cloud environment provided by IBM, as well as extended the term of the EU IT Services Agreement to June 2029 (the “Amended EU IT Services Agreement”). The Company has the right to renew the initial term of the Amended EU IT Services Agreement for up to one1 additional 12-month term or one1 additional 24-month term. CommitmentsFixed minimum commitments remaining under this agreementthe Amended EU IT Services Agreement at June 30, 20172020 are $29.3$23.9 million through fiscal year 2024,2029, the final year of the contract.
The following table summarizes the total annual expenses related to these agreements:
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| IT Services Agreement | | $ | 99.3 |
| | $ | 98.5 |
| | $ | 95.3 |
|
| EU IT Services Agreement | | 5.5 |
| | 7.5 |
| | 4.6 |
|
| Total expenses | | $ | 104.8 |
| | $ | 106.0 |
| | $ | 99.9 |
|
The Company has capitalized $62.0IBM agreements was $118.7 million, including $2.6$106.1 million, in fiscal year 2017, related to the build-out of the IBM data center in Other non-current assets, with a net book value of $36.8and $107.5 million at June 30, 2017. The Company capitalized $5.3 million related to the build-out of the IBM UK data center in Other non-current assets, with a net book value of $3.3 million at June 30, 2017. The asset balance declined by $0.6 million due to the impact of foreign exchange duringfor the fiscal yearyears ended June 30, 2017.2020, 2019 and 2018, respectively.
The following table summarizes the capitalized costs related to data center agreements as of June 30, 2020:
| | | | | | | | | | | | | | | | | | | | |
| | | Amended IT Services Agreement | | Amended EU IT Services Agreement | | Total |
| | | (in millions) | | | | |
| Capitalized costs, beginning balance | | $ | 62.3 | | | $ | 5.0 | | | $ | 67.3 | |
| Capitalized costs incurred | | 0.3 | | | 1.6 | | | 1.8 | |
| Impact of foreign currency exchange | | — | | | (0.2) | | | (0.2) | |
| Total capitalized costs, ending balance | | 62.6 | | | 6.3 | | | 68.9 | |
| Total accumulated amortization | | (40.1) | | | (4.3) | | | (44.4) | |
| Net Deferred IBM Costs | | $ | 22.5 | | | $ | 2.0 | | | $ | 24.5 | |
The following table summarizes the respective total annual amortization expense of capitalized costs related to thesedata center agreements:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | | | |
| | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | | |
| Amended IT Services Agreement | | $ | 4.2 | | | $ | 5.3 | | | $ | 5.3 | |
| Amended EU IT Services Agreement | | 1.8 | | | 0.5 | | | 0.5 | |
| Total expenses | | $ | 6.1 | | | $ | 5.8 | | | $ | 5.8 | |
|
| | | | | | | | | | | | |
| | | Years ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| IT Services Agreement | | $ | (4.6 | ) | | $ | (4.3 | ) | | $ | (5.1 | ) |
| EU IT Services Agreement | | (0.4 | ) | | (0.6 | ) | | (0.4 | ) |
| Total expenses | | $ | (5.0 | ) | | $ | (4.8 | ) | | $ | (5.5 | ) |
Equity Method Investment
TheAt June 30, 2020, the Company contributed $6.0 million and $4.9has a future commitment to fund $3.5 million to an equity method investment duringone of the fiscal years ended June 30, 2017 and 2016, respectively, and has a remaining commitment of $2.8 million to fund this investment at June 30, 2017.
Purchase of Intellectual Property
As discussed in Note 6, “Acquisitions,” the Company expects to pay $40.0 million to an affiliate of Inveshare by September 2018 upon delivery of certain new blockchain technology applications.Company’s investees.
Contractual Obligations
The Company has obligations under the Amended IT Services Agreement, the Amended EU IT Services Agreement, and related software maintenance agreements, various facilities and equipment leases,the IBM Private Cloud Agreement, software license agreements including hosted software arrangements, and software/software and hardware maintenance and support agreements.
The following table summarizes the total expenses related to these agreements:
| | | | | Years ended June 30, | | | Years ended June 30, | |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 | | 2018 |
| | | (in millions) | | | (in millions) | |
| Data center expenses | | $ | 104.8 |
| | $ | 106.0 |
| | $ | 99.9 |
| Data center expenses | | $ | 118.7 | | | $ | 106.1 | | | $ | 107.5 | |
| Facilities and equipment leases | | 50.3 |
| | 38.1 |
| | 36.5 |
| |
| Software license agreements | | 32.0 |
| | 26.5 |
| | 24.8 |
| Software license agreements | | 57.0 | | | 37.3 | | | 33.7 | |
| Software/hardware maintenance agreements | | 63.2 |
| | 53.3 |
| | 48.9 |
| Software/hardware maintenance agreements | | 72.1 | | | 65.0 | | | 63.5 | |
| Total expenses | | $ | 250.3 |
| | $ | 223.9 |
| | $ | 210.1 |
| Total expenses | | $ | 247.9 | | | $ | 208.4 | | | $ | 204.6 | |
The minimum commitments under these obligations at June 30, 2017 as follows, which includes2020 for the aforementioned Amended IT Services Agreement, the Amended EU IT Services Agreement, the IBM Private Cloud Agreement, software license agreements including hosted software arrangements, and Inveshare technology purchase:
|
| | | | |
| Years Ending June 30, | | (in millions) |
| 2018 | | $ | 123.8 |
|
| 2019 | | 148.6 |
|
| 2020 | | 102.0 |
|
| 2021 | | 88.8 |
|
| 2022 | | 85.4 |
|
| Thereafter | | 267.1 |
|
| | | $ | 815.7 |
|
In addition to fixed rentals, certain leases require payment ofsoftware and hardware maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices.support agreements are as follows:
| | | | | | | | |
| Years Ending June 30, | | (in millions) |
| 2021 | | $ | 93.4 | |
| 2022 | | 88.3 | |
| 2023 | | 85.1 | |
| 2024 | | 79.9 | |
| 2025 | | 64.0 | |
| Thereafter | | 170.0 | |
| Total | | $ | 580.8 | |
Other
In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any claim or litigation is inherently unpredictable, the Company believes that the ultimate resolution of these matters will not, individually or in the aggregate, result in a material impact on its financial condition, results of operations or cash flows.
As of June 30, 2017, the Company had an outstanding letter of credit for $1.6 million. This letter of credit was issued in May 2007 to guarantee certain claim payments to a third-party insurance company in the event the Company does not pay its portion of the claims. No amounts were drawn on this letter of credit.
It is not the Company’s business practice to enter into off-balance sheet arrangements. However, the Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations, and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company may use derivative financial instruments as risk management tools and not for trading purposes. The Company was not a party to any derivative financial instruments as of June 30, 20172020 and 2016.2019.
In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company’s products and services. The Company does not expect any material losses related to such representations and warranties, or collateral arrangements.
OurThe Company’s business process outsourcing and mutual fund processing services are performed by Broadridge Business Process Outsourcing, LLC (“BBPO”), aan indirect wholly-owned indirect subsidiary, which is a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Although BBPO’s FINRA membership agreement allows it to engage in clearing and the retailing of corporate securities in addition to mutual fund retailing on a wire order basis, BBPO does not clear customer transactions, process any retail business or carry customer accounts. As a registered broker-dealer and member of FINRA, BBPO is subject to the Uniform Net Capital Rule 15c3-1 of the Securities Exchange Act of 1934, as amended, (“Rule 15c3-1”), which requires BBPO to maintain a minimum amount of net capital.capital amount. At June 30, 2017,2020, BBPO was in compliance with this capital requirement.
BBPO, as a “Managing Clearing Member” of the Options Clearing Corporation (the “OCC”), is also subject to OCC Rule 309(b) with respect to the business process outsourcing services that it provides to other OCC “Managed Clearing Member” broker-dealers. OCC Rule 309(b) requires that BBPO to maintain a minimum amount of net capital.capital amount. At June 30, 2017,2020, BBPO was in compliance with this capital requirement.
In addition, Matrix Trust Company (“Matrix Trust”), a wholly-owned indirect subsidiary of the Company, is a Colorado State non-depository trust company and National Securities Clearing Corporation trust member, whose primary business is to provide cash agent, custodial and directed or non-discretionary trusttrustee services to institutional customers.customers, and investment management services to collective investment trust funds. As a result, Matrix Trust Company is subject to various regulatory capital requirements administered by the Colorado Division of Banking and the Arizona Department of Financial Institutions, as well as the National Securities Clearing Corporation. Specific capital requirements that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, when applicable, must be met. At June 30, 2017,2020, Matrix Trust Company was in compliance with its capital requirements.
NOTE 17.19. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) BY COMPONENT
The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income/(loss):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign
Currency
Translation | |
Securities | | Pension
and Post-
Retirement
Liabilities | | Total |
| | (in millions) | | | | | | |
| Balances at July 1, 2017 | | $ | (48.9) | | | $ | 2.3 | | | $ | (9.2) | | | $ | (55.8) | |
| Other comprehensive income/(loss) before reclassifications | | 5.7 | | | 1.1 | | | (0.1) | | | 6.7 | |
| Amounts reclassified from accumulated other comprehensive income/(loss) | | — | | | (3.7) | | | 1.0 | | | (2.7) | |
| Balances at June 30, 2018 | | $ | (43.2) | | | $ | (0.4) | | | $ | (8.3) | | | $ | (51.9) | |
| Cumulative effect of changes in accounting principle (a) | | — | | | 0.4 | | | (1.9) | | | (1.5) | |
| Other comprehensive income/(loss) before reclassifications | | (15.0) | | | — | | | (3.6) | | | (18.7) | |
| Amounts reclassified from accumulated other comprehensive income/(loss) | | — | | | — | | | 0.9 | | | 0.9 | |
| Balances at June 30, 2019 | | $ | (58.3) | | | $ | — | | | $ | (12.9) | | | $ | (71.2) | |
| Other comprehensive income/(loss) before reclassifications | | (26.4) | | | — | | | (4.2) | | | (30.7) | |
| Amounts reclassified from accumulated other comprehensive income/(loss) | | — | | | — | | | 1.5 | | | 1.5 | |
| Balances at June 30, 2020 | | $ | (84.7) | | | $ | — | | | $ | (15.7) | | | $ | (100.4) | |
___________
(a)Reflects the adoption of accounting standards as described in Note 2, “Summary of Significant Accounting Policies.”
|
| | | | | | | | | | | | | | | | |
| | | Foreign Currency Translation | | Available- for-Sale Securities | | Pension and Post- Retirement Liabilities | | Total |
| | | (in millions) |
| Balances at July 1, 2014 | | $ | 13.6 |
| | $ | 1.9 |
| | $ | (5.2 | ) | | $ | 10.3 |
|
| Other comprehensive income/(loss) before reclassifications | | (30.2 | ) | | 0.1 |
| | (1.4 | ) | | (31.5 | ) |
| Amounts reclassified from accumulated other comprehensive income/(loss) | | — |
| | — |
| | 0.3 |
| | 0.3 |
|
| Balances at June 30, 2015 | | $ | (16.6 | ) | | $ | 2.0 |
| | $ | (6.3 | ) | | $ | (20.9 | ) |
| Other comprehensive income/(loss) before reclassifications | | (15.4 | ) | | (0.7 | ) | | (1.6 | ) | | (17.7 | ) |
| Amounts reclassified from accumulated other comprehensive income/(loss) | | — |
| | — |
| | 0.4 |
| | 0.4 |
|
| Balances at June 30, 2016 | | $ | (31.9 | ) | | $ | 1.3 |
| | $ | (7.6 | ) | | $ | (38.2 | ) |
| Other comprehensive income/(loss) before reclassifications | | (17.0 | ) | | 1.0 |
| | (2.2 | ) | | (18.2 | ) |
| Amounts reclassified from accumulated other comprehensive income/(loss) | | — |
| | — |
| | 0.6 |
| | 0.6 |
|
| Balances at June 30, 2017 | | $ | (48.9 | ) | | $ | 2.3 |
| | $ | (9.2 | ) | | $ | (55.8 | ) |
The following table summarizes the reclassifications out of accumulated other comprehensive income/(loss):
|
| | | | | | | | | | | | |
| | | Years Ended June 30, |
| | | 2017 | | 2016 | | 2015 |
| | | (in millions) |
| Pension and Post-retirement liabilities: | | | | | | |
| Amortization of loss reclassified into Selling, general and administrative expenses | | $ | 1.0 |
| | $ | 0.6 |
| | $ | 0.5 |
|
| Tax income | | (0.4 | ) | | (0.2 | ) | | (0.2 | ) |
| Amortization of loss, net of tax | | $ | 0.6 |
| | $ | 0.4 |
| | $ | 0.3 |
|
| |
NOTE 18. | FINANCIAL DATA BY SEGMENT |
NOTE 20. FINANCIAL DATA BY SEGMENT
The Company operates in two2 reportable segments: Investor Communication Solutions and Global Technology and Operations. See Note 1, “Basis of Presentation” for a further description of the Company’s reportable segments.
The primary components of “Other” are certain gains, losses, corporate overhead expenses and non-operating expenses that have not been allocated to the reportable segments, such as interest expense. Foreign currency exchange is a reconciling item between the actual foreign currency exchange rates and the constant foreign currency exchange rates used for internal management reporting.
Certain corporate expenses, as well as certain centrally managed expenses, are allocated based upon budgeted amounts in a reasonable manner. Because the Company compensates the management of its various businesses on, among other factors, segment profit, the Company may elect to record certain segment-related operating and non-operating expense items in Other rather than reflect such items in segment profit.
EffectiveIn connection with an organizational change made in the first quarter of fiscal year 2017,2020, in order to further align our portfolio of services, the Company adopted FASB ASU No. 2015-03, which requiresresults for the Company's wealth management Advisor Solutions services that debt issuance costs related towere previously reported in our Investor Communication Solutions reportable segment are now reported within the Global Technology and Operations reportable segment. As a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has applied this guidance on a retrospective basis and accordingly, the Consolidated Balance Sheets as of June 30, 2016 and 2015, respectively,result, our prior period segment results have been updatedrevised to reflect this new classification.
change, which resulted in transferring $42.8 million of revenues and $2.2 million of earnings before income taxes between reportable segments for the year ended June 30, 2019 and $46.3 million of revenues and $5.5 million earnings before income taxes between reportable segments for the year ended June 30, 2018.
| | | | | | | | | | | | | | Investor
Communication
Solutions | | Global
Technology and
Operations | | Other | | Foreign Currency
Exchange | | Total |
| | | Investor Communication Solutions | | Global Technology and Operations | | Other | | Foreign Currency Exchange | | Total | | | (in millions) | |
| | | (in millions) | |
| Year ended June 30, 2017 | | | | | | | | | | | |
| Year ended June 30, 2020 | | Year ended June 30, 2020 | |
| Revenues | | $ | 3,421.4 |
| | $ | 802.7 |
| | $ | — |
| | $ | (81.5 | ) | | $ | 4,142.6 |
| Revenues | | $ | 3,491.3 | | | $ | 1,174.2 | | | $ | — | | | $ | (136.4) | | | $ | 4,529.0 | |
| Earnings (loss) before income taxes | | 421.0 |
| | 169.6 |
| | (110.5 | ) | | 8.1 |
| | 488.1 |
| Earnings (loss) before income taxes | | 464.1 | | | 245.0 | | | (146.3) | | | 16.8 | | | 579.5 | |
| Assets | | 1,989.0 |
| | 828.3 |
| | 332.4 |
| | — |
| | 3,149.8 |
| Assets | | 2,484.4 | | | 1,734.2 | | | 671.1 | | | — | | | 4,889.8 | |
| Capital expenditures | | 34.1 |
| | 10.7 |
| | 40.5 |
| | — |
| | 85.4 |
| Capital expenditures | | 35.9 | | | 5.3 | | | 21.6 | | | — | | | 62.7 | |
| Depreciation and amortization | | 48.7 |
| | 8.7 |
| | 11.1 |
| | — |
| | 68.6 |
| Depreciation and amortization | | 42.9 | | | 12.0 | | | 18.9 | | | — | | | 73.8 | |
| Amortization of acquired intangibles | | 62.7 |
| | 9.9 |
| | — |
| | — |
| | 72.6 |
| Amortization of acquired intangibles | | 81.7 | | | 39.7 | | | 1.5 | | | — | | | 122.9 | |
| Amortization of other assets | | 12.4 |
| | 14.9 |
| | 4.6 |
| | — |
| | 31.9 |
| Amortization of other assets | | 30.9 | | | 54.8 | | | 16.8 | | | — | | | 102.6 | |
| Year ended June 30, 2016 | | | | | | | | | | | |
| Year ended June 30, 2019 | | Year ended June 30, 2019 | |
| Revenues | | $ | 2,220.4 |
| | $ | 738.0 |
| | $ | — |
| | $ | (61.4 | ) | | $ | 2,897.0 |
| Revenues | | $ | 3,468.3 | | | $ | 996.3 | | | $ | — | | | $ | (102.4) | | | $ | 4,362.2 | |
| Earnings (loss) before income taxes | | 409.1 |
| | 135.4 |
| | (79.0 | ) | | 3.4 |
| | 468.9 |
| Earnings (loss) before income taxes | | 506.2 | | | 212.5 | | | (130.9) | | | 19.4 | | | 607.3 | |
| Assets | | 1,475.2 |
| | 712.0 |
| | 685.5 |
| | — |
| | 2,872.7 |
| Assets | | 2,155.6 | | | 1,423.6 | | | 301.6 | | | — | | | 3,880.7 | |
| Capital expenditures | | 40.7 |
| | 5.8 |
| | 11.2 |
| | — |
| | 57.7 |
| Capital expenditures | | 34.5 | | | 6.5 | | | 9.6 | | | — | | | 50.6 | |
| Depreciation and amortization | | 30.7 |
| | 11.1 |
| | 10.9 |
| | — |
| | 52.6 |
| Depreciation and amortization | | 54.3 | | | 11.9 | | | 19.0 | | | — | | | 85.2 | |
| Amortization of acquired intangibles | | 26.7 |
| | 5.1 |
| | — |
| | — |
| | 31.8 |
| Amortization of acquired intangibles | | 70.6 | | | 16.3 | | | 0.5 | | | — | | | 87.4 | |
| Amortization of other assets | | 6.6 |
| | 15.7 |
| | 4.3 |
| | — |
| | 26.6 |
| Amortization of other assets | | 36.4 | | | 45.7 | | | 5.3 | | | — | | | 87.4 | |
| Year ended June 30, 2015 | | | | | | | | | | | |
| Year ended June 30, 2018 | | Year ended June 30, 2018 | |
| Revenues | | $ | 2,030.2 |
| | $ | 692.5 |
| | $ | — |
| | $ | (28.5 | ) | | $ | 2,694.2 |
| Revenues | | $ | 3,449.3 | | | $ | 957.9 | | | $ | — | | | $ | (77.3) | | | $ | 4,329.9 | |
| Earnings (loss) before income taxes | | 381.4 |
| | 120.3 |
| | (73.5 | ) | | 10.7 |
| | 438.9 |
| Earnings (loss) before income taxes | | 489.1 | | | 204.8 | | | (151.4) | | | 18.6 | | | 561.0 | |
| Assets | | 1,346.9 |
| | 786.1 |
| | 231.8 |
| | — |
| | 2,364.8 |
| Assets | | 2,072.2 | | | 925.1 | | | 307.4 | | | — | | | 3,304.7 | |
| Capital expenditures | | 34.9 |
| | 6.6 |
| | 6.9 |
| | — |
| | 48.4 |
| Capital expenditures | | 38.9 | | | 29.0 | | | 8.8 | | | — | | | 76.7 | |
| Depreciation and amortization | | 27.8 |
| | 12.7 |
| | 8.8 |
| | — |
| | 49.3 |
| Depreciation and amortization | | 51.7 | | | 11.3 | | | 19.1 | | | — | | | 82.1 | |
| Amortization of acquired intangibles | | 20.2 |
| | 5.1 |
| | — |
| | — |
| | 25.3 |
| Amortization of acquired intangibles | | 64.7 | | | 16.7 | | | — | | | — | | | 81.4 | |
| Amortization of other assets | | 6.9 |
| | 17.7 |
| | 5.1 |
| | — |
| | 29.7 |
| Amortization of other assets | | 12.3 | | | 30.9 | | | 5.3 | | | — | | | 48.5 | |
Revenues and assets by geographic area are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United
States | | Canada | | United
Kingdom | | Other | | Total |
| | | (in millions) | | | | | | | | |
| Year ended June 30, 2020 | | | | | | | | | | |
| Revenues | | $ | 3,989.7 | | | $ | 341.6 | | | $ | 144.4 | | | $ | 53.5 | | | $ | 4,529.0 | |
| Assets | | $ | 3,783.2 | | | $ | 479.2 | | | $ | 373.4 | | | $ | 253.9 | | | $ | 4,889.8 | |
| Year ended June 30, 2019 | | | | | | | | | | |
| Revenues | | $ | 3,913.8 | | | $ | 279.5 | | | $ | 127.5 | | | $ | 41.4 | | | $ | 4,362.2 | |
| Assets | | $ | 2,870.2 | | | $ | 504.8 | | | $ | 277.0 | | | $ | 228.7 | | | $ | 3,880.7 | |
| Year ended June 30, 2018 | | | | | | | | | | |
| Revenues | | $ | 3,907.2 | | | $ | 273.6 | | | $ | 118.7 | | | $ | 30.4 | | | $ | 4,329.9 | |
| Assets | | $ | 2,661.9 | | | $ | 216.7 | | | $ | 257.8 | | | $ | 168.3 | | | $ | 3,304.7 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | United States | | Canada | | United Kingdom | | Other | | Total |
| | | (in millions) |
| Year ended June 30, 2017 | | | | | | | | | | |
| Revenues | | $ | 3,771.9 |
| | $ | 251.4 |
| | $ | 92.1 |
| | $ | 27.3 |
| | $ | 4,142.6 |
|
| Assets | | $ | 2,579.1 |
| | $ | 237.9 |
| | $ | 238.1 |
| | $ | 94.7 |
| | $ | 3,149.8 |
|
| Year ended June 30, 2016 | | | | | | | | | | |
| Revenues | | $ | 2,582.1 |
| | $ | 213.7 |
| | $ | 78.3 |
| | $ | 23.0 |
| | $ | 2,897.0 |
|
| Assets | | $ | 2,424.9 |
| | $ | 171.6 |
| | $ | 202.5 |
| | $ | 73.7 |
| | $ | 2,872.7 |
|
| Year ended June 30, 2015 | | | | | | | | | | |
| Revenues | | $ | 2,368.6 |
| | $ | 224.5 |
| | $ | 69.8 |
| | $ | 31.3 |
| | $ | 2,694.2 |
|
| Assets | | $ | 1,943.7 |
| | $ | 174.5 |
| | $ | 163.2 |
| | $ | 83.3 |
| | $ | 2,364.8 |
|
| |
NOTE 19. | QUARTERLY FINANCIAL RESULTS (UNAUDITED) |
NOTE 21. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Summarized quarterly results of operations for the fiscal years ended June 30, 20172020 and 20162019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Fiscal Year Total |
| | | (in millions, except per share amounts) | | | | | | | | |
| Year ended June 30, 2020 | | | | | | | | | | |
| Revenues | | $ | 948.6 | | | $ | 968.7 | | | $ | 1,249.9 | | | $ | 1,361.9 | | | $ | 4,529.0 | |
| Gross profit | | 221.1 | | | 187.7 | | | 377.4 | | | 477.7 | | | 1,263.9 | |
| Operating income | | 73.1 | | | 26.8 | | | 226.3 | | | 298.8 | | | 624.9 | |
| Earnings before income taxes | | 63.8 | | | 10.5 | | | 210.5 | | | 294.8 | | | 579.5 | |
| Net earnings | | 55.9 | | | 10.1 | | | 166.8 | | | 229.7 | | | 462.5 | |
| Basic EPS | | $ | 0.49 | | | $ | 0.09 | | | $ | 1.46 | | | $ | 2.00 | | | $ | 4.03 | |
| Diluted EPS | | $ | 0.48 | | | $ | 0.09 | | | $ | 1.43 | | | $ | 1.97 | | | $ | 3.95 | |
| Year ended June 30, 2019 | | | | | | | | | | |
| Revenues | | $ | 972.8 | | | $ | 953.4 | | | $ | 1,224.8 | | | $ | 1,211.2 | | | $ | 4,362.2 | |
| Gross profit | | 233.8 | | | 219.4 | | | 377.5 | | | 399.6 | | | 1,230.2 | |
| Operating income | | 100.1 | | | 78.2 | | | 233.6 | | | 240.8 | | | 652.7 | |
| Earnings before income taxes | | 89.3 | | | 64.3 | | | 223.6 | | | 230.0 | | | 607.3 | |
| Net earnings | | 76.7 | | | 49.9 | | | 172.2 | | | 183.2 | | | 482.1 | |
| Basic EPS | | $ | 0.66 | | | $ | 0.43 | | | $ | 1.49 | | | $ | 1.59 | | | $ | 4.16 | |
| Diluted EPS | | $ | 0.64 | | | $ | 0.42 | | | $ | 1.45 | | | $ | 1.55 | | | $ | 4.06 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year Total |
| | | (in millions, except per share amounts) |
| Year ended June 30, 2017 | | | | | | | | | | |
| Revenues | | $ | 895.3 |
| | $ | 892.6 |
| | $ | 1,008.9 |
| | $ | 1,345.7 |
| | $ | 4,142.6 |
|
| Gross profit | | 177.4 |
| | 184.9 |
| | 235.2 |
| | 435.6 |
| | 1,033.0 |
|
| Operating income | | 66.0 |
| | 58.8 |
| | 109.7 |
| | 297.0 |
| | 531.6 |
|
| Earnings before income taxes | | 51.5 |
| | 45.7 |
| | 106.3 |
| | 284.7 |
| | 488.1 |
|
| Net earnings | | 33.7 |
| | 30.1 |
| | 75.9 |
| | 187.1 |
| | 326.8 |
|
| Basic EPS | | 0.28 |
| | 0.25 |
| | 0.64 |
| | 1.60 |
| | 2.77 |
|
| Diluted EPS | | 0.28 |
| | 0.25 |
| | 0.63 |
| | 1.57 |
| | 2.70 |
|
| Year ended June 30, 2016 | | | | | | | | | | |
| Revenues | | $ | 594.7 |
| | $ | 638.9 |
| | $ | 688.8 |
| | $ | 974.5 |
| | $ | 2,897.0 |
|
| Gross profit | | 156.1 |
| | 174.4 |
| | 202.3 |
| | 388.2 |
| | 921.2 |
|
| Operating income | | 59.1 |
| | 70.2 |
| | 100.6 |
| | 270.3 |
| | 500.3 |
|
| Earnings before income taxes | | 51.7 |
| | 61.3 |
| | 93.4 |
| | 262.5 |
| | 468.9 |
|
| Net earnings | | 33.5 |
| | 40.2 |
| | 63.7 |
| | 170.1 |
| | 307.5 |
|
| Basic EPS | | 0.28 |
| | 0.34 |
| | 0.54 |
| | 1.44 |
| | 2.60 |
|
| Diluted EPS | | 0.28 |
| | 0.33 |
| | 0.52 |
| | 1.40 |
| | 2.53 |
|
NOTE 20.22. SUBSEQUENT EVENTS
On August 9, 2017, our10, 2020, the Company’s Board of Directors increased ourthe Company’s quarterly cash dividend by $0.035 per share to $0.365$0.575 per share, an increase in ourthe expected annual dividend amount from $1.32$2.16 to $1.46$2.30 per share. However, theThe declaration and payment of future dividends to holders of ourthe Company’s common stock will be at the discretion of ourthe Company’s Board of Directors, and will depend upon many factors, including ourthe Company’s financial condition, earnings, capital requirements of ourits businesses, legal requirements, regulatory constraints, industry practice, and other factors that the Board of Directors deems relevant.
* * * * * * *
Broadridge Financial Solutions, Inc.
Schedule II—Valuation and Qualifying Accounts
($ in thousands)millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Column A | | Column B | | Column C | | Column D | | Column E |
| | | Balance at
beginning
of period | | Additions
charged
to costs
and
expenses | | Deductions | | Balance
at end of
period |
| Fiscal year ended June 30, 2020: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 2.6 | | | $ | 9.6 | | | $ | (2.4) | | | $ | 9.8 | |
| Deferred tax valuation allowance | | $ | 3.3 | | | $ | 3.4 | | | $ | — | | | $ | 6.7 | |
| Other receivables | | $ | — | | | $ | 1.0 | | | $ | — | | | $ | 1.0 | |
| Fiscal year ended June 30, 2019: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 2.7 | | | $ | 1.1 | | | $ | (1.2) | | | $ | 2.6 | |
| Deferred tax valuation allowance | | $ | 3.8 | | | $ | — | | | $ | (0.4) | | | $ | 3.3 | |
| Fiscal year ended June 30, 2018: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 3.7 | | | $ | 1.4 | | | $ | (2.4) | | | $ | 2.7 | |
| Deferred tax valuation allowance | | $ | 9.3 | | | $ | — | | | $ | (5.5) | | | $ | 3.8 | |
|
| | | | | | | | | | | | | | | | |
| Column A | | Column B | | Column C | | Column D | | Column E |
| | | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Balance at end of period |
| Fiscal year ended June 30, 2017: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 2,257 |
| | $ | 2,339 |
| | $ | (896 | ) | | $ | 3,700 |
|
| Deferred tax valuation allowance | | $ | 9,844 |
| | $ | — |
| | $ | (544 | ) | | $ | 9,300 |
|
| Fiscal year ended June 30, 2016: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 3,843 |
| | $ | 496 |
| | $ | (2,082 | ) | | $ | 2,257 |
|
| Deferred tax valuation allowance | | $ | 9,200 |
| | $ | 644 |
| | $ | — |
| | $ | 9,844 |
|
| Fiscal year ended June 30, 2015: | | | | | | | | |
| Allowance for doubtful accounts | | $ | 3,276 |
| | $ | 1,199 |
| | $ | (632 | ) | | $ | 3,843 |
|
| Deferred tax valuation allowance | | $ | 10,900 |
| | $ | — |
| | $ | (1,700 | ) | | $ | 9,200 |
|
| |
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
| |
ITEM 9A. | Controls and Procedures. |
ITEM 9A. Controls and Procedures
Management Report
Attached as Exhibits 31.1 and 31.2 to this Form 10-K are certifications of Broadridge’s President and Chief Executive Officer and Chief Financial Officer, which are required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section should be read in conjunction with the Deloitte & Touche LLP audit and attestation of the Company’s internal control over financial reporting that appears in Item 8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K and is hereby incorporated herein by reference.
Management’s Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer as of June 30, 2017,2020, evaluated the effectiveness of our disclosure controls as defined in Rule 13a-15(e) under the Exchange Act. The President and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 20172020 were effective to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Management’s Report on Internal Control over Financial Reporting
It is the responsibility of Broadridge’s management to establish and maintain effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance to Broadridge’s management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.
Broadridge’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Broadridge; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Broadridge are being made only in accordance with authorizations of management and directors of Broadridge; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of Broadridge’s assets that could have a material effect on the financial statements of Broadridge.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management has performed an assessment of the effectiveness of Broadridge’s internal control over financial reporting as of June 30, 20172020 based upon criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management excluded from its assessment the internal control over financial reporting for the North American Customer Communications business acquired from DST Systems, Inc. on July 1, 2016 and whose financial statements constitute 16% of total assets and 26% of total revenues of Broadridge’s consolidated financial statement amounts as of and for the year ended June 30, 2017. This business will be in scope for management’s assessment as of June 30, 2018. Based on this assessment, management determined that Broadridge’s internal control over financial reporting was effective as of June 30, 2017.2020.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting and has expressed an unqualified opinion in their report on the effectiveness of the Company’s internal control over financial reporting, which appears in Item 8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
| | | | | | | | |
| | /s/ TIMOTHY C. GOKEY |
| | Timothy C. Gokey |
| | Chief Executive Officer |
| | |
| | /S/ RICHARD J. DALY s/ JAMES M. YOUNG |
| | Richard J. Daly |
| | President and Chief Executive Officer |
| | |
| | /S/ JAMES M. YOUNG
|
| | James M. Young |
| | Senior Vice President, Chief Financial Officer |
Lake Success, New York
August 10, 201711, 2020
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 20172020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| |
ITEM 9B. | Other Information. |
ITEM 9B. Other Information
None.
PART III.
| |
ITEM 10. | Directors. Executive Officers and Corporate Governance. |
ITEM 10. Directors, Executive Officers and Corporate Governance
We incorporate by reference the information responsive to this Item appearing in our definitive proxy statement to be filed within 120 days after the fiscal year ended June 30, 20172020 (the “Proxy Statement”).
| |
ITEM 11. | Executive Compensation. |
ITEM 11. Executive Compensation
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement.
| |
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement.
| |
ITEM 13. | Certain Relationships and Related Transactions, and Director Independence. |
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement.
| |
ITEM 14. | Principal Accounting Fees and Services. |
ITEM 14. Principal Accounting Fees and Services
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement.
PART IV.
| |
ITEM 15. | Exhibits, Financial Statement Schedules. |
| |
(a) | The following documents are filed as part of this Annual Report on Form 10-K: |
ITEM 15. Exhibits, Financial Statement Schedules
(a)The following documents are filed as part of this Annual Report on Form 10-K:
1.Financial Statements
The Consolidated Financial Statements are listed under Item 8 of this Annual Report on Form 10-K. See Index to Financial Statements and Financial Statement Schedule.
| |
2. | Financial Statement Schedule. |
2.Financial Statement Schedule.
Schedule II—Valuation and Qualifying Accounts is listed under Item 8 of this Annual Report on Form 10-K. See Index to Financial Statements and Financial Statement Schedule.
3.Exhibits.
The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index, which Exhibit Index is incorporated by reference in this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 10, 2017
| | | | | | | | | | | |
| BROADRIDGE FINANCIAL SOLUTIONS, INC. | | |
| | | |
| BROADRIDGE FINANCIAL SOLUTIONS, INC.By: | /s/ TIMOTHY C. GOKEY | |
| Name: | Timothy C. Gokey | |
| By:Title: | | /s/ RICHARD J. DALY
|
| Name: | | Richard J. Daly |
| Title: | | President and Chief Executive Officer | |
SIGNATURES AND POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Timothy C. Gokey and James M. Young, and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, to sign in any and all capacities (including, without limitation, the capacities listed below), any and all amendments to the Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and anything necessary to be done to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all the requirements of the Securities and Exchange Commission, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| Signature | | Title | Date |
| | | |
| /s/ TIMOTHY C. GOKEY | | Chief Executive Officer and Director
(Principal Executive Officer) | August 11, 2020 |
| Timothy C. Gokey | | | |
| | | |
Signature/s/ JAMES M. YOUNG | | Title | Date |
| | | |
/S/ RICHARD J. DALY
| | President and Chief Executive Officer and Director (Principal Executive Officer) | August 10, 2017 |
Richard J. Daly | | | |
| | | |
/S/ JAMES M. YOUNG
| | Senior Vice President, Chief Financial Officer (Principal
(Principal Financial and Accounting Officer) | August 10, 201711, 2020 |
| James M. Young | | | |
| | | |
/S/ LESLIE A. BRUN s/ RICHARD J. DALY | | Executive Chairman of the Board of Directors | August 10, 201711, 2020 |
| Richard J. Daly | | | |
| | | |
/S/ LESLIE A. BRUN | | Lead Independent Director | August 11, 2020 |
| Leslie A. Brun | | | |
| | | |
/S/ ROBERT N. DUELKSS/ PAMELA L. CARTER | | Director | August 10, 201711, 2020 |
| Pamela L. Carter | | | |
| | | |
/S/ ROBERT N. DUELKS | | Director | August 11, 2020 |
| Robert N. Duelks | | | |
| | | |
/S/ RICHARD J. HAVILANDBRETT A. KELLER | | Director | August 10, 201711, 2020 |
Richard J. HavilandBrett A. Keller | | | |
| | | |
/S/ BRETT MAURA A. KELLERMARKUS | | Director | August 10, 201711, 2020 |
BrettMaura A. KellerMarkus | | | |
| | | |
/S/ STUART R. LEVINETHOMAS J. PERNA | | Director | August 10, 201711, 2020 |
Stuart R. LevineThomas J. Perna | | | |
| | | |
/S/ MAURA A. MARKUSALAN J. WEBER | | Director | August 10, 201711, 2020 |
Maura A. MarkusAlan J. Weber | | | |
| | | |
/S/ THOMAS J. PERNAAMIT K. ZAVERY | | Director | August 10, 201711, 2020 |
Thomas J. PernaAmit K. Zavery | | | |
| | | |
/S/ ALAN J. WEBER
| | Director | August 10, 2017 |
Alan J. Weber | | | |
| | | |
EXHIBIT INDEX
|
| | | | | | | | | | | | | |
Exhibit Number | |
Description of Exhibit(1)Exhibit (1) | | |
| | | | |
2.1 | | PurchaseUnderwriting Agreement, dated June 14, 2016, by andas of December 4, 2019, among DST Systems, Inc., DST Canada Holdings, Inc., DST Output, LLC, DST Output Canada, ULC, Broadridge Output Solutions, Inc., Broadridge Investor Communications Corporation, and Broadridge Financial Solutions, Inc. (incorporateand J.P. Morgan Securities LLC, BofA Securities, Inc., Morgan Stanley & Co. LLC and Wells Fargo Securities, LLC, as representatives of the underwriters listed therein (incorporated by reference to Exhibit 1.1 of Form 8-K filed on June 14, 2016).(2)December 9, 2019) | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | First Supplemental Indenture, dated as of May 29, 2007, by and between Broadridge Financial Solutions, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Form 8-K filed on May 30, 2007). |
| | |
4.3 | | Form of 6.125% Senior Note due 2017 dated May 29, 2007 (incorporated by reference to Exhibit 4.3 to Form 8-K filed on May 30, 2007). |
| | |
4.4 | | | | |
| | | | |
4.5 | | | | |
4.6 | | | | |
| | | | |
| | | | |
4.7 | | | | |
| | | | |
10.1 | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | Amended and Restated Supplemental Officers Retirement Plan (incorporated by reference to Exhibit 10.27 to Form 10-K/A filed on October 27, 2010). |
| | |
10.4 | | | | |
| | | | |
10.5 | | |
| | |
10.6 | | Change in Control Enhancement Agreement for John Hogan (incorporated by reference to Exhibit 10.9 to Form 8-K filed on April 2, 2007). |
| | |
10.7 | | Amendment No. 1 to Change in Control Enhancement Agreement for John Hogan (incorporated by reference to Exhibit 10.29 to Form 10-K/A filed on October 27, 2010). |
| | |
10.8 | | Information Technology Services Agreement, dated as of March 31, 2010, by and between International Business Machines Corporation and Broadridge Financial Solutions, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on May 10, 2010).(3) |
| | |
10.9 | | Amendment No. 1 to the Information Technology Services Agreement, dated as of June 25, 2010, by and between International Business Machines Corporation and Broadridge Financial Solutions, Inc. (incorporated by reference to Exhibit 10.24 to Form 10-K filed on August 12, 2010).(3) |
|
| | | | |
Exhibit
| |
Description of Exhibit(1)
|
| | |
10.10 | | Broadridge Financial Solutions, Inc. Director Deferred Compensation Program (Amended and Restated Effective November 17, 2010) (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on February 8, 2011). |
| | |
10.11 | | Broadridge Financial Solutions, Inc. Supplemental Executive Retirement Plan (“SERP”) (incorporated by reference to Exhibit 10.31 to Form 10-K/A filed on October 27, 2010). |
| | |
10.12 | | Amendment to the Broadridge Financial Solutions, Inc. Supplemental Executive Retirement Plan, effective February 2, 2017 (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on May 10, 2017). |
10.13 | | Broadridge Financial Solutions, Inc. Executive Deferred Compensation Plan (Amended and Restated effective June 15, 2011) (incorporated by reference to Exhibit 10.32 to Form 10-K filed on August 12, 2011). |
| | |
10.14 | | Amendment No. 3 to the Information Technology Services Agreement, dated as of April 15, 2011, by and between International Business Machines Corporation and Broadridge Financial Solutions, Inc. (incorporated by reference to Exhibit 10.33 to Form 10-K filed on August 12, 2011). |
| | |
10.15 | | Amendment No. 5 to the Information Technology Services Agreement, dated as of June 11, 2011, by and between International Business Machines Corporation and Broadridge Financial Solutions, Inc. (incorporated by reference to Exhibit 10.34 to Form 10-K filed on August 12, 2011). (3) |
| | |
10.16 | | Officer Severance Plan dated September 16, 2011 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 20, 2011). |
| | |
10.17 | | Credit Agreement dated September 22, 2011, among Broadridge Financial Solutions, Inc., as Borrower, the Lenders Party thereto, JPMorgan Chase, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 23, 2011). |
| | |
10.18 | | Amendment No. 7 to the Information Technology Services Agreement, dated October 10, 2011, by and between International Business Machines Corporation and Broadridge Financial Solutions, Inc. (incorporated by reference to Exhibit 10.1 to Form 10-Q filed February 7, 2012). (3) |
| | |
10.19 | | Amendment No. 2, dated September 19, 2013, to the Change in Control Enhancement Agreement, dated as of March 29, 2007 and amended effective December 31, 2008, between Broadridge Financial Solutions, Inc. and Richard J. Daly (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 20, 2013). | | |
| | | | |
10.20 | | | | |
| | | | |
10.21 | | | | |
| | | | | | | | | | | | | | |
Exhibit Number | |
Description of Exhibit (1) | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
10.22 | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | Amended and Restated Credit Agreement, dated as of February 6, 2017,March 18, 2019, among Broadridge Financial Solutions, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Form 8-K filed on February 7, 2017).March 18, 2019) | | |
| | | | |
10.23 | | Broadridge Executive Retirement |
| | |
10.24 | | Amendment No. 1 to the BroadridgeRestated Executive Retirement and Savings Plan, effective January 1, 2015. |
| | |
10.25 | | Amendment No. 2 to the Broadridge Executive Retirement and Savings Plan, effective November 18, 20162019 (incorporated by reference to Exhibit 10.210.25 to Form 10-Q10-K filed on February 8, 2017).August 6,2019) | | |
10.26 | | Amendment to the Broadridge Executive Deferred Compensation Program (“EDCP”), adopted August 1, 2014, effective December 31, 2014 (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on November 6, 2014). | | |
| | |
10.27 | | Amendment to the Broadridge Financial Solutions, Inc. Supplemental Officers Retirement Plan (“SORP”), effective February 2, 2017 (incorporated by reference to Exhibit 10.3 to Form 10-Q filed on May 10, 2017) |
10.28 | | Amendment No. 12 to the | | |
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| | | | |
| | | | |
| | | | |
|
| | | | | | | | | | | | | |
Exhibit Number | |
Description of Exhibit(1)Exhibit (1) | | |
12.1 | | Computation | | |
| | | | |
14.1 | | | | |
| | | | |
| | | | |
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| | | | |
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| 101 | | The following financial statements from the Broadridge Financial Solutions, Inc. Annual Report on Form 10-K for the fiscal year ended June 30, 2017,2020, formatted in eXtensible Business Reporting Language (XBRL): (i) consolidated statements of earnings for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, (ii) consolidated statements of comprehensive income for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, (iii) consolidated balance sheets as of June 30, 2017,2020 and 2016,2019, (iv) consolidated statements of cash flows for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, (v) consolidated statements of stockholders’ equity for the fiscal years ended June 30, 2017, 20162020, 2019 and 2015,2018, and (vi) the notes to the Consolidated Financial Statements. |
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(1) | The SEC File No. for the Company’s Form 8-K Reports referenced is 001-33220. |
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(2) | Schedules to the Purchase Agreement filed as Exhibit 2.1 have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any omitted schedules upon request by the Securities and Exchange Commission. |
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(3) | Certain confidential information contained in this Exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk. This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the redaction pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |
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(1)The SEC File No. for the Company’s Form 8-K Reports referenced is 001-33220.
(2)Certain confidential information contained in this Exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk. This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the redaction pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
