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2018-12-31 iso4217:USD iso4217:USD xbrli:shares cdk:operating_segment cdk:reportable_segment xbrli:shares xbrli:pure
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

(Mark One)
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
or
        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

 
I.R.S. Employer Identification No.

 
1950 Hassell Road,
Hoffman Estates,
IL
 
 
60169
Address of Principal Executive Offices
 
Zip Code
(847) 397-1700
Registrant’s Telephone Number, Including Area Code

__________________________________________    
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act: 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 Par Value
CDK
NASDAQ Global Select Market

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, smaller reporting company, or an emerging growth 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
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  ý
The number of shares outstanding of the registrant’s common stock as of January 30, 2020 was 121,491,859.




Table of Contents


1


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

 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2019

2018
 
2019
 
2018
Revenues
$
499.6

 
$
478.7

 
$
994.2

 
$
925.0

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 
 
 
Cost of revenues
235.9

 
230.6

 
483.2

 
433.9

Selling, general and administrative expenses
115.6

 
115.1

 
223.5

 
206.2

Restructuring expenses

 
3.7

 

 
19.5

Total expenses
351.5

 
349.4

 
706.7

 
659.6

Operating earnings
148.1

 
129.3

 
287.5

 
265.4

 
 
 
 
 
 
 
 
Interest expense
(36.4
)
 
(34.3
)
 
(74.1
)
 
(66.5
)
Other income, net
1.3

 
1.6

 
3.6

 
4.2

 
 
 
 
 
 
 
 
Earnings before income taxes
113.0

 
96.6

 
217.0

 
203.1

 
 
 
 
 
 
 
 
Provision for income taxes
(43.2
)
 
(24.0
)
 
(68.8
)
 
(54.0
)
 
 
 
 
 
 
 
 
Net earnings from continuing operations
69.8

 
72.6

 
148.2

 
149.1

Net earnings (loss) from discontinued operations
(45.7
)
 
18.3

 
(40.0
)
 
34.1

Net earnings
24.1

 
90.9

 
108.2

 
183.2

Less: net earnings attributable to noncontrolling interest
1.8

 
1.9

 
3.9

 
3.9

Net earnings attributable to CDK
$
22.3

 
$
89.0

 
$
104.3

 
$
179.3

 
 
 
 
 
 
 
 
Net earnings (loss) attributable to CDK per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
0.56

 
$
0.56

 
$
1.19

 
$
1.13

Discontinued operations
(0.38
)
 
0.14

 
(0.33
)
 
0.27

Total net earnings attributable to CDK per share - basic
$
0.18

 
$
0.70

 
$
0.86

 
$
1.40

 
 
 
 
 
 
 
 
Net earnings (loss) attributable to CDK per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.55

 
$
0.56

 
$
1.18

 
$
1.13

Discontinued operations
(0.37
)
 
0.14

 
(0.33
)
 
0.26

Total net earnings attributable to CDK per share - diluted
$
0.18

 
$
0.70

 
$
0.85

 
$
1.39

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
121.6

 
126.8

 
121.5

 
128.2

Diluted
122.1

 
127.5

 
122.1

 
129.1



See notes to the consolidated financial statements.

2


CDK Global, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2019

2018
 
2019
 
2018
Net earnings
$
24.1

 
$
90.9

 
$
108.2

 
$
183.2

Other comprehensive income (loss):
 
 
 
 

 

Currency translation adjustments
32.0

 
(12.1
)
 
12.1

 
(18.1
)
Total other comprehensive income (loss)
32.0

 
(12.1
)
 
12.1

 
(18.1
)
Comprehensive income
56.1

 
78.8

 
120.3

 
165.1

Less: comprehensive income attributable to noncontrolling interest
1.8

 
1.9

 
3.9

 
3.9

Comprehensive income attributable to CDK
$
54.3

 
$
76.9

 
$
116.4

 
$
161.2


See notes to the consolidated financial statements.


3


CDK Global, Inc.
Consolidated Balance Sheets
(In millions, except par values)
(Unaudited)
 
December 31,
 
June 30,
 
2019
 
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
222.4

 
$
311.4

Accounts receivable, net of allowances of $10.0 and $8.8, respectively
320.9

 
290.4

Current assets held for sale
146.2

 
220.5

Other current assets
162.3

 
164.8

Total current assets
851.8

 
987.1

Property, plant and equipment, net of accumulated depreciation of $266.5 and $250.8, respectively
126.6

 
144.8

Other assets
360.5

 
284.9

Goodwill
1,364.3

 
1,356.3

Intangible assets, net
232.7

 
225.9

Total assets
$
2,935.9

 
$
2,999.0

 
 
 
 
Liabilities and Stockholders' Deficit
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt and finance lease liabilities
$
21.1

 
$
270.8

Accounts payable
23.9

 
38.0

Accrued expenses and other current liabilities
205.8

 
178.5

Litigation liability
57.0

 
90.0

Accrued payroll and payroll-related expenses
60.3

 
89.2

Current liabilities held for sale
50.0

 
48.9

Short-term deferred revenues
119.7

 
124.8

Total current liabilities
537.8

 
840.2

Long-term debt and finance lease liabilities
2,741.2

 
2,659.4

Long-term deferred revenues
72.5

 
68.4

Deferred income taxes
97.1

 
80.5

Other liabilities
114.3

 
65.0

Total liabilities
3,562.9

 
3,713.5

 
 
 
 
Commitments and Contingencies (Note 13)
 
 
 
 
 
 
 
Stockholders' Deficit:
 

 
 

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

 

Common stock, $0.01 par value: 650.0 shares authorized; 160.3 and 160.3 shares issued, respectively; 121.5 and 121.1 shares outstanding, respectively
1.6

 
1.6

Additional paid-in-capital
683.0

 
688.5

Retained earnings
979.1

 
911.6

Treasury stock, at cost: 38.8 and 39.2 shares, respectively
(2,308.5
)
 
(2,324.6
)
Accumulated other comprehensive income (loss)
5.4

 
(6.7
)
Total CDK stockholders' deficit
(639.4
)
 
(729.6
)
Noncontrolling interest
12.4

 
15.1

Total stockholders' deficit
(627.0
)
 
(714.5
)
Total liabilities and stockholders' deficit
$
2,935.9

 
$
2,999.0



See notes to the consolidated financial statements.

4


CDK Global, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Six Months Ended
 
December 31,
 
2019
 
2018
Cash Flows from Operating Activities

 

Net earnings
$
108.2

 
$
183.2

Less: net earnings (loss) from discontinued operations
(40.0
)
 
34.1

Net earnings from continuing operations
148.2

 
149.1

Adjustments to reconcile net earnings from continuing operations to cash flows provided by operating activities, continuing operations:


 


Depreciation and amortization
48.1

 
41.5

Asset impairment

 
14.9

Deferred income taxes
14.9

 
4.3

Stock-based compensation expense
11.5

 
6.2

Other
11.9

 
4.1

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

 
 

Change in accounts receivable
(30.9
)
 
(14.0
)
Change in other assets
3.0

 
11.7

Change in accounts payable
(14.1
)
 
(16.9
)
Change in accrued expenses and other liabilities
(40.2
)
 
(29.8
)
Net cash flows provided by operating activities, continuing operations
152.4

 
171.1

Net cash flows provided by operating activities, discontinued operations
26.3

 
28.2

Net cash flows provided by operating activities
178.7

 
199.3

 
 
 
 
Cash Flows from Investing Activities


 


Capital expenditures
(12.3
)
 
(27.1
)
Proceeds from sale of property, plant and equipment

 
6.7

Capitalized software
(26.4
)
 
(16.7
)
Acquisitions of businesses, net of cash acquired

 
(513.2
)
Investment in certificates of deposit
(12.0
)
 

Proceeds from maturities of certificates of deposit
7.3

 

Investment in joint venture

 
(10.0
)
Proceeds from investments

 
0.4

Net cash flows used in investing activities, continuing operations
(43.4
)
 
(559.9
)
Net cash flows used in investing activities, discontinued operations
(4.7
)
 
(4.6
)
Net cash flows used in investing activities
(48.1
)
 
(564.5
)
 
 
 
 
Cash Flows from Financing Activities


 


Proceeds from long-term debt
90.0

 
1,030.0

Repayments of long-term debt and lease liabilities
(260.4
)
 
(796.9
)
Dividends paid to stockholders
(36.5
)
 
(38.0
)
Repurchases of common stock

 
(374.1
)
Proceeds from exercises of stock options
4.9

 
1.5

Withholding tax payments for stock-based compensation awards
(5.7
)
 
(15.3
)
Dividend payments to noncontrolling owners
(6.6
)
 
(8.2
)
Payments of deferred financing costs

 
(4.4
)
Acquisition-related payments
(4.7
)
 
(3.2
)
Net cash flows used in financing activities, continuing operations
(219.0
)
 
(208.6
)
Net cash flows used in financing activities, discontinued operations
(1.1
)
 

Net cash flows used in financing activities
(220.1
)
 
(208.6
)
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
1.3

 
(6.5
)
Net change in cash, cash equivalents, and restricted cash
(88.2
)
 
(580.3
)
Cash, cash equivalents, and restricted cash, beginning of period
321.1

 
817.1

Cash, cash equivalents, and restricted cash end of period
$
232.9

 
$
236.8





5



CDK Global, Inc.
Consolidated Statements of Cash Flows (continued)
(In millions)
(Unaudited)
 
Six Months Ended
 
December 31,
 
2019
 
2018
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheets
 
 
 
Cash and cash equivalents
$
222.4

 
$
228.7

Restricted cash in funds held for clients included in other current assets
10.5

 
8.1

Total cash, cash equivalents, and restricted cash
$
232.9

 
$
236.8

 
 
 
 
Supplemental Disclosures
 
 
 
Cash paid for:
 
 
 
Income taxes and foreign withholding taxes, net of refunds, continuing operations
$
30.1

 
$
67.8

Interest
68.7

 
62.9

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Capitalized property and equipment obtained under lease
18.9

 
2.0

Lease liabilities incurred
(18.9
)
 
(2.0
)


See notes to the consolidated financial statements.

6



CDK Global, Inc.
Consolidated Statements of Stockholders' Deficit
(In millions)
(Unaudited)

Three Months Ended December 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
Amount
 
 
 
 
 
 
 
Balance as of September 30, 2019
160.3

$
1.6

 
$
677.7

 
$
975.3

 
$
(2,312.4
)
 
$
(26.6
)
 
$
(684.4
)
 
$
12.8

 
$
(671.6
)
Net earnings


 

 
22.3

 

 

 
22.3

 
1.8

 
24.1

Foreign currency translation adjustments


 

 

 

 
32.0

 
32.0

 

 
32.0

Stock-based compensation expense and related dividend equivalents


 
7.5

 
(0.2
)
 

 

 
7.3

 

 
7.3

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


 
(2.2
)
 

 
3.9

 

 
1.7

 

 
1.7

Dividends paid to stockholders ($0.15 per share)


 

 
(18.3
)
 

 

 
(18.3
)
 

 
(18.3
)
Dividend payments to noncontrolling owners


 

 

 

 

 

 
(2.2
)
 
(2.2
)
Balance as of December 31, 2019
160.3

$
1.6

 
$
683.0

 
$
979.1

 
$
(2,308.5
)
 
$
5.4

 
$
(639.4
)
 
$
12.4

 
$
(627.0
)


Three Months Ended December 31, 2018

 
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
Amount
 
 
 
 
 
 
 
Balance as of September 30, 2018
160.3

$
1.6

 
$
654.6

 
$
933.6

 
$
(1,909.6
)
 
$
5.1

 
$
(314.7
)
 
$
15.1

 
$
(299.6
)
Net earnings


 

 
89.0

 

 

 
89.0

 
1.9

 
90.9

Foreign currency translation adjustments


 

 

 

 
(12.1
)
 
(12.1
)
 

 
(12.1
)
Stock-based compensation expense and related dividend equivalents


 
3.2

 
(0.1
)
 

 

 
3.1

 

 
3.1

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


 
(1.0
)
 

 
1.1

 

 
0.1

 

 
0.1

Dividends paid to stockholders ($0.15 per share)


 

 
(18.7
)
 

 

 
(18.7
)
 

 
(18.7
)
Repurchases of common stock


 
(52.0
)
 

 
(208.0
)
 

 
(260.0
)
 

 
(260.0
)
Dividend payments to noncontrolling owners


 

 

 

 

 

 
(3.8
)
 
(3.8
)
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
)

See notes to the consolidated financial statements.

7



CDK Global, Inc.
Consolidated Statements of Stockholders' Deficit (continued)
(In millions)
(Unaudited)

Six Months Ended December 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, 2019
160.3

$
1.6

 
$
688.5

 
$
911.6

 
$
(2,324.6
)
 
$
(6.7
)
 
$
(729.6
)
 
$
15.1

 
$
(714.5
)
Net earnings


 

 
104.3

 

 

 
104.3

 
3.9

 
108.2

Foreign currency translation adjustments


 

 

 

 
12.1

 
12.1

 

 
12.1

Stock-based compensation expense and related dividend equivalents


 
11.4

 
(0.3
)
 

 

 
11.1

 

 
11.1

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


 
(16.9
)
 

 
16.1

 

 
(0.8
)
 

 
(0.8
)
Dividends paid to stockholders ($0.30 per share)


 

 
(36.5
)
 

 

 
(36.5
)
 

 
(36.5
)
Dividend payments to noncontrolling owners


 

 

 

 

 

 
(6.6
)
 
(6.6
)
Balance as of December 31, 2019
160.3

$
1.6

 
$
683.0

 
$
979.1

 
$
(2,308.5
)
 
$
5.4

 
$
(639.4
)
 
$
12.4

 
$
(627.0
)

Six Months Ended December 31, 2018

 
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


 

 
179.3

 

 

 
179.3

 
3.9

 
183.2

Foreign currency translation adjustments


 

 

 

 
(18.1
)
 
(18.1
)
 

 
(18.1
)
Stock-based compensation expense and related dividend equivalents


 
7.1

 
(0.2
)
 

 

 
6.9

 

 
6.9

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


 
(30.1
)
 

 
16.3

 

 
(13.8
)
 

 
(13.8
)
Dividends paid to stockholders ($0.30 per share)


 

 
(38.0
)
 

 

 
(38.0
)
 

 
(38.0
)
Repurchases of common stock


 
(52.0
)
 

 
(322.1
)
 

 
(374.1
)
 

 
(374.1
)
Dividend payments to noncontrolling owners


 

 

 

 

 

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


 

 
109.7

 

 
(0.4
)
 
109.3

 

 
109.3

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
)


See notes to the consolidated financial statements.


8


CDK Global, Inc.
Notes to the Consolidated Financial Statements
(Tabular amounts in millions, except per share amounts)
(Unaudited)
Note 1. Basis of Presentation
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 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, CDK North America ("CDKNA") and CDK International ("CDKI"), which are also the two reportable segments. 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. For additional information refer to Note 14, Financial Data by Segment.
The Company has committed to a plan to divest its Digital Marketing Business. The Digital Marketing Business is presented as discontinued operations. For additional information refer to Note 4, Discontinued Operations.
Basis of Preparation. The accompanying 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 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, 2019.
Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 4, Discontinued Operations for the impact of presenting the Digital Marketing Business as held for sale and discontinued operations.
Effective July 1, 2019, the Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Codification , "Leases," as amended ("ASC 842"). The comparative information has not been restated and continues to be reported under the accounting standards in effect for the periods presented. For additional information, refer to Note 10, Leases for a discussion of the Company's lease accounting policy.
Note 2. Summary of Significant Accounting Policies
The Company's significant accounting policies are described in the aforementioned Annual Report. Included below are certain updates to those policies.
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 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 consolidated balance sheets. Funds receivable was $27.7 million and $32.3 million, and funds held for clients was $10.5 million and $9.7 million as of December 31, 2019 and June 30, 2019, respectively. Client fund obligations were $38.2 million and $42.0 million as of December 31, 2019 and June 30, 2019, respectively.

Internal Use Software and Computer Software to be Sold, Leased, or Otherwise Marketed. Pursuant to its software policies, the Company incurred expenses to research, develop, and deploy new and enhanced solutions of $15.7 million and $23.7 million for the three months ended December 31, 2019 and 2018, respectively, and $37.8 million and $40.4 million for the six months ended December 31, 2019 and 2018, respectively. These expenses were classified within cost of revenues on the consolidated statements of operations. Additionally, the Company had cash flows used for qualifying capitalized software development cost of $26.4 million and $16.7 million for the six months ended December 31, 2019 and 2018, respectively.

9


Fair Value of Financial Instruments. Cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other current liabilities are reflected in the 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 9, Debt), 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 December 31, 2019 was $2,252.0 million, based on quoted market prices for the same or similar instruments compared to a carrying value of $2,100.0 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 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 costs 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. The Company early adopted this standard as of July 1, 2019, using the prospective approach and applied this guidance to all implementation costs incurred after the date of adoption.
In February 2016, the FASB issued ASC 842. Refer to Note 10, Leases, for the required disclosures related to the adoption of this standard.
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. For public business entities, ASU 2018-18 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. The Company intends to adopt this standard as of July 1, 2020. Based on its evaluation, the Company does not anticipate a material impact to its consolidated financial statements upon adoption of this standard.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (“ASU 2016-13”), which requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable), net investments in leases, and certain off-balance-sheet credit exposures. Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. Furthermore, the CECL model requires financial assets with similar risk characteristics to be analyzed on a collective basis. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. The Company intends to adopt this standard as of July 1, 2020. The Company is evaluating the impact of adoption on its consolidated financial statements, including accounting policies, processes and systems.
In December 2019, the FASB issued ASU No. 2019-12 which modifies ASC 740 "Income Taxes" to simplify the accounting for income taxes in various areas. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is evaluating the impact of adoption on its consolidated financial statements, including accounting policies, processes and systems.
Note 4. Discontinued Operations
In June 2019, the Company committed to a plan to divest its Digital Marketing Business in order to focus on its core software-as-a-service and technology solutions for the markets it serves through the CDKNA and CDKI segments. The Digital Marketing Business is comprised of all of the assets of the former Advertising North America segment and certain assets of CDKNA related to mobile advertising solutions and websites services.
The Company's decision to divest its Digital Marketing Business was the result of a comprehensive strategic review of the Company’s business, undertaken during the fiscal quarter ended June 30, 2019. The Company intends to complete its divestiture of the Digital Marketing Business during the current fiscal year. This action resulted in the reclassification of the assets and liabilities comprising the Digital Marketing Business as assets and liabilities held for sale in the accompanying consolidated balance sheets, and a corresponding adjustment to consolidated statements of operations and cash flows to reflect discontinued operations, for all periods presented.
Net assets held-for-sale are recorded at the lower of carrying value or fair value less selling costs. The Company is required to reassess the carrying value on a quarterly basis. At December 31, 2019, the Company estimated fair value from a market participant perspective, which incorporates information obtained through ongoing negotiations with potential buyers, and determined that the carrying value was higher than the estimated fair value less selling costs.  As a result, the Company

10


recorded a valuation allowance of $69.2 million at December 31, 2019. The valuation allowance is included in current assets held-for-sale in the consolidated balance sheets.
The following table summarizes the comparative financial results of discontinued operations which are presented as Net earnings from discontinued operations in the consolidated statements of operations:
 
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
$
84.8

 
$
111.7

 
$
170.5

 
$
219.9

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Cost of revenues
 
65.9

 
79.3

 
132.9

 
157.7

Selling, general and administrative expenses
 
10.5

 
7.6

 
21.6

 
14.7

Provision for valuation allowance
 
69.2

 

 
69.2

 

Restructuring expenses
 

 
0.1

 

 
1.5

Total expenses
 
145.6

 
87.0

 
223.7

 
173.9

Earnings (loss) before income taxes
 
(60.8
)
 
24.7

 
(53.2
)
 
46.0

Benefit from (provision for) income taxes
 
15.1

 
(6.4
)
 
13.2

 
(11.9
)
Net earnings (loss) from discontinued operations
 
$
(45.7
)
 
$
18.3

 
$
(40.0
)
 
$
34.1

The total assets and liabilities held for sale are stated separately in the consolidated balance sheets. Assets and liabilities held for sale were classified as current at December 31, 2019 and June 30, 2019 as it was probable that the sale would occur within one year as of those dates.
 
 
December 31, 2019
 
June 30, 2019
Assets:
 
 
 
 
Current assets:
 
 
 
 
Accounts Receivable
 
$
108.5

 
$
121.9

Prepaid and other current assets
 
2.6

 
1.1

Total current assets
 
111.1

 
123.0

Property, plant and equipment, net
 
2.3

 
2.3

Goodwill
 
59.4

 
59.4

Intangible assets, net
 
39.7

 
35.6

Other assets
 
2.9

 
0.2

Total current assets held for sale
 
215.4

 
220.5

 
 
 
 
 
Liabilities:
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
13.6

 
19.4

Deferred revenues
 
1.1

 
0.8

Accrued expenses and other current liabilities
 
34.9

 
26.0

Total current liabilities
 
49.6

 
46.2

Other liabilities
 
0.4

 
2.7

Total current liabilities held for sale
 
50.0

 
48.9

 
 
 
 
 
Net assets held for sale, at unadjusted carrying value(1)
 
165.4

 
171.6

Valuation allowance
 
(69.2
)
 

Net assets held for sale, at fair value less selling costs
 
$
96.2

 
$
171.6


(1) Includes additional assets and liabilities that met the held-for-sale criteria at December 31, 2019.

11


Note 5. Revenue
Contract Balances. The Company receives payments from customers based upon contractual billing schedules. Payment terms can vary by contract but the period between invoicing and when payments are due is not significant. The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in unbilled receivables, contract assets, or contract liabilities, on the Company’s consolidated balance sheets. Unbilled receivables are recorded when the right to consideration becomes unconditional based only on the passage of time. Contract assets include amounts related to the Company's contractual right to consideration for completed performance when the right to consideration is conditional. The Company records contract liabilities when cash payments are received or due in advance of performance. Contract assets and contract liabilities are recognized at the contract level.
The following table provides information about accounts receivables, contract assets, and contract liabilities from contracts with customers:
 
December 31, 2019
 
June 30, 2019
Accounts receivable (including unbilled receivables)
$
320.9

 
$
290.4

 
 
 
 
Short-term contract assets (included in other current assets)
30.3

 
29.9

Long-term contract assets (included in other assets)
22.3

 
20.2

Short-term contract liabilities (included in short-term deferred revenue)
(119.7
)
 
(124.8
)
Long-term contract liabilities (included in long-term deferred revenue)
(72.5
)
 
(68.4
)
Net contract assets/(liabilities)
$
(139.6
)
 
$
(143.1
)

During the six months ended December 31, 2019, the Company recognized $148.9 million of revenue upon satisfaction of performance obligations and invoiced and reclassified $26.7 million to accounts receivable. These amounts were included in the net contract assets or liabilities balance as of June 30, 2019. The Company had no asset impairment charges related to contract assets in the periods presented.
The Company may occasionally recognize an adjustment in revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in estimates for the transaction price, including any changes to the Company's assessment of whether an estimate of variable consideration is constrained. For the six months ended December 31, 2019, the impact on revenue recognized in the current period, from performance obligations partially or fully satisfied in the previous period, was not significant.
Remaining Performance Obligations. As of December 31, 2019, the Company had 3.0 billion of remaining performance obligations which represent contracted revenue that has not yet been recognized, including contracted revenue where the contract's original expected duration is one year or less. The Company expects to recognize remaining performance obligations as revenue as follows:
 
December 31, 2019
Six months ending June 30, 2020
$
670.0

Twelve months ending June 30, 2021
940.0

Twelve months ending June 30, 2022
640.0

Twelve months ending June 30, 2023
410.0

Thereafter
360.0

Total remaining performance obligations
$
3,020.0


The remaining performance obligations exclude future transaction revenue where revenue is recognized as the services are rendered and in the amount to which the Company has the right to invoice.
Costs to Obtain and Fulfill a Contract. The Company capitalizes certain contract acquisition costs consisting primarily of commissions incurred when contracts are signed. The Company does not capitalize commissions related to contracts with a duration of less than one year; such commissions are expensed within selling, general and administrative expenses when incurred. Costs to fulfill contracts are capitalized when such costs are direct, incremental, and related to transition or installation activities for hosted software solutions. Capitalized costs to fulfill primarily include travel and employee compensation and benefit related costs for the Company's implementation and training teams. Capitalized costs to obtain a

12


contract and most costs to fulfill a contract are amortized over a period of five years which represents the expected period of benefit of these costs. In instances where the contract term is significantly less than five years, costs to fulfill are amortized over the contract term which the Company believes best reflects the period of benefit of these costs.
As of December 31, 2019 and June 30, 2019, the Company capitalized contract acquisition and fulfillment costs from continuing operations of $205.9 million and $200.4 million, respectively. The Company expects that incremental commission fees incurred as a result of obtaining contracts and fulfillment costs are recoverable. During the six months ended December 31, 2019 and 2018, the Company recognized cost amortization of $40.6 million and $39.2 million, respectively, and there were no significant impairment losses.
Note 6. Restructuring
During the fiscal year ended June 30, 2015, the Company initiated a business transformation plan that was completed at the end of fiscal 2019. Accruals for restructuring expenses were included within accrued expenses and other current liabilities on the consolidated balance sheets as of December 31, 2019 and