UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K/A
 Amendment No. 2
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
 For the transition period from  to
 Commission file number: 000-51653
 DEALERTRACK HOLDINGS, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    52-2336218(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Identification Number)
 1111 Marcus Ave., Suite M04
Lake Success, NY 11042  (Address of Principal Executive Offices, including Zip Code)  (516) 734-3600  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Common Stock, $0.01 Par Value Per Share
    
    The NASDAQ Stock Market, LLC(Title of each class)
    
    (Name of exchange on which registered)
 Securities registered pursuant to Section 12(g) of the Act: None
 Yes o No þ
 Yes o No þ
 þ o
 o o
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



EXPLANATORY NOTE
  PART IIIItem 8. Financial Statements and Supplementary Data
    
    
    2PART IVItem 15. Exhibits
    
    
    39
  1




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##### 



PART II
 Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 PageDEALERTRACK HOLDINGS, INC.:Report of Independent Registered Public Accounting Firm
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statements of Stockholders Equity and Comprehensive Income
    
    
    8Notes to Consolidated Financial Statements
    
    
    11Schedule II  Valuation and Qualifying Accounts
    
    
    38
  2




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##### 



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
    /s/ PricewaterhouseCoopers LLP 
  3




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##### 



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007(In thousands, exceptshare and per shareamounts)ASSETSCurrent assetsCash and cash equivalents
    
    $
    155,456
    
    
    $
    50,564Short-term investments
    
    
    43,350
    
    
    
    169,580Accounts receivable, net of allowances of $1,848 and $2,615 at December 31, 2008 and 2007,
respectively
    
    
    18,462
    
    
    
    26,957Prepaid expenses and other current assets
    
    
    9,624
    
    
    
    7,305Deferred tax assets
    
    
    2,195
    
    
    
    3,827Restricted cash
    
    
    142
    
    
    
    Total current assets
    
    
    229,229
    
    
    
    258,233Long-term investments
    
    
    4,392
    
    
    
    Property and equipment, net
    
    
    13,448
    
    
    
    12,792Software and web site developments costs, net
    
    
    12,705
    
    
    
    10,771Intangible assets, net
    
    
    44,405
    
    
    
    69,528Goodwill
    
    
    114,886
    
    
    
    117,702Restricted cash
    
    
    250
    
    
    
    540Deferred taxes and other long-term assets
    
    
    17,900
    
    
    
    13,360Total assets
    
    $
    437,215
    
    
    $
    482,926LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    4,488
    
    
    $
    4,762Accrued compensation and employee benefits
    
    
    7,850
    
    
    
    12,527Accrued other
    
    
    11,385
    
    
    
    11,387Deferred revenues
    
    
    5,609
    
    
    
    4,016Due to acquirees
    
    
    1,740
    
    
    
    2,251Capital leases payable
    
    
    360
    
    
    
    480Total current liabilities
    
    
    31,432
    
    
    
    35,423Capital leases payable  long-term
    
    
    454
    
    
    
    1,076Due to acquirees  long-term
    
    
    682
    
    
    
    1,280Deferred tax liabilities  long-term
    
    
    2,477
    
    
    
    2,800Deferred revenue and other long-term liabilities
    
    
    5,950
    
    
    
    3,985Total liabilities
    
    
    40,995
    
    
    
    44,564Commitments and contingencies (Note 15)Stockholders equityPreferred stock, $0.01 par value; 10,000,000 shares authorized and no shares issued and
outstanding at December 31, 2008 and 2007, respectively
    
    
    
    
    
    
    Common stock, $0.01 par value; 175,000,000 shares authorized; 42,841,737 shares issued and
39,833,616 shares outstanding at December 31, 2008; and 42,556,925 shares issued and
42,552,723 shares outstanding at December 31, 2007
    
    
    428
    
    
    
    426Treasury stock, at cost, 3,008,121 and 4,202 shares at December 31, 2008 and 2007, respectively
    
    
    (50,061
    )
    
    
    (139
    )Additional paid-in capital
    
    
    428,771
    
    
    
    413,428Deferred stock-based compensation (APB 25)
    
    
    (446
    )
    
    
    (2,056
    )Accumulated other comprehensive income
    
    
    (2,730
    )
    
    
    8,181Retained earnings
    
    
    20,258
    
    
    
    18,522Total stockholders equity
    
    
    396,220
    
    
    
    438,362Total liabilities and stockholders equity
    
    $
    437,215
    
    
    $
    482,926
   4




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##### 



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands, except per share and share amounts)RevenueNet revenue (1)
    
    $
    242,706
    
    
    $
    233,845
    
    
    $
    173,272Operating costs and expensesCost of revenue (1)(2)
    
    
    113,731
    
    
    
    99,631
    
    
    
    70,843Product development (2)
    
    
    11,658
    
    
    
    9,808
    
    
    
    9,153Selling, general and administrative (2)
    
    
    110,265
    
    
    
    96,875
    
    
    
    72,537Total operating costs and expenses
    
    
    235,654
    
    
    
    206,314
    
    
    
    152,533Income from operations
    
    
    7,052
    
    
    
    27,531
    
    
    
    20,739Interest income
    
    
    4,720
    
    
    
    5,606
    
    
    
    4,289Interest expense
    
    
    (324
    )
    
    
    (355
    )
    
    
    (268
    )Other income, net
    
    
    205
    
    
    
    4
    
    
    
    1,373Impairment of auction rate securities (Note 3)
    
    
    (5,956
    )
    
    
    
    
    
    
    Income before provision for income taxes
    
    
    5,697
    
    
    
    32,786
    
    
    
    26,133Provision for income taxes, net
    
    
    (3,961
    )
    
    
    (13,034
    )
    
    
    (6,797
    )Net income
    
    $
    1,736
    
    
    $
    19,752
    
    
    $
    19,336Basic net income per share
    
    $
    0.04
    
    
    $
    0.50
    
    
    $
    0.54Diluted net income per share
    
    $
    0.04
    
    
    $
    0.48
    
    
    $
    0.51Weighted average shares outstanding
    
    
    40,461,896
    
    
    
    39,351,138
    
    
    
    36,064,796Weighted average shares outstanding assuming dilution
    
    
    41,673,007
    
    
    
    41,198,773
    
    
    
    37,567,488
 
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)(1) Related party revenue
    
    $
    2,419
    
    
    $
    2,425
    
    
    $
    33,380Related party cost of revenue
    
    
    9
    
    
    
    38
    
    
    
    1,840
 (2)
    
    Stock-based compensation expense recorded for the years ended December 31, 2008, 2007 and 2006
was classified as follows: Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Cost of revenue
    
    $
    2,497
    
    
    $
    2,022
    
    
    $
    1,115Product development
    
    
    712
    
    
    
    589
    
    
    
    361Selling, general and administrative
    
    
    10,782
    
    
    
    8,295
    
    
    
    9,200
   5




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##### 



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Cash flows from operating activitiesNet income
    
    $
    1,736
    
    
    $
    19,752
    
    
    $
    19,336Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization
    
    
    40,076
    
    
    
    38,479
    
    
    
    25,915Deferred tax benefit
    
    
    (2,051
    )
    
    
    (4,631
    )
    
    
    (11,600
    )Stock-based compensation expense
    
    
    13,991
    
    
    
    10,906
    
    
    
    10,676Provision for doubtful accounts and sales credits
    
    
    9,639
    
    
    
    6,767
    
    
    
    4,838Loss (gain) on sale of property and equipment
    
    
    
    
    
    
    17
    
    
    
    (53
    )Amortization of bond premium
    
    
    132
    
    
    
    
    
    
    
    Amortization of deferred interest
    
    
    178
    
    
    
    187
    
    
    
    175Non cash deferred compensation
    
    
    264
    
    
    
    294
    
    
    
    214Amortization of bank financing costs
    
    
    30
    
    
    
    122
    
    
    
    124Stock-based compensation windfall tax benefit
    
    
    (418
    )
    
    
    (6,995
    )
    
    
    (2,317
    )Impairment of auction rate securities
    
    
    5,956
    
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of effects of acquisitionsTrade accounts receivable
    
    
    (1,556
    )
    
    
    (11,139
    )
    
    
    (9,290
    )Accounts receivable  related party
    
    
    (78
    )
    
    
    166
    
    
    
    4,988Prepaid expenses and other current assets
    
    
    (2,928
    )
    
    
    (1,286
    )
    
    
    (501
    )Accounts payable and accrued expenses
    
    
    (6,678
    )
    
    
    3,905
    
    
    
    4,878Accounts payable  related party
    
    
    
    
    
    
    
    
    
    
    (2,021
    )Deferred revenue and other current liabilities
    
    
    1,650
    
    
    
    567
    
    
    
    (193
    )Other long-term liabilities
    
    
    1,501
    
    
    
    19
    
    
    
    180Deferred rent
    
    
    473
    
    
    
    86
    
    
    
    357Other long-term assets
    
    
    (423
    )
    
    
    (290
    )
    
    
    (217
    )Net cash provided by operating activities
    
    
    61,494
    
    
    
    56,926
    
    
    
    45,489Cash flows from investing activitiesCapital expenditures
    
    
    (6,502
    )
    
    
    (7,189
    )
    
    
    (3,228
    )Funds released from escrow and other restricted cash
    
    
    149
    
    
    
    
    
    
    
    50Purchase of investments
    
    
    (549,159
    )
    
    
    (554,445
    )
    
    
    (214,950
    )Sale of investments
    
    
    664,932
    
    
    
    508,980
    
    
    
    90,835Capitalized software and web site development costs
    
    
    (8,560
    )
    
    
    (6,474
    )
    
    
    (3,636
    )Proceeds from sale of property and equipment
    
    
    3
    
    
    
    8
    
    
    
    58Payment for acquisition of business and intangible assets, net of acquired cash
    
    
    (5,989
    )
    
    
    (109,605
    )
    
    
    (37,519
    )Net cash provided by (used in) investing activities
    
    
    94,874
    
    
    
    (168,725
    )
    
    
    (168,390
    )Cash flows from financing activitiesPrincipal payments on capital lease obligations
    
    
    (742
    )
    
    
    (229
    )
    
    
    (394
    )Proceeds from the exercise of employee stock options
    
    
    951
    
    
    
    4,009
    
    
    
    2,685Proceeds from employee stock purchase plan
    
    
    1,691
    
    
    
    1,779
    
    
    
    849Purchase of treasury stock
    
    
    (49,922
    )
    
    
    (108
    )
    
    
    (31
    )Proceeds from public offerings, net of expenses
    
    
    
    
    
    
    102,192
    
    
    
    61,617Principal payments on notes payable
    
    
    (212
    )
    
    
    (422
    )
    
    
    (315
    )Stock-based compensation expense windfall tax benefit
    
    
    418
    
    
    
    6,995
    
    
    
    2,317Other
    
    
    
    
    
    
    
    
    
    
    12Net cash (used in) provided by financing activities
    
    
    (47,816
    )
    
    
    114,216
    
    
    
    66,740Net increase (decrease) in cash and cash equivalents
    
    
    108,552
    
    
    
    2,417
    
    
    
    (56,161
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (3,660
    )
    
    
    1,067
    
    
    
    (23
    )Beginning of year
    
    
    50,564
    
    
    
    47,080
    
    
    
    103,264End of year
    
    $
    155,456
    
    
    $
    50,564
    
    
    $
    47,080
  6




---



##### 



Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Supplemental disclosureNon cash investing and financing activities:Assets acquired under capital leases
    
    $
    
    
    
    $
    219
    
    
    $
    Acquisition of capitalized software through note payable
    
    
    867
    
    
    
    
    
    
    
    2,608Accrued capitalized hardware, software and fixed assets
    
    
    795
    
    
    
    1,186
    
    
    
    1,133Goodwill adjustment
    
    
    2,699
    
    
    
    620
    
    
    
    494Payable for acquired intangible assets
    
    
    500
    
    
    
    
    
    
    
    Deferred compensation expense reversal to equity
    
    
    264
    
    
    
    360
    
    
    
    325Cash paid for:Income taxes
    
    $
    6,995
    
    
    $
    15,308
    
    
    $
    13,707Interest
    
    
    128
    
    
    
    153
    
    
    
    82
   7




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##### 



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME
 Accumulated
    
    
    RetainedCommon Stock,
    
    
    Additional
    
    
    Deferred
    
    
    Other
    
    
    Earnings
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    In Treasury
    
    
    Paid-In
    
    
    Stock-Based
    
    
    Comprehensive
    
    
    (Accumulated
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Deficit)
    
    
    Equity
    
    
    Income(In thousands, except share amounts)Balance as of January 1,
2006
    
    
    
    
    
    $
    
    
    
    
    35,379,717
    
    
    $
    354
    
    
    
    
    
    
    $
    
    
    
    $
    214,471
    
    
    $
    (7,745
    )
    
    $
    157
    
    
    $
    (20,566
    )
    
    $
    186,671Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    387,748
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    2,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,685Directors deferred
compensation stock units
    
    
    
    
    
    
    
    
    
    
    14,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324Issuance of common stock
under employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    42,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849Compensation expense
related to the employee
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Compensation expense
related to the departure
of an executive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,892
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    5,004Tax benefit from the
exercise of stock
options and restricted
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,317Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    (120
    )
    
    
    (120
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,219
    
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )Issuance of restricted
common stock grants
    
    
    
    
    
    
    
    
    
    
    784,250
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Restricted common stock
grant reversal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (355
    )
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense (APB 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,877
    
    
    
    
    
    
    
    
    
    
    
    1,877Stock-based compensation
expense (FAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,011Restricted common
stock-based compensation
expense (APB 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    
    
    
    
    
    
    
    
    472Restricted common
stock-based compensation
expense (FAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,162Options and restricted
share cancellations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (625
    )
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common
stock  public offering
    
    
    
    
    
    
    
    
    
    
    2,750,000
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    61,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,617Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    12
  8




---



##### 



Accumulated
    
    
    RetainedCommon Stock,
    
    
    Additional
    
    
    Deferred
    
    
    Other
    
    
    Earnings
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    In Treasury
    
    
    Paid-In
    
    
    Stock-Based
    
    
    Comprehensive
    
    
    (Accumulated
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Deficit)
    
    
    Equity
    
    
    Income(In thousands, except share amounts)Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,336
    
    
    
    19,336
    
    
    
    19,336Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,216Balance as of
December 31, 2006
    
    
    
    
    
    $
    
    
    
    
    39,358,769
    
    
    $
    393
    
    
    
    1,219
    
    
    $
    (31
    )
    
    $
    289,490
    
    
    $
    (4,322
    )
    
    $
    37
    
    
    $
    (1,230
    )
    
    $
    284,337Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    633,320
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    4,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,009Directors deferred
compensation stock units
    
    
    
    
    
    
    
    
    
    
    8,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294Officers deferred
compensation stock units
    
    
    
    
    
    
    
    
    
    
    2,177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66Issuances of common
stock under employee
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    59,202
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,779Compensation expense
related to the employee
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314Tax benefit from the
exercise of stock
options and restricted
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,995Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,144
    
    
    
    
    
    
    
    8,144
    
    
    
    8,144Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,983
    
    
    
    (108
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (108
    )Issuance of restricted
common stock grants
    
    
    
    
    
    
    
    
    
    
    235,725
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
expense (APB 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729
    
    
    
    
    
    
    
    
    
    
    
    1,729Stock-based compensation
expense (FAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,604Restricted common
stock-based compensation
expense (APB 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    
    
    
    
    397Restricted common
stock-based compensation
expense (FAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,862Options and restricted
share cancellations
    
    
    
    
    
    
    
    
    
    
    (40,401
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (140
    )
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common
stock  public offering
    
    
    
    
    
    
    
    
    
    
    2,300,000
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    102,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,192Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,752
    
    
    
    19,752
    
    
    
    19,752Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,896Balance as of
December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    42,556,925
    
    
    $
    426
    
    
    
    4,202
    
    
    $
    (139
    )
    
    $
    413,428
    
    
    $
    (2,056
    )
    
    $
    8,181
    
    
    $
    18,522
    
    
    $
    438,362
  9




---



##### 



Accumulated
    
    
    RetainedCommon Stock,
    
    
    Additional
    
    
    Deferred
    
    
    Other
    
    
    Earnings
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    In Treasury
    
    
    Paid-In
    
    
    Stock-Based
    
    
    Comprehensive
    
    
    (Accumulated
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Deficit)
    
    
    Equity
    
    
    Income(In thousands, except share amounts)Exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    102,182
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951Directors deferred
compensation stock
units
    
    
    
    
    
    
    
    
    
    
    17,638
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264Issuances of common
stock under
employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    123,587
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,690
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,691Compensation
expense related to
the employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299Tax benefit from
the exercise of
stock options and
restricted common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,926
    )
    
    
    
    
    
    
    (10,926
    )
    
    
    (10,926
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,003,919
    
    
    
    (49,922
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,922
    )Unrealized gain on
auction rate
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    15Issuance of
restricted common
stock grants
    
    
    
    
    
    
    
    
    
    
    49,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based
compensation
expense (APB 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,196
    
    
    
    
    
    
    
    
    
    
    
    1,196Stock-based
compensation
expense
(FAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,191Restricted common
stock-based
compensation
expense (APB 25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    342Restricted common
stock-based
compensation
expense
(FAS 123(R))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,022Options and
restricted share
cancellations
    
    
    
    
    
    
    
    
    
    
    (7,952
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,736
    
    
    
    1,736
    
    
    
    1,736Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,721Balance as of
December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    42,841,737
    
    
    $
    428
    
    
    
    3,008,121
    
    
    $
    (50,061
    )
    
    $
    428,771
    
    
    $
    (446
    )
    
    $
    (2,730
    )
    
    $
    20,258
    
    
    $
    396,220
   10




---



##### 



DEALERTRACK HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Business Description
  2. Summary of Significant Accounting Policies
  Basis of Presentation
  Use of Estimates
   Revenue Recognition
 Revenue Recognition in
Financial Statements Revenue Arrangements with Multiple
Deliverables. Software Revenue Recognition.
 Transaction Services Revenue.
  11




---



##### 



Subscription Services Revenue.
 Other Revenue.
  Shipping Costs
  Cash and Cash Equivalents
  Short-term and long-term Investments
 Accounting for Certain Investments in Debt and Equity Securities.
   12




---



##### 



Translation of Non-U.S. Currencies
  Allowance for Doubtful Accounts
  Property, Equipment and Depreciation
  Software and Web Site Development Costs and Amortization
 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use Accounting for
Web Site Development Costs.
 Goodwill, Other Intangibles and Long-lived Assets
 Goodwill and Other
Intangible Assets
    13




---



##### 



Income Taxes
 Accounting for Income Taxes
 Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No 109 of FIN 48
  14




---



##### 



Advertising Expenses
  Concentration of Credit Risk
   Net Income per Share
 Earnings per Share.
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    1,736
    
    
    $
    19,752
    
    
    $
    19,336Denominator:Weighted average common stock outstanding (basic)
    
    
    40,461,896
    
    
    
    39,351,138
    
    
    
    36,064,796Common equivalent shares from options to purchase
common stock, restricted common stock and
contingent Long-Term Incentive Equity Awards
    
    
    1,211,111
    
    
    
    1,847,635
    
    
    
    1,502,692Weighted average common stock outstanding (diluted)
    
    
    41,673,007
    
    
    
    41,198,773
    
    
    
    37,567,488Basic net income per share
    
    $
    0.04
    
    
    $
    0.50
    
    
    $
    0.54Diluted net income per share (1)
    
    $
    0.04
    
    
    $
    0.48
    
    
    $
    0.51
 
 (1)
    
    In accordance with SFAS No. 128, for the years ended December 31,
2008, 2007 and 2006, we have excluded 393,333, 196,666 and 400,000
contingently issued shares, respectively, from diluted weighted
average common stock outstanding as their contingent considerations
(a) have not been satisfied at the reporting date nor (b) would have
been satisfied if the reporting date was the end of the contingency
period (Refer to Note 13 for further information).  15




---



##### 



Year Ended December 31,2008
    
    
    2007
    
    
    2006Stock options
    
    
    2,257,841
    
    
    
    476,464
    
    
    
    819,500Restricted common stock
    
    
    202,513
    
    
    
    36,877
    
    
    
    59,667Total
    
    
    2,460,354
    
    
    
    513,341
    
    
    
    879,167
 Stock-Based Compensation
      Year Ended December 31,2008
    
    
    2007
    
    
    2006Stock options
    
    $
    8,331
    
    
    $
    6,333
    
    
    $
    8,671Restricted common stock
    
    
    5,361
    
    
    
    4,260
    
    
    
    1,855ESPP
    
    
    299
    
    
    
    313
    
    
    
    150Total stock-based compensation expense
    
    $
    13,991
    
    
    $
    10,906
    
    
    $
    10,676
   16




---



##### 



Year EndedDecember 31,2006Stock options, restricted common stock and
employee stock purchase plan compensation
expense recognized:Cost of revenue
    
    $
    753Product development
    
    
    252Selling, general and administrative
    
    
    2,658Total stock-based compensation expense
    
    
    3,663Related deferred income tax benefit
    
    
    (1,429
    )Decrease in net income
    
    $
    2,234Decrease in basic earnings per share
    
    $
    0.06Decrease in diluted earnings per share
    
    $
    0.06
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Expected life (in years) (1)
    
    
    4.33  4.47
    
    
    
    4.33  6.25
    
    
    
    6.25Risk-free interest rate
    
    
    2.35  3.14
    %
    
    
    3.09  4.76
    %
    
    
    4.27  5.04
    %Expected volatility (2)
    
    
    47  48.6
    %
    
    
    47
    %
    
    
    47
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 
 (1)
    
    For the year ended December 31, 2008, the expected lives of options
were determined based on the historical lives of similar entities
whose common shares are publicly traded. For the year ended
December 31, 2007 and 2006, the expected lives of options were
determined based on the simplified method under the provisions of
SAB 107. Due to our limited history as a public company, we believe we
do not have appropriate historical experience to estimate future
exercise patterns. As more information becomes available, we may
revise this estimate on a prospective basis.(2)
    
    For the years ended December 31, 2008, 2007, and 2006, we estimated
our expected volatility based on the historical volatility of similar
entities whose common shares are publicly traded.    17




---



##### 



Recent Accounting Pronouncements
 Determination of the Useful Life
of Intangible Assets Goodwill and Other
Intangible Assets
 Effective Date of FASB
Statement 157
 Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
 The Fair Value Option for Financial Assets and Financial Liabilities
  3. Fair Value Measurements
 Fair Value Measurements
 
    
    Level 1  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
    
    Level 2  Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
    
    Level 3  Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives
the lowest priority to Level 3 inputs.
  18




---



##### 



Quoted Pricesin Active
    
    
    Significant Other
    
    
    Significant
    
    
    TotalMarkets
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    Carrying(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    ValueCash equivalents (1)
    
    $
    124,497
    
    
    $
    
    
    
    $
    
    
    
    $
    124,497Short-term investments (2)(3)
    
    
    42,490
    
    
    
    860
    
    
    
    
    
    
    
    43,350Long-term investments (4)
    
    
    
    
    
    
    2,842
    
    
    
    1,550
    
    
    
    4,392Total
    
    $
    166,987
    
    
    $
    3,702
    
    
    $
    1,550
    
    
    $
    172,239
 
 (1)
    
    Cash equivalents consist primarily of money market funds with original
maturity dates of three months or less, for which we determine fair
value through quoted market prices.(2)
    
    Level 1 short-term investments consist primarily of corporate bonds
and municipal notes with maturity dates of one year or less, for which
we determine fair value through quoted market prices.(3)
    
    Level 2 short-term and long-term investments consist of auction rate
securities (ARS) invested in tax-advantaged preferred stock trusts in
which the underlying equities are preferred stock of financial
institutions. As of December 31, 2008, we have $3.7 million (net of
impairment charge) of ARS invested in tax-advantaged preferred stock
trusts. Our investments securities are classified as available for
sale and reported at fair value. ARS have long-term underlying
maturities, but have interest rates that reset every six months or
less. The $3.7 million invested in tax-advantaged preferred stock
trust securities are associated with failed auctions, for which we
have been, or expect to be notified that the trust will be dissolved
and will distribute the underlying security. As we expect to receive
the liquid underlying preferred stock instruments within ninety days
of year end, we believe that the most representative measure of fair
value of these trusts to be the quoted market prices of the underlying
preferred stock instruments. Based upon our assessment we reduced the
fair value of the investments in the preferred stock trusts from
$9.6 million to $3.7 million and recorded an other-than-temporary
charge of $6.0 million to earnings and an unrealized gain of
$0.1 million to stockholders equity during the year ended
December 31, 2008.(4)
    
    Level 3 long-term investments consist of auction rate securities (ARS)
invested in tax-exempt state government obligations that was valued at
par. Our intent is not to hold the $1.6 million of ARS invested in
tax-exempt state government obligations to maturity, but rather use
the interest reset feature to provide liquidity as necessary. The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments Other-Than-Temporary
Impairment of Certain Investments in Debt and Equity Securities,
  19




---



##### 



Balance as of January 1, 2008
    
    $
    Reclassification from Level 1 investments to Level 3 investments
    
    
    169,580Reclassification from Level 3 investments to Level 2 investments
    
    
    (3,936
    )Net sales of auction rate securities
    
    
    (158,430
    )Other-than-temporary impairment included in net income
    
    
    (5,664
    )Balance as of December 31, 2008
    
    $
    1,550
 4. Business Combinations
 AutoStyleMart, Inc. (ASM)
   Current assets
    
    $
    69Property and equipment
    
    
    32Intangible assets
    
    
    4,126Goodwill
    
    
    808Total assets acquired
    
    
    5,035Total liabilities assumed
    
    
    (1,018
    )Net assets acquired
    
    $
    4,017
    Arkona, Inc. (Arkona)
   20




---



##### 



Current assets
    
    $
    2,842Property and equipment
    
    
    2,065Other assets
    
    
    191Intangible assets
    
    
    25,660Goodwill
    
    
    39,091Total assets acquired
    
    
    69,849Total liabilities assumed
    
    
    (9,876
    )Net assets acquired
    
    $
    59,973
    Curomax Corporation and its subsidiaries (collectively, Curomax)
   Current assets
    
    $
    1,925Property and equipment
    
    
    339Intangible assets
    
    
    21,670Goodwill
    
    
    21,929Total assets acquired
    
    
    45,863Total liabilities assumed
    
    
    (5,154
    )Net assets acquired
    
    $
    40,709
  21




---



##### 



DealerWare L.L.C. (DealerWare)
  Current assets
    
    $
    12Intangible assets
    
    
    2,200Goodwill
    
    
    2,942Total assets acquired
    
    
    5,154Total liabilities assumed
    
    
    Net assets acquired
    
    $
    5,154
   Global Fax, L.L.C. (Global Fax)
  Current assets
    
    $
    1,261Property and equipment
    
    
    537Other long-term assets
    
    
    14Intangible assets
    
    
    11,192Goodwill
    
    
    11,718Total assets acquired
    
    
    24,722Total liabilities assumed
    
    
    (167
    )Net assets acquired
    
    $
    24,555
  22




---



##### 



WiredLogic, Inc. (DealerWire)
  Current assets
    
    $
    18Property and equipment
    
    
    36Other long-term assets
    
    
    5Intangible assets
    
    
    2,262Goodwill
    
    
    3,734Total assets acquired
    
    
    6,055Total liabilities assumed
    
    
    (22
    )Net assets acquired
    
    $
    6,033
   DealerAccess Purchase Price Adjustment
   Automotive Lease Guide Purchase Price Adjustment
   23




---



##### 



5. Related Party Transactions
 Service Agreements with Related Parties  Other Service and Information Providers
   Service Agreement with Related Parties  Financing Sources
    6. Property and Equipment
  Estimated Useful
    
    
    December 31,Life (Years)
    
    
    2008
    
    
    2007Computer equipment
    
    
    3-5
    
    
    $
    20,431
    
    
    $
    16,719Office equipment
    
    
    5
    
    
    
    2,896
    
    
    
    2,189Furniture and fixtures
    
    
    5
    
    
    
    3,068
    
    
    
    2,840Leasehold improvements
    
    
    5-11
    
    
    
    1,233
    
    
    
    992Total property and equipment, gross
    
    
    
    
    
    
    27,628
    
    
    
    22,740Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    (14,180
    )
    
    
    (9,948
    )Total property and equipment, net
    
    
    
    
    
    $
    13,448
    
    
    $
    12,792
   24




---



##### 



7. Intangible Assets
  December 31,
    
    
    December 31,2008
    
    
    2007Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    AmortizationBook
    
    
    Accumulated
    
    
    Book
    
    
    Accumulated
    
    
    PeriodValue
    
    
    Amortization
    
    
    Value
    
    
    Amortization
    
    
    (Years)Customer contracts
    
    $
    33,673
    
    
    $
    (17,289
    )
    
    $
    41,569
    
    
    $
    (14,789
    )
    
    
    2-4Database
    
    
    13,333
    
    
    
    (8,818
    )
    
    
    16,433
    
    
    
    (9,577
    )
    
    
    3-6Trade names
    
    
    10,500
    
    
    
    (5,469
    )
    
    
    10,500
    
    
    
    (4,460
    )
    
    
    5-10Technology
    
    
    22,684
    
    
    
    (7,209
    )
    
    
    35,212
    
    
    
    (16,618
    )
    
    
    2-5Non-compete agreement
    
    
    10,697
    
    
    
    (7,697
    )
    
    
    14,062
    
    
    
    (6,214
    )
    
    
    2-5Application processing contract
    
    
    
    
    
    
    
    
    
    
    4,400
    
    
    
    (1,029
    )
    
    
    5Other
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    (861
    )
    
    
    5Total
    
    $
    90,887
    
    
    $
    (46,482
    )
    
    $
    123,076
    
    
    $
    (53,548
    )
      8. Goodwill
  Balance as of January 1, 2008
    
    $
    117,702Purchase price adjustments  Curomax (see Note 4)
    
    
    1,799Impact of change in Canadian dollar exchange rate
    
    
    (4,610
    )Purchase price adjustments  ALG (Note 4)
    
    
    1,139Purchase price adjustments  Arkona (Note 4)
    
    
    (836
    )Other
    
    
    (308
    )Balance as of December 31, 2008
    
    $
    114,886
  25




---



##### 



Balance as of January 1, 2007
    
    $
    52,499Acquisition of Curomax (see Note 4)
    
    
    20,130Impact of change in Canadian dollar exchange rate
    
    
    3,768Acquisition of Arkona (see Note 4)
    
    
    39,927Acquisition of AutoStyleMart (see Note 4)
    
    
    803Purchase price adjustments  ALG
    
    
    547Purchase price adjustments  Go Big
    
    
    74Other adjustments
    
    
    (46
    )Balance as of December 31, 2007
    
    $
    117,702
 9. Other Accrued Liabilities
  December 31,
    
    
    December 31,2008
    
    
    2007Customer deposits
    
    $
    2,749
    
    
    $
    2,773Revenue share
    
    
    1,700
    
    
    
    1,196Taxes
    
    
    1,511
    
    
    
    3,379Accrued Curomax contingent consideration (Note 4)
    
    
    1,837
    
    
    
    Software licenses
    
    
    1,341
    
    
    
    1,212Professional fees
    
    
    1,158
    
    
    
    1,462Public company costs
    
    
    240
    
    
    
    174Severance
    
    
    34
    
    
    
    271Other
    
    
    815
    
    
    
    920Total other accrued liabilities
    
    $
    11,385
    
    
    $
    11,387
 10. Public Offerings
   11. 401(k) Plan
   26




---



##### 



12. Income Taxes
  Year Ended December 31,2008
    
    
    2007
    
    
    2006United States
    
    $
    (2,467
    )
    
    $
    29,433
    
    
    $
    23,554Canada
    


8,164
    
    

    3,353
    
    

    2,579Total income before taxes
    
    $
    5,697
    
    
    $
    32,786
    
    
    $
    26,133
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Current tax:Federal
    
    $
    2,440
    
    
    $
    14,123
    
    
    $
    15,558State and local
    
    
    290
    
    
    
    2,373
    
    
    
    2,839Canada
    
    
    3,283
    
    
    
    1,169
    
    
    
    Total current tax
    
    
    6,013
    
    
    
    17,665
    
    
    
    18,397Deferred tax:Federal
    
    
    (1,783
    )
    
    
    (5,757
    )
    
    
    (8,510
    )State and local
    
    
    (913
    )
    
    
    179
    
    
    
    (471
    )Canada
    
    
    644
    
    
    
    947
    
    
    
    (2,619
    )Total deferred tax
    
    
    (2,052
    )
    
    
    (4,631
    )
    
    
    (11,600
    )Provision for income taxes, net
    
    $
    3,961
    
    
    $
    13,034
    
    
    $
    6,797
   December 31,2008
    
    
    2007Deferred tax assets:Net operating loss carryforwards
    
    $
    4,465
    
    
    $
    8,092Depreciation and amortization
    
    
    
    
    
    
    143Deferred compensation
    
    
    11,053
    
    
    
    7,543Acquired intangibles
    
    
    5,650
    
    
    
    1,230Tax credits
    
    
    
    
    
    
    511Impairment loss
    
    
    2,171
    
    
    
    Other
    

    2,021
    
    

    2,94025,360
    
    
    
    20,459Deferred tax liabilities:Acquired Intangibles
    
    
    (1,299
    )
    
    
    (2,795
    )Capitalized software and web site development
    
    
    (2,076
    )
    
    
    (2,264
    )Depreciation and amortization
    
    
    (864
    )
    
    
    Tax credits
    
    
    (100
    )
    
    
    Other
    
    
    (1,144
    )
    
    
    (733
    )
  27




---



##### 



December 31,2008
    
    
    200719,877
    
    
    
    14,667Deferred tax asset valuation allowance
    

    (3,322
    )
    

    (954
    )Total Deferred tax assets, net
    
    $
    16,555
    
    
    $
    13,713
        Year Ended December 31,2008
    
    
    2007
    
    
    2006Pre-tax book income
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State taxes
    
    
    (2.7
    )
    
    
    3.5
    
    
    
    6.0Foreign rate differential
    
    
    18.8
    
    
    
    2.8
    
    
    
    0.2Deferred tax rate adjustment
    
    
    (7.9
    )
    
    
    1.5
    
    
    
    2.3Valuation allowance and other
    
    
    26.3
    
    
    
    (3.1
    )
    
    
    (17.5
    )Total
    
    
    69.5
    %
    
    
    39.7
    %
    
    
    26.0
    %
   28




---



##### 



Balance January 1, 2008
    
    $
    0.1Additions
    
    
    0.4Payments
    
    
    Balance December 31, 2008
    
    $
    0.5Balance January 1, 2007
    
    $
    0.4Additions
    
    
    Payments
    
    
    (0.3
    )Balance December 31, 2007
    
    $
    0.1
  13. Stock Option and Deferred Compensation Plans
 2001 Stock Option Plan
  Second Amended and Restated 2005 Incentive Award Plan
  
    
    any shares underlying grants that are forfeited, cancelled or are terminated are added back for issuance;
 
    
    shares tendered or held for taxes will not be added to the reserved pool;
 
    
    upon the exercise of a stock appreciation rights, or SAR, the gross number of shares will be reduced
from the pool;
  29




---



##### 




    
    we may grant non-qualified stock options, restricted common stock, SARs, performance shares,
performance stock units, dividend equivalent units, stock payment awards, deferred stock awards,
restricted stock units performance-based awards payable in either cash or in shares to our employees,
directors or consultants, and additionally, we may grant incentive stock options to our employees;
 
    
    the option term for new stock options is now limited to seven years;
 
    
    the maximum number of shares of common stock that may be awarded to any one person during any one year
is 750,000 shares and the maximum amount payable with respect to cash performance bonus awards during
any fiscal year is limited to $3,000,000;
 
    
    to ensure that certain awards granted as performance-based
compensation under section 162(m) of the Internal Revenue Code of
1986, the compensation committee may require that the vesting of such
awards be conditioned on the satisfaction of performance criteria; and
 
    
    the term of the Restated 2005 Plan is now extended to April 29, 2018.
   Number of
    
    
    Weighted-AverageShares
    
    
    Exercise PriceBalance as of January 1, 2008
    
    
    3,918,595
    
    
    $
    14.2141Options Granted
    
    
    1,041,900
    
    
    $
    23.6416Options Exercised
    
    
    (102,182
    )
    
    $
    9.3085Options Cancelled
    
    
    (124,964
    )
    
    $
    27.3064Balance as of December 31, 2008
    
    
    4,733,349
    
    
    $
    16.0616Vested and unvested expected to vest as of December 31, 2008
    
    
    4,610,656
    
    
    $
    15.8334
   Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Weighted-
    
    
    AggregateExercise
    
    Number of
    
    
    Remaining
    
    
    Average
    
    
    Intrinsic
    
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    IntrinsicPrice
    
    Shares
    
    
    Contractual
    
    
    Exercise
    
    
    Value
    
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    ValueRange
    
    Outstanding
    
    
    Life in Years
    
    
    Price
    
    
    (000)
    
    
    Exercisable
    
    
    Life in Years
    
    
    Price
    
    
    (000)$2.80-$47.98
    
    
    4,733,349
    
    
    
    5.5863
    
    
    $
    16.0616
    
    
    $
    14,617
    
    
    
    3,024,306
    
    
    
    5.3634
    
    
    $
    10.7873
    
    
    $
    14,555
   30




---



##### 



Restricted Common StockWeightedNumber of
    
    
    Average GrantShares
    
    
    Date Fair ValueNon-vested as of January 1, 2008
    
    
    983,129
    
    
    $
    16.0433Awards granted
    
    
    49,357
    
    
    $
    19.9127Awards vested
    
    
    (141,510
    )
    
    $
    27.1847Awards canceled/expired/forfeited
    
    
    (7,801
    )
    
    $
    28.8505Non-vested as of December 31, 2008
    
    
    883,175
    
    
    $
    14.3609
  Employee Stock Purchase Plan
  Employees Deferred Compensation Plan
  Directors Deferred Compensation Plan
   31




---



##### 



Long Term Incentive Equity Awards
    July 21,
    
    
    November 2,
    
    
    August 2,2007
    
    
    2006
    
    
    2006Expected volatility
    
    
    47.00
    %
    
    
    40.00
    %
    
    
    40.00
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected life (in years)
    
    
    2.37
    
    
    
    3.16
    
    
    
    3.42Risk-free interest rate
    
    
    4.43
    %
    
    
    4.91
    %
    
    
    4.99
    %Weighted-average fair value of EBITDA Performance Award
    
    $
    38.01
    
    
    $
    25.39
    
    
    $
    18.95
  July 21,
    
    
    November 2,
    
    
    August 2,2007
    
    
    2006
    
    
    2006Expected volatility
    
    
    47.00
    %
    
    
    40.00
    %
    
    
    40.00
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected life (in years)
    
    
    2.37
    
    
    
    1.16-3.16
    
    
    
    1.41-3.42Risk-free interest rate
    
    
    4.43
    %
    
    
    4.55-4.91
    %
    
    
    4.83-4.99
    %Weighted-average fair value of Market Value Award
    
    $
    29.77
    
    
    $
    15.86
    
    
    $
    7.49
  32




---



##### 



14. Stock Repurchase Program
  15. Commitments and Contingencies
 Operating Leases
   Years Ending December 31,2009
    
    $
    4,7202010
    
    
    3,7562011
    
    
    3,1862012
    
    
    3,0622013
    
    
    2,861Thereafter
    
    
    11,883$
    29,468
 Capital Leases
  As of December 31,2008
    
    
    2007Computer equipment
    
    $
    1,486
    
    
    $
    1,486Furniture and fixtures
    
    
    203
    
    
    
    2031,689
    
    
    
    1,689Less: Accumulated depreciation
    
    
    (870
    )
    
    
    (274
    )$
    819
    
    
    $
    1,415
  33




---



##### 



Years Ending December 31,2009
    
    $
    4172010
    
    
    3492011
    
    
    115Total minimum lease payments
    
    
    881Less: Amount representing taxes, included in total minimum lease payments
    
    
    (50
    )Net minimum lease payments
    
    
    831Less: Amount representing interest
    
    
    (67
    )Present value of net minimum lease payments
    
    $
    764
 Retail Sales Tax
       34




---



##### 



Commitments
    Legal Proceedings
  DealerTrack Inc. v. RouteOne LLC
   DealerTrack, Inc. v. Finance Express et al., CV-06-2335;
 DealerTrack Inc. v. RouteOne and Finance Express et al., CV-06-6864; and
 DealerTrack Inc. v. RouteOne and Finance Express et al., CV-07-215
   35




---



##### 



Markman
          16. Segment Information
 Disclosures about Segments of an Enterprise and
Related Information
  36




---



##### 



Year Ended December 31,2008
    
    
    2007
    
    
    2006Transaction services revenue
    
    $
    132,419
    
    
    $
    147,312
    
    
    $
    112,752Subscription services revenue
    
    
    94,690
    
    
    
    75,061
    
    
    
    53,352Other
    
    
    15,597
    
    
    
    11,472
    
    
    
    7,168Total net revenue
    
    $
    242,706
    
    
    $
    233,845
    
    
    $
    173,272
 17. Credit Facility
  18. Subsequent Events
 Realignment of Workforce and Business
  AAX Asset Acquisition
 ® Business Combinations
 Exit from SCS Business
   37




---



##### 



DEALERTRACK HOLDINGS, INC.
 
 SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    Endof
    
    
    Charged to
    
    
    
    
    
    
    Other
    
    
    ofDescription
    
    Period
    
    
    Expenses
    
    
    Deductions
    
    
    Adjustments
    
    
    Period(In thousands)As of December 31, 2008:Allowance for doubtful
accounts
    
    $
    1,730
    
    
    $
    4,225
    
    
    $
    (5,007
    )
    
    $
    
    
    
    $
    948Allowance for sales credits
    
    
    885
    
    
    
    5,414
    
    
    
    (5,399
    )
    
    
    
    
    
    
    900Deferred tax valuation
allowance
    
    
    954
    
    
    
    141
    
    
    
    
    
    
    
    2,227
    (1)
    
    
    3,322As of December 31, 2007:Allowance for doubtful
accounts
    
    $
    1,884
    
    
    $
    3,620
    
    
    $
    (3,883
    )
    
    $
    109
    
    
    $
    1,730Allowance for sales credits
    
    
    2,523
    
    
    
    3,147
    
    
    
    (4,785
    )
    
    
    
    
    
    
    885Deferred tax valuation
allowance
    
    
    214
    
    
    
    109
    
    
    
    
    
    
    
    631
    (2)
    
    
    954As of December 31, 2006:Allowance for doubtful
accounts
    
    $
    1,531
    
    
    $
    1,527
    
    
    $
    (1,174
    )
    
    $
    
    
    
    $
    1,884Allowance for sales credits
    
    
    1,133
    
    
    
    3,311
    
    
    
    (1,921
    )
    
    
    
    
    
    
    2,523Deferred tax valuation
allowance
    
    
    4,245
    
    
    
    214
    
    
    
    (4,245
    )(3)
    
    
    
    
    
    
    214
 
 (1)
    
    For the year ended December 31, 2008, the deferred tax valuation
allowance was increased by $2.2 million primarily due to an impairment
loss on auction rate securities and was further increased by expenses
in various states.(2)
    
    For the year ended December 31, 2007, the deferred tax valuation
allowance was increased by $0.6 million primarily due to acquisitions
during 2007 and was further increased by expenses in various states.(3)
    
    For the year ended December 31, 2006, the deferred tax asset valuation
was reversed by $4.2 million. Included in this reversal is a $0.7
million adjustment to goodwill relating to the net operating loss
acquired but not recognized at the date of acquisition of DealerAccess
in January 2004.  38




---



##### 



PART IV
 
 Item 15. Exhibits
 1 5(a)(3) Exhibits
   39




---



##### 



SIGNATURE
   DealerTrack Holdings, Inc.
(Registrant)By:
    /s/  Eric D. JacobsEric D. JacobsSenior Vice President, Chief Administrative Officer,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)  40




---



##### 



EXHIBIT INDEX
 Number
    
    Description3.1
    (4)
    
    Form of Fifth Amended and Restated Certificate of Incorporation of DealerTrack Holdings, Inc.3.2
    (4)
    
    Form of Amended and Restated By-laws of DealerTrack Holdings, Inc.4.1
    (1)
    
    Fourth Amended and Restated Registration Rights Agreement, dated as of March 19, 2003, among
DealerTrack Holdings, Inc. and the stockholders of DealerTrack Holdings, Inc. party thereto.4.2
    (3)
    
    Form of Certificate of Common Stock.10.1
    (2)
    
    Transition Services Agreement, dated as of March 19, 2003, by and among DealerTrack
Holdings, Inc., Credit Online, Inc., DealerTrack, Inc., First American Credit Management
Solutions, Inc. and First American Real Estate Solutions, LLC.10.2
    (2)
    
    Joint Marketing Agreement, dated as of March 19, 2003, by and among DealerTrack Holdings,
Inc., DealerTrack, Inc., Credit Online, Inc. and First American CREDCO, a division of First
American Real Estate Solutions, LLC.10.3
    (2)
    
    First Amendment to the Joint Marketing Agreement by and among DealerTrack Holdings, Inc.,
DealerTrack, Inc., Credit Online, Inc. and First American CREDCO, a division of First
American Real Estate Solutions, LLC, dated as of December 1, 2004.10.4
    (2)
    
    Agreement between DealerTrack, Inc. and CreditReportPlus, LLC, dated as of December 1, 2004.10.5
    (2)
    
    Application Service Provider Contract, dated as of April 15, 2005, between First American
Credit Management Solutions, Inc. and DealerTrack, Inc.10.6
    (2)
    
    Non-Competition Agreement, dated as of March 19, 2003, by and among DealerTrack Holdings,
Inc., Credit Online, Inc., First American Credit Management Solutions, Inc. and The First
American Corporation.10.7
    (2)
    
    License Agreement, made and entered into as of February 1, 2001, by and between The Chase
Manhattan Bank and J.P. Morgan Partners (23A SBIC Manager), Inc.10.8
    (2)
    
    Asset Purchase Agreement, dated as of May 25, 2005, by and among Santa Acquisition
Corporation, Automotive Lease Guide (alg), LLC, Automotive Lease Guide (alg) Canada, Inc.,
Douglas W. Aiken, John A. Blair and Raj Sundaram.10.9
    (11)
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by
and between Mark F. ONeil and DealerTrack Holdings, Inc.10.10
    +
    
    Amendment No. 1 To Amended and Restated Senior Executive Employment Agreement, dated
December 31, 2008, by and between Mark F. ONeil and DealerTrack Holdings, Inc.10.11
    +
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by
and between David Trinder and DealerTrack Holdings, Inc.10.12
    +
    
    Amendment No. 1 To Amended and Restated Senior Executive Employment Agreement, dated
December 31, 2008, by and between David Trinder and DealerTrack Holdings, Inc.10.13
    (11)
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by
and between Eric D. Jacobs and DealerTrack Holdings, Inc.10.14
    +
    
    Amendment No. 1 To Amended and Restated Senior Executive Employment Agreement, dated
December 31, 2008, by and between Eric D. Jacobs and DealerTrack Holdings, Inc.10.15
    (11)
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by
and between Raj Sundaram and DealerTrack Holdings, Inc.10.16
    +
    
    Amendment No. 1 To Amended and Restated Senior Executive Employment Agreement, dated
December 31, 2008, by and between Raj Sundaram and DealerTrack Holdings, Inc.10.17
    (9)
    
    Letter Agreement, dated October 23, 2006, from DealerTrack, Inc. to Raj Sundaram regarding
relocation.10.18
    (9)
    
    Unfair Competition and Nonsolicitation Agreement, dated as of May 25, 2005, by and between
Raj Sundaram and Automotive Lease Guide (alg), Inc.10.19
    (9)
    
    Amendment No. 1 to Unfair Competition and Nonsoliciation Agreement, made as of August 21,
2006, by and between Automotive Lease Guide (alg), Inc. and Raj Sundaram.
  41




---



##### 



Number
    
    Description10.20
    (11)
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by
and between Robert Cox and DealerTrack Holdings, Inc.10.21
    +
    
    Amendment No. 1 To Amended and Restated Senior Executive Employment Agreement, dated
December 31, 2008, by and between Robert Cox and DealerTrack Holdings, Inc.10.22
    (1)
    
    2001 Stock Option Plan of DealerTrack Holdings, Inc., effective as of August 10, 2001.10.23
    (1)
    
    First Amendment to 2001 Stock Option Plan of DealerTrack Holdings, Inc., effective as of
December 28, 2001.10.24
    (1)
    
    Second Amendment to 2001 Stock Option Plan of DealerTrack Holdings, Inc., effective as of
March 19, 2003.10.25
    (1)
    
    Third Amendment to 2001 Stock Option Plan of DealerTrack Holdings, Inc., effective as of
January 30, 2004.10.26
    (6)
    
    Fourth Amendment to 2001 Stock Option Plan of DealerTrack Holdings, Inc. effective as of
February 10, 2006.10.27
    (10)
    
    Second Amended and Restated 2005 Incentive Award Plan, effective as of June 3, 2008.10.28
    (8)
    
    Amendment to Asset Purchase Agreement, dated October 18, 2006, by and among Santa
Acquisition Corporation, Automotive Lease Guide (alg), LLC, Automotive Lease Guide (alg)
Canada, Inc., Douglas W. Aiken, John A. Blair and Raj Sundaram.10.29
    (5)
    
    Form of Stock Option Agreement.10.30
    (5)
    
    Form of Restricted Stock Agreement.10.31
    +
    
    Form of Restricted Stock Unit Agreement.10.32
    (1)
    
    Senior Executive Incentive Bonus Plan, effective as of May 26, 2005.10.33
    (9)
    
    Stock Ownership and Retention Program, adopted May 26, 2005.10.34
    (1)
    
    Employee Stock Purchase Plan, adopted May 26, 2005.10.35
    (1)
    
    Directors Deferred Compensation Plan, effective as of June 30, 2005.10.36
    (11)
    
    First Amendment to DealerTrack Holdings, Inc. Directors Deferred Compensation Plan
effective as of January 1, 2007.10.37
    (1)
    
    Employees Deferred Compensation Plan, effective as of June 30, 2005.10.38
    (11)
    
    First Amendment to DealerTrack Holdings, Inc. Employees Deferred Compensation Plan
effective as of January 1, 2007.10.39
    (1)
    
    401(k) Plan, effective as of January 1, 2001, as amended.10.40
    (2)
    
    Lease Agreement, dated as of August 5, 2004, between iPark Lake Success, LLC and
DealerTrack, Inc.
  42




---



##### 



Number
    
    Description10.41
    (4)
    
    Lender Integration Support Agreement, dated as of September 1, 2005, between First American
CMSI Inc. and DealerTrack, Inc.10.42
    (7)
    
    Shares Purchase Agreement, made as of January 16, 2007, among certain shareholders of Curomax
Corporation and all of the shareholders of 2044904 Ontario Inc., 2044903 Ontario Inc. and
2044905 Ontario Inc. and 6680968 Canada Inc.14.1
    (6)
    
    Code of Business Conduct and Ethics.21.1
    +
    
    List of Subsidiaries.23.1
    +
    
    Consent of PricewaterhouseCoopers LLP.23.2
    *
    
    Consent of PricewaterhouseCoopers LLP.31.1
    +
    
    Certification of Mark F. ONeil pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    +
    
    Certification of Robert J. Cox III pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.3
    ++
    
    Certification of Mark F. ONeil pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.4
    ++
    
    Certification of Eric D. Jacobs pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.5
    *
    
    Certification of Mark F. ONeil pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.6
    *
    
    Certification of Eric D. Jacobs pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    +
    
    Certification of Mark F. ONeil and Robert J. Cox III pursuant 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  43




---



##### 



*
    
    Filed herewith.+
    
    Previously filed with our Annual Report on Form 10-K filed on February 24, 2009.++
    
    Previously filed with Amendment No. 1 to our Annual Report on Form 10-K filed on April 30, 2009.(1)
    
    Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-126944) filed July 28,
2005.(2)
    
    Incorporated by reference to Amendment No. 1 to our Registration Statement on Form S-1 (File No.
333-126944) filed September 22, 2005.(3)
    
    Incorporated by reference to Amendment No. 2 to our Registration Statement on Form S-1 (File No.
333-126944) filed October 12, 2005.(4)
    
    Incorporated by reference to Amendment No. 3 to our Registration Statement on Form S-1 (File No.
333-126944) filed October 24, 2005.(5)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed May 12, 2006.(6)
    
    Incorporated by reference to our Annual Report on Form 10-K filed March 30, 2006.(7)
    
    Incorporated by reference to our Current Report on Form 8-K dated January 16, 2007 filed January 18, 2007.(8)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed November 14, 2006.(9)
    
    Incorporated by reference to our Annual Report on Form 10-K filed March 16, 2007.(10)
    
    Incorporated by reference to Exhibit I to our Definitive Proxy Statement, filed on April 29, 2008.(11)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q filed August 9, 2007 .  44