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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, 2019

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 every Interactive Data File required to be submitted 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 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 
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 any 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 26, 2019 was 121,633,569.




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,
 
 
2019

2018
 
2019
 
2018
 
Revenues
$
602.1

 
$
576.6

 
$
1,747.0

 
$
1,704.0

 
 
 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 
 
 
 
Cost of revenues
305.8

 
295.0

 
897.3

 
893.5

 
Selling, general and administrative expenses
123.8

 
121.7

 
344.8

 
357.6

 
Restructuring expenses
0.6

 
2.5

 
21.6

 
16.6

 
Total expenses
430.2

 
419.2

 
1,263.7

 
1,267.7

 
Operating earnings
171.9

 
157.4

 
483.3

 
436.3

 
 
 
 
 
 
 
 
 
 
Interest expense
(35.4
)
 
(24.1
)
 
(101.9
)
 
(70.6
)
 
Other income, net
1.0

 
1.7

 
5.2

 
9.4

 
 
 
 
 
 
 
 
 
 
Earnings before income taxes
137.5

 
135.0

 
386.6

 
375.1

 
 
 
 
 
 
 
 
 
 
Provision for income taxes
(35.8
)
 
(37.2
)
 
(101.7
)
 
(88.0
)
 
 
 
 
 
 
 
 
 
 
Net earnings
101.7

 
97.8

 
284.9

 
287.1

 
Less: net earnings attributable to noncontrolling interest
1.9

 
1.7

 
5.8

 
5.7

 
Net earnings attributable to CDK
$
99.8

 
$
96.1

 
$
279.1

 
$
281.4

 
 
 
 
 
 
 
 
 
 
Net earnings attributable to CDK per common share:
 
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.71

 
$
2.20

 
$
2.05

 
Diluted
$
0.80

 
$
0.71

 
$
2.19

 
$
2.03

 
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
124.0

 
134.6

 
126.8

 
137.2

 
Diluted
124.8

 
135.8

 
127.7

 
138.5

 


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,
 
2019

2018
 
2019
 
2018
Net earnings
$
101.7

 
$
97.8

 
$
284.9

 
$
287.1

Other comprehensive income (loss):
 
 
 
 

 

Currency translation adjustments
4.6

 
13.5

 
(13.5
)
 
37.6

Other comprehensive income (loss)
4.6

 
13.5

 
(13.5
)
 
37.6

Comprehensive income
106.3

 
111.3

 
271.4

 
324.7

Less: comprehensive income attributable to noncontrolling interest
1.9

 
1.7

 
5.8

 
5.7

Comprehensive income attributable to CDK
$
104.4

 
$
109.6

 
$
265.6

 
$
319.0


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,
 
2019
 
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
306.8

 
$
804.4

Accounts receivable, net of allowances of $7.1 and $7.4, respectively
436.3

 
374.6

Other current assets
155.7

 
188.3

Total current assets
898.8

 
1,367.3

Property, plant and equipment, net
133.3

 
131.9

Other assets
280.5

 
165.5

Goodwill
1,588.4

 
1,217.2

Intangible assets, net
264.8

 
126.5

Total assets
$
3,165.8

 
$
3,008.4

 
 
 
 
Liabilities and Stockholders' Deficit
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt and capital lease obligations
$
268.5

 
$
45.2

Accounts payable
50.3

 
50.5

Accrued expenses and other current liabilities
219.0

 
198.0

Accrued payroll and payroll-related expenses
84.3

 
85.7

Short-term deferred revenues
132.8

 
169.0

Total current liabilities
754.9

 
548.4

Long-term debt and capital lease obligations
2,649.3

 
2,575.5

Long-term deferred revenues
68.7

 
110.4

Deferred income taxes
98.4

 
56.7

Other liabilities
69.9

 
64.7

Total liabilities
3,641.2

 
3,355.7

 
 
 
 
Commitments and Contingencies (Note 13)
 
 
 
 
 
 
 
Stockholders' Deficit:
 

 
 

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, 122.4 and 130.1 shares, respectively
1.6

 
1.6

Additional paid-in-capital
673.5

 
679.8

Retained earnings
1,084.9

 
753.0

Treasury stock, at cost: 37.9 and 30.2 shares, respectively
(2,248.1
)
 
(1,810.7
)
Accumulated other comprehensive income (loss)
(2.4
)
 
11.5

Total CDK stockholders' deficit
(490.5
)
 
(364.8
)
Noncontrolling interest
15.1

 
17.5

Total stockholders' deficit
(475.4
)
 
(347.3
)
Total liabilities and stockholders' deficit
$
3,165.8

 
$
3,008.4



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,
 
2019
 
2018
Cash Flows from Operating Activities:

 

Net earnings
$
284.9

 
$
287.1

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


 


Depreciation and amortization
71.4

 
58.6

Impairment of intangible and long-lived assets
18.2

 

Deferred income taxes
20.5

 
(8.8
)
Stock-based compensation expense
15.0

 
27.9

Other
7.4

 
2.7

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

 
 

Increase in accounts receivable
(45.5
)
 
(20.1
)
(Increase) decrease in other assets
(31.6
)
 
10.1

Decrease in accounts payable
(3.6
)
 
(13.6
)
Increase in accrued expenses and other liabilities
2.5

 
2.9

Net cash flows provided by operating activities
339.2

 
346.8

 
 
 
 
Cash Flows from Investing Activities:


 


Capital expenditures
(39.2
)
 
(36.9
)
Proceeds from sale of property, plant and equipment
7.4

 

Capitalized software
(32.7
)
 
(27.3
)
Acquisitions of businesses, net of cash acquired
(513.0
)
 
(12.8
)
Contributions to investments
(10.0
)
 

Proceeds from investments
0.4

 
0.8

Net cash flows used in investing activities
(587.1
)
 
(76.2
)
 
 
 
 
Cash Flows from Financing Activities:


 


Proceeds from long-term debt
1,090.0

 

Repayments of long-term debt and capital lease obligations
(801.7
)
 
(34.8
)
Dividends paid to stockholders
(56.6
)
 
(60.4
)
Repurchases of common stock
(444.3
)
 
(438.3
)
Proceeds from exercises of stock options
3.0

 
8.2

Withholding tax payments for stock-based compensation awards
(15.8
)
 
(10.3
)
Dividend payments to noncontrolling owners
(8.2
)
 
(7.4
)
Payments of deferred financing costs
(4.4
)
 
(0.4
)
Acquisition-related payments
(6.9
)
 
(3.0
)
Net cash flows used in financing activities
(244.9
)
 
(546.4
)
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(7.3
)
 
15.4

 
 
 
 
Net change in cash, cash equivalents, and restricted cash
(500.1
)
 
(260.4
)
 
 
 
 
Cash, cash equivalents, and restricted cash, beginning of period
817.1

 
734.0

 
 
 
 
Cash, cash equivalents, and restricted cash end of period
$
317.0

 
$
473.6

 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets
 
 
 
Cash and cash equivalents
$
306.8

 
$
461.4

Restricted cash in funds held for clients included in other current assets
10.2

 
12.2

Total cash, cash equivalents, and restricted cash
$
317.0

 
$
473.6

Supplemental Disclosure:
 
 
 
Cash paid for:
 
 
 
Income taxes and foreign withholding taxes, net of refunds
$
109.6

 
$
78.9

Interest
73.6

 
53.2


See notes to the condensed consolidated financial statements.

5



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



Three Months Ended March 31, 2019
 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total CDK Stockholders' Deficit
 
Non-controlling Interest
 
Total Stockholders' Deficit
 
Shares
 
Amount
 
 
 
 
 
 
 
Balance as of December 31, 2018
160.3

 
$
1.6

 
$
604.8

 
$
1,003.8

 
$
(2,116.5
)
 
$
(7.0
)
 
$
(513.3
)
 
$
13.2

 
$
(500.1
)
Net earnings

 

 

 
99.8

 

 

 
99.8

 
1.9

 
101.7

Foreign currency translation adjustments

 

 

 

 

 
4.6

 
4.6

 

 
4.6

Stock-based compensation expense and related dividend equivalents

 

 
6.3

 
(0.1
)
 

 

 
6.2

 

 
6.2

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

 

 
(2.6
)
 

 
3.6

 

 
1.0

 

 
1.0

Dividends paid to stockholders ($0.15 per share)

 

 

 
(18.6
)
 

 

 
(18.6
)
 

 
(18.6
)
Repurchases of common stock

 

 
65.0

 

 
(135.2
)
 

 
(70.2
)
 

 
(70.2
)
Balance as of March 31, 2019
160.3

 
$
1.6

 
$
673.5

 
$
1,084.9

 
$
(2,248.1
)
 
$
(2.4
)
 
$
(490.5
)
 
$
15.1

 
$
(475.4
)



Three Months Ended March 31, 2018
 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Income
 
Total CDK Stockholders' Deficit
 
Non-controlling Interest
 
Total Stockholders' Deficit
 
Shares
 
Amount
 
 
 
 
 
 
 
Balance as of December 31, 2017
160.3

 
$
1.6

 
$
671.7

 
$
597.7

 
$
(1,512.1
)
 
$
32.1

 
$
(209.0
)
 
$
21.0

 
$
(188.0
)
Net earnings

 

 

 
96.1

 

 

 
96.1

 
1.7

 
97.8

Foreign currency translation adjustments

 

 

 

 

 
13.5

 
13.5

 

 
13.5

Stock-based compensation expense and related dividend equivalents

 

 
6.7

 
(0.2
)
 

 

 
6.5

 

 
6.5

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

 

 
(4.4
)
 

 
8.1

 

 
3.7

 

 
3.7

Dividends paid to stockholders ($0.15 per share)

 

 

 
(20.2
)
 

 

 
(20.2
)
 

 
(20.2
)
Repurchases of common stock

 

 

 

 
(122.9
)
 

 
(122.9
)
 

 
(122.9
)
Dividend payments to noncontrolling owners

 

 

 

 

 

 

 
(7.4
)
 
(7.4
)
Balance as of March 31, 2018
160.3

 
$
1.6

 
$
674.0

 
$
673.4

 
$
(1,626.9
)
 
$
45.6

 
$
(232.3
)
 
$
15.3

 
$
(217.0
)


6



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



Nine Months Ended March 31, 2019
 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Total CDK Stockholders' Deficit
 
Non-controlling Interest
 
Total Stockholders' Deficit
 
Shares Issued
 
Amount
 
 
 
 
 
 
 
Balance as of June 30, 2018
160.3

 
$
1.6

 
$
679.8

 
$
753.0

 
$
(1,810.7
)
 
$
11.5

 
$
(364.8
)
 
$
17.5

 
$
(347.3
)
Net earnings

 

 

 
279.1

 

 

 
279.1

 
5.8

 
284.9

Foreign currency translation adjustments

 

 

 

 

 
(13.5
)
 
(13.5
)
 

 
(13.5
)
Stock-based compensation expense and related dividend equivalents

 

 
13.4

 
(0.3
)
 

 

 
13.1

 

 
13.1

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

 

 
(32.7
)
 

 
19.9

 

 
(12.8
)
 

 
(12.8
)
Dividends paid to stockholders ($0.45 per share)

 

 

 
(56.6
)
 

 

 
(56.6
)
 

 
(56.6
)
Repurchases of common stock

 

 
13.0

 

 
(457.3
)
 

 
(444.3
)
 

 
(444.3
)
Dividend payments to noncontrolling owners

 

 

 

 

 

 

 
(8.2
)
 
(8.2
)
Cumulative impact of adopting ASC 606 (Note 5)

 

 

 
109.7

 

 
(0.4
)
 
109.3

 

 
109.3

Balance as of March 31, 2019
160.3

 
$
1.6

 
$
673.5

 
$
1,084.9

 
$
(2,248.1
)
 
$
(2.4
)
 
$
(490.5
)
 
$
15.1

 
$
(475.4
)




Nine Months Ended March 31, 2018
 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Income
 
Total CDK Stockholders' Deficit
 
Non-controlling Interest
 
Total Stockholders'
Deficit
 
Shares Issued
 
Amount
 
 
 
 
 
 
 
Balance as of June 30, 2017
160.3

 
$
1.6

 
$
608.6

 
$
452.7

 
$
(1,144.7
)
 
$
8.0

 
$
(73.8
)
 
$
17.0

 
$
(56.8
)
Net earnings

 

 

 
281.4

 

 

 
281.4

 
5.7

 
287.1

Foreign currency translation adjustments

 

 

 

 

 
37.6

 
37.6

 

 
37.6

Stock-based compensation expense and related dividend equivalents

 

 
23.6

 
(0.3
)
 

 

 
23.3

 

 
23.3

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

 

 
(25.1
)
 

 
23.0

 

 
(2.1
)
 

 
(2.1
)
Dividends paid to stockholders ($0.44 per share)

 

 

 
(60.4
)
 

 

 
(60.4
)
 

 
(60.4
)
Repurchases of common stock

 

 
66.9

 

 
(505.2
)
 

 
(438.3
)
 

 
(438.3
)
Dividend payments to noncontrolling owners

 

 

 

 

 

 

 
(7.4
)
 
(7.4
)
Balance as of March 31, 2018
160.3

 
$
1.6

 
$
674.0

 
$
673.4

 
$
(1,626.9
)
 
$
45.6

 
$
(232.3
)
 
$
15.3

 
$
(217.0
)
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") enables end-to-end automotive commerce across the globe. For over 40 years, the Company has served automotive retailers and original equipment manufacturers ("OEMs") by providing innovative solutions that allow them to better connect, manage, analyze, and grow their businesses. The Company's solutions automate and integrate all parts of the buying process, including the advertising, acquisition, sale, financing, insuring, parts supply, repair, and maintenance of vehicles, in more than 100 countries around the world, for approximately 30,000 retail locations and most OEMs.
The Company is organized into two main operating groups. The Company's first operating group is CDK North America which comprises two reportable segments, Retail Solutions North America ("RSNA") and Advertising North America ("ANA"). The second operating group, which is also a reportable segment, is CDK International ("CDKI"). 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 16 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, 2018.
Certain prior year amounts have been reclassified to conform to current year presentation. See the discussion in Note 3, New Accounting Pronouncements for the impact of adopting Accounting Standards Update ("ASU") 2016-18 on the presentation of changes in restricted cash in the condensed consolidated statement of cash flows.
Note 2. Summary of Significant Accounting Policies
A. Revenue Recognition and Deferred Costs
Effective July 1, 2018, the Company adopted the Financial Accounting Standard Board (“FASB”) Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers,” and related ASUs ("ASC 606") using the modified retrospective approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented. Refer to Note 5, Revenue for the required disclosures related to the impact of adopting ASC 606 and a discussion of the Company's updated policy related to revenue recognition and deferred costs. Refer to Note 2, Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the Company's revenue recognition and deferred costs policies prior to adoption of ASC 606.
B. 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 sheets. Funds receivable was $33.2 million and $33.1 million, and funds held for clients was $10.2 million and $12.7 million as of March 31, 2019 and June 30, 2018, respectively. Client fund obligation was $43.4 million and $45.8 million as of March 31, 2019 and June 30, 2018, respectively.

8


C. Internal Use Software and Computer Software to be Sold, Leased, or Otherwise Marketed
The Company’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company’s policy also provides for the capitalization of certain payroll and payroll-related costs for employees who are directly associated with the internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are expensed as incurred. The Company also expenses internal costs related to minor upgrades and enhancements, as it is impracticable to separate these costs from normal maintenance activities. The Company amortizes internal use software typically over a three to five year life.
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 $19.5 million and $31.1 million for the three months ended March 31, 2019 and 2018, respectively, and $66.5 million and $103.8 million for the nine months ended March 31, 2019 and 2018, respectively. These expenses were classified within cost of revenues on the condensed consolidated statements of operations. Additionally, we had cash flows used for qualifying capitalized software development cost of $32.7 million and $27.3 million for the nine months ended March 31, 2019 and 2018, respectively.
D. 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 revolving credit facility and term loan facilities (as described in Note 10), 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, 2019 was $1,890.0 million based on quoted market prices for the same or similar instruments and the carrying value was $1,850.0 million. The term loan facilities and senior notes are considered Level 2 fair value measurements in the fair value hierarchy.
Note 3. New Accounting Pronouncements
Recently Adopted 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 Company adopted this standard on July 1, 2018 with no impact on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash.” ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2017. The Company adopted ASU 2016-18 retrospectively during the first quarter of fiscal year 2019, and as a result included restricted cash with cash and cash equivalents when reconciling the beginning of the period and end of the period total amounts presented on the condensed consolidated statements of cash flows. Accordingly, the condensed consolidated statement of cash flows has been revised to include restricted cash associated with funds held for clients as a component of cash, cash equivalents, and restricted cash.
As a result of the adoption, the Company adjusted the condensed consolidated statements of cash flows from previously reported amounts as follows:

9


 
 
Nine Months Ended March 31, 2018
 
 
Originally Reported
 
Adjustments due to ASU 2016-18
 
As Adjusted
Cash, cash equivalents, and restricted cash, beginning of period
 
$
726.1

 
$
7.9

 
$
734.0

Net cash flows provided by operating activities
 
342.5

 
4.3

 
346.8

Cash, cash equivalents, and restricted cash end of period
 
461.4

 
12.2

 
473.6


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 did not have a material impact on the Company's condensed consolidated statements of cash flows.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” Refer to Note 5, Revenue, for the required disclosures related to the impact of adopting ASC 606.
Recently Issued Accounting Pronouncements    
In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606" to resolve the diversity in practice concerning the manner in which entities account for transactions based on their assessment of the economics of a collaborative arrangement. ASU 2018-18 is effective for fiscal years, and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently in the process of evaluating the potential impact of the adoption of ASU 2018-18 on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which aligns the accounting for implementation cost incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset. ASU 2018-15 is effective for fiscal years, and interim periods beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-11 and ASU 2018-20 (collectively, Topic 842). Topic 842 requires that lessees recognize right-of-use assets and lease liabilities for any lease classified as either a finance or an operating lease that is not considered short-term. The accounting applied by lessors is largely consistent with the existing lease standard but updated to align with certain changes to the lessee model (e.g. certain definitions, such as substantive substitution rights, have been updated) and the new revenue recognition guidance issued in 2014. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. Entities are required to adopt this standard using a modified retrospective transition approach. Under this approach, the standard is implemented either (1) as of the earliest period presented and through the comparative periods in the entity's financial statements or (2) as of the effective date of ASC 842, with a cumulative-effect adjustment to equity.
The Company plans to elect the transition method which will allow for a cumulative-effect adjustment to stockholders' deficit when the standard is adopted on July 1, 2019, and prior periods will not be restated. In addition, the Company plans to elect the package of practical expedients permitted under the transition guidance for all leases (where the Company is a lessee or a lessor), which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As a policy election for lessee accounting, the Company will exclude all short-term leases (term of 12 months or less) from the balance sheet presentation. The impact of applying other practical expedients and policy elections for lessor and lessee accounting are being evaluated.
From a lessee standpoint, the Company has obligations under lease arrangements for facilities, vehicles and equipment, which are classified as operating leases under the existing lease standard. The Company is currently implementing third-party lease management software and continues to review existing lease arrangements and update business processes and controls related to this new guidance. The Company continues to evaluate the impact of adopting Topic 842 and expects that the adoption may result in a material increase in the assets and liabilities recorded on our consolidated balance sheets.

10


From a lessor standpoint, the Company is currently evaluating the impact of changes relating to the substantive substitution rights definition, mainly for hardware-as-a-service arrangements with customers.
Note 4. Acquisitions
Fiscal 2019 Acquisition
ELEAD1ONE
On September 14, 2018, the Company acquired the equity interests of ELEAD1ONE ("ELEAD"). ELEAD’s automotive customer relationship management ("CRM") software and call center solutions enable interaction between sales, service and marketing operations to provide dealers with an integrated customer acquisition and retention platform. The acquisition was made pursuant to an equity purchase agreement, which contains customary representations, warranties, covenants, and indemnities by the sellers and the Company. The Company acquired all of the outstanding equity of ELEAD for an initial cash purchase price of $513.0 million, net of cash acquired of $7.0 million.
The acquisition of ELEAD has been accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. As of March 31, 2019, the Company has finalized the purchase price allocation. The following table summarizes the final amounts recognized for assets acquired and liabilities assumed as of the acquisition date.
 
 
 
Cash and cash equivalents
 
$
7.0

Accounts receivable
 
18.9

Other current assets
 
3.4

Property, plant and equipment
 
14.8

Intangible assets
 
132.0

Accrued expenses and other current liabilities
 
(21.6
)
Short-term deferred revenues
 
(6.6
)
Capital lease obligations
 
(7.3
)
Total identifiable net assets
 
140.6

Goodwill
 
379.4

Net assets acquired
 
$
520.0


The amounts in the table above are reflective of measurement period adjustments made during the nine months ended March 31, 2019, which mainly included an increase of $2.9 million to accrued expenses and other liabilities, $1.7 million to intangible assets, $1.4 million to property, plant and equipment, $1.2 million to capital leases, $1.1 million to goodwill, and $0.1 million to deferred revenue; and a decrease of $0.2 million to accounts receivable. The measurement period adjustments did not have a significant impact on our consolidated statement of operations, balance sheet or cash flows.
The intangible assets acquired primarily relate to customer lists, software, and trademarks, which will be amortized over a weighted-average useful life of 12 years. The goodwill resulting from this acquisition reflects expected synergies resulting from adding ELEAD products and processes to the Company's products and processes. The acquired goodwill is allocated to the RSNA reportable segment and is deductible for tax purposes.
In December 2018, the Company sold the airplane acquired as part of the ELEAD acquisition for cash less costs to sell of $6.7 million. Given the short time between the ELEAD acquisition and the sale of the acquired airplane, the final purchase price allocated to the airplane was adjusted to equal the cash less costs to sell in accordance with ASC 805, "Business Combinations" and ASC 360, "Property, Plant and Equipment." As such, there was no gain or loss recognized on the sale of the airplane.

11


The results of operations for ELEAD have been included in the condensed consolidated results of operations from the date of acquisition. The pro forma effects of this acquisition are not significant to the Company's reported results for any period presented. Accordingly, no pro forma financial statements have been presented herein.
In addition to the acquisition, the Company entered into a joint venture agreement with the sellers. Under the terms of the joint venture agreement, the Company contributed $10.0 million to the venture at the ELEAD acquisition closing and has an obligation to contribute an additional $10.0 million in the future based on defined milestones in the joint venture agreement and will own 50% of the joint venture. The Company’s contributions are expected to fund the initial operations of the joint venture. The Company does not have an obligation to fund the operations of the joint venture beyond this initial commitment. Under ASC 810 "Consolidation," the joint venture was determined to be a variable interest entity ("VIE"); however, the Company is not the primary beneficiary. As such, the joint venture will be accounted for as an equity method investment. The initial $10.0 million contribution was recorded as an investment and is included on the condensed consolidated balance sheets within other assets. The Company has assessed the maximum exposure to loss related to the joint venture to be the $20.0 million contributed and committed to be contributed. The Company has assessed the risk of loss equal to its maximum exposure to be remote and, accordingly, the Company has not recognized a liability associated with any portion of the maximum exposure to loss.
For the three months ended March 31, 2019, the Company incurred $1.7 million of costs in connection with the ELEAD acquisition and integration-related activities of which $0.7 million was recorded within cost of revenues and $1.0 million was recorded within selling, general and administrative expenses. For the nine months ended March 31, 2019, the Company incurred $4.6 million of costs in connection with the ELEAD acquisition and integration-related activities of which $1.2 million was recorded within cost of revenues and $3.4 million was recorded within selling, general and administrative expenses.
Fiscal 2018 Acquisitions
Progressus Media LLC
On April 3, 2018, the Company acquired the membership interests of Progressus Media LLC ("Progressus"), a specialty provider of mobile advertising solutions for dealerships, agencies, and automotive marketing companies. The acquisition was made pursuant to a membership interest purchase agreement, which contains customary representations, warranties, covenants, and indemnities by the sellers and the Company. The acquisition date fair value of the total consideration transferred was $22.2 million which consists primarily of an initial cash price of $16.2 million, net of cash acquired, the fair value of the holdback provision of $0.3 million and the fair value of contingent consideration of $5.7 million, which is payable upon achievement of certain milestones and metrics over a three year period ending on March 31, 2021. Prior to the acquisition, a CDK officer had an existing advisory relationship with Progressus which entitled the individual to a portion of the proceeds from a sale of Progressus under a unit appreciation rights agreement. At the time of closing, $0.5 million of the total consideration transferred by CDK was paid to the officer to settle Progressus’ obligation under the terms of the officer’s unit appreciation rights agreement.
The fair value of acquired intangible assets and other net assets was $8.7 million and $2.2 million, respectively. The excess of the acquisition consideration over the estimated fair value of the acquired net assets of $11.3 million was allocated to goodwill. The acquired net assets and goodwill are included in the RSNA segment. The intangible assets will be amortized over a weighted-average useful life of approximately 9 years. The goodwill recognized from this acquisition reflects expected synergies resulting from direct ownership of the products and processes, allowing greater flexibility for future product development. The acquired goodwill is deductible for tax purposes. For the holdback provision and contingent consideration as of March 31, 2019 and June 30, 2018, the Company recorded accrued expenses and other current liabilities of $2.5 million and $1.6 million, respectively; and other liabilities of $4.1 million and $4.4 million, respectively. During the nine months ended March 31, 2019, the Company recorded a $0.4 million charge in selling, general and administrative expenses to true-up the contingent consideration liability. The contingent consideration payments will be classified as financing activities on the statement of cash flows as the payments will occur more than three months after the acquisition date.
Dashboard Dealership Enterprises
On October 20, 2017, the Company acquired the outstanding stock of Dashboard Dealership Enterprises ("DDE"), a provider of executive reporting solutions for auto dealers. The acquisition was made pursuant to a stock purchase agreement, which contains customary representations, warranties, covenants, and indemnities by the sellers and the Company. The acquisition date fair value of total consideration to be transferred was $21.3 million, which consists primarily of an initial cash price of $12.8 million, the fair value of the holdback provision of $1.9 million, and the fair value of contingent consideration of $6.6 million, which is payable upon achievement of certain milestones and metrics if achieved by December 31, 2019. For the

12


holdback provision and contingent consideration as of March 31, 2019, and June 30, 2018, the Company recorded accrued expenses and other current liabilities of $3.7 million and $7.6 million, respectively; and other liabilities of $0.9 million, as of June 30, 2018. During the nine months ended March 31, 2019, the Company paid contingent consideration of $2.5 million which is included in the financing activities on the condensed consolidated statements of cash flows. During the nine months ended March 31, 2019, the Company recorded a benefit of $1.4 million in selling, general and administrative expenses to true-up the contingent consideration liability.
The fair value of acquired intangibles assets and liabilities assumed, including deferred tax liabilities, was $3.9 million and $1.6 million, respectively. The excess of the acquisition consideration over the estimated fair value of the acquired assets of $19.0 million was allocated to goodwill. The acquired assets and goodwill are included in the RSNA segment. The intangible assets will be amortized over a weighted-average useful life of approximately 8 years. The goodwill recognized from this acquisition reflects expected synergies resulting from direct ownership of the products and processes, allowing greater flexibility for future product development. The acquired goodwill is not deductible for tax purposes.
The result of operations for Progresses and DDE have been included in the condensed consolidated results of operation from the date of acquisition. The pro forma effects of these acquisitions are not significant to the Company's reported results for any period presented. Accordingly, no pro forma financial statements have been presented herein.
Note 5. Revenue
A. Adoption of ASC 606, "Revenue from Contracts with Customers"
On July 1, 2018, the Company adopted ASC 606 applying the modified retrospective method to all contracts that were not completed as of July 1, 2018. For contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with the available practical expedient, which did not have a material effect on the adjustment to accumulated deficit. Results for reporting periods beginning after July 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.
Upon adoption, recognition of revenue and costs for on-site licenses and installation was changed from recognition ratably over the software license term to recognition upon installation of the software. Additionally, the Company began deferring costs to obtain and costs to fulfill the contract which for the Company consists primarily of direct sales commissions and implementation costs for service arrangements. The cumulative effects of the changes made to the consolidated July 1, 2018 balance sheet for the adoption of ASC 606 were as follows:
 
Balance at June 30, 2018
 
Adjustments due to ASC 606
 
Balance at
 July 1, 2018
Assets
 
 
 
 
 
Accounts receivable
$
374.6

 
$
2.6

 
$
377.2

Other current assets
188.3

 
(61.8
)
 
126.5

Other assets
165.5

 
112.8

 
278.3

Liabilities
 
 
 
 
 
Accrued expenses and other current liabilities
198.0

 
0.4

 
198.4

Short-term deferred revenues
169.0

 
(38.4
)
 
130.6

Long-term deferred revenues
110.4

 
(41.0
)
 
69.4

Deferred income taxes
56.7

 
23.2

 
79.9

Other liabilities
64.7

 
0.1

 
64.8

Stockholders' Deficit
 
 
 
 
 
Retained earnings
753.0

 
109.7