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☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware			20-8744739
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

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

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. ☐

						Page
PART I—FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited)
			Consolidated Statements of Income			3
			Consolidated Statements of Comprehensive Income			4
			Consolidated Balance Sheets			5
			Consolidated Statements of Stockholders' Equity			7
			Consolidated Statements of Cash Flows			9
			Condensed Notes to Consolidated Financial Statements			10
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			49
Item 4.			Controls and Procedures			49
PART II—OTHER INFORMATION
Item 1.			Legal Proceedings			50
Item 1A.			Risk Factors			50
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 6.			Exhibits			51
Signatures						57

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
Operating revenues
Auction fees and services revenue			$	440.5					$	534.5					$	1,244.6					$	1,629.5
Purchased vehicle sales			86.2						79.1						211.3						216.2
Finance-related revenue			66.9						88.3						202.2						264.9
Total operating revenues			593.6						701.9						1,658.1						2,110.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)			329.7						410.9						959.4						1,222.2
Selling, general and administrative			131.0						158.9						405.7						497.3
Depreciation and amortization			46.5						46.4						140.7						138.6
Goodwill and other intangibles impairment			—						—						29.8						—
Total operating expenses			507.2						616.2						1,535.6						1,858.1
Operating profit			86.4						85.7						122.5						252.5
Interest expense			29.5						37.9						98.4						150.0
Other income, net			(1.1)						(2.0)						(1.8)						(5.2)
Loss on extinguishment of debt			—						2.2						—						2.2
Income from continuing operations before income taxes			58.0						47.6						25.9						105.5
Income taxes			10.9						13.2						8.3						28.4
Income from continuing operations			$	47.1					$	34.4					$	17.6					$	77.1
Income from discontinued operations, net of income taxes			—						0.9						—						91.6
Net income			$	47.1					$	35.3					$	17.6					$	168.7
Net income per share - basic
Income from continuing operations			$	0.23					$	0.26					$	0.04					$	0.58
Income from discontinued operations			—						0.01						—						0.69
Net income per share - basic			$	0.23					$	0.27					$	0.04					$	1.27
Net income per share - diluted
Income from continuing operations			$	0.23					$	0.26					$	0.04					$	0.58
Income from discontinued operations			—						0.01						—						0.68
Net income per share - diluted			$	0.23					$	0.27					$	0.04					$	1.26
Dividends declared per common share			$	—					$	0.19					$	0.19					$	0.89

See accompanying condensed notes to consolidated financial statements

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
Net income			$	47.1					$	35.3					$	17.6					$	168.7
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss)			12.6						(10.8)						(7.3)						5.7
Unrealized gain (loss) on interest rate derivatives, net of tax			1.0						—						(21.6)						—
Total other comprehensive income (loss), net of tax			13.6						(10.8)						(28.9)						5.7
Comprehensive income (loss)			$	60.7					$	24.5					$	(11.3)					$	174.4

   

			September 30, 2020						December 31, 2019
Assets
Current assets
Cash and cash equivalents			$	1,276.7					$	507.6
Restricted cash			54.7						53.3
Trade receivables, net of allowances of $10.9 and $9.5			494.1						457.5
Finance receivables, net of allowances of $22.0 and $15.0			1,722.8						2,100.2
Other current assets			126.3						125.9
Total current assets			3,674.6						3,244.5
Other assets
Goodwill			1,798.2						1,821.7
Customer relationships, net of accumulated amortization of $665.0 and $637.4			168.6						207.9
Other intangible assets, net of accumulated amortization of $341.5 and $292.4			284.4						298.5
Operating lease right-of-use assets			354.9						364.1
Property and equipment, net of accumulated depreciation of $578.6 and $534.3			585.2						609.0
Other assets			44.0						35.5
Total other assets			3,235.3						3,336.7
Total assets			$	6,909.9					$	6,581.2

   

			September 30, 2020						December 31, 2019
Liabilities, Temporary Equity and Stockholders' Equity
Current liabilities
Accounts payable			$	938.1					$	704.6
Accrued employee benefits and compensation expenses			66.0						72.7
Accrued interest			19.5						7.9
Other accrued expenses			197.9						216.9
Income taxes payable			5.6						1.1
Dividends payable			—						24.5
Obligations collateralized by finance receivables			1,101.0						1,461.2
Current maturities of long-term debt			26.4						28.8
Total current liabilities			2,354.5						2,517.7
Non-current liabilities
Long-term debt			1,854.8						1,861.3
Deferred income tax liabilities			125.1						134.5
Operating lease liabilities			348.6						358.3
Other liabilities			79.9						59.2
Total non-current liabilities			2,408.4						2,413.3
Commitments and contingencies (Note 11)
Temporary equity
Series A convertible preferred stock (Note 10)			540.0						—
Stockholders' equity
Common stock, $0.01 par value:
Authorized shares: 400,000,000
Issued and outstanding shares:
September 30, 2020: 129,245,854
December 31, 2019: 128,833,452			1.3						1.3
Additional paid-in capital			1,037.8						1,028.9
Retained earnings			627.8						651.0
Accumulated other comprehensive loss			(59.9)						(31.0)
Total stockholders' equity			1,607.0						1,650.2
Total liabilities, temporary equity and stockholders' equity			$	6,909.9					$	6,581.2

			Common Stock Shares						Common Stock Amount						Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total
Balance at June 30, 2020			129.2						$	1.3					$	1,034.2					$	592.5					$	(73.5)					$	1,554.5
Net income																					47.1												47.1
Other comprehensive income																											13.6						13.6
Issuance of common stock under stock plans															0.3																		0.3
Surrender of RSUs for taxes															(0.2)																		(0.2)
Stock-based compensation expense															3.5																		3.5
Dividends on preferred stock																					(11.8)												(11.8)
Balance at September 30, 2020			129.2						$	1.3					$	1,037.8					$	627.8					$	(59.9)					$	1,607.0

			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 income																					17.6												17.6
Other comprehensive loss																											(28.9)						(28.9)
Issuance of common stock under stock plans			0.6												1.0																		1.0
Surrender of RSUs for taxes			(0.2)												(3.9)																		(3.9)
Stock-based compensation expense															11.1																		11.1
Dividends earned under stock plan															0.7						(0.7)												—
Cash dividends declared to stockholders ($0.19 per share)																					(24.5)												(24.5)
Dividends on preferred stock																					(11.8)												(11.8)
Balance at September 30, 2020			129.2						$	1.3					$	1,037.8					$	627.8					$	(59.9)					$	1,607.0

See accompanying condensed notes to consolidated financial statements

			Common Stock Shares						Common Stock Amount						Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total
Balance at June 30, 2019			133.4						$	1.3					$	1,140.8					$	644.9					$	(34.4)					$	1,752.6
Net income																					35.3												35.3
Other comprehensive loss																											(10.8)						(10.8)
Issuance of common stock under stock plans			0.2												(1.3)																		(1.3)
Surrender of RSUs for taxes															(0.1)																		(0.1)
Stock-based compensation expense															4.3																		4.3
Repurchase and retirement of common stock			(4.8)												(119.7)																		(119.7)
Cash dividends declared to stockholders ($0.19 per share)																					(24.5)												(24.5)
Balance at September 30, 2019			128.8						$	1.3					$	1,024.0					$	655.7					$	(45.2)					$	1,635.8

			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																					168.7												168.7
Other comprehensive income																											5.7						5.7
Issuance of common stock under stock plans			0.9												4.1																		4.1
Surrender of RSUs for taxes			(0.2)												(10.5)																		(10.5)
Stock-based compensation expense															16.4																		16.4
Repurchase and retirement of common stock			(4.8)												(119.7)																		(119.7)
Distribution of IAA																					213.2						10.4						223.6
Dividends earned under stock plan															1.8						(1.8)												—
Cash dividends declared to stockholders ($0.89 per share)																					(117.8)												(117.8)
Balance at September 30, 2019			128.8						$	1.3					$	1,024.0					$	655.7					$	(45.2)					$	1,635.8

See accompanying condensed notes to consolidated financial statements

			Nine Months Ended September 30,
			2020						2019
Operating activities
Net income			$	17.6					$	168.7
Net income from discontinued operations			—						(91.6)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			140.7						138.6
Provision for credit losses			41.6						28.9
Deferred income taxes			(3.0)						2.5
Amortization of debt issuance costs			8.6						9.6
Stock-based compensation			11.1						14.6
Goodwill and other intangibles impairment			29.8						—
Loss on extinguishment of debt			—						2.2
Other non-cash, net			6.1						7.9
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables and other assets			(49.4)						(41.3)
Accounts payable and accrued expenses			228.8						51.0
Net cash provided by operating activities - continuing operations			431.9						291.1
Net cash provided by operating activities - discontinued operations			—						156.7
Investing activities
Net decrease (increase) in finance receivables held for investment			337.1						(119.0)
Acquisition of businesses (net of cash acquired)			—						(120.7)
Purchases of property, equipment and computer software			(74.3)						(127.6)
Proceeds from the sale of property and equipment			0.8						—
Net cash provided by (used by) investing activities - continuing operations			263.6						(367.3)
Net cash used by investing activities - discontinued operations			—						(37.4)
Financing activities
Net increase in book overdrafts			20.3						9.2
Net (decrease) increase in borrowings from lines of credit			(2.4)						17.5
Net decrease in obligations collateralized by finance receivables			(345.1)						(25.0)
Proceeds from issuance of Series A Preferred Stock			550.1						—
Payments for issuance costs of Series A Preferred Stock			(21.9)						—
Proceeds from long-term debt			—						947.6
Payments for debt issuance costs/amendments			(18.2)						(13.7)
Payments on long-term debt			(7.1)						(1,746.6)
Payments on finance leases			(12.6)						(12.2)
Payments of contingent consideration and deferred acquisition costs			(22.3)						(0.5)
Issuance of common stock under stock plans			1.0						4.1
Tax withholding payments for vested RSUs			(3.9)						(10.5)
Repurchase and retirement of common stock			—						(119.7)
Dividends paid to stockholders			(49.0)						(139.8)
Cash transferred to IAA			—						(50.9)
Net cash provided by (used by) financing activities - continuing operations			88.9						(1,140.5)
Net cash provided by financing activities - discontinued operations			—						1,317.6
Effect of exchange rate changes on cash			(13.9)						7.0
Net increase in cash, cash equivalents and restricted cash			770.5						227.2
Cash, cash equivalents and restricted cash at beginning of period			560.9						304.7
Cash, cash equivalents and restricted cash at end of period			$	1,331.4					$	531.9
Cash paid for interest, net of proceeds from interest rate derivatives			$	77.7					$	120.0
Cash paid for taxes, net of refunds - continuing operations			$	9.7					$	27.8
Cash paid for taxes, net of refunds - discontinued operations			$	—					$	40.1

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, May 29, 2020 and September 2, 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 3;

•"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 September 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.

ADESA is a leading provider of wholesale vehicle auctions and related vehicle remarketing services for the automotive industry. As of September 30, 2020, we have a North American network of 74 facilities and we also offer online auctions. ADESA also includes TradeRev, an online automotive remarketing platform 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,

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 119 locations throughout the United States and Canada as of September 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.

ADESA Auction Services' revenue reported in the consolidated statements of income for the three and nine months ended September 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 nine months ended September 30, 2020.

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.

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. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have 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. 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.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
Operating revenues			$	—					$	—					$	—					$	723.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)			—						—						—						446.1
Selling, general and administrative			—						—						—						94.5
Depreciation and amortization			—						—						—						43.9
Total operating expenses			—						—						—						584.5
Operating profit			—						—						—						139.1
Interest expense			—						—						—						2.7
Other income, net			—						—						—						—
Income from discontinued operations before income taxes			—						—						—						136.4
Income taxes			—						(0.9)						—						44.8
Income from discontinued operations			$	—					$	0.9					$	—					$	91.6

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 September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
PRSUs			$	1.3					$	2.6					$	3.6					$	7.5
RSUs			2.2						1.7						7.5						7.1
Total stock-based compensation expense			$	3.5					$	4.3					$	11.1					$	14.6

In the first nine 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 and generally vest in three equal annual installments. The weighted average grant date fair value of the PRSUs and the RSUs was $22.24 per share, which was determined using the closing price of the Company's common stock on the dates of grant.

The following table sets forth the computation of net income from continuing operations per share (in millions except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
Net income from continuing operations			$	47.1					$	34.4					$	17.6					$	77.1
Series A Preferred Stock dividends			(9.7)						—						(11.8)						—
Net income attributable to participating securities			(7.4)						—						—						—
Net income attributable to common stockholders			$	30.0					$	34.4					$	5.8					$	77.1
Weighted average common shares outstanding			129.3						131.2						129.2						132.5
Effect of dilutive stock options and restricted stock awards			0.7						1.2						0.8						1.3
Weighted average common shares outstanding and potential common shares			130.0						132.4						130.0						133.8
Net income from continuing operations per share
Basic			$	0.23					$	0.26					$	0.04					$	0.58
Diluted			$	0.23					$	0.26					$	0.04					$	0.58

For periods prior to June 30, 2020, basic net income from continuing operations per share was calculated by dividing net income from continuing operations by the weighted average number of outstanding common shares for the period. Diluted net income from continuing operations per share was calculated consistent with basic net income 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 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 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 of diluted net income from continuing operations per share for each of the three or nine months ended September 30, 2020 and 2019. In addition, approximately 0.4 million and 0.3 million PRSUs were excluded from the calculation of diluted net income from continuing operations per share for the three months ended September 30, 2020 and 2019, respectively, and approximately 0.4 million and 0.3 million PRSUs were excluded from the calculation of diluted net income from continuing operations per share for the nine months ended September 30, 2020 and 2019, respectively. Total options outstanding at September 30, 2020 and 2019 were 0.7 million and 0.8 million, respectively.

Beginning with the quarter ended June 30, 2020, the Company also includes participating securities (Series A Preferred Stock) in the computation of net income from continuing operations per share pursuant to the two-class method. The two-class method of calculating net income from continuing operations 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 from continuing operations in determining net income attributable to common stockholders. 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.

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. AFC Funding Corporation had committed liquidity of $1.60 billion for U.S. finance receivables at September 30, 2020.

We also have an agreement for the securitization of Automotive Finance Canada Inc.'s ("AFCI") receivables. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$175 million at September 30, 2020. In September 2020, AFCI entered into the Fifth Amended and Restated Receivables Purchase Agreement (the "Canadian Receivable Purchase Agreement"). The Canadian Receivables Purchase Agreement extended the facility's maturity date from January 28, 2022 to January 31, 2024. In addition, provisions designed to provide additional credit enhancement to the purchasers upon the occurrence of the certain events related to the payment rate and net spread on the receivables portfolio were added, certain portfolio performance metrics that could result in a requirement to increase the cash reserve or constitute a termination event were amended to the benefit of AFC Funding and provisions providing for a mechanism for determining an alternative rate of interest were added. We capitalized approximately $1.0 million of costs in connection with the Canadian Receivables Purchase Agreement. 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.

			September 30, 2020												Net Credit Losses Three Months Ended September 30, 2020						Net Credit Losses Nine Months Ended September 30, 2020
			Total Amount of:
(in millions)			Receivables						Receivables Delinquent
Floorplan receivables			$	1,728.9					$	22.6					$	—					$	33.9
Other loans			15.9						—						—						—
Total receivables managed			$	1,744.8					$	22.6					$	—					$	33.9

			December 31, 2019												Net Credit Losses Three Months Ended September 30, 2019						Net Credit Losses Nine Months Ended September 30, 2019
			Total Amount of:
(in millions)			Receivables						Receivables Delinquent
Floorplan receivables			$	2,099.4					$	28.8					$	8.6					$	24.7
Other loans			15.8						—						—						—
Total receivables managed			$	2,115.2					$	28.8					$	8.6					$	24.7

			September 30, 2020						September 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						25.5
Recoveries			8.0						5.7
Less charge-offs			(41.9)						(30.4)
Balance at September 30			$	22.0					$	14.8

As of September 30, 2020 and December 31, 2019, $1,688.0 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:

			September 30, 2020						December 31, 2019
Obligations collateralized by finance receivables, gross			$	1,124.2					$	1,474.4
Unamortized securitization issuance costs			(23.2)						(13.2)
Obligations collateralized by finance receivables			$	1,101.0					$	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 September 30, 2020, we were in compliance with the covenants in the securitization agreements.

			ADESA Auctions						AFC						Total
Balance at December 31, 2019			$	1,558.0					$	263.7					$	1,821.7
Impairment			(25.5)						—						(25.5)
Other			2.0						—						2.0
Balance at September 30, 2020			$	1,534.5					$	263.7					$	1,798.2

Long-term debt consisted of the following (in millions):

			Interest Rate*												Maturity						September 30, 2020						December 31, 2019
Term Loan B-6			Adjusted LIBOR						+ 2.25%						September 19, 2026						$	940.5					$	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						16.9						19.3
Total debt																					1,907.4						1,916.9
Unamortized debt issuance costs/discounts																					(26.2)						(26.8)
Current portion of long-term debt																					(26.4)						(28.8)
Long-term debt																					$	1,854.8					$	1,861.3

*The interest rates presented in the table above represent the rates in place at September 30, 2020.

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, (1) 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, (2) repayment of the 2017 Revolving Credit Facility and (3) 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 2.44% at September 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

There were no borrowings on the Revolving Credit Facility at September 30, 2020 and December 31, 2019. In addition, we had related outstanding letters of credit in the aggregate amount of $25.4 million and $27.4 million at September 30, 2020 and December 31, 2019, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility.

As of September 30, 2020, the estimated fair value of our long-term debt amounted to $1,869.8 million. The estimates of fair value were based on broker-dealer quotes for our debt as of September 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.

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 months ended September 30, 2020, the Company recorded an unrealized gain on the interest rate swaps of $1.0 million, net of tax of $0.3 million, and, for the nine months ended September 30, 2020, the Company recorded an unrealized loss on the interest rate swaps of $21.6 million, net of tax of $7.0 million. 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 nine months ended September 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):

Liability Derivatives

September 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

$

28.6

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 September 30,												Nine Months Ended September 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						$	—					N/A						$	(0.9)

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.

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.

Accumulated other comprehensive loss consisted of the following (in millions):

			September 30, 2020						December 31, 2019
Foreign currency translation loss			$	(38.3)					$	(31.0)
Unrealized loss on interest rate derivatives, net of tax			(21.6)						—
Accumulated other comprehensive loss			$	(59.9)					$	(31.0)

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 3).

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 September 30, 2020 (in millions):

			ADESA Auctions						AFC						Holding Company						Consolidated
Operating revenues			$	526.7					$	66.9					$	—					$	593.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)			309.4						20.3						—						329.7
Selling, general and administrative			97.7						5.9						27.4						131.0
Depreciation and amortization			38.2						2.5						5.8						46.5
Total operating expenses			445.3						28.7						33.2						507.2
Operating profit (loss)			81.4						38.2						(33.2)						86.4
Interest expense			0.8						7.5						21.2						29.5
Other (income) expense, net			(1.7)						—						0.6						(1.1)
Intercompany expense (income)			(13.9)						—						13.9						—
Income (loss) from continuing operations before income taxes			96.2						30.7						(68.9)						58.0
Income taxes			26.0						4.3						(19.4)						10.9
Net income (loss) from continuing operations			$	70.2					$	26.4					$	(49.5)					$	47.1
Total assets			$	3,559.7					$	2,166.6					$	1,183.6					$	6,909.9

Financial information regarding our reportable segments is set forth below as of and for the three months ended September 30, 2019 (in millions):

			ADESA Auctions						AFC						Holding Company						Consolidated
Operating revenues			$	613.6					$	88.3					$	—					$	701.9
Operating expenses
Cost of services (exclusive of depreciation and amortization)			386.2						24.7						—						410.9
Selling, general and administrative			121.7						5.9						31.3						158.9
Depreciation and amortization			37.2						2.6						6.6						46.4
Total operating expenses			545.1						33.2						37.9						616.2
Operating profit (loss)			68.5						55.1						(37.9)						85.7
Interest expense			1.1						15.7						21.1						37.9
Other (income) expense, net			(1.3)						(0.1)						(0.6)						(2.0)
Loss on extinguishment of debt			—						—						2.2						2.2
Intercompany expense (income)			6.0						(1.3)						(4.7)						—
Income (loss) from continuing operations before income taxes			62.7						40.8						(55.9)						47.6
Income taxes			16.3						10.1						(13.2)						13.2
Net income (loss) from continuing operations			$	46.4					$	30.7					$	(42.7)					$	34.4
Total assets			$	3,713.9					$	2,505.5					$	360.3					$	6,579.7

Financial information regarding our reportable segments is set forth below for the nine months ended September 30, 2020 (in millions):

			ADESA Auctions						AFC						Holding Company						Consolidated
Operating revenues			$	1,455.9					$	202.2					$	—					$	1,658.1
Operating expenses
Cost of services (exclusive of depreciation and amortization)			897.3						62.1						—						959.4
Selling, general and administrative			300.0						18.0						87.7						405.7
Depreciation and amortization			115.5						7.8						17.4						140.7
Goodwill and other intangibles impairment			29.8						—						—						29.8
Total operating expenses			1,342.6						87.9						105.1						1,535.6
Operating profit (loss)			113.3						114.3						(105.1)						122.5
Interest expense			2.3						30.3						65.8						98.4
Other (income) expense, net			(3.0)						(0.1)						1.3						(1.8)
Intercompany expense (income)			(13.2)						(0.9)						14.1						—
Income (loss) from continuing operations before income taxes			127.2						85.0						(186.3)						25.9
Income taxes			37.3						18.0						(47.0)						8.3
Net income (loss) from continuing operations			$	89.9					$	67.0					$	(139.3)					$	17.6

Financial information regarding our reportable segments is set forth below for the nine months ended September 30, 2019 (in millions):

			ADESA Auctions						AFC						Holding Company						Consolidated
Operating revenues			$	1,845.7					$	264.9					$	—					$	2,110.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)			1,149.8						72.4						—						1,222.2
Selling, general and administrative			370.2						19.5						107.6						497.3
Depreciation and amortization			110.2						7.6						20.8						138.6
Total operating expenses			1,630.2						99.5						128.4						1,858.1
Operating profit (loss)			215.5						165.4						(128.4)						252.5
Interest expense			2.8						49.0						98.2						150.0
Other (income) expense, net			(4.5)						(0.3)						(0.4)						(5.2)
Loss on extinguishment of debt			—						—						2.2						2.2
Intercompany expense (income)			23.9						(4.1)						(19.8)						—
Income (loss) from continuing operations before income taxes			193.3						120.8						(208.6)						105.5
Income taxes			54.0						32.2						(57.8)						28.4
Net income (loss) from continuing operations			$	139.3					$	88.6					$	(150.8)					$	77.1