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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
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☒
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
quarterly period ended
June 30, 2020
OR
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☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission
File Number: 001-34568
KAR Auction
Services, Inc.
(Exact name of
Registrant as specified in its charter)
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Delaware
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20-8744739
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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:
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Title of
each class
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Trading
symbol
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Name of each
exchange on which registered
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Common Stock, par value
$0.01 per share
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KAR
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New York Stock
Exchange
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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.
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Large accelerated
filer
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☒
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Accelerated filer
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☐
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Non-accelerated
filer
|
☐
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|
Smaller reporting company
|
☐
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|
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,
2020, 129,227,519
shares of the
registrant's common stock, par value $0.01
per share, were
outstanding.
KAR Auction
Services, Inc.
Table of
Contents
PART
I
FINANCIAL
INFORMATION
Item 1. Financial
Statements
KAR Auction
Services, Inc.
Consolidated
Statements of Income
(In millions, except per share data)
(Unaudited)
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Three Months
Ended June 30,
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Six Months
Ended June 30,
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2020
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2019
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2020
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2019
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Operating
revenues
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Auction fees and services
revenue
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$
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312.6
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$
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553.1
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$
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804.1
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$
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1,095.0
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Purchased vehicle
sales
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49.6
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79.3
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125.1
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137.1
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Finance-related
revenue
|
56.8
|
|
|
86.7
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|
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135.3
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|
|
176.6
|
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|
Total operating
revenues
|
419.0
|
|
|
719.1
|
|
|
1,064.5
|
|
|
1,408.7
|
|
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Operating
expenses
|
|
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Cost of services (exclusive
of depreciation and amortization)
|
235.1
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417.4
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629.7
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811.3
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Selling, general and
administrative
|
112.3
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163.2
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274.7
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338.4
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Depreciation and
amortization
|
46.5
|
|
|
47.9
|
|
|
94.2
|
|
|
92.2
|
|
|
Goodwill and
other intangibles impairment
|
29.8
|
|
|
—
|
|
|
29.8
|
|
|
—
|
|
|
Total operating
expenses
|
423.7
|
|
|
628.5
|
|
|
1,028.4
|
|
|
1,241.9
|
|
|
Operating profit
(loss)
|
(4.7
|
)
|
|
90.6
|
|
|
36.1
|
|
|
166.8
|
|
|
Interest expense
|
30.9
|
|
|
55.6
|
|
|
68.9
|
|
|
112.1
|
|
|
Other expense (income),
net
|
1.3
|
|
|
(1.1
|
)
|
|
(0.7
|
)
|
|
(3.2
|
)
|
|
Income (loss) from continuing
operations before income taxes
|
(36.9
|
)
|
|
36.1
|
|
|
(32.1
|
)
|
|
57.9
|
|
|
Income taxes
|
(4.6
|
)
|
|
8.7
|
|
|
(2.6
|
)
|
|
15.2
|
|
|
Income (loss) from continuing
operations
|
$
|
(32.3
|
)
|
|
$
|
27.4
|
|
|
$
|
(29.5
|
)
|
|
$
|
42.7
|
|
|
Income from discontinued
operations, net of income taxes
|
—
|
|
|
28.2
|
|
|
—
|
|
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90.7
|
|
|
Net income
(loss)
|
$
|
(32.3
|
)
|
|
$
|
55.6
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|
|
$
|
(29.5
|
)
|
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$
|
133.4
|
|
|
Net income (loss) per share -
basic
|
|
|
|
|
|
|
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|
Income (loss) from continuing
operations
|
$
|
(0.27
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.32
|
|
|
Income from discontinued
operations
|
—
|
|
|
0.21
|
|
|
—
|
|
|
0.68
|
|
|
Net income (loss) per share -
basic
|
$
|
(0.27
|
)
|
|
$
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0.42
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|
|
$
|
(0.24
|
)
|
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$
|
1.00
|
|
|
Net income (loss) per share -
diluted
|
|
|
|
|
|
|
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Income (loss) from continuing
operations
|
$
|
(0.27
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.32
|
|
|
Income from discontinued
operations
|
—
|
|
|
0.21
|
|
|
—
|
|
|
0.68
|
|
|
Net income (loss) per share -
diluted
|
$
|
(0.27
|
)
|
|
$
|
0.41
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|
|
$
|
(0.24
|
)
|
|
$
|
1.00
|
|
|
Dividends declared per common
share
|
$
|
—
|
|
|
$
|
0.35
|
|
|
$
|
0.19
|
|
|
$
|
0.70
|
|
See accompanying
condensed notes to consolidated financial statements
KAR Auction
Services, Inc.
Consolidated
Statements of Comprehensive Income
(In millions)
(Unaudited)
|
|
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|
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|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income
(loss)
|
$
|
(32.3
|
)
|
|
$
|
55.6
|
|
|
$
|
(29.5
|
)
|
|
$
|
133.4
|
|
|
Other comprehensive income
(loss), net of tax
|
|
|
|
|
|
|
|
|
Foreign currency translation
gain (loss)
|
16.0
|
|
|
8.4
|
|
|
(19.9
|
)
|
|
16.5
|
|
|
Unrealized loss on interest
rate derivatives, net of tax
|
(3.6
|
)
|
|
—
|
|
|
(22.6
|
)
|
|
—
|
|
|
Total other comprehensive
income (loss), net of tax
|
12.4
|
|
|
8.4
|
|
|
(42.5
|
)
|
|
16.5
|
|
|
Comprehensive income
(loss)
|
$
|
(19.9
|
)
|
|
$
|
64.0
|
|
|
$
|
(72.0
|
)
|
|
$
|
149.9
|
|
See accompanying
condensed notes to consolidated financial statements
KAR Auction
Services, Inc.
Consolidated
Balance Sheets
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash
equivalents
|
$
|
968.5
|
|
|
$
|
507.6
|
|
|
Restricted cash
|
50.0
|
|
|
53.3
|
|
|
Trade receivables, net of
allowances of $11.8 and $9.5
|
582.3
|
|
|
457.5
|
|
|
Finance receivables, net of
allowances of $22.0 and $15.0
|
1,526.3
|
|
|
2,100.2
|
|
|
Other current
assets
|
124.0
|
|
|
125.9
|
|
|
Total current
assets
|
3,251.1
|
|
|
3,244.5
|
|
|
Other assets
|
|
|
|
|
Goodwill
|
1,790.9
|
|
|
1,821.7
|
|
|
Customer relationships, net
of accumulated amortization of $652.0 and $637.4
|
179.3
|
|
|
207.9
|
|
|
Other intangible assets, net
of accumulated amortization of $321.3 and $292.4
|
290.9
|
|
|
298.5
|
|
|
Operating lease right-of-use
assets
|
353.1
|
|
|
364.1
|
|
|
Property and equipment, net
of accumulated depreciation of $562.3 and $534.3
|
583.7
|
|
|
609.0
|
|
|
Other assets
|
45.0
|
|
|
35.5
|
|
|
Total other
assets
|
3,242.9
|
|
|
3,336.7
|
|
|
Total assets
|
$
|
6,494.0
|
|
|
$
|
6,581.2
|
|
See accompanying
condensed notes to consolidated financial statements
KAR Auction
Services, Inc.
Consolidated
Balance Sheets
(In millions, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Liabilities,
Temporary Equity and Stockholders' Equity
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
$
|
983.8
|
|
|
$
|
704.6
|
|
|
Accrued employee benefits and
compensation expenses
|
55.2
|
|
|
72.7
|
|
|
Accrued interest
|
7.1
|
|
|
7.9
|
|
|
Other accrued
expenses
|
194.3
|
|
|
216.9
|
|
|
Income taxes
payable
|
6.1
|
|
|
1.1
|
|
|
Dividends
payable
|
—
|
|
|
24.5
|
|
|
Obligations collateralized by
finance receivables
|
735.9
|
|
|
1,461.2
|
|
|
Current maturities of
long-term debt
|
26.9
|
|
|
28.8
|
|
|
Total current
liabilities
|
2,009.3
|
|
|
2,517.7
|
|
|
Non-current liabilities
|
|
|
|
|
Long-term debt
|
1,856.9
|
|
|
1,861.3
|
|
|
Deferred income tax
liabilities
|
115.8
|
|
|
134.5
|
|
|
Operating lease
liabilities
|
347.3
|
|
|
358.3
|
|
|
Other
liabilities
|
82.0
|
|
|
59.2
|
|
|
Total non-current
liabilities
|
2,402.0
|
|
|
2,413.3
|
|
|
Commitments and contingencies
(Note 10)
|
|
|
|
|
Temporary equity
|
|
|
|
|
Series A convertible
preferred stock (Note 9)
|
528.2
|
|
|
—
|
|
|
Stockholders' equity
|
|
|
|
|
Common stock, $0.01 par
value:
|
|
|
|
|
Authorized shares:
400,000,000
|
|
|
|
|
|
|
Issued and outstanding
shares:
|
|
|
|
|
|
|
June 30, 2020:
129,225,465
|
|
|
|
|
|
|
December 31, 2019:
128,833,452
|
1.3
|
|
|
1.3
|
|
|
Additional paid-in
capital
|
1,034.2
|
|
|
1,028.9
|
|
|
Retained
earnings
|
592.5
|
|
|
651.0
|
|
|
Accumulated other
comprehensive loss
|
(73.5
|
)
|
|
(31.0
|
)
|
|
Total stockholders'
equity
|
1,554.5
|
|
|
1,650.2
|
|
|
Total liabilities, temporary
equity and stockholders' equity
|
$
|
6,494.0
|
|
|
$
|
6,581.2
|
|
See accompanying
condensed notes to consolidated financial statements
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
plan
|
|
|
|
|
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
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, 2019
|
133.3
|
|
|
$
|
1.3
|
|
|
$
|
1,131.5
|
|
|
$
|
422.9
|
|
|
$
|
(53.2
|
)
|
|
$
|
1,502.5
|
|
|
Net income
|
|
|
|
|
|
|
55.6
|
|
|
|
|
55.6
|
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
|
8.4
|
|
|
8.4
|
|
|
Issuance of common stock
under stock plans
|
0.1
|
|
|
|
|
4.7
|
|
|
|
|
|
|
4.7
|
|
|
Surrender of RSUs for
taxes
|
—
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
(0.2
|
)
|
|
Stock-based compensation
expense
|
|
|
|
|
4.7
|
|
|
|
|
|
|
4.7
|
|
|
Distribution of
IAA
|
|
|
|
|
|
|
213.2
|
|
|
10.4
|
|
|
223.6
|
|
|
Dividends earned under stock
plan
|
|
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
|
|
—
|
|
|
Cash dividends declared to
stockholders ($0.35 per share)
|
|
|
|
|
|
|
(46.7
|
)
|
|
|
|
(46.7
|
)
|
|
Balance at
June 30, 2019
|
133.4
|
|
|
$
|
1.3
|
|
|
$
|
1,140.8
|
|
|
$
|
644.9
|
|
|
$
|
(34.4
|
)
|
|
$
|
1,752.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
Shares
|
|
Common
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
|
|
Balance at
December 31, 2018
|
132.9
|
|
|
$
|
1.3
|
|
|
$
|
1,131.9
|
|
|
$
|
392.3
|
|
|
$
|
(61.3
|
)
|
|
$
|
1,464.2
|
|
|
Cumulative effect adjustment
for adoption of
ASC Topic 842, net of tax
|
|
|
|
|
|
|
1.1
|
|
|
|
|
1.1
|
|
|
Net income
|
|
|
|
|
|
|
133.4
|
|
|
|
|
133.4
|
|
|
Other comprehensive
income
|
|
|
|
|
|
|
|
|
16.5
|
|
|
16.5
|
|
|
Issuance of common stock
under stock plans
|
0.7
|
|
|
|
|
5.4
|
|
|
|
|
|
|
5.4
|
|
|
Surrender of RSUs for
taxes
|
(0.2
|
)
|
|
|
|
(10.4
|
)
|
|
|
|
|
|
(10.4
|
)
|
|
Stock-based compensation
expense
|
|
|
|
|
12.1
|
|
|
|
|
|
|
12.1
|
|
|
Distribution of
IAA
|
|
|
|
|
|
|
213.2
|
|
|
10.4
|
|
|
223.6
|
|
|
Dividends earned under stock
plan
|
|
|
|
|
1.8
|
|
|
(1.8
|
)
|
|
|
|
—
|
|
|
Cash dividends declared to
stockholders ($0.70 per share)
|
|
|
|
|
|
|
(93.3
|
)
|
|
|
|
(93.3
|
)
|
|
Balance at
June 30, 2019
|
133.4
|
|
|
$
|
1.3
|
|
|
$
|
1,140.8
|
|
|
$
|
644.9
|
|
|
$
|
(34.4
|
)
|
|
$
|
1,752.6
|
|
See accompanying
condensed notes to consolidated financial statements
KAR Auction
Services, Inc.
Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
|
2020
|
|
2019
|
|
Operating
activities
|
|
|
|
|
Net income
(loss)
|
$
|
(29.5
|
)
|
|
$
|
133.4
|
|
|
Net income from discontinued
operations
|
—
|
|
|
(90.7
|
)
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
Depreciation and
amortization
|
94.2
|
|
|
92.2
|
|
|
Provision for credit
losses
|
41.6
|
|
|
18.2
|
|
|
Deferred income
taxes
|
(13.1
|
)
|
|
3.6
|
|
|
Amortization of debt issuance
costs
|
5.6
|
|
|
7.1
|
|
|
Stock-based
compensation
|
7.6
|
|
|
10.3
|
|
|
Loss on disposal of fixed
assets
|
—
|
|
|
0.1
|
|
|
Goodwill and other
intangibles impairment
|
29.8
|
|
|
—
|
|
|
Other non-cash,
net
|
4.9
|
|
|
5.8
|
|
|
Changes in
operating assets and liabilities, net of acquisitions:
|
|
|
|
|
Trade receivables and other
assets
|
(137.5
|
)
|
|
(145.7
|
)
|
|
Accounts payable and accrued
expenses
|
265.3
|
|
|
127.4
|
|
|
Net cash
provided by operating activities - continuing
operations
|
268.9
|
|
|
161.7
|
|
|
Net cash
provided by operating activities - discontinued
operations
|
—
|
|
|
155.8
|
|
|
Investing
activities
|
|
|
|
|
Net decrease (increase) in
finance receivables held for investment
|
532.6
|
|
|
(69.8
|
)
|
|
Acquisition of businesses
(net of cash acquired)
|
—
|
|
|
(120.7
|
)
|
|
Purchases of property,
equipment and computer software
|
(46.7
|
)
|
|
(78.4
|
)
|
|
Net cash
provided by (used by) investing activities - continuing
operations
|
485.9
|
|
|
(268.9
|
)
|
|
Net cash
used by investing activities - discontinued operations
|
—
|
|
|
(37.4
|
)
|
|
Financing
activities
|
|
|
|
|
Net increase in book
overdrafts
|
5.0
|
|
|
44.1
|
|
|
Net (decrease) increase in
borrowings from lines of credit
|
(1.9
|
)
|
|
93.5
|
|
|
Net decrease in obligations
collateralized by finance receivables
|
(720.5
|
)
|
|
(31.0
|
)
|
|
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
|
)
|
|
(1,291.1
|
)
|
|
Payments on finance
leases
|
(7.8
|
)
|
|
(6.9
|
)
|
|
Payments of contingent
consideration and deferred acquisition costs
|
(22.3
|
)
|
|
(0.5
|
)
|
|
Issuance of common stock
under stock plans
|
0.7
|
|
|
5.4
|
|
|
Tax withholding payments for
vested RSUs
|
(3.7
|
)
|
|
(10.4
|
)
|
|
Dividends paid to
stockholders
|
(49.0
|
)
|
|
(139.8
|
)
|
|
Cash
transferred to IAA
|
—
|
|
|
(50.9
|
)
|
|
Net cash
used by financing activities - continuing operations
|
(279.9
|
)
|
|
(1,387.6
|
)
|
|
Net cash
provided by financing activities - discontinued
operations
|
—
|
|
|
1,317.6
|
|
|
Effect of exchange rate
changes on cash
|
(17.3
|
)
|
|
10.8
|
|
|
Net increase
(decrease) in cash, cash equivalents and restricted
cash
|
457.6
|
|
|
(48.0
|
)
|
|
Cash, cash equivalents and
restricted cash at beginning of period
|
560.9
|
|
|
304.7
|
|
|
Cash, cash equivalents and
restricted cash at end of period
|
$
|
1,018.5
|
|
|
$
|
256.7
|
|
|
Cash paid for interest, net
of proceeds from interest rate derivatives
|
$
|
63.9
|
|
|
$
|
98.2
|
|
|
Cash paid for taxes, net of
refunds - continuing operations
|
$
|
3.6
|
|
|
$
|
20.5
|
|
|
Cash paid for taxes, net of
refunds - discontinued operations
|
$
|
—
|
|
|
$
|
40.1
|
|
See accompanying
condensed notes to consolidated financial statements
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements
June 30,
2020 (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"), 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.;
|
|
|
|
•
|
"Credit Agreement" refers to
the Amended and Restated Credit Agreement, dated March 11, 2014, as
amended on March 9, 2016, May 31, 2017, September 19, 2019 and May
29, 2020, among KAR Auction Services, 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"). See Note 2;
|
|
|
|
•
|
"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
outstanding at June 30,
2020);
|
|
|
|
•
|
"Term Loan B-4" refers to the
senior secured term loan B-4 facility, the terms of which are set
forth in the Credit Agreement;
|
|
|
|
•
|
"Term Loan B-5" refers to the
senior secured term loan B-5 facility, the terms of which are set
forth in the Credit Agreement; and
|
|
|
|
•
|
"2017 Revolving Credit
Facility" refers to the $350
million, senior secured revolving
credit facility, the terms of which are set forth in the Credit
Agreement.
|
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,
2020, we
have a North American network of 74
ADESA whole car
auction sites and we also offer online auctions. ADESA also
includes TradeRev, an online automotive remarketing system 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 physical, online or hybrid
auctions, which permit Internet buyers to participate in physical
auctions. ADESA's online service offerings include customized
private label solutions powered with software developed by its
wholly-owned subsidiary, Openlane, that allow our institutional
consignors (automobile manufacturers, captive finance companies and
other institutions) to offer vehicles via the Internet prior to
arrival at the physical auction. 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 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.
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
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 through 123
locations
throughout the United States and Canada as of June 30,
2020.
Floorplan financing supports independent used vehicle dealers in
North America who purchase vehicles at ADESA, TradeRev, other used
vehicle and salvage auctions and non-auction purchases. In addition
to floorplan financing, AFC also provides independent used vehicle
dealers with other related services and products, such as vehicle
service contracts.
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,
2019, as filed with the Securities and Exchange Commission on
February 19, 2020. The 2019 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 Auction
Services' revenue reported in the consolidated statements of income
for the three and six months ended June 30, 2019 has been
reclassified between "Auction fees and services revenue" and
"Purchased vehicle sales" in the consolidated statements of income
to conform with the presentation for the three and six months ended
June 30, 2020.
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.
Acquisition-Related Deferred and Contingent
Consideration
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,
2020, we
had accrued deferred and estimated contingent consideration with a
fair value of approximately $3.7
million and $41.8
million, respectively. At
June 30,
2020, the
aggregate maximum potential payment remaining for undiscounted
deferred payments and undiscounted contingent payments related to
these acquisitions could approximate $102.9
million. For the six months
ended June 30,
2020, we
made contingent consideration and deferred acquisition payments
related to the CarsOnTheWeb acquisition of $22.3
million.
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
Temporary Equity
The Company
records shares of convertible preferred stock at their respective
fair values on the date of issuance, net of issuance costs. The
convertible preferred stock is recorded outside of stockholders'
equity on the consolidated balance sheet because the shares contain
liquidation features that are not solely within the Company's
control. The Company has elected not to adjust the carrying values
of the convertible preferred stock to the liquidation preferences
of such shares because of the uncertainty of whether or when such
an event would occur. Subsequent adjustments to increase the
carrying value to the liquidation preferences will be made only
when it becomes probable that such a liquidation event will occur.
See Note 9 for a discussion of the convertible preferred
stock.
Credit Losses
In June 2016, the
Financial Accounting Standards Board ("FASB") issued ASU
2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. The update changes the
methodology for measuring credit losses on financial instruments
and the timing of when such losses are recorded. We adopted Topic
326 in the first quarter of 2020 and the change in methodology for
measuring credit losses resulted in an increase in the allowance
for credit losses of $5.0
million. The cumulative effect of
this change was recognized, net of tax, as a $3.8
million adjustment to retained
earnings on January 1, 2020.
New Accounting Standards
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. Early adoption
is permitted. The Company is currently evaluating the impact the
adoption of ASU 2019-12 will have on the consolidated financial
statements.
In August 2018,
the FASB issued ASU 2018-15, Intangibles
- Goodwill and Other - Internal-Use Software (Subtopic 350-40):
Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That is a Service Contract,
which aligns the
requirements for capitalizing implementation costs incurred in a
cloud computing arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. The new guidance was
effective for annual periods beginning after December 15, 2019,
including interim periods within those fiscal years. The adoption
of ASU 2018-15 did not have a material impact on the consolidated
financial statements.
In January 2017,
the FASB issued ASU 2017-04, Intangibles-Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which simplifies the test for
goodwill impairment by eliminating Step 2 (implied fair value
measurement). Instead goodwill impairment would be measured as the
amount by which a reporting unit's carrying amount exceeds its fair
value, not to exceed the carrying amount of goodwill. The new
guidance was effective for annual periods beginning after December
15, 2019, including interim periods within those fiscal years. The
adoption of ASU 2017-04 did not have a material impact on the
consolidated financial statements.
Note 2—IAA
Separation and Discontinued Operations
In February 2018,
the Company announced that its board of directors had approved a
plan to pursue the separation ("Separation") of its salvage auction
business, IAA, through a spin-off. On June 28, 2019, the Company
completed the spin-off, creating a new independent publicly traded
company, IAA, Inc. ("IAA"). The Separation provided KAR
stockholders with equity ownership in both KAR and IAA. On June 28,
2019, the Company’s stockholders received one share of IAA common
stock for every share of Company common stock they held as of the
close of business on June 18, 2019, the record date for the
distribution. In addition to the shares of IAA common stock, KAR
received a cash distribution of approximately $1,278.0
million from IAA, which was used to
prepay a portion of KAR's term loans. In connection with the
spin-off, the Company and IAA entered into various agreements to
effect the Separation and provide a framework for their
relationship after the Separation, including a separation and
distribution agreement, a transition services agreement, an
employee matters agreement and a tax matters agreement. These
agreements provide for the allocation between the Company and IAA
of assets, employees, liabilities and obligations (including
investments, property, environmental and tax-related assets and
liabilities) attributable to
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
periods prior to,
at and after IAA's Separation from the Company and will govern
certain relationships between IAA and the Company after the
Separation.
The financial
results of IAA have been accounted for as discontinued operations
in the comparable 2019 results presented. IAA was formerly
presented as one of the Company’s reportable segments. Discontinued
operations included one-time transaction costs in "Selling, general
and administrative" of approximately $30.5
million and $31.3
million for the three and six months
ended June 30, 2019, in connection with the separation of the two
companies. These costs consisted of consulting and professional
fees associated with preparing for and executing the
spin-off.
The following
table presents the results of operations for IAA that have been
reclassified to discontinued operations for all periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating
revenues
|
$
|
—
|
|
|
$
|
366.4
|
|
|
$
|
—
|
|
|
$
|
723.6
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost of services (exclusive
of depreciation and amortization)
|
—
|
|
|
227.7
|
|
|
—
|
|
|
446.1
|
|
|
Selling, general and
administrative
|
—
|
|
|
62.1
|
|
|
—
|
|
|
94.5
|
|
|
Depreciation and
amortization
|
—
|
|
|
22.1
|
|
|
—
|
|
|
43.9
|
|
|
Total operating
expenses
|
—
|
|
|
311.9
|
|
|
—
|
|
|
584.5
|
|
|
Operating profit
|
—
|
|
|
54.5
|
|
|
—
|
|
|
139.1
|
|
|
Interest expense
|
—
|
|
|
2.4
|
|
|
—
|
|
|
2.7
|
|
|
Other income,
net
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
Income from discontinued
operations before income taxes
|
—
|
|
|
52.2
|
|
|
—
|
|
|
136.4
|
|
|
Income taxes
|
—
|
|
|
24.0
|
|
|
—
|
|
|
45.7
|
|
|
Income from discontinued
operations
|
$
|
—
|
|
|
$
|
28.2
|
|
|
$
|
—
|
|
|
$
|
90.7
|
|
Note 3—Stock
and Stock-Based Compensation Plans
The KAR Auction
Services, Inc. 2009 Omnibus Stock and Incentive Plan ("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. performance-based restricted stock units
("PRSUs") and service-based restricted stock units ("RSUs"). We
have determined that the KAR Auction Services, Inc. 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,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
PRSUs
|
$
|
0.8
|
|
|
$
|
1.3
|
|
|
$
|
2.3
|
|
|
$
|
4.9
|
|
|
RSUs
|
1.8
|
|
|
2.6
|
|
|
5.3
|
|
|
5.4
|
|
|
Total stock-based
compensation expense
|
$
|
2.6
|
|
|
$
|
3.9
|
|
|
$
|
7.6
|
|
|
$
|
10.3
|
|
In the
first six months of 2020, we granted a
target amount of approximately 0.4
million PRSUs to certain executive
officers and management of the Company. The PRSUs vest if and to
the extent that the Company's three-year cumulative operating
adjusted net income per share attains certain specified goals. In
addition, approximately 0.4
million RSUs were granted to certain
executive officers and management of the Company. The RSUs are
contingent upon continued employment
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
and generally
vest in three
equal annual
installments. The weighted average grant date fair value of the
PRSUs and the RSUs was $22.25
per share, which
was determined using the closing price of the Company's common
stock on the dates of grant.
KAR Auction Services, Inc. Employee Stock Purchase
Plan
We adopted the
KAR Auction Services, Inc. Employee Stock Purchase Plan ("ESPP") in
December 2009. The ESPP, which was approved by our stockholders, is
designed to provide an incentive to attract, retain and reward
eligible employees and is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended. At the Company’s annual meeting of stockholders
in June 2020, the stockholders approved an amendment to the ESPP.
As a result, the maximum number of shares reserved for issuance
under the ESPP was increased from 1.0
million to 2.5
million.
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 "Exchange Act"). 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. No
shares of common
stock were repurchased during the six months ended
June 30,
2020 or
2019.
Note 4—Net
Income (Loss) from Continuing Operations Per Share
The following
table sets forth the computation of net income (loss) from
continuing operations per share (in
millions except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income (loss) from
continuing operations
|
$
|
(32.3
|
)
|
|
$
|
27.4
|
|
|
$
|
(29.5
|
)
|
|
$
|
42.7
|
|
|
Series A Preferred Stock
dividends
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
Net income (loss)
attributable to common stockholders
|
$
|
(34.4
|
)
|
|
$
|
27.4
|
|
|
$
|
(31.6
|
)
|
|
$
|
42.7
|
|
|
Weighted average common
shares outstanding
|
129.3
|
|
|
133.4
|
|
|
129.2
|
|
|
133.2
|
|
|
Effect of dilutive stock
options and restricted stock awards
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|
Effect of assumed conversion
of Series A Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted average common
shares outstanding and potential common shares
|
129.3
|
|
|
134.1
|
|
|
129.2
|
|
|
133.9
|
|
|
Net income (loss) from
continuing operations per share
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.27
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.32
|
|
|
Diluted
|
$
|
(0.27
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.32
|
|
Basic net income
(loss) from continuing operations per share was calculated by
dividing net income (loss) from continuing operations by the
weighted average number of outstanding common shares for the
period. Diluted net income (loss) from continuing operations per
share was calculated consistent with basic net income (loss) from
continuing operations 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) from continuing operations 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, 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) from continuing
operations per diluted share and PRSUs subject to performance
conditions which have not yet been satisfied are excluded from the
calculations. No
options were
excluded from the calculation
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
of diluted net
income (loss) from continuing operations per share for the
three or
six months
ended June 30,
2019. In
addition, approximately 0.8
million PRSUs were excluded from the
calculation of diluted net income (loss) from continuing operations
per share for the three and six months ended June 30,
2019.
Total options outstanding at June 30, 2020
and
2019
were
0.7
million and 0.8
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 with
the quarter ended June 30, 2020, the Company also includes
participating securities (Series A Preferred Stock) in the
computation of net income (loss) from continuing operations per
share pursuant to the two-class method. The two-class method of
calculating net income (loss) from continuing operations per share
is an allocation method that calculates earnings per share for
common stock and participating securities. During periods of net
loss from continuing operations, no effect is given to the
participating securities because they do not share in the losses of
the Company. In addition, the calculation does not include the
effect of assumed conversion of the Series A Preferred Stock for
the three
or six months ended
June 30,
2020,
because the effect would have been anti-dilutive.
Note 5—Finance
Receivables and Obligations Collateralized by Finance
Receivables
AFC sells 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 28, 2022. AFC Funding Corporation had committed
liquidity of $1.70
billion for U.S. finance receivables
at June 30,
2020.
We also have an
agreement for the securitization of Automotive Finance Canada
Inc.'s ("AFCI") receivables which expires on January 28, 2022.
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,
2020. 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,
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
|
$
|
1,532.4
|
|
|
$
|
19.0
|
|
|
$
|
22.0
|
|
|
$
|
33.9
|
|
|
Other loans
|
15.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total receivables
managed
|
$
|
1,548.3
|
|
|
$
|
19.0
|
|
|
$
|
22.0
|
|
|
$
|
33.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
Net Credit
Losses
Three Months
Ended
June 30,
2019
|
|
Net Credit
Losses
Six Months
Ended
June 30,
2019
|
|
|
Total Amount
of:
|
|
|
|
(in millions)
|
Receivables
|
|
Receivables
Delinquent
|
|
|
|
Floorplan
receivables
|
$
|
2,099.4
|
|
|
$
|
28.8
|
|
|
$
|
8.2
|
|
|
$
|
16.1
|
|
|
Other loans
|
15.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total receivables
managed
|
$
|
2,115.2
|
|
|
$
|
28.8
|
|
|
$
|
8.2
|
|
|
$
|
16.1
|
|
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
The following is
a summary of the changes in the allowance for credit losses related
to finance receivables (in
millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
|
Allowance
for Credit Losses
|
|
|
|
|
Balance at December
31
|
$
|
15.0
|
|
|
$
|
14.0
|
|
|
Opening balance adjustment
for adoption of ASC Topic 326
|
5.0
|
|
|
—
|
|
|
Provision for credit
losses
|
35.9
|
|
|
16.6
|
|
|
Recoveries
|
5.0
|
|
|
4.1
|
|
|
Less charge-offs
|
(38.9
|
)
|
|
(20.2
|
)
|
|
Balance at June
30
|
$
|
22.0
|
|
|
$
|
14.5
|
|
As of
June 30,
2020 and December 31,
2019, $1,475.4
million and $2,061.6
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,
2020
|
|
December 31,
2019
|
|
Obligations collateralized by
finance receivables, gross
|
$
|
747.6
|
|
|
$
|
1,474.4
|
|
|
Unamortized securitization
issuance costs
|
(11.7
|
)
|
|
(13.2
|
)
|
|
Obligations collateralized by
finance receivables
|
$
|
735.9
|
|
|
$
|
1,461.2
|
|
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,
2020, we
were in compliance with the covenants in the securitization
agreements.
Note 6—Goodwill
and Other Intangible Assets
Goodwill
consisted of the following at June 30, 2020 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADESA
Auctions
|
|
AFC
|
|
Total
|
|
Balance at December 31,
2019
|
$
|
1,558.0
|
|
|
$
|
263.7
|
|
|
$
|
1,821.7
|
|
|
Impairment
|
(25.5
|
)
|
|
—
|
|
|
(25.5
|
)
|
|
Other
|
(5.3
|
)
|
|
—
|
|
|
(5.3
|
)
|
|
Balance at
June 30, 2020
|
$
|
1,527.2
|
|
|
$
|
263.7
|
|
|
$
|
1,790.9
|
|
Goodwill
represents the excess cost over fair value of identifiable net
assets of businesses acquired. The Company tests goodwill and
tradenames for impairment at the reporting unit level annually in
the second quarter, or more frequently as impairment indicators
arise. In light of the impact that the COVID-19 pandemic has had on
the economy, forecasts for all reporting units were revised. These
circumstances contributed to lower sales, operating profits and
cash flows at ADESA Remarketing Limited through the first part of
2020 as compared to 2019, and the outlook for the business was
significantly reduced. This analysis resulted in the impairment of
the goodwill balance totaling $25.5
million in our ADESA Remarketing
Limited reporting unit and a non-cash goodwill impairment charge
was recorded for this amount in the second quarter of 2020. The
fair value of that reporting unit was estimated using the expected
present value of future cash flows.
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
In addition, in
the second quarter of 2020, a non-cash customer relationship
impairment charge of approximately $4.3
million was also recorded in the
ADESA Remarketing Limited reporting unit, representing the
impairment in the value of this reporting unit’s customer
relationships. The fair value of the customer relationships was
estimated using the expected present value of future cash
flows.
Goodwill and
tradenames were tested for impairment in all of the Company's
reporting units in the second quarter of 2020 and no impairment was
identified, other than the impairments previously discussed in the
ADESA Remarketing Limited reporting unit. Future events and
changing market conditions, including the impact of COVID-19, may
require us to re-evaluate the estimates used in our fair value
measurements, which could result in additional impairment of
goodwill and other intangible assets in future periods and could
have a material effect on our operating results.
Note 7—Long-Term
Debt
Long-term debt
consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate*
|
|
Maturity
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Term Loan B-6
|
Adjusted
LIBOR
|
|
+
2.25%
|
|
September 19,
2026
|
|
$
|
942.9
|
|
|
$
|
947.6
|
|
|
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
|
|
17.4
|
|
|
19.3
|
|
|
Canadian line of
credit
|
CAD
Prime
|
|
+
0.50%
|
|
Repayable upon
demand
|
|
—
|
|
|
—
|
|
|
Total debt
|
|
|
|
|
|
|
1,910.3
|
|
|
1,916.9
|
|
|
Unamortized debt issuance
costs/discounts
|
|
|
|
|
|
(26.5
|
)
|
|
(26.8
|
)
|
|
Current portion of long-term
debt
|
|
|
|
|
|
|
(26.9
|
)
|
|
(28.8
|
)
|
|
Long-term debt
|
|
|
|
|
|
|
$
|
1,856.9
|
|
|
$
|
1,861.3
|
|
*The interest
rates presented in the table above represent the rates in place
at June 30,
2020.
Credit Facilities
On May 29, 2020,
we entered into the Fourth Amendment Agreement (the "Fourth
Amendment") to the Credit Agreement. The Fourth Amendment (1)
provides a financial covenant “holiday” through and including June
30, 2021; (2) for purposes of determining compliance with the
financial covenant for the fiscal quarters ending September 30,
2021 and December 31, 2021, permits the Consolidated EBITDA
(earnings
before interest expense, income taxes, depreciation and
amortization) for the applicable test
period to be calculated on an annualized basis, excluding results
prior to April 1, 2021; (3) establishes a monthly minimum liquidity
covenant of $225.0
million through and including
September 30, 2021; and (4) effectively places certain limitations
on the ability to make certain investments, junior debt repayments,
acquisitions and restricted payments and to incur additional
secured indebtedness until October 1, 2021.
On September 19,
2019, we entered into the Third Amendment Agreement (the "Third
Amendment") to the Credit Agreement. The Third Amendment provided
for, among other things, (i) the refinancing of the existing Term
Loan B-4 and Term Loan B-5 with the new seven-year,
$950
million Term Loan B-6, (ii) repayment
of the 2017 Revolving Credit Facility and (iii) 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. The Company also pays
a commitment fee
between 25 to 35 basis points, payable quarterly,
on the average daily unused amount of the Revolving 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 2.50%
at
June 30,
2020.
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
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
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. Other
than during the financial covenant "holiday" provided by the Fourth
Amendment, 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, provided there are revolving loans
outstanding. We were in compliance with the applicable covenants in
the Credit Agreement at June 30,
2020.
There were
no
borrowings on the
Revolving Credit Facility at June 30, 2020
and
December 31,
2019. In
addition, we had related outstanding letters of credit in the
aggregate amount of $25.0
million and $27.4
million at June 30, 2020
and
December 31,
2019,
respectively, which reduce the amount available for borrowings
under the Revolving Credit Facility.
European Lines of Credit
COTW has lines of
credit aggregating $33.7
million (€30
million). The lines of credit had an
aggregate $17.4
million of borrowings outstanding
at June 30,
2020. The
lines of credit are secured by certain inventory and receivables at
COTW subsidiaries.
Fair Value of Debt
As of
June 30,
2020, the
estimated fair value of our long-term debt amounted to
$1,845.4
million. The estimates of fair value
were based on broker-dealer quotes for our debt as of
June 30,
2020. 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 8—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 use 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
effective portion of changes in the fair value of the interest rate
swaps (unrealized gains/losses) are recorded as a component of
"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. The Company
does not expect any gains/losses currently recorded in accumulated
other comprehensive income to be recognized in earnings over the
next 12 months. 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.
No
amount of
ineffectiveness was included in net income (loss) for the six
months ended June 30, 2020.
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. 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):
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability
Derivatives
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Derivatives
Designated as Hedging Instruments
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
2020 Interest rate
swaps
|
|
Other
liabilities
|
|
$
|
29.9
|
|
|
N/A
|
|
N/A
|
We did not
designate any of the 2017 interest rate caps as hedges for
accounting purposes. Accordingly, changes in the fair value of the
interest rate caps were recognized as "Interest expense" in the
consolidated statement of income. The following table presents the
effect of the interest rate derivatives on our consolidated
statements of income for the periods presented (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
Gain / (Loss) Recognized in Income on Derivatives
|
|
Amount of
Gain / (Loss)
Recognized
in Income on Derivatives
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Derivatives
Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
2020 Interest rate
swaps
|
|
Interest expense
|
|
$
|
—
|
|
|
N/A
|
|
|
$
|
—
|
|
|
N/A
|
|
|
Derivatives
Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
2017 Interest rate
caps
|
|
Interest expense
|
|
N/A
|
|
|
$
|
(0.4
|
)
|
|
N/A
|
|
|
$
|
(0.9
|
)
|
Note 9—Convertible
Preferred Stock
In June 2020, KAR
completed the issuance and sale of an aggregate of
550,000
shares of the
Company’s Series A Convertible Preferred Stock, par value
$0.01
per share (the
“Series A Preferred Stock”), in two closings at a purchase price
of $1,000
per share (for
the second closing, plus accumulated dividends from and including
the first closing date to but excluding June 29, 2020) for an
aggregate purchase price of approximately $550
million to an affiliate of Ignition
Parent LP (“Apax”) and an affiliate of Periphas Capital GP, LLC
(“Periphas”).
The Company has
authorized 1,500,000
shares of Series
A Preferred Stock. The Series A Preferred Stock ranks senior to the
shares of the Company’s common stock, par value $0.01
per share, with
respect to dividend rights and rights on the distribution of assets
on any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company. The Series A Preferred Stock has
a liquidation preference of $1,000
per share. The
holders of the Series A Preferred Stock are entitled to a
cumulative dividend at the rate of 7%
per annum,
payable quarterly in arrears. Dividends are payable in kind through
the issuance of additional shares of Series A Preferred Stock for
the first eight
dividend
payments, and thereafter, in cash or in kind, or in any combination
of both, at the option of the Company. As of June 30, 2020, the
Series A Preferred Stock had accumulated dividends in kind
of $2.1
million, which have not been
declared. The holders of the Series A Preferred Stock are also
entitled to participate in dividends declared or paid on our common
stock on an as-converted basis.
The Series A
Preferred Stock will be convertible at the option of the holders
thereof at any time after one year
into shares of
common stock at a conversion price of $17.75
per share of
Series A Preferred Stock and a conversion rate of
56.3380
shares of common
stock per share of Series A Preferred Stock, subject to certain
anti-dilution adjustments. At any time after three
years, if the closing price of the
common stock exceeds $31.0625
per share, as may
be adjusted pursuant to the Certificate of Designations, for at
least 20
trading days in
any period of 30
consecutive
trading days, at the election of the Company, all or any portion of
the Series A Preferred Stock will be convertible into the relevant
number of shares of common stock.
The holders of
the Series A Preferred Stock are entitled to vote with the holders
of the Company's common stock as a single class on all matters
submitted to a vote of the holders of the Company's common
stock.
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
At any time
after six
years, the Company may redeem some
or all of the Series A Preferred Stock for a per share amount in
cash equal to: (i) the sum of (x) the liquidation preference
thereof, plus
(y) all accrued
and unpaid dividends, multiplied
by (ii)
(A) 105%
if the redemption
occurs at any time after the six-year anniversary of June 10, 2020
(the "Initial Closing Date") and prior to the seven-year
anniversary of the Initial Closing Date or (B) 100%
if the redemption
occurs after the seven-year anniversary of the Initial Closing
Date.
Upon certain
change of control events involving the Company, and subject to
certain limitations set forth in the Certificate of Designations,
each holder of the Series A Preferred Stock will either (i) receive
such number of shares of common stock into which such holder is
entitled to convert all or a portion of such holder’s shares of
Series A Preferred Stock at the then current conversion price, (ii)
receive, in respect of all or a portion of such holder’s shares of
Series A Preferred Stock, the greater of (x) the amount per share
of Series A Preferred Stock that such holder would have received
had such holder, immediately prior to such change of control,
converted such share of Series A Preferred Stock into common stock
and (y) a purchase price per share of Series A Preferred Stock,
payable in cash, equal to the product of (A) 105%
multiplied
by (B) the
sum of the liquidation preference and accrued dividends with
respect to such share of Series A Preferred Stock, or (iii) unless
the consideration in such change of control event is payable
entirely in cash, retain all or a portion of such holder’s shares
of Series A Preferred Stock.
For so long as
Apax or its affiliates beneficially own a certain percentage of the
shares of Series A Preferred Stock purchased in the Apax issuance
on an as-converted basis, Apax will continue to have the right to
appoint one individual to the board of directors. Additionally, so
long as Apax or its affiliates beneficially own a certain
percentage of the shares of Series A Preferred Stock purchased in
the Apax issuance on an as-converted basis, Apax will have the
right to appoint one non-voting observer to the board of directors.
Likewise, so long as Periphas beneficially owns a certain
percentage of the shares of Series A Preferred Stock purchased in
the Periphas issuance on an as-converted basis, Periphas will have
the right to appoint one non-voting observer to the board of
directors.
Apax is subject
to certain standstill restrictions, until the later of
three
years and the date on which Apax no
longer owns 25%
of the shares of
Series A Preferred Stock purchased in the Apax issuance on an
as-converted basis. Periphas is also subject to certain standstill
restrictions, until the later of three
years and the date on which
Periphas no longer owns 50%
of the shares of
Series A Preferred Stock purchased in the Periphas issuance on an
as-converted basis. Subject to certain customary exceptions, Apax
and Periphas are restricted from transferring the Series A
Preferred Stock for one year.
Apax, its
affiliates and Periphas have certain customary registration rights
with respect to shares of the Series A Preferred Stock and the
shares of the common stock held by it issued upon any future
conversion of the Series A Preferred Stock.
Note 10—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 related to
continuing operations which were disclosed in our Annual Report on
Form 10-K for the year ended December 31,
2019.
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
Note 11—Accumulated
Other Comprehensive Loss
Accumulated other
comprehensive loss consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Foreign currency translation
loss
|
$
|
(50.9
|
)
|
|
$
|
(31.0
|
)
|
|
Unrealized loss on interest
rate derivatives, net of tax
|
(22.6
|
)
|
|
—
|
|
|
Accumulated other
comprehensive loss
|
$
|
(73.5
|
)
|
|
$
|
(31.0
|
)
|
Note 12—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. Results of the former IAA segment and spin-related
costs are reported as discontinued operations (see Note
2).
The holding
company is maintained separately from the reportable segments and
includes expenses associated with the corporate offices, such as
salaries, benefits and travel costs for the corporate management
team, certain human resources, information technology and
accounting costs, and certain insurance, treasury, legal and risk
management costs. Holding company interest expense includes the
interest expense incurred on finance leases and the corporate debt
structure. Intercompany charges relate primarily to interest on
intercompany debt or receivables and certain administrative costs
allocated by the holding company.
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
|
|
Holding
Company
|
|
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
|
79.5
|
|
|
5.6
|
|
|
27.2
|
|
|
112.3
|
|
|
Depreciation and
amortization
|
38.2
|
|
|
2.6
|
|
|
5.7
|
|
|
46.5
|
|
|
Goodwill and
other intangibles impairment
|
29.8
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
|
Total operating
expenses
|
364.7
|
|
|
26.1
|
|
|
32.9
|
|
|
423.7
|
|
|
Operating profit
(loss)
|
(2.5
|
)
|
|
30.7
|
|
|
(32.9
|
)
|
|
(4.7
|
)
|
|
Interest expense
|
0.7
|
|
|
9.2
|
|
|
21.0
|
|
|
30.9
|
|
|
Other (income) expense,
net
|
(1.3
|
)
|
|
—
|
|
|
2.6
|
|
|
1.3
|
|
|
Intercompany expense
(income)
|
—
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
—
|
|
|
Income (loss) from continuing
operations before income taxes
|
(1.9
|
)
|
|
21.6
|
|
|
(56.6
|
)
|
|
(36.9
|
)
|
|
Income taxes
|
2.5
|
|
|
5.6
|
|
|
(12.7
|
)
|
|
(4.6
|
)
|
|
Net income (loss) from
continuing operations
|
$
|
(4.4
|
)
|
|
$
|
16.0
|
|
|
$
|
(43.9
|
)
|
|
$
|
(32.3
|
)
|
|
Total assets
|
$
|
3,607.7
|
|
|
$
|
1,973.8
|
|
|
$
|
912.5
|
|
|
$
|
6,494.0
|
|
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
Financial
information regarding our reportable segments is set forth below as
of and for the three months ended June 30, 2019
(in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADESA
Auctions
|
|
AFC
|
|
Holding
Company
|
|
Consolidated
|
|
Operating
revenues
|
$
|
632.4
|
|
|
$
|
86.7
|
|
|
$
|
—
|
|
|
$
|
719.1
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost of services (exclusive
of depreciation and amortization)
|
392.9
|
|
|
24.5
|
|
|
—
|
|
|
417.4
|
|
|
Selling, general and
administrative
|
121.9
|
|
|
6.4
|
|
|
34.9
|
|
|
163.2
|
|
|
Depreciation and
amortization
|
38.0
|
|
|
2.6
|
|
|
7.3
|
|
|
47.9
|
|
|
Total operating
expenses
|
552.8
|
|
|
33.5
|
|
|
42.2
|
|
|
628.5
|
|
|
Operating profit
(loss)
|
79.6
|
|
|
53.2
|
|
|
(42.2
|
)
|
|
90.6
|
|
|
Interest expense
|
1.0
|
|
|
16.2
|
|
|
38.4
|
|
|
55.6
|
|
|
Other (income) expense,
net
|
(1.3
|
)
|
|
(0.1
|
)
|
|
0.3
|
|
|
(1.1
|
)
|
|
Intercompany expense
(income)
|
7.6
|
|
|
(1.6
|
)
|
|
(6.0
|
)
|
|
—
|
|
|
Income (loss) from continuing
operations before income taxes
|
72.3
|
|
|
38.7
|
|
|
(74.9
|
)
|
|
36.1
|
|
|
Income taxes
|
21.8
|
|
|
11.3
|
|
|
(24.4
|
)
|
|
8.7
|
|
|
Net income (loss) from
continuing operations
|
$
|
50.5
|
|
|
$
|
27.4
|
|
|
$
|
(50.5
|
)
|
|
$
|
27.4
|
|
|
Total assets
|
$
|
3,717.0
|
|
|
$
|
2,495.1
|
|
|
$
|
165.7
|
|
|
$
|
6,377.8
|
|
Financial
information regarding our reportable segments is set forth below as
of and for the six months ended June 30, 2020
(in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADESA
Auctions
|
|
AFC
|
|
Holding
Company
|
|
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
|
202.3
|
|
|
12.1
|
|
|
60.3
|
|
|
274.7
|
|
|
Depreciation and
amortization
|
77.3
|
|
|
5.3
|
|
|
11.6
|
|
|
94.2
|
|
|
Goodwill and
other intangibles impairment
|
29.8
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
|
Total operating
expenses
|
897.3
|
|
|
59.2
|
|
|
71.9
|
|
|
1,028.4
|
|
|
Operating profit
(loss)
|
31.9
|
|
|
76.1
|
|
|
(71.9
|
)
|
|
36.1
|
|
|
Interest expense
|
1.5
|
|
|
22.8
|
|
|
44.6
|
|
|
68.9
|
|
|
Other (income) expense,
net
|
(1.3
|
)
|
|
(0.1
|
)
|
|
0.7
|
|
|
(0.7
|
)
|
|
Intercompany expense
(income)
|
0.7
|
|
|
(0.9
|
)
|
|
0.2
|
|
|
—
|
|
|
Income (loss) from continuing
operations before income taxes
|
31.0
|
|
|
54.3
|
|
|
(117.4
|
)
|
|
(32.1
|
)
|
|
Income taxes
|
11.3
|
|
|
13.7
|
|
|
(27.6
|
)
|
|
(2.6
|
)
|
|
Net income (loss) from
continuing operations
|
$
|
19.7
|
|
|
$
|
40.6
|
|
|
$
|
(89.8
|
)
|
|
$
|
(29.5
|
)
|
KAR Auction
Services, Inc.
Condensed
Notes to Consolidated Financial Statements (Continued)
June 30,
2020 (Unaudited)
Financial
information regarding our reportable segments is set forth below as
of and for the six months ended June 30, 2019
(in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADESA
Auctions
|
|
AFC
|
|
Holding
Company
|
|
Consolidated
|
|
Operating
revenues
|
$
|
1,232.1
|
|
|
$
|
176.6
|
|
|
$
|
—
|
|
|
$
|
1,408.7
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost of services (exclusive
of depreciation and amortization)
|
763.6
|
|
|
47.7
|
|
|
—
|
|
|
811.3
|
|
|
Selling, general and
administrative
|
248.5
|
|
|
13.6
|
|
|
76.3
|
|
|
338.4
|
|
|
Depreciation and
amortization
|
73.0
|
|
|
5.0
|
|
|
14.2
|
|
|
92.2
|
|
|
Total operating
expenses
|
1,085.1
|
|
|
66.3
|
|
|
90.5
|
|
|
1,241.9
|
|
|
Operating profit
(loss)
|
147.0
|
|
|
110.3
|
|
|
(90.5
|
)
|
|
166.8
|
|
|
Interest expense
|
1.7
|
|
|
33.3
|
|
|
77.1
|
|
|
112.1
|
|
|
Other (income) expense,
net
|
(3.2
|
)
|
|
(0.2
|
)
|
|
0.2
|
|
|
(3.2
|
)
|
|
Intercompany expense
(income)
|
17.9
|
|
|
(2.8
|
)
|
|
(15.1
|
)
|
|
—
|
|
|
Income (loss) from continuing
operations before income taxes
|
130.6
|
|
|
80.0
|
|
|
(152.7
|
)
|
|
57.9
|
|
|
Income taxes
|
37.7
|
|
|
22.1
|
|
|
(44.6
|
)
|
|
15.2
|
|
|
Net income (loss) from
continuing operations
|
$
|
92.9
|
|
|
$
|
57.9
|