Notes to Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
A. Description of Business. Broadridge Financial Solutions, Inc. (“Broadridge” or the “Company”), a Delaware corporation and a part of the S&P 500® Index (“S&P”), is a global financial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers and corporate issuers. Broadridge’s services include investor communications, securities processing, data and analytics, and customer communications solutions. Broadridge serves a large and diverse client base across four client groups: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. For capital markets firms, Broadridge helps clients lower costs and improve the effectiveness of their trade and account processing operations with support for their operational technologies, and their administration, finance, risk and compliance requirements. Broadridge serves asset management firms by meeting their critical needs for shareholder communications and by providing investment operations technology to support their investment decisions. For wealth management clients, Broadridge provides an integrated platform with tools that optimize advisor productivity, enhance client experience and digitize enterprise operations. For corporate issuer clients, Broadridge helps manage every aspect of their shareholder communications, including registered and beneficial proxy processing, annual meeting support, transfer agency services and financial disclosure document creation, management and United States of America (“U.S.”) Securities and Exchange Commission (the “SEC”) filing services.
The Company operates in two reportable segments: Investor Communication Solutions (“ICS”) and Global Technology and Operations (“GTO”).
•Investor Communication Solutions - Broadridge provides governance and communications solutions through its Investor Communication Solutions business segment to the following financial services clients: banks/broker-dealers, asset management firms/mutual funds, wealth management firms, and corporate issuers. In addition to financial services firms, Broadridge’s Customer Communications business also serves companies in the healthcare, insurance, consumer finance, telecommunications, utilities, and other service industries.
A large portion of Broadridge’s ICS 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® (“ProxyEdge”) is Broadridge’s innovative electronic proxy delivery and voting solution for institutional investors and financial advisors that helps ensure the voting participation of the largest stockholders of many companies. Broadridge also provides the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help its clients meet their regulatory compliance needs.
For asset managers and retirement service providers, Broadridge offers data-driven solutions and an end-to-end platform for content management, composition, and multi-channel distribution of regulatory, marketing, and transactional information. Broadridge’s data and analytics solutions provide investment product distribution data, analytical tools, insights, and research to enable asset managers to optimize product distribution across retail and institutional channels globally. Through Matrix Financial Solutions, Inc. (“Matrix”), Broadridge provides mutual fund trade processing services for retirement service providers, third-party administrators, financial advisors, banks and wealth management professionals.
In addition, Broadridge provides public corporations and mutual funds with a full suite of solutions to help manage their annual meeting process, including registered and beneficial proxy distribution and processing services, proxy and annual report document management solutions, virtual shareholder meeting services and solutions that help them gain insight into their shareholder base through Broadridge’s shareholder data services. Broadridge also offers financial reporting document composition and management solutions, SEC disclosure and filing services, and registrar, stock transfer and record-keeping services through Broadridge Corporate Issuer Solutions.
We provide customer communications solutions which include print and digital solutions, content management, postal optimization, and fulfillment services. These services include customer communications management capabilities through the Broadridge Communications CloudSM platform (the “Communications Cloud”). Through one point of integration, the Communications Cloud helps companies create, deliver, and manage multi-channel communications and customer engagement. The platform includes data-driven composition tools, identity and preference management, multi-channel optimization and digital communication experience, archive and information management, digital and print delivery, and analytics and reporting tools.
•Global Technology and Operations - Broadridge is a leading global provider of securities processing solutions for capital markets, wealth management, and asset management firms. Broadridge offers advanced solutions that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to order capture and execution, trade confirmation, margin, cash management, clearance and settlement, asset servicing, reference data management, reconciliations, securities financing and collateral optimization, compliance and regulatory reporting, and portfolio accounting and custody-related services.
Broadridge’s core post-trade services help financial institutions efficiently and cost-effectively consolidate their books and records, gather and service assets under management and manage risk, thereby enabling them to focus on their core business activities. Broadridge’s multi-asset, multi-market, multi-entity and multi-currency solutions support real-time global trade processing of equity, fixed income, mutual fund, foreign exchange, and exchange traded derivatives.
Broadridge’s comprehensive wealth management platform offers capabilities across the entire wealth management lifecycle and streamlines all aspects of wealth management services, including account management, fee management and client on-boarding. The wealth management platform enables full-service, regional and independent broker-dealers and investment advisors to better engage with customers through digital marketing and customer communications tools. Broadridge also integrates data, content and technology to drive new customer acquisition, support holistic advice and cross-sell opportunities through the creation of sales and educational content, including seminars as well as customizable advisor websites, search engine marketing and electronic and print newsletters. Broadridge’s advisor solutions help advisors optimize their practice management through customer and account data aggregation and reporting.
Broadridge offers buy-side technology solutions for the global investment management industry, including portfolio management, compliance and operational workflow solutions for hedge funds, family offices, investment managers and the providers that service this space. Through Broadridge’s Managed Services, Broadridge provides business process outsourcing services that support the entire trade lifecycle operations of its buy- and sell-side clients’ businesses through a combination of its technology and operations expertise. Broadridge also provides support for advisor, investor and compliance workflow.
B. Consolidation and Basis of Presentation. The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and in accordance with the SEC requirements for Annual Reports on Form 10-K. These financial statements present the consolidated position of the Company and include the entities in which the Company directly or indirectly has a controlling financial interest as well as various entities in which the Company has investments recorded under the equity method of accounting as well as certain marketable and non-marketable securities. Intercompany balances and transactions have been eliminated. Amounts presented may not sum due to rounding. Certain prior period amounts have been reclassified to conform to the current year presentation where applicable, except as it relates to (i) Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02 “Leases”, as amended (“ASU No. 2016-02”), (ii) No. 2014-09 “Revenue from Contracts with Customers” and its related amendments (collectively “ASU No. 2014-09”), (iii) ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU No. 2016-01”), and (iv) ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU No. 2018-02”), as described further below.
Effective July 1, 2019, the Company adopted ASU No. 2016-02, as amended, by recognizing a right-of-use (“ROU”) asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the period of adoption. Under this method of adoption, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. Additional information about the impact of the Company’s adoption of ASU No. 2016-02, as amended, is included in Note 2, “Summary of Significant Accounting Policies” and Note 8, “Leases”.
Effective July 1, 2018, the Company adopted ASU No. 2014-09 using the modified retrospective transition approach applied to all contracts. Under this transition approach, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. Additional information about the Company’s revenue recognition policies and the related impact of the adoption of ASU No. 2014-09 is included in Note 2, “Summary of Significant Accounting Policies” and Note 3, “Revenue Recognition”.
Effective July 1, 2018, the Company adopted ASU No. 2016-01, which requires changes in the fair value of publicly traded equity securities for which the Company does not have significant influence to be recorded as part of Net earnings rather than as Other comprehensive income (loss), net. In addition, equity investments that do not have a readily determinable fair value will be recorded at cost less impairment as further adjusted for observable price changes in orderly transactions for identical or similar investments of the issuer. The Company adopted ASU No. 2016-01 using the modified-retrospective transition approach by recording the cumulative effect of previously unrecognized gains or losses on publicly traded equity securities to retained earnings as of July 1, 2018. The provisions of ASU No. 2016-01 relative to equity investments that do not have a readily determinable fair value have been applied prospectively. The Consolidated Financial Statements have not been revised for periods prior to July 1, 2018. The impact of adopting ASU No. 2016-01 resulted in a reclassification of less than $0.1 million in unrealized gains, net from accumulated other comprehensive loss to retained earnings as of July 1, 2018.
Effective July 1, 2018, the Company adopted ASU No. 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects associated with the change in the U.S. federal corporate tax rate resulting from the U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017. The adoption of ASU No. 2018-02 resulted in an increase to retained earnings of $1.5 million.
Effective July 1, 2018, the Company adopted ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU No. 2017-07”) whereby the Company revised its presentation in the Consolidated Statements of Earnings to reflect the non-service cost components of net benefit cost as part of Other nonoperating income (expenses), net, which were previously recorded as part of Total operating expenses. All prior period information has been conformed to the current period presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Use of Estimates. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes thereto. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions and judgment that are believed to be reasonable under the circumstances. Accordingly, actual results could differ from those estimates. The use of estimates in specific accounting policies is described further in the notes to the Consolidated Financial Statements, as appropriate.
B. Revenue Recognition. ASU No. 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle is that an entity recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company’s revenues from clients are primarily generated from fees for providing investor communications and technology-enabled services and solutions. Revenues are recognized for the two reportable segments as follows:
•Investor Communication Solutions—Revenues are generated primarily from processing and distributing investor communications and other related services as well as vote processing and tabulation. The Company typically enters into agreements with clients to provide services on a fee for service basis. Fees received for processing and distributing investor communications are generally variably priced and recognized as revenue over time as the Company provides the services to clients based on the number of units processed, which coincides with the pattern of value transfer to the client. Broadridge works directly with corporate issuers (“Issuers”) and mutual funds to ensure that the account holders of the Company’s bank and broker clients, who are also the shareholders of Issuers and mutual funds, receive the appropriate investor communications materials and that the services are fulfilled in accordance with each Issuer’s and mutual fund’s requirements. Broadridge works directly with the Issuers and mutual funds to resolve any issues that may arise. As such, Issuers and mutual funds are viewed as the customer of the Company’s services. As a result, revenues for distribution services as well as proxy materials fulfillment services are recorded in Revenue on a gross basis with corresponding costs including amounts remitted to the broker-dealers and banks (referred to as “Nominees”) recorded in Cost of revenues. Fees for the Company’s investor communications services arrangements are typically billed and paid on a monthly basis following the delivery of the services. The Company also offers certain hosted service arrangements that can be priced on a fixed and/or variable basis for which revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client on a monthly basis based on the number of transactions processed or units delivered, in the case of variable priced arrangements, or a fixed monthly fee in the case of fixed price arrangements, in each case which coincides with the pattern of value transfer to the client. These services may be billed in a variety of payment frequencies depending on the specific arrangement.
•Global Technology and Operations—Revenues are generated primarily from fees for trade processing and related services. Revenue is recognized over time as the Company satisfies its performance obligation by delivering services to the client. The Company’s arrangements for processing and related services typically consist of an obligation to provide specific services to its clients on a when and if needed basis (a stand ready obligation) with revenue recognized from the satisfaction of the performance obligations on a monthly basis generally in the amount billable to the client. These services are generally provided under variable priced arrangements based on volume of service and can include minimum monthly usage fees. Client service agreements often include up-front consideration in addition to the recurring fee for trade processing. Up-front implementation fees, as well as certain enhancements to existing technology platforms, are deferred and recognized on a straight-line basis over the service term of the contract which corresponds to the timing of transfer of value to the client that commences after client acceptance when the processing term begins. In addition, revenue is also generated from the fulfillment of professional services engagements which are generally priced on a time and materials or fixed price basis, and are recognized as the services are provided to the client which corresponds to the timing of transfer of value to the client. Finally, the Company recognizes license revenues from software term licenses installed on clients’ premises upon delivery and acceptance of the software license, assuming a contract is deemed to exist. Software term license revenue is not a significant portion of the Company’s revenues.
The Company uses the following methods, inputs, and assumptions in determining amounts of revenue to recognize:
Identification of Performance Obligations
For revenue arrangements containing multiple goods or services, the Company accounts for the individual goods or services as a separate performance obligation if they are distinct, the good or service is separately identifiable from other items in the arrangement, and if a client can benefit from it on its own or with other resources that are readily available to the client. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.
Transaction Price
Once separate performance obligations are determined, the transaction price is allocated to the individual performance obligations within a contract. If the contracted prices reflect the relative standalone selling prices for the individual performance obligations, no allocations are made. Otherwise, the Company uses the relative selling price method to allocate the transaction price, obtained from sources such as the observable price of a good or service when the Company sells that good or service separately in similar circumstances and to similar clients. If such evidence is unavailable, the Company uses the best estimate of the selling price, which includes various internal factors such as pricing strategy and market factors. A significant portion of the Company’s performance obligations are generated from transactions with volume based fees and includes services that are delivered at the same time. The Company recognizes revenue related to these arrangements over time as the services are provided to the client. While many of the Company’s contracts contain some component of variable consideration, the Company only recognizes variable consideration that is not expected to reverse. The Company allocates variable payments to distinct services in an overall contract when the variable payment relates specifically to that particular service and for which the variable payment reflects what the Company expects to receive in exchange for that particular service. As a result, the Company generally allocates and recognizes variable consideration in the period it has the contractual right to invoice the client.
As described above, our most significant performance obligations involve variable consideration which constitutes the majority of our revenue streams. The Company’s variable consideration components meet the criteria in ASU No. 2014-09 for exclusion from disclosure of the remaining transaction price allocated to unsatisfied performance obligations as does any contracts with clients with an original duration of one year or less. The Company has contracts with clients that vary in length depending on the nature of the services and contractual terms negotiated with the client, and they generally extend over a multi-year period.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue. Distribution revenues associated with shipping and handling activities are accounted for as a fulfillment activity and recognized as the related services or products are transferred to the client. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between client payment and the transfer of goods or services is expected to be one year or less.
C. Cash and Cash Equivalents. Investment securities with an original maturity of 90 days or less are considered cash equivalents. The fair value of the Company’s Cash and cash equivalents approximates carrying value due to their short term nature.
D. Financial Instruments. Substantially all of the financial instruments of the Company other than Long-term debt are carried at fair values, or at carrying amounts that approximate fair values because of the short maturity of the instruments. The carrying value of the Company’s long-term fixed-rate senior notes represent the face value of the long-term fixed-rate senior notes net of the unamortized discount and net of the associated unamortized debt issuance cost. The fair value of the Company’s long-term fixed-rate senior notes is based on quoted market prices. Refer to Note 13, “Borrowings,” for a further description of the Company’s long-term fixed-rate senior notes.
E. Property, Plant and Equipment. Property, plant and equipment is initially recorded at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of assets are as follows:
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Equipment
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3 to 7 years
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Buildings and Building Improvements
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5 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 9, “Property, Plant and Equipment, Net”, for a further description of the Company’s Property, plant and equipment, net.
F. Securities. Securities are non-derivatives that are reflected in Other non-current assets in the Consolidated Balance Sheets, unless management intends to dispose of the investment within twelve months of the end of the reporting period, in which case they are reflected in Other current assets in the Consolidated Balance Sheets. These investments are in entities over which the Company does not have control, joint control, or significant influence. Securities that have a readily determinable fair value are carried at fair value. Securities without a readily determinable fair value are initially recognized at cost and subsequently carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in transactions for an identical or similar investment of the same issuer, such as subsequent capital raising transactions. Changes in the value of securities with or without a readily determinable fair value are recorded in the Consolidated Statements of Earnings. In determining whether a security without a readily determinable fair value is impaired, management considers qualitative factors to identify an impairment including the financial condition and near-term prospects of the issuer.
G. Inventories. Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventory balances of $21.5 million and $21.1 million, consisting of forms and envelopes used in the mailing of proxy and other materials to our customers, are reflected in Other current assets in the Consolidated Balance Sheets at June 30, 2020 and 2019, respectively.
H. Deferred Client Conversion and Start-Up Costs. Direct costs incurred to set up or convert a client’s systems to function with the Company’s technology, that are expected to be recovered, are generally deferred and recognized on a straight-line basis over the service term of the arrangement to which the costs relate, which commences after client acceptance when the processing term begins. The Company evaluates the carrying value of deferred client conversion and start-up costs for impairment on the basis of whether these costs are fully recoverable from the expected future undiscounted net operating cash flows of the client to which the deferred costs relate. These deferred costs are reflected in Other non-current assets in the Consolidated Balance Sheets at June 30, 2020 and June 30, 2019, respectively. Refer to Note 11, “Other Non-Current Assets” for a further description of the Company’s Deferred client conversion and start-up costs.
I. Deferred Sales Commission Costs. The Company defers incremental costs to obtain a client contract that it expects to recover, which consists of sales commissions incurred, only if the contract is executed. Deferred sales commission costs are amortized on a straight-line basis using a portfolio approach consistent with the pattern of transfer of the goods or services to which the asset relates, which also considers expected customer lives. As a practical expedient, the Company recognizes the sales commissions as an expense when incurred if the amortization period of the sales commission asset that the entity otherwise would have recognized is one year or less. The Company evaluates the carrying value of deferred sales commission costs for impairment on the basis of whether these costs are fully recoverable from the expected future undiscounted net operating cash flows of the portfolio of clients to which the deferred sales commission costs relate. Refer to Note 11, “Other Non-Current Assets” for a further description of the Company’s Deferred sales commission costs.
J. Deferred Data Center Costs. Data center costs relate to conversion costs associated with our principal data center systems and applications. Costs directly related to the activities necessary to make the data center usable for its intended purpose are deferred and amortized over the life of the contract on a straight-line basis commencing on the date the data center has achieved full functionality. These deferred costs are reflected in Other non-current assets in the Consolidated Balance Sheets at June 30, 2020 and 2019, respectively. Refer to Note 11, “Other Non-Current Assets” for a further description of the Company’s Deferred data center costs.
K. Goodwill. The Company does not amortize goodwill but instead tests goodwill for impairment at the reporting unit level at least annually or more frequently if circumstances indicate possible impairment. The Company tests for goodwill impairment annually in the fourth quarter of the fiscal year, using the March 31 financial statement balances. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the income approach, which considers a discounted future cash flow analysis using various assumptions, including projections of revenues based on assumed long-term growth rates, estimated costs and appropriate discount rates based on the particular reporting unit’s weighted-average cost of capital. The principal factors used in the discounted cash flow analysis requiring judgment are the projected future operating cash flows based on forecasted earnings before interest and taxes, and the selection of the terminal value growth rate and discount rate assumptions. The weighted-average cost of capital takes into account the relative weight of each component of our consolidated capital structure (equity and long-term debt). The estimates of long-term growth and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part of the Company’s routine, long-range planning process. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined. Refer to Note 10, “Goodwill and Intangible Assets, Net” for a further description on the Company’s accounting for goodwill.
L. Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the estimated undiscounted future cash flows expected to be generated by the asset (or asset group). If the carrying amount of an asset (or asset group) exceeds its expected estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset (or asset group) exceeds its fair value. Intangible assets with finite lives are amortized primarily on a straight-line basis over their estimated useful lives and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Refer to Note 9, “Property, Plant and Equipment, Net” for a further description of the Company’s Property, plant and equipment, net. Refer to Note 6, “Acquisitions” and Note 10, “Goodwill and Intangible Assets, Net” for a further description of the Company’s Intangible assets, net.
M. Equity Method Investments. The Company’s investments resulting in a 20% to 50% ownership interest are accounted for using the equity method of accounting when the ability to exercise significant influence is maintained by the Company. The Company’s share of net income or losses of equity method investments is included in Other non-operating income (expenses), net. Equity method investments are included in Other non-current assets. Equity method investments are reviewed for impairment by assessing if a decline in market value of the investment below the carrying value is other than temporary, which considers the intent and ability to retain the investment, the length of time and extent that the market value has been less than cost, and the financial condition of the investee.
N. Foreign Currency Translation and Transactions. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars based on exchange rates in effect at the end of each period. Revenues and expenses are translated at average exchange rates during the periods. Currency transaction gains or losses are included in Non-operating income (expenses), net. Gains or losses from balance sheet translation are included in Accumulated other comprehensive income (loss).
O. Distribution Cost of Revenues. Distribution cost of revenues consists primarily of postage related expenses incurred in connection with the Company’s Investor Communication Solutions segment, as well as Matrix Financial Solutions, Inc. administrative services expenses. These costs are reflected in Cost of revenues in the Consolidated Statements of Earnings.
P. Stock-Based Compensation. The Company accounts for stock-based compensation by recognizing the measurement of stock-based compensation expense in the Consolidated Statements of Earnings based on the fair value of the award on the date of grant. For stock options issued, the fair value of each stock option was estimated on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. For restricted stock units, the fair value of the award is based on the current fair value of the Company’s stock on the date of grant less the present value of future expected dividends discounted at the risk-free-rate derived from the U.S. Treasury yield curve in effect at the time of grant. Refer to Note 15, “Stock-Based Compensation” for a further description of the Company’s stock-based compensation.
Q. Internal Use Software. Expenditures for major software purchases and software developed or obtained for internal use are capitalized and amortized generally over a three- 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 10, “Goodwill and Intangible assets, Net” for a further description of the Company’s capitalized software.
R. Income Taxes. The Company accounts for income taxes under the asset and liability method, which establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements or tax returns. Deferred tax assets and liabilities are recognized based on temporary differences between the consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
Judgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that the Company will not be able to utilize the deferred tax assets attributable to net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings. The determination as to whether a deferred tax asset will be recognized is made on a jurisdictional basis and is based on the evaluation of historical taxable income or loss, projected future taxable income, carryforward periods, scheduled reversals of deferred tax liabilities and tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The assumptions used to project future taxable income requires significant judgment and are consistent with the plans and estimates used to manage the underlying businesses. Refer to Note 17, “Income Taxes” for a further description of the Company’s income taxes.
S. Advertising Costs. Advertising costs are expensed at the time the advertising takes place. Total advertising costs were $6.8 million, $4.1 million and $6.3 million for the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
T. Concentration of Risk. The majority of our clients operate in the financial services industry. In the fiscal years ended June 30, 2020, 2019 and 2018, we derived approximately 20%, 22% and 21% of our consolidated revenues from our five largest clients in that particular fiscal year, respectively. Our largest single client in each of our fiscal years 2020, 2019 and 2018 accounted for approximately 6% of our consolidated revenues.
U. New Accounting Pronouncements.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, as subsequently amended by ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” and ASU No. 2018-20, “Leases (Topic 842): Narrow Scope Improvements for Lessors" (collectively referred to herein as “ASU No. 2016-02, as amended”). Under ASU No. 2016-02, as amended, all lease arrangements, with certain limited exceptions, exceeding a twelve-month term must now be recognized as assets and liabilities on the balance sheet of the lessee by recording a ROU asset and corresponding lease obligation generally equal to the present value of the future lease payments over the lease term. Further, the income statement will reflect lease expense for leases classified as operating and amortization/interest expense for leases classified as financing, determined using classification criteria substantially similar to the current lease guidance for distinguishing between an operating and capital lease. ASU No. 2016-02, as amended, also contains certain additional qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU No. 2016-02, as amended, was effective for the Company in the first quarter of fiscal year 2020 and could have been adopted using either a modified retrospective basis which required adjustment to all comparative periods presented in the consolidated financial statements, or by recognizing a cumulative-effect adjustment to the opening balance of retained earnings at the date of initial application.
Accordingly, in the first quarter of fiscal year 2020, the Company adopted ASU No. 2016-02, as amended, by recognizing a ROU asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the period of adoption. Under this method of adoption, the Company has not restated the prior period Consolidated Financial Statements presented to the current period presentation. The Company elected the transition package of three practical expedients permitted under the transition guidance in ASU No. 2016-02, as amended, to not reassess prior conclusions related to whether (i) a contract contains a lease, (ii) the classification of an existing lease, and (iii) the accounting for initial direct costs. The Company also elected accounting policies to (i) not separate the non-lease components of a contract from the lease component to which they relate, and (ii) not recognize assets or liabilities for leases with a term of twelve months or less and no purchase option that the Company is reasonably certain of exercising.
On the Consolidated Balance Sheet as of July 1, 2019, the adoption of ASU No. 2016-02, as amended, resulted in the recognition of lease liabilities of $252.0 million and ROU assets of $235.4 million, which include the impact of existing deferred rents and tenant improvement allowances for operating leases, as well as a cumulative-effect adjustment to the opening balance of retained earnings of $0.2 million. The adoption of ASU No. 2016-02, as amended, did not have a material impact on the Consolidated Statements of Earnings, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Cash Flows, or the Consolidated Statements of Stockholders’ Equity.
Effective July 1, 2018, the Company adopted ASU No. 2014-09. ASU No. 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most prior revenue recognition guidance, including industry specific requirements. It also includes guidance on accounting for the incremental costs of obtaining and costs incurred to fulfill a contract with a customer. The core principle of the revenue model is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires certain enhanced disclosures, including disclosures on the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers.
The Company identified certain impacts of ASU No. 2014-09 on its Consolidated Financial Statements. Specifically, under ASU No. 2014-09, the Company now capitalizes certain sales commissions, and it capitalizes certain additional costs that are part of setting up or converting a client’s systems to function with the Company’s technology, both of which were previously expensed. Additionally, the Company now recognizes proxy revenue primarily at the time of proxy materials distribution to the client’s shareholders rather than on the date of the client’s shareholder meeting, which is typically 30 days after the proxy materials distribution. Other changes to the timing of revenue recognition include deferral of revenue from certain transaction processing platform enhancements as well as acceleration of revenue from certain multi-year software license arrangements that was previously recognized over the term of the software subscription.
The Company adopted ASU No. 2014-09 effective July 1, 2018 using the modified retrospective transition method applied to all contracts, which resulted in a cumulative-effect increase in the opening balance of retained earnings of $101.3 million, most notably related to the deferral of incremental sales commissions incurred in obtaining contracts in prior periods. Under this transition approach, the Company did not restate the prior period Consolidated Financial Statements presented. See Note 3, “Revenue Recognition” for additional information about the Company’s revenue recognition policies.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU No. 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract with the requirements under GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU No. 2018-15 will be effective for the Company beginning in the first quarter of fiscal year 2021. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The pending adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses” (“ASU No. 2016-13”), which prescribes an impairment model for most financial instruments based on expected losses rather than incurred losses. Under this model, an estimate of expected credit losses over the contractual life of the instrument is to be recorded as of the end of a reporting period as an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial instrument. ASU No. 2016-13 is effective for the Company in the first quarter of fiscal year 2021. For most instruments, entities must apply the standard using a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The pending adoption of this guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.
V. Subsequent Events. In preparing the accompanying Consolidated Financial Statements, the Company has reviewed events that have occurred after June 30, 2020 through the date of issuance of the Consolidated Financial Statements. Refer to Note 22, “Subsequent Events” for a description of the Company’s subsequent events.
NOTE 3. REVENUE RECOGNITION
Disaggregation of Revenue
The Company has presented below its revenue disaggregated by product line and by revenue type within each of its Investor Communication Solutions and Global Technology and Operations reportable segments.
Fee revenues in the Investor Communication Solutions segment are derived from both recurring and event-driven activity. In addition, the level of recurring and event-driven activity the Company processes directly impacts distribution revenues. While event-driven activity is highly repeatable, it may not recur on an annual basis. Event-driven fee revenues are based on the number of special events and corporate transactions the Company processes. Event-driven activity is impacted by financial market conditions and changes in regulatory compliance requirements, resulting in fluctuations in the timing and levels of event-driven fee revenues. Distribution revenues primarily include revenues related to the physical mailing of proxy materials, interim communications, transaction reporting, customer communications and fulfillment services, as well as Matrix administrative services.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, 2020
|
|
Fiscal Year Ended June 30, 2019
|
|
(in millions)
|
|
(in millions)
|
Investor Communication Solutions
|
|
|
|
Equity proxy
|
$
|
473.3
|
|
|
$
|
437.0
|
|
Mutual fund and exchange traded funds (“ETF”) interims
|
284.6
|
|
|
265.9
|
|
Customer communications and fulfillment
|
735.4
|
|
|
736.4
|
|
Other ICS
|
368.7
|
|
|
324.8
|
|
Total ICS Recurring fee revenues
|
1,862.0
|
|
|
1,764.0
|
|
|
|
|
|
Equity and other
|
79.5
|
|
|
107.3
|
|
Mutual funds
|
98.5
|
|
|
137.2
|
|
Total ICS Event-driven fee revenues
|
178.0
|
|
|
244.5
|
|
|
|
|
|
Distribution revenues
|
1,451.2
|
|
|
1,459.8
|
|
|
|
|
|
Total ICS Revenues
|
$
|
3,491.3
|
|
|
$
|
3,468.3
|
|
|
|
|
|
Global Technology and Operations
|
|
|
|
Equities and other
|
$
|
996.2
|
|
|
$
|
831.7
|
|
Fixed income
|
178.0
|
|
|
164.6
|
|
Total GTO Recurring fee revenues
|
1,174.2
|
|
|
996.3
|
|
|
|
|
|
Foreign currency exchange
|
(136.4)
|
|
|
(102.4)
|
|
|
|
|
|
Total Revenues
|
$
|
4,529.0
|
|
|
$
|
4,362.2
|
|
|
|
|
|
Revenues by Type
|
|
|
|
Recurring fee revenues
|
$
|
3,036.3
|
|
|
$
|
2,760.3
|
|
Event-driven fee revenues
|
178.0
|
|
|
244.5
|
|
Distribution revenues
|
1,451.2
|
|
|
1,459.8
|
|
Foreign currency exchange
|
(136.4)
|
|
|
(102.4)
|
|
Total Revenues
|
$
|
4,529.0
|
|
|
$
|
4,362.2
|
|
Contract Balances
The following table provides information about contract assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
|
(in millions)
|
|
|
Contract assets
|
$
|
81.9
|
|
|
$
|
47.5
|
|
Contract liabilities
|
$
|
286.6
|
|
|
$
|
251.6
|
|
Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and certain other client contracts. Contract liabilities represent consideration received or receivable from clients before the transfer of control occurs (deferred revenue). Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
During the fiscal year ended June 30, 2020, contract assets increased primarily due to an increase in software term license revenues recognized but not yet invoiced, while contract liabilities increased primarily due to recent acquisitions and the timing of client payments. The Company recognized $141.2 million of revenue during the fiscal year ended June 30, 2020 that was
included in the contract liability balance as of June 30, 2019. The Company recognized $96.4 million of revenue during the fiscal year ended June 30, 2019 that was included in the contract liability balance as of July 1, 2018.
NOTE 4. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing the Company’s Net earnings by the basic Weighted-average shares outstanding for the periods presented. The Company calculates diluted EPS using the treasury stock method, which reflects the potential dilution that could occur if outstanding stock options at the presented date are exercised and restricted stock unit awards have vested.
As of June 30, 2020, 2019 and 2018, the computation of diluted EPS did not include 0.5 million, 0.4 million and 1.1 million options to purchase Broadridge common stock, respectively, as the effect of their inclusion would have been anti-dilutive.
The following table sets forth the denominators of the basic and diluted EPS computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
114.7
|
|
|
115.9
|
|
|
116.8
|
|
Common stock equivalents
|
|
2.3
|
|
|
2.9
|
|
|
3.5
|
|
Diluted
|
|
117.0
|
|
|
118.8
|
|
|
120.4
|
|
The following table sets forth the computation of basic EPS utilizing Net earnings for the following fiscal years and the Company’s basic Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions, except per share
amounts)
|
|
|
|
|
Net earnings
|
|
$
|
462.5
|
|
|
$
|
482.1
|
|
|
$
|
427.9
|
|
Basic Weighted-average shares outstanding
|
|
114.7
|
|
|
115.9
|
|
|
116.8
|
|
Basic EPS
|
|
$
|
4.03
|
|
|
$
|
4.16
|
|
|
$
|
3.66
|
|
The following table sets forth the computation of diluted EPS utilizing Net earnings for the following fiscal years and the Company’s diluted Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions, except per share
amounts)
|
|
|
|
|
Net earnings
|
|
$
|
462.5
|
|
|
$
|
482.1
|
|
|
$
|
427.9
|
|
Diluted Weighted-average shares outstanding
|
|
117.0
|
|
|
118.8
|
|
|
120.4
|
|
Diluted EPS
|
|
$
|
3.95
|
|
|
$
|
4.06
|
|
|
$
|
3.56
|
|
NOTE 5. INTEREST EXPENSE, NET
Interest expense, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
Interest expense on borrowings
|
|
$
|
(62.5)
|
|
|
$
|
(45.9)
|
|
|
$
|
(42.4)
|
|
Interest income
|
|
3.7
|
|
|
4.2
|
|
|
3.8
|
|
Interest expense, net
|
|
$
|
(58.8)
|
|
|
$
|
(41.8)
|
|
|
$
|
(38.6)
|
|
NOTE 6. ACQUISITIONS
Assets acquired and liabilities assumed in business combinations are recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition date based upon the estimated fair values at such date. The results of operations of the businesses acquired by the Company are included in the Company’s Consolidated Statements of Earnings beginning on the respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed is allocated to Goodwill.
Pro forma supplemental financial information for all acquisitions is not provided as the impact of these acquisitions on the Company’s operating results was not material for any acquisition individually or in the aggregate.
The following represents the fiscal year 2020 acquisitions:
Fiscal Year 2020 Acquisitions:
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shadow Financial
|
|
Fi360
|
|
Clear-Structure
|
|
Funds-Library
|
|
Total
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Cash payments, net of cash acquired
|
|
$
|
35.6
|
|
|
$
|
116.0
|
|
|
$
|
59.1
|
|
|
$
|
69.6
|
|
|
$
|
280.3
|
|
Deferred payments, net
|
|
2.9
|
|
|
3.5
|
|
|
2.6
|
|
|
—
|
|
|
9.0
|
|
Contingent consideration liability
|
|
—
|
|
|
—
|
|
|
7.0
|
|
|
—
|
|
|
7.0
|
|
Aggregate purchase price
|
|
$
|
38.5
|
|
|
$
|
119.5
|
|
|
$
|
68.7
|
|
|
$
|
69.6
|
|
|
$
|
296.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired / (liabilities assumed)
|
|
$
|
(0.2)
|
|
|
$
|
(7.9)
|
|
|
$
|
0.6
|
|
|
$
|
(3.3)
|
|
|
$
|
(10.8)
|
|
Goodwill
|
|
17.6
|
|
|
84.4
|
|
|
44.2
|
|
|
39.1
|
|
|
185.3
|
|
Intangible assets
|
|
21.1
|
|
|
43.1
|
|
|
23.9
|
|
|
33.8
|
|
|
121.8
|
|
Aggregate purchase price
|
|
$
|
38.5
|
|
|
$
|
119.5
|
|
|
$
|
68.7
|
|
|
$
|
69.6
|
|
|
$
|
296.3
|
|
Shadow Financial Systems, Inc. (“Shadow Financial”)
In October 2019, the Company acquired Shadow Financial, a provider of multi-asset class post-trade solutions for the capital markets industry. The acquisition builds upon Broadridge’s post-trade processing capabilities by adding a market-ready solution for exchanges, inter-dealer brokers and proprietary trading firms. In addition, the acquisition adds capabilities across exchange traded derivatives and cryptocurrency. Shadow Financial is included in our GTO reportable segment.
•Goodwill is tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and five-year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities.
Fi360, Inc. (“Fi360”)
In November 2019, the Company acquired Fi360, a provider of fiduciary and Regulation Best Interest solutions for the wealth and retirement industry, including the accreditation and continuing education for the Accredited Investment Fiduciary® Designation, the leading designation focused on fiduciary responsibility. The acquisition enhances Broadridge’s retirement solutions by providing wealth and retirement advisors with fiduciary tools that complement its Matrix trust and trading platform. The acquisition also further strengthens Broadridge’s data and analytics tools and solutions suite that enable asset managers to grow their businesses by providing greater transparency into the retirement market. Fi360 is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and five-year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities.
ClearStructure Financial Technology, LLC (“ClearStructure”)
In November 2019, the Company acquired ClearStructure, a global provider of portfolio management solutions for the private debt markets. ClearStructure’s component services enhances Broadridge’s existing multi-asset class, front-to-back office asset management technology suite, providing Broadridge clients with a capability to access the public and private markets. ClearStructure is included in our GTO reportable segment.
•The contingent consideration liability is payable through fiscal year 2023 upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $12.5 million upon the achievement in full of the defined financial targets by the acquired business.
•The fair value of the contingent consideration liability at June 30, 2020 is $7.0 million.
•Goodwill is primarily tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and five-year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities, and is still subject to a working capital adjustment.
FundsLibrary Limited (“FundsLibrary”)
In February 2020, the Company acquired FundsLibrary, a provider of fund document and data dissemination in the European market. FundsLibrary's solutions enable fund managers to increase distribution opportunities and help them comply with regulations such as Solvency II and MiFID II. The business will be combined with FundAssist Limited (“FundAssist”), Broadridge's existing European funds regulatory communications business. The combined solution provides funds with a single, integrated provider to manage data, perform calculations, compose documents, manage regulatory compliance and disseminate information across multiple jurisdictions. FundsLibrary is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and three-year life, respectively.
The allocation of the purchase price will be finalized upon completion of the analysis of the fair values of the acquired business’ assets and liabilities, and is still subject to a working capital adjustment.
The following represents the fiscal year 2019 acquisitions:
Fiscal Year 2019 Acquisitions:
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockall
|
|
RPM
|
|
TD Ameritrade*
|
|
Total
|
|
|
(in millions)
|
|
|
|
|
|
|
Cash payments, net of cash acquired
|
|
$
|
34.9
|
|
|
$
|
258.3
|
|
|
$
|
61.5
|
|
|
$
|
354.7
|
|
Deferred payments, net
|
|
0.5
|
|
|
40.9
|
|
|
—
|
|
|
41.4
|
|
Contingent consideration liability
|
|
7.0
|
|
|
0.8
|
|
|
—
|
|
|
7.9
|
|
Aggregate purchase price
|
|
$
|
42.4
|
|
|
$
|
300.1
|
|
|
$
|
61.5
|
|
|
$
|
404.0
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired / (liabilities assumed)
|
|
$
|
(2.9)
|
|
|
$
|
6.8
|
|
|
$
|
—
|
|
|
$
|
3.9
|
|
Goodwill
|
|
31.1
|
|
|
181.6
|
|
|
27.1
|
|
|
239.8
|
|
Intangible assets
|
|
14.2
|
|
|
111.7
|
|
|
34.4
|
|
|
160.3
|
|
Aggregate purchase price
|
|
$
|
42.4
|
|
|
$
|
300.1
|
|
|
$
|
61.5
|
|
|
$
|
404.0
|
|
* Broadridge acquired the retirement plan custody and trust assets from TD Ameritrade Trust Company.
Rockall Technologies Limited (“Rockall”)
In May 2019, the Company completed the acquisition of Rockall, a provider of securities-based lending (“SBL”) and collateral management solutions for wealth management firms and commercial banks. The acquisition expanded Broadridge's core front-to-back office wealth capabilities, providing innovative SBL and collateral management technology solutions to help commercial banks manage risk and optimize clients' securities lending and financing needs. Rockall is included in our GTO reportable segment.
•The contingent consideration liability is payable over the next two years upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $10.1 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, 2020 is $7.6 million.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a four-year life and six-year life, respectively.
•In the first quarter of fiscal year 2020, the Company settled deferred payment obligations totaling $0.5 million.
RPM Technologies (“RPM”)
In June 2019, Broadridge acquired RPM, a provider of enterprise wealth management software solutions and services. The addition of RPM’s state-of-the-art technology platforms builds upon our Canadian wealth management business, providing a solution set for the retail banking sector with enhanced mutual fund and deposit manufacturing capabilities. RPM is included in our GTO reportable segment.
•The contingent consideration liability is payable over the next two years upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $3.7 million 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, 2020 is $0.8 million.
•Goodwill is partially tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a five-year life and seven-year life, respectively.
•In the first quarter of fiscal year 2020, the Company settled deferred payment obligations totaling $40.9 million.
Retirement Plan Custody and Trust Assets from TD Ameritrade
In June 2019, Broadridge acquired the retirement plan custody and trust assets from TD Ameritrade Trust Company, a subsidiary of TD Ameritrade Holding Company. The acquisition expands Broadridge's suite of solutions for the growing qualified and non-qualified retirement plan services market and the support it provides for third-party administrators, financial advisors, record-keepers, banks, and brokers. This acquisition is included in our ICS reportable segment.
•Goodwill is tax deductible.
•Intangible assets acquired consist of customer relationships, which are being amortized over a seven-year life.
The following represents the fiscal year 2018 acquisitions:
Fiscal Year 2018 Acquisitions:
BUSINESS COMBINATIONS
Financial information on each transaction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
|
|
ActivePath
|
|
FundAssist
|
|
Total
|
|
|
(in millions)
|
|
|
|
|
|
|
Cash payments, net of cash acquired
|
|
$
|
26.4
|
|
|
$
|
21.8
|
|
|
$
|
41.3
|
|
|
$
|
89.5
|
|
Deferred payments, net
|
|
1.4
|
|
|
2.4
|
|
|
—
|
|
|
3.8
|
|
Contingent consideration liability (acquisition date fair value)
|
|
2.7
|
|
|
—
|
|
|
6.4
|
|
|
9.2
|
|
Aggregate purchase price
|
|
$
|
30.6
|
|
|
$
|
24.2
|
|
|
$
|
47.7
|
|
|
$
|
102.5
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired / (liabilities assumed)
|
|
$
|
0.2
|
|
|
$
|
(10.0)
|
|
|
$
|
(1.9)
|
|
|
$
|
(11.7)
|
|
Goodwill
|
|
18.5
|
|
|
28.7
|
|
|
29.2
|
|
|
76.3
|
|
Intangible assets
|
|
12.0
|
|
|
5.6
|
|
|
20.4
|
|
|
38.0
|
|
Aggregate purchase price
|
|
$
|
30.6
|
|
|
$
|
24.2
|
|
|
$
|
47.7
|
|
|
$
|
102.5
|
|
Summit Financial Disclosure, LLC (“Summit”)
In October 2017, the Company acquired Summit, a full service financial document management solutions provider, including document composition and regulatory filing services. Summit is included in our ICS reportable segment.
•The contingent consideration liability is payable over the next three years upon the achievement by the acquired business of certain revenue and earnings targets, and has a maximum potential pay-out of $11.0 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, 2020 is $7.3 million.
•Goodwill is primarily tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a five-year life and seven-year life, respectively.
ActivePath Solutions LTD “(ActivePath”)
In March 2018, the Company acquired ActivePath, a digital technology company with technology that enhances the consumer experience associated with consumer statements, bills and regulatory communications. ActivePath is included in our ICS reportable segment.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of software technology and customer relationships, which are being amortized over a five-year life and two-year life, respectively.
FundAssist Limited (“FundAssist”)
In May 2018, the Company acquired FundAssist, a regulatory, marketing and sales solutions service provider to the global investments industry. FundAssist is included in our ICS reportable segment.
•The contingent consideration liability contains a revenue component which will be settled in fiscal year 2021, based on the achievement of a defined revenue target by the acquired business.
•The fair value of the contingent consideration liability at June 30, 2020 is $5.3 million.
•Goodwill is not tax deductible.
•Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a six-year life and five-year life, respectively.
ASSET ACQUISITION
Purchase of Intellectual Property
In February 2018, the Company paid $40.0 million to an affiliate of Inveshare, Inc. (“Inveshare”) for the delivery of blockchain technology applications, as contemplated as part of the Company’s acquisition of intellectual property assets from Inveshare.
NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
|
|
|
|
|
|
|
|
|
Level 1
|
|
Quoted market prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2
|
|
Observable market-based inputs other than quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
|
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculates the fair value of its Level 1 and Level 2 instruments, as applicable, based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The 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, 2020 and 2019, respectively, which are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in millions)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
150.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150.1
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Securities
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Securities
|
|
102.0
|
|
|
—
|
|
|
—
|
|
|
102.0
|
|
Total assets as of June 30, 2020
|
|
$
|
252.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
252.7
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33.1
|
|
|
$
|
33.1
|
|
Total liabilities as of June 30, 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33.1
|
|
|
$
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in millions)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
68.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68.1
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Securities
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Securities
|
|
81.8
|
|
|
—
|
|
|
—
|
|
|
81.8
|
|
Total assets as of June 30, 2019
|
|
$
|
150.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150.3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28.4
|
|
|
$
|
28.4
|
|
Total liabilities as of June 30, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28.4
|
|
|
$
|
28.4
|
|
(1)Money market funds include money market deposit account balances of $150.1 million and $30.1 million as of June 30, 2020 and 2019, respectively.
In addition, the Company has non-marketable securities with a carrying amount of $33.3 million as of June 30, 2020 and $12.9 million as of June 30, 2019 that are classified as Level 2 financial assets and included as part of Other non-current assets.
The following table sets forth an analysis of changes during fiscal years 2020 and 2019 in Level 3 financial liabilities of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
Beginning balance
|
|
$
|
28.4
|
|
|
$
|
18.6
|
|
Additional contingent consideration incurred
|
|
7.0
|
|
|
7.9
|
|
Net increase in contingent consideration liability
|
|
1.0
|
|
|
3.6
|
|
Foreign currency impact on contingent consideration liability
|
|
(0.7)
|
|
|
(0.6)
|
|
Payments
|
|
(2.6)
|
|
|
(1.0)
|
|
Ending balance
|
|
$
|
33.1
|
|
|
$
|
28.4
|
|
The Company did not incur any Level 3 fair value asset impairments during fiscal year 2020 or fiscal year 2019. Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments between levels. The Company’s policy is to record transfers between levels if any, as of the beginning of the fiscal year.
NOTE 8. LEASES
The Company’s leases consist primarily of real estate leases in locations where the Company maintains operations, and are classified as operating leases.
The Company evaluates each lease and service arrangement at inception to determine if the arrangement is, or contains, a lease. A lease exists if the Company obtains substantially all of the economic benefits of and has the right to control the use of an asset for a period of time. The lease term begins on the commencement date, which is the date the Company takes possession of the leased property and also classifies the lease as either operating or finance, and may include options to extend or terminate the lease if exercise of the option to extend or terminate the lease is considered to be reasonably certain. The Company’s options to extend or terminate a lease generally do not exceed five years. The lease term is used both to determine lease classification as an operating or finance lease and to calculate straight-line lease expense for operating leases. The weighted average remaining operating lease term as of June 30, 2020 was 10 years.
ROU assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of fixed lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. Certain leases require the Company to pay taxes, insurance, maintenance, and/or other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature (e.g. based on actual costs incurred). These variable lease costs are recognized as a variable lease expense when incurred. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate to measure the lease liability and the associated ROU asset at commencement date. The incremental borrowing rate was determined based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate. The weighted average discount rate used in measurement of the Company’s operating lease liabilities as of June 30, 2020 was 3.1%.
Supplemental Balance Sheet Information
|
|
|
|
|
|
|
June 30,
2020
|
|
(In millions)
|
Assets:
|
|
Operating lease ROU assets (a)
|
$
|
292.6
|
|
|
|
Liabilities:
|
|
Operating lease liabilities (a) - Current
|
$
|
35.3
|
|
Operating lease liabilities (a) - Non-current
|
288.3
|
|
Total Operating lease liabilities
|
$
|
323.5
|
|
_________
(a)Operating lease assets are included within Other non-current assets, and operating lease liabilities are included within Payables and accrued expenses (current portion) and Other non-current liabilities (non-current portion) in the Company’s Consolidated Balance Sheets as of June 30, 2020.
Components of Lease Cost (a)
|
|
|
|
|
|
|
Fiscal Year Ended
June 30, 2020
|
|
(In millions)
|
Operating lease cost
|
$
|
40.9
|
|
Variable lease cost
|
24.4
|
|
_________
(a)Lease cost is included within Cost of revenues and Selling, general and administrative expenses, dependent upon the nature and use of the ROU asset, in the Company’s Consolidated Statements of Earnings.
Supplemental Cash Flow Information
|
|
|
|
|
|
|
Fiscal Year Ended
June 30, 2020
|
|
(In millions)
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
Operating cash outflows from operating leases
|
$
|
26.9
|
|
ROU assets obtained in exchange for operating lease liabilities
|
$
|
89.6
|
|
Maturity of Lease Liabilities under Accounting Standards Codification (“ASC”) 842 (Leases)
Future rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2020:
|
|
|
|
|
|
|
Operating Leases
|
Years Ending June 30,
|
(In millions)
|
2021
|
$
|
44.5
|
|
2022
|
41.6
|
|
2023
|
39.3
|
|
2024
|
37.2
|
|
2025
|
35.0
|
|
Thereafter
|
180.6
|
|
Total lease payments
|
378.2
|
|
Less: Discount Amount
|
54.7
|
|
Present value of operating lease liabilities
|
$
|
323.5
|
|
Maturity of Lease Liabilities under ASC 840 (Leases)
Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2019:
|
|
|
|
|
|
Years Ending June 30,
|
(In millions)
|
2020
|
$
|
46.8
|
|
2021
|
45.2
|
|
2022
|
39.5
|
|
2023
|
35.9
|
|
2024
|
34.7
|
|
Thereafter
|
204.4
|
|
Total lease payments
|
$
|
406.5
|
|
Rent expense for all operating leases was $49.0 million and $50.4 million during the year ended June 30, 2019 and 2018, respectively.
NOTE 9. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at cost and Accumulated depreciation at June 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
Property, plant and equipment:
|
|
|
|
|
Land and buildings
|
|
$
|
2.6
|
|
|
$
|
2.6
|
|
Equipment
|
|
269.1
|
|
|
435.6
|
|
Furniture, leaseholds and other
|
|
196.9
|
|
|
174.6
|
|
|
|
468.6
|
|
|
612.9
|
|
Less: Accumulated depreciation
|
|
(307.0)
|
|
|
(423.9)
|
|
Property, plant and equipment, net
|
|
$
|
161.6
|
|
|
$
|
189.0
|
|
In fiscal years 2020 and 2019, Property, plant and equipment and Accumulated depreciation were each reduced by $33.9 million and $32.8 million, respectively, for asset retirements related to fully depreciated property, plant and equipment no longer in use.
Depreciation expense for Property, plant and equipment for the years ended June 30, 2020, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
Depreciation expense for Property, plant and equipment
|
|
$
|
50.6
|
|
|
$
|
65.8
|
|
|
$
|
63.4
|
|
NOTE 10. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in Goodwill for the fiscal years ended June 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Communication
Solutions
|
|
Global
Technology and
Operations
|
|
Total
|
|
|
(in millions)
|
|
|
|
|
Goodwill, gross, at July 1, 2018
|
|
$
|
884.4
|
|
|
$
|
370.5
|
|
|
$
|
1,254.9
|
|
Transfers (a)
|
|
(2.8)
|
|
|
2.8
|
|
|
—
|
|
Additions
|
|
27.3
|
|
|
220.4
|
|
|
247.7
|
|
Fair value adjustments (b)
|
|
7.4
|
|
|
—
|
|
|
7.4
|
|
Foreign currency translation and other
|
|
(3.2)
|
|
|
(6.8)
|
|
|
(10.0)
|
|
Accumulated impairment losses
|
|
—
|
|
|
—
|
|
|
—
|
|
Goodwill, net, at June 30, 2019
|
|
$
|
913.1
|
|
|
$
|
586.9
|
|
|
$
|
1,500.0
|
|
|
|
|
|
|
|
|
Goodwill, gross, at June 30, 2019
|
|
$
|
913.1
|
|
|
$
|
586.9
|
|
|
$
|
1,500.0
|
|
Additions
|
|
131.6
|
|
|
69.9
|
|
|
201.5
|
|
Foreign currency translation and other
|
|
(5.1)
|
|
|
(13.0)
|
|
|
(18.1)
|
|
Fair value adjustments (b)
|
|
(0.2)
|
|
|
(8.8)
|
|
|
(9.0)
|
|
Accumulated impairment losses
|
|
—
|
|
|
—
|
|
|
—
|
|
Goodwill, net, at June 30, 2020
|
|
$
|
1,039.5
|
|
|
$
|
635.0
|
|
|
$
|
1,674.5
|
|
(a) In connection with an organizational change made in the first quarter of fiscal year 2020, in order to further align and enhance our portfolio of services, the results for the Company's wealth management Advisor Solutions services that were previously reported in our Investor Communication Solutions reportable segment are now reported within the Global Technology and Operations reportable segment. As a result, $2.8 million of goodwill was reclassified from the ICS segment to the GTO segment based on a relative fair value analysis.
(b) Fair value adjustments includes adjustments to goodwill as part of finalization of the purchase price allocations.
Additions for the fiscal year ended June 30, 2020 include $17.6 million, $84.4 million, $44.2 million and $39.1 million for the acquisitions of Shadow Financial, Fi360, ClearStructure and FundsLibrary, respectively. Additions for the fiscal year ended June 30, 2019 include $31.1 million, $181.6 million and $27.1 million for the acquisitions of Rockall, RPM and TD Ameritrade, respectively.
During fiscal years 2020, 2019 and 2018, 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, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Intangible
Assets, net
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Intangible
Assets, net
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
137.9
|
|
|
$
|
(115.7)
|
|
|
$
|
22.2
|
|
|
$
|
125.8
|
|
|
$
|
(101.7)
|
|
|
$
|
24.1
|
|
Acquired software technology
|
|
196.8
|
|
|
(109.7)
|
|
|
87.1
|
|
|
164.7
|
|
|
(85.5)
|
|
|
79.3
|
|
Customer contracts and lists
|
|
644.5
|
|
|
(274.2)
|
|
|
370.3
|
|
|
549.6
|
|
|
(207.4)
|
|
|
342.1
|
|
Acquired intellectual property
|
|
136.6
|
|
|
(90.9)
|
|
|
45.7
|
|
|
135.0
|
|
|
(63.8)
|
|
|
71.2
|
|
Other intangibles
|
|
92.3
|
|
|
(34.0)
|
|
|
58.3
|
|
|
63.6
|
|
|
(24.1)
|
|
|
39.5
|
|
|
|
$
|
1,208.1
|
|
|
$
|
(624.4)
|
|
|
$
|
583.8
|
|
|
$
|
1,038.7
|
|
|
$
|
(482.5)
|
|
|
$
|
556.2
|
|
In fiscal year 2020 there were no asset retirements related to fully amortized intangibles. In fiscal year 2019, intangible assets and accumulated amortization were reduced by $0.2 million for asset retirements related to fully amortized intangibles.
Other intangibles consist of capitalized internal use software and the following intangible assets acquired in business acquisitions: intellectual property, 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)
|
Acquired software technology
|
|
2.8
|
Software licenses
|
|
2.2
|
Customer contracts and lists
|
|
5.5
|
Acquired intellectual property
|
|
1.9
|
Other intangibles
|
|
4.2
|
Total weighted-average remaining useful life
|
|
4.5
|
Amortization of intangibles for the years ended June 30, 2020, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
|
|
|
Amortization expense for intangible assets
|
|
$
|
146.1
|
|
|
$
|
106.8
|
|
|
$
|
100.2
|
|
Estimated remaining amortization expenses of the Company’s existing intangible assets for the next five fiscal years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
Years Ending June 30,
|
|
(in millions)
|
2021
|
|
$
|
150.5
|
|
2022
|
|
125.2
|
|
2023
|
|
103.3
|
|
2024
|
|
84.9
|
|
2025
|
|
65.0
|
|
Thereafter
|
|
54.8
|
|
NOTE 11. OTHER NON-CURRENT ASSETS
Other non-current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
Deferred client conversion and start-up costs
|
|
$
|
433.8
|
|
|
$
|
254.7
|
|
ROU assets (a)
|
|
292.6
|
|
|
—
|
|
Deferred sales commissions costs
|
|
104.4
|
|
|
95.5
|
|
Contract assets (b)
|
|
81.9
|
|
|
47.5
|
|
Deferred data center costs (c)
|
|
24.5
|
|
|
29.0
|
|
Long-term investments
|
|
141.6
|
|
|
100.4
|
|
Long-term broker fees
|
|
32.8
|
|
|
35.3
|
|
Other
|
|
30.2
|
|
|
30.6
|
|
Total
|
|
$
|
1,141.9
|
|
|
$
|
593.1
|
|
(a) ROU assets represent the Company’s right to an underlying asset for the lease term. Please refer to Note 8, “Leases” for a further discussion.
(b) Contract assets result from revenue already recognized but not yet invoiced, including certain future amounts to be collected under software term licenses and certain other client contracts.
(c) Represents deferred data center costs associated with the Company’s information technology services agreements with International Business Machines Corporation (“IBM”). Please refer to Note 18, “Contractual Commitments, Contingencies and Off-Balance Sheet Arrangements” for a further discussion.
The total amount of deferred client conversion and start-up costs and deferred sales commission costs amortized in Operating expenses for the fiscal year ended June 30, 2020 and 2019 was $76.2 million and $65.7 million, respectively.
NOTE 12. PAYABLES AND ACCRUED EXPENSES
Payables and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
Accounts payable
|
|
$
|
151.8
|
|
|
$
|
133.7
|
|
Employee compensation and benefits
|
|
260.4
|
|
|
232.2
|
|
Accrued broker fees
|
|
109.5
|
|
|
87.0
|
|
Accrued dividend payable
|
|
62.2
|
|
|
55.4
|
|
Managed services administration fees
|
|
59.4
|
|
|
53.1
|
|
Customer deposits
|
|
44.5
|
|
|
34.8
|
|
Accrued taxes
|
|
38.5
|
|
|
68.9
|
|
Operating lease liabilities
|
|
35.3
|
|
|
—
|
|
Other
|
|
68.6
|
|
|
46.6
|
|
Total
|
|
$
|
829.9
|
|
|
$
|
711.7
|
|
NOTE 13. BORROWINGS
Outstanding borrowings and available capacity under the Company’s borrowing arrangements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
Date
|
|
Principal amount outstanding at June 30, 2020
|
|
Carrying value at June 30, 2020
|
|
Carrying value at June 30, 2019
|
|
Unused
Available
Capacity
|
|
Fair Value at June 30, 2020
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2014 Senior Notes (a)
|
September 2020
|
|
$
|
400.0
|
|
|
$
|
399.9
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
402.1
|
|
Total
|
|
|
$
|
400.0
|
|
|
$
|
399.9
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
402.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 Revolving Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar tranche
|
March 2024
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
360.0
|
|
|
$
|
1,100.0
|
|
|
$
|
—
|
|
Multicurrency tranche
|
March 2024
|
|
149.8
|
|
|
149.8
|
|
|
215.7
|
|
|
250.2
|
|
|
149.8
|
|
Total Revolving Credit Facility
|
|
|
$
|
149.8
|
|
|
$
|
149.8
|
|
|
$
|
575.7
|
|
|
$
|
1,350.2
|
|
|
$
|
149.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2014 Senior Notes (a)
|
September 2020
|
|
—
|
|
|
—
|
|
|
399.2
|
|
|
—
|
|
|
—
|
|
Fiscal 2016 Senior Notes
|
June 2026
|
|
500.0
|
|
|
496.1
|
|
|
495.5
|
|
|
—
|
|
|
554.3
|
|
Fiscal 2020 Senior Notes
|
December 2029
|
|
750.0
|
|
|
741.7
|
|
|
—
|
|
|
—
|
|
|
803.6
|
|
Total Senior Notes
|
|
|
$
|
1,250.0
|
|
|
$
|
1,237.8
|
|
|
$
|
894.7
|
|
|
$
|
—
|
|
|
$
|
1,357.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
$
|
1,399.8
|
|
|
$
|
1,387.6
|
|
|
$
|
1,470.4
|
|
|
$
|
1,350.2
|
|
|
$
|
1,507.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
$
|
1,799.8
|
|
|
$
|
1,787.5
|
|
|
$
|
1,470.4
|
|
|
$
|
1,350.2
|
|
|
$
|
1,909.7
|
|
_________
(a) The Fiscal 2014 Senior Notes were reclassified from Long-term debt to Current portion of long-term debt in September 2019 to reflect the remaining maturity of less than a year.
Future principal payments on the Company’s outstanding debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ending June 30,
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
(in millions)
|
|
$
|
400.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
149.8
|
|
|
$
|
—
|
|
|
$
|
1,250.0
|
|
|
$
|
1,799.8
|
|
Fiscal 2019 Revolving Credit Facility: On March 18, 2019, the Company entered into an amended and restated $1.5 billion five-year revolving credit facility (the “Fiscal 2019 Revolving Credit Facility”), which replaced the $1.0 billion five-year revolving credit facility entered into during February 2017 (the “Fiscal 2017 Revolving Credit Facility”) (together the “Revolving Credit Facilities”). The Fiscal 2019 Revolving Credit Facility is comprised of a $1.1 billion U.S. dollar tranche and a $400.0 million multicurrency tranche.
The weighted-average interest rate on the Revolving Credit Facilities was 2.59%, 3.26% and 2.44% for the fiscal years ended June 30, 2020, 2019 and 2018, respectively. The fair value of the variable-rate Fiscal 2019 Revolving Credit Facility borrowings at June 30, 2020 approximates carrying value and has been classified as a Level 2 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Borrowings under the Fiscal 2019 Revolving Credit Facility can be made in tranches up to 360 days and bear interest at LIBOR plus 101.5 basis points. In addition, the Fiscal 2019 Revolving Credit Facility has an annual facility fee equal to 11.0 basis points on the entire facility. The Company may voluntarily prepay, in whole or in part and without premium or penalty, borrowings under the Fiscal 2019 Revolving Credit Facility in accordance with individual drawn loan maturities. The Fiscal 2019 Revolving Credit Facility is subject to certain covenants, including a leverage ratio. At June 30, 2020, the Company is in compliance with all covenants of the Fiscal 2019 Revolving Credit Facility.
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 1st and September 1st of each year. The Fiscal 2014 Senior Notes were issued at a price of 99.871% (effective yield to maturity of 3.971%). The indenture governing the Fiscal 2014 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money and to enter into certain sale-leaseback transactions. At June 30, 2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2014 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2014 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2014 Senior Notes in whole or in part at any time before their maturity. The fair value of the fixed-rate Fiscal 2014 Senior Notes at June 30, 2020 and 2019 was $402.1 million and $405.4 million, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Fiscal 2016 Senior Notes: In June 2016, the Company completed an offering of $500.0 million in aggregate principal amount of senior notes (the “Fiscal 2016 Senior Notes”). The Fiscal 2016 Senior Notes will mature on June 27, 2026 and bear interest at a rate of 3.40% per annum. Interest on the Fiscal 2016 Senior Notes is payable semi-annually in arrears on June 27 and December 27 of each year. The Fiscal 2016 Senior Notes were issued at a price of 99.589% (effective yield to maturity of 3.449%). The indenture governing the Fiscal 2016 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money, to enter into certain sale-leaseback transactions, and to engage in mergers or consolidations and transfer or lease all or substantially all of our assets. At June 30, 2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2016 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2016 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2016 Senior Notes in whole or in part at any time before their maturity. The fair value of the fixed-rate Fiscal 2016 Senior Notes at June 30, 2020 and June 30, 2019 was $554.3 million and $509.8 million, respectively, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
Fiscal 2020 Senior Notes: In December 2019, the Company completed an offering of $750.0 million in aggregate principal amount of senior notes (the “Fiscal 2020 Senior Notes”). The Fiscal 2020 Senior Notes will mature on December 1, 2029 and bear interest at a rate of 2.90% per annum. Interest on the Fiscal 2020 Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year. The Fiscal 2020 Senior Notes were issued at a price of 99.717% (effective yield to maturity of 2.933%). The indenture governing the Fiscal 2020 Senior Notes contains certain covenants including covenants restricting the Company’s ability to create or incur liens securing indebtedness for borrowed money, to enter into certain sale-leaseback transactions, and to engage in mergers or consolidations and transfer or lease all or substantially all of our assets. At June 30, 2020, the Company is in compliance with the covenants of the indenture governing the Fiscal 2020 Senior Notes. The indenture also contains covenants regarding the purchase of the Fiscal 2020 Senior Notes upon a change of control triggering event. The Company may redeem the Fiscal 2020 Senior Notes in whole or in part at any time before their maturity. The fair value of the fixed-rate Fiscal 2020 Senior Notes at June 30, 2020 was $803.6 million, based on quoted market prices and has been classified as a Level 1 financial liability (as defined in Note 7, “Fair Value of Financial Instruments”).
The Fiscal 2019 Revolving Credit Facility, Fiscal 2014 Senior Notes, Fiscal 2016 Senior Notes and Fiscal 2020 Senior Notes are senior unsecured obligations of the Company and are ranked equally in right of payment.
In addition, certain of the Company’s subsidiaries established unsecured, uncommitted lines of credit with banks. As of June 30, 2020 and 2019, respectively, there were no outstanding borrowings under these lines of credit.
NOTE 14. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2020
|
|
2019
|
|
(in millions)
|
|
|
Operating lease liabilities
|
$
|
288.3
|
|
|
$
|
—
|
|
Post-employment retirement obligations
|
144.3
|
|
|
130.8
|
|
Non-current income taxes
|
37.4
|
|
|
40.5
|
|
Acquisition related contingencies
|
17.6
|
|
|
26.3
|
|
Other
|
24.8
|
|
|
35.3
|
|
Total
|
$
|
512.4
|
|
|
$
|
232.8
|
|
NOTE 15. STOCK-BASED COMPENSATION
Incentive Equity Awards. The Broadridge Financial Solutions, Inc. 2007 Omnibus Award Plan (the “2007 Plan”) and 2018 Omnibus Award Plan (the “2018 Plan”) provide for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock awards, stock bonuses and performance compensation awards to employees, non-employee directors, and other key individuals who perform services for the Company. The 2018 Plan was approved by shareholders in November 2018 and replaced the 2007 Plan. The accounting for stock-based compensation requires the measurement of stock-based compensation expense to be recognized in the Consolidated Statements of Earnings based on the fair value of the award on the date of grant. In accordance with the 2007 Plan and 2018 Plan, the Company’s stock-based compensation consists of the following:
Stock Options: Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s common stock on the dates of grant. Stock options are generally issued under a graded vesting schedule, meaning that they vest ratably over four years, and have a term of 10 years. A portion of the stock options granted in fiscal year 2018 have a cliff vesting schedule meaning that they fully vest in four years from the grant date and have a term of 10 years. Compensation expense for stock options under a graded vesting schedule is recognized over the requisite service period for each separately vesting portion of the stock option award. Compensation expense for stock options under a cliff vesting schedule is recognized equally over the vesting period of four years with 25 percent of the cost recognized over each 12 months period net of estimated forfeitures.
Time-based Restricted Stock Units: The Company has a time-based restricted stock unit (“RSU”) program under which RSUs representing the right to receive 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 net of estimated forfeitures on a straight-line basis over the vesting period.
Performance-based Restricted Stock Units: The Company has a performance-based RSU program under which RSUs representing the right to receive 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 net of estimated forfeitures on a straight-line basis over the performance period, plus a subsequent vesting period, which typically totals approximately two and one-half years from the date of grant.
The activity related to the Company’s incentive equity awards for the fiscal years ended June 30, 2020, 2019 and 2018 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, 2017
|
|
5,137,641
|
|
|
$
|
39.63
|
|
|
1,074,593
|
|
|
$
|
55.98
|
|
|
470,862
|
|
|
$
|
58.26
|
|
Granted
|
|
1,079,442
|
|
|
93.42
|
|
|
456,217
|
|
|
78.86
|
|
|
198,485
|
|
|
76.71
|
|
Exercised (a)
|
|
(1,654,877)
|
|
|
31.09
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vesting of RSUs (b)
|
|
—
|
|
|
—
|
|
|
(463,561)
|
|
|
52.86
|
|
|
(150,068)
|
|
|
52.96
|
|
Expired/forfeited
|
|
(83,918)
|
|
|
42.89
|
|
|
(84,850)
|
|
|
60.18
|
|
|
(123,590)
|
|
|
43.00
|
|
Balances at June 30, 2018
|
|
4,478,288
|
|
|
$
|
55.69
|
|
|
982,399
|
|
|
$
|
67.72
|
|
|
395,689
|
|
|
$
|
74.29
|
|
Granted
|
|
528,978
|
|
|
98.72
|
|
|
360,147
|
|
|
121.11
|
|
|
133,213
|
|
|
116.53
|
|
Exercised (a)
|
|
(784,372)
|
|
|
39.94
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vesting of RSUs (b)
|
|
—
|
|
|
—
|
|
|
(430,270)
|
|
|
63.97
|
|
|
(198,420)
|
|
|
64.50
|
|
Expired/forfeited
|
|
(21,280)
|
|
|
94.14
|
|
|
(92,977)
|
|
|
76.57
|
|
|
(4,705)
|
|
|
80.57
|
|
Balances at June 30, 2019
|
|
4,201,614
|
|
|
$
|
63.85
|
|
|
819,299
|
|
|
$
|
92.15
|
|
|
325,777
|
|
|
$
|
97.43
|
|
Granted
|
|
501,192
|
|
|
117.43
|
|
|
340,006
|
|
|
118.74
|
|
|
110,260
|
|
|
120.09
|
|
Exercised (a)
|
|
(905,231)
|
|
|
46.47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vesting of RSUs (b)
|
|
—
|
|
|
—
|
|
|
(408,716)
|
|
|
78.76
|
|
|
(176,900)
|
|
|
77.19
|
|
Expired/forfeited
|
|
(26,788)
|
|
|
88.01
|
|
|
(50,591)
|
|
|
113.07
|
|
|
(7,541)
|
|
|
80.24
|
|
Balances at June 30, 2020 (c)
|
|
3,770,787
|
|
|
$
|
74.97
|
|
|
699,998
|
|
|
$
|
111.37
|
|
|
251,596
|
|
|
$
|
122.11
|
|
(a)Stock options exercised during the fiscal years ended June 30, 2020, 2019 and 2018 had intrinsic values of $68.9 million, $65.8 million and $116.3 million, respectively.
(b)Time-based RSUs that vested during the fiscal years ended June 30, 2020, 2019 and 2018 had a total fair value of $38.4 million, $45.4 million and $50.6 million, respectively. Performance-based RSUs that vested during the fiscal years ended June 30, 2020, 2019 and 2018 had a total fair value of $16.5 million, $21.7 million and $19.1 million, respectively.
(c)As of June 30, 2020, the Company’s outstanding stock options using the fiscal year-end share price of $126.19 had an aggregate intrinsic value of $193.1 million. As of June 30, 2020, the Company’s outstanding “in the money” vested stock options using the fiscal year-end share price of $126.19 had an aggregate intrinsic value of $145.8 million. As of June 30, 2020, time-based RSUs and performance-based RSUs expected to vest using the fiscal year-end share price of $126.19 (approximately 0.7 million and 0.2 million shares, respectively) had an aggregate intrinsic value of $83.7 million and $30.3 million, respectively. Performance-based RSUs granted in the table above represent initial target awards, and performance adjustments for (i) change in shares issued based upon attainment of performance goals determined in the period, and (ii) estimated change in shares issued resulting from attainment of performance goals to be determined at the end of the prospective performance period.
The tables below summarize information regarding the Company’s outstanding and exercisable stock options as of June 30, 2020: