| 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, 2019 | | (in millions) | Investor Communication Solutions | | Equity proxy | $ | 437.0 |
| Mutual fund and exchange traded funds (“ETF”) interims | 265.9 |
| Customer communications and fulfillment | 736.4 |
| Other ICS | 366.5 |
| Total ICS Recurring fee revenues | 1,805.8 |
| | | Equity and other | 107.3 |
| Mutual funds | 137.2 |
| Total ICS Event-driven fee revenues | 244.5 |
| | | Distribution revenues | 1,460.8 |
| | | Total ICS Revenues | $ | 3,511.1 |
| | | Global Technology and Operations | | Equities and other | $ | 788.9 |
| Fixed income | 164.6 |
| Total GTO Recurring fee revenues | 953.5 |
| | | Foreign currency exchange | (102.4 | ) | | | Total Revenues | $ | 4,362.2 |
| | | Revenues by Type | | Recurring fee revenues | $ | 2,759.3 |
| Event-driven fee revenues | 244.5 |
| Distribution revenues | 1,460.8 |
| Foreign currency exchange | (102.4 | ) | Total Revenues | $ | 4,362.2 |
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Contract Balances The following table provides information about contract assets and liabilities: | | | | | | | | | | June 30,
2019 | | July 1,
2018 | | (in millions) | Contract assets | $ | 47.5 |
| | $ | 35.5 |
| Contract liabilities | $ | 251.6 |
| | $ | 162.8 |
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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, 2019, contract liabilities increased primarily due to the impact of client contract terminations. 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.
Changes in Accounting Policy Except for the changes below, the Company has consistently applied its revenue and cost accounting policies to all periods presented in its Consolidated Financial Statements. The details of the significant changes are disclosed below.
| | • | Sales Commissions - The Company previously recognized sales commissions related to contracts with clients as selling expenses when incurred. Under ASU No. 2014-09, the Company capitalizes incremental sales commissions as costs of obtaining a contract and, if expected to be recovered, amortizes such costs using a portfolio approach consistent with the pattern of transfer of the good or service to which the asset relates. |
| | • | Deferred Client Conversion and Start-Up Costs - The Company previously capitalized direct and incremental client conversion or start-up costs to set up or convert a client’s systems to function with the Company’s technology that are expected to be recovered. Under ASU No. 2014-09, the Company capitalizes certain additional client conversion or start-up costs that are directly related to the client conversion but that are not considered incremental costs to the Company. |
| | • | Proxy Revenues - The Company previously recognized proxy revenues following the client’s shareholder meeting, which is typically 30 days after the proxy materials distribution. Under ASU No. 2014-09, the Company recognizes proxy revenues primarily at the time of proxy materials distribution to the client’s shareholders. |
| | • | Software Term License Revenues - The Company previously recognized revenue from software term licenses that are not hosted by the Company ratably over the contract term. Under ASU No. 2014-09, for software license arrangements that are distinct, the Company recognizes software license revenue upon delivery assuming a contract is deemed to exist. For arrangements with clients that include significant customization, modification or production of software such that the software is not distinct from the associated implementation services, revenue is typically recognized over time based upon efforts expended to measure progress towards completion or in certain cases upon completion of the installation. Software term license revenue is not a significant portion of the Company’s revenues. |
| | • | Termination Fees - The Company previously recognized client contract termination fees at a point in time upon deconversion or receipt of a non-refundable cash payment. Under ASU No. 2014-09, a contract termination is considered a contract modification and therefore, the Company recognizes contract termination fees over the remaining modified contract term. |
Quantitative Impact on Financial Statements
The following tables summarize the impact of ASU No. 2014-09 adoption on the Company’s Consolidated Statement of Earnings for the fiscal year ended June 30, 2019. | | | | | | | | | | | | | | Fiscal Year Ended June 30, 2019 | | As reported | | Effects of ASU 2014-09 | | Without Effects of ASU No. 2014-09 | | (in millions) | Consolidated Statement of Earnings | | | | | | Revenues (1) | $ | 4,362.2 |
| | $ | 101.1 |
| | $ | 4,463.3 |
| Cost of revenues | 3,131.9 |
| | 15.8 |
| | 3,147.8 |
| Selling, general and administrative expenses | 577.5 |
| | 8.0 |
| | 585.5 |
| Operating income | 652.7 |
| | 77.4 |
| | 730.0 |
| Earnings before income taxes | 607.3 |
| | 77.4 |
| | 684.6 |
| Provision for income taxes | 125.2 |
| | 19.1 |
| | 144.3 |
| Net earnings | $ | 482.1 |
| | $ | 58.2 |
| | $ | 540.3 |
| Basic earnings per share | $ | 4.16 |
| | $ | 0.50 |
| | $ | 4.66 |
| Diluted earnings per share | $ | 4.06 |
| | $ | 0.49 |
| | $ | 4.55 |
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(1) The effects of ASU No. 2014-09 on revenues includes contract modifications.
The following table summarizes the impact of ASU No. 2014-09 adoption on the Company’s Consolidated Balance Sheet as of June 30, 2019. | | | | | | | | | | | | | | As reported | | Effects of ASU 2014-09 | | Without Effects of ASU No. 2014-09 | | (in millions) | Consolidated Balance Sheet | | | | | | Assets: | | | | | | Current assets | $ | 1,042.3 |
| | $ | 1.2 |
| | $ | 1,043.5 |
| Total assets | $ | 3,880.7 |
| | $ | (127.8 | ) | | $ | 3,752.9 |
| Liabilities: | | | | | | Current liabilities | $ | 802.6 |
| | $ | (3.4 | ) | | $ | 799.2 |
| Total liabilities | $ | 2,753.2 |
| | $ | (82.6 | ) | | $ | 2,670.6 |
| Stockholders’ equity: | | | | | | Total stockholders’ equity | $ | 1,127.5 |
| | $ | (45.2 | ) | | $ | 1,082.3 |
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The adoption of ASU No. 2014-09 did not change the net cash provided by or used in operating activities, investing activities or financing activities on the Consolidated Statements of Cash Flows, nor the amount of Other comprehensive income (loss) on the Consolidated Statements of Comprehensive Income.
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