Company Quick10K Filing
KAR Auction Services
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 134 $8,247
10-Q 2019-11-06 Quarter: 2019-09-30
10-Q 2019-08-07 Quarter: 2019-06-30
10-Q 2019-05-08 Quarter: 2019-03-31
10-K 2019-02-21 Annual: 2018-12-31
10-Q 2018-11-07 Quarter: 2018-09-30
10-Q 2018-08-08 Quarter: 2018-06-30
10-Q 2018-05-09 Quarter: 2018-03-31
10-K 2018-02-21 Annual: 2017-12-31
10-Q 2017-11-01 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-02-24 Annual: 2016-12-31
10-Q 2016-11-04 Quarter: 2016-09-30
10-Q 2016-08-03 Quarter: 2016-06-30
10-Q 2016-05-04 Quarter: 2016-03-31
10-K 2016-02-18 Annual: 2015-12-31
10-Q 2015-11-05 Quarter: 2015-09-30
10-Q 2015-08-04 Quarter: 2015-06-30
10-Q 2015-05-06 Quarter: 2015-03-31
10-K 2015-02-18 Annual: 2014-12-31
10-Q 2014-11-05 Quarter: 2014-09-30
10-Q 2014-08-06 Quarter: 2014-06-30
10-Q 2014-05-06 Quarter: 2014-03-31
10-K 2014-02-19 Annual: 2013-12-31
10-Q 2013-11-05 Quarter: 2013-09-30
10-Q 2013-08-06 Quarter: 2013-06-30
10-Q 2013-05-02 Quarter: 2013-03-31
10-K 2013-02-22 Annual: 2012-12-31
10-Q 2012-11-07 Quarter: 2012-09-30
10-Q 2012-08-07 Quarter: 2012-06-30
10-Q 2012-05-08 Quarter: 2012-03-31
10-K 2012-02-28 Annual: 2011-12-31
10-Q 2011-11-03 Quarter: 2011-09-30
10-Q 2011-08-09 Quarter: 2011-06-30
10-Q 2011-05-04 Quarter: 2011-03-31
10-K 2011-02-24 Annual: 2010-12-31
10-Q 2010-11-04 Quarter: 2010-09-30
10-Q 2010-08-04 Quarter: 2010-06-30
10-Q 2010-05-07 Quarter: 2010-03-31
10-K 2010-02-25 Annual: 2009-12-31
8-K 2019-11-05 Earnings, Exhibits
8-K 2019-10-16
8-K 2019-09-19 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-09-08 Officers
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-07-03 Officers
8-K 2019-06-28 Enter Agreement, M&A, Officers, Other Events, Exhibits
8-K 2019-06-14 Other Events, Exhibits
8-K 2019-06-06 Shareholder Vote
8-K 2019-06-05 Other Events, Exhibits
8-K 2019-06-05 Regulation FD, Exhibits
8-K 2019-05-22 Other Events, Exhibits
8-K 2019-05-20 Other Events, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-01 Other Events, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-01-08 Officers, Regulation FD, Exhibits
8-K 2018-12-18 Enter Agreement, Off-BS Arrangement
8-K 2018-11-28 Regulation FD, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-06-04 Shareholder Vote
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-02-27 Regulation FD, Exhibits
8-K 2018-02-20 Earnings, Exhibits
8-K 2018-01-25 Officers, Exhibits
KAR 2019-09-30
Part I
Item 1. Financial Statements
Note 1-Basis of Presentation and Nature of Operations
Note 2-Acquisitions
Note 4-Stock and Stock-Based Compensation Plans
Note 5-Net Income From Continuing Operations per Share
Note 6-Finance Receivables and Obligations Collateralized By Finance Receivables
Note 7-Long-Term Debt
Note 8-Derivatives
Note 9-Leases
Note 10-Commitments and Contingencies
Note 11-Accumulated Other Comprehensive Loss
Note 12-Segment Information
Note 13-Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits, Financial Statement Schedules
EX-10.8C exhibit108c-consulting.htm
EX-10.28B exhibit1028b-kardirect.htm
EX-31.1 exhibit311-93019certif.htm
EX-31.2 exhibit312-93019certif.htm
EX-32.1 exhibit321-93019certif.htm
EX-32.2 exhibit322-93019certif.htm

KAR Auction Services Earnings 2019-09-30

KAR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
KMX 13,914 19,714 16,262 18,747 2,562 871 1,408 27,765 14% 19.7 4%
KAR 8,247 6,378 4,625 3,628 1,522 278 828 9,502 42% 11.5 4%
CASY 6,341 3,837 2,348 9,391 1,999 219 593 7,567 21% 12.8 6%
PAG 3,920 13,361 10,700 22,418 3,380 447 553 6,103 15% 11.0 3%
AN 3,800 10,700 7,817 21,086 3,443 398 567 5,729 16% 10.1 4%
GT 3,276 18,470 13,421 15,034 3,264 476 1,877 8,305 22% 4.4 3%
MNRO 2,837 1,578 860 1,221 476 82 103 2,989 39% 29.0 5%
LAD 2,734 5,775 4,500 12,137 1,852 271 442 4,014 15% 9.1 5%
MUSA 2,719 2,571 1,755 14,206 0 160 388 3,374 0% 8.7 6%
ABG 1,620 2,814 2,258 7,016 1,134 180 352 2,538 16% 7.2 6%

Document
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Table of Contents

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

FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-34568
kargreenlogonewoct2018a02.jpg
KAR Auction Services, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
20-8744739
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11299 N. Illinois Street, Carmel, Indiana 46032
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (800923-3725

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
KAR
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No 
As of October 31, 2019, 128,773,470 shares of the registrant's common stock, par value $0.01 per share, were outstanding.
 


Table of Contents

KAR Auction Services, Inc.
Table of Contents

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

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)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating revenues
 
 
 
 
 
 
 
ADESA Auction Services
$
613.6

 
$
527.0

 
$
1,845.7

 
$
1,593.4

AFC
88.3

 
85.4

 
264.9

 
255.6

Total operating revenues
701.9

 
612.4

 
2,110.6

 
1,849.0

Operating expenses
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
410.9

 
330.7

 
1,222.2

 
989.2

Selling, general and administrative
158.9

 
154.7

 
497.3

 
460.1

Depreciation and amortization
46.4

 
41.4

 
138.6

 
129.8

Total operating expenses
616.2

 
526.8

 
1,858.1

 
1,579.1

Operating profit
85.7

 
85.6

 
252.5

 
269.9

Interest expense
37.9

 
49.0

 
150.0

 
138.7

Other income, net
(2.0
)
 
(3.0
)
 
(5.2
)
 
(3.8
)
Loss on extinguishment of debt
2.2

 

 
2.2

 

Income from continuing operations before income taxes
47.6

 
39.6

 
105.5

 
135.0

Income taxes
13.2

 
8.7

 
28.4

 
32.5

Income from continuing operations
34.4

 
30.9

 
77.1

 
102.5

Income from discontinued operations, net of income taxes
0.9

 
46.6

 
91.6

 
158.2

Net income
$
35.3

 
$
77.5

 
$
168.7

 
$
260.7

Net income per share - basic
 
 
 
 
 
 
 
Income from continuing operations
$
0.26

 
$
0.23

 
$
0.58

 
$
0.76

Income from discontinued operations
0.01

 
0.35

 
0.69

 
1.18

Net income
$
0.27

 
$
0.58

 
$
1.27

 
$
1.94

Net income per share - diluted
 
 
 
 
 
 
 
Income from continuing operations
$
0.26

 
$
0.23

 
$
0.58

 
$
0.76

Income from discontinued operations
0.01

 
0.34

 
0.68

 
1.16

Net income
$
0.27

 
$
0.57

 
$
1.26

 
$
1.92

Dividends declared per common share
$
0.19

 
$
0.35

 
$
0.89

 
$
1.05







See accompanying condensed notes to consolidated financial statements

3

Table of Contents

KAR Auction Services, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
35.3

 
$
77.5

 
$
168.7

 
$
260.7

Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
(10.8
)
 
6.3

 
5.7

 
(12.0
)
Comprehensive income
$
24.5

 
$
83.8

 
$
174.4

 
$
248.7

   




























See accompanying condensed notes to consolidated financial statements

4

Table of Contents

KAR Auction Services, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)
 
September 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
508.6

 
$
277.1

Restricted cash
23.3

 
27.6

Trade receivables, net of allowances of $9.9 and $8.7
510.2

 
454.6

Finance receivables, net of allowances of $14.8 and $14.0
2,095.6

 
2,000.8

Other current assets
120.0

 
100.6

Current assets, discontinued operations

 
453.5

Total current assets
3,257.7

 
3,314.2

Other assets
 
 
 
Goodwill
1,810.3

 
1,676.9

Customer relationships, net of accumulated amortization of $624.1 and $587.0
218.3

 
227.4

Other intangible assets, net of accumulated amortization of $270.9 and $255.3
295.6

 
272.4

Operating lease right-of-use assets
366.4

 

Other assets
28.3

 
31.0

Non-current assets, discontinued operations

 
1,053.3

Total other assets
2,718.9

 
3,261.0

Property and equipment, net of accumulated depreciation of $517.1 and $467.5
603.1

 
631.0

Total assets
$
6,579.7

 
$
7,206.2

   















See accompanying condensed notes to consolidated financial statements

5

Table of Contents

KAR Auction Services, Inc.
Consolidated Balance Sheets
(In millions, except share and per share data)
(Unaudited)
 
September 30,
2019
 
December 31,
2018
Liabilities and Stockholders' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
718.5

 
$
691.3

Accrued employee benefits and compensation expenses
83.2

 
72.8

Accrued interest
21.8

 
7.9

Other accrued expenses
211.6

 
132.8

Income taxes payable
1.2

 
0.7

Dividends payable
24.5

 
46.5

Obligations collateralized by finance receivables
1,428.4

 
1,445.3

Current maturities of long-term debt
27.0

 
13.1

Current liabilities, discontinued operations

 
214.4

Total current liabilities
2,516.2

 
2,624.8

Non-current liabilities
 
 
 
Long-term debt
1,863.0

 
2,654.3

Deferred income tax liabilities
130.4

 
125.3

Operating lease liabilities
361.1

 

Other liabilities
73.2

 
71.6

Non-current liabilities, discontinued operations

 
266.0

Total non-current liabilities
2,427.7

 
3,117.2

Commitments and contingencies (Note 10)

 

Stockholders' equity
 
 
 
Preferred stock, $0.01 par value:
 
 
 
Authorized shares: 100,000,000
 

 
 

Issued shares: none

 

Common stock, $0.01 par value:
 
 
 
Authorized shares: 400,000,000
 

 
 

Issued and outstanding shares:
 

 
 

September 30, 2019: 128,762,506
 

 
 

December 31, 2018: 132,887,029
1.3

 
1.3

Additional paid-in capital
1,024.0

 
1,131.9

Retained earnings
655.7

 
392.3

Accumulated other comprehensive loss
(45.2
)
 
(61.3
)
Total stockholders' equity
1,635.8

 
1,464.2

Total liabilities and stockholders' equity
$
6,579.7

 
$
7,206.2








See accompanying condensed notes to consolidated financial statements

6

Table of Contents

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 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 income
 
 
 
 
 
 
 
 
(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
)
Repurchase and retirement of common stock
(4.8
)
 
 
 
(119.7
)
 
 
 
 
 
(119.7
)
Stock-based compensation expense
 
 
 
 
4.3

 
 
 
 
 
4.3

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
)
Repurchase and retirement of common stock
(4.8
)
 
 
 
(119.7
)
 
 
 
 
 
(119.7
)
Stock-based compensation expense
 
 
 
 
16.4

 
 
 
 
 
16.4

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

7

Table of Contents

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 June 30, 2018
134.2

 
$
1.3

 
$
1,213.6

 
$
341.1

 
$
(43.5
)
 
$
1,512.5

Net income
 
 
 
 
 
 
77.5

 
 
 
77.5

Other comprehensive income
 
 
 
 
 
 
 
 
6.3

 
6.3

Issuance of common stock under stock plans
0.4

 
 
 
5.8

 
 
 
 
 
5.8

Surrender of RSUs for taxes

 
 
 
(0.1
)
 
 
 
 
 
(0.1
)
Stock-based compensation expense
 
 
 
 
6.6

 
 
 
 
 
6.6

Cash dividends declared to stockholders ($0.35 per share)
 
 
 
 
 
 
(47.1
)
 
 
 
(47.1
)
Balance at September 30, 2018
134.6

 
$
1.3

 
$
1,225.9

 
$
371.5

 
$
(37.2
)
 
$
1,561.5


 
Common
Stock
Shares
 
Common
Stock
Amount
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at December 31, 2017
134.3

 
$
1.3

 
$
1,251.8

 
$
257.0

 
$
(25.2
)
 
$
1,484.9

Cumulative effect adjustment for adoption of
ASC Topic 606, net of tax
 
 
 
 
 
 
(3.0
)
 
 
 
(3.0
)
Net income
 
 
 
 
 
 
260.7

 
 
 
260.7

Other comprehensive loss
 
 
 
 
 
 
 
 
(12.0
)
 
(12.0
)
Issuance of common stock under stock plans
1.4

 
 
 
14.2

 
 
 
 
 
14.2

Surrender of RSUs for taxes
(0.2
)
 
 
 
(10.1
)
 
 
 
 
 
(10.1
)
Repurchase and retirement of common stock
(0.9
)
 
 
 
(50.0
)
 
 
 
 
 
(50.0
)
Stock-based compensation expense
 
 
 
 
18.1

 
 
 
 
 
18.1

Dividends earned under stock plans
 
 
 
 
1.9

 
(1.9
)
 
 
 

Cash dividends declared to stockholders ($1.05 per share)
 
 
 
 
 
 
(141.3
)
 
 
 
(141.3
)
Balance at September 30, 2018
134.6

 
$
1.3

 
$
1,225.9

 
$
371.5

 
$
(37.2
)
 
$
1,561.5





















See accompanying condensed notes to consolidated financial statements

8

Table of Contents

KAR Auction Services, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
168.7

 
$
260.7

Net income from discontinued operations
(91.6
)
 
(158.2
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
138.6

 
129.8

Provision for credit losses
28.9

 
25.6

Deferred income taxes
2.5

 
(0.1
)
Amortization of debt issuance costs
9.6

 
8.0

Stock-based compensation
14.6

 
15.3

Loss (gain) on disposal of fixed assets
0.1

 
(0.1
)
Loss on extinguishment of debt
2.2

 

Other non-cash, net
7.8

 
(2.6
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Trade receivables and other assets
(41.3
)
 
(158.3
)
Accounts payable and accrued expenses
51.0

 
206.8

Net cash provided by operating activities - continuing operations
291.1

 
326.9

Net cash provided by operating activities - discontinued operations
156.7

 
238.2

Investing activities
 
 
 
Net increase in finance receivables held for investment
(119.0
)
 
(90.2
)
Acquisition of businesses (net of cash acquired)
(120.7
)
 
(23.3
)
Purchases of property, equipment and computer software
(127.6
)
 
(82.7
)
Net cash used by investing activities - continuing operations
(367.3
)
 
(196.2
)
Net cash used by investing activities - discontinued operations
(37.4
)
 
(37.9
)
Financing activities
 
 
 
Net increase in book overdrafts
9.2

 
8.5

Net increase in borrowings from lines of credit
17.5

 

Net (decrease) increase in obligations collateralized by finance receivables
(25.0
)
 
6.0

Proceeds from long-term debt
947.6

 

Payments for debt issuance costs/amendments
(13.7
)
 

Payments on long-term debt
(1,746.6
)
 
(8.0
)
Payments on capital leases
(12.2
)
 
(11.0
)
Payments of contingent consideration and deferred acquisition costs
(0.5
)
 
(7.4
)
Issuance of common stock under stock plans
4.1

 
14.2

Tax withholding payments for vested RSUs
(10.5
)
 
(10.1
)
Repurchase and retirement of common stock
(119.7
)
 
(50.0
)
Dividends paid to stockholders
(139.8
)
 
(141.2
)
  Cash transferred to IAA
(50.9
)
 

Net cash used by financing activities - continuing operations
(1,140.5
)
 
(199.0
)
Net cash provided by (used by) financing activities - discontinued operations
1,317.6

 
(6.7
)
Effect of exchange rate changes on cash
7.0

 
(4.9
)
Net increase in cash, cash equivalents and restricted cash
227.2

 
120.4

Cash, cash equivalents and restricted cash at beginning of period
304.7

 
303.5

Cash, cash equivalents and restricted cash at end of period
$
531.9

 
$
423.9

Cash paid for interest, net of proceeds from interest rate caps
$
120.0

 
$
120.7

Cash paid for taxes, net of refunds - continuing operations
$
27.8

 
$
47.5

Cash paid for taxes, net of refunds - discontinued operations
$
40.1

 
$
49.4

See accompanying condensed notes to consolidated financial statements

9

Table of Contents

KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements
September 30, 2019 (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" 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 and September 19, 2019, 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, 2019);
"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 September 30, 2019, 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 and salvage 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.

10

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (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 122 locations throughout the United States and Canada as of September 30, 2019. 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, 2018, as filed with the Securities and Exchange Commission on February 21, 2019. The 2018 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
Certain amounts reported in the consolidated financial statements prior to June 2019 have been reclassified to discontinued operations to reflect the spin-off of the Company's former salvage auction business. In addition, certain amounts reported for segment results in the consolidated financial statements prior to June 2019 have been reclassified to conform to a discontinued operations presentation. See Note 3 for a discussion of discontinued operations.
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.
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842), which replaces the existing lease guidance in Topic 840. The ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use ("ROU") assets and corresponding lease liabilities on the balance sheet, with an exception for leases that meet the definition of a short-term lease. The new guidance continues to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income.

11

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (Unaudited)

We adopted Topic 842 in the first quarter of 2019 and as permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, we applied the new standard at the adoption date and recognized the cumulative-effect of initially applying the new standard as an increase of $1.1 million to the opening balance of retained earnings. The cumulative-effect adjustment related to the derecognition of existing fixed assets for which we were determined to be the accounting owner under Topic 840 and related liabilities associated with certain sale leaseback transactions in build-to-suit arrangements that did not qualify for sale accounting under Topic 840. Depreciation related to these fixed assets was recorded consistently with owned property and equipment in depreciation expense. In accordance with Topic 842, the lease agreements associated with the derecognized fixed assets and related liabilities generated ROU assets and lease liabilities that will be amortized to lease expense over the lease term. In addition, we recognized additional operating liabilities for continuing operations of approximately $342 million with related ROU assets of approximately $314 million based on the present value of the remaining minimum rental payments for existing operating leases.
We determine if an arrangement is a lease at inception. Operating leases are included in "Operating lease right-of-use assets," "Other accrued expenses" and "Operating lease liabilities" in our consolidated balance sheets. Finance leases are included in "Property and equipment, net," "Other accrued expenses" and "Other liabilities" in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. We use the implicit rate when readily determinable. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, we account for the lease and non-lease components as a single lease component.
New Accounting Standards
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 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2018-15 will have 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 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 will have a material impact on the consolidated financial statements.

In June 2016, the 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. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted beginning in annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company expects the change in methodology for measuring credit losses will result in an immaterial increase in the allowance for credit losses. The cumulative effect of this change, once determined, would be recognized, net of tax, as an adjustment to retained earnings on January 1, 2020.


12

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (Unaudited)

Note 2—Acquisitions
In January 2019, the Company completed the acquisition of Dent-ology. Dent-ology enhances our mobile reconditioning capabilities and bolsters our offerings to include wheel repair and expanded hail catastrophe response services.
In January 2019, the Company also completed the acquisition of CarsOnTheWeb. COTW is an online auction company serving the wholesale vehicle sector in Continental Europe that seamlessly connects OEMs, fleet owners, wholesalers and dealers. The acquisition advances KAR’s international strategy and extends its strong North American and U.K.-based portfolio of physical, online and digital auction marketplaces.
Certain of the purchase agreements included additional payments over a specified period contingent on certain terms, conditions and performance. The purchased assets included accounts receivable, inventory, property and equipment, customer relationships, tradenames and software. Financial results for each acquisition have been included in our consolidated financial statements from the date of acquisition.
 
The aggregate purchase price for the businesses acquired in the first nine months of 2019, net of cash acquired, was approximately $169.2 million, which included net cash payments of $120.7 million, deferred payments with a fair value of $19.2 million and estimated contingent payments with a fair value of $29.3 million. The maximum amount of undiscounted deferred payments and undiscounted contingent payments related to these acquisitions could approximate $77.0 million. The purchase price for the acquired businesses was allocated to acquired assets and liabilities based upon fair values, including $32.7 million to intangible assets, representing the fair value of acquired customer relationships of $26.4 million, software of $4.3 million and tradenames of $2.0 million, which are being amortized over their expected useful lives. The purchase accounting associated with these acquisitions is preliminary, subject to final valuation results. The acquisitions resulted in aggregate goodwill of $138.4 million. The goodwill is recorded in the ADESA Auctions reportable segment. The financial impact of these acquisitions, including pro forma financial results, was immaterial to the Company’s consolidated results for the nine months ended September 30, 2019.
Note 3—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 shareholders with equity ownership in both KAR and IAA. On June 28, 2019, the Company’s shareholders 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 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 for all periods 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 $31.3 million for the nine months ended September 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.


13

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (Unaudited)

The following table presents the results of operations for IAA that have been reclassified to discontinued operations for all periods presented:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating revenues
$

 
$
321.1

 
$
723.6

 
$
991.6

Operating expenses
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)

 
202.4

 
446.1

 
610.2

Selling, general and administrative

 
31.3

 
94.5

 
96.1

Depreciation and amortization

 
24.3

 
43.9

 
73.1

Total operating expenses

 
258.0

 
584.5

 
779.4

Operating profit

 
63.1

 
139.1

 
212.2

Interest expense

 
0.1

 
2.7

 
0.5

Other income, net

 

 

 
(0.7
)
Income from discontinued operations before income taxes

 
63.0

 
136.4

 
212.4

Income taxes
(0.9
)
 
16.4

 
44.8

 
54.2

Income from discontinued operations
$
0.9

 
$
46.6

 
$
91.6

 
$
158.2



The following table summarizes the major classes of assets and liabilities immediately preceding the spin-off on June 28, 2019 and at December 31, 2018:
 
June 28,
2019
 
December 31, 2018
Assets
 
 
 
Cash and cash equivalents
$
50.9

 
$
60.0

Trade receivables, net
284.7

 
311.0

Other current assets
83.6

 
82.5

Goodwill
536.8

 
536.8

Customer relationships, net
62.2

 
74.8

Other intangible assets, net
87.5

 
86.2

Operating lease right-of-use assets
655.2

 

Other assets
13.3

 
10.3

Property and equipment, net
241.4

 
345.2

Total assets, discontinued operations
$
2,015.6

 
$
1,506.8

Liabilities
 
 
 
Accounts payable
$
115.8

 
$
129.0

Accrued employee benefits and compensation expenses
19.0

 
29.6

Other accrued expenses
120.9

 
53.6

Income taxes payable

 
2.2

Long-term debt
1,274.8

 

Deferred income tax liabilities
63.7

 
63.1

Operating lease liabilities
633.0

 

Other liabilities
12.0

 
202.9

Total liabilities, discontinued operations
$
2,239.2

 
$
480.4



14

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (Unaudited)

Note 4—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"), service-based restricted stock units ("RSUs") and service options. We have determined that the KAR Auction Services, Inc. PRSUs, RSUs and service options 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,
 
2019
 
2018
 
2019
 
2018
PRSUs
$
2.6

 
$
3.3

 
$
7.5

 
$
8.4

RSUs
1.7

 
2.4

 
7.1

 
6.8

Service options

 

 

 
0.1

Total stock-based compensation expense
$
4.3

 
$
5.7

 
$
14.6

 
$
15.3



In the first nine months of 2019, we granted a target amount of approximately 0.3 million PRSUs to certain executive officers and management of the Company. In addition, approximately 0.3 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 $47.09 per share and $47.37 per share, respectively, which was determined using the closing price of the Company's common stock on the dates of grant.
In connection with the spin-off of IAA, the Company modified its stock-based compensation awards under the "equitable adjustments" clause in the Omnibus Plan, which provides anti-dilution protection. Generally, the award adjustments were intended to maintain the economic value of the awards before and after the separation date. The post-spin KAR awards and post-spin IAA awards are generally subject to the same terms and conditions, and will continue to vest on the same schedule as the pre-spin KAR awards, except as noted in the equity-conversion related provisions of the employee matters agreement. There was no incremental compensation expense recorded as a result of these modifications.
Share Repurchase Program
In October 2016, the board of directors authorized a repurchase of up to $500 million of the Company’s outstanding common stock, par value $0.01 per share, through October 26, 2019. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions. During the three months ended September 30, 2019, we used the remaining $119.7 million under the 2016 authorization to repurchase and retire 4,753,300 shares of common stock in the open market at a weighted average price of $25.18 per share. In 2018, we repurchased and retired 2,695,978 shares of common stock in the open market at a weighted average price of $55.64 per share.

15

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (Unaudited)

Note 5—Net Income from Continuing Operations Per Share
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,
 
2019
 
2018
 
2019
 
2018
Net income from continuing operations
$
34.4

 
$
30.9

 
$
77.1

 
$
102.5

Weighted average common shares outstanding
131.2

 
134.5

 
132.5

 
134.5

Effect of dilutive stock options and restricted stock awards
1.2

 
1.1

 
1.3

 
1.2

Weighted average common shares outstanding and potential common shares
132.4

 
135.6

 
133.8

 
135.7

Net income from continuing operations per share
 
 
 
 
 
 
 
Basic
$
0.26

 
$
0.23

 
$
0.58

 
$
0.76

Diluted
$
0.26

 
$
0.23

 
$
0.58

 
$
0.76


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, 2019 and 2018. In addition, approximately 0.3 million and 0.6 million PRSUs were excluded from the calculation of diluted net income from continuing operations per share for the three months ended September 30, 2019 and 2018, respectively, and approximately 0.3 million and 0.6 million PRSUs were excluded from the calculation of diluted net income from continuing operations per share for the nine months ended September 30, 2019 and 2018, respectively. Total options outstanding at September 30, 2019 and 2018 were 0.8 million and 1.1 million, respectively.
Note 6—Finance Receivables and Obligations Collateralized by Finance Receivables
AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to a wholly-owned, bankruptcy remote, consolidated, special purpose subsidiary ("AFC Funding Corporation"), established for the purpose of purchasing AFC's finance receivables. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. The agreement expires on January 28, 2022. AFC Funding Corporation had committed liquidity of $1.70 billion for U.S. finance receivables at September 30, 2019.
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 September 30, 2019. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

16

Table of Contents
KAR Auction Services, Inc.
Condensed Notes to Consolidated Financial Statements (Continued)
September 30, 2019 (Unaudited)

The following tables present quantitative information about delinquencies, credit losses 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, 2019
 
Net Credit Losses
Three Months Ended
September 30, 2019
 
Net Credit Losses