What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-08-12 compared with 2021-08-12 · 180 added, 184 removed, 479 unchanged (43% of the section changed)

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Certain information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Statements that are not historical in nature and which may be identified by the use of words such as “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be” and other words of similar meaning, are forward-looking statements.

Statements that are not historical in nature and which may be identified by the use of words such as “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could be,” “on track” and other words of similar meaning, are forward-looking statements.

These statements are based on management’s expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed.

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DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS

Broadridge, a Delaware corporation and a part of the S&P 500 ® Index, is a global financial technology leader providing investor communications and technology-driven solutions to banks, broker-dealers, asset and wealth managers and corporate issuers.

Our services include investor communications, securities processing, data and analytics, and customer communications solutions.

With over 50 years of experience, including over 10 years as an independent public company, we provide financial services firms with advanced, dependable, scalable and cost-effective integrated solutions and an important infrastructure that powers the financial services industry.

With over 50 years of experience, including 15 years as an independent public company, we provide integrated solutions and an important infrastructure that powers the financial services industry.

Our solutions enable better financial lives by powering investing, governance and communications and help reduce the need for our clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities.

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The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed is allocated to Goodwill.

During the fiscal year ended June 30, 2022, there were no material acquisitions.

The following represents the fiscal year 2021 acquisitions:

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• 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.

AdvisorStream Ltd.

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AdvisorStream is included in the Company’s GTO reportable segment.

• Goodwill is not tax deductible.

• Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a five-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.

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 Other Acquisitions Total

(in millions)

Cash payments, net of cash acquired $ 35.6 $ 116.0 $ 59.1 $ 69.9 $ 17.3 $ 298.0

Deferred payments, net 3.0 3.5 2.1 — 1.7 10.4

Contingent consideration liability — — 7.0 — 7.0

Aggregate purchase price $ 38.6 $ 119.5 $ 68.3 $ 69.9 $ 19.1 $ 315.4

Net tangible assets acquired / (liabilities assumed) $ (0.1) $ (7.9) $ 0.2 $ (3.1) $ (2.2) $ (13.1)

Goodwill 17.6 84.4 44.2 39.2 13.5 198.9

Intangible assets 21.1 43.1 23.9 33.8 7.8 129.6

Aggregate purchase price $ 38.6 $ 119.5 $ 68.3 $ 69.9 $ 19.1 $ 315.4

Shadow Financial

In October 2019, we 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.

• 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.

In November 2019, we acquired Fi360, a provider of fiduciary and Regulation BI solutions for the wealth and retirement industry, including the accreditation and continuing education for the Accredited Investment Fiduciary ® Designation, the leading designation focused on fiduciary responsibility.

The acquisition enhances Broadridge’s retirement solutions by providing wealth and retirement advisors with fiduciary tools that will complement its Matrix trust and trading platform.

The acquisition also further strengthens Broadridge’s data and analytics tools and solutions suite that enable asset managers to grow their businesses by providing greater transparency into the retirement market.

• Goodwill is not tax deductible.

• Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and five-year life, respectively.

ClearStructure

In November 2019, we acquired ClearStructure, a global provider of portfolio management solutions for the private debt markets.

ClearStructure’s component services enhance Broadridge’s existing multi-asset class, front-to-back office asset management technology suite, providing Broadridge clients with a capability to access the public and private markets.

• The contingent consideration liability is payable through fiscal year 2024 upon the achievement by the acquired business of certain revenue targets, and has a maximum potential pay-out of $12.0 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, 2022 is $8.0 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.

In February 2020, we 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 was combined with FundAssist, Broadridge's existing European funds regulatory communications business.

The combination of FundsLibrary's data platform and technology with Broadridge's existing fund calculation, document creation and translation capabilities, creates an end-to-end solution for fund managers and distributors, enabling them to respond to demanding regulatory requirements across multiple jurisdictions.

• Goodwill is not tax deductible.

• Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a seven-year life and three-year life, respectively.

• Intangible assets acquired consist primarily of customer relationships and software technology, which are being amortized over a five-year life and five-year life, respectively.

BASIS OF PRESENTATION

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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 ASU No.

2016-02, as amended “Leases” (“ASU No.

Certain prior period amounts have been reclassified to conform to the current year presentation where applicable.

In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures.

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The results of operations reported for the periods presented are not necessarily indicative of the results of operations for subsequent periods.

Effective July 1, 2019, the Company adopted ASU No.

2016-02, “Leases” and its related amendments (collectively referred to as “ASU 2016-02, as amended”) by recognizing a ROU asset and corresponding lease liability, along with a cumulative-effect adjustment to the opening balance of retained earnings, in the 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” to the Consolidated Financial Statements.

Beginning with the first quarter of fiscal year 2022, the Company revised the foreign exchange rates used to present segment revenues, segment earnings (loss) before income taxes, and Closed sales, to further allocate the foreign exchange impact to the individual segment revenue and profit metrics.

The presentation of segment revenues and earnings (loss) before income taxes for the prior periods provided has been changed to conform to the current period presentation.

Total consolidated revenues and earnings before income taxes were not impacted.

Processing and distributing proxy materials and annual reports to investors comprises a large portion of our Investor Communication Solutions business.

We process and distribute the greatest number of proxy materials and annual reports during our third and fourth fiscal quarters.

The recurring periodic activity of this business is linked to significant filing deadlines imposed by law on public reporting companies.

This has caused our revenues, operating income, net earnings, and cash flows from operating activities to be higher in our third and fourth fiscal quarters.

The seasonality of our revenues makes it difficult to estimate future operating results based on the results of any specific fiscal quarter and could affect an investor’s ability to compare our financial condition, results of operations, and cash flows on a fiscal quarter-by-quarter basis.

CRITICAL ACCOUNTING POLICIES

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Tax Cuts and Jobs Act (the “Tax Act”).

The Company did not realize any federal net operating losses for the fiscal year ended June 30, 2021.

The Company did not generate federal net operating losses for the fiscal year ended June 30, 2022.

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 of certain subsidiaries to offset future taxable earnings.

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Management focuses on a variety of key indicators to plan, measure and evaluate the Company’s business and financial performance.

These performance indicators include Revenue and Recurring fee revenue as well as not generally accepted accounting principles measures (“Non-GAAP”) of Adjusted Operating income, Adjusted Net earnings, Adjusted Diluted earnings per share, Free Cash flow, and Closed sales.

These performance indicators include Revenue and Recurring fee revenue as well as not generally accepted accounting principles measures (“Non-GAAP”) of Adjusted Operating income, Adjusted Net earnings, Adjusted earnings per share, Free Cash flow, and Closed sales.

In addition, management focuses on select operating metrics specific to Broadridge of Record Growth and Internal Trade Growth, as defined below.

Refer to the section “Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures” for a reconciliation of Adjusted Operating income, Adjusted Net earnings, Adjusted Diluted earnings per share, and Free Cash flow to the most directly comparable generally accepted accounting principles (“GAAP”) measures, and an explanation for why these Non-GAAP metrics provide useful information to investors and how management uses these Non-GAAP metrics for operational and financial decision-making.

Refer to the section “Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures” for a reconciliation of Adjusted Operating income, Adjusted Net earnings, Adjusted earnings per share, and Free Cash flow to the most directly comparable generally accepted accounting principles (“GAAP”) measures, and an explanation for why these Non-GAAP metrics provide useful information to investors and how management uses these Non-GAAP metrics for operational and financial decision-making.

Refer to the section “Results of Operations” for a description of Closed sales and an explanation of why Closed sales is a useful performance metric for management and investors.

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Record Growth is defined as stock record growth and interim record growth which measure the estimated annual change in total positions eligible for equity proxy materials and mutual fund and exchange-traded fund interim communications, respectively, for equities and mutual fund position data reported to Broadridge in both the current and prior year periods.

Internal Trade Growth represents the estimated change in trade volumes for Broadridge securities processing clients whose contracts are linked to trade volumes and who were on Broadridge’s trading platforms in both the current and prior year periods.

Internal Trade Growth represents the estimated change in daily average trade volumes for Broadridge securities processing clients whose contracts are linked to trade volumes and who were on Broadridge’s trading platforms in both the current and prior year periods.

Record Growth and Internal Trade Growth are useful non-financial metrics for investors in understanding how management measures and evaluates Broadridge’s ongoing operational performance within its Investor Communication Solutions and Global Technology and Operations reportable segments, respectively.

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The following discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments refer to the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021.

The Analysis of Consolidated Statements of Earnings should be read in conjunction with the Analysis of Reportable Segments, which provides more detailed discussions concerning certain components of the Consolidated Statements of Earnings.

The Analysis of Consolidated Statements of Earnings should be read in conjunction with the Analysis of Reportable Segments, which provides a more detailed discussion concerning certain components of the Consolidated Statements of Earnings.

Discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments for the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30, 2020 is disclosed in Part II, “Item 7.

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The following references are utilized in the discussions of Analysis of Consolidated Statements of Earnings and Analysis of Reportable Segments:

“Amortization of Acquired Intangibles and Purchased Intellectual Property” and “Acquisition and Integration Costs” represent non-cash amortization expenses associated with the Company’s acquisition activities, as well as certain transaction and integration costs associated with the Company’s acquisition activities, respectively.

“IBM Private Cloud Charges” represent a charge on the hardware assets transferred to IBM and other charges related to the IBM Private Cloud Agreement.

“Real Estate Realignment and Covid-19 Related Expenses” represent costs associated with the Company's real estate realignment initiative, including lease exit and impairment charges and other facility exit costs, as well as certain expenses associated with the Covid-19 pandemic.

“Investment Gain” represents a non-operating, non-cash gain on a privately held investment.

“Software Charge” represents a charge related to an internal use software product that is no longer expected to be used.

“Amortization of Acquired Intangibles and Purchased Intellectual Property” and “Acquisition and Integration Costs” represent certain non-cash amortization expenses associated with acquired intangible assets and purchased intellectual property assets, as well as certain transaction and integration costs associated with the Company’s acquisition activities, respectively.

“Gain on Acquisition-Related Financial Instrument” represents a non-operating gain on a financial instrument designed to minimize the Company's foreign exchange risk associated with the acquisition of Itiviti (the “Itiviti Acquisition”), as well as certain other non-operating financing costs associated with the Itiviti Acquisition.

“Gain on Sale of a Joint Venture Investment” represents a non-operating, cash gain on the sale of one of the Company’s joint venture investments.

“Net New Business” refers to recurring revenue from Closed sales less recurring revenue from client losses.

“Internal Growth” is a component of recurring fee revenue and generally reflects year over year changes in existing services to our existing customers’ multi-year contracts beyond the initial twelve-month period in which it was included in Net New Business.

“Investment Gains” represents non-operating, non-cash gains on privately held investments.

“Net New Business” refers to recurring revenue from Closed sales for the initial twelve-month contract period after which the client goes live with the Company’s service(s), less recurring revenue from client losses.

“Real Estate Realignment and Covid-19 Related Expenses” are comprised of two major components:

Real Estate Realignment Expenses, and Covid-19 Related Expenses.

Real Estate Realignment Expenses are expenses associated with the exit of certain of the Company’s leased facilities in response to the Covid-19 pandemic, which consist of the impairment of certain right of use assets, leasehold improvements and equipment, as well as other related facility exit expenses directly resulting from, and attributable to, the exit of these leased facilities.

Covid-19 Related Expenses are direct and incremental expenses incurred by the Company to protect the health and safety of Broadridge associates during the Covid-19 outbreak, including expenses associated with monitoring the temperatures for associates entering our facilities, enhancing the safety of our office environment in preparation for workers to return to Company facilities on a more regular basis, ensuring proper social distancing in our production facilities, personal protective equipment, enhanced cleaning measures in our facilities, and other safety related expenses.

“Russia-Related Exit Costs” are direct and incremental costs associated with the Company’s wind down of business activities in Russia in response to Russia’s invasion of Ukraine, including relocation-related expenses of impacted associates.

“Software Charge” represents a charge related to an internal use software product that is no longer expected to be used.

The following definitions describe the Company’s Revenues:

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During fiscal year 2022, mutual fund proxy fee revenues were 57% greater than the prior fiscal year.

During fiscal year 2020, mutual fund proxy revenues were 35% lower than the prior fiscal year.

During fiscal year 2021, mutual fund proxy fee revenues were 17% greater than the prior fiscal year.

Although it is difficult to forecast the levels of event-driven activity, we expect that the portion of fee revenues derived from mutual fund proxy activity may continue to experience volatility in the future.

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Recent Developments

In March 2020, the World Health Organization declared the outbreak of Covid-19 as a pandemic, which continues to persist throughout the world including the U.S., India, Canada, Europe and other locations where we operate.

Global Pandemic

The Covid-19 pandemic continues to persist throughout the world including the U.S., India, Canada, Europe and other locations where we operate.

To date, the Covid-19 pandemic has negatively impacted the global economy, created significant financial market volatility, disrupted global supply chains, and resulted in a significant number of deaths and infections worldwide.

In response, several countries worldwide have enacted fiscal stimulus packages while central banks have increased monetary stimulus, both designed to help mitigate the negative macroeconomic effects of Covid-19.

In addition, several national, state and local governments have placed restrictions on people from gathering in groups or interacting within a certain physical distance (i.e.

social distancing) and in certain cases, have ordered businesses to close, limit operations or mandate that people stay at home.

The Company’s operations, both our Investor Communication Solutions and Global Technology and Operations segments, are critical components of the overall financial markets infrastructure in the U.S.

and globally.

As a result, we have been permitted to continue operating in all jurisdictions in which we conduct business (in most cases remotely), including in jurisdictions that have mandated the closure of certain businesses.

Accordingly, the Company has taken several measures designed to protect the health of our employees and to minimize our operational disruption and resulting provision of services to our clients from the Covid-19 pandemic, including adopting strict social distancing and cleaning measures in our production facilities, taking the temperature of production-related employees in affected areas on a daily basis as a prerequisite to entering our facilities, load balancing of client jobs between various facilities, and instituting work from home protocols for employees not involved in production operations, amongst other measures.

In response to the Covid-19 pandemic, we have taken, and expect to continue to take, measures designed to protect the health of our employees and to minimize our operational disruption and resulting provision of services to our clients.

In fiscal year 2022, there has not been a material impact as a result of Covid-19 on our consolidated revenues and pre-tax income.

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We continue to engage with our clients to assist with their service demands, including our clients’ needs for any supplemental operational services and/or changes to existing service requirements in response to the Covid-19 pandemic.

Notwithstanding the foregoing, we are unable to precisely predict the impact that Covid-19 will have in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our clients, and other factors identified in Part I, Item 1A.

“Risk Factors” in this Annual Report.

Given these uncertainties, Covid-19 could disrupt the business of certain of our clients, decrease our clients’ demand for our services, impact our business operations and our ability to execute on our associated business strategies and initiatives, and adversely impact our consolidated results of operations and/or our financial condition in the future.

We will continue to closely monitor and evaluate the nature and extent of the impact of Covid-19 to our business, consolidated results of operations, and financial condition.

On August 5, 2020, the SEC proposed modifications to the mutual fund and exchange-traded fund disclosure framework (the “Proposal”).

Under the Proposal, fund companies would send investors streamlined annual and semi-annual shareholder reports instead of long-form shareholder reports.

The Proposal would allow fund companies to send investors streamlined and tailored annual and semi-annual shareholder reports instead of long-form shareholder reports The Proposal also would replace the requirement for funds to distribute an annual prospectus to existing shareholders and instead requires timely communication of material changes via supplemental communications.

Adoption and implementation of the Proposal as proposed could have an impact on our services, business and financial results.

We will closely monitor and evaluate the progress of the Proposal and its potential impact on our business.

Please see our “Risk Factors” in Part I, Item 1A.

of this Annual Report.

See the risk factor titled “ The Covid-19 pandemic may negatively impact our business, results of operations and financial performance ” in Part I, Item 1A “Risk Factors” in this Annual Report.

Conflict in Ukraine

We are monitoring the events related to Russia’s invasion of Ukraine and have been actively managing any exposure we may have through a cross-functional taskforce that includes members of our senior management.

We have historically had a limited presence in Russia, and we have no presence in Ukraine.

We do not store any client data in Russia.

Prior to the conflict, we had approximately 280 associates in St.

Petersburg, Russia who provide software development and support services for several of our GTO products, less than 2% of our total associates.

We have historically provided services to a very small number of Russian entities and subsidiaries of Russian entities.

The revenues from those services represented less than 0.1% of our total revenues in fiscal year 2021 and our outstanding accounts receivable from these entities is de minimis.

We are in the process of terminating and winding down these relationships and closing our operations in Russia.

We are monitoring and believe we are in compliance with all global sanctions arising out of Russia’s invasion of Ukraine.

We are taking steps to move the services provided in Russia to other locations in Europe and Asia.

We have taken actions to enhance our information security defenses in response to the Ukraine conflict.

We do not expect the Ukraine conflict and the actions we are taking in response to have a material impact on our core operations or financial results.

ANALYSIS OF CONSOLIDATED STATEMENTS OF EARNINGS

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Revenues increased $715.3 million, or 14%, to $5,709.1 million from $4,993.7 million.

• Recurring fee revenues increased $296.7 million primarily by growth from 5pts of new business onboarding, 3pts of internal growth, and 2pts related to the impact of acquisitions.

Internal growth of 3pts was driven by increased equity and interim positions in ICS and primarily higher equity trade volumes in GTO, partially offset by lower interest rates on cash balances we hold for retirement accounts, lower customer communication volumes, and lower GTO license revenues.

• Event-driven fee revenues increased $59.3 million due to increased equity contests and mutual fund proxy and other communications.

• Distribution revenues increased $104.1 million primarily from the increase in the volume of customer and regulatory communications as well as the mix of customer communication mailings.

• Recurring fee revenues increased $521.1 million inclusive of 4pts of growth from onboarding of Net New Business, and 5pts from Internal Growth.

The growth in Net New Business contributed to growth in both ICS and GTO recurring fee revenues, while Internal Growth contributed 5pts driven by higher volumes in our ICS business from equity proxy Record Growth of 18% and mutual fund interims Record Growth of 14%.

Growth from acquisitions was 7pts, most notably from our recent Itiviti Acquisition which closed in May 2021.

• Event-driven fee revenues increased $34.1 million, or 14%, primarily due to increased mutual fund proxy activity.

• Higher distribution revenues of $168.1 million were primarily driven by increased mail volumes of $93.9 million, primarily customer communications, and $74.2 million driven by higher postage rates.

Total operating expenses.

Operating expenses increased $634.2 million, or 15%, to $4,949.2 million from $4,315.0 million as a result of an increase in both cost of revenues and selling, general and administrative expenses:

• Cost of revenues - The increase of $305.6 million in cost of revenues primarily reflects (i) higher distribution expenses, (ii) higher operating costs from acquisitions and related amortization expense, and (iii) other higher operating expenses including compensation.

• Selling, general and administrative expenses - The increase of $105.2 million in selling, general, and administrative expenses primarily reflects (i) spend on growth and other initiatives, (ii) higher performance-based compensation, and (iii) the impact of acquisitions.

Operating income margin of 13.6% for the fiscal year ended June 30, 2021 declined 20 bps from 13.8% for the fiscal year ended June 30, 2020 partly due to higher acquisition amortization expenses and other acquisition related charges plus charges associated with Real Estate Realignment and Covid-19 Related Expenses.

However, Adjusted Operating income margin of 18.1% for the fiscal year ended June 30, 2021 increased 60 bps on higher recurring fee revenues and higher event-driven fee revenues from 17.5% for the fiscal year ended June 30, 2020, which excludes acquisition amortization expense, certain charges associated with Real Estate Realignment and Covid-19 Related Expenses, and certain other Non-GAAP adjustments.

See “Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures.”

• Cost of revenues - The increase of $546.2 million in cost of revenues primarily reflects the impact of operating costs from acquisitions and related amortization expense totaling $235.2 million primarily driven by the Itiviti Acquisition in May of 2021, and higher volume related expenses including postage and distribution costs, and Nominees remittances, totaling $209.2 million due to higher Investor Communication Solutions segment revenues.

• Selling, general and administrative expenses - The increase of $88.0 million in selling, general, and administrative expenses primarily reflects the impact of acquisitions of $55.5 million primarily driven by the Itiviti Acquisition in May of 2021, and higher compensation of $38.2 million.

Interest expense, net.

Interest expenses, net, was $55.2 million, a decrease of $3.5 million from $58.8 million in the fiscal year ended June 30, 2020.

The decrease of $3.5 million was primarily due to a decrease in interest expense from lower average interest rates on borrowings.

Interest expenses, net, was $84.7 million, an increase of $29.4 million from $55.2 million in the fiscal year ended June 30, 2021.

The increase of $29.4 million was primarily due to an increase in debt outstanding related to the Itiviti Acquisition.

Other non-operating income (expenses), net.

Other non-operating income, net for the fiscal year ended June 30, 2021 was $72.7 million, an increase of $59.3 million, compared to $13.4 million of Other non-operating income, net for the fiscal year ended June 30, 2020.

The increase of $59.3 million was primarily due to the Gain on Acquisition-Related Financial Instrument.

Other non-operating expense, net for the fiscal year ended June 30, 2022 was $3.0 million, a decrease of $75.7 million, compared to $72.7 million of Other non-operating income, net for the fiscal year ended June 30, 2021.

The decrease was primarily due to the Gain on Acquisition-Related Financial Instrument of $62.1 million in the prior year period.

Provision for income taxes .

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• Effective tax rate for the fiscal year ended June 30, 2021 - 21.4%.

The increase in the effective tax rate for the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30, 2020 was driven by the reduced impact of discrete tax items.

The decrease in the effective tax rate for the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021 was driven by higher total discrete tax items, in addition to higher excess tax benefits related to equity compensation, compared to the prior year period.

ANALYSIS OF REPORTABLE SEGMENTS

Broadridge has two reportable business segments:

Broadridge has two reportable segments:

(1) Investor Communication Solutions and (2) Global Technology and Operations.

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Total $ 672.2 $ 696.2 $ (24.0) (3)

The amount of amortization of acquired intangibles and purchased intellectual property by segment is as follows:

Years Ended June 30,

2022 2021 Change

($ in millions)

Investor Communication Solutions $ 69.3 $ 86.8 $ (17.5) (20)

Global Technology and Operations 189.3 67.6 121.7 180

Other — 1.5 (1.5) (100)

Foreign currency exchange (8.4) (2.3) (6.1) NM

Total $ 250.2 $ 153.7 $ 96.5 63

NM - Not meaningful

Investor Communication Solutions

Fiscal Year 2022 Compared to Fiscal Year 2021

Revenues increased $376.2 million to $3,867.5 million from $3,491.3 million, and earnings before income taxes increased $141.5 million to $605.6 million from $464.1 million as a result of:

Revenues increased $435.1 million to $4,262.1 million from $3,827.0 million, and earnings before income taxes increased $130.2 million to $726.3 million from $596.0 million.

Years Ended June 30,

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For the fiscal year ended June 30, 2022:

• Recurring fee revenues grew 11% driven primarily by Net New Business and Internal Growth.

The 5pt contribution from Internal Growth was from increased equity and interim positions with a partial offset from the impact of lower interest rates on retirement cash accounts and lower volumes in customer communications.

Net New Business also contributed 5pts mainly from the revenue on-boarding of Closed sales.

Acquisitions contributed 1pt from the carry-over impact of Funds Library and Fi360 acquisitions in fiscal year 2020.

• Event-driven fee revenues grew 33% due to increased equity contests and mutual fund proxy and other communications.

• Higher distribution revenues resulted primarily from the increase in the volume of customer and regulatory communications as well as the mix of customer communication mailings.

• The earnings increase of $141.5 million was due to higher recurring and event-driven fee revenues.

• Recurring fee revenues grew 11% driven by 5pts from Net New Business and 7pts of Internal Growth.

Internal Growth was driven by higher volumes including equity proxy Record Growth of 18% and mutual fund interims Record Growth of 14%.

• Event-driven fee revenues grew 14% primarily due to increased volume of mutual fund proxy activity.

• The earnings increase of $130.2 million, or 22% to $726.3 million was driven by higher recurring and event-driven fee revenues.

Segment operating expenses rose 9%, or $304.8 million, to $3,535.8 million, primarily driven by distribution and other revenue related expenses.

Amortization expense from acquired intangibles decreased by $17.5 million to $69.3 million from $86.8 million in the prior period.

• Pre-tax margins increased by 1.4 percentage points to 17.0% from 15.6%.

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Net New Business Internal Growth Acquisitions Total

Recurring fee revenue Growth Drivers 4pts 0pts 3pts 7 %

Recurring fee revenue Growth Drivers 4pts 1pt 19pts 24 %

For the fiscal year ended June 30, 2022:

• Recurring fee revenues grew 7% driven primarily by Net New Business.

Internal growth was impacted by higher equity trading volumes offset by lower license sales.

Acquisitions contributed 3 points to growth primarily from the Itiviti Acquisition.

• The earnings decrease was due to expenditures to implement and support new business, increased amortization of acquired intangibles and spending on growth initiatives more than offsetting higher organic revenues and higher revenues from acquisitions.

• Recurring fee revenues increased $288.2 million, or 24%, to $1,474.4 million.

The growth was driven by 19pts of growth from acquisitions, primarily Itiviti, as well as 4pts of Net New Business from onboarding of new clients.

• The earnings decrease of $60.8 million was primarily driven by $290.7 million in operating costs from acquisitions primarily as a result of the Itiviti Acquisition, as compared to revenue from acquisitions of $228.2 million.

Amortization expense from acquired intangibles increased by $121.7 million to $189.3 million in fiscal year 2022 from $67.6 million in the prior year period.

• Pre-tax margins decreased by 7.4 percentage points to 9.5% from 16.9%.

Loss before income taxes was $188.9 million for the fiscal year ended June 30, 2022, an increase of $98.8 million, or 110%, compared to $90.1 million for the fiscal year ended June 30, 2021.

• The increased loss before income taxes was primarily due to (i) costs associated with the Company’s real estate realignment initiative including lease exit and impairment charges and other facility exit costs of $29.6 million, (ii) higher performance-based compensation expense, (iii) higher spending on growth initiatives, and (iv) certain expenses associated with the Covid-19 pandemic, partially offset by (v) a non-operating gain on a financial instrument designed

to minimize the Company's foreign exchange risk associated with the Itiviti Acquisition net of acquisition-related costs and (vi) charges associated with the IBM Private Cloud Agreement that occurred in the prior year period.

• The increased loss before income taxes was primarily due to (i) the absence of the Gain on Acquisition-Related Financial Instrument of $62.1 million in the prior year period, and (ii) higher interest expense of $29.4 million due to an increase in average debt outstanding related to the Itiviti Acquisition.

Explanation and Reconciliation of the Company’s Use of Non-GAAP Financial Measures

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GAAP except where otherwise noted.

In certain circumstances, results have been presented in Non-GAAP measures.

In certain circumstances, Non-GAAP results have been presented.

These Non-GAAP measures are Adjusted Operating income, Adjusted Operating income margin, Adjusted Net earnings, Adjusted earnings per share, and Free cash flow.

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Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Earnings and Adjusted Earnings Per Share

These Non-GAAP measures reflect Operating income, Operating income margin, Net earnings, and Diluted earnings per share, as adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items that management believes are not indicative of our ongoing operating performance.

Depending on the period presented, these adjusted measures exclude the impact of:

(i) Amortization of Acquired Intangibles and Purchased Intellectual Property, (ii) Acquisition and Integration Costs, (iii) IBM Private Cloud Charges, (iv) Real Estate Realignment and Covid-19 Related Expenses, (v) Investment Gain, (vi) Software Charge, (vii) Gain on Acquisition-Related Financial Instrument, and (viii) Gain on Sale of a Joint Venture Investment.

Amortization of Acquired Intangibles and Purchased Intellectual Property represent non-cash amortization expenses associated with the Company’s acquisition activities.

These Non-GAAP measures reflect Operating income, Operating income margin, Net earnings, and Diluted earnings per share, as adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items the exclusion of which management believes provides insight regarding our ongoing operating performance.

Depending on the period presented, these adjusted measures exclude the impact of certain of the following items:

(i) Amortization of Acquired Intangibles and Purchased Intellectual Property, (ii) Acquisition and Integration Costs, (iii) Real Estate Realignment and Covid-19 Related Expenses, (iv) Russia-Related Exit Costs, (v) Investment Gains, (vi) Software Charge, and (vii) Gain on Acquisition-Related Financial Instrument.

Amortization of Acquired Intangibles and Purchased Intellectual Property represents non-cash amortization expenses associated with the Company’s acquisition activities.

Acquisition and Integration Costs represent certain transaction and integration costs associated with the Company’s acquisition activities.

IBM Private Cloud Charges represent a charge on the hardware assets transferred to IBM and other charges related to the IBM Private Cloud Agreement.

Real Estate Realignment and Covid-19 Related Expenses represent costs associated with the Company's real estate realignment initiative, including lease exit and impairment charges and other facility exit costs, as well as certain expenses associated with the Covid-19 pandemic.

Investment Gain represents a non-operating, non-cash gain on a privately held investment.

Real Estate Realignment and Covid-19 Related Expenses are comprised of two major components:

Real Estate Realignment Expenses, and Covid-19 Related Expenses.

Covid-19 Related Expense are direct and incremental expenses incurred by the Company to protect the health and safety of Broadridge associates during the Covid-19 outbreak, including expenses associated with monitoring the temperatures for associates entering our facilities, enhancing the safety of our office environment in preparation for workers to return to Company facilities on a more regular basis, ensuring proper social distancing in our production facilities, personal protective equipment, enhanced cleaning measures in our facilities, and other safety related expenses.

Russia-Related Exit Costs are direct and incremental costs associated with the Company’s wind down of business activities in Russia in response to Russia’s invasion of Ukraine, including relocation-related expenses of impacted associates.

Investment Gains represent non-operating, non-cash gains on privately held investments.

Software Charge represents a charge related to an internal use software product that is no longer expected to be used.

Gain on Acquisition-Related Financial Instrument represents a non-operating gain on a financial instrument designed to minimize the Company's foreign exchange risk associated with the Itiviti Acquisition, as well as certain other non-operating financing costs associated with the Itiviti Acquisition.

Gain on Sale of a Joint Venture Investment represents a non-operating, cash gain on the sale of one of the Company’s joint venture investments.

We exclude Acquisition and Integration Costs, IBM Private Cloud Charges, Real Estate Realignment and Covid-19 Related Expenses, the Investment Gain, the Software Charge, the Gain on Acquisition-Related Financial Instrument, and the Gain on Sale of a Joint Venture Investment from our Adjusted Operating income (as applicable) and other adjusted earnings measures because excluding such information provides us with an understanding of the results from the primary operations of our business and enhances comparability across fiscal reporting periods, as these items are not reflective of our underlying operations or performance.

We exclude Acquisition and Integration Costs, Real Estate Realignment and Covid-19 Related Expenses, Russia-Related Exit Costs, Investment Gains, the Software Charge, and the Gain on Acquisition-Related Financial Instrument from our Adjusted Operating income (as applicable) and other adjusted earnings measures because excluding such information provides us with an understanding of the results from the primary operations of our business and enhances comparability across fiscal reporting periods, as these items are not reflective of our underlying operations or performance.

We also exclude the impact of Amortization of Acquired Intangibles and Purchased Intellectual Property, as these non-cash amounts are significantly impacted by the timing and size of individual acquisitions and do not factor into the Company's capital allocation decisions, management compensation metrics or multi-year objectives.

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Any future acquisitions may result in the amortization of additional intangible assets.

Free Cash Flows

Free Cash Flow

In addition to the Non-GAAP financial measures discussed above, we provide Free cash flow information because we consider Free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated that could be used for dividends, share repurchases, strategic acquisitions, other investments, as well as debt servicing.

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Acquisition and Integration Costs 24.5 18.1

IBM Private Cloud Charges — 32.0

Real Estate Realignment and Covid-19 Related Expenses 45.3 2.4

Real Estate Realignment and Covid-19 Related Expenses (a) 30.5 45.3

Russia-Related Exit Costs 1.4 —

Software Charge — 6.0

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Acquisition and Integration Costs 24.5 18.1

IBM Private Cloud Charges — 32.0

Real Estate Realignment and Covid-19 Related Expenses 45.3 2.4

Real Estate Realignment and Covid-19 Related Expenses (a) 30.5 45.3

Russia-Related Exit Costs 1.4 —

Software Charge — 6.0

Investment Gain (8.7) —

Investment Gains (14.2) (8.7)

Gain on Acquisition-Related Financial Instrument — (62.1)

Gain on Sale of a Joint Venture Investment — (6.5)

Subtotal of adjustments 292.3 152.2

Tax impact of adjustments (a) (33.2) (37.4)

Tax impact of adjustments (c) (65.7) (33.2)

Adjusted Net earnings (Non-GAAP) $ 765.7 $ 666.5

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Acquisition and Integration Costs 0.21 0.15

IBM Private Cloud Charges — 0.27

Real Estate Realignment and Covid-19 Related Expenses 0.38 0.02

Real Estate Realignment and Covid-19 Related Expenses (b) 0.26 0.38

Russia-Related Exit Costs 0.01 —

Software Charge — 0.05

Investment Gain (0.07) —

Investment Gains (0.12) (0.07)

Gain on Acquisition-Related Financial Instrument — (0.53)

Gain on Sale of a Joint Venture Investment — (0.06)

Subtotal of adjustments 2.47 1.29

Tax impact of adjustments (a) (0.28) (0.32)

Tax impact of adjustments (c) (0.55) (0.28)

Adjusted earnings per share (Non-GAAP) $ 6.46 $ 5.66

(a) Calculated using the GAAP effective tax rate, adjusted to exclude $16.9 million of excess tax benefits (“ETB”) associated with stock-based compensation for the fiscal year ended June 30, 2021, and $15.6 million of ETB associated with stock-based compensation for the fiscal year ended June 30, 2020.

(a) Real Estate Realignment Expenses were $23.0 million and $29.6 million for the fiscal years ended June 30, 2022 and 2021, respectively.

Covid-19 Related Expenses were $7.5 million and $15.7 million for the fiscal years ended June 30, 2022 and 2021, respectively.

(b) Real Estate Realignment Expenses impacted Adjusted earnings per share by $0.19 and $0.25 for the fiscal years ended June 30, 2022 and 2021, respectively.

Covid-19 Related Expenses impacted Adjusted earnings per share by $0.06 and $0.13 for the fiscal years ended June 30, 2022 and 2021, respectively.

(c) Calculated using the GAAP effective tax rate, adjusted to exclude $18.1 million of excess tax benefits (“ETB”) associated with stock-based compensation for the fiscal year ended June 30, 2022, and $16.9 million of ETB associated with stock-based compensation for the fiscal year ended June 30, 2021.

The tax impact of adjustments also excludes approximately $10.6 million of Acquisition and Integration Costs for the fiscal year ended June 30, 2021, which are not tax-deductible.

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(in millions)

Current portion of long-term debt

Fiscal 2014 Senior Notes September 2020 $ — $ — $ 399.9 — $ —

Total $ — $ — $ 399.9 — $ —

Long-term debt, excluding current portion

Long-term debt

Fiscal 2021 Revolving Credit Facility:

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Total Senior Notes $ 2,250.0 $ 2,232.3 $ 2,229.8 $ — $ 1,979.8

Total long-term debt $ 3,914.4 $ 3,887.6 $ 1,387.6 $ 1,385.6 $ 4,025.9

Total debt $ 3,815.0 $ 3,793.0 $ 3,887.6 $ 1,475.0 $ 3,544.8

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The Fiscal 2021 Revolving Credit Facility also has an annual facility fee equal to 11.0 basis points on the entire facility (subject to step-ups to 20.0 basis points and step-downs to 7.0 basis points based on ratings).

In March 2021, the Company entered into a term credit agreement (“Term Credit Agreement”) providing for term loan commitments in an aggregate principal amount of $2.55 billion, comprised of a $1.0 billion tranche (“Tranche 1”) and a $1.55 billion tranche (“Tranche 2,” together with Tranche 1, the “Fiscal 2021 Term Loans”).

In March 2021, the Company entered into a term credit agreement, as amended on December 23, 2021 (“Term Credit Agreement”), providing for term loan commitments in an aggregate principal amount of $2.55 billion, comprised of a $1.0 billion tranche (“Tranche 1”) and a $1.55 billion tranche (“Tranche 2,” together with Tranche 1, the “Fiscal 2021 Term Loans”).

The Tranche 1 Loans were repaid in full in May 2021.

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Net cash flows used in investing activities (110.4) (2,653.7) 2,543.3

Net cash flows provided by financing activities $ 1,797.8 $ 51.2 $ 1,746.6

The increase in cash provided by operating activities of $41.8 million primarily reflects higher net earnings and higher cash provided by working capital, partially offset by increased scaling of client-related platform implementation and development as compared to the prior year period.

The increase in cash used in investing activities of $2,212.0 million primarily reflects higher acquisition spend in fiscal year 2021 compared to the prior year period, most notably the Itiviti Acquisition.

The increase in cash provided by financing activities of $1,746.6 million primarily reflects higher borrowings net of repayments, most notably to finance the Itiviti Acquisition.

Net cash flows provided by (used in) financing activities (370.8) 1,797.8 (2,168.5)

Effect of exchange rate changes on Cash and cash equivalents (12.2) 13.8 (26.0)

Net change in Cash and cash equivalents $ (49.9) $ (202.1) $ 152.2

Free cash flow:

Net cash flows provided by operating activities (GAAP) $ 443.5 $ 640.1 $ (196.6)

Capital expenditures and Software purchases and capitalized internal use software (73.1) (100.7) 27.6

Proceeds from asset sales — 18.0 (18.0)

Free cash flow (Non-GAAP) $ 370.4 $ 557.3 $ (186.9)

The decrease in cash provided by operating activities of $196.6 million was primarily due to increased scaling of client-related platform implementation and development as well as higher cash used in working capital, partially offset by higher net non-cash add-backs including higher amortization of acquired intangibles and purchased intellectual property.

The decrease in cash used in investing activities of $2,543.3 million primarily reflects lower acquisition spend in fiscal year 2022 compared to the prior year period, most notably the Itiviti Acquisition, partially offset by the fiscal year 2021 $66.7 million forward foreign exchange derivative inflow associated with the Itiviti Acquisition that did not recur in fiscal year 2022.

The increase in cash used in financing activities of $2,168.5 million primarily reflects lower borrowings net of repayments, most notably to finance the Itiviti Acquisition in the prior year period.

The Company, headquartered in the U.S., is routinely examined by the IRS and is also routinely examined by the tax authorities in the U.S.

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Once established, reserves are adjusted when there is more information available, when an event occurs necessitating a change to the reserves or the statute of limitations for the relevant taxing authority to examine the tax position has expired.

The resolution of tax matters

should not have a material effect on the financial condition of the Company or on the Company’s Consolidated Statements of Earnings for a particular future period.

The resolution of tax matters should not have a material effect on the financial condition of the Company or on the Company’s Consolidated Statements of Earnings for a particular future period.

Defined Benefit Pension Plans

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See Note 8, “Leases” to our Consolidated Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K for additional information about our Leases and related matters.

(4) Purchase obligations relate to payments to IBM related to the Amended IT Services Agreement that expires in fiscal year 2027, the IBM Private Cloud Agreement that expires in fiscal year 2030, and the Amended EU IT Services Agreement that expires in fiscal year 2029, as well as software license agreements including hosted software arrangements, and software and hardware maintenance and support agreements, and certain other related arrangements.

Purchase obligations also includes $29.0 of other liabilities recorded on the Company’s Consolidated Balance Sheet as of June 30, 2021.

(5) Deferred payment obligation associated with the Company’s acquisition of AdvisorStream.

(6) Represents the Company’s funding commitment to an equity method investee.

In addition, the Company also has a future commitment to fund $2.0 million to an investee that is not included in the table above due to the uncertainty of the timing of this future payment.

(4) Purchase obligations relate to payments to Kyndryl, Inc.

related to the Amended IT Services Agreement (as described below) that expires in fiscal year 2027, the Private Cloud Agreement (as described below) that expires in fiscal year 2030, the Amended EU IT Services Agreement (as described below) that expires in fiscal year 2029, the AWS Cloud Agreement (as described below) that expires in fiscal year 2027, as well as software license agreements including hosted software arrangements, and software and hardware maintenance and support agreements, and certain other related arrangements.

Purchase obligations also includes $25.4 million of other liabilities recorded on the Company’s Consolidated Balance Sheet as of June 30, 2022.

(5) Deferred payment obligation primarily associated with the Company’s acquisition of AdvisorStream.

(6) The Company has a future commitment to fund $0.9 million to an investee that is not included in the table above due to the uncertainty of the timing of this future payment.

(7) Due to the uncertainty related to the timing of the reversal of uncertain tax positions, only uncertain tax benefits related to certain settlements have been provided in the table above.

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Data Center Agreements

In March 2010, the Company and IBM entered into the IT Services Agreement, under which IBM provided certain aspects of the Company’s information technology infrastructure.

In March 2010, the Company and International Business Machines Corporation (“IBM”) entered into an Information Technology Services Agreement (the “IT Services Agreement”), under which IBM provided certain aspects of the Company’s information technology infrastructure.

Under the IT Services Agreement, IBM provided a broad range of technology services to the Company, including supporting its mainframe, midrange, network and data center operations, as well as providing disaster recovery services.

The migration of data center processing to IBM was completed in August 2012.

The IT Services Agreement would have expired on June 30, 2022, but a two-year extension was signed in March 2015, amending the expiration date to June 30, 2024.

In December 2019, the Company and IBM amended and restated the IT Services Agreement and entered into the Amended IT Services Agreement, which now expires on June 30, 2027.

has the option of incorporating additional services into the Amended IT Services Agreement over time.

In December 2019, the Company and IBM amended and restated the IT Services Agreement (the “Amended IT Services Agreement”), which now expires on June 30, 2027.

The Company has the option of incorporating additional services into the Amended IT Services Agreement over time.

The Company may renew the term of the Amended IT Services Agreement for up to one additional 12-month period.

Fixed minimum commitments remaining under this agreement at June 30, 2021 are $208.9 million through fiscal year 2027, the final year of the Amended IT Services Agreement.

In December 2019, the Company and IBM entered into the IBM Private Cloud Agreement under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks.

The IBM Private Cloud Agreement has an initial term of approximately 10 years and three months, expiring on March 31, 2030.

As a result of the IBM Private Cloud Agreement, the Company transferred certain of its employees in April 2020 to IBM and its affiliates, and such transferred employees are expected to continue providing services to the Company on behalf of IBM under the IBM Private Cloud Agreement.

Pursuant to the IBM Private Cloud Agreement, the Company agreed to transfer the ownership of certain Company-owned hardware (the “Hardware”) located at Company facilities worldwide to IBM.

As of June 30, 2020, the Hardware was classified as assets held for sale with a carrying amount of $18.0 million and was included in the Company’s Other current assets line item on the Consolidated Balance Sheets.

The transfer of the Hardware to IBM closed on September 30, 2020 for a selling price of $18.0 million.

Fixed minimum commitments remaining under the IBM Private Cloud Agreement at June 30, 2021 are $207.0 million through March 31, 2030, the final year of the contract.

In March 2014, the Company and IBM UK entered into the EU IT Services Agreement, under which IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia.

On July 28, 2021, the Company entered into a novation agreement with IBM (the “U.S.

Novation Agreement”) pursuant to which IBM novated the Amended IT Services Agreement to Kyndryl, Inc., an entity formed in connection with IBM’s spin-off of its managed infrastructure services business (“Kyndryl”), effective September 1, 2021.

Fixed minimum commitments remaining under the Amended IT Services Agreement at June 30, 2022 are $145.8 million through fiscal year 2027, the final year of the Amended IT Services Agreement.

In December 2019, the Company and IBM entered into an information technology agreement for private cloud services (the “Private Cloud Agreement”) under which IBM will operate, manage and support the Company’s private cloud global distributed platforms and products, and operate and manage certain Company networks.

The Private Cloud Agreement has an initial term of approximately 10 years and three months, expiring on March 31, 2030.

As a result of the Private Cloud Agreement, the Company transferred certain of its employees in April 2020 to IBM and its affiliates, and such transferred employees are expected to continue providing services to the Company on behalf of IBM under the Private Cloud Agreement.

Pursuant to the Private Cloud Agreement, the Company agreed to transfer the ownership of certain Company-owned hardware (the “Hardware”) located at Company facilities worldwide to IBM.

The transfer of the Hardware and Maintenance Contracts to IBM closed on September 30, 2020 for a selling price of $18.0 million.

On July 28, 2021, IBM novated the Private Cloud Agreement to Kyndryl, effective September 1, 2021, pursuant to the U.S.

Novation Agreement.

Fixed minimum commitments remaining under the Private Cloud Agreement at June 30, 2022 are $175.2 million through March 31, 2030, the final year of the contract.

In March 2014, the Company and IBM United Kingdom Limited (“IBM UK”) entered into an Information Technology Services Agreement (the “EU IT Services Agreement”), under which IBM UK provides data center services supporting the Company’s technology outsourcing services for certain clients in Europe and Asia.

The EU IT Services Agreement would have expired in October 2023.

In December 2019, the Company amended the existing EU IT Services Agreement and entered into the Amended EU IT Services Agreement whereby the Company will migrate from the existing dedicated on-premise solution to a managed Broadridge private cloud environment provided by IBM, as well as extended the term of the EU IT Services Agreement to June 2029.

In December 2019, the Company amended the existing EU IT Services Agreement whereby the Company will migrate from the existing dedicated on-premises solution to a managed Broadridge private cloud environment provided by IBM, as well as extended the term of the EU IT Services Agreement to June 2029 (the “Amended EU IT Services Agreement”).

The Company has the right to renew the term of the Amended EU IT Services Agreement for up to one additional 12-month period or one additional 24-month period.

On August 19, 2021, the Company entered into a novation agreement with IBM UK pursuant to which IBM UK novated the EU IT Services Agreement to Kyndryl UK Limited, effective September 1, 2021.

Fixed minimum commitments remaining under the Amended EU IT Services Agreement at June 30, 2022 are $26.0 million through fiscal year 2029, the final year of the contract.

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Total accumulated amortization (46.6) (5.4) (52.0)

Net Deferred IBM Costs $ 19.4 $ 3.5 $ 23.0

The Company has an equity method investment that is a variable interest in a variable interest entity, the Company is not the primary beneficiary and therefore does not consolidate the investee.

The Company’s potential maximum loss exposure related to this unconsolidated investment totaled $25.3 million as of June 30, 2021, which represents the carrying value of the Company's investment and is recorded in Other non-current assets in the Company’s Consolidated Balance Sheets.

In addition, as of June 30, 2021, the Company has a future commitment to fund this investee for up to an additional $7.0 million if certain future funding milestones are met.

Additional funding provided by the Company to the investee as a result of meeting the future funding milestones would increase the Company’s corresponding potential maximum loss exposure by that amount.

Net Deferred Kyndryl Costs

$ 16.4 $ 2.3 $ 18.7

Cloud Services Resale Agreement

On December 31, 2021, the Company and Presidio Networked Solutions LLC (“Presidio”), a reseller of services of Amazon Web Services, Inc.

and its affiliates (collectively, “AWS”), entered into an Order Form and AWS Private Pricing Addendum, dated December 31, 2021 (the “Order Form”), to the Cloud Services Resale Agreement, dated December 15, 2017, as amended (together with the Order Form, the “AWS Cloud Agreement”), whereby Presidio will resell to the Company certain public cloud infrastructure and related services provided by AWS for the operation, management and support of the Company’s cloud global distributed platforms and products.

The AWS Cloud Agreement expires on December 31, 2026.

Fixed minimums remaining under the AWS Cloud Agreement at June 30, 2022 are $226.8 million in the aggregate through December 31, 2026.

The Company has an equity method investment that is a variable interest in a variable interest entity.

The Company is not the primary beneficiary and therefore does not consolidate the investee.

The Company’s potential maximum loss exposure related to its unconsolidated investment in this variable interest entity totaled $42.7 million as of June 30, 2022, which represents the carrying value of the Company's investment.

In addition, as of June 30, 2022, the Company also has a future commitment to fund $0.9 million to one of the Company’s other investees.

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Off-balance Sheet Arrangements

It is not the Company’s business practice to enter into off-balance sheet arrangements.

However, the Company is exposed to market risk from changes in foreign currency exchange rates that could impact its financial position, results of operations, and cash flows.

The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.

The Company was not a party to any outstanding derivative financial instruments at June 30, 2021 or June 30, 2020.

In connection with the Itiviti Acquisition, in March 2021 the Company entered into two derivative instruments designed to mitigate the Company’s exposure to the impact of (i) changes in foreign exchange rates on the Itiviti Acquisition purchase consideration, and (ii) changes in interest rates on the Fiscal 2021 Senior Notes.

The Company executed a forward foreign exchange derivative instrument (“Forward”) with an aggregate notional amount of EUR 1.955 billion.

It is not our business practice to enter into off-balance sheet arrangements.

However, we are exposed to market risk from changes in foreign currency exchange rates that could impact our financial position, results of operations, and cash flows.

We manage our exposure to these market risks through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.

In January 2022, we entered into a series of cross-currency swap transactions which were designated as a net investment hedge against a portion of our net investment in our Euro functional subsidiaries.

We were not a party to any outstanding derivative financial instruments at June 30, 2021.

In January 2022, we executed a series of cross-currency swap derivative contracts with an aggregate notional amount of EUR 880 million which are designated as net investment hedges to hedge a portion of our net investment in our subsidiaries whose functional currency is the Euro.

The cross-currency swap derivative contracts are agreements to pay fixed-rate interest in Euros and receive fixed-rate interest in U.S.

Dollars, thereby effectively converting a portion of our U.S.

Dollar denominated fixed-rate debt into Euro denominated fixed-rate debt.

The cross-currency swaps mature in May 2031 to coincide with the maturity of the Fiscal 2021 Senior Notes.

Accordingly, foreign currency transaction gains or losses on the qualifying net investment hedge instruments are recorded as foreign currency translation within other comprehensive income (loss), net in the Consolidated Statements of Comprehensive Income and will remain in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets until the sale or complete liquidation of the underlying foreign subsidiary.

At June 30, 2022, our position on the cross-currency swaps was an asset of $101.4 million, and is recorded as part of Other non-current assets on the Consolidated Balance Sheets with the offsetting amount recorded as part of Accumulated other comprehensive income (loss), net of tax.

We have elected the spot method of accounting whereby the net interest savings from the cross-currency swaps is recognized as a reduction in interest expense in our Consolidated Statements of Earnings.

In connection with the Itiviti Acquisition in March 2021 we entered into two derivative instruments designed to mitigate the Company’s exposure to the impact of (i) changes in foreign exchange rates on the Itiviti Acquisition purchase consideration, and (ii) changes in interest rates on the Fiscal 2021 Senior Notes.

In March 2021, we executed a forward foreign exchange derivative instrument (“Forward”) with an aggregate notional amount of EUR 1.955 billion.

The Forward acted as an economic hedge against the impact of changes in the Euro on the Company’s purchase consideration for the Itiviti Acquisition.

The Company recorded changes in fair value of the Forward as part of Other non-operating income (expenses), net in the Consolidated Statement of Earnings.

In May 2021, the Company settled the Forward derivative for a cumulative pre-tax gain of $66.7 million.

Also, the Company executed a forward treasury lock agreement (“Treasury Lock”), designated as a cash flow hedge, in the aggregate notional amount of $1.0 billion to manage exposure to fluctuations in the benchmark interest rate associated with the Fiscal 2021 Senior Notes, which were used to pay down a portion of the Term Credit Agreement associated with the Itiviti Acquisition.

We recorded changes in fair value of the Forward as part of Other non-operating income (expenses), net in the Consolidated Statement of Earnings.

In May 2021, we settled the Forward derivative for a cumulative pre-tax gain of $66.7 million.

Also, we executed a forward treasury lock agreement (“Treasury Lock”), designated as a cash flow hedge, in the aggregate notional amount of $1.0 billion to manage exposure to fluctuations in the benchmark interest rate associated with the Fiscal 2021 Senior Notes, which were used to pay down a portion of the Term Credit Agreement associated with the Itiviti Acquisition.

Accordingly, changes in the fair value of the Treasury Lock were recorded as part of Other comprehensive income (loss), net each period up to when the Treasury Lock was settled.

In May 2021, the Treasury Lock was settled for a pre-tax loss of $11.0 million, after which the final settlement loss will be reclassified into Interest expense, net ratably over the ten year term of the Fiscal 2021 Senior Notes.

The expected amount of the existing loss that would be reclassified into earnings before income taxes within the next twelve months is approximately $1.1 million.

In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company’s products and services.

The Company does not expect any material losses related to such representations and warranties, or collateral arrangements.

In May 2021, the Treasury Lock was settled for a pre-tax loss of $11.0 million, after which the final settlement loss will be amortized into Interest expense, net ratably over the ten year term of the Fiscal 2021 Senior Notes.

The expected amount of the existing loss that will be amortized into earnings before income taxes within the next twelve months is approximately $1.1 million.

In the normal course of business, we also enter into contracts in which it makes representations and warranties that relate to the performance of our products and services.

We do not expect any material losses related to such representations and warranties, or collateral arrangements.

Recently-issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis