Notes to Consolidated Financial Statements
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NOTE 1.
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BASIS OF PRESENTATION
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A. Description of Business
. Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”), a Delaware corporation, is a leading global provider of investor communications and technology-driven solutions to banks, broker-dealers, mutual funds 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, 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: capital markets, asset management, wealth management and corporations.
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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. 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.
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Broadridge also provides customer communications, financial information distribution and transaction reporting services to financial services firms, corporations and mutual funds. These services include the processing and distribution of account statements and trade confirmations, traditional and personalized document fulfillment and content management services, marketing communications, and imaging, archival and workflow solutions that enable and enhance Broadridge’s clients’ communications with investors and customers. All of these communications are delivered through print, electronic or digital channels. In addition, Broadridge provides corporations with registered proxy services as well as registrar, stock transfer and record-keeping services.
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 topics as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Broadridge’s advisor solutions also help advisors optimize their practice management through customer and account data aggregation and reporting.
Broadridge’s 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, Broadridge provides mutual fund trade processing services for retirement providers, third party administrators, financial advisors, banks and wealth management professionals through its subsidiary, Matrix Financial Solutions, Inc.
In November 2015, Broadridge acquired QED Financial Systems, Inc. (“QED”), a provider of investment accounting solutions that serves public sector institutional investors.
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Global Technology and Operations
—Broadridge offers a suite of advanced computerized real-time transaction processing services that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, settlement, reference data, reconciliations and accounting. Broadridge’s services help financial institutions and investment managers efficiently and cost-effectively consolidate their books and records, gather and service assets under management, focus on their core businesses, and manage risk. Broadridge’s multi-currency solutions support real-time global trading of equity, fixed income, mutual fund, foreign exchange and exchange traded derivative
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securities in established and emerging markets. In addition, Broadridge’s Managed Services solution allows broker-dealers to outsource certain administrative functions relating to clearing and settlement and asset servicing, while maintaining their ability to finance and capitalize their businesses.
In June 2016, Broadridge acquired 4sight Financial Software Limited (“4sight Financial”), a global provider of securities financing and collateral management systems to financial institutions.
B. 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.”). 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 methods of accounting. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding.
Effective in the first quarter of fiscal year 2016, we have revised our presentation in the Consolidated Statements of Earnings to separately present Operating expenses, Operating income, and Non-operating expenses, net. Previously, we reported Other expenses, net, as part of Total expenses and did not separately present Operating income in our Consolidated Statements of Earnings. All prior period information has been conformed to the current period presentation. See Note 4, “Non-Operating Expenses, Net,” for details of the Company’s Non-operating expenses, net, and Note 18, “Quarterly Financial Results (Unaudited),” for details of the Company’s Operating income.
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NOTE 2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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.
The Company’s revenues are primarily generated from fees for providing services. Revenues are recognized for the two reportable segments as follows:
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Investor Communication Solutions
—Revenues are generated primarily from processing and distributing investor communications 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 services are recognized as revenue in the period in which the services have been provided and when collectability is reasonably assured. Revenues for distribution services as well as proxy fulfillment services are recorded in revenue on a gross basis with corresponding costs including amounts remitted to nominees recorded in Cost of revenues.
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Global Technology and Operations
—Revenues are generated primarily from fees for transaction processing. Client service agreements often include up-front consideration as well as a recurring fee for transaction processing. Up-front implementation fees are deferred and recognized on a straight-line basis over the longer of the respective service term of the contract or the expected customer relationship period, which commences after client acceptance when the processing term begins. Fees received from processing and outsourcing services are recognized as revenue in the period in which the services have been rendered and when collectability is reasonably assured.
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Revenue arrangements with multiple deliverables are evaluated to determine if the deliverables (items) should be divided into more than one unit of account. An item should generally be considered a separate unit of accounting if both of the following criteria are met: 1) the delivered item(s) has value to the customer on a standalone basis; and 2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. Once separate units of accounting are determined, the arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method. Relative selling price is obtained from sources such as vendor-specific objective evidence, which is based on the separate selling price for that or a similar item. 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 is generated from variable transaction, volume based fees and include services that are delivered at the same time. The Company recognizes revenue related to these arrangements as the services are provided.
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. The fair value of the Company’s long-term fixed-rate senior notes is based on quoted market prices. Refer to Note
11
, “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 stated 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
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3 to 5 years
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Buildings and Building Improvements
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10 to 20 years
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Furniture and fixtures
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4 to 7 years
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Refer to Note
7
, “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 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 investments are initially recognized and carried at fair value. Unrealized holding gains and losses, net 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 Non-operating expenses, net, and when applicable, are reported as a reclassification adjustment, net of tax, as a component of Other comprehensive income (loss), net.
Declines in the fair value of available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) 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.
G. Inventories.
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventory balances of
$8.2 million
and
$6.5 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,
2016
and
2015
, 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 are generally deferred and recognized on a straight-line basis which commences after client acceptance when the processing term begins. To the extent 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. These deferred costs are reflected in Other non-current assets in the Consolidated Balance Sheets at June 30,
2016
and
2015
, respectively. Refer to Note
9
, “Other Non-Current Assets” for a further description of the Company’s Deferred client conversion and start-up costs.
I. 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,
2016
and
2015
, respectively. Refer to Note
9
, “Other Non-Current Assets” for a further description of the Company’s Deferred data center costs.
J. 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. 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 8, “Goodwill” for a further description on the Company’s accounting for goodwill.
K. 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
7
, “Property, Plant and Equipment, Net” for a further description of the Company’s Property, plant and equipment, net. Refer to Note
5
, “Acquisitions” and Note
8
, “Goodwill and Intangible Assets, Net” for a further discussion of the Company’s Intangible assets, net.
L. 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 Non-operating 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. 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, net. Gains or losses from balance sheet translation are included in Accumulated other comprehensive income (loss).
N. Distribution Cost of Revenues.
Distribution cost of revenues consists primarily of postage related expenses incurred in connection with our 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. Stock-Based Compensation.
The Company accounts for stock-based compensation by recognizing the measurement of stock-based compensation expense in Net 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
12
, “Stock-Based Compensation” for a further description of the Company’s stock-based compensation.
P. Internal Use Software.
Expenditures for major software purchases and software developed or obtained for internal use are capitalized and amortized over a three- to five-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
8
, “Goodwill and intangible Assets, Net” for a further description of the Company’s capitalized software.
Q. Income Taxes.
The Company accounts for income taxes under the 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 14,“Income Taxes” for a further description of the Company’s income taxes.
R. Advertising Costs.
Advertising costs are expensed at the time the advertising takes place. Total advertising costs were
$2.4 million
for each of the fiscal years ended June 30,
2016
,
2015
and
2014
, respectively.
S. Concentration of Risk.
In each of fiscal year
2016
, 2015 and 2014 we derived approximately
25%
of our consolidated revenues from our five largest clients in that particular fiscal year, respectively, all of whom operate in the financial services industry. Our largest single client in each of fiscal year 2016, 2015 and 2014 accounted for approximately
7%
,
6%
and
5%
of our consolidated revenues, respectively.
T. New Accounting Pronouncements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 our first quarter of fiscal year 2018, with early adoption permitted. 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 Company is currently evaluating the impact of the pending adoption of ASU No. 2016-09 on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU No. 2016-02”). Under ASU No. 2016-02, all lease arrangements exceeding a twelve month term must now be recognized as assets and liabilities on the balance sheet of the lessee by recording a right-of-use 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 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 is effective for the Company in the first quarter of fiscal year 2020 and will be adopted on a modified retrospective basis, which will require adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently evaluating the impact of the pending adoption of ASU No. 2016-02 on the Company’s Consolidated Financial Statements.
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. ASU No. 2016-01 is effective for the Company beginning in our first quarter of fiscal year 2019. The pending adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU No. 2015-17”). The amendments in ASU No. 2015-17 require entities that present a classified balance sheet to classify all deferred tax liabilities 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 September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU No. 2015-16”), to require that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effects of any income adjustments calculated as if the accounting had been completed at the acquisition date. The Company has elected to early adopt ASU No. 2015-16 effective as of the beginning of the first quarter of fiscal year 2016 on a prospective basis for any new measurement period adjustments that occur during or subsequent to our first quarter of adoption. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”), to require 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. ASU No. 2015-03 is effective for the Company in the first quarter of fiscal year 2017. 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 the accounting for a customer’s accounting for service contracts. Following adoption of ASU No. 2015-05, all software licenses within its scope will be accounted for consistent with other licenses of intangible assets. ASU No. 2015-05 will be effective for the Company beginning in the first quarter of fiscal year 2017. The Company expects to adopt ASU No. 2015-05 prospectively to all arrangements entered into or materially modified after the effective date. The pending adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-9”), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received 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. 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 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. Each of ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 have the same effective date as ASU No. 2014-09. The Company is currently evaluating the impact of the pending adoption of ASU No. 2014-09, ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 on its Consolidated Financial Statements.
U. Subsequent Events.
In preparing the accompanying Consolidated Financial Statements, the Company has reviewed events that have occurred after June 30,
2016
, through the date of issuance of the Consolidated Financial Statements. Refer to Note
19
, “Subsequent Events” for a description of the company’s subsequent events.
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NOTE 3.
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EARNINGS PER SHARE
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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,
2016
,
2015
and
2014
, the computation of diluted EPS did not include
0.7 million
,
0.9 million
and
2.3 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:
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Years ended June 30,
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2016
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2015
|
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2014
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(in millions)
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Weighted-average shares outstanding:
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Basic
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118.3
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119.9
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119.6
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Common stock equivalents
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3.4
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4.1
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4.5
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Diluted
|
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121.6
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124.0
|
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124.1
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The following table sets forth the computation of basic EPS utilizing Net earnings for the fiscal year and the Company’s basic Weighted-average shares outstanding:
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Years ended June 30,
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2016
|
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2015
|
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2014
|
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(in millions, except per share
amounts)
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Net earnings
|
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$
|
307.5
|
|
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$
|
287.1
|
|
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$
|
263.0
|
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Basic Weighted-average shares outstanding
|
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118.3
|
|
|
119.9
|
|
|
119.6
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Basic EPS
|
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$
|
2.60
|
|
|
$
|
2.39
|
|
|
$
|
2.20
|
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The following table sets forth the computation of diluted EPS utilizing Net earnings for the fiscal year and the Company’s diluted Weighted-average shares outstanding:
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Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
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(in millions, except per share
amounts)
|
Net earnings
|
|
$
|
307.5
|
|
|
$
|
287.1
|
|
|
$
|
263.0
|
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Diluted Weighted-average shares outstanding
|
|
121.6
|
|
|
124.0
|
|
|
124.1
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Diluted EPS
|
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$
|
2.53
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|
|
$
|
2.32
|
|
|
$
|
2.12
|
|
|
|
NOTE 4.
|
NON-OPERATING EXPENSES, NET
|
Non-operating expenses, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Interest expense on borrowings
|
|
$
|
28.4
|
|
|
$
|
25.4
|
|
|
$
|
23.7
|
|
Interest income
|
|
(2.6
|
)
|
|
(2.8
|
)
|
|
(1.8
|
)
|
Losses from equity method investments
|
|
5.1
|
|
|
5.5
|
|
|
—
|
|
Foreign currency exchange (gain) loss
|
|
0.5
|
|
|
(0.1
|
)
|
|
0.3
|
|
Other loss, net
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Non-operating expenses, net
|
|
$
|
31.4
|
|
|
$
|
28.0
|
|
|
$
|
22.7
|
|
Assets acquired and liabilities assumed in business combinations were recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company were included in the Company’s Consolidated Statements of Earnings since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to Goodwill.
Pro forma supplemental financial information is not provided for any of the periods presented as the impact of the acquisitions on the Company’s operating results, financial position or cash flows was not material for any acquisition individually, or for all acquisitions in the aggregate, in any respective fiscal year.
Fiscal Year 2016 Acquisitions:
QED
In November 2015, the Company’s Investor Communication Solutions segment acquired QED, a provider of investment accounting solutions that serves public sector institutional investors. The aggregate purchase price was
$15.5 million
, consisting of
$13.3 million
of cash payments, a
$1.5 million
note payable to the sellers that will be settled in the future, as well as a contingent consideration liability with an acquisition date fair value of
$0.7 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
$3.5 million
upon the achievement in full of the defined financial targets by the acquired business. Net tangible liabilities assumed in the transaction were
$0.4 million
. This acquisition resulted in
$11.1 million
of Goodwill. Intangible assets acquired, which totaled
$4.8 million
, consist of customer relationships and software technology, which are being amortized over a
ten
-year life and
seven
-year life, respectively.
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
$38.3 million
, consisting of
$36.0 million
of cash payments, as well as a contingent consideration liability with an initial estimated acquisition date preliminary fair value of
$2.4 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
$23.3 million
of Goodwill. 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. As of June 30, 2016, the 4sight Financial purchase price allocation has not yet been finalized, specifically the fair value of the contingent consideration liability.
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. 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, 2016
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. The fair value of the contingent consideration liability at
June 30, 2016
is
$1.2 million
. Net tangible assets acquired in the transaction were
$0.3 million
. This acquisition resulted in
$20.6 million
of Goodwill 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.
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 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. The fair value of the remaining contingent consideration liability at
June 30, 2016
is
$0.4 million
.
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 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.
Fiscal Year 2014 Acquisitions:
Bonaire Software Solutions, LLC
In July 2013, the Company’s Investor Communication Solutions segment acquired Bonaire Software Solutions, LLC, 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. The aggregate purchase price was
$37.6 million
, net of cash acquired. Net liabilities assumed in the transaction were
$1.5 million
. The Company recorded a
$0.5 million
liability for the fair value of potential additional cash payments, which are payable over the next
three
years contingent upon the achievement by the acquired business of certain defined financial targets. This acquisition resulted in
$29.0 million
of Goodwill. Intangible assets acquired, which totaled
$10.1 million
, consist primarily of acquired software technology and customer relationships, which are being amortized over a
seven
-year life and
ten
-year life, respectively.
During the fourth quarter of fiscal year 2014, the fair value of the contingent consideration was increased by
$0.8 million
. As a result, as of June 30, 2014, the Company recorded a
$1.3 million
contingent consideration liability for the contingent consideration. In fiscal year 2015, the Company increased the contingent consideration liability by
$0.3 million
and also made a partial pay-out on the liability of
$0.4 million
.
In fiscal year 2016, the Company made a partial pay-out on the contingent consideration liability of
$0.2 million
and reduced the contingent consideration liability by
$1.0 million
. At
June 30, 2016
, the contingent consideration liability has been fully settled and
no
future liability remains.
Emerald Connect, LLC
In February 2014, the Company’s Investor Communication Solutions segment acquired Emerald Connect LLC, a leading provider of websites and related communications solutions for financial advisors. The purchase price was
$59.8 million
, net of cash acquired. Net liabilities assumed in the transaction were
$2.1 million
. This acquisition resulted in
$41.1 million
of Goodwill. Intangible assets acquired, which totaled
$20.8 million
, consist primarily of acquired customer relationships, which are being amortized over a
seven
-year life.
Other
During the first quarter of the fiscal year ended June 30, 2014, the fair value of contingent consideration associated with
one
of the Company’s acquisitions was reduced by approximately
$3.3 million
.
|
|
NOTE
6
.
|
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 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,
2016
and
2015
, respectively, that 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)
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in millions)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds(1)
|
|
$
|
65.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65.5
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
24.5
|
|
|
—
|
|
|
1.1
|
|
|
25.6
|
|
Total assets as of June 30, 2015
|
|
$
|
90.1
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
91.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
|
$
|
15.7
|
|
Total liabilities as of June 30, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
|
$
|
15.7
|
|
|
|
(1)
|
Money market funds include MMDA account balances of
$91.0 million
and
$34.0 million
as of June 30,
2016
and
2015
, respectively.
|
The following table sets forth an analysis of changes during fiscal years
2016
and
2015
in Level 3 financial assets of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
(in millions)
|
Beginning balance
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
Net realized/unrealized gains (losses)
|
|
—
|
|
|
—
|
|
Purchases
|
|
—
|
|
|
—
|
|
Transfers in (out) of Level 3
|
|
—
|
|
|
—
|
|
Ending balance
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
The following table sets forth an analysis of changes during fiscal years
2016
and
2015
in Level 3 financial liabilities of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
(in millions)
|
Beginning balance
|
|
$
|
15.7
|
|
|
$
|
1.3
|
|
Additional contingent consideration incurred
|
|
3.6
|
|
|
14.5
|
|
Increase (decrease) in contingent consideration liability
|
|
(4.9
|
)
|
|
0.3
|
|
Payments
|
|
(8.9
|
)
|
|
(0.4
|
)
|
Ending balance
|
|
$
|
5.5
|
|
|
$
|
15.7
|
|
The Company did not incur any Level 3 fair value asset impairments during fiscal years
2016
,
2015
, and
2014
. 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 7.
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
Depreciation expense for Property, plant and equipment was
$38.7 million
,
$38.0 million
, and
$35.5 million
for the fiscal years ended June 30,
2016
,
2015
and
2014
, respectively. Property, plant and equipment at cost and Accumulated depreciation at June 30,
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
(in millions)
|
Property, plant and equipment:
|
|
|
|
|
Land and buildings
|
|
$
|
2.5
|
|
|
$
|
4.9
|
|
Equipment
|
|
341.2
|
|
|
317.4
|
|
Furniture, leaseholds and other
|
|
177.0
|
|
|
170.9
|
|
|
|
520.6
|
|
|
493.2
|
|
Less: Accumulated depreciation
|
|
(408.4
|
)
|
|
(395.9
|
)
|
Property, plant and equipment, net
|
|
$
|
112.2
|
|
|
$
|
97.3
|
|
In fiscal years
2016
and
2015
, Property, plant and equipment and Accumulated depreciation were each reduced by
$24.2 million
and
$1.9 million
, respectively, for asset retirements related to fully depreciated property, plant and equipment no longer in use.
|
|
NOTE 8.
|
GOODWILL AND INTANGIBLE ASSETS, NET
|
Changes in Goodwill for the fiscal years ended June 30,
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Communication
Solutions
|
|
Global
Technology and
Operations
|
|
Total
|
|
|
(in millions)
|
Goodwill, gross, at July 1, 2014
|
|
$
|
583.1
|
|
|
$
|
273.0
|
|
|
$
|
856.1
|
|
Additions
|
|
98.5
|
|
|
25.5
|
|
|
124.0
|
|
Foreign currency translation and other
|
|
(0.2
|
)
|
|
(9.4
|
)
|
|
(9.6
|
)
|
Accumulated impairment losses
|
|
—
|
|
|
—
|
|
|
—
|
|
Goodwill, net, at June 30, 2015
|
|
$
|
681.4
|
|
|
$
|
289.1
|
|
|
$
|
970.5
|
|
|
|
|
|
|
|
|
Goodwill, gross, at June 30, 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
|
|
Additions for the fiscal year ended June 30, 2016 include
$11.1 million
and
$23.3 million
for the acquisitions of QED and 4sight Financial, respectively. Additions for the fiscal year ended June 30, 2015 include
$25.5 million
,
$20.6 million
,
$39.1 million
, and
$38.8 million
for the acquisitions of TwoFour Systems, Direxxis, the trade processing business of WTRIS, and FSCI, respectively. 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
5
, “Acquisitions”).
During fiscal years
2016
,
2015
and
2014
, the Company performed the required impairment tests of Goodwill and determined that there was no 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,
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Intangible
Assets, net
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Intangible
Assets, net
|
|
|
(in millions)
|
Software licenses
|
|
$
|
110.1
|
|
|
$
|
(76.7
|
)
|
|
$
|
33.5
|
|
|
$
|
89.7
|
|
|
$
|
(63.3
|
)
|
|
$
|
26.4
|
|
Acquired software technology
|
|
91.0
|
|
|
(52.1
|
)
|
|
38.9
|
|
|
74.4
|
|
|
(42.9
|
)
|
|
31.5
|
|
Customer contracts and lists
|
|
213.9
|
|
|
(86.3
|
)
|
|
127.6
|
|
|
196.8
|
|
|
(65.9
|
)
|
|
130.9
|
|
Other intangibles
|
|
23.0
|
|
|
(12.7
|
)
|
|
10.3
|
|
|
18.5
|
|
|
(11.6
|
)
|
|
6.9
|
|
|
|
$
|
438.0
|
|
|
$
|
(227.8
|
)
|
|
$
|
210.3
|
|
|
$
|
379.4
|
|
|
$
|
(183.7
|
)
|
|
$
|
195.7
|
|
In fiscal years
2016
and
2015
, intangible assets and accumulated amortization were reduced by
$1.1 million
and
$7.0 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: 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
|
|
2.8
|
Acquired software technology
|
|
4.3
|
Customer contracts and lists
|
|
7.3
|
Other intangibles
|
|
4.5
|
Total Weighted-average remaining useful life
|
|
5.7
|
Amortization of intangibles totaled
$45.8 million
,
$36.6 million
, and
$33.9 million
for fiscal years
2016
,
2015
, and
2014
, respectively. 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)
|
2017
|
|
$
|
53.9
|
|
2018
|
|
40.5
|
|
2019
|
|
29.9
|
|
2020
|
|
25.1
|
|
2021
|
|
19.0
|
|
Thereafter
|
|
41.7
|
|
|
|
NOTE
9
.
|
OTHER NON-CURRENT ASSETS
|
Other non-current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
(in millions)
|
Deferred client conversion and start-up costs
|
|
$
|
139.4
|
|
|
$
|
137.1
|
|
Deferred data center costs
|
|
43.1
|
|
|
43.5
|
|
Long-term investments
|
|
48.5
|
|
|
33.3
|
|
Long-term broker fees
|
|
12.4
|
|
|
5.4
|
|
Other
|
|
25.5
|
|
|
23.9
|
|
Total
|
|
$
|
268.9
|
|
|
$
|
243.2
|
|
|
|
NOTE 10.
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
(in millions)
|
Employee compensation and benefits
|
|
$
|
181.2
|
|
|
$
|
163.2
|
|
Accrued broker fees
|
|
65.4
|
|
|
63.4
|
|
Accrued taxes
|
|
49.9
|
|
|
28.5
|
|
Accrued dividend payable
|
|
34.9
|
|
|
31.4
|
|
Other
|
|
20.7
|
|
|
33.9
|
|
Total
|
|
$
|
352.2
|
|
|
$
|
320.4
|
|
Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
|
|
|
|
|
Expiration
Date
|
|
Par Value
|
|
June 30,
2016
|
|
June 30,
2015
|
|
Unused
Available
Capacity
|
|
Fair Value at June 30, 2016
|
|
|
|
|
|
(in millions)
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Senior Notes (a)
|
June 2017
|
|
$
|
125.0
|
|
|
$
|
124.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
129.1
|
|
|
|
|
$
|
125.0
|
|
|
$
|
124.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
129.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 Revolving Credit Facility
|
August 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
165.0
|
|
|
$
|
750.0
|
|
|
$
|
—
|
|
Fiscal 2007 Senior Notes (a)
|
June 2017
|
|
—
|
|
|
—
|
|
|
124.8
|
|
|
—
|
|
|
—
|
|
Fiscal 2014 Senior Notes
|
September 2020
|
|
400.0
|
|
|
399.7
|
|
|
399.6
|
|
|
—
|
|
|
427.6
|
|
Fiscal 2016 Senior Notes
|
June 2026
|
|
500.0
|
|
|
497.9
|
|
|
—
|
|
|
—
|
|
|
507.9
|
|
|
|
|
$
|
900.0
|
|
|
$
|
897.6
|
|
|
$
|
689.4
|
|
|
$
|
750.0
|
|
|
$
|
935.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
$
|
1,025.0
|
|
|
$
|
1,022.5
|
|
|
$
|
689.4
|
|
|
$
|
750.0
|
|
|
$
|
1,064.6
|
|
(a) The Fiscal 2007 Senior Notes were reclassified from Long-term debt to Current portion of long-term debt in June 2016 to reflect the remaining maturity of less than one year.
Fiscal 2012 Credit Facilities:
On September 22, 2011, the Company entered into a
$990.0 million
senior unsecured credit facility, consisting of a
$490.0 million
five
-year term loan facility (the “Fiscal 2012 Term Loan”) and a
$500.0 million
five
-year revolving credit facility (the “Fiscal 2012 Revolving Credit Facility”) (collectively the “Fiscal 2012 Credit Facilities”). Borrowings under the Fiscal 2012 Credit Facilities bore interest at the London Interbank Offered Rate (“LIBOR”) plus 125 basis points. The Fiscal 2012 Revolving Credit Facility also had an annual facility fee equal to 15 basis points, on the unused portion of the facility, which totaled
$0.1 million
and
$0.8 million
for the fiscal years ended June 30,
2015
, and
2014
, respectively. The Company repaid the remaining
$400.0 million
outstanding on the Fiscal 2012 Term Loan in August 2013. The weighted-average interest rate on the Fiscal 2012 Term Loan was
1.44%
for the fiscal year ended June 30,
2014
.
Fiscal 2015 Revolving Credit Facility:
On August 14, 2014, the Company entered into an amended and restated
$750.0 million
five
-year revolving credit facility (the “Fiscal 2015 Revolving Credit Facility”), which replaced the
$500.0 million
five-year revolving credit facility entered into in September 2011 (the “Fiscal 2012 Revolving Credit Facility”). The Fiscal 2015 Revolving Credit Facility is comprised of a
$670.0 million
U.S. dollar tranche and an
$80.0 million
multicurrency tranche. At June 30,
2016
, the Company had
no
outstanding borrowings and had unused available capacity of
$750.0 million
under the Fiscal 2015 Revolving Credit Facility. The weighted-average interest rate on the Fiscal 2015 Revolving Credit Facility was
1.30%
and
1.18%
for the fiscal years ended
June 30, 2016
and 2015, respectively. The fair value of the variable-
rate Fiscal 2015 Revolving Credit Facility borrowings at
June 30, 2016
approximates carrying value and has been classified as a Level 2 financial liability.
Borrowings under the Fiscal 2015 Revolving Credit Facility can be made in tranches up to
360
days and bear interest at LIBOR plus
100 basis points
. In addition, the Fiscal 2015 Revolving Credit Facility has an annual facility fee equal to
12.5 basis points
on the entire facility, which totaled
$1.0 million
and
$0.8 million
for the fiscal years ended
June 30, 2016
and June 30, 2015, respectively. The Company incurred
$1.9 million
in costs to establish the Fiscal 2015 Revolving Credit Facility. During the quarter ended September 30, 2014, the Company expensed
$0.1 million
of costs related to certain lenders from the 2012 Revolving Credit Facility that did not participate in the Fiscal 2015 Revolving Credit Facility. As of
June 30, 2016
,
$1.5 million
of these costs remain to be amortized (including
$0.3 million
of costs from the Fiscal 2012 Revolving Credit Facility). Such costs are capitalized in Other non-current assets in the Consolidated Balance Sheets and are being amortized to Non-operating expenses, 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 2015 Revolving Credit Facility at any tranche maturity date. The Fiscal 2015 Revolving Credit Facility is subject to covenants, including financial covenants consisting of a leverage ratio and an interest coverage ratio. At
June 30, 2016
, the Company is in compliance with the financial covenants of the Fiscal 2015 Revolving Credit Facility.
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”). The Fiscal 2007 Senior Notes will mature on June 1, 2017 and bear interest at a rate of
6.125%
per annum. Interest on the Fiscal 2007 Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year. The Fiscal 2007 Senior Notes were issued at a price of
99.1%
(effective yield to maturity of
6.251%
). The indenture governing the Fiscal 2007 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,
2016
, the Company is in compliance with the covenants of the indenture governing the Fiscal 2007 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2007 Senior Notes upon a change of control triggering event. The Fiscal 2007 Senior Notes are senior unsecured obligations of the Company and rank equally with the Company’s other senior indebtedness. The Company may redeem the Fiscal 2007 Senior Notes in whole or in part at any time before their maturity. The Company incurred
$1.9 million
in debt issuance costs to establish the Fiscal 2007 Senior Notes. These costs have been capitalized and are being amortized to Non-operating expenses, net on a straight-line basis, which approximates the effective interest method, over the
ten
year term. At
June 30, 2016
and
2015
, the costs remaining to be amortized related to the Fiscal 2007 Senior Notes was
$0.1 million
and
$0.3 million
, respectively. 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. The fair value of the fixed-rate Fiscal 2007 Senior Notes at
June 30, 2016
and
2015
was
$129.1 million
and
$135.8 million
, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note
6
, “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 2014 Senior 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 1 and September 1 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, 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, 2016
, 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 Fiscal 2014 Senior Notes are senior unsecured obligations of the Company and rank equally with the Company’s other senior indebtedness. 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 Non-operating expenses, net on a straight-line basis, which approximates the effective interest method, over the
seven
-year term. At
June 30, 2016
and
2015
, the costs remaining to be amortized related to the Fiscal 2014 Senior Notes was
$2.5 million
and
$3.1 million
, respectively. The fair value of the fixed-rate Fiscal 2014 Senior Notes at
June 30, 2016
and
2015
was
$427.6 million
and
$417.8 million
, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note
6
, “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, 2016
, 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 Fiscal 2016 Senior Notes are senior unsecured obligations of the Company and rank equally with the Company’s other senior indebtedness. 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 Non-operating expenses, net on a straight-line basis, which approximates the effective interest method, over the ten-year term. At June 30, 2016, the costs remaining to be amortized related to the Fiscal 2016 Senior Notes was
$4.5 million
. The fair value of the fixed-rate Fiscal 2016 Senior Notes at June 30, 2016 was
$507.9 million
, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note
6
, “Fair Value of Financial Instruments”).
The Fiscal 2015 Revolving Credit Facility, Fiscal 2007 Senior Notes, Fiscal 2014 Senior Notes, and Fiscal 2016 Senior Notes are senior unsecured obligations of the Company and are ranked equally in right of payment.
In addition, the Company and certain subsidiaries established unsecured, uncommitted lines of credit with banks. As of June 30,
2016
and
2015
, respectively, there were
no
amounts outstanding under these lines of credit.
|
|
NOTE 12.
|
STOCK-BASED COMPENSATION
|
Incentive Equity Awards
. The Broadridge Financial Solutions, Inc. 2007 Omnibus Award Plan (the “2007 Plan”) provides 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 accounting for stock-based compensation requires the measurement of stock-based compensation expense to be recognized in Net earnings based on the fair value of the award on the date of grant. In accordance with the 2007 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 2014 have a cliff vesting schedule meaning that they 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 with
25 percent
of the cost recognized over each 12 month period.
Time-based Restricted Stock Units:
The Company has a time-based restricted stock unit (“RSU”) program under which RSUs representing the right to receive
one
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 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
one
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 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,
2016
,
2015
and
2014
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, 2013
|
|
10,985,482
|
|
|
$
|
20.39
|
|
|
2,086,834
|
|
|
$
|
19.65
|
|
|
572,823
|
|
|
$
|
19.96
|
|
Granted
|
|
1,683,875
|
|
|
36.88
|
|
|
906,061
|
|
|
30.46
|
|
|
348,997
|
|
|
30.93
|
|
Exercised (a)
|
|
(2,686,105
|
)
|
|
18.46
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vesting of RSUs (b)
|
|
—
|
|
|
—
|
|
|
(961,930
|
)
|
|
17.78
|
|
|
(237,189
|
)
|
|
17.73
|
|
Expired/forfeited
|
|
(135,961
|
)
|
|
20.89
|
|
|
(164,557
|
)
|
|
21.60
|
|
|
(22,349
|
)
|
|
27.10
|
|
Balances at June 30, 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 (c)
|
|
7,059,067
|
|
|
$
|
32.57
|
|
|
1,202,896
|
|
|
$
|
44.34
|
|
|
468,516
|
|
|
$
|
47.15
|
|
|
|
(a)
|
Stock options exercised during the fiscal years ended June 30,
2016
,
2015
and
2014
had intrinsic values of
$41.3 million
,
$86.2 million
and
$49.9 million
, respectively.
|
|
|
(b)
|
Time-based RSUs that vested during the fiscal years ended June 30,
2016
,
2015
and
2014
had a total fair value of
$44.9 million
,
$51.5 million
and
$36.5 million
, respectively. Performance-based RSUs that vested during the fiscal years ended June 30,
2016
,
2015
and
2014
had a total fair value of
$15.6 million
,
$19.2 million
and
$8.9 million
, respectively.
|
|
|
(c)
|
As of June 30,
2016
, the Company’s outstanding “in the money” vested stock options using the fiscal year-end share price of
$65.20
(approximately
4.3 million
shares) had an aggregate intrinsic value of
$166.5 million
. As of June 30,
2016
, time-based RSUs and performance-based RSUs expected to vest using the fiscal year-end share price of
$65.20
(approximately
1.2 million
and
0.4 million
shares, respectively) had an aggregate intrinsic value of
$77.5 million
and
$28.5 million
, respectively.
|
The tables below summarize information regarding the Company’s outstanding and exercisable stock options as of June 30,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
Range of Exercise Prices
|
|
$0.01 to $18.00
|
|
248,674
|
|
|
2.64
|
|
$
|
15.68
|
|
$18.01 to $20.00
|
|
230,862
|
|
|
1.22
|
|
$
|
19.25
|
|
$20.01 to $22.00
|
|
730,702
|
|
|
3.64
|
|
$
|
21.60
|
|
$22.01 to $24.00
|
|
1,519,965
|
|
|
5.69
|
|
$
|
22.49
|
|
$24.01 to $26.00
|
|
1,061,956
|
|
|
5.16
|
|
$
|
24.78
|
|
$26.01 to $41.00
|
|
1,547,692
|
|
|
7.61
|
|
$
|
36.97
|
|
$41.01 to $57.00
|
|
1,719,216
|
|
|
8.99
|
|
$
|
51.19
|
|
|
|
7,059,067
|
|
|
6.37
|
|
$
|
32.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable Options
|
Range of Exercise Prices
|
|
Options
Exercisable
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
$0.01 to $18.00
|
|
248,674
|
|
|
2.64
|
|
$
|
15.68
|
|
$18.01 to $20.00
|
|
230,862
|
|
|
1.22
|
|
$
|
19.25
|
|
$20.01 to $22.00
|
|
730,702
|
|
|
3.64
|
|
$
|
21.60
|
|
$22.01 to $24.00
|
|
1,238,264
|
|
|
5.57
|
|
$
|
22.54
|
|
$24.01 to $26.00
|
|
1,043,353
|
|
|
5.13
|
|
$
|
24.76
|
|
$26.01 to $41.00
|
|
379,983
|
|
|
7.60
|
|
$
|
37.09
|
|
$41.01 to $57.00
|
|
393,257
|
|
|
8.65
|
|
$
|
49.98
|
|
|
|
4,265,095
|
|
|
5.19
|
|
$
|
26.17
|
|
Stock-based compensation expense of
$43.1 million
,
$38.6 million
, and
$34.6 million
was recognized in the Consolidated Statements of Earnings for the fiscal years ended June 30,
2016
,
2015
and
2014
, respectively, as well as related tax benefits of
$15.4 million
,
$14.5 million
, and
$13.0 million
, respectively.
As of June 30,
2016
, the total remaining unrecognized compensation cost related to non-vested stock options and RSU awards amounted to
$12.7 million
and
$36.2 million
, respectively, which will be amortized over the weighted-average remaining requisite service periods of
2.7 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
1.7 million
shares in fiscal year
2016
under our share repurchase program as compared to
5.2 million
shares repurchased in fiscal year
2015
, 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,
2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
June 30, 2016
|
|
Fiscal Year Ended
June 30, 2015
|
|
Fiscal Year Ended
June 30, 2014
|
Graded Vesting
|
|
|
|
|
|
|
Risk-free interest rate
|
|
1.4
|
%
|
|
1.8
|
%
|
|
2.1
|
%
|
Dividend yield
|
|
2.3
|
%
|
|
2.1
|
%
|
|
2.3
|
%
|
Weighted-average volatility factor
|
|
26.7
|
%
|
|
24.2
|
%
|
|
26.4
|
%
|
Weighted-average expected life (in years)
|
|
6.5
|
|
|
6.9
|
|
|
6.9
|
|
Weighted-average fair value (in dollars)
|
|
$10.82
|
|
$10.21
|
|
$8.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
June 30, 2016
|
|
Fiscal Year Ended
June 30, 2015
|
|
Fiscal Year Ended
June 30, 2014
|
Cliff Vesting
|
|
|
|
|
|
|
Risk-free interest rate
|
|
—
|
|
|
—
|
|
|
2.3
|
%
|
Dividend yield
|
|
—
|
|
|
—
|
|
|
2.3
|
%
|
Weighted-average volatility factor
|
|
—
|
|
|
—
|
|
|
26.4
|
%
|
Weighted-average expected life (in years)
|
|
—
|
|
|
—
|
|
|
7.7
|
|
Weighted-average fair value (in dollars)
|
|
—
|
|
|
—
|
|
|
$8.76
|
|
|
NOTE 13.
|
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,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
401(k) savings plan
|
|
$
|
27.3
|
|
|
$
|
24.9
|
|
|
$
|
22.1
|
|
ERSP
|
|
1.2
|
|
|
0.4
|
|
|
—
|
|
Total
|
|
$
|
28.5
|
|
|
$
|
25.3
|
|
|
$
|
22.1
|
|
B. Defined Benefit Pension Plans.
The Company sponsors a Supplemental Officer Retirement Plan (the “Broadridge SORP”). The Broadridge SORP is a 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”). The Broadridge SERP is a 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 charged to expense by the Company for these plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
SORP
|
|
$
|
3.2
|
|
|
$
|
2.7
|
|
|
$
|
2.9
|
|
SERP
|
|
0.6
|
|
|
0.6
|
|
|
0.5
|
|
Total
|
|
$
|
3.8
|
|
|
$
|
3.3
|
|
|
$
|
3.4
|
|
The benefit obligation to the Company under these plans at June 30,
2016
,
2015
and
2014
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
SORP
|
|
$
|
30.0
|
|
|
$
|
25.3
|
|
|
$
|
21.0
|
|
SERP
|
|
3.6
|
|
|
2.7
|
|
|
2.3
|
|
Total
|
|
$
|
33.6
|
|
|
$
|
28.0
|
|
|
$
|
23.3
|
|
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,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Executive Retiree Health Insurance Plan
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
The benefit obligation to the Company under this plan at June 30,
2016
,
2015
and
2014
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Executive Retiree Health Insurance Plan
|
|
$
|
4.2
|
|
|
$
|
3.9
|
|
|
$
|
3.2
|
|
Earnings before income taxes shown below are based on the geographic location to which such earnings are attributable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Earnings before income taxes:
|
|
|
|
|
|
|
U.S.
|
|
$
|
389.2
|
|
|
$
|
365.4
|
|
|
$
|
308.1
|
|
Foreign
|
|
79.7
|
|
|
73.5
|
|
|
87.4
|
|
Total
|
|
$
|
468.9
|
|
|
$
|
438.9
|
|
|
$
|
395.5
|
|
The Provision for income taxes consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Current:
|
|
|
|
|
|
|
U.S. Domestic
|
|
$
|
134.9
|
|
|
$
|
120.8
|
|
|
$
|
114.8
|
|
Foreign
|
|
23.9
|
|
|
19.8
|
|
|
22.5
|
|
State
|
|
8.5
|
|
|
10.6
|
|
|
6.8
|
|
Total current
|
|
167.3
|
|
|
151.2
|
|
|
144.1
|
|
Deferred:
|
|
|
|
|
|
|
U.S. Domestic
|
|
(7.4
|
)
|
|
4.5
|
|
|
(8.7
|
)
|
Foreign
|
|
(0.4
|
)
|
|
(0.9
|
)
|
|
(0.4
|
)
|
State
|
|
1.9
|
|
|
(3.0
|
)
|
|
(2.5
|
)
|
Total deferred
|
|
(5.9
|
)
|
|
0.6
|
|
|
(11.6
|
)
|
Total Provision for income taxes
|
|
$
|
161.4
|
|
|
$
|
151.8
|
|
|
$
|
132.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2016
|
|
%
|
|
2015
|
|
%
|
|
2014
|
|
%
|
|
|
(in millions)
|
Provision for income taxes at U.S. statutory rate
|
|
$
|
164.1
|
|
|
35.0
|
|
|
$
|
153.6
|
|
|
35.0
|
|
|
$
|
138.4
|
|
|
35.0
|
|
Increase (decrease) in Provision for income taxes from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax
|
|
7.0
|
|
|
1.5
|
|
|
5.8
|
|
|
1.3
|
|
|
4.0
|
|
|
1.0
|
|
Foreign taxes
|
|
(5.6
|
)
|
|
(1.2
|
)
|
|
(5.1
|
)
|
|
(1.2
|
)
|
|
(7.5
|
)
|
|
(1.9
|
)
|
Valuation allowances
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
(0.9
|
)
|
|
(0.2
|
)
|
|
(0.7
|
)
|
|
(0.2
|
)
|
Other
|
|
(3.8
|
)
|
|
(0.7
|
)
|
|
(1.6
|
)
|
|
(0.3
|
)
|
|
(1.7
|
)
|
|
(0.4
|
)
|
Total Provision for income taxes
|
|
$
|
161.4
|
|
|
34.4
|
|
|
$
|
151.8
|
|
|
34.6
|
|
|
$
|
132.5
|
|
|
33.5
|
|
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%
, 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 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) compared to the recognition of such tax benefits in the annualized rate for fiscal year 2015. The additional benefits in the fiscal year 2016 annualized tax rate for the R&D 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 points 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 and 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 was partially offset by the recognition in fiscal year 2016 of additional US federal tax expense (a decrease of approximately
16
basis points 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 mix of the Company’s business changes.
The Provision for income taxes and the effective tax rates for the fiscal year ended June 30, 2015 were
$151.8 million
and
34.6%
, respectively, compared to
$132.5 million
and
33.5%
, for the fiscal year ended June 30, 2014, respectively. The increase in the effective tax rate was primarily attributable to the cumulative tax benefits in fiscal year 2015 being less than the cumulative tax benefits in fiscal year 2014. The cumulative tax benefits in fiscal year 2015 primarily related to the release of various tax reserves related to certain foreign, U.S. federal and state income taxes due to audit settlements and the expiration of certain audit periods, and the recognition of U.S. federal research and development credits based on the December 2014 legislative reinstatement of this credit for calendar year 2014 which collectively resulted in a net decrease to the effective tax rate of approximately
50
basis points. In fiscal year 2014 the cumulative tax benefits resulted in a net
85
basis point decrease to the effective tax rate. In addition to the lower cumulative tax benefits in fiscal year 2015 when compared to 2014, the change in the effective tax rate was also negatively impacted by the geographical mix of income. In general, the Company’s foreign earnings are subject to a lower corporate income tax rates relative to the tax rate applied against U.S. income. In fiscal year 2015, the Company’s foreign earnings were approximately
17%
of total company earnings before income taxes as compared to fiscal year 2014 when the Company’s foreign earnings were approximately
22%
of total company earnings before income taxes.
As of
June 30, 2016
, the Company had approximately
$366.5 million
of accumulated earnings attributable to foreign subsidiaries. The Company considers such earnings as permanently reinvested outside the U.S. and, therefore, provides no additional taxes that could occur upon repatriation. It is not practicable to determine the amount of income taxes payable in the event all such foreign earnings are repatriated.
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,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
(in millions)
|
Classification:
|
|
|
|
|
Current deferred tax assets (included in Other current assets)
|
|
$
|
19.3
|
|
|
$
|
17.7
|
|
Long-term deferred tax assets (included in Other non-current assets)
|
|
1.5
|
|
|
1.3
|
|
Current deferred tax liabilities (included in Accrued expenses and other current liabilities)
|
|
(0.8
|
)
|
|
(0.6
|
)
|
Long-term deferred tax liabilities
|
|
(61.6
|
)
|
|
(61.7
|
)
|
Net deferred tax liabilities
|
|
$
|
(41.6
|
)
|
|
$
|
(43.3
|
)
|
Components:
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
Accrued expenses not currently deductible
|
|
$
|
4.0
|
|
|
$
|
4.3
|
|
Depreciation
|
|
21.1
|
|
|
19.6
|
|
Compensation and benefits not currently deductible
|
|
56.0
|
|
|
47.3
|
|
Net operating and capital losses
|
|
21.6
|
|
|
23.7
|
|
Tax credits
|
|
4.8
|
|
|
5.9
|
|
Other
|
|
5.1
|
|
|
4.9
|
|
Total deferred tax assets
|
|
112.6
|
|
|
105.7
|
|
Less: Valuation allowances
|
|
(9.8
|
)
|
|
(9.2
|
)
|
Deferred tax assets, net
|
|
102.8
|
|
|
96.5
|
|
Deferred tax liabilities:
|
|
|
|
|
Goodwill and identifiable intangibles
|
|
120.3
|
|
|
116.4
|
|
Net deferred expenses
|
|
16.5
|
|
|
16.9
|
|
Other
|
|
7.6
|
|
|
6.5
|
|
Deferred tax liabilities
|
|
144.4
|
|
|
139.8
|
|
Net deferred tax liabilities
|
|
$
|
(41.6
|
)
|
|
$
|
(43.3
|
)
|
The Company has estimated foreign net operating loss carryforwards of approximately
$13.7 million
as of June 30,
2016
of which
$1.2 million
expires in
2017 through 2027
and of which
$12.5 million
has an indefinite utilization period. In addition, the Company has estimated U.S. federal net operating loss carryforwards of approximately
$31.4 million
, which expire in
2017 through 2030
.
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 $
9.8 million
and $
9.2 million
at June 30,
2016
and
2015
, 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 expects to decrease its reserve for unrecognized tax benefits by approximately
$0.5 million
as a result of statute of limitations expirations and certain potential state settlements.
The following table summarizes the activity related to the Company’s gross unrecognized tax positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Beginning balance
|
|
$
|
24.4
|
|
|
$
|
26.6
|
|
|
$
|
30.0
|
|
Gross increase related to prior period tax positions
|
|
0.6
|
|
|
0.5
|
|
|
0.5
|
|
Gross increase related to current period tax positions
|
|
2.6
|
|
|
2.4
|
|
|
2.2
|
|
Gross decrease related to prior period tax positions
|
|
(9.4
|
)
|
|
(5.1
|
)
|
|
(6.1
|
)
|
Ending balance
|
|
$
|
18.2
|
|
|
$
|
24.4
|
|
|
$
|
26.6
|
|
As of June 30, 2016, 2015 and 2014 the reserve for unrecognized tax positions recorded by the Company for the gross unrecognized tax positions presented in the preceding table, was
$12.9 million
,
$12.7 million
, and
$14.5 million
respectively, if reversed in full the reserve would affect the effective tax rate by these amounts, respectively.
The
$9.4 million
gross decrease in fiscal year
2016
for prior period tax positions related to certain tax audit settlements and certain state, federal and foreign statute of limitation expirations.
The
$5.1 million
gross decrease in fiscal year
2015
for prior period tax positions related to the settlement of certain state income tax audits and certain federal and foreign statute of limitation expirations.
The
$6.1 million
gross decrease in fiscal year
2014
for prior period tax positions related to the settlement and execution of an advance pricing agreement with the U.S. Internal Revenue Service and the Canada Revenue Agency and statute of limitation expirations.
The Company’s policy with respect to interest and penalties associated with uncertain tax positions is not to include them in income tax expense but include penalties as a component of other accrued expenses and interest in interest expense. In this regard, during the fiscal year ended June 30, 2016, the Company adjusted accrued interest by approximately
$(0.3) million
as a result of a favorable audit settlement and recognized a total liability of
$3.4 million
; in fiscal year ended June 30, 2015, the Company accrued approximately
$0.1 million
and recognized a total liability of
$5.0 million
; in fiscal year ended June 30, 2014 the Company accrued approximately
$0.9 million
and recognized a total liability of
$3.2 million
for penalties and interest.
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, 2013 through June 30, 2016, and for Canadian operations that could be subject to audit in Canada, fiscal years ending June 30, 2012 through June 30, 2016. A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.
|
|
NOTE 15.
|
CONTRACTUAL COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ARRANGEMENTS
|
Data Center Agreements
In March 2010, the Company and International Business Machines Corporation (“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 expires on
June 30, 2024
. The Company has the right to renew the initial term of the IT Services Agreement for up to
one
additional
12
-month term. Commitments remaining under this agreement at June 30,
2016
are
$445.4 million
through fiscal year 2024, 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 expires in October 2023. The Company has the right to renew the initial term of the EU IT Services Agreement for up to
one
additional
12
-month term or
one
additional
24
-month term. Commitments remaining under this agreement at
June 30, 2016
are
$33.0 million
through fiscal year 2024, the final year of the contract.
The following table summarizes the total expenses related to these agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
IT Services Agreement
|
|
$
|
98.5
|
|
|
$
|
95.3
|
|
|
$
|
95.7
|
|
EU IT Services Agreement
|
|
7.5
|
|
|
4.6
|
|
|
1.5
|
|
Total expenses
|
|
$
|
106.0
|
|
|
$
|
99.9
|
|
|
$
|
97.2
|
|
The Company has capitalized
$59.4 million
, including
$4.8 million
in fiscal year 2016, related to the build-out of the IBM data center in Other non-current assets. The Company capitalized
$5.6 million
related to the build-out of the IBM UK data center in Other non-current assets. The asset balance declined by
$0.3 million
due to the impact of foreign exchange during the fiscal year ended June 30, 2016.
The following table summarizes the total amortization expense of capitalized costs related to these agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
IT Services Agreement
|
|
$
|
(4.3
|
)
|
|
$
|
(5.1
|
)
|
|
$
|
(5.4
|
)
|
EU IT Services Agreement
|
|
(0.6
|
)
|
|
(0.4
|
)
|
|
—
|
|
Total expenses
|
|
$
|
(4.8
|
)
|
|
$
|
(5.5
|
)
|
|
$
|
(5.4
|
)
|
In December 2015, the Company and Computer Associates, Inc. (“CA”) entered into a Mainframe Software License agreement extension (“the CA Software License Agreement”), under which CA provides software that the Company uses in support of its data center operations. The CA Software License Agreement expires in March 2021. Commitments remaining under this agreement at June 30,
2016
are
$32.8 million
through fiscal year 2021, the final year of the contract.
Equity Method Investment
The Company contributed
$4.8 million
and
$7.5 million
to an equity method investment during the fiscal years ended June 30,
2016
and 2015, respectively, and has a remaining commitment of
$1.5 million
to fund this investment at June 30,
2016
.
Contractual Obligations
The Company has obligations under the IT Services Agreement, the EU IT Services Agreement, and related software maintenance agreements, various facilities and equipment leases, software license agreements, and software/hardware maintenance agreements.
The following table summarizes the total expenses related to these agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Data center expenses
|
|
$
|
106.0
|
|
|
$
|
99.9
|
|
|
$
|
97.2
|
|
Facilities and equipment leases
|
|
38.1
|
|
|
36.5
|
|
|
39.1
|
|
Software license agreements
|
|
26.5
|
|
|
24.8
|
|
|
25.7
|
|
Software/hardware maintenance agreements
|
|
53.3
|
|
|
48.9
|
|
|
52.4
|
|
Total expenses
|
|
$
|
223.9
|
|
|
$
|
210.1
|
|
|
$
|
214.4
|
|
The minimum commitments under these obligations at June 30,
2016
as follows:
|
|
|
|
|
|
Years Ending June 30,
|
|
(in millions)
|
2017
|
|
$
|
112.8
|
|
2018
|
|
99.0
|
|
2019
|
|
88.5
|
|
2020
|
|
82.5
|
|
2021
|
|
75.2
|
|
Thereafter
|
|
195.5
|
|
|
|
$
|
653.4
|
|
In addition to fixed rentals, certain leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices.
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,
2016
, 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,
2016
and
2015
.
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.
Our business process outsourcing and mutual fund processing services are performed by Broadridge Business Process Outsourcing, LLC (“BBPO”), a 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 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. At June 30,
2016
, 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 amount of net capital. At June 30,
2016
, BBPO was in compliance with this capital requirement.
In addition, Matrix Trust Company, a wholly-owned indirect subsidiary, 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 trust services to institutional customers. As a result, Matrix Trust Company is subject to various regulatory capital requirements administered by the Colorado Division of Banking and other state regulators where it does business, 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,
2016
, Matrix Trust Company was in compliance with its capital requirements.
NOTE
16
. 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
|
|
Available-
for-Sale
Securities
|
|
Pension
and Post-
Retirement
Liabilities
|
|
Total
|
|
|
(in millions)
|
Balances at July 1, 2013
|
|
$
|
7.6
|
|
|
$
|
1.1
|
|
|
$
|
(4.5
|
)
|
|
$
|
4.2
|
|
Other comprehensive income/(loss) before reclassifications
|
|
6.0
|
|
|
0.8
|
|
|
(1.0
|
)
|
|
5.8
|
|
Amounts reclassified from accumulated other comprehensive income/(loss)
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Balances at June 30, 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
|
)
|
The following table summarizes the reclassifications out of accumulated other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in millions)
|
Pension and Post-retirement liabilities:
|
|
|
|
|
|
|
Amortization of loss reclassified into Selling, general and administrative expenses
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
Tax income
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
Amortization of loss, net of tax
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
|
NOTE
17
.
|
FINANCIAL DATA BY SEGMENT
|
The Company operates in
two
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 the elimination of intersegment revenues and profits as well as certain unallocated expenses. 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 expense items in Other rather than reflect such items in segment profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Communication
Solutions
|
|
Global
Technology and
Operations
|
|
Other
|
|
Foreign Currency
Exchange
|
|
Total
|
|
|
(in millions)
|
Year ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,220.4
|
|
|
$
|
738.0
|
|
|
$
|
—
|
|
|
$
|
(61.4
|
)
|
|
$
|
2,897.0
|
|
Earnings (loss) before income taxes
|
|
409.1
|
|
|
135.4
|
|
|
(79.0
|
)
|
|
3.4
|
|
|
468.9
|
|
Assets
|
|
1,475.2
|
|
|
712.0
|
|
|
692.6
|
|
|
—
|
|
|
2,879.8
|
|
Capital expenditures
|
|
40.7
|
|
|
5.8
|
|
|
11.2
|
|
|
—
|
|
|
57.7
|
|
Depreciation and amortization
|
|
30.7
|
|
|
11.1
|
|
|
10.9
|
|
|
—
|
|
|
52.6
|
|
Amortization of acquired intangibles
|
|
26.7
|
|
|
5.1
|
|
|
—
|
|
|
—
|
|
|
31.8
|
|
Amortization of other assets
|
|
6.6
|
|
|
15.7
|
|
|
4.3
|
|
|
—
|
|
|
26.6
|
|
Year ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,030.2
|
|
|
$
|
692.5
|
|
|
$
|
—
|
|
|
$
|
(28.5
|
)
|
|
$
|
2,694.2
|
|
Earnings (loss) before income taxes
|
|
381.4
|
|
|
120.3
|
|
|
(73.5
|
)
|
|
10.7
|
|
|
438.9
|
|
Assets
|
|
1,346.9
|
|
|
786.1
|
|
|
235.1
|
|
|
—
|
|
|
2,368.1
|
|
Capital expenditures
|
|
34.9
|
|
|
6.6
|
|
|
6.9
|
|
|
—
|
|
|
48.4
|
|
Depreciation and amortization
|
|
27.8
|
|
|
12.7
|
|
|
8.8
|
|
|
—
|
|
|
49.3
|
|
Amortization of acquired intangibles
|
|
20.2
|
|
|
5.1
|
|
|
—
|
|
|
—
|
|
|
25.3
|
|
Amortization of other assets
|
|
6.9
|
|
|
17.7
|
|
|
5.1
|
|
|
—
|
|
|
29.7
|
|
Year ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,881.0
|
|
|
$
|
680.7
|
|
|
$
|
—
|
|
|
$
|
(3.7
|
)
|
|
$
|
2,558.0
|
|
Earnings (loss) before income taxes
|
|
336.3
|
|
|
118.8
|
|
|
(75.3
|
)
|
|
15.7
|
|
|
395.5
|
|
Assets
|
|
1,137.0
|
|
|
729.4
|
|
|
325.7
|
|
|
—
|
|
|
2,192.1
|
|
Capital expenditures
|
|
28.2
|
|
|
11.7
|
|
|
3.3
|
|
|
—
|
|
|
43.2
|
|
Depreciation and amortization
|
|
25.3
|
|
|
12.2
|
|
|
9.3
|
|
|
—
|
|
|
46.8
|
|
Amortization of acquired intangibles
|
|
17.8
|
|
|
4.8
|
|
|
—
|
|
|
—
|
|
|
22.6
|
|
Amortization of other assets
|
|
4.4
|
|
|
18.2
|
|
|
5.4
|
|
|
—
|
|
|
28.0
|
|
Revenues and assets by geographic area are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Canada
|
|
United
Kingdom
|
|
Other
|
|
Total
|
|
|
(in millions)
|
Year ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,582.1
|
|
|
$
|
213.7
|
|
|
$
|
78.3
|
|
|
$
|
23.0
|
|
|
$
|
2,897.0
|
|
Assets
|
|
$
|
2,432.0
|
|
|
$
|
171.6
|
|
|
$
|
202.5
|
|
|
$
|
73.7
|
|
|
$
|
2,879.8
|
|
Year ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,368.6
|
|
|
$
|
224.5
|
|
|
$
|
69.8
|
|
|
$
|
31.3
|
|
|
$
|
2,694.2
|
|
Assets
|
|
$
|
1,947.1
|
|
|
$
|
174.5
|
|
|
$
|
163.2
|
|
|
$
|
83.3
|
|
|
$
|
2,368.1
|
|
Year ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,208.9
|
|
|
$
|
244.8
|
|
|
$
|
65.7
|
|
|
$
|
38.6
|
|
|
$
|
2,558.0
|
|
Assets
|
|
$
|
1,830.3
|
|
|
$
|
129.2
|
|
|
$
|
156.5
|
|
|
$
|
76.1
|
|
|
$
|
2,192.1
|
|
|
|
NOTE 18.
|
QUARTERLY FINANCIAL RESULTS (UNAUDITED)
|
Summarized quarterly results of operations for the fiscal years ended June 30,
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
(in millions, except per share amounts)
|
Year ended June 30, 2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
594.7
|
|
|
$
|
638.9
|
|
|
$
|
688.8
|
|
|
$
|
974.5
|
|
Gross profit
|
|
156.1
|
|
|
174.4
|
|
|
202.3
|
|
|
388.2
|
|
Operating income
|
|
59.1
|
|
|
70.2
|
|
|
100.6
|
|
|
270.3
|
|
Earnings before income taxes
|
|
51.7
|
|
|
61.3
|
|
|
93.4
|
|
|
262.5
|
|
Net earnings
|
|
33.5
|
|
|
40.2
|
|
|
63.7
|
|
|
170.1
|
|
Basic EPS
|
|
0.28
|
|
|
0.34
|
|
|
0.54
|
|
|
1.44
|
|
Diluted EPS
|
|
0.28
|
|
|
0.33
|
|
|
0.52
|
|
|
1.40
|
|
Year ended June 30, 2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
555.8
|
|
|
$
|
574.6
|
|
|
$
|
634.2
|
|
|
$
|
929.6
|
|
Gross profit
|
|
149.3
|
|
|
160.6
|
|
|
181.6
|
|
|
374.5
|
|
Operating income
|
|
57.1
|
|
|
59.1
|
|
|
89.0
|
|
|
261.8
|
|
Earnings before income taxes
|
|
50.0
|
|
|
51.6
|
|
|
81.9
|
|
|
255.4
|
|
Net earnings
|
|
32.5
|
|
|
34.7
|
|
|
54.0
|
|
|
165.9
|
|
Basic EPS
|
|
0.27
|
|
|
0.29
|
|
|
0.45
|
|
|
1.39
|
|
Diluted EPS
|
|
0.26
|
|
|
0.28
|
|
|
0.43
|
|
|
1.35
|
|
NOTE 19. SUBSEQUENT EVENTS
In July 2016, the Company completed the acquisition of the North American Customer Communications (“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 will be integrated into our existing customer communications business and is now known as Broadridge Customer Communications. The aggregate purchase price was
$410.0 million
in cash, subject to customary working capital and other closing adjustments. As of the date of the acquisition, the acquired net assets will be recorded at fair value in accordance with the purchase method of accounting and the results of operations of the acquired business will be included in the results of operations of the Investor Communication Solutions segment. As of the date of this filing, the preliminary purchase price allocation has not been finalized.
On August 8, 2016, our Board of Directors increased our quarterly cash dividend by
$0.03
per share to
$0.33
per share, an increase in our annual dividend amount from
$1.20
to
$1.32
per share. However, the 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.
* * * * * * *