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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-34568
KAR-20210630_G1.JPG
KAR Auction Services, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
20-8744739
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
11299 N. Illinois Street, Carmel, Indiana 46032
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (800) 923-3725

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol Name of each exchange on which registered
Common Stock, par value $0.01 per share KAR New York Stock Exchange
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 ☒    No ☐
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 ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 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 ☒
As of July 31, 2021, 119,184,223 shares of the registrant's common stock, par value $0.01 per share, were outstanding.


KAR Auction Services, Inc.
Table of Contents

2

PART I
FINANCIAL INFORMATION
Item 1.    Financial Statements
KAR Auction Services, Inc.
Consolidated Statements of Income
(In millions, except per share data)
(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Operating revenues    
Auction fees $ 236.7  $ 177.8  $ 472.2  $ 433.1 
Service revenue 182.2  134.8  369.8  371.0 
Purchased vehicle sales 97.9  49.6  190.6  125.1 
Finance-related revenue 68.6  56.8  134.4  135.3 
Total operating revenues 585.4  419.0  1,167.0  1,064.5 
Operating expenses    
Cost of services (exclusive of depreciation and amortization) 333.2  235.1  663.6  629.7 
Selling, general and administrative 140.2  112.3  289.2  274.7 
Depreciation and amortization 45.4  46.5  92.4  94.2 
Goodwill and other intangibles impairment   29.8    29.8 
Total operating expenses 518.8  423.7  1,045.2  1,028.4 
Operating profit (loss) 66.6  (4.7) 121.8  36.1 
Interest expense 31.2  30.9  62.1  68.9 
Other (income) expense, net 14.8  1.3  (35.4) (0.7)
Income (loss) before income taxes 20.6  (36.9) 95.1  (32.1)
Income taxes 9.1  (4.6) 32.7  (2.6)
Net income (loss) $ 11.5  $ (32.3) $ 62.4  $ (29.5)
Net income (loss) per share    
Basic $ 0.01  $ (0.27) $ 0.27  $ (0.24)
Diluted $ 0.01  $ (0.27) $ 0.26  $ (0.24)
Dividends declared per common share $   $ —  $   $ 0.19 
   









See accompanying condensed notes to consolidated financial statements
3

KAR Auction Services, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Net income (loss) $ 11.5  $ (32.3) $ 62.4  $ (29.5)
Other comprehensive income (loss), net of tax    
Foreign currency translation gain (loss) 7.1  16.0  8.7  (19.9)
Unrealized gain (loss) on interest rate derivatives, net of tax 0.3  (3.6) 7.0  (22.6)
Total other comprehensive income (loss), net of tax 7.4  12.4  15.7  (42.5)
Comprehensive income (loss) $ 18.9  $ (19.9) $ 78.1  $ (72.0)
   

























See accompanying condensed notes to consolidated financial statements
4

KAR Auction Services, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)
  June 30,
2021
December 31, 2020
Assets    
Current assets    
Cash and cash equivalents $ 621.6  $ 752.1 
Restricted cash 53.8  60.2 
Trade receivables, net of allowances of $11.7 and $12.1
549.2  367.2 
Finance receivables, net of allowances of $24.0 and $22.0
2,084.9  1,889.0 
Other current assets 105.1  106.7 
Total current assets 3,414.6  3,175.2 
Other assets    
Goodwill 2,212.5  2,140.2 
Customer relationships, net of accumulated amortization of $692.2 and $668.6
199.8  211.3 
Other intangible assets, net of accumulated amortization of $405.8 and $362.0
284.3  290.2 
Operating lease right-of-use assets 339.0  350.6 
Property and equipment, net of accumulated depreciation of $620.7 and $596.4
579.6  589.9 
Other assets 88.5  40.8 
Total other assets 3,703.7  3,623.0 
Total assets $ 7,118.3  $ 6,798.2 
   



















See accompanying condensed notes to consolidated financial statements
5

KAR Auction Services, Inc.
Consolidated Balance Sheets
(In millions, except share and per share data)
(Unaudited)
  June 30,
2021
December 31, 2020
Liabilities, Temporary Equity and Stockholders' Equity    
Current liabilities    
Accounts payable $ 1,074.5  $ 688.9 
Accrued employee benefits and compensation expenses 65.9  81.3 
Accrued interest 6.8  6.5 
Other accrued expenses 186.4  185.2 
Income taxes payable 2.8  3.2 
Obligations collateralized by finance receivables 1,324.2  1,261.2 
Current maturities of long-term debt 22.7  24.3 
Total current liabilities 2,683.3  2,250.6 
Non-current liabilities    
Long-term debt 1,851.8  1,853.8 
Deferred income tax liabilities 137.1  128.6 
Operating lease liabilities 332.0  344.2 
Other liabilities 42.8  55.4 
Total non-current liabilities 2,363.7  2,382.0 
Commitments and contingencies (Note 9)
Temporary equity
Series A convertible preferred stock 570.0  549.8 
Stockholders' equity    
Common stock, $0.01 par value:
   
Authorized shares: 400,000,000
   
Issued and outstanding shares:    
June 30, 2021: 119,181,203
   
December 31, 2020: 129,700,156
1.2  1.3 
Additional paid-in capital 874.6  1,046.5 
Retained earnings 642.5  600.7 
Accumulated other comprehensive loss (17.0) (32.7)
Total stockholders' equity 1,501.3  1,615.8 
Total liabilities, temporary equity and stockholders' equity $ 7,118.3  $ 6,798.2 









See accompanying condensed notes to consolidated financial statements
6

KAR Auction Services, Inc.
Consolidated Statements of Stockholders' Equity
(In millions)
(Unaudited)
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Retained Earnings Accumulated
Other
Comprehensive
Loss
Total
Balance at March, 31, 2021 124.8  $ 1.3  $ 969.4  $ 641.2  $ (24.4) $ 1,587.5 
Net income 11.5  11.5 
Other comprehensive income 7.4  7.4 
Issuance of common stock under stock plans 0.7  0.7 
Stock-based compensation expense 4.5  4.5 
Repurchase and retirement of common stock (5.6) (0.1) (100.0) (100.1)
Dividends on preferred stock (10.2) (10.2)
Balance at June 30, 2021 119.2  $ 1.2  $ 874.6  $ 642.5  $ (17.0) $ 1,501.3 
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Retained Earnings Accumulated
Other
Comprehensive
Loss
Total
Balance at December 31, 2020 129.7  $ 1.3  $ 1,046.5  $ 600.7  $ (32.7) $ 1,615.8 
Net income 62.4  62.4 
Other comprehensive income 15.7  15.7 
Issuance of common stock under stock plans 0.4  1.0  1.0 
Surrender of RSUs for taxes (0.1) (2.2) (2.2)
Stock-based compensation expense 9.9  9.9 
Repurchase and retirement of common stock (10.8) (0.1) (180.8) (180.9)
Dividends earned under stock plans 0.2  (0.4) (0.2)
Dividends on preferred stock (20.2) (20.2)
Balance at June 30, 2021 119.2  $ 1.2  $ 874.6  $ 642.5  $ (17.0) $ 1,501.3 
   












See accompanying condensed notes to consolidated financial statements
7

KAR Auction Services, Inc.
Consolidated Statements of Stockholders' Equity
(In millions)
(Unaudited)
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Retained Earnings Accumulated
Other
Comprehensive
Loss
Total
Balance at March, 31, 2020 129.2  $ 1.3  $ 1,031.6  $ 624.8  $ (85.9) $ 1,571.8 
Net loss (32.3) (32.3)
Other comprehensive income 12.4  12.4 
Issuance of common stock under stock plans 0.1  0.3  0.3 
Surrender of RSUs for taxes (0.1) (0.3) (0.3)
Stock-based compensation expense 2.6  2.6 
Balance at June 30, 2020 129.2  $ 1.3  $ 1,034.2  $ 592.5  $ (73.5) $ 1,554.5 
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Retained Earnings Accumulated
Other
Comprehensive
Loss
Total
Balance at December 31, 2019 128.8  $ 1.3  $ 1,028.9  $ 651.0  $ (31.0) $ 1,650.2 
Cumulative effect adjustment for adoption of ASC Topic 326, net of tax (3.8) (3.8)
Net loss (29.5) (29.5)
Other comprehensive loss (42.5) (42.5)
Issuance of common stock under stock plans 0.6  0.7  0.7 
Surrender of RSUs for taxes (0.2) (3.7) (3.7)
Stock-based compensation expense 7.6  7.6 
Dividends earned under stock plans 0.7  (0.7) — 
Cash dividends declared to stockholders ($0.19 per share)
(24.5) (24.5)
Balance at June 30, 2020 129.2  $ 1.3  $ 1,034.2  $ 592.5  $ (73.5) $ 1,554.5 




















See accompanying condensed notes to consolidated financial statements
8

KAR Auction Services, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
  Six Months Ended
June 30,
  2021 2020
Operating activities    
Net income (loss) $ 62.4  $ (29.5)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 92.4  94.2 
Provision for credit losses 7.6  41.6 
Deferred income taxes 6.8  (13.1)
Amortization of debt issuance costs 6.0  5.6 
Stock-based compensation 9.9  7.6 
Contingent consideration adjustment 15.7  — 
Unrealized gain on investment securities (31.6) — 
Goodwill and other intangibles impairment   29.8 
Other non-cash, net 2.1  4.9 
Changes in operating assets and liabilities, net of acquisitions:    
Trade receivables and other assets (198.5) (137.5)
Accounts payable and accrued expenses 322.9  265.3 
Net cash provided by operating activities 295.7  268.9 
Investing activities    
Net (increase) decrease in finance receivables held for investment (200.0) 532.6 
Acquisition of businesses (net of cash acquired) (79.8) — 
Purchases of property, equipment and computer software (50.7) (46.7)
Investments in securities (20.6)  
Proceeds from sale of investments 21.4   
Proceeds from the sale of PWI 2.1   
Proceeds from the sale of property and equipment 1.9   
Net cash (used by) provided by investing activities (325.7) 485.9 
Financing activities    
Net increase in book overdrafts 45.4  5.0 
Net decrease in borrowings from lines of credit (1.6) (1.9)
Net increase (decrease) in obligations collateralized by finance receivables 57.0  (720.5)
Proceeds from issuance of Series A Preferred Stock   550.1 
Payments for issuance costs of Series A Preferred Stock   (21.9)
Payments for debt issuance costs/amendments   (3.9)
Payments on long-term debt (4.7) (4.7)
Payments on finance leases (6.0) (7.8)
Payments of contingent consideration and deferred acquisition costs (21.3) (22.3)
Issuance of common stock under stock plans 1.0  0.7 
Tax withholding payments for vested RSUs (2.2) (3.7)
Repurchase and retirement of common stock (180.9) — 
Dividends paid to stockholders   (49.0)
Net cash used by financing activities (113.3) (279.9)
Effect of exchange rate changes on cash 6.4  (17.3)
Net (decrease) increase in cash, cash equivalents and restricted cash (136.9) 457.6 
Cash, cash equivalents and restricted cash at beginning of period 812.3  560.9 
Cash, cash equivalents and restricted cash at end of period $ 675.4  $ 1,018.5 
Cash paid for interest, net of proceeds from interest rate derivatives $ 55.4  $ 63.9 
Cash paid for taxes, net of refunds $ 16.6  $ 3.6 




See accompanying condensed notes to consolidated financial statements
9

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2021 (Unaudited)

Note 1—Basis of Presentation and Nature of Operations
Defined Terms
Unless otherwise indicated or unless the context otherwise requires, the following terms used herein shall have the following meanings:
"we," "us," "our," "KAR" and "the Company" refer, collectively, to KAR Auction Services, Inc. and all of its subsidiaries;
"ADESA" or "ADESA Auctions" refer, collectively, to ADESA, Inc., a wholly-owned subsidiary of KAR Auction Services, and ADESA, Inc.'s subsidiaries, including Openlane, Inc. (together with Openlane, Inc.'s subsidiaries, "Openlane"), Nth Gen Software Inc. ("TradeRev"), BacklotCars, Inc. ("BacklotCars"), ADESA Remarketing Limited (formerly known as GRS Remarketing Limited ("GRS" or "ADESA Remarketing Limited")) and ADESA Europe (formerly known as CarsOnTheWeb ("COTW"));
"AFC" refers, collectively, to Automotive Finance Corporation, a wholly-owned subsidiary of ADESA, and Automotive Finance Corporation's subsidiaries and other related entities, including PWI Holdings, Inc. (which was sold on December 1, 2020);
"Credit Agreement" refers to the Amended and Restated Credit Agreement, dated March 11, 2014 (as amended, amended and restated, modified or supplemented from time to time), among KAR Auction Services, Inc., as the borrower, the several banks and other financial institutions or entities from time to time parties thereto and JPMorgan Chase Bank N.A., as administrative agent;
"Credit Facility" refers to the $950 million, senior secured term loan B-6 facility due September 19, 2026 ("Term Loan B-6") and the $325 million, senior secured revolving credit facility due September 19, 2024 (the "Revolving Credit Facility"), the terms of which are set forth in the Credit Agreement;
"IAA" refers, collectively, to Insurance Auto Auctions, Inc., formerly a wholly-owned subsidiary of KAR Auction Services, and Insurance Auto Auctions, Inc.'s subsidiaries and other related entities, including HBC Vehicle Services Limited ("HBC");
"KAR Auction Services" refers to KAR Auction Services, Inc. and not to its subsidiaries;
"Senior notes" refers to the 5.125% senior notes due 2025 ($950 million aggregate principal was outstanding at June 30, 2021); and
"Series A Preferred Stock" refers to the Series A Convertible Preferred Stock, par value $0.01 per share (591,785 and 571,606 shares of Series A Preferred Stock were outstanding at June 30, 2021 and December 31, 2020, respectively).
Business and Nature of Operations
ADESA is a leading provider of wholesale vehicle auctions and related vehicle remarketing services for the automotive industry. As of June 30, 2021, the ADESA Auctions segment serves a domestic and international customer base through digital marketplaces supported by more than 70 vehicle logistics center locations across North America. ADESA also includes BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized in the United States, TradeRev, an online automotive remarketing platform in Canada where dealers can launch and participate in real-time vehicle auctions at any time, ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom and ADESA Europe (formerly known as CarsOnTheWeb), an online wholesale vehicle auction marketplace in Continental Europe. Our auctions facilitate the sale of used vehicles through on-premise and off-premise marketplaces. ADESA's online service offerings include customized private label solutions powered with software developed by its wholly-owned subsidiary, Openlane, that allow our commercial consignors (automobile manufacturers, captive finance companies and other institutions) to offer vehicles via the Internet prior to arrival at on-premise marketplaces. Remarketing services include a variety of activities designed to transfer used vehicles between sellers and buyers throughout the vehicle life cycle. ADESA facilitates the exchange of these vehicles through an auction marketplace, which aligns sellers and buyers. As an agent for customers, the Company
10

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

generally does not take title to or ownership of vehicles sold at the auctions. Generally, fees are earned from the seller and buyer on each successful auction transaction in addition to fees earned for ancillary services.
ADESA has the second largest used vehicle auction network in North America, based upon the number of used vehicles sold through auctions annually, and also provides services such as inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ADESA is able to serve the diverse and multi-faceted needs of its customers through the wide range of services offered.
AFC is a leading provider of floorplan financing to independent used vehicle dealers and this financing is provided throughout the United States and Canada. Floorplan financing supports independent used vehicle dealers in North America who purchase vehicles at ADESA, BacklotCars, TradeRev, other used vehicle and salvage auctions and non-auction purchases.
Prior to December 2020, in addition to floorplan financing, AFC also provided independent used vehicle dealers with vehicle service contracts. In October 2020, a subsidiary of ADESA signed a definitive agreement to sell all of the issued and outstanding shares of capital stock of PWI Holdings, Inc., the Company's extended vehicle service contract business ("PWI"), to certain subsidiaries of Kingsway Financial Services Inc. for a purchase price of approximately $24.3 million in cash and deferred payments of approximately $2.2 million (subject to customary adjustments). The sale was completed on December 1, 2020.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by U.S. GAAP for annual financial statements. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. In the opinion of management, the consolidated financial
statements reflect all adjustments, generally consisting of normal recurring accruals, necessary for a fair statement of our results
of operations, cash flows and financial position for the periods presented. These consolidated financial statements and
condensed notes to consolidated financial statements are unaudited and should be read in conjunction with the audited
consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2020, as filed with the Securities and Exchange Commission on February 18, 2021. The 2020 year-end
consolidated balance sheet data included in this Form 10-Q was derived from the audited financial statements referenced above
and does not include all disclosures required by U.S. GAAP for annual financial statements.
Reclassifications
ADESA's "Auction fees and services revenue" reported in the consolidated statement of income for the three and six months ended June 30, 2020 has been broken out between "Auction fees" and "Service revenue" in the consolidated statement of income to conform with the presentation for the three and six months ended June 30, 2021.
Prior to 2020, the costs and expenses of the holding company were reported separately from the reportable segments. Due to the spin-off of IAA in 2019 and the Company's transition from physical marketplaces to digital marketplaces, the Company has simplified its business and operations. Corporate expenses, previously reported as holding company expenses, are now included in the segments. Certain known expenses (e.g., information technology costs) were recorded directly to the ADESA and AFC segments. Interest expense previously reported by the holding company has been recorded in the ADESA segment. The residual shared services expenses were recorded at ADESA and allocated to AFC based on revenue and employee headcount. Holding company amounts reported in the segment results in the consolidated financial statements prior to December 31, 2020 have been reclassified to conform to the current presentation.
11

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates based in part on assumptions about current, and for some estimates, future economic and market conditions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Although the current estimates contemplate current conditions and expected future changes, as appropriate, it is reasonably possible that future conditions could differ from these estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of goodwill, intangible assets and long-lived assets, incremental losses on finance receivables, additional allowances on accounts receivable and deferred tax assets and changes in litigation and other loss contingencies.
New Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The update also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update can be adopted on either a fully retrospective or a modified retrospective basis. We do not expect the adoption of ASU 2020-06 will have a material impact on the consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740 and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.
Note 2—Acquisitions
2021 Acquisition
In May 2021, ADESA acquired Auction Frontier, LLC (“Auction Frontier”). Auction Frontier is the owner and operator of the cloud-based auction simulcast solution Velocicast®. The acquisition is aligned with KAR’s strategy, as Velocicast powers ADESA Simulcast and Simulcast+ technologies, as well as other wholesale and retail auctions across North America and Australia.
The purchased assets included accounts receivable, software, customer relationships and tradenames. The purchase agreement also included additional payments contingent on certain terms and conditions. Financial results for Auction Frontier have been included in our consolidated financial statements from the date of acquisition.
The purchase price for Auction Frontier, net of cash acquired, was approximately $92.2 million, which included a net cash payment of $79.8 million and estimated contingent payments with a fair value of $12.4 million based on a probability model. The maximum amount of undiscounted contingent payment related to this acquisition could approximate $15.0 million. The acquired assets and assumed liabilities of Auction Frontier were recorded at fair value, including $17.9 million to intangible assets, representing the fair value of acquired customer relationships of $10.0 million, software of $7.6 million and tradenames of $0.3 million, which are being amortized over their expected useful lives. The acquired software and tradenames are reported in "Other intangible assets" in the accompanying consolidated balance sheet. The excess earnings method was used to value the customer relationships and the relief from royalty method was used to value the software and tradenames. Both of these methods require forward looking estimates to determine fair value, including among other assumptions, forecasted revenue growth and estimated royalty and license rates. The purchase accounting associated with this acquisition is preliminary, subject to obtaining information to determine the fair value of certain assets and liabilities. The acquisition resulted in a preliminary estimate of $73.8 million of goodwill. The factors contributing to the recognition of goodwill were strategic and synergistic benefits that are expected to be realized from the acquisition. The goodwill is recorded in the ADESA Auctions reportable
12

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

segment and all of it is expected to be deductible for tax purposes. The financial impact of this acquisition, including pro forma financial results, was immaterial to the Company's consolidated results for the six months ended June 30, 2021.
Deferred and Contingent Payments Related to Prior Year Acquisitions
Some of the purchase agreements related to prior year acquisitions included additional payments over a specified period, including deferred and contingent payments based on certain conditions and performance. At June 30, 2021, we had deferred and estimated contingent consideration with a fair value of approximately $1.9 million and $36.2 million, respectively (based on Level 3 inputs), which are reported in "Other accrued expenses" in the accompanying consolidated balance sheet. At June 30, 2021, the aggregate maximum potential payment remaining for undiscounted deferred payments and undiscounted contingent payments related to these acquisitions could approximate $47.7 million. For the six months ended June 30, 2021, we made contingent consideration payments related to the CarsOnTheWeb acquisition of $21.3 million. For the three and six months ended June 30, 2021, adjustments to estimated contingent consideration associated with the CarsOnTheWeb and TradeRev acquisitions increased contingent consideration and impacted "Other (income) expense, net" by approximately $4.5 million and $15.7 million, respectively, in the aggregate.
Note 3—Stock and Stock-Based Compensation Plans
We adopted the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan in December 2009, which was amended and restated in June 2014 and further amended and restated in June 2021 ("Omnibus Plan"), and now provides that the maximum number of shares of the Company's common stock that may be issued pursuant to awards under the Omnibus Plan is approximately 7.3 million. The Omnibus Plan is intended to provide equity and/or cash-based awards to our executive officers and key employees. Our stock-based compensation expense includes expense associated with KAR Auction Services, Inc. service-based options ("service options"), market-based options ("market options"), performance-based restricted stock units ("PRSUs") and service-based restricted stock units ("RSUs"). We have determined that the KAR Auction Services, Inc. service options, market options, PRSUs and RSUs should be classified as equity awards.
The following table summarizes our stock-based compensation expense by type of award (in millions):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Service options $ 0.3  $ —  $ 0.6  $ — 
Market options 1.7  —  2.8  — 
PRSUs 0.9  0.8  3.1  2.3 
RSUs 1.6  1.8  3.4  5.3 
Total stock-based compensation expense $ 4.5  $ 2.6  $ 9.9  $ 7.6 
Service Options
In the first six months of 2021, we granted approximately 1.0 million service options with a weighted average exercise price of $16.26 per share to certain executive officers of the Company. The service options have a life of ten years and vest in equal annual installments on each of the first four anniversaries of the grant dates. The weighted average fair value of the service options granted in the first six months of 2021 was $3.96 per share. The fair values of the service options granted were estimated on the dates of grant using the Black-Scholes option pricing model with an expected life of 6.25 years, a weighted average expected volatility of 36.46%, a weighted average expected dividend yield of 3.8% and a weighted average risk free interest rate of 1.05%.
Market Options
In the first six months of 2021, we granted approximately 4.0 million market options with a weighted average exercise price of $16.26 per share to certain executive officers of the Company. The market options have a life of ten years and have a service component along with an additional market component. The market options become eligible to vest and become exercisable in equal increments, each upon the later to occur of (i) the first four anniversaries of the grant dates, respectively, and (ii) for each respective 25% increment, the attainment of KAR's closing stock price at or above $5, $10, $15 and $20 over each respective exercise price, for 20 consecutive trading days.
13

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

The weighted average fair value of the market options granted in the first six months of 2021 was $3.90 per share. The fair value and requisite service period of the market options was developed with a Monte Carlo simulation using a multivariate Geometric Brownian Motion with a drift equal to the risk free rate.
PRSUs and RSUs
In the first six months of 2021, we granted a target amount of approximately 0.6 million PRSUs to certain executive officers and other employees of the Company. Approximately 0.4 million of the PRSUs granted in 2021 vest if and to the extent that the Company's three-year cumulative operating adjusted net income per share attains certain specified goals and approximately 0.2 million of the PRSUs vest if and to the extent that certain operational goals are attained by year-end 2023 or 2024. In addition, approximately 0.5 million RSUs were granted to certain management members of the Company. The RSUs are contingent upon continued employment and generally vest in three equal annual installments. The weighted average grant date fair value of the PRSUs and the RSUs was $15.40 per share and $13.90 per share, respectively, which was determined using the closing price of the Company's common stock on the dates of grant.
Share Repurchase Program
In October 2019, the board of directors authorized a repurchase of up to $300 million of the Company's outstanding common stock, par value $0.01 per share, through October 30, 2021. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions. This program does not oblige the Company to repurchase any dollar amount or any number of shares under the authorization, and the program may be suspended, discontinued or modified at any time, for any reason and without notice. For the six months ended June 30, 2021, we repurchased and retired 10,847,800 shares of common stock in the open market at a weighted average price of $16.66 per share, under the October 2019 authorization. For the three months ended June 30, 2021, we repurchased and retired 5,628,000 shares of common stock in the open market at a weighted average price of $17.77 per share, aggregating $100 million. No shares of common stock were repurchased during the six months ended June 30, 2020.
Note 4—Net Income (Loss) Per Share
The following table sets forth the computation of net income (loss) per share (in millions except per share amounts):
  Three Months Ended June 30,
Six Months Ended June 30,
  2021 2020 2021 2020
Net income (loss) $ 11.5  $ (32.3) $ 62.4  $ (29.5)
Series A Preferred Stock dividends (10.2) (2.1) (20.2) (2.1)
Net income attributable to participating securities (0.3) —  (8.8) — 
Net income attributable to common stockholders $ 1.0  $ (34.4) $ 33.4  $ (31.6)
Weighted average common shares outstanding 122.7  129.3  125.8  129.2 
Effect of dilutive stock options and restricted stock awards 0.5  —  0.6  — 
Weighted average common shares outstanding and potential common shares 123.2  129.3  126.4  129.2 
Net income (loss) per share  
Basic $ 0.01  $ (0.27) $ 0.27  $ (0.24)
Diluted $ 0.01  $ (0.27) $ 0.26  $ (0.24)
Prior to June 2020, basic net income (loss) per share was calculated by dividing net income by the weighted average number of outstanding common shares for the period. Diluted net income (loss) per share was calculated consistent with basic net income (loss) per share including the effect of dilutive unissued common shares related to our stock-based employee compensation program. The effect of stock options and restricted stock on net income (loss) per share-diluted is determined through the application of the treasury stock method, whereby net proceeds received by the Company based on assumed exercises are hypothetically used to repurchase our common stock at the average market price during the period. As a result of the spin-off,
14

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

there are IAA employees who hold KAR equity awards included in the calculation. Stock options that would have an anti-dilutive effect on net income (loss) per diluted share and PRSUs subject to performance conditions which have not yet been satisfied are excluded from the calculations. Approximately 0.6 million service options were excluded from the calculation of diluted net income (loss) per share for the three and six months ended June 30, 2021, respectively. All of the market options were excluded from the calculation of diluted net income (loss) per share for the three and six months ended June 30, 2021. Approximately 1.1 million PRSUs were excluded from the calculation of diluted net income (loss) per share for the three and six months ended June 30, 2021, respectively. Total options outstanding at June 30, 2021 and 2020 were 5.5 million and 0.7 million, respectively. In accordance with U.S. GAAP, no potential common shares were included in the computation of diluted net income per share for the three or six months ended June 30, 2020 because to do so would have been anti-dilutive based on the period losses.
Beginning in June 2020, the Company also includes participating securities (Series A Preferred Stock) in the computation of net income (loss) per share pursuant to the two-class method. The two-class method of calculating net income per share is an allocation method that calculates earnings per share for common stock and participating securities. Under the two-class method, total dividends provided to the holders of the Series A Preferred Stock and undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.
Note 5—Finance Receivables and Obligations Collateralized by Finance Receivables
AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to a wholly-owned, bankruptcy remote, consolidated, special purpose subsidiary ("AFC Funding Corporation"), established for the purpose of purchasing AFC's finance receivables. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. The agreement expires on January 31, 2024. AFC Funding Corporation had committed liquidity of $1.60 billion for U.S. finance receivables at June 30, 2021.
We also have an agreement for the securitization of Automotive Finance Canada Inc.'s ("AFCI") receivables, which expires on January 31, 2024. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$175 million at June 30, 2021. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.
The following tables present quantitative information about delinquencies, credit loss charge-offs less recoveries ("net credit losses") and components of securitized financial assets and other related assets managed. For purposes of this illustration, delinquent receivables are defined as receivables 31 days or more past due.
  June 30, 2021 Net Credit Losses
Three Months Ended
June 30, 2021
Net Credit Losses
Six Months Ended
June 30, 2021
  Total Amount of:
(in millions) Receivables Receivables
Delinquent
Floorplan receivables $ 2,099.6  $ 5.7  $ 3.3  $ 4.6 
Other loans 9.3       
Total receivables managed $ 2,108.9  $ 5.7  $ 3.3  $ 4.6 

  December 31, 2020 Net Credit Losses
Three Months Ended
June 30, 2020
Net Credit Losses
Six Months Ended
June 30, 2020
  Total Amount of:
(in millions) Receivables Receivables
Delinquent
Floorplan receivables $ 1,892.1  $ 22.9  $ 22.0  $ 33.9 
Other loans 18.9  —  —  — 
Total receivables managed $ 1,911.0  $ 22.9  $ 22.0  $ 33.9 
15

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

The following is a summary of the changes in the allowance for credit losses related to finance receivables (in millions):
  June 30,
2021
June 30,
2020
Allowance for Credit Losses    
Balance at December 31 $ 22.0  $ 15.0 
Opening balance adjustment for adoption of ASC Topic 326   5.0 
Provision for credit losses 6.6  35.9 
Recoveries 6.6  5.0 
Less charge-offs (11.2) (38.9)
Balance at end of period $ 24.0  $ 22.0 
As of June 30, 2021 and December 31, 2020, $2,058.3 million and $1,865.3 million, respectively, of finance receivables and a cash reserve of 1 or 3 percent of the obligations collateralized by finance receivables served as security for the obligations collateralized by finance receivables. The amount of the cash reserve depends on circumstances which are set forth in the securitization agreements. Obligations collateralized by finance receivables consisted of the following:
June 30,
2021
December 31,
2020
Obligations collateralized by finance receivables, gross $ 1,342.3  $ 1,282.8 
Unamortized securitization issuance costs (18.1) (21.6)
Obligations collateralized by finance receivables $ 1,324.2  $ 1,261.2 
Proceeds from the revolving sale of receivables to the bank facilities are used to fund new loans to customers. AFC, AFC Funding Corporation and AFCI must maintain certain financial covenants including, among others, limits on the amount of debt AFC and AFCI can incur, minimum levels of tangible net worth, and other covenants tied to the performance of the finance receivables portfolio. The securitization agreements also incorporate the financial covenants of our Credit Facility. At June 30, 2021, we were in compliance with the covenants in the securitization agreements.
Note 6—Long-Term Debt
Long-term debt consisted of the following (in millions):
  Interest Rate* Maturity June 30,
2021
December 31,
2020
Term Loan B-6 Adjusted LIBOR + 2.25% September 19, 2026 $ 933.4  $ 938.1 
Revolving Credit Facility Adjusted LIBOR + 1.75% September 19, 2024   — 
Senior notes 5.125% June 1, 2025 950.0  950.0 
European lines of credit Euribor + 1.25% Repayable upon demand 13.2  14.8 
Total debt     1,896.6  1,902.9 
Unamortized debt issuance costs/discounts   (22.1) (24.8)
Current portion of long-term debt     (22.7) (24.3)
Long-term debt     $ 1,851.8  $ 1,853.8 
*The interest rates presented in the table above represent the rates in place at June 30, 2021.
Credit Facilities
On September 19, 2019, we entered into the seven-year, $950 million Term Loan B-6 and the $325 million, five-year Revolving Credit Facility.
16

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

The Credit Facility is available for letters of credit, working capital, permitted acquisitions and general corporate purposes. The Revolving Credit Facility also includes a $50 million sub-limit for issuance of letters of credit and a $60 million sub-limit for swingline loans. The Company also pays a commitment fee between 25 to 35 basis points, payable quarterly, on the average daily unused amount of the Revolving Credit Facility based on the Company’s Consolidated Senior Secured Net Leverage Ratio, from time to time. The interest rate applicable to Term Loan B-6 was 2.38% at June 30, 2021.
The obligations of the Company under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Subsidiary Guarantors") and are secured by substantially all of the assets of the Company and the Subsidiary Guarantors, including but not limited to: (a) pledges of and first priority perfected security interests in 100% of the equity interests of certain of the Company's and the Subsidiary Guarantors' domestic subsidiaries and 65% of the equity interests of certain of the Company's and the Subsidiary Guarantors' first tier foreign subsidiaries and (b) perfected first priority security interests in substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, subject to certain exceptions. The Credit Agreement contains affirmative and negative covenants that we believe are usual and customary for a senior secured credit agreement. The negative covenants include, among other things, limitations on asset sales, mergers and acquisitions, indebtedness, liens, dividends, investments and transactions with our affiliates. The Credit Agreement also requires us to maintain a Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), not to exceed 3.5 as of the last day of each fiscal quarter, if there are revolving loans outstanding. We were in compliance with the applicable covenants in the Credit Agreement at June 30, 2021.
There were no borrowings outstanding on the Revolving Credit Facility at June 30, 2021 or December 31, 2020. We had related outstanding letters of credit in the aggregate amount of $29.7 million and $28.5 million at June 30, 2021 and December 31, 2020, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility.
European Lines of Credit
COTW has lines of credit aggregating $35.6 million (€30 million). The lines of credit had an aggregate $13.2 million and $14.8 million of borrowings outstanding at June 30, 2021 and December 31, 2020, respectively. The lines of credit are secured by certain inventory and receivables at COTW subsidiaries.
Fair Value of Debt
As of June 30, 2021, the estimated fair value of our long-term debt amounted to $1,907.5 million. The estimates of fair value were based on broker-dealer quotes (Level 2 inputs) for our debt as of June 30, 2021. The estimates presented on long-term financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange.
Note 7—Derivatives
We are exposed to interest rate risk on our variable rate borrowings. Accordingly, interest rate fluctuations affect the amount of interest expense we are obligated to pay. We have used interest rate derivatives with the objective of managing exposure to interest rate movements, thereby reducing the effect of interest rate changes and the effect they could have on future cash flows. Currently, interest rate swap agreements are used to accomplish this objective.
In January 2020, we entered into three pay-fixed interest rate swaps with an aggregate notional amount of $500 million to swap variable rate interest payments under our term loan for fixed interest payments bearing a weighted average interest rate of 1.44%, for a total interest rate of 3.69%. The interest rate swaps have a five-year term, each maturing on January 23, 2025.
We have designated the interest rate swaps as cash flow hedges. The changes in the fair value of the interest rate swaps that are included in the assessment of hedge effectiveness are recorded as a component of "Accumulated other comprehensive income." For the three and six months ended June 30, 2021, the Company recorded an unrealized gain on the interest rate swaps of $0.3 million, net of tax of $0.1 million, and $7.0 million, net of tax of $2.3 million, respectively, in "Accumulated other comprehensive income." For the three and six months ended June 30, 2020, the Company recorded an unrealized loss on the interest rate swaps of $3.6 million, net of tax of $1.1 million, and $22.6 million, net of tax of $7.3 million, respectively, in "Accumulated other comprehensive income." The earnings impact of the interest rate derivatives designated as cash flow hedges is recorded upon the recognition of the interest related to the hedged debt.
17

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

When derivatives are used, we are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated and was considered immaterial to the fair value estimates. ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs). The following table presents the fair value of our interest rate derivatives included in the consolidated balance sheets for the periods presented (in millions):
Liability Derivatives
June 30, 2021 December 31, 2020
Derivatives Designated as Hedging Instruments Balance Sheet Location Fair Value Balance Sheet Location Fair Value
2020 Interest rate swaps Other liabilities $ 16.6  Other liabilities $ 25.9 
Note 8—Other (Income) Expense, Net
Other (income) expense, net consisted of the following (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Change in realized and unrealized gains on investment securities $ 11.7  $ —  $ (48.8) $ — 
Contingent consideration valuation (Note 2) 4.5  —  15.7  — 
Foreign currency (gains) losses 0.4  2.7  2.5  3.1 
Other (1.8) (1.4) (4.8) (3.8)
Other (income) expense, net $ 14.8  $ 1.3  $ (35.4) $ (0.7)
Fair Value Measurement of Investments
The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. Realized gains on these investments were $0.2 million and $17.2 million for the three and six months ended June 30, 2021, respectively. The Company had a reduction in unrealized gains of $11.9 million for the three months ended June 30, 2021 and unrealized gains of $31.6 million for the six months ended June 30, 2021.
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A small portion of finance receivables for one entity were converted to investment securities during the first quarter of 2021. This entity became publicly traded during the first quarter of 2021 and now has a readily determinable fair value. As of June 30, 2021, the fair value of investment securities are based on quoted market prices for identical assets (Level 1 of the fair value hierarchy) and approximated $39.1 million. The unrealized gain on these investment securities was $31.6 million at June 30, 2021. The remaining investments held of $21.5 million do not have readily determinable fair values and the Company has elected to apply the measurement alternative to these investments and present them at cost. Investments are reported in "Other assets" in the accompanying consolidated balance sheets. Realized and unrealized gains and losses are reported in "Other (income) expense, net" in the consolidated statements of income.
18

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

Note 9—Commitments and Contingencies
We are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business such as employment matters and dealer disputes. Management considers the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies including litigation and environmental matters are included in "Other accrued expenses" at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period. Such matters are generally not, in the opinion of management, likely to have a material adverse effect on our financial condition, results of operations or cash flows. Legal fees are expensed as incurred. There has been no significant change in the legal and regulatory proceedings which were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Note 10—Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in millions):
  June 30,
2021
December 31,
2020
Foreign currency translation loss $ (4.5) $ (13.2)
Unrealized loss on interest rate derivatives, net of tax (12.5) (19.5)
Accumulated other comprehensive loss $ (17.0) $ (32.7)

Note 11—Segment Information
ASC 280, Segment Reporting, requires reporting of segment information that is consistent with the manner in which the chief operating decision maker operates and views the Company. Our operations are grouped into two operating segments: ADESA Auctions and AFC, which also serve as our reportable business segments. These reportable business segments offer different services and have fundamental differences in their operations.
Prior to 2020, the costs and expenses of the holding company were reported separately from the reportable segments. Due to the spin-off of IAA in 2019 and the Company's transition from physical marketplaces to digital marketplaces, the Company has simplified its business and operations. Corporate expenses, previously reported as holding company expenses, are now included in the segments. Certain known expenses (e.g., information technology costs) were recorded directly to the ADESA and AFC segments. Interest expense previously reported by the holding company has been recorded in the ADESA segment. The residual shared services expenses were recorded at ADESA and allocated to AFC based on revenue and employee headcount. Holding company amounts reported in the segment results in the consolidated financial statements prior to December 31, 2020 have been reclassified to conform to the current presentation.
19

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

Financial information regarding our reportable segments is set forth below as of and for the three months ended June 30, 2021 (in millions):
ADESA
Auctions
AFC Consolidated
Operating revenues $ 516.8  $ 68.6  $ 585.4 
Operating expenses
Cost of services (exclusive of depreciation and amortization) 319.5  13.7  333.2 
Selling, general and administrative 131.4  8.8  140.2 
Depreciation and amortization 42.9  2.5  45.4 
Total operating expenses 493.8  25.0  518.8 
Operating profit 23.0  43.6  66.6 
Interest expense 21.8 9.4  31.2 
Other (income) expense, net 2.9 11.9  14.8 
Intercompany expense (income) 0.1 (0.1) — 
Income (loss) before income taxes (1.8) 22.4  20.6 
Income taxes 3.4  5.7  9.1 
Net income (loss) $ (5.2) $ 16.7  $ 11.5 
Total assets $ 4,627.3  $ 2,491.0  $ 7,118.3 

Financial information regarding our reportable segments is set forth below as of and for the three months ended June 30, 2020 (in millions):
ADESA
Auctions
AFC Consolidated
Operating revenues $ 362.2  $ 56.8  $ 419.0 
Operating expenses      
Cost of services (exclusive of depreciation and amortization) 217.2  17.9  235.1 
Selling, general and administrative 103.7  8.6  112.3 
Depreciation and amortization           43.3  3.2  46.5 
Goodwill and other intangibles impairment 29.8  —  29.8 
Total operating expenses 394.0  29.7  423.7 
Operating profit (loss) (31.8) 27.1  (4.7)
Interest expense 21.7  9.2  30.9 
Other (income) expense, net 1.3  —  1.3 
Intercompany expense (income) 0.2  (0.2) — 
Income (loss) before income taxes (55.0) 18.1  (36.9)
Income taxes (9.5) 4.9  (4.6)
Net income (loss) $ (45.5) $ 13.2  $ (32.3)
Total assets $ 4,518.9  $ 1,975.1  $ 6,494.0 
20

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

Financial information regarding our reportable segments is set forth below for the six months ended June 30, 2021 (in millions):
ADESA
Auctions
AFC Consolidated
Operating revenues $ 1,032.6  $ 134.4  $ 1,167.0 
Operating expenses
Cost of services (exclusive of depreciation and amortization) 636.4 27.2 663.6 
Selling, general and administrative 271.6 17.6 289.2 
Depreciation and amortization 87.5 4.9 92.4 
Total operating expenses 995.5  49.7  1,045.2 
Operating profit 37.1  84.7  121.8 
Interest expense 43.4 18.7  62.1 
Other (income) expense, net (3.0) (32.4) (35.4)
Intercompany expense (income) 0.2 (0.2) — 
Income (loss) before income taxes (3.5) 98.6  95.1 
Income taxes 7.5  25.2  32.7 
Net income (loss) $ (11.0) $ 73.4  $ 62.4 

Financial information regarding our reportable segments is set forth below for the six months ended June 30, 2020 (in millions):
ADESA
Auctions
AFC Consolidated
Operating revenues $ 929.2  $ 135.3  $ 1,064.5 
Operating expenses      
Cost of services (exclusive of depreciation and amortization) 587.9  41.8  629.7 
Selling, general and administrative 256.1  18.6  274.7 
Depreciation and amortization           87.7  6.5  94.2 
Goodwill and other intangibles impairment 29.8  —  29.8 
Total operating expenses 961.5  66.9  1,028.4 
Operating profit (loss) (32.3) 68.4  36.1 
Interest expense 46.1  22.8  68.9 
Other (income) expense, net (0.6) (0.1) (0.7)
Intercompany expense (income) 1.0  (1.0) — 
Income (loss) before income taxes (78.8) 46.7  (32.1)
Income taxes (14.7) 12.1  (2.6)
Net income (loss) $ (64.1) $ 34.6  $ (29.5)
21

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
June 30, 2021 (Unaudited)

Geographic Information
Our foreign operations include Canada, Mexico, Continental Europe and the U.K. Approximately 56% and 54% of our foreign operating revenues were from Canada for the three and six months ended June 30, 2021, respectively, and approximately 63% and 59% of our foreign operating revenues were from Canada for the three and six months ended June 30, 2020, respectively. Most of the remaining foreign operating revenues were generated from Continental Europe. Information regarding the geographic areas of our operations is set forth below (in millions):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Operating revenues    
U.S. $ 420.4  $ 342.1  $ 860.0  $ 865.4 
Foreign 165.0  76.9  307.0  199.1 
$ 585.4  $ 419.0  $ 1,167.0  $ 1,064.5 
22

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made in this report on Form 10-Q that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry, business, future operating results, potential acquisitions and anticipated cash requirements) may be forward-looking statements. Words such as "should," "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify forward-looking statements. Such statements, including statements regarding the potential impacts of the COVID-19 pandemic; our future growth; anticipated cost savings, revenue increases, credit losses and capital expenditures; dividend declarations and payments; common stock repurchases; tax rates and assumptions; strategic initiatives, greenfields and acquisitions; our competitive position and retention of customers; and our continued investment in information technology, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020, filed on February 18, 2021, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made and we do not undertake to update our forward-looking statements.
Impact of COVID-19
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Although governmental restrictions that were imposed in 2020 to reduce the spread of COVID-19 have since been lifted or scaled back in many jurisdictions, increases in new COVID-19 cases, including more contagious variants, have resulted in the reimposition of restrictions in certain jurisdictions, and may lead to other restrictions being imposed. The COVID-19 pandemic and the related preventative measures taken to help slow the spread have caused, and may continue to cause, significant volatility, uncertainty and economic disruption.
In response to these measures and for the protection of our employees and customers, during 2020 we implemented several measures to help secure our business, including but not limited to furloughs, prohibiting non-essential business travel, suspending non-essential services provided by certain third parties at our locations, delaying or canceling capital projects at our on-premise marketplace locations and suspending the Company's quarterly dividend.
In addition, on March 20, 2020, we temporarily suspended on-premise sale operations across North America, including Simulcast-only sales, and resumed operation of Simulcast-only sales in select markets on April 6, 2020. We subsequently continued to expand the locations offering vehicles for sale via ADESA Simulcast, DealerBlock and Simulcast+, with all ADESA auction locations in the U.S. and Canada offering vehicles for sale by the end of the second quarter of 2020.
We also took advantage of legislation introduced to assist companies during the pandemic. In the first six months of 2021, we recorded a total of approximately $5.8 million claimed under the Canada Emergency Wage Subsidy. These credits partially offset salaries recorded in Canada. We will continue to monitor and assess the impact the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and similar legislation in other countries may have on our business and financial results.
The automotive industry has experienced unprecedented market conditions during the pandemic, including a decline in new vehicle inventory resulting from the shortage of semiconductors. This reduction in supply of new vehicles has caused increased new and used vehicle prices, as well as increased demand for used vehicles. More lessees and dealers are therefore purchasing vehicles at residual value, thus decreasing the number of off-lease vehicles coming to auction. Further, government support and loan accommodations have resulted in fewer repossessed vehicles coming to auction. These factors have contributed to our commercial vehicle volumes declining in 2021.
While we have developed and implemented and continue to develop and implement health and safety and return-to-workplace protocols, business continuity plans and crisis management protocols in an effort to try to mitigate the negative impact of COVID-19 on our employees, customers and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on future developments that are uncertain and unpredictable.
23

The broader implications for our business and results of operations remain uncertain and will depend on many factors outside our control, including, without limitation, the duration and severity of the COVID-19 pandemic, the degree to which governmental restrictions are relaxed or reimposed, the length of time it takes for normal economic and operating conditions to resume, the number and effectiveness of vaccines and numerous other uncertainties. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business.
Overview
We provide whole car auction services in North America and Europe. Our business is divided into two reportable business segments, each of which is an integral part of the vehicle remarketing industry: ADESA Auctions and AFC.
The ADESA Auctions segment serves a domestic and international customer base through digital marketplaces for wholesale vehicles supported by more than 70 vehicle logistics center locations across North America that are developed and strategically located to draw professional sellers and buyers together and allow the buyers to inspect and compare vehicles remotely or in person. Through ADESA.com, ADESA offers comprehensive private label remarketing solutions to automobile manufacturers, captive finance companies and other institutions to offer vehicles via the Internet prior to arrival at on-premise marketplaces. Vehicles sold on ADESA's digital platforms are typically sold by commercial fleet operators, financial institutions, rental car companies, new and used vehicle dealers and vehicle manufacturers and their captive finance companies to franchise and independent used vehicle dealers. ADESA also provides value-added ancillary services including inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ADESA also includes BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized in the United States, TradeRev, an online automotive remarketing platform in Canada where dealers can launch and participate in real-time vehicle auctions at any time, ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom and ADESA Europe (formerly known as CarsOnTheWeb), an online wholesale vehicle auction marketplace in Continental Europe.
The AFC segment provides short-term, inventory-secured financing, known as floorplan financing, primarily to independent used vehicle dealers throughout the United States and Canada. Prior to December 2020, the Company also sold vehicle service contracts through Preferred Warranties, Inc. ("PWI").
Prior to 2020, the costs and expenses of the holding company were reported separately from the reportable segments. Due to the spin-off of IAA in 2019 and the Company's transition from physical marketplaces to digital marketplaces, the Company has simplified its business and operations. Corporate expenses, previously reported as holding company expenses, are now included in the segments. Certain known expenses (e.g., information technology costs) were recorded directly to the ADESA and AFC segments. Interest expense previously reported by the holding company has been recorded in the ADESA segment. The residual shared services expenses were recorded at ADESA and allocated to AFC based on revenue and employee headcount. Holding company amounts reported in the segment results in the consolidated financial statements prior to December 31, 2020 have been reclassified to conform to the current presentation.
Industry Trends
Whole Car
Used vehicles sold in North America through whole car auctions, including off-premise volumes and mobile application volumes, were approximately 10.3 million and 12.0 million in 2020 and 2019, respectively. Data for the whole car auction industry is collected by the NAAA through an annual survey. The NAAA industry volumes collected by the annual survey do not include off-premise volumes or mobile application volumes (e.g., Openlane, TradeRev, BacklotCars and their respective competitors), but we have included these volumes in our totals. In addition to the traditional whole car auction market and off-premise venues described above, we believe mobile applications, such as TradeRev and BacklotCars, may provide an opportunity to expand our total addressable market for dealer-to-dealer transactions to as much as 15 million units from approximately 5 million units in 2019. TradeRev and BacklotCars sold approximately 316,000 vehicles in the digital dealer-to-dealer marketplace for the year ended December 31, 2020, compared with approximately 210,000 vehicles for the year ended December 31, 2019. TradeRev and BacklotCars sold approximately 119,000 vehicles in the digital dealer-to-dealer marketplace for the three months ended June 30, 2021, compared with approximately 72,000 vehicles for the three months ended June 30, 2020. This volume data includes vehicles sold by BacklotCars prior to its acquisition in November 2020. For the six months ended June 30, 2021 and 2020, vehicles sold by these companies in the digital dealer-to-dealer marketplace were approximately 219,000 and 127,000, respectively. The COVID-19 pandemic has had a material impact on the whole car auction industry and we are unable to estimate future volumes.
24

Automotive Finance
AFC works with independent used vehicle dealers to improve their results by providing a comprehensive set of business and financial solutions that leverages its local presence of branches and in-market representatives, industry experience and scale, as well as KAR affiliations. AFC's North American dealer base was comprised of approximately 13,600 dealers in 2020, and loan transactions, which includes both loans paid off and loans curtailed, were approximately 1.5 million in 2020.
Key challenges for the independent used vehicle dealer include demand for used vehicles, disruptions in pricing of used vehicle inventory, access to consumer financing and increased used car retail activity of franchise and public dealerships (most of which do not utilize AFC or its competitors for floorplan financing), as well as the ability to operate in locations experiencing pandemic shelter-in-place orders. These same challenges, to the extent they occur, could result in a material negative impact on AFC's results of operations. A significant decline in used vehicle sales would result in a decrease in consumer auto loan originations and an increased number of dealers defaulting on their loans. In addition, volatility in wholesale vehicle pricing impacts the value of recovered collateral on defaulted loans and the resulting severity of credit losses at AFC. A decrease in wholesale used car pricing could lead to increased losses if dealers are unable to satisfy their obligations.
Seasonality
The volume of vehicles sold through our auctions generally fluctuates from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of used vehicles available for sale from selling customers, holidays, and the seasonality of the retail market for used vehicles, which affects the demand side of the auction industry. Used vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.
Sources of Revenues and Expenses
Our revenue is derived from auction fees and various on-premise and off-premise services, and from dealer financing fees, interest income and other revenue at AFC. Although auction revenues primarily include the auction services and related fees, our related receivables and payables include the gross value of the vehicles sold.
Our operating expenses consist of cost of services, selling, general and administrative and depreciation and amortization. Cost of services is composed of payroll and related costs, subcontract services, the cost of vehicles purchased, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites and loan offices. Cost of services excludes depreciation and amortization. Selling, general and administrative expenses are composed of payroll and related costs, sales and marketing, information technology services and professional fees.
25

Results of Operations
Overview of Results of KAR Auction Services, Inc. for the Three Months Ended June 30, 2021 and 2020:
  Three Months Ended June 30,
(Dollars in millions except per share amounts) 2021 2020
Revenues    
Auction fees $ 236.7  $ 177.8 
Service revenue 182.2  134.8 
Purchased vehicle sales 97.9  49.6 
Finance-related revenue 68.6  56.8 
Total revenues 585.4  419.0 
Cost of services* 333.2  235.1 
Gross profit* 252.2  183.9 
Selling, general and administrative 140.2  112.3 
Depreciation and amortization 45.4  46.5 
Goodwill and other intangibles impairment   29.8 
Operating profit (loss) 66.6  (4.7)
Interest expense 31.2  30.9 
Other (income) expense, net 14.8  1.3 
Income (loss) before income taxes 20.6  (36.9)
Income taxes 9.1  (4.6)
Net income (loss) $ 11.5  $ (32.3)
Net income (loss) per share    
Basic $ 0.01  $ (0.27)
Diluted $ 0.01  $ (0.27)

* Exclusive of depreciation and amortization
Overview
For the three months ended June 30, 2021, we had revenue of $585.4 million compared with revenue of $419.0 million for the three months ended June 30, 2020, an increase of 40%. Businesses acquired in the last twelve months accounted for an increase in revenue of $39.7 million or 7% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $1.1 million, or 2%, to $45.4 million for the three months ended June 30, 2021, compared with $46.5 million for the three months ended June 30, 2020. The decrease in depreciation and amortization was primarily the result of fixed assets that have become fully depreciated and a reduction in assets placed in service.
Goodwill and Other Intangibles Impairment
In the second quarter of 2020 a $25.5 million non-cash goodwill impairment charge and a $4.3 million non-cash customer relationship impairment charge were recorded in our ADESA Remarketing Limited reporting unit (doing business as ADESA U.K.). The impairments resulted from the changes in economic circumstances which caused the outlook for the business to be significantly reduced.
Interest Expense
Interest expense increased $0.3 million, or 1%, to $31.2 million for the three months ended June 30, 2021, compared with $30.9 million for the three months ended June 30, 2020. The increase was primarily attributable to an increase in interest expense at AFC of $0.2 million, which resulted from an increase in the average finance receivables balance for the three months ended June 30, 2021, as compared with the three months ended June 30, 2020.
26

Other (Income) Expense, Net
The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. Realized gains on these investments were $0.2 million for the three months ended June 30, 2021. The Company had a reduction in unrealized gains of $11.9 million at June 30, 2021, as a result of the change in fair value for one of these investment securities which had a recent public offering. Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.
For the three months ended June 30, 2021, we had other expense of $14.8 million compared with $1.3 million for the three months ended June 30, 2020. The increase in other expense was primarily attributable to a reduction in unrealized gains on investment securities of approximately $11.9 million and an increase in contingent consideration valuation of $4.5 million, partially offset by a decrease in foreign currency losses of $2.3 million and other miscellaneous items aggregating $0.6 million.
Income Taxes
We had an effective tax rate of 44.2% for the three months ended June 30, 2021, compared with an effective tax rate of 12.5% for the three months ended June 30, 2020. The effective tax rate for the three months ended June 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefits have been recorded. The rate for the three months ended June 30, 2020 was unfavorably impacted by the goodwill and other intangibles impairment charge for which no tax benefit was recorded, partially offset by the tax benefit from recording net operating losses and deductions related to stock-based compensation expenses.
Impact of Foreign Currency
For the three months ended June 30, 2021, fluctuations in the Canadian exchange rate increased revenue by $9.3 million, operating profit by $3.4 million and net income by $2.0 million. For the three months ended June 30, 2021, fluctuations in the European exchange rate increased revenue by $5.7 million, operating profit by $0.2 million and decreased net income by $0.2 million.
Impact of COVID-19 on Our Operations
The Company has been subject to numerous orders and directives that have impacted our ability to operate our business throughout North America and in Europe. As a result of these COVID-19 related restrictions on our operations, we have adjusted our business processes so that we can continue to meet the needs of our customers while complying with the various laws, regulations, mandates and directives in each of the markets in which we operate. In many cases, we have had to limit the number of employees and customers at our physical locations at any given time and modify the delivery of services to our customers. However, these adjustments have also resulted in improvements in our operations.

During this challenging time, the Company has worked to meet the needs of the wholesale used car marketplace with its technology-based auction platforms throughout North America and in Europe. The Company believes that certain changes to its business processes that were necessitated by the COVID-19 outbreak are sustainable going forward. For example, the Company has reduced the labor required to process wholesale auction transactions and reduced its selling, general and administrative expenses.

27

ADESA Results
  Three Months Ended June 30,
(Dollars in millions, except per vehicle amounts) 2021 2020
Auction fees $ 236.7  $ 177.8 
Service revenue 182.2  134.8 
Purchased vehicle sales 97.9  49.6 
Total ADESA revenue 516.8  362.2 
Cost of services* 319.5  217.2 
Gross profit* 197.3  145.0 
Selling, general and administrative 131.4  103.7 
Depreciation and amortization 42.9  43.3 
Goodwill and other intangibles impairment   29.8 
Operating profit (loss) $ 23.0  $ (31.8)
On-premise vehicles sold 332,000  312,000 
Off-premise vehicles sold 379,000  336,000 
Total vehicles sold 711,000  648,000 
Auction fees per vehicle sold $ 333  $ 274 
Gross profit per vehicle sold* $ 277  $ 224 
Gross profit percentage, excluding purchased vehicles* 47.1% 46.4%
Dealer consignment mix 41% 21%
Commercial mix 59% 79%

* Exclusive of depreciation and amortization
Revenue
Revenue from ADESA increased $154.6 million, or 43%, to $516.8 million for the three months ended June 30, 2021, compared with $362.2 million for the three months ended June 30, 2020. The increase in revenue was the result of an increase in the number of vehicles sold and an increase in average revenue per vehicle sold. Businesses acquired in the last twelve months accounted for an increase in revenue of $39.7 million. The change in revenue included the impact of an increase in revenue of $8.7 million due to fluctuations in the Canadian exchange rate and an increase of $5.7 million due to fluctuations in the European exchange rate.
On-premise marketplace sales are initiated online for vehicles at any of our locations across North America and include Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and include Openlane, TradeRev, BacklotCars and ADESA Europe sales. The 10% increase in the number of vehicles sold was comprised of a 6% increase in on-premise vehicles sold and a 13% increase in off-premise vehicles sold. However, the Company has experienced a decline in both on-premise and off-premise commercial volumes aggregating 18% for the three months ended June 30, 2021 compared with the three months ended June 30, 2020. For the quarters ended June 30, 2021 and 2020, we conducted all sales through digital marketplaces. All vehicles were offered online, cars were not driven through the auction lanes and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.
Auction fees per vehicle sold for the three months ended June 30, 2021 increased $59, or 22%, reflecting higher vehicle values and a changing mix of vehicles sold.
Service revenue for the three months ended June 30, 2021 increased $47.4 million, or 35%, primarily as a result of all the Company's services being available in 2021. A substantial amount of the Company's on-premise and off-premise services were not available for a portion of the second quarter of 2020.
Gross Profit
For the three months ended June 30, 2021, gross profit for ADESA increased $52.3 million, or 36%, to $197.3 million, compared with $145.0 million for the three months ended June 30, 2020. Gross profit for ADESA was 38.2% of revenue for the
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three months ended June 30, 2021, compared with 40.0% of revenue for the three months ended June 30, 2020. Gross profit as a percentage of revenue decreased for the three months ended June 30, 2021 as compared with the three months ended June 30, 2020, primarily due to the impact of purchased vehicles. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 47.1% and 46.4% for the three months ended June 30, 2021 and 2020, respectively. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. We have also taken measures to reduce expenses to help protect our business while our operations have been impacted by COVID-19. In the second quarter of 2021 we recorded a benefit of $1.5 million taken under the Canada Emergency Wage Subsidy as compared with an aggregate of $10.1 million taken under the CARES Act and the Canada Emergency Wage Subsidy in the second quarter of 2020. Businesses acquired in the last 12 months accounted for an increase in cost of services of $23.3 million for the three months ended June 30, 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment increased $27.7 million, or 27%, to $131.4 million for the three months ended June 30, 2021, compared with $103.7 million for the three months ended June 30, 2020, primarily due to increases in selling, general and administrative expenses associated with acquisitions of $24.3 million, incentive-based compensation of $5.5 million, fluctuations in the Canadian exchange rate of $2.1 million, stock-based compensation of $1.8 million and professional fees of $1.3 million, partially offset by decreases in bad debt expense of $4.5 million, severance of $2.3 million, medical expenses of $2.2 million and other miscellaneous expenses aggregating $4.3 million. In addition, the Employee Retention Credit provided under the CARES Act and the Canada Emergency Wage Subsidy was $6.0 million less for the three months ended June 30, 2021, compared with the three months ended June 30, 2020.
Goodwill and Other Intangibles Impairment
In the second quarter of 2020 a $25.5 million non-cash goodwill impairment charge and a $4.3 million non-cash customer relationship impairment charge were recorded in our ADESA Remarketing Limited reporting unit (doing business as ADESA U.K.). The impairments resulted from the changes in economic circumstances which caused the outlook for the business to be significantly reduced.
AFC Results
  Three Months Ended June 30,
(Dollars in millions except volumes and per loan amounts) 2021 2020
Finance-related revenue
Interest and fee income $ 68.2  $ 65.1 
Other revenue 2.2  2.0 
Provision for credit losses (1.8) (19.0)
Warranty contract revenue   8.7 
Total AFC revenue 68.6  56.8 
Cost of services* 13.7  17.9 
Gross profit* 54.9  38.9 
Selling, general and administrative 8.8  8.6 
Depreciation and amortization 2.5  3.2 
Operating profit $ 43.6  $ 27.1 
Loan transactions 356,000  420,000 
Revenue per loan transaction, excluding Warranty contract revenue $ 193  $ 115 

* Exclusive of depreciation and amortization
Revenue
For the three months ended June 30, 2021, AFC revenue increased $11.8 million, or 21%, to $68.6 million, compared with $56.8 million for the three months ended June 30, 2020. The increase in revenue was primarily the result of a 68% increase in
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revenue per loan transaction, largely as a result of a decrease in the provision for credit losses, partially offset by a 15% decrease in loan transactions and the elimination of Warranty contract revenue as a result of the sale of PWI in December 2020.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $78, or 68%, primarily as a result of a decrease in provision for credit losses for the three months ended June 30, 2021, an increase in interest yields and an increase in loan values, partially offset by a decrease in average portfolio duration. Revenue per loan transaction excludes Warranty contract revenue in 2020.
The provision for credit losses decreased to 0.4% of the average managed receivables for the three months ended June 30, 2021 from 4.3% for the three months ended June 30, 2020.
Gross Profit
For the three months ended June 30, 2021, gross profit for the AFC segment increased $16.0 million, or 41%, to $54.9 million, or 80.0% of revenue, compared with $38.9 million, or 68.5% of revenue, for the three months ended June 30, 2020. Excluding PWI for the three months ended June 30, 2020, AFC's gross profit as a percent of revenue was 74.3%. The increase in gross profit as a percent of revenue was primarily the result of a 21% increase in revenue and an 23% decrease in cost of services. The decrease in cost of services was primarily the result of a decrease in PWI expenses of $5.5 million, partially offset by increases in incentive-based compensation of $0.6 million, collection expenses of $0.5 million and other miscellaneous expenses aggregating $0.2 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC increased $0.2 million, or 2%, to $8.8 million for the three months ended June 30, 2021, compared with $8.6 million for the three months ended June 30, 2020 primarily as a result of increases in incentive-based compensation of $0.6 million and other miscellaneous expenses aggregating $0.7 million, partially offset by decreases in PWI expenses of $0.6 million and compensation expense of $0.5 million.
Overview of Results of KAR Auction Services, Inc. for the Six Months Ended June 30, 2021 and 2020:
  Six Months Ended
June 30,
(Dollars in millions except per share amounts) 2021 2020
Revenues    
Auction fees $ 472.2  $ 433.1 
Service revenue 369.8  371.0 
Purchased vehicle sales 190.6  125.1 
Finance-related revenue 134.4  135.3 
Total revenues 1,167.0  1,064.5 
Cost of services* 663.6  629.7 
Gross profit* 503.4  434.8 
Selling, general and administrative 289.2  274.7 
Depreciation and amortization 92.4  94.2 
Goodwill and other intangibles impairment   29.8 
Operating profit 121.8  36.1 
Interest expense 62.1  68.9 
Other (income) expense, net (35.4) (0.7)
Income (loss) before income taxes 95.1  (32.1)
Income taxes 32.7  (2.6)
Net income (loss) $ 62.4  $ (29.5)
Net income (loss) per share    
Basic $ 0.27  $ (0.24)
Diluted $ 0.26  $ (0.24)

* Exclusive of depreciation and amortization
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Overview
For the six months ended June 30, 2021, we had revenue of $1,167.0 million compared with revenue of $1,064.5 million for the six months ended June 30, 2020, an increase of 10%. Businesses acquired in the last twelve months accounted for an increase in revenue of $64.9 million or 6% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $1.8 million, or 2%, to $92.4 million for the six months ended June 30, 2021, compared with $94.2 million for the six months ended June 30, 2020. The decrease in depreciation and amortization was primarily the result of fixed assets that have become fully depreciated and a reduction in assets placed in service.
Goodwill and Other Intangibles Impairment
In the second quarter of 2020 a $25.5 million non-cash goodwill impairment charge and a $4.3 million non-cash customer relationship impairment charge were recorded in our ADESA Remarketing Limited reporting unit (doing business as ADESA U.K.). The impairments resulted from the changes in economic circumstances which caused the outlook for the business to be significantly reduced.
Interest Expense
Interest expense decreased $6.8 million, or 10%, to $62.1 million for the six months ended June 30, 2021, compared with $68.9 million for the six months ended June 30, 2020. The decrease was primarily attributable to a decrease in interest expense at AFC of $4.1 million, which resulted from a decrease in incremental interest rates for the six months ended June 30, 2021, as compared with the six months ended June 30, 2020. In addition, there was a slight decrease in the weighted average interest rate on corporate debt and a decrease of $8.8 million in the average outstanding balance of corporate debt for the six months ended June 30, 2021, compared with the six months ended June 30, 2020.
Other (Income) Expense, Net
The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. Realized gains on these investments were $17.2 million for the six months ended June 30, 2021. The Company had unrealized gains of $31.6 million at June 30, 2021, as a result of a recent public offering for one of these investment securities. Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.
For the six months ended June 30, 2021, we had other income of $35.4 million compared with $0.7 million for the six months ended June 30, 2020. The increase in other income was primarily attributable to an increase in realized and unrealized gains on investment securities of approximately $48.8 million, a decrease in foreign currency losses of $0.5 million and an increase in other miscellaneous items aggregating $1.1 million, partially offset by an increase in contingent consideration valuation of $15.7 million.
Income Taxes
We had an effective tax rate of 34.4% for the six months ended June 30, 2021, compared with an effective tax rate of 8.1% for the six months ended June 30, 2020. The effective tax rate for the six months ended June 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefits have been recorded. The rate for the six months ended June 30, 2020 was unfavorably impacted by the goodwill and other intangibles impairment charge for which no tax benefit was recorded. This was partially offset by the tax benefit from recording net operating losses and deductions related to stock-based compensation expenses.
Impact of Foreign Currency
For the six months ended June 30, 2021, fluctuations in the Canadian exchange rate increased revenue by $12.6 million, operating profit by $4.3 million and net income by $1.9 million. For the six months ended June 30, 2021, fluctuations in the European exchange rate increased revenue by $11.3 million, operating profit by $0.5 million and decreased net income by $0.5 million.
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ADESA Results
  Six Months Ended
June 30,
(Dollars in millions, except per vehicle amounts) 2021 2020
Auction fees $ 472.2  $ 433.1 
Service revenue 369.8  371.0 
Purchased vehicle sales 190.6  125.1 
Total ADESA revenue 1,032.6  929.2 
Cost of services* 636.4  587.9 
Gross profit* 396.2  341.3 
Selling, general and administrative 271.6  256.1 
Depreciation and amortization 87.5  87.7 
Goodwill and other intangibles impairment   29.8 
Operating profit (loss) $ 37.1  $ (32.3)
On-premise vehicles sold 681,000  780,000 
Off-premise vehicles sold 783,000  730,000 
Total vehicles sold 1,464,000  1,510,000 
Auction fees per vehicle sold $ 323  $ 287 
Gross profit per vehicle sold* $ 271  $ 226 
Gross profit percentage, excluding purchased vehicles* 47.1% 42.4%
Dealer consignment mix 37% 24%
Commercial mix 63% 76%

* Exclusive of depreciation and amortization
Revenue
Revenue from ADESA increased $103.4 million, or 11%, to $1,032.6 million for the six months ended June 30, 2021, compared with $929.2 million for the six months ended June 30, 2020. The increase in revenue was the result of an increase in average revenue per vehicle sold, partially offset by a decrease in the number of vehicles sold. Businesses acquired in the last twelve months accounted for an increase in revenue of $64.9 million. The change in revenue included the impact of an increase in revenue of $11.7 million due to fluctuations in the Canadian exchange rate and an increase of $11.3 million due to fluctuations in the European exchange rate.
On-premise marketplace sales are initiated online for vehicles at any of our locations across North America and include Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and include Openlane, TradeRev, BacklotCars and ADESA Europe sales. The 3% decrease in the number of vehicles sold was comprised of a 13% decrease in on-premise vehicles sold and a 7% increase in off-premise vehicles sold. In addition, the Company has experienced a decline in both on-premise and off-premise commercial volumes aggregating 19% for the six months ended June 30, 2021 compared with the six months ended June 30, 2020. For the six months ended June 30, 2021, we conducted all sales through digital marketplaces. All vehicles were offered online, cars were not driven through the auction lanes and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.
Auction fees per vehicle sold for the six months ended June 30, 2021 increased $36, or 13%, reflecting higher vehicle values and a changing mix of vehicles sold.
Service revenue for the six months ended June 30, 2021 decreased $1.2 million, or less than 1%, primarily as a result of the decrease in vehicles sold. Typically consigned vehicles located at our facilities utilize our service offerings at a higher rate than off-premise vehicles.
Gross Profit
For the six months ended June 30, 2021, gross profit for ADESA increased $54.9 million, or 16%, to $396.2 million, compared with $341.3 million for the six months ended June 30, 2020. Gross profit for ADESA was 38.4% of revenue for the six months
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ended June 30, 2021, compared with 36.7% of revenue for the six months ended June 30, 2020. Gross profit as a percentage of revenue increased for the six months ended June 30, 2021 as compared with the six months ended June 30, 2020, as we have taken measures to reduce expenses to help protect our business while our operations have been impacted by COVID-19 and vehicles sold online require less labor. In the first six months of 2021 we also recorded a benefit of $3.7 million taken under the Canada Emergency Wage Subsidy as compared with an aggregate of $10.1 million taken under the CARES Act and the Canada Emergency Wage Subsidy in the first six months of 2020. On March 20, 2020 our on-premise auctions were shut down in response to the COVID-19 pandemic. While revenue decreased during the closure, cost of services remained consistent, as all non-essential auction employees were paid during the closure. In addition, our gross profit as a percentage of revenue is impacted by purchased vehicles. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 47.1% and 42.4% for the six months ended June 30, 2021 and 2020, respectively. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. Businesses acquired in the last 12 months accounted for an increase in cost of services of $37.2 million for the six months ended June 30, 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment increased $15.5 million, or 6%, to $271.6 million for the six months ended June 30, 2021, compared with $256.1 million for the six months ended June 30, 2020, primarily due to increases in selling, general and administrative expenses associated with acquisitions of $45.6 million, incentive-based compensation of $14.5 million, fluctuations in the Canadian exchange rate of $3.0 million and stock-based compensation of $2.0 million, partially offset by decreases in compensation expense of $21.0 million, bad debt expense of $6.3 million, severance of $4.0 million, medical expenses of $3.9 million, marketing costs of $3.7 million, telecom expenses of $2.7 million, travel expenses of $2.5 million, professional fees of $2.4 million and other miscellaneous expenses aggregating $7.9 million. In addition, the Employee Retention Credit provided under the CARES Act and the Canada Emergency Wage Subsidy was $4.8 million less for the six months ended June 30, 2021, compared with the six months ended June 30, 2020.
Goodwill and Other Intangibles Impairment
In the second quarter of 2020 a $25.5 million non-cash goodwill impairment charge and a $4.3 million non-cash customer relationship impairment charge were recorded in our ADESA Remarketing Limited reporting unit (doing business as ADESA U.K.). The impairments resulted from the changes in economic circumstances which caused the outlook for the business to be significantly reduced.
AFC Results
  Six Months Ended
June 30,
(Dollars in millions except volumes and per loan amounts) 2021 2020
Finance-related revenue
Interest and fee income $ 136.8  $ 148.9 
Other revenue 4.2  4.7 
Provision for credit losses (6.6) (35.9)
Warranty contract revenue   17.6 
Total AFC revenue 134.4  135.3 
Cost of services* 27.2  41.8 
Gross profit* 107.2  93.5 
Selling, general and administrative 17.6  18.6 
Depreciation and amortization 4.9  6.5 
Operating profit $ 84.7  $ 68.4 
Loan transactions 728,000  868,000 
Revenue per loan transaction, excluding Warranty contract revenue $ 185  $ 136 

* Exclusive of depreciation and amortization
Revenue
For the six months ended June 30, 2021, AFC revenue decreased $0.9 million, or 1%, to $134.4 million, compared with $135.3 million for the six months ended June 30, 2020. The decrease in revenue was primarily the result of a 16% decrease in loan
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transactions and the elimination of Warranty contract revenue as a result of the sale of PWI in December 2020, partially offset by a 36% increase in revenue per loan transaction, largely as a result of a decrease in the provision for credit losses.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $49, or 36%, primarily as a result of a decrease in provision for credit losses for the six months ended June 30, 2021 and an increase in loan values, partially offset by a decrease in average portfolio duration. Revenue per loan transaction excludes Warranty contract revenue in 2020.
The provision for credit losses decreased to 0.7% of the average managed receivables for the six months ended June 30, 2021 from 3.8% for the six months ended June 30, 2020.
Gross Profit
For the six months ended June 30, 2021, gross profit for the AFC segment increased $13.7 million, or 15%, to $107.2 million, or 79.8% of revenue, compared with $93.5 million, or 69.1% of revenue, for the six months ended June 30, 2020. Excluding PWI for the six months ended June 30, 2020, AFC's gross profit as a percent of revenue was 75.0%. The increase in gross profit as a percent of revenue was primarily the result of a 35% decrease in cost of services. The decrease in cost of services was primarily the result of decreases in PWI expenses of $12.4 million, compensation expense of $2.5 million and lot check expenses of $1.0 million, partially offset by increases in incentive-based compensation of $1.0 million and other miscellaneous expenses aggregating $0.3 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $1.0 million, or 5%, to $17.6 million for the six months ended June 30, 2021, compared with $18.6 million for the six months ended June 30, 2020 primarily as a result of decreases in PWI expenses of $1.4 million, compensation expense of $0.8 million and other miscellaneous expenses aggregating $0.3 million, partially offset by an increase in incentive-based compensation of $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations, working capital and amounts available under our Credit Facility. Our principal sources of liquidity consist of cash generated by operations and borrowings under our Revolving Credit Facility.
  June 30, December 31, June 30,
(Dollars in millions) 2021 2020 2020
Cash and cash equivalents $ 621.6  $ 752.1  $ 968.5 
Restricted cash 53.8  60.2  50.0 
Working capital 731.3  924.6  1,241.8 
Amounts available under the Revolving Credit Facility* 325.0  325.0  325.0 
Cash flow from operations for the six months ended 295.7  268.9 
*    There were related outstanding letters of credit totaling approximately $29.7 million, $28.5 million and $25.0 million at June 30, 2021, December 31, 2020 and June 30, 2020 respectively, which reduced the amount available for borrowings under the Revolving Credit Facility.
We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and operating capital requirements as well as capital market conditions. The COVID-19 pandemic has had, and is continuing to have, an adverse impact on our business. As a result, during 2020 we implemented several measures that we believe will enhance liquidity for the foreseeable future. Some of these measures included furloughs, prohibiting non-essential business travel, suspending non-essential services provided by certain third parties at our locations, delaying or canceling capital projects at our on-premise marketplace locations and suspending the Company's quarterly dividend.
We also took advantage of legislation introduced to assist companies during the pandemic. In the first six months of 2021, we recorded a total of approximately $5.8 million claimed under the Canada Emergency Wage Subsidy. These credits partially offset salaries recorded in Canada. We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued disruption could materially affect our liquidity.
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Working Capital
A substantial amount of our working capital is generated from the payments received for services provided. The majority of our working capital needs are short-term in nature, usually less than a week in duration. Most of the financial institutions place a temporary hold on the availability of the funds deposited that generally can range up to two business days, resulting in cash in our accounts and on our balance sheet that is unavailable for use until it is made available by the various financial institutions. There are outstanding checks (book overdrafts) to sellers and vendors included in current liabilities. Because a portion of these outstanding checks for operations in the U.S. are drawn upon bank accounts at financial institutions other than the financial institutions that hold the cash, we cannot offset all the cash and the outstanding checks on our balance sheet. Changes in working capital vary from quarter-to-quarter as a result of the timing of collections and disbursements of funds to consignors from auctions held near period end.
Approximately $233.1 million of available cash was held by our foreign subsidiaries at June 30, 2021. If funds held by our foreign subsidiaries were to be repatriated, we expect any applicable taxes to be minimal.
AFC offers short-term inventory-secured financing, also known as floorplan financing, to independent used vehicle dealers. Financing is primarily provided for terms of 30 to 90 days. AFC principally generates its funding through the sale of its receivables. The receivables sold pursuant to the securitization agreements are accounted for as secured borrowings. For further discussion of AFC's securitization arrangements, see "Securitization Facilities."
Credit Facilities
On September 19, 2019, we entered into the seven-year, $950 million Term Loan B-6 and the $325 million, five-year Revolving Credit Facility.
The Credit Facility is available for letters of credit, working capital, permitted acquisitions and general corporate purposes. The Revolving Credit Facility also includes a $50 million sub-limit for issuance of letters of credit and a $60 million sub-limit for swingline loans.
Term Loan B-6 was issued at a discount of $2.4 million and the discount is being amortized using the effective interest method to interest expense over the term of the loan. Term Loan B-6 is payable in quarterly installments equal to 0.25% of the original aggregate principal amount, with the balance payable at the maturity date.
As set forth in the Credit Agreement, Term Loan B-6 bears interest at an adjusted LIBOR rate plus 2.25% or at the Company’s election, Base Rate (as defined in the Credit Agreement) plus 1.25%. Loans under the Revolving Credit Facility will bear interest at a rate calculated based on the type of borrowing (either adjusted LIBOR or Base Rate) and the Company’s Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), with such rate ranging from 2.25% to 1.75% for adjusted LIBOR loans and from 1.25% to 0.75% for Base Rate loans. The Company also pays a commitment fee between 25 to 35 basis points, payable quarterly, on the average daily unused amount of the Revolving Credit Facility based on the Company’s Consolidated Senior Secured Net Leverage Ratio, from time to time. The interest rate applicable to Term Loan B-6 was 2.38% at June 30, 2021.
On June 30, 2021, $933.4 million was outstanding on Term Loan B-6 and there were no borrowings outstanding on the Revolving Credit Facility. We had related outstanding letters of credit in the aggregate amount of $29.7 million and $28.5 million at June 30, 2021 and December 31, 2020, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility. Our European operations have lines of credit aggregating $35.6 million (€30 million) of which $13.2 million was drawn at June 30, 2021.
The obligations of the Company under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Subsidiary Guarantors") and are secured by substantially all of the assets of the Company and the Subsidiary Guarantors, including but not limited to: (a) pledges of and first priority perfected security interests in 100% of the equity interests of certain of the Company's and the Subsidiary Guarantors' domestic subsidiaries and 65% of the equity interests of certain of the Company's and the Subsidiary Guarantors' first tier foreign subsidiaries and (b) perfected first priority security interests in substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, subject to certain exceptions.
Certain covenants contained within the Credit Agreement are critical to an investor’s understanding of our financial liquidity, as the failure to maintain compliance with these covenants could result in a default and allow the lenders under the Credit Agreement to declare all amounts borrowed immediately due and payable. The Credit Agreement contains a financial covenant requiring compliance with a Consolidated Senior Secured Net Leverage Ratio not to exceed 3.5 as of the last day of each fiscal quarter if revolving loans are outstanding. The Consolidated Senior Secured Net Leverage Ratio is calculated as consolidated total debt (as defined in the Credit Agreement) divided by the last four quarters consolidated Adjusted EBITDA. Consolidated total debt includes term loan borrowings, revolving loans, finance lease liabilities and other obligations for borrowed money
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less unrestricted cash as defined in the Credit Agreement. Consolidated Adjusted EBITDA is EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude among other things (a) gains and losses from asset sales; (b) unrealized foreign currency translation gains and losses in respect of indebtedness; (c) certain non-recurring gains and losses; (d) stock-based compensation expense; (e) certain other non-cash amounts included in the determination of net income; (f) charges and revenue reductions resulting from purchase accounting; (g) minority interest; (h) consulting expenses incurred for cost reduction, operating restructuring and business improvement efforts; (i) expenses realized upon the termination of employees and the termination or cancellation of leases, software licenses or other contracts in connection with the operational restructuring and business improvement efforts; (j) expenses incurred in connection with permitted acquisitions; (k) any impairment charges or write-offs of intangibles; and (l) any extraordinary, unusual or non-recurring charges, expenses or losses. Our Consolidated Senior Secured Net Leverage Ratio was 0.8 at June 30, 2021.
In addition, the Credit Agreement and the indenture governing our senior notes (see Note 6, "Long-Term Debt" for additional information) contain certain limitations on our ability to pay dividends and other distributions, make certain acquisitions or investments, grant liens and sell assets, and the Credit Agreement contains certain limitations on our ability to incur indebtedness. The applicable covenants in the Credit Agreement affect our operating flexibility by, among other things, restricting our ability to incur expenses and indebtedness that could be used to grow the business, as well as to fund general corporate purposes. We were in compliance with the covenants in the Credit Agreement and the indenture governing our senior notes at June 30, 2021.
We believe our sources of liquidity from our cash and cash equivalents on hand, working capital, cash provided by operating activities, and availability under our Credit Facility are sufficient to meet our operating needs for the foreseeable future. In addition, we believe the previously mentioned sources of liquidity will be sufficient to fund our capital requirements and debt service payments for the foreseeable future. A lack of recovery in market conditions, or further deterioration in market conditions, could materially affect the Company's liquidity.
Senior Notes
On May 31, 2017, we issued $950 million of 5.125% senior notes due June 1, 2025. The Company pays interest on the senior notes semi-annually in arrears on June 1 and December 1 of each year, which commenced on December 1, 2017. We may redeem the senior notes, in whole or in part, at a premium that declines ratably to par in 2023. The senior notes are guaranteed by the Subsidiary Guarantors.
Securitization Facilities
AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to AFC Funding Corporation. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. The agreement expires on January 31, 2024. AFC Funding Corporation had committed liquidity of $1.60 billion for U.S. finance receivables at June 30, 2021.
We also have an agreement for the securitization of AFCI's receivables, which expires on January 31, 2024. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$175 million at June 30, 2021. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.
AFC managed total finance receivables of $2,108.9 million and $1,911.0 million at June 30, 2021 and December 31, 2020, respectively. AFC's allowance for losses was $24.0 million and $22.0 million at June 30, 2021 and December 31, 2020, respectively.
As of June 30, 2021 and December 31, 2020, $2,058.3 million and $1,865.3 million, respectively, of finance receivables and a cash reserve of 1 or 3 percent of the obligations collateralized by finance receivables served as security for the $1,324.2 million and $1,261.2 million of obligations collateralized by finance receivables at June 30, 2021 and December 31, 2020, respectively. The amount of the cash reserve depends on circumstances which are set forth in the securitization agreements. There were unamortized securitization issuance costs of approximately $18.1 million and $21.6 million at June 30, 2021 and December 31, 2020, respectively. After the occurrence of a termination event, as defined in the U.S. securitization agreement, the banks may, and could, cause the stock of AFC Funding Corporation to be transferred to the bank facility, though as a practical matter the bank facility would look to the liquidation of the receivables under the transaction documents as their primary remedy.
Proceeds from the revolving sale of receivables to the bank facilities are used to fund new loans to customers. AFC, AFC Funding Corporation and AFCI must maintain certain financial covenants including, among others, limits on the amount of debt AFC and AFCI can incur, minimum levels of tangible net worth, and other covenants tied to the performance of the finance receivables portfolio. The securitization agreements also incorporate the financial covenants of our Credit Facility. At June 30, 2021, we were in compliance with the covenants in the securitization agreements.
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EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA, as presented herein, are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States, or GAAP. They are not measurements of our financial performance under GAAP and should not be considered substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.
EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings, as described above in the discussion of certain restrictive loan covenants under "Credit Facilities."
Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.
The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:
  Three Months Ended June 30, 2021
(Dollars in millions) ADESA AFC Consolidated
Net income (loss) $ (5.2) $ 16.7  $ 11.5 
Add back:  
Income taxes 3.4  5.7  9.1 
Interest expense, net of interest income 21.6  9.4  31.0 
Depreciation and amortization 42.9  2.5  45.4 
Intercompany interest 0.1  (0.1) — 
EBITDA 62.8  34.2  97.0 
Non-cash stock-based compensation 4.3  0.6  4.9 
Acquisition related costs 1.8  —  1.8 
Securitization interest —  (6.8) (6.8)
Severance 1.2  —  1.2 
Foreign currency (gains)/losses 0.4  —  0.4 
Contingent consideration adjustment 4.5  —  4.5 
Reduction in unrealized gains on investment securities —  11.9  11.9 
Other 1.5  0.1  1.6 
  Total addbacks/(deductions) 13.7  5.8  19.5 
Adjusted EBITDA $ 76.5  $ 40.0  $ 116.5 
 
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  Three Months Ended June 30, 2020
(Dollars in millions) ADESA AFC Consolidated
Net income (loss) $ (45.5) $ 13.2  $ (32.3)
Add back:  
Income taxes (9.5) 4.9  (4.6)
Interest expense, net of interest income 21.4  9.2  30.6 
Depreciation and amortization 43.3  3.2  46.5 
Intercompany interest 0.2  (0.2) — 
EBITDA 9.9  30.3  40.2 
Non-cash stock-based compensation 2.4  0.5  2.9 
Acquisition related costs 0.9  —  0.9 
Securitization interest —  (6.0) (6.0)
Loss on asset sales 0.5  —  0.5 
Severance 6.0  0.5  6.5 
Foreign currency (gains)/losses 2.7  —  2.7 
Goodwill and other intangibles impairment 29.8  —  29.8 
Other 2.5  —  2.5 
  Total addbacks/(deductions) 44.8  (5.0) 39.8 
Adjusted EBITDA $ 54.7  $ 25.3  $ 80.0 
 
  Six Months Ended June 30, 2021
(Dollars in millions) ADESA AFC Consolidated
Net income (loss) $ (11.0) $ 73.4  $ 62.4 
Add back:  
Income taxes 7.5  25.2  32.7 
Interest expense, net of interest income 43.0  18.7  61.7 
Depreciation and amortization 87.5  4.9  92.4 
Intercompany interest 0.2  (0.2) — 
EBITDA 127.2  122.0  249.2 
Non-cash stock-based compensation 9.2  1.3  10.5 
Acquisition related costs 3.3  —  3.3 
Securitization interest —  (13.6) (13.6)
(Gain)/Loss on asset sales 1.0  (0.8) 0.2 
Severance 1.7  0.2  1.9 
Foreign currency (gains)/losses 2.6  —  2.6 
Contingent consideration adjustment 15.7  —  15.7 
Unrealized gains on investment securities —  (31.6)