Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
 
FORM 10-Q
______________

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2017

OR

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From          to         
 
Commission File Number 001-36486
______________

CDK Global, Inc.
(Exact name of registrant as specified in its charter)
______________
 
Delaware
46-5743146
(State or other jurisdiction of incorporation or
organization)
(IRS Employer Identification No.)
 
1950 Hassell Road, Hoffman Estates, IL
60169
(Address of principal executive offices) 
(Zip Code)

Registrant’s telephone number, including area code: (847) 397-1700
______________
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý       No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
    Large accelerated filer ý
Accelerated filer o
    Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use extended transition period for complying with an new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No  ý

The number of shares outstanding of the registrant’s common stock as of April 30, 2017 was 145,193,807.




Table of Contents

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CDK Global, Inc.
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
Revenues
$
556.3

 
$
537.7

 
$
1,654.8

 
$
1,572.4

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 
 
 
Cost of revenues
307.7

 
315.8

 
926.0

 
927.8

Selling, general and administrative expenses
117.4

 
125.0

 
342.0

 
328.2

Restructuring expenses
6.9

 
7.7

 
10.3

 
11.4

Total expenses
432.0

 
448.5

 
1,278.3

 
1,267.4

Operating earnings
124.3

 
89.2

 
376.5

 
305.0

 
 
 
 
 
 
 
 
Interest expense
(15.1
)
 
(10.7
)
 
(38.1
)
 
(29.5
)
Other income, net
1.2

 
0.1

 
2.8

 
5.7

 
 
 
 
 
 
 
 
Earnings before income taxes
110.4

 
78.6

 
341.2

 
281.2

 
 
 
 
 
 
 
 
Provision for income taxes
(31.6
)
 
(22.9
)
 
(99.6
)
 
(94.6
)
 
 
 
 
 
 
 
 
Net earnings
78.8

 
55.7

 
241.6

 
186.6

Less: net earnings attributable to noncontrolling interest
1.5

 
1.9

 
4.7

 
5.6

Net earnings attributable to CDK
$
77.3

 
$
53.8

 
$
236.9

 
$
181.0

 
 
 
 
 
 
 
 
Net earnings attributable to CDK per common share:
 
 
 
 
 
 
 
Basic
$
0.53

 
$
0.35

 
$
1.60

 
$
1.15

Diluted
$
0.53

 
$
0.34

 
$
1.59

 
$
1.14

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
145.2

 
155.4

 
148.1

 
157.8

Diluted
146.5

 
156.3

 
149.3

 
158.7

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.140

 
$
0.135

 
$
0.415

 
$
0.390


See notes to the condensed consolidated financial statements.

2


CDK Global, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
Net earnings
$
78.8

 
$
55.7

 
$
241.6

 
$
186.6

Other comprehensive income (loss):
 
 
 
 
 
 
 
Currency translation adjustments
8.8

 
6.4

 
(22.1
)
 
(25.4
)
Other comprehensive income (loss)
8.8

 
6.4

 
(22.1
)
 
(25.4
)
Comprehensive income
87.6

 
62.1

 
219.5

 
161.2

Less: comprehensive income attributable to noncontrolling interest
1.5

 
1.9

 
4.7

 
5.6

Comprehensive income attributable to CDK
$
86.1

 
$
60.2

 
$
214.8

 
$
155.6


See notes to the condensed consolidated financial statements.


3


CDK Global, Inc.
Condensed Consolidated Balance Sheets
(In millions, except per share par value)
(Unaudited)
 
March 31,
 
June 30,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
385.2

 
$
219.1

Accounts receivable, net of allowances of $6.6 and $7.1, respectively
404.4

 
365.5

Other current assets
173.7

 
154.1

Total current assets
963.3

 
738.7

Property, plant and equipment, net
130.6

 
118.6

Other assets
195.5

 
217.2

Goodwill
1,165.8

 
1,182.7

Intangible assets, net
101.9

 
107.8

Total assets
$
2,557.1

 
$
2,365.0

 
 
 
 
Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt and capital lease obligations
$
46.8

 
$
26.8

Accounts payable
35.9

 
38.8

Accrued expenses and other current liabilities
192.2

 
165.3

Accrued payroll and payroll-related expenses
97.8

 
115.3

Short-term deferred revenues
175.3

 
177.2

Total current liabilities
548.0

 
523.4

Long-term debt and capital lease obligations
1,544.5

 
1,190.3

Long-term deferred revenues
139.5

 
157.7

Deferred income taxes
48.1

 
46.9

Other liabilities
69.0

 
70.5

Total liabilities
2,349.1

 
1,988.8

 
 
 
 
Equity:
 

 
 

Preferred stock, $0.01 par value: Authorized, 50.0 shares; issued and outstanding, none

 

Common stock, $0.01 par value: Authorized, 650.0 shares; issued, 160.3 and 160.3 shares, respectively; outstanding, 145.2 and 150.1 shares, respectively
1.6

 
1.6

Additional paid-in-capital
616.0

 
640.7

Retained earnings
413.9

 
238.3

Treasury stock, at cost: 15.2 and 10.2 shares, respectively
(825.3
)
 
(526.6
)
Accumulated other comprehensive income
(16.3
)
 
5.8

Total CDK stockholders' equity
189.9

 
359.8

Noncontrolling interest
18.1

 
16.4

Total equity
208.0

 
376.2

Total liabilities and equity
$
2,557.1

 
$
2,365.0



See notes to the condensed consolidated financial statements.

4


CDK Global, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Nine Months Ended
 
March 31,
 
2017
 
2016
Cash Flows from Operating Activities:

 

Net earnings
$
241.6

 
$
186.6

Adjustments to reconcile net earnings to cash flows provided by operating activities:


 


Depreciation and amortization
52.0

 
45.6

Deferred income taxes
0.3

 
7.8

Stock-based compensation expense
32.3

 
25.5

Other
3.2

 
(4.5
)
Changes in operating assets and liabilities, net of effect from acquisitions of businesses:
 

 
 

Increase in accounts receivable
(42.8
)
 
(71.1
)
Increase in other assets
(4.5
)
 
(24.0
)
Increase in accounts payable
1.4

 
11.3

Increase in accrued expenses and other liabilities
3.7

 
29.7

Net cash flows provided by operating activities
287.2

 
206.9

 
 
 
 
Cash Flows from Investing Activities:


 


Capital expenditures
(47.0
)
 
(35.0
)
Proceeds from sale of property, plant and equipment
0.5

 

Capitalized software
(22.9
)
 
(9.6
)
Acquisitions of businesses, net of cash acquired

 
(18.0
)
Contributions to investments
(2.1
)
 
(6.7
)
Proceeds from investments
4.0

 
8.7

Net cash flows used in investing activities
(67.5
)
 
(60.6
)
 
 
 
 
Cash Flows from Financing Activities:


 


Proceeds from long-term debt
400.0

 
250.0

Repayments of long-term debt and capital lease obligations
(25.2
)
 
(13.3
)
Dividends paid to stockholders
(61.0
)
 
(61.9
)
Repurchases of common stock
(350.0
)
 
(261.0
)
Proceeds from exercises of stock options
12.1

 
5.3

Excess tax benefit from stock-based compensation awards

 
7.4

Withholding tax payments for stock-based compensation awards
(12.0
)
 
(8.6
)
Dividend payments to noncontrolling owners
(3.0
)
 

Payments of deferred financing costs
(2.1
)
 
(2.1
)
Acquisition-related payments
(7.2
)
 
(2.7
)
Recovery of dividends paid (Note 1E)

 
0.4

Net cash flows used in financing activities
(48.4
)
 
(86.5
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(5.2
)
 
(3.9
)
 
 
 
 
Net change in cash and cash equivalents
166.1

 
55.9

 
 
 
 
Cash and cash equivalents, beginning of period
219.1

 
408.2

 
 
 
 
Cash and cash equivalents, end of period
$
385.2

 
$
464.1


5


 
Nine Months Ended
 
March 31,
 
2017
 
2016
Supplemental Disclosure:
 
 
 
Cash paid for:
 
 
 
Income taxes and foreign withholding taxes, net of refunds
$
93.5

 
$
96.5

Interest
26.4

 
20.0

Non-cash transactions:
 
 
 
Non-cash settlement of common stock
$
56.9

 
$

Non-cash consideration issued for acquisitions (Note 3)

 
$
14.0



See notes to the condensed consolidated financial statements.

6



CDK Global, Inc.
Condensed Consolidated Statement of Equity
(In millions)
(Unaudited)

 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Income
 
Total CDK Stockholders' Equity
 
Non-controlling Interest
 
Total Equity
 
Shares Issued
 
Amount
 
 
 
 
 
 
 
Balance as of June 30, 2016
160.3

 
$
1.6

 
$
640.7

 
$
238.3

 
$
(526.6
)
 
$
5.8

 
$
359.8

 
$
16.4

 
$
376.2

Net earnings

 

 

 
236.9

 

 

 
236.9

 
4.7

 
241.6

Foreign currency translation adjustments

 

 

 

 

 
(22.1
)
 
(22.1
)
 

 
(22.1
)
Stock-based compensation expense and related dividend equivalents

 

 
26.5

 
(0.3
)
 

 

 
26.2

 

 
26.2

Common stock issued for the exercise and vesting of stock-based compensation awards, net

 

 
(42.1
)
 

 
42.2

 

 
0.1

 

 
0.1

Dividends paid to stockholders

 

 

 
(61.0
)
 

 

 
(61.0
)
 

 
(61.0
)
Repurchases of common stock

 

 
(9.1
)
 

 
(340.9
)
 

 
(350.0
)
 

 
(350.0
)
Dividend payments to noncontrolling owners

 

 

 

 

 

 

 
(3.0
)
 
(3.0
)
Balance as of March 31, 2017
160.3

 
$
1.6

 
$
616.0

 
$
413.9

 
$
(825.3
)
 
$
(16.3
)
 
$
189.9

 
$
18.1

 
$
208.0


See notes to the condensed consolidated financial statements.


7


CDK Global, Inc.
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts in millions, except per share amounts)
(Unaudited)
Note 1. Basis of Presentation
A. Description of Business
CDK Global, Inc. (the "Company" or "CDK") is a leading global provider of integrated information technology and digital marketing solutions to the automotive retail and adjacent industries. The Company’s solutions automate and integrate all parts of the buying process from targeted digital advertising and marketing campaigns to the sale, financing, insuring, parts supply, repair, and maintenance of vehicles.
Effective July 1, 2016, the Company completed a comprehensive reorganization to streamline its organization to enable it to deliver an improved customer experience, create significant efficiencies, and better align it to implement the ongoing business transformation plan discussed further in Note 4. The Company reorganized into two main operating groups. In connection with this reorganization, the Company's operating segments were changed. The Company's first operating group is CDK North America which is comprised of two reportable segments, Retail Solutions North America and Advertising North America. The second operating group, which is also a reportable segment, is CDK International. In addition, the Company has an Other segment, the primary components of which are corporate allocations and other expenses not recorded in the segment results. Refer to Note 14 for further information.
B. Basis of Preparation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect assets, liabilities, revenues, and expenses that are reported in the accompanying financial statements and footnotes thereto. Actual results may differ from those estimates and assumptions.
The accompanying condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. Interim financial results are not necessarily indicative of financial results for a full year. The financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2016.
C. Significant Accounting Policies
Revenue Recognition. The Company recognizes software revenues in accordance with Accounting Standards Codification (“ASC”) 985-605, “Software - Revenue Recognition,” and non-software related revenue, including Software-as-a-Service (“SaaS”), in accordance with ASC 605, "Revenue Recognition" ("ASC 605").
The Company generates revenues from four categories: subscription, digital advertising, transactional services, and other. Taxes collected from customers and remitted to governmental authorities are presented on a net basis; that is, such taxes are excluded from revenues.
Subscription. In the Retail Solutions North America (“RSNA”) and CDK International (“CDKI”) segments, CDK provides software and technology solutions for automotive retailers and original equipment manufacturers ("OEMs"), which includes:
Dealer Management Systems (“DMSs”) and layered applications, where the software may be installed onsite at the customer’s location, or hosted and provided on a SaaS basis, including ongoing maintenance and support;
Interrelated services such as installation, initial training, and data updates;
Websites, search marketing, and reputation management services (RSNA only); and
Hardware on a service basis, meaning no specific assets are identified or a substantive right of substitution exists.
Revenues for term licenses are recognized ratably over the software license term, as vendor-specific objective evidence of the fair values of the individual elements in the sales arrangement does not exist. Revenue recognition commences at the installation dates, when customer acceptance has occurred, and collectability of a determinable amount is probable. In the case of hosted applications, the customer does not have the contractual right to take possession of the software and the items

8


delivered at the outset of the contract (e.g., installation, training, etc.) do not have value to the customer without the software license and ongoing support and maintenance. Any upfront fees charged in the case of hosted arrangements are recognized ratably over the expected benefit period of the arrangement, typically five years. The unrecognized portion of these revenue elements is recorded as deferred revenue.
Advertising services. In the Advertising North America (“ANA”) segment, the Company receives revenues from the placement of internet advertising for automotive retailers and OEMs. Advertising revenues are recognized when the services are rendered.
Transaction revenues. In the RSNA segment, the Company receives fees per transaction for providing auto retailers interfaces with third parties to process credit reports, vehicle registrations, and automotive equity mining. Revenue is recognized at the time the services are rendered. Transaction revenues are recorded in revenues gross of costs incurred for credit report processing, vehicle registrations, and automotive equity mining as the Company is contractually responsible for providing the service, software, and/or connectivity to the customers, and therefore, the Company is the primary obligor under ASC 605.
Other. The Company provides consulting and professional services and sells hardware such as laser printers, networking and telephony equipment, and related items. These revenues are recognized upon their delivery or service completion.
Deferred Costs. Costs to deliver services are expensed to cost of revenues as incurred with the exception of specific costs directly related to transition or installation activities, including payroll-related costs for the Company's implementation and training teams, as well as commission costs for the sale. These costs are deferred and expensed proportionately over the same period that the deferred revenues are recognized as revenues. Deferred amounts are monitored regularly to ensure appropriate asset and expense recognition. Current deferred costs classified within other current assets on the condensed consolidated balance sheets were $95.2 million and $104.0 million as of March 31, 2017 and June 30, 2016, respectively. Long-term deferred costs classified within other assets on the condensed consolidated balance sheets were $120.0 million and $135.5 million as of March 31, 2017 and June 30, 2016, respectively.
Funds receivable and funds held for Clients and Client Fund Obligations. Funds receivable and funds held for clients represent amounts received or expected to be received from clients in advance of performing titling and registration services on behalf of those clients. These amounts are classified within other current assets on the condensed consolidated balance sheets. The total amount due to remit for titling and registration obligations with the department of motor vehicles is recorded to client fund obligations which is classified as accrued expenses and other current liabilities on the condensed consolidated balance sheet. Funds receivable was $26.7 million and funds held for clients was $10.8 million as of March 31, 2017. Client fund obligation was $37.5 million as of March 31, 2017.
In fiscal year 2015, the Company entered into a two-year service agreement with Automatic Data Processing, Inc. (“ADP”) to provide cash collection and disbursement services for the business which expired in September 2016. As such, the amounts were not significant as of June 30, 2016.
Goodwill. The Company tests goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company tests goodwill for impairment at the reporting unit level. A reporting unit is an operating segment or a component of an operating segment. In July 2016, the Company revised its reportable segments and reporting units due to changes in how the chief operating decision maker regularly reviews information for purposes of allocating resources and assessing performance. Due to the change in organization structure, the Company expanded its reporting units from three to five.
The Company tests impairment by first comparing the fair value of each reporting unit to its carrying amount. If the carrying value for a reporting unit exceeds its fair value, the Company then compares the implied fair value of the Company's goodwill to the carrying amount in order to determine the amount of the impairment, if any.
The Company estimates the fair value of the Company's reporting units by weighting the results from the income approach, which is the present value of expected cash flows discounted at a risk-adjusted weighted-average cost of capital, and the market approach, which uses market multiples of companies in similar lines of business. These valuation approaches require significant judgment and consider a number of factors including assumptions about the future growth and profitability of the Company's reporting units, the determination of appropriate comparable publicly traded companies in the Company's industry, discount rates, and terminal growth rates.

9


Computer Software to be Sold, Leased, or Otherwise Marketed. The Company's policy provides for the capitalization of certain costs of computer software to be sold, leased, or otherwise marketed. The Company's policy provides for the capitalization of all software production costs upon reaching technological feasibility for a specific product. Technological feasibility is attained when software products have a completed working model whose consistency with the overall product design has been confirmed by testing. Costs incurred prior to the establishment of technological feasibility are expensed as incurred. The establishment of technological feasibility requires judgment by management and in many instances is only attained a short time prior to the general release of the software. Maintenance-related costs are expensed as incurred.
Pursuant to this policy, the Company recognized expenses of $35.3 million and $43.2 million for the three months ended March 31, 2017 and 2016, respectively, and $110.1 million and $121.8 million for the nine months ended March 31, 2017 and 2016, respectively. These expenses were classified within cost of revenues on the condensed consolidated statements of operations.
Stock-Based Compensation. Certain of the Company's employees (a) have been granted stock options to purchase shares of the Company’s common stock and (b) have been granted restricted stock or restricted stock units under which shares of the Company's common stock vest based on the passage of time or achievement of performance and market conditions.    The Company recognizes stock-based compensation expense in net earnings based on the fair value of the award on the date of the grant. The Company determines the fair value of stock options issued using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial option pricing model are based on a combination of implied market volatilities and historical volatilities of peer companies. Similarly, the dividend yield is based on historical experience and expected future dividend payments. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option pricing model also incorporates exercise based on an analysis of historical data. The expected life of a stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.
The grant date fair value of restricted stock and restricted stock units that vest upon achievement of service conditions is based on the closing price of the Company's common stock on the date of grant. The Company also grants performance-based awards that vest over a performance period. Certain performance-based awards are further subject to adjustment (increase or decrease) based on a market condition defined as total shareholder return of the Company’s common stock compared to a peer group of companies. The fair value of performance-based awards subject to a market condition is determined using a Monte Carlo simulation model. The principal variable assumptions utilized in determining the grant date fair value of performance-based awards subject to a market condition include the risk-free rate, stock volatility, dividend yield, and correlations between the Company's stock price and the stock prices of the peer group of companies.
Upon adoption of Accounting Standards Update ("ASU") 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" the Company no longer estimates its forfeiture rate in order to record stock compensation expense. The Company now records the impact of forfeitures on stock compensation expense in the period the forfeitures occur.
Fair Value of Financial Instruments. The Company determines the fair value of financial instruments in accordance with accounting standards pertaining to fair value measurements. Such standards define fair value and establish a framework for measuring fair value in accordance with GAAP. Cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other current liabilities are reflected in the condensed consolidated balance sheets at cost, which approximates fair value due to the short-term nature of these instruments. The carrying value of the Company's term loan facilities (as described in Note 7), including accrued interest, approximates fair value based on the Company's current estimated incremental borrowing rate for similar types of arrangements. The approximate aggregate fair value of the Company's senior notes as of March 31, 2017 was $760.6 million based on quoted market prices for the same or similar instruments and the carrying value was $750.0 million. The term loan facilities and senior notes are considered Level 2 fair value measurements in the fair value hierarchy.
D. Spin-off
On April 9, 2014, the board of directors of ADP approved the spin-off of the Dealer Services business of ADP. On September 30, 2014, the spin-off became effective and ADP distributed 100% of the Company's common stock to the holders of record of ADP's common stock as of September 24, 2014 (the "spin-off").
Concurrent with the spin-off, the Company and ADP entered into several agreements providing for transition services and governing relationships between the Company and ADP. Refer to Notes 9 and 13 for further information.

10


E. Spin-off Common Stock Issued
During the three months ended September 30, 2015, the Company became aware that 1.0 million shares of common stock were inadvertently issued and distributed to ADP at the spin-off with respect to certain unvested ADP equity awards. The Company previously reported that 160.6 million shares were issued in connection with the spin-off, which was overstated by 1.0 million shares. In addition, dividends paid to stockholders in fiscal 2016 were overstated by $0.4 million. The Company assessed the materiality and concluded that the impact was not material to previously reported results of operations, financial condition, or cash flows. During the three months ended September 30, 2015, the Company and ADP took corrective action to cancel the 1.0 million shares of common stock effective as of September 30, 2014 and the Company recovered the $0.4 million of cumulative dividends paid on such shares, thereby increasing the Company's retained earnings. The effects of these adjustments were reflected in the accompanying financial statements for the nine months ended March 31, 2016.

Note 2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements    
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 includes provisions to simplify several aspects of accounting for share-based payment transactions, including income tax consequences, accounting for forfeitures, classification of awards as either equity or liability, and classification on the statement of cash flows. ASU 2016-09 includes a requirement that the tax effect related to the settlement of share-based awards be recorded within income tax expense or benefit in the income statement. The simplification of income tax accounting for share-based payment transactions also impacts the computation of weighted-average diluted shares outstanding under the treasury stock method. ASU 2016-09 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company elected to adopt ASU 2016-09 during the three months ended September 30, 2016 and the impact of the adoption resulted in the following:
The Company elected to account for forfeitures of stock-based compensation awards when they occur. This adoption did not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
The Company recorded a tax benefit of $12.1 million within provision for income taxes for the nine months ended March 31, 2017 related to excess tax benefits on stock options, restricted stock, and restricted stock units. Prior to adoption, the tax effect of share-based awards would have been recognized in additional paid-in capital. This change will result in increased volatility in the Company's effective tax rate.
In addition, ASU 2016-09 modifies the classification of certain share-based payment activities within the statements of cash flows. Under ASU 2016-09, excess tax benefits from share-based arrangements are classified within cash flow from operations, rather than as cash flow from financing activities. The Company applied this provision on a prospective basis and the prior period statement of cash flows was not adjusted.
In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force)." ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual, and interim periods within those annual periods, beginning after December 15, 2015. The Company adopted ASU 2014-12 during the three months ended September 30, 2016. This adoption did not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
Recently Issued Accounting Pronouncements    
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other.” ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation.  Goodwill impairment will now be the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill. ASU 2017-04 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.

11


In November 2016, the FASB issued ASU 2016-18, “Restricted Cash.” ASU 2016-18 clarifies cash flow presentation for restricted cash. ASU 2016-18 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2017. The adoption of ASU 2016-18 will not have a material impact on the Company's consolidated statements of cash flows.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230).” ASU 2016-15 addresses eight specific cash flow issues where there is diversity in practice in how these certain cash receipts and cash payments are presented and classified in the statements of cash flows. ASU 2016-15 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2017. The adoption of ASU 2016-15 will not have a material impact on the Company's consolidated statements of cash flows.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires that lessees recognize right-of-use assets and lease liabilities for any lease classified as either a finance or operating lease that is not considered short-term. The accounting applied by lessors is largely consistent with the existing lease standard. ASU 2016-02 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018. The Company has obligations under lease agreements for facilities and equipment, which are classified as operating leases under the existing lease standard. While the Company is still evaluating the impact that ASU 2016-02 will have on the consolidated results of operations, financial condition, or cash flows, the Company's financial statements will reflect an increase in both assets and liabilities due to the requirement to recognize right-of-use assets and lease liabilities on the consolidated balance sheets for its facility and equipment leases.     
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 requires an entity to recognize revenue depicting the transfer of 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. ASU 2014-09 will also result in enhanced revenue related disclosures. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). In July 2015, the FASB decided to defer the effective date of ASU 2014-09 by one year and subsequently issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date." As a result, this standard, and subsequent amendments thereto, will be effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. While the Company is currently evaluating the impact of ASU 2014-09, and related ASUs, on its consolidated results of operations, financial condition, or cash flows, the Company has concluded that it will adopt this standard on a modified retrospective basis, which will result in a cumulative effect adjustment to retained earnings when the standard is adopted on July 1, 2018.
Note 3. Acquisitions
RedBumper, LLC and NewCarIQ, LLC
On February 1, 2016, the Company acquired certain assets of RedBumper, LLC and NewCarIQ, LLC, providers of technology solutions for new and used car pricing. The Company had a pre-existing relationship with these entities under which CDK was a reseller of their products. The acquisitions were made pursuant to asset purchase agreements, which contain customary representations, warranties, covenants, and indemnities by the sellers and the Company. The acquisition date fair value of total consideration to be transferred was $32.4 million, which consists primarily of an initial cash price of $17.7 million and a liability for contingent consideration of $14.3 million. Contingent consideration payments occurring within three months following the acquisition date are classified within investing activities on the statement of cash flows; subsequent payments are included within financing activities. Accordingly, $0.3 million of contingent consideration payments made during the three months ended March 31, 2016 are included in investing activities as cash paid for the acquisitions. The Company funded the initial payment with cash on hand.


12


Note 4. Restructuring
During the fiscal year ended June 30, 2015, the Company initiated a three-year business transformation plan intended to increase operating efficiency and improve the Company's cost structure within its global operations. The business transformation plan is expected to produce significant benefits in the Company's long-term business performance. As the Company executes the business transformation plan, the Company continually monitors, evaluates and refines its structure, including its design, goals, term and estimate of total restructuring expenses. As part of this process, during the three months ended December 31, 2016, the Company extended the business transformation plan by one year to June 30, 2019 ("fiscal 2019"), and updated its current estimate of total restructuring expenses under the business transformation plan to approximately $70 million through fiscal 2019.
Restructuring expenses associated with the business transformation plan included employee-related costs, which represent severance and other termination-related benefits calculated based on long-standing benefit practices and local statutory requirements, and contract termination costs. The Company recognized $6.9 million and $7.7 million of restructuring expenses for the three months ended March 31, 2017 and 2016, respectively, and $10.3 million and $11.4 million for the nine months ended March 31, 2017 and 2016, respectively. Since the inception of the business transformation plan in the fourth quarter of fiscal 2015, the Company has recognized cumulative restructuring expenses of $32.9 million. Restructuring expenses are presented separately on the condensed consolidated statements of operations. Restructuring expenses are recorded in the Other segment, as these initiatives are predominantly centrally directed and are not included in internal measures of segment operating performance.
Accruals for restructuring expenses were included within accrued expenses and other current liabilities on the consolidated balance sheets as of March 31, 2017 and June 30, 2016. The following table summarizes the activity for the restructuring accrual for the nine months ended March 31, 2017:
 
Employee-Related Costs
 
Contract Termination Costs
 
Total Costs
Balance as of June 30, 2016
$
9.0

 
$
0.9

 
$
9.9

Charges
9.1

 
2.1

 
11.2

Cash payments
(11.2
)
 
(1.9
)
 
(13.1
)
Adjustments
(0.6
)
 
(0.3
)
 
(0.9
)
Foreign exchange
(0.1
)
 

 
(0.1
)
Balance as of March 31, 2017
$
6.2

 
$
0.8

 
$
7.0


Note 5. Earnings per Share
The numerator for both basic and diluted earnings per share is net earnings attributable to CDK. The denominator for basic and diluted earnings per share is based upon the weighted-average number of shares of the Company's common stock outstanding during the reporting periods. Diluted earnings per share also reflects the dilutive effect of unexercised in-the-money stock options and unvested restricted stock.
Holders of certain stock-based compensation awards are eligible to receive dividends as described in Note 8. Net earnings allocated to participating securities were not significant for the three and nine months ended March 31, 2017 and 2016.

13


The following table summarizes the components of basic and diluted earnings per share:
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,

2017

2016

2017
 
2016
Net earnings attributable to CDK
$
77.3

 
$
53.8

 
$
236.9

 
$
181.0








 
 
 
Weighted-average shares outstanding:






 
 
 
Basic
145.2


155.4


148.1

 
157.8

Effect of employee stock options
0.6


0.5


0.7

 
0.5

Effect of employee restricted stock
0.7


0.4


0.5

 
0.4

Diluted
146.5


156.3


149.3

 
158.7








 
 
 
Basic earnings attributable to CDK per share
$
0.53


$
0.35


$
1.60

 
$
1.15

Diluted earnings attributable to CDK per share
$
0.53


$
0.34


$
1.59

 
$
1.14


The weighted-average number of shares outstanding used in the calculation of diluted earnings per share does not include the effect of the following anti-dilutive securities.
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
Stock-based awards
0.4

 
0.4

 
0.8

 
0.4



Note 6. Goodwill and Intangible Assets, Net
In July 2016, the Company revised its reportable segments and reporting units due to how the chief operating decision maker regularly reviews information for purposes of allocating resources and assessing performance. Due to the change in organization structure, the Company expanded its reporting units from three to five. As a result, goodwill was reallocated to the new reporting units using a relative fair value approach. The indicated fair values substantially exceeded the carrying values of all reporting units. Goodwill has been restated to reflect the reallocation of goodwill based on the current reportable segments. Refer to Note 14 for further information.
Changes in goodwill for the nine months ended March 31, 2017 were as follows:
 
Retail Solutions North America
 
Advertising North America
 
CDK International
 
Total
Balance as of June 30, 2016
$
604.7

 
$
214.3

 
$
363.7

 
$
1,182.7

Currency translation adjustments
(0.7
)
 

 
(16.2
)
 
(16.9
)
Balance as of March 31, 2017
$
604.0

 
$
214.3

 
$
347.5

 
$
1,165.8



14



Components of intangible assets, net were as follows:
 
March 31, 2017
 
June 30, 2016
 
Original Cost
 
Accumulated Amortization
 
Intangible Assets, net
 
Original Cost
 
Accumulated Amortization
 
Intangible Assets, net
Customer lists
$
174.0

 
$
(125.8
)
 
$
48.2

 
$
175.5

 
$
(117.5
)
 
$
58.0

Software
156.5

 
(107.2
)
 
49.3

 
141.0

 
(96.1
)
 
44.9

Trademarks
25.0

 
(23.9
)
 
1.1

 
25.0

 
(23.5
)
 
1.5

Other intangibles
6.3

 
(3.0
)
 
3.3

 
6.1

 
(2.7
)
 
3.4

 
$
361.8

 
$
(259.9
)
 
$
101.9

 
$
347.6

 
$
(239.8
)
 
$
107.8

Other intangibles consist primarily of purchased rights, covenants, and patents (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted-average remaining useful life of intangible assets is 5 years (7 years for customer lists, 4 years for software and software licenses, and 2 years for trademarks). Amortization of intangible assets was $6.9 million and $8.1 million for the three months ended March 31, 2017 and 2016, respectively, and $22.1 million and $21.0 million for the nine months ended March 31, 2017 and 2016, respectively.
Estimated amortization expenses of the Company's existing intangible assets as of March 31, 2017 were as follows:
 
Amount
Three months ending June 30, 2017
$
7.9

Twelve months ending June 30, 2018
28.8

Twelve months ending June 30, 2019
19.3

Twelve months ending June 30, 2020
14.4

Twelve months ending June 30, 2021
10.9

Twelve months ending June 30, 2022
7.9

Thereafter
12.7

 
$
101.9

    

Note 7. Debt
Debt was comprised of the following as of March 31, 2017 and June 30, 2016:
 
March 31, 2017
 
June 30, 2016
Revolving credit facility
$

 
$

2019 term loan facility
218.8

 
228.1

2020 term loan facility
234.4

 
243.8

2021 term loan facility
395.0

 

3.30% senior notes, due 2019
250.0

 
250.0

4.50% senior notes, due 2024
500.0

 
500.0

Capital lease obligations
2.0

 
3.6

Unamortized debt financing costs
(8.9
)
 
(8.4
)
Total debt and capital lease obligations
1,591.3

 
1,217.1

Current maturities of long-term debt and capital lease obligations
46.8

 
26.8

Total long-term debt and capital lease obligations
$
1,544.5

 
$
1,190.3


15



Revolving Credit Facility
The Company has a five-year senior unsecured revolving credit facility, which was undrawn as of March 31, 2017 and June 30, 2016. The revolving credit facility provides up to $300.0 million of borrowing capacity and includes a sub-limit of up to $100.0 million for loans in Euro and Pound Sterling. In addition, the revolving credit facility contains an accordion feature that allows for an increase in the available borrowing capacity under the revolving credit facility of up to $100.0 million, subject to the agreement of lenders under the revolving credit facility or other financial institutions that become lenders to extend commitments as part of the increased revolving credit facility. Borrowings under the revolving credit facility are available for general corporate purposes. The revolving credit facility will mature on September 30, 2019, subject to no more than two one-year extensions if lenders holding a majority of the revolving commitments approve such extensions.
The revolving credit facility is unsecured and loans thereunder bear interest, at the Company's option, at (a) the rate at which deposits in the applicable currency are offered in the London interbank market (or, in the case of borrowings in Euro, the European interbank market) plus margins varying from 1.125% to 2.000% per annum based on the Company's senior, unsecured non-credit-enhanced, long-term debt ratings from Standard & Poor's Ratings Group and Moody's Investors Services Inc. (the "Ratings") or (b) solely in the case of U.S. dollar loans, (i) the highest of (A) the prime rate of JPMorgan Chase Bank, N.A., (B) a rate equal to the average of the overnight federal funds rate with a maturity of one day plus a margin of 0.500% per annum and (C) the rate at which dollar deposits are offered in the London interbank market for a one-month interest period plus 1.000% plus (ii) margins varying from 0.125% to 1.000% per annum based on the Ratings. The unused portion of the revolving credit facility is subject to commitment fees ranging from 0.125% to 0.350% per annum based on the Ratings.
Term Loan Facilities
The Company has two five-year $250.0 million senior unsecured term loan facilities that mature on September 16, 2019 (the "2019 term loan facility") and December 14, 2020 (the "2020 term loan facility"), respectively. On December 9, 2016, the Company entered into a five-year $400.0 million senior unsecured term loan facility that matures on December 9, 2021 (the "2021 term loan facility"). The 2019 term loan facility, 2020 term loan facility, and 2021 term loan facility are together referred to as the "term loan facilities." The term loan facilities are subject to amortization in equal quarterly installments of 1.25% of the aggregate principal amount of the term loans made on the respective closing dates, with any unpaid principal amount to be due and payable on the maturity date.
The 2019 term loan facility and 2020 term loan facilities bear interest at the same calculations as are applicable to dollar loans under the revolving credit facility. The interest rate per annum on both the 2019 term loan facility and 2020 term loan facility was 2.74% as of March 31, 2017 and 1.97% as of June 30, 2016.
The 2021 term loan bears interest, at the Company's option, at (a) the rate at which deposits in the applicable currency are offered in the London interbank market plus margins varying from 1.250% to 2.500% per annum based on the Company's senior, unsecured non-credit-enhanced, long-term debt ratings from Standard & Poor's Ratings Group and Moody's Investors Services Inc. (the "Ratings") or (b) (i) the highest of (A) the prime rate of Bank of America, N.A., (B) a rate equal to the average of the overnight federal funds rate with a maturity of one day plus a margin of 0.500% per annum and (C) the rate at which dollar deposits are offered in the London interbank market for a one-month interest period plus 1.000% plus (ii) margins varying from 0.25% to 1.50% per annum based on the Ratings. The interest rate per annum on the 2021 term loan facility was 2.74% as of March 31, 2017.
Restrictive Covenants and Other Matters
The revolving credit facility and the term loan facilities are together referred to as the "credit facilities." The credit facilities contain various covenants and restrictive provisions that limit the Company's subsidiaries' ability to incur additional indebtedness; the Company's ability to consolidate or merge with other entities; and the Company's subsidiaries' ability to incur liens, enter into sale and leaseback transactions, and enter into agreements restricting the ability of the Company's subsidiaries to pay dividends. If the Company fails to perform the obligations under these and other covenants, the credit facilities could be terminated and any outstanding borrowings, together with accrued interest, under the credit facilities could be declared immediately due and payable. The credit facilities also have, in addition to customary events of default, an event of default triggered by the acceleration of the maturity of any other indebtedness the Company may have in an aggregate principal amount in excess of $75.0 million.
The credit facilities also contain financial covenants that provide that (i) the ratio of total consolidated indebtedness to consolidated EBITDA shall not exceed 3.50 to 1.00 and (ii) the ratio of consolidated EBITDA to consolidated interest expense shall be a minimum of 3.00 to 1.00.

16



On December 9, 2016, the Company entered into (i) an Amendment to its Credit Agreement that covered the revolving credit facility and the 2019 term loan facility (the “2014 amendment”), and (ii) an Amendment to its Credit Agreement that covered the 2020 term loan facility (the “2015 amendment”). The 2014 amendment and the 2015 amendment amended certain “bail-in” language relating to EEA Financial Institutions and make certain changes to the definitions of “Change in Control,” “Consolidated EBITDA,” “Defaulting Lender,” and “Eligible Assignee.”
Senior Notes
On October 14, 2014, the Company completed an offering of 3.30% senior notes with a $250.0 million aggregate principal amount due in 2019 (the "2019 notes") and 4.50% senior notes with a $500.0 million aggregate principal amount due in 2024 (the "2024 notes" and together with the 2019 notes, the "senior notes"). The issuance price of the senior notes was equal to the stated value. Interest is payable semi-annually on April 15 and October 15 of each year, and payment commenced on April 15, 2015. The interest rate payable on each applicable series of senior notes is subject to adjustment from time to time if the credit ratings assigned to any series of senior notes by the rating agencies is downgraded (or subsequently upgraded). The 2019 notes will mature on October 15, 2019, and the 2024 notes will mature on October 15, 2024. The senior notes are general unsecured obligations of the Company and are not guaranteed by any of the Company's subsidiaries.
The senior notes rank equally in right of payment with the Company's existing and future unsecured unsubordinated obligations, including the credit facilities. The senior notes contain covenants restricting the Company's ability to incur additional indebtedness secured by liens, engage in sale/leaseback transactions, and merge, consolidate, or transfer all or substantially all of the Company's assets.
The senior notes are redeemable at the Company's option prior to September 15, 2019 for the 2019 notes and prior to July 15, 2024 for the 2024 notes at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the senior notes to be redeemed, and (ii) the sum of the present value of the remaining scheduled payments (as defined in the agreement), plus in each case, accrued and unpaid interest thereon. Subsequent to September 15, 2019 and July 15, 2024, the redemption price for the 2019 notes and the 2024 notes, respectively, will equal 100% of the aggregate principal amount of the notes redeemed, plus accrued and unpaid interest thereon. The senior notes are also subject to a change of control provision whereby each holder of the senior notes has the right to require the Company to purchase all or a portion of such holder's senior notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest upon the occurrence of both a change of control and a decline in the rating of the senior notes.
In November 2016, Moody's and S&P lowered their credit ratings on the senior notes to Ba1 (Stable Outlook) from Baa3 (Negative Outlook) and to BB+ (Stable Outlook) from BBB- (Negative Outlook), respectively. The downgrades triggered interest rate adjustments for the senior notes. Interest rates for the 2019 notes and 2024 notes increased to 3.80% from 3.30%, and to 5.00% from 4.50%, respectively, effective October 15, 2016.
Capital Lease Obligations
The Company has lease agreements for equipment, which are classified as capital lease obligations. The Company recognized the capital lease obligations and related leased equipment assets based on the present value of the minimum lease payments at lease inception.
Unamortized Debt Financing Costs
As of March 31, 2017 and June 30, 2016, gross debt issuance costs related to debt instruments were $13.2 million and $11.1 million, respectively. Accumulated amortization was $4.3 million and $2.7 million as of March 31, 2017 and June 30, 2016, respectively. Debt issuance costs of $2.1 million were capitalized for the 2021 term loan facility in December 2016. Debt financing costs are amortized over the terms of the related debt instruments to interest expense on the consolidated statements of operations.

17



The Company's aggregate scheduled maturities of the long-term debt and capital lease obligations as of March 31, 2017 were as follows:
 
Amount
Twelve months ending March 31, 2018
$
46.8

Twelve months ending March 31, 2019
45.2

Twelve months ending March 31, 2020
476.3

Twelve months ending March 31, 2021
216.9

Twelve months ending March 31, 2022
315.0

Thereafter
500.0

Total debt and capital lease obligations
1,600.2

Unamortized debt financing costs
(8.9
)
Total debt and capital lease obligations, net of unamortized debt financing costs
$
1,591.3


Note 8. Stock-Based Compensation
Incentive Equity Awards Granted by the Company
The 2014 Omnibus Award Plan ("2014 Plan") provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, and performance compensation awards to employees, directors, officers, consultants, and advisors, and those of the Company's affiliates. The 2014 Plan provides for an aggregate of 12.0 million shares of the Company's common stock to be reserved for issuance and is effective for a period of ten years. In fiscal 2016, the Company began reissuing treasury stock to satisfy issuances of common stock upon option exercise or vesting.
Prior to the spin-off, all employee equity awards (stock options and restricted stock) were granted by ADP. All subsequent awards, including all incentive equity awards converted from ADP awards, were granted under the 2014 Plan. The Company recognizes stock-based compensation expense associated with employee equity awards in net earnings based on the fair value of the awards on the date of grant. Effective July 1, 2016, the Company adopted ASU 2016-09. Upon adoption, the Company made an accounting policy election to account for forfeitures as they occur rather than apply an estimated forfeiture rate. See Note 2 for additional details regarding the adoption of ASU 2016-09. Stock-based compensation primarily consisted of the following for the three and nine months ended March 31, 2017 and 2016:
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 date of grant. Stock options are issued under a graded vesting schedule and generally have a term of ten years. Compensation expense is measured based on the fair value of the stock option on the grant date and recognized over the requisite service period for each separately vesting portion of the stock option award.
Time-Based Restricted Stock and Time-Based Restricted Stock Units. Time-based restricted stock and restricted stock units generally vest over a two to five-year period.
Time-based restricted stock cannot be transferred during the vesting period. Compensation expense related to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. Employees are eligible to receive cash dividends on the CDK shares awarded under the time-based restricted stock program.
Time-based restricted stock units are primarily settled in cash, but may also be settled in stock. Compensation expense related to the issuance of time-based restricted stock units is recorded over the vesting period and is initially based on the fair value of the award on the grant date. Cash-settled, time-based restricted stock units are subsequently remeasured at each reporting date during the vesting period to the current stock value. No dividend equivalents are paid on units awarded under the time-based restricted stock unit program during the restricted period.
Performance-Based Restricted Stock Units. Performance-based restricted stock units generally vest over a three-year performance period. In the nine months ended March 31, 2017, an additional one-time grant of performance restricted stock was made which will vest at the end of fiscal year June 30, 2020. Under these programs, the Company communicates "target

18



awards" at the beginning of the performance period with possible payouts at the end of the performance period ranging from 0% to 250% of the "target awards" plus any dividend equivalents, as described below. Certain performance-based restricted stock units are further subject to adjustment (increase or decrease) based on a market condition defined as the total shareholder return of the Company's common stock compared to a peer group of companies.
Performance-based restricted stock units are settled in either cash or stock, depending on the employee’s home country, and cannot be transferred during the vesting period. Compensation expense related to the issuance of performance-based restricted stock units settled in cash is recorded over the vesting period, is initially based on the fair value of the award on the grant date, and is subsequently remeasured at each reporting date to the current stock value during the performance period, based upon the probability that the performance target will be met. Compensation expense related to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date. Prior to settlement, dividend equivalents are earned on "target awards" under the performance-based restricted stock unit program.
The following table represents stock-based compensation expense and the related income tax benefits for the three and nine months ended March 31, 2017 and 2016, respectively:
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
Cost of revenues
$
1.0

 
$
1.7

 
$
3.3

 
$
4.3

Selling, general and administrative expenses
10.8

 
11.0

 
29.0

 
21.2

Total pre-tax stock-based compensation expense
$
11.8

 
$
12.7

 
$
32.3

 
$
25.5

 
 
 
 
 
 
 
 
Income tax benefit
$
4.1

 
$
4.8

 
$
11.1

 
$
9.2

Stock-based compensation expense for the nine months ended March 31, 2017 consisted of $26.2 million of expense related to equity classified awards and $6.1 million of expense related to liability classified awards. Stock-based compensation expense for the three and nine months ended March 31, 2016 includes $3.5 million of incremental stock-based compensation expense for awards that were modified or expense recognition that was accelerated related to the Transition and Release Agreement entered into with Mr. Anenen on February 2, 2016.
As of March 31, 2017, the total unrecognized compensation cost related to non-vested stock options, restricted stock units, and restricted stock awards was $3.9 million, $34.5 million, and $15.9 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 2.3 years, 1.9 years, and 1.5 years, respectively.
The activity related to the Company's incentive equity awards from June 30, 2016 to March 31, 2017 consisted of the following:
Stock Options
 
Number
of Options
(in thousands)
 
Weighted
Average Exercise Price
(in dollars)
Options outstanding as of June 30, 2016
1,594

 
$
27.64

Options granted
397

 
58.75

Options exercised
(543
)
 
21.65

Options canceled
(27
)
 
54.90

Options outstanding as of March 31, 2017
1,421

 
$
38.33


19



Time-Based Restricted Stock and Time-Based Restricted Stock Units
 
Number of Shares
(in thousands)
 
Number of Units
(in thousands)
Non-vested restricted units/shares as of June 30, 2016
616

 
271

Restricted shares/units granted
308

 
97

Restricted shares/units vested
(370
)
 
(143
)
Restricted shares/units forfeited
(40
)
 
(8
)
Non-vested restricted units/shares as of March 31, 2017
514

 
217

Performance-Based Restricted Stock Units
 
Number of Units
(in thousands)
Non-vested restricted units as of June 30, 2016
476

Restricted units granted
398

Dividend equivalents
6

Restricted units forfeited
(18
)
Non-vested restricted units as of March 31, 2017
862

In the nine months ended March 31, 2017, two grants of performance-based stock units were made which will vest at the end of fiscal years June 30, 2019 and 2020. The Monte Carlo simulation model was used to determine the grant date fair value of each grant based on an average historical stock price volatility for the Company and the peer companies of 32.2% and 31.9% and a risk-free interest rate of 0.9% and 1.0% for the grants vesting at the end of fiscal years June 30, 2019 and 2020, respectively. Because these awards earn dividend equivalents, the model did not assume an expected dividend yield.
The following table presents the assumptions used in the binomial model to determine the fair value of stock options granted during the nine months ended March 31, 2017:
Risk-free interest rate
1.4
%
Dividend yield
0.9
%
Weighted-average volatility factor
24.5
%
Weighted-average expected life (in years)
6.3

Weighted-average fair value (in dollars)
$
13.90


Note 9. Income Taxes
Tax Matters Agreement
The Company and ADP entered into a tax matters agreement as part of the spin-off that governs the rights and obligations of both parties after the spin-off with respect to taxes for both pre and post spin-off periods. Under this agreement, ADP is generally required to indemnify the Company for any income taxes attributable to ADP's operations or the Company's operations and for any non-income taxes attributable to ADP's operations, in each case for all pre spin-off periods as well as any taxes arising from transactions effected to consummate the spin-off, and the Company generally is required to indemnify ADP for any non-income taxes attributable to the Company's operations for all pre spin-off periods and for any income taxes attributable to the Company's operations for post spin-off periods.
The Company is generally required to indemnify ADP against any tax resulting from the spin-off (and against any claims made against ADP in respect of any tax imposed on its stockholders), in each case if that tax results from (i) an issuance of a significant amount of the Company's equity securities, a redemption of a significant amount of the Company's equity securities or the Company's involvement in other significant acquisitions of the Company's equity securities (excluding the spin-off), (ii) other actions or failures to act by the Company, or (iii) any of the Company's representations or undertakings

20



referred to in the tax matters agreement being incorrect or violated. ADP will generally be required to indemnify the Company for any tax resulting from the spin-off if that tax results from (a) ADP's issuance of its equity securities, redemption of its equity securities or involvement in other acquisitions of its equity securities, (b) other actions or failures to act by ADP, or (c) any of ADP's representations or undertakings referred to in the tax matters agreement being incorrect or violated.
The Company recognized receivables from ADP of $1.0 million and $1.1 million as of March 31, 2017 and June 30, 2016, respectively, and payables to ADP of $1.2 million and $1.6 million as of March 31, 2017 and June 30, 2016, respectively, under the tax matters agreement.
Valuation Allowance
The Company had valuation allowances of $34.1 million and $34.3 million as of March 31, 2017 and June 30, 2016, respectively. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will expire unutilized. At the end of each reporting period, the Company reviews the realizability of its deferred tax assets. During the nine months ended March 31, 2017, the valuation allowance balance was decreased for a Canadian valuation allowance adjustment and increased for current year deferred tax movements and currency exchange fluctuations. The valuation allowance adjustment was recorded during the nine months ended March 31, 2017 based on achieving three years of cumulative pre-tax income and forecasts of future pre-tax income, and therefore, the Company adjusted the valuation allowance by $1.1 million resulting in an income tax provision benefit.
Unrecognized Income Tax Benefits    
As of March 31, 2017 and June 30, 2016, the Company had unrecognized income tax benefits of $6.9 million and $4.7 million, respectively, of which $5.2 million and $3.6 million, respectively, would impact the effective tax rate if recognized. During the nine months ended March 31, 2017, the Company increased its unrecognized income tax benefits related to current year and prior year tax positions by $1.0 million and $1.3 million, respectively, based on information that indicates the extent to which certain tax positions are more likely than not of being sustained and decreased its unrecognized income tax benefits by $0.1 million due to an expiration of statute.
Provision for Income Taxes    
The effective tax rate for the three months ended March 31, 2017 and 2016 was 28.6% and 29.1%, respectively. The effective tax rate for three months ended March 31, 2017 was favorably impacted by $3.4 million of excess tax benefits associated with adopting ASU 2016-09 effective July 1, 2016 as described in Note 2 and by $2.4 million of tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to mix of earnings by jurisdiction. The effective tax rate for the three months ended March 31, 2016 was favorably impacted by a $5.4 million tax benefit related to the domestic production activities deduction, of which $2.7 million relates to the fiscal year ended June 30, 2015 and $2.7 million relates to the nine months ended March 31, 2016. The effective tax rate for the three months ended March 31, 2016 was also favorably impacted by $1.4 million of tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to lower non-deductible stock-based compensation and a net $1.2 million return-to-provision adjustment. The favorable effects were partially offset by expense of $3.4 million associated with the recognition of a deferred tax liability for undistributed foreign earnings.
The effective tax rate for the nine months ended March 31, 2017 and 2016 was 29.2% and 33.6%, respectively. The effective tax rate for the nine months ended March 31, 2017 was favorably impacted by $12.1 million of excess tax benefits associated with adopting ASU 2016-09, by $2.4 million of tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to mix of earnings by jurisdiction, and a $1.1 million Canadian valuation allowance adjustment. The effective tax rate for the nine months ended March 31, 2016 was favorably impacted by a tax benefit related to the domestic production activities deduction, a non-taxable indemnification gain of $2.6 million recorded in other income, a tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to lower non-deductible stock-based compensation, a net return-to-provision adjustment, and a tax benefit associated with pre spin-off tax refunds, partially offset by the recognition of a deferred tax liability for undistributed foreign earnings.

Note 10. Commitments and Contingencies
The Company is subject to various claims and litigation in the normal course of business. When a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its best estimate for the ultimate loss. There can be no assurance that these matters will be resolved in a manner that is not adverse to the Company.

21



In the normal course of business, the Company may enter into contracts in which it makes representations and warranties that relate to the performance of the Company’s services and products. The Company does not expect any material losses related to such representations and warranties.

Note 11. Accumulated Other Comprehensive Income ("AOCI")
Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss). Other comprehensive income (loss) results from items deferred on the consolidated balance sheets in CDK stockholders' equity. The Company's other comprehensive income (loss) for the three and nine months ended March 31, 2017 and 2016 and AOCI balances as of March 31, 2017 and June 30, 2016 were comprised solely of currency translation adjustments. Other comprehensive income (loss) was $8.8 million and $6.4 million for the three months ended March 31, 2017 and 2016, respectively, and was $(22.1) million and $(25.4) million for the nine months ended March 31, 2017 and 2016, respectively. The accumulated balances reported in AOCI on the consolidated balance sheets for currency translation adjustments were $(16.3) million and $5.8 million as of March 31, 2017 and June 30, 2016, respectively.

Note 12. Share Repurchase Transactions
In December 2015, the Board of Directors authorized the Company to repurchase up to $1.0 billion of its common stock as part of its $1.0 billion return of capital plan. In December 2016, the Company completed its $1.0 billion return of capital plan. In January 2017, the Board of Directors terminated this authorization and replaced it with an authorization for us to repurchase up to $2.0 billion of our common stock as part of a new return of capital plan. Under the authorization, the Company may purchase its common stock in the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The actual timing, number, and price of any shares to be repurchased is determined at management's discretion and depends on a number of factors, including the market price of the shares, general market and economic conditions, and other potential uses for free cash flow including, but not limited to, potential acquisitions.
In June 2016, the Company entered into an accelerated share repurchase agreement ("June 2016 ASR") to purchase $300.0 million of the Company's common stock. Under the terms of the June 2016 ASR, the Company made a $300.0 million payment in June 2016 and received an initial delivery of approximately 4.3 million of the Company's common stock. In September 2016, the Company received an additional 1.0 million shares of common stock in final settlement of the June 2016 ASR, for a total of 5.3 million shares. The value reflected in treasury stock upon completion of the June 2016 ASR represents the value of the shares received based on the closing price of the Company's stock on the respective settlement dates, which is less than the $300.0 million cash paid by $3.1 million.
In December 2016, the Company entered into an accelerated share repurchase agreement ("December 2016 ASR") to purchase $330.0 million of the Company's common stock. Under the terms of the December 2016 ASR, the Company made a $330.0 million payment in December 2016 and received an initial delivery of approximately 4.5 million shares of the Company's common stock. The payment was recorded as a reduction to stockholders' equity, consisting of a $264.0 million increase in treasury stock, which reflects the value of the 4.5 million shares received upon initial settlement, and a $66.0 million decrease in additional paid-in-capital, which reflects the value of stock held back. The final settlement of the December 2016 ASR is expected to occur no later than the end of the Company's fiscal year ending June 30, 2017 and may result in the receipt or delivery of additional shares of common stock. Additionally, the Company made open market repurchases of 0.3 million shares of our common stock during the nine months ended March 31, 2017 for a total cost of approximately $20.0 million.
The final number of shares purchased under the ASRs is calculated based on the average of the daily volume-weighted average price of the Company's common stock during the term of the respective ASR transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the respective ASR agreement.     
Note 13. Transactions with ADP
Prior to the spin-off, the Company entered into a transition services agreement with ADP to provide for an orderly transition to being an independent company. Among the principal services to be provided by ADP to the Company were operational and administrative infrastructure-related services, such as use of the e-mail domain “adp.com,” facilities sharing, procurement support, tax, human resources administrative services and services related to back office support, and software

22


development in ADP's Indian facilities. Among the principal services to be provided by the Company to ADP were operational and administrative infrastructure-related services, such as facilities sharing, and human resources administrative services. The agreement expired one year after the spin-off date.
The Company entered into a data services agreement with ADP prior to the spin-off under which ADP provided the Company with certain data center sharing services relating to the provision of information technology, platform support, hosting, network services, and leases of equipment. The term of the agreement expired two years after the spin-off date.
For the three and nine months ended March 31, 2017, the Company recorded $0.7 million and $3.0 million of expenses related to the data services agreement in the accompanying financial statements, respectively. The continuing data services expenses in fiscal 2017 primarily relate to leases of equipment that have expiration dates past the term of the agreement. For the three and nine months ended March 31, 2016, the Company recorded $0.4 million and $2.1 million, respectively, of expense related to the transition services agreement and $1.5 million and $6.0 million, respectively, of expense related to the data services agreement in the accompanying financial statements. As of June 30, 2016, the Company had amounts payable to ADP under the transition services and data services agreements of $0.1 million and the Company had no amounts payable to ADP at March 31, 2017.

Note 14. Financial Data by Segment
On July 1, 2016, the Company executed a comprehensive reorganization to streamline its organization that will enable it to deliver an improved customer experience, create significant efficiencies, and better align it to implement the business transformation plan. The organizational changes included integrating product management, combining the Digital Marketing and Automotive Retail North America operations into a single organization, creating a single North America sales organization, and forming a global research and development organization. In connection with this reorganization, information that the Company's chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed resulting in a reassessment of operating segments.
The Company reorganized into two main operating groups. In connection with this reorganization, our operating segments have changed. The Company's first operating group is CDK North America which is comprised of two reportable segments, Retail Solutions North American and Advertising North America. The second operating group, which is also a reportable segment, is CDK International. Segment information for the three and nine months ended March 31, 2016 has been updated to conform to the new presentation.
The primary components of the Other segment are corporate allocations and other expenses not recorded in the segment results, such as stock-based compensation expense, corporate costs, interest expense, costs attributable to the business transformation plan, results of our captive insurance company and certain unallocated expenses. Certain expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility.
Revenue by segment was as follows:
 
Revenues
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
CDK North America:
 
 
 
 
 
 
 
Retail Solutions North America
$
404.9

 
$
387.2

 
$
1,194.1

 
$
1,135.4

Advertising North America
74.5

 
73.2

 
230.1

 
202.7

CDK International
76.9

 
77.3

 
230.6

 
234.3

Total
$
556.3

 
$
537.7

 
$
1,654.8

 
$
1,572.4


Supplemental disclosure of revenue by type was as follows:
Retail Solutions North America:

Subscription: for software and technology solutions provided to automotive retailers and OEMs, which includes:

23



Dealer Management Systems and layered applications, which may be installed onsite at the customer’s location, or hosted and provided on a Software as a Service basis, including ongoing maintenance and support;
Interrelated services such as installation, initial training, and data updates;
Websites, search marketing, and reputation management services; and
Hardware on a service basis, meaning no specific assets are identified or a substantive right of substitution exists.

Transaction: fees per transaction to process credit reports, vehicle registrations, and automotive equity mining.

Other: consulting and professional services, sales of hardware, and other miscellaneous revenues.    

Advertising North America revenues are primarily earned for placing internet advertisements for OEMs and automotive retailers.
CDK International revenues are generated primarily from Subscription revenue as described above, aside from the absence of website offerings.
 
Revenues
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
CDK North America:
 
 
 
 
 
 
 
Retail Solutions North America:
 
 
 
 


 


Subscription revenue
$
312.2

 
$
298.3

 
$
941.9

 
$
887.4

Transaction revenue
43.6

 
44.2

 
133.2

 
132.4

Other revenue
49.1

 
44.7

 
119.0

 
115.6

Total Retail Solutions North America
$
404.9

 
$
387.2

 
$
1,194.1

 
$
1,135.4

Advertising North America revenue
74.5

 
73.2

 
230.1

 
202.7

CDK International revenue
76.9

 
77.3

 
230.6

 
234.3

Total
$
556.3

 
$
537.7

 
$
1,654.8

 
$
1,572.4


    
Earnings before Income Taxes by segment was as follows:
 
Earnings before Income Taxes
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
CDK North America:
 
 
 
 
 
 
 
Retail Solutions North America
$
159.2

 
$
123.3

 
447.0

 
348.7

Advertising North America
10.2

 
8.8

 
31.5

 
17.6

CDK International
19.9

 
15.2

 
55.1

 
45.3

Other
(78.9
)
 
(68.7
)
 
(192.4
)
 
(130.4
)
Total
$
110.4

 
$
78.6

 
$
341.2

 
$
281.2


Assets by segment were as follows:
 
Assets
 
March 31, 2017
 
June 30, 2016
CDK North America:
 
 
 
Retail Solutions North America
$
1,261.3

 
$
1,240.9

Advertising North America
324.8

 
307.9


24



CDK International
524.7

 
539.4

Other
446.3

 
276.8

Total
$
2,557.1

 
$
2,365.0


25


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
(Tabular amounts in millions, except per share amounts)

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and other written or oral statements made from time to time by CDK Global, Inc. ("CDK" or the "Company") may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including target adjusted results for the Company's fiscal years ending June 30, 2018 and June 30, 2019, statements concerning the Company's payment of dividends and the repurchase of shares, leverage targets and the funding of the dividends and repurchases, and its business transformation plan, other plans, objectives, forecasts, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook and business trends, and other information, may be forward-looking statements. Words such as "might," "will," "may," "could," "should," "estimates," "expects," "continues," "contemplates," "anticipates," "projects," "plans," "potential," "predicts," "intends," "believes," "forecasts," "future," "assumes," and variations of such words or similar expressions are intended to identify forward-looking statements. In particular, information appearing under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed, or implied by, these forward-looking statements. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include:
the Company's success in obtaining, retaining, and selling additional services to customers;
the pricing of our products and services;
overall market and economic conditions, including interest rate and foreign currency trends, and technology trends;
adverse global economic conditions and credit markets and volatility in the countries in which we do business (such as the adverse economic impact and related uncertainty caused by the United Kingdom's decision to leave the European Union ("Brexit"));
auto sales and advertising and related industry changes;
competitive conditions;
changes in regulation;
changes in technology, security breaches, interruptions, failures, and other errors involving our systems;
availability of skilled technical employees/labor/personnel;
the impact of new acquisitions and divestitures;
employment and wage levels;
availability of capital for the payment of debt service obligations or dividends or the repurchase of shares;
any changes to our credit ratings and the impact of such changes on our financing costs, rates, terms, debt service obligations, access to capital market and working capital needs;
the impact of our indebtedness, our access to cash and financing, and our ability to secure financing or financing at attractive rates;
our ability to timely and effectively implement our business transformation plan, which is intended to increase operating efficiency and improve our global cost structure, while limiting or mitigating business disruption; and
the ability of significant stockholders of the Company and their affiliates to significantly influence our decisions.
There may be other factors that may cause our actual results to differ materially from the forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the “Risk Factors” under “Item 1A. Risk Factors” of our Annual Report on Form 10-K (the “Form 10-K”) and in this Quarterly Report on Form 10-Q under “Item 1A. Risk Factors,” for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.

26



All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on our website or otherwise, and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K. We disclaim any obligation to update or revise any forward-looking statements that may be made to reflect new information or future events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes thereto included elsewhere herein. In this Quarterly Report on Form 10-Q, all references to "we," "our," and "us" refer collectively to CDK and its consolidated subsidiaries.

27



RESULTS OF OPERATIONS
Executive Overview
We are a leading global provider of integrated information technology and digital marketing solutions to the automotive retail and adjacent industries. Focused on evolving the automotive retail experience, we provide solutions to dealers in more than 100 countries around the world, covering approximately 28,000 retail locations and most original equipment manufacturers ("OEMs"). We have over 40 years of history providing innovative solutions to automotive retailers and OEMs to better manage, analyze, and grow their businesses. Our solutions automate and integrate all parts of the dealership and buying process from targeted digital advertising and marketing campaigns to the sale, financing, insuring, parts supply, repair, and maintenance of vehicles. We believe the breadth of our integrated solutions allows us to more comprehensively address the varied needs of automotive retailers than any other single competitor in our industry.
Effective July 1, 2016, we completed a comprehensive plan to streamline our organization that will enable us to deliver an improved customer experience, create significant efficiencies, and better align us to implement our business transformation plan described below. The organizational changes included integrating product management, combining the Digital Marketing and Automotive Retail North America operations into a single organization, creating a single North America sales organization, and forming a global research and development organization. In connection with this reorganization, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed resulting in a reassessment of operating segments.
The Company reorganized into two main operating groups. In connection with this reorganization, our operating segments have changed. The Company's first operating group is CDK North America which is comprised of two reportable segments, Retail Solutions North America and Advertising North America. The second operating group, which is also a reportable segment, is CDK International. Segment information for the three and nine months ended March 31, 2016, has been updated to conform to the new presentation. A brief description of each of these three segments' operations is provided below.
Retail Solutions North America
Through our Retail Solutions North America ("RSNA") segment, we provide technology-based solutions, including automotive website platforms, that help automotive retailers, OEMs, and other industry participants manage the acquisition, sale, financing, insuring, parts supply, and repair and maintenance of vehicles. Our solutions help our customers streamline their operations, better target and serve their customers, and enhance the financial performance of their retail operations. In addition to providing solutions to retailers and manufacturers of automobiles, we also provide solutions to retailers and manufacturers of heavy trucks, construction equipment, agricultural equipment, motorcycles, boats, and other marine and recreational vehicles.
Advertising North America
Through our Advertising North America ("ANA") segment, we provide advertising solutions, including management of digital advertising spend, for OEMs and automotive retailers. These solutions provide a coordinated offering across multiple marketing channels to help achieve customer marketing and sales objectives and coordinate execution between OEMs and their retailer networks.
CDK International
Through our CDK International ("CDKI") segment, we provide technology-based solutions similar to the retail solutions provided in our RSNA segment in approximately 100 countries outside of the United States ("U.S.") and Canada. The solutions that we provide within this segment allow our customers to streamline their business operations and enhance their financial performance within their local marketplace, and in some cases where we deal directly with OEMs, across international borders. Customers of this segment include automotive retail dealers and OEMs across Europe, the Middle East, Asia, Africa, and Latin America.
Business Transformation Plan
During the fiscal year ended June 30, 2015 ("fiscal 2015"), we initiated a three-year business transformation plan that is intended to increase operating efficiency and improve the cost structure within our global operations. The business transformation plan is expected to produce significant benefits in our long-term business performance. We have described below the key workstreams on which we monitor and evaluate performance under the business transformation plan.

28



Workstream
 
Description
 
Savings Goal
MoveUp!
 
Migrate customers to latest software versions; engineer to reduce customizations
 
$15 - 20 million
Streamline implementation
 
Streamline installation and training process through improved technology, process, tools, and workflow
 
$25 - 30 million
Enhance customer service
 
Decrease resolution times through optimized case management and technology-enabled, intelligent, user-driven support
 
$10 - 15 million
Optimize sales and product offering
 
Adjust sales structure; reduce product complexity; expand bundling; optimize discount management; standardize pricing
 
$65 - 75 million
Simplify quote to cash
 
Reduce business complexity through integrated go-to-market model that leverages an automated contracting process, SKU rationalization, and streamlined invoicing
 
$25 - 30 million
Workforce efficiency and footprint
 
Increase efficiency through fewer layers and larger spans of control, geographic wage arbitrage, and reduced facility footprint
 
$65 - 70 million
Strategic sourcing
 
Disciplined vendor management and vendor consolidation
 
$30 - 35 million
CDK International
 
Comprehensive optimization across back office, R&D, implementation, and support
 
$10 - 15 million
Other
 
 
 
$20 million
Target
 
 
 
Approximately$300 million
In the second quarter of fiscal 2017, we reviewed our business transformation plan and have adjusted expected savings associated with the plan to be approximately $300 million over the periods covering fiscal 2016 extended through fiscal year ending June 30, 2019 (“fiscal 2019”) with a targeted adjusted EBITDA margin for the fiscal year ended June 30, 2018 (“fiscal 2018”) of 35%. We expect to achieve a target EBITDA exit margin of 36%-38% for fourth quarter of fiscal 2018 and 40% or above for fourth quarter of fiscal 2019. See "Results of Operations - Non-GAAP Measures" for a discussion regarding our use of non-GAAP measures and a reconciliation of our non-GAAP measures to the nearest GAAP measures.
Fiscal 2018 and 2019 targets represent a financial objective distinct from forecasts of performance. Therefore, we have not provided a reconciliation of our fiscal 2018 and 2019 adjusted EBITDA targets to the most directly comparable GAAP measure of net earnings attributable to CDK, because projecting potential adjustments to GAAP results for fiscal 2018 and 2019 targets is not feasible and could be misleading to users of this financial information. The EBITDA reconciliation disclosed under "Results of Operations - Non-GAAP Measures" is indicative of the reconciliation that will be prepared for the same fiscal 2018 and 2019 adjusted measure in the future.
We estimate the cost to execute the plan through fiscal 2019 to be approximately $225 million to $250 million comprised of approximately $70 million of restructuring expense and approximately $155 million to $180 million of other expenses to implement the business transformation plan. We will continue to evaluate our estimate of expenses and the allocation of those expenses as we execute the business transformation plan.

Restructuring expenses associated with the business transformation plan included employee-related costs, which represent severance and other termination-related benefits, and contract termination costs, which include costs to terminate facility leases. We recognized $6.9 million and $7.7 million of restructuring expenses for the three months ended March 31, 2017 and 2016, respectively, and $10.3 million and $11.4 million for the nine months ended March 31, 2017 and 2016, respectively. Since the inception of the business transformation plan in the fourth quarter of fiscal 2015, we have recognized cumulative restructuring expenses of $32.9 million. Restructuring expenses are recorded in the Other segment, as these initiatives are predominantly centrally directed and are not included in internal measures of segment operating performance.
Accruals for restructuring expenses were included within accrued expenses and other current liabilities on the consolidated balance sheets as of March 31, 2017 and June 30, 2016. The following table summarizes the activity for the restructuring accrual for the nine months ended March 31, 2017:
 
Employee-Related Costs
 
Contract Termination Costs
 
Total Costs
Balance as of June 30, 2016
$
9.0

 
$
0.9

 
$
9.9


29



   Charges
9.1

 
2.1

 
11.2

   Cash payments
(11.2
)
 
(1.9
)
 
(13.1
)
   Adjustments
(0.6
)
 
(0.3
)
 
(0.9
)
   Foreign exchange
(0.1
)
 

 
(0.1
)
Balance as of March 31, 2017
$
6.2

 
$
0.8

 
$
7.0

Our business transformation plan includes a goal to reduce the number of North American facilities we occupy by 40%. In August 2016, we announced all of the North American facilities that we intend to close through fiscal 2018. These efforts are expected to result in an increase in contract termination costs in future periods. In the nine months ended March 31, 2017, we have closed eight facilities.
In addition to the restructuring expenses discussed above, we expect to incur additional costs to implement the business transformation plan, including consulting, training, and other transition costs. We may also incur accelerated depreciation and/or amortization expenses if the expected useful lives of our assets are adjusted. While these costs are directly attributable to our business transformation plan, they are not included in restructuring expenses on our consolidated statements of operations. We recognized $21.3 million and $12.0 million of other business transformation expenses for the three months ended March 31, 2017 and 2016, respectively, and $60.9 million and $18.8 million for the nine months ended March 31, 2017 and 2016, respectively. Since the inception of the business transformation plan in the fourth quarter of fiscal 2015, we have recognized cumulative other business transformation expenses of $102.5 million.
In December 2015, we announced our intent to return $1.0 billion to our stockholders in the form of dividends and share repurchases. In December 2016, we completed the $1.0 billion return of capital plan. In February 2017, we announced our intent to return $750 million to $1.0 billion of capital to shareholders per calendar year through 2019 through a combination of dividends and share repurchases. Execution of our business transformation plan will result in increased earnings, which will drive free cash flow (the amount of cash generated from operating activities less capital expenditures and capitalized software). We intend to continue to return free cash flow to our stockholders as our business transformation plan progresses. Our new return of capital plan is expected to be funded through a combination of free cash flow and incremental borrowings intended to bring leverage, measured as financial debt, net of cash, divided by adjusted EBITDA, to a range of 2.5x to 3.0x over the period.
Sources of Revenues and Expenses
Revenues. We generally receive fee-based revenue by providing services to customers.
In our RSNA segment, we have the following sources of revenue:

Subscription: for software and technology solutions provided to automotive retailers and OEMs, which includes:
Dealer Management Systems (“DMSs”) and layered applications, which may be installed onsite at the customer’s location, or hosted and provided on a Software-as-a-Service ("SaaS") basis, including ongoing maintenance and support;
Interrelated services such as installation, initial training, and data updates;
Websites, search marketing, and reputation management services; and
Hardware on a service basis, meaning no specific assets are identified or a substantive right of substitution exists.

Transaction: fees per transaction to process credit reports, vehicle registrations, and automotive equity mining.

Other: consulting and professional services, sales of hardware, and other miscellaneous revenues.

In our ANA segment, revenues are primarily earned for placing internet advertisements for OEMs and automotive retailers.

CDKI revenues are generated primarily from Subscription revenue as described above, aside from the absence of website offerings.
Expenses. Expenses generally relate to the cost of providing services to customers in the three reportable segments. In the RSNA and CDKI segments, significant expenses include employee payroll and other labor-related costs, the cost of hosting customer systems, third-party costs for transaction-based solutions and licensed software utilized in our solution offerings, computer hardware, software, telecommunications, transportation and distribution costs, third-party content for website

30



offerings, the cost of hosting customer websites, computer hardware, software, and other general overhead items. In the ANA segment, significant expenses include third-party Internet-based advertising placements, employee payroll and other labor-related costs, computer hardware, software, and other general overhead items. We also have some company-wide expenses attributable to management compensation and corporate overhead.
Key Performance Measures
We regularly review the following key performance measures in evaluating our business results, identifying trends affecting our business, and making operating and strategic decisions:
Dealer Management System Customer Sites. We track the number of customer sites that have an active DMS. Consistent with our strategy of growing our automotive retail customer base, we view the number of customer sites purchasing our DMS solutions as an indicator of market penetration for our RSNA and CDKI segments. Our DMS customer site count includes retailers with an active DMS that sell vehicles in the automotive and adjacent markets. Adjacent markets include heavy truck dealerships that provide vehicles to the over-the-road trucking industry, recreation dealerships in the motorcycle, marine, and recreational vehicle industries, and heavy equipment dealerships in the agriculture and construction equipment industries. We consider a DMS to be active if we have billed a subscription fee for that solution during the most recently ended calendar month.
Average Revenue Per DMS Customer Site. Average revenue per automotive retail DMS customer site is an indicator of the adoption of our solutions by DMS customers, and we monitor changes in this metric to measure the effectiveness of our strategy to deepen our relationships with our current customer base through upgrading and expanding solutions. We calculate average revenue per DMS customer site by dividing the monthly applicable revenue generated from our solutions in a period by the average number of DMS customer sites in the period. This metric has been updated to reflect the new segments and now includes revenue generated from websites. The metric excludes subscription revenue generated by customers not included in our DMS site count as well as subscription revenue related to certain installation and training activities that is deferred then recognized as revenue over the life of the contract. Revenue underlying this metric is based on budgeted foreign exchange rates. When we discuss growth in average revenue per DMS customer site, revenue for the comparable prior period has been adjusted to reflect budgeted foreign exchange rates for the current period.
Websites. For the RSNA segment, we track the number of websites that we host and develop for our OEM and automotive retail customers as an indicator of business activity, regardless of whether or not the website is tied to a DMS customer site. The number of websites as of a specified date is the total number of full function dealer websites or portals that are currently accessible as of the end of the most recent calendar month.
Advertising. For the ANA segment, we track the amount of advertising revenue generated from automotive retailers on either a national or regional scale as a measure of our effectiveness in delivering advertising services to the market.

31



Results of Operations
The following is a discussion of the results of our consolidated operations for the three and nine months ended March 31, 2017 and 2016. For a discussion of our operations by segment, see "Analysis of Reportable Segments" below.
The table below presents consolidated results of operations for the periods indicated and the dollar change and percentage change between periods.

 
Three Months Ended
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
March 31,
 
Change
 
March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
2017
 
2016
 
$
 
%
Revenues
$
556.3

 
$
537.7

 
$
18.6

 
3
 %
 
$
1,654.8

 
$
1,572.4

 
$
82.4

 
5
 %
Cost of revenues
307.7

 
315.8

 
(8.1
)
 
(3
)%
 
926.0

 
927.8

 
(1.8
)
 
 %
Selling, general, and administrative costs
117.4

 
125.0

 
(7.6
)
 
(6
)%
 
342.0

 
328.2

 
13.8

 
4
 %
Restructuring expenses
6.9

 
7.7

 
(0.8
)
 
n/m

 
10.3

 
11.4

 
(1.1
)
 
n/m

Total expenses
432.0

 
448.5

 
(16.5
)
 
(4
)%
 
1,278.3

 
1,267.4

 
10.9

 
1
 %
Operating earnings
124.3

 
89.2

 
35.1

 
39
 %
 
376.5

 
305.0

 
71.5

 
23
 %
Interest expense
(15.1
)
 
(10.7
)
 
(4.4
)
 
41
 %
 
(38.1
)
 
(29.5
)
 
(8.6
)
 
29
 %
Other income, net
1.2

 
0.1

 
1.1

 
n/m

 
2.8

 
5.7

 
(2.9
)
 
(51
)%
Earnings before income taxes
110.4

 
78.6

 
31.8

 
40
 %
 
341.2

 
281.2

 
60.0

 
21
 %
Margin %
19.8
%
 
14.6
%
 
 
 
 
 
20.6
%
 
17.9
%
 
 
 
 
Provision for income taxes
(31.6
)
 
(22.9
)
 
(8.7
)
 
38
 %
 
(99.6
)
 
(94.6
)
 
(5.0
)
 
5
 %
Effective tax rate
28.6
%
 
29.1
%
 
 
 
 
 
29.2
%
 
33.6
%
 
 

 
 
Net earnings
78.8

 
55.7

 
23.1

 
41
 %
 
241.6

 
186.6

 
55.0

 
29
 %
Less: net earnings attributable to noncontrolling interest
1.5

 
1.9

 
(0.4
)
 
(21
)%
 
4.7

 
5.6

 
(0.9
)
 
(16
)%
Net earnings attributable to CDK
$
77.3

 
$
53.8

 
$
23.5

 
44
 %
 
$
236.9

 
$
181.0

 
$
55.9

 
31
 %
Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Revenues. Revenues for the three months ended March 31, 2017 increased $18.6 million as compared to the three months ended March 31, 2016. The RSNA segment contributed $17.7 million and the ANA segment contributed $1.3 million of revenue growth, offset by a decrease in revenues in the CDKI segment of $0.4 million. See the discussion below for drivers of each segment's revenue growth.
Cost of Revenues. Cost of revenues for the three months ended March 31, 2017 decreased by $8.1 million as compared to the three months ended March 31, 2016. The constant currency impact of foreign exchange rates on cost of revenues was a decrease of $2.4 million. Cost of revenues was favorably impacted by lower labor-related costs attributable to ongoing initiatives under our business transformation plan primarily related to lower headcount and geographic labor mix and the timing of incentive compensation accruals in fiscal 2016. The favorable effects of these items were partially offset by an increase in direct operating expenses related to other business transformation expenses and growth in advertising costs for the ANA segment. Cost of revenues include expenses to research, develop, and deploy new and enhanced solutions for our customers of $35.3 million and $43.2 million for the three months ended March 31, 2017 and 2016, respectively, representing 6.3% and 8.0% of revenues, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended March 31, 2017 decreased by $7.6 million as compared to the three months ended March 31, 2016. The constant currency impact of foreign exchange rates on selling, general and administrative expenses was a decrease of $1.3 million. Selling, general and administrative expenses decreased as a result of an accrual for estimated cash payments and increased stock compensation of $8.1 million in connection with Mr. Anenen's Transition and Release Agreement ("Transition Agreement") during the three months ended March 31, 2016, and lower labor-related costs attributable to ongoing initiatives under our business transformation plan primarily related to lower headcount and geographic labor mix. These decreases were partially offset by higher business transformation expenses and stock-based compensation expense, excluding $3.5 million of incremental stock-based compensation for the Transition Agreement.
 

32



Restructuring Expenses. Restructuring expenses for the three months ended March 31, 2017 decreased by $0.8 million as compared to the three months ended March 31, 2016 and relates to the business transformation plan we initiated in fiscal 2015.
Interest Expense. Interest expense for the three months ended March 31, 2017 increased by $4.4 million as compared to the three months ended March 31, 2016 due to borrowings under our 2021 term loan facility in December 2016 and an increase in interest rates on our term loan facilities and senior notes due to downgrades and high interest rate environment.
Other Income, net. Other income, net for the three months ended March 31, 2017 increased by $1.1 million as compared to the three months ended March 31, 2016 due primarily to fluctuations in foreign exchange transaction gains and losses and a net gain associated with an indemnification receivable from ADP for pre spin-off tax periods in accordance with the tax matters agreement.
Provision for Income Taxes. The effective tax rate for the three months ended March 31, 2017 and 2016 was 28.6% and 29.1%, respectively. The effective tax rate for the three months ended March 31, 2017 was favorably impacted by $3.4 million of excess tax benefits associated with adopting Accounting Standards Update ("ASU") 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" effective July 1, 2016 as described in Note 2. The effective tax rate for three months ended March 31, 2017 was also favorably impacted by $2.4 million of tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to mix of earnings by jurisdiction. The effective tax rate for the three months ended March 31, 2016 was favorably impacted by a $5.4 million tax benefit related to the domestic production activities deduction, of which $2.7 million relates to the fiscal year ended June 30, 2015 and $2.7 million relates to the nine months ended March 31, 2016. Our effective tax rate for the three months ended March 31, 2016 was also favorably impacted by $1.4 million of tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to lower non-deductible stock-based compensation and a net $1.2 million return-to-provision adjustment. The favorable effects were partially offset by expense of $3.4 million associated with the recognition of a deferred tax liability for undistributed foreign earnings.
Net Earnings Attributable to CDK. Net earnings attributable to CDK for the three months ended March 31, 2017 increased $23.5 million as compared to the three months ended March 31, 2016. The increase in net earnings attributable to CDK was primarily due to the factors previously discussed.
Nine Months Ended March 31, 2017 Compared to the Nine Months Ended March 31, 2016
Revenues. Revenues for the nine months ended March 31, 2017 increased $82.4 million as compared to the nine months ended March 31, 2016. The RSNA segment contributed $58.7 million and the ANA segment contributed $27.4 million of revenue growth, offset by a decrease in revenues in the CDKI segment of $3.7 million. See the discussion below for drivers of each segment's revenue growth.
Cost of Revenues. Cost of revenues for the nine months ended March 31, 2017 decreased by $1.8 million as compared to the nine months ended March 31, 2016. The constant currency impact of foreign exchange rates on cost of revenues was a decrease of $8.4 million. Cost of revenues was favorably impacted by lower labor-related costs attributable to ongoing initiatives under our business transformation plan primarily related to lower headcount and geographic labor mix. The favorable effects of these items were partially offset by an increase in direct operating expenses related to other business transformation expenses and a growth in advertising costs for the ANA segment. Cost of revenues include expenses to research, develop, and deploy new and enhanced solutions for our customers of $110.1 million and $121.8 million for the nine months ended March 31, 2017 and 2016, respectively, representing 6.7% and 7.7% of revenues, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended March 31, 2017 increased by $13.8 million as compared to the nine months ended March 31, 2016. The constant currency impact of foreign exchange rates on selling, general and administrative expenses was a decrease of $4.5 million. Selling, general and administrative expenses increased as a result of other business transformation expenses, an increase in stock-based compensation expense, and outside service costs. These increases were partially offset by lower labor-related costs attributable to ongoing initiatives under our business transformation plan primarily related to lower headcount and geographic labor mix, and an accrual for estimated cash payments and increased stock compensation of $8.1 million in connection with the Transition Agreement during fiscal 2016.
Restructuring Expenses. Restructuring expenses for the nine months ended March 31, 2017 decreased by $1.1 million as compared to the nine months ended March 31, 2016 and relates to the business transformation plan we initiated in fiscal 2015.

33



Interest Expense. Interest expense for the nine months ended March 31, 2017 increased by $8.6 million as compared to the nine months ended March 31, 2016 due to borrowings under our 2021 term loan facility in December 2016, full impact of the 2020 term loan, and an increase in interest rates on our term loan facilities and senior notes due to downgrades and higher interest rate environment.
Other Income, net. Other income, net for the nine months ended March 31, 2017 decreased by $2.9 million as compared to the nine months ended March 31, 2016 due primarily to a net gain associated with an indemnification receivable from ADP for pre spin-off tax periods in accordance with the tax matters agreement in fiscal 2016 and an impairment of a non-operating receivable in fiscal 2017 which is partially offset by fluctuations in foreign exchange gains and losses.
Provision for Income Taxes. The effective tax rate for the nine months ended March 31, 2017 and 2016 was 29.2% and 33.6%, respectively. The effective tax rate for the nine months ended March 31, 2017 was favorably impacted by $12.1 million of excess tax benefits associated with adopting ASU 2016-09, by $2.4 million of tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to mix of earnings by jurisdiction, and $1.1 million Canadian valuation allowance adjustment. The effective tax rate for the nine months ended March 31, 2016 was favorably impacted by a tax benefit related to the domestic production activities deduction, a non-taxable indemnification gain of $2.6 million recorded in other income, a tax benefit associated with the cumulative effect of a reduction in the annual effective tax rate due primarily to lower non-deductible stock-based compensation, a net return-to-provision adjustment, and a tax benefit associated with pre spin-off tax refunds, partially offset by the recognition of a deferred tax liability for undistributed foreign earnings. Refer to the effective tax rate discussion for the three months ended March 31, 2016 for quantification of the factors impacting our rate.
Net Earnings Attributable to CDK. Net earnings attributable to CDK for the nine months ended March 31, 2017 increased $55.9 million as compared to the nine months ended March 31, 2016. The increase in net earnings attributable to CDK was primarily due to the factors previously discussed
Non-GAAP Measures
Throughout the following results of operations discussions, we disclose certain financial measures on both a GAAP and a non-GAAP (adjusted) basis. The non-GAAP financial measures disclosed should be viewed in addition to, and not as an alternative to, results prepared in accordance with GAAP. Our use of each of the following non-GAAP financial measures may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures, or reconcile them to the comparable GAAP financial measures, in the same way.
Non-GAAP Financial Measure
Comparable GAAP Financial Measure
Adjusted earnings before income taxes
Earnings before income taxes
Adjusted provision for income taxes
Provision for income taxes
Adjusted net earnings attributable to CDK
Net earnings attributable to CDK
Adjusted diluted earnings attributable to CDK per share
Diluted earnings attributable to CDK per share
Adjusted EBITDA
Net earnings attributable to CDK
Adjusted EBITDA margin
Net earnings attributable to CDK margin
Constant currency revenues
Revenues
Constant currency adjusted earnings before income taxes
Earnings before income taxes
We use adjusted earnings before income taxes, adjusted provision for income taxes, adjusted net earnings attributable to CDK, adjusted diluted earnings attributable to CDK per share, adjusted EBITDA and adjusted EBITDA margin internally to evaluate our performance on a consistent basis, because the measures adjust for the impact of certain items that we believe do not directly reflect our underlying operations. By adjusting for these items we believe we have more precise inputs for use as factors in (i) our budgeting process, (ii) making financial and operational decisions, (iii) evaluating ongoing segment and overall operating performance on a consistent period-to-period basis, (iv) target leverage calculations, (v) debt covenant calculations, and (vi) determining incentive-based compensation.
We believe our non-GAAP financial measures are useful for users of the financial statements because they (i) provide investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permit investors to view performance using the same tools that management uses, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating our ongoing operating results on a consistent basis. We believe that

34



the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures disclosed below, provides investors with a fuller understanding of the factors and trends affecting our business than could be obtained absent these disclosures.
We review revenues and adjusted earnings before income taxes on a constant currency basis to understand underlying business trends. To present these results on a constant currency basis, current period results for entities reporting in currencies other than the U.S. dollar were translated into U.S. dollar using the average monthly exchange rates for the comparable prior period. As a result, constant currency results neutralize the effects of foreign currency.

35



Consolidated Non-GAAP Results
The tables below present the reconciliation of the most directly comparable GAAP measures to constant currency revenues, constant currency adjusted earnings before income taxes, adjusted provision for income taxes, adjusted net earnings attributable to CDK, and adjusted diluted earnings attributable to CDK per share.
 
Three Months Ended
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
March 31,
 
Change
 
March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
2017
 
2016
 
$
 
%
Revenues
$
556.3

 
$
537.7

 
$
18.6

 
3
%
 
$
1,654.8

 
$
1,572.4

 
$
82.4

 
5
%
Impact of exchange rates
3.2

 

 
3.2

 
 
 
12.7

 

 
12.7

 
 
Constant currency revenues
$
559.5

 
$
537.7

 
$
21.8

 
4
%
 
1,667.5

 
1,572.4

 
$
95.1

 
6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings before income taxes
$
110.4

 
$
78.6

 
$
31.8

 
40
%
 
$
341.2

 
$
281.2

 
$
60.0

 
21
%
Margin %
19.8
%
 
14.6
%
 
 
 
 
 
20.6
%
 
17.9
%
 
 
 
 
Restructuring expenses (1)
6.9

 
7.7

 
(0.8
)
 
 
 
10.3

 
11.4

 
(1.1
)
 
 
Other business transformation expenses (1)
21.3

 
12.0

 
9.3

 
 
 
60.9

 
18.8

 
42.1

 
 
Tax matters indemnification gain, net (2)

 

 

 
 
 

 
(2.6
)
 
2.6

 
 
Adjusted earnings before income taxes
$
138.6

 
$
98.3

 
$
40.3

 
41
%
 
$
412.4

 
$
308.8

 
$
103.6

 
34
%
Adjusted margin %
24.9
%
 
18.3
%
 
 
 
 
 
24.9
%
 
19.6
%