OPENLANE(KAR) - 2019 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for KAR Auction Services, Inc., covering financial performance, liquidity, and market risks Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of KAR Auction Services, Inc. for the periods ended September 30, 2019, and December 31, 2018, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with accompanying condensed notes detailing accounting policies, acquisitions, the IAA spin-off, stock-based compensation, finance receivables, debt, leases, and segment information Consolidated Statements of Income This section presents the unaudited consolidated statements of income for the three and nine months ended September 30, 2019 and 2018, detailing revenues, profits, and net income Consolidated Statements of Income (Three Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :--------------------------------------- | :-------------- | :-------------- | | Total operating revenues | $701.9 | $612.4 | | Operating profit | $85.7 | $85.6 | | Income from continuing operations | $34.4 | $30.9 | | Income from discontinued operations, net | $0.9 | $46.6 | | Net income | $35.3 | $77.5 | | Net income per share - diluted (Continuing) | $0.26 | $0.23 | | Net income per share - diluted (Total) | $0.27 | $0.57 | | Dividends declared per common share | $0.19 | $0.35 | Consolidated Statements of Income (Nine Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :--------------------------------------- | :-------------- | :-------------- | | Total operating revenues | $2,110.6 | $1,849.0 | | Operating profit | $252.5 | $269.9 | | Income from continuing operations | $77.1 | $102.5 | | Income from discontinued operations, net | $91.6 | $158.2 | | Net income | $168.7 | $260.7 | | Net income per share - diluted (Continuing) | $0.58 | $0.76 | | Net income per share - diluted (Total) | $1.26 | $1.92 | | Dividends declared per common share | $0.89 | $1.05 | Consolidated Statements of Comprehensive Income This section presents the unaudited consolidated statements of comprehensive income for the three and nine months ended September 30, 2019 and 2018, including net income and foreign currency translation adjustments Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :-------------------------- | :-------------- | :-------------- | | Net income | $35.3 | $77.5 | | Foreign currency translation gain (loss) | $(10.8) | $6.3 | | Comprehensive income | $24.5 | $83.8 | Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :-------------------------- | :-------------- | :-------------- | | Net income | $168.7 | $260.7 | | Foreign currency translation gain (loss) | $5.7 | $(12.0) | | Comprehensive income | $174.4 | $248.7 | Consolidated Balance Sheets This section presents the unaudited consolidated balance sheets as of September 30, 2019, and December 31, 2018, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (As of September 30, 2019 and December 31, 2018) | Asset/Liability/Equity | Sep 30, 2019 (Millions) | Dec 31, 2018 (Millions) | | :--------------------------------------- | :---------------------- | :---------------------- | | Assets | | | | Cash and cash equivalents | $508.6 | $277.1 | | Total current assets | $3,257.7 | $3,314.2 | | Goodwill | $1,810.3 | $1,676.9 | | Total assets | $6,579.7 | $7,206.2 | | Liabilities | | | | Total current liabilities | $2,516.2 | $2,624.8 | | Long-term debt | $1,863.0 | $2,654.3 | | Total non-current liabilities | $2,427.7 | $3,117.2 | | Stockholders' Equity | | | | Total stockholders' equity | $1,635.8 | $1,464.2 | | Total liabilities and stockholders' equity | $6,579.7 | $7,206.2 | Consolidated Statements of Stockholders' Equity This section presents the unaudited consolidated statements of stockholders' equity for the three and nine months ended September 30, 2019, detailing changes in common stock, retained earnings, and comprehensive loss Consolidated Statements of Stockholders' Equity (Three Months Ended September 30, 2019) | Metric | Common Stock Shares | Common Stock Amount (Millions) | Additional Paid-In Capital (Millions) | Retained Earnings (Millions) | Accumulated Other Comprehensive Loss (Millions) | Total (Millions) | | :--------------------------------------- | :------------------ | :----------------------------- | :------------------------------------ | :--------------------------- | :-------------------------------------- | :--------------- | | 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 | | | | $(24.5) | | $(24.5) | | Balance at September 30, 2019 | 128.8 | $1.3 | $1,024.0 | $655.7 | $(45.2) | $1,635.8 | Consolidated Statements of Stockholders' Equity (Nine Months Ended September 30, 2019) | Metric | Common Stock Shares | Common Stock Amount (Millions) | Additional Paid-In Capital (Millions) | Retained Earnings (Millions) | Accumulated Other Comprehensive Loss (Millions) | Total (Millions) | | :--------------------------------------- | :------------------ | :----------------------------- | :------------------------------------ | :--------------------------- | :-------------------------------------- | :--------------- | | 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 | | | | $(117.8) | | $(117.8) | | Balance at September 30, 2019 | 128.8 | $1.3 | $1,024.0 | $655.7 | $(45.2) | $1,635.8 | Consolidated Statements of Cash Flows This section presents the unaudited consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018, detailing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Activity | 2019 (Millions) | 2018 (Millions) | | :--------------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities - continuing operations | $291.1 | $326.9 | | Net cash provided by operating activities - discontinued operations | $156.7 | $238.2 | | Net cash used by investing activities - continuing operations | $(367.3) | $(196.2) | | Net cash used by investing activities - discontinued operations | $(37.4) | $(37.9) | | 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) | | Net increase in cash, cash equivalents and restricted cash | $227.2 | $120.4 | | Cash, cash equivalents and restricted cash at end of period | $531.9 | $423.9 | Condensed Notes to Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, covering accounting policies, acquisitions, the IAA spin-off, stock-based compensation, finance receivables, debt, leases, and segment information Note 1—Basis of Presentation and Nature of Operations This note describes the company's business segments, ADESA and AFC, and details the adoption of new accounting standards for leases, cloud computing costs, goodwill impairment, and credit losses - ADESA provides wholesale vehicle auctions and remarketing services, operating 74 North American sites and online platforms including TradeRev and ADESA Europe (formerly CarsOnTheWeb) and acts as an agent, earning fees from sellers and buyers, and offers ancillary services like transportation and reconditioning[32][34][36] - AFC offers floorplan financing to independent used vehicle dealers through 122 locations in the U.S. and Canada, supporting vehicle purchases at various auctions and non-auction sources, and also provides related services like vehicle service contracts[37] - The company adopted Topic 842 (Leases) in Q1 2019, recognizing a $1.1 million increase to retained earnings and adding approximately $342 million in operating lease liabilities with related ROU assets of $314 million[41][43] - New accounting standards ASU 2018-15 (Cloud Computing Costs) and ASU 2017-04 (Goodwill Impairment) are effective after December 15, 2019, with ASU 2017-04 not expected to have a material impact, and ASU 2016-13 (Credit Losses) is also effective after December 15, 2019, and is expected to result in an immaterial increase in the allowance for credit losses[47][48][49] Note 2—Acquisitions This note details the acquisitions of Dent-ology and CarsOnTheWeb in January 2019, outlining their strategic rationale and financial impact on the company's consolidated results - In January 2019, KAR Auction Services acquired Dent-ology to enhance mobile reconditioning and expand wheel repair and hail catastrophe response services[51] - Also in January 2019, the company acquired CarsOnTheWeb (COTW), an online auction company in Continental Europe, to advance its international strategy and expand its digital auction marketplaces[52] Acquisition Financial Summary (Nine Months Ended September 30, 2019) | Metric | Amount (Millions) | | :--------------------------------------- | :---------------- | | Aggregate purchase price (net of cash) | $169.2 | | Net cash payments | $120.7 | | Deferred payments (fair value) | $19.2 | | Estimated contingent payments (fair value) | $29.3 | | Allocated to intangible assets | $32.7 | | Goodwill recognized | $138.4 | - The financial impact of these acquisitions was immaterial to the Company's consolidated results for the nine months ended September 30, 2019[54] Note 3—IAA Separation and Discontinued Operations This note describes the spin-off of IAA as a separate public company, the cash distribution received, and the reclassification of IAA's financial results as discontinued operations - On June 28, 2019, KAR Auction Services completed the spin-off of its salvage auction business, IAA, creating an independent publicly traded company, with KAR shareholders receiving one share of IAA common stock for every KAR share held[55] - In connection with the spin-off, 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[55] - The financial results of IAA have been reclassified as discontinued operations for all periods presented, including $31.3 million in one-time transaction costs for the nine months ended September 30, 2019, related to consulting and professional fees for the spin-off[56] IAA Results of Operations (Discontinued Operations) | Metric (Millions) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating revenues | $0.0 | $321.1 | $723.6 | $991.6 | | Operating profit | $0.0 | $63.1 | $139.1 | $212.2 | | Income from discontinued operations | $0.9 | $46.6 | $91.6 | $158.2 | IAA Assets and Liabilities (Discontinued Operations) | Metric (Millions) | June 28, 2019 | December 31, 2018 | | :--------------------------------------- | :------------ | :---------------- | | Total assets, discontinued operations | $2,015.6 | $1,506.8 | | Total liabilities, discontinued operations | $2,239.2 | $480.4 | Note 4—Stock and Stock-Based Compensation Plans This note details stock-based compensation expenses by award type, the impact of the IAA spin-off on awards, and the company's common stock repurchase activities Stock-Based Compensation Expense by Award Type (Millions) | Award Type | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | PRSUs | $2.6 | $3.3 | $7.5 | $8.4 | | RSUs | $1.7 | $2.4 | $7.1 | $6.8 | | Service options | $0.0 | $0.0 | $0.0 | $0.1 | | Total | $4.3 | $5.7 | $14.6 | $15.3 | - In the first nine months of 2019, the company granted approximately 0.3 million PRSUs and 0.3 million RSUs, with weighted average grant date fair values of $47.09 and $47.37 per share, respectively[62] - The company modified stock-based compensation awards due to the IAA spin-off to maintain economic value and anti-dilution protection, with no incremental compensation expense recorded[63] - Under a $500 million repurchase authorization, the company repurchased and retired 4,753,300 shares of common stock for $119.7 million at a weighted average price of $25.18 per share during the three months ended September 30, 2019[64] Note 5—Net Income from Continuing Operations Per Share This note provides the calculation of net income from continuing operations per share, including weighted average common shares outstanding and the effect of dilutive awards Net Income from Continuing Operations Per Share (Millions, except per share amounts) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 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 | | Diluted EPS from continuing operations | $0.26 | $0.23 | $0.58 | $0.76 | - Approximately 0.3 million PRSUs were excluded from diluted EPS calculation for the three and nine months ended September 30, 2019, due to performance conditions not yet satisfied[66] Note 6—Finance Receivables and Obligations Collateralized by Finance Receivables This note describes AFC's securitization agreements for finance receivables in the U.S. and Canada, detailing managed receivables, credit losses, and compliance with covenants - AFC sells most of its U.S. dollar finance receivables to AFC Funding Corporation, which then sells undivided interests to banks via a securitization agreement expiring January 28, 2022, with $1.70 billion committed liquidity[67] - AFCI also has a Canadian securitization agreement expiring January 28, 2022, with a C$175 million committed facility[68] Finance Receivables and Net Credit Losses (Millions) | Metric | Sep 30, 2019 | Dec 31, 2018 | Net Credit Losses (3 Months Sep 30, 2019) | Net Credit Losses (9 Months Sep 30, 2019) | Net Credit Losses (3 Months Sep 30, 2018) | Net Credit Losses (9 Months Sep 30, 2018) | | :-------------------------- | :----------- | :----------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total receivables managed | $2,110.4 | $2,014.8 | $8.6 | $24.8 | $7.1 | $21.3 | | Receivables delinquent (31+ days) | $15.6 | $15.9 | | | | | | Allowance for losses | $14.8 | $14.0 | | | | | - At September 30, 2019, $2,064.6 million of finance receivables and a 1% cash reserve secured $1,428.4 million in obligations collateralized by finance receivables, and the company was in compliance with all securitization agreement covenants[72] Note 7—Long-Term Debt This note details the company's long-term debt, including term loans, revolving credit facilities, and senior notes, outlining refinancing activities, interest rates, and compliance with covenants Long-Term Debt (Millions) | Debt Type | Interest Rate | Maturity | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------- | :------------ | :--------------- | :----------- | :----------- | | Term Loan B-4 | LIBOR + 2.25% | Mar 11, 2021 | $0.0 | $704.4 | | Term Loan B-5 | LIBOR + 2.50% | Mar 9, 2023 | $0.0 | $1,031.5 | | Term Loan B-6 | LIBOR + 2.25% | Sep 19, 2026 | $950.0 | $0.0 | | Revolving credit facility | LIBOR + 1.75% | Sep 19, 2024 | $0.0 | $0.0 | | Senior notes | 5.125% | Jun 1, 2025 | $950.0 | $950.0 | | European lines of credit | Euribor + 1.25% | Upon demand | $17.5 | $0.0 | | Total debt | | | $1,917.5 | $2,685.9 | | Long-term debt (net of issuance costs/current portion) | | | $1,863.0 | $2,654.3 | - In June 2019, the company prepaid $518.6 million of Term Loan B-4 and $759.4 million of Term Loan B-5 using cash from the IAA Separation, resulting in $1.8 million in accelerated amortization of debt issuance costs[75] - On September 19, 2019, the company refinanced Term Loan B-4 and B-5 with a new $950 million Term Loan B-6 and a $325 million Revolving Credit Facility, incurring a $2.2 million non-cash loss on extinguishment of debt[76] - The Credit Facility is secured by substantially all company assets and guaranteed by domestic subsidiaries, containing covenants including a Consolidated Senior Secured Net Leverage Ratio not to exceed 3.5 (commencing Dec 31, 2019), and the company was in compliance at September 30, 2019[79][81] - At September 30, 2019, there were no borrowings on the revolving credit facility, but $27.7 million in outstanding letters of credit reduced available borrowings[83] - The estimated fair value of long-term debt was $1,954.4 million as of September 30, 2019[85] Note 8—Derivatives This note explains the company's use of interest rate cap agreements to manage variable interest rate exposure and the recognition of fair value changes in interest expense - The company uses interest rate cap agreements to manage exposure to variable interest rate borrowings, with changes in fair value recognized as 'Interest expense' in the consolidated statement of income[86][89] Effect of Interest Rate Derivatives on Consolidated Statements of Income (Millions) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Gain / (Loss) recognized in Interest expense | $0.0 | $0.2 | $(0.9) | $6.3 | - Two interest rate caps with an aggregate notional amount of $800 million, effective September 30, 2017, matured on September 30, 2019, and two other caps with $400 million notional amount, effective March 31, 2017, matured on March 31, 2019[87][222][223] Note 9—Leases This note provides detailed information on lease expenses, cash flows, and balance sheet impacts following the adoption of Topic 842, including operating and finance lease liabilities and ROU assets Components of Lease Expense (Nine Months Ended September 30, 2019) | Lease Cost Component | Amount (Millions) | | :--------------------------------------- | :---------------- | | Operating lease cost | $45.3 | | Finance lease cost (Amortization of ROU assets) | $10.8 | | Finance lease cost (Interest on lease liabilities) | $1.0 | | Total finance lease cost | $11.8 | Supplemental Cash Flow Information Related to Leases (Nine Months Ended September 30, 2019) | Cash Flow Item | Amount (Millions) | | :--------------------------------------- | :---------------- | | Operating cash flows related to operating leases | $44.3 | | Operating cash flows related to finance leases | $1.0 | | Financing cash flows related to finance leases | $20.5 | | Right-of-use assets obtained (Operating leases) | $80.4 | | Right-of-use assets obtained (Finance leases) | $13.7 | Supplemental Balance Sheet Information Related to Leases (September 30, 2019) | Balance Sheet Item | Amount (Millions) | | :--------------------------------------- | :---------------- | | Operating lease right-of-use assets | $366.4 | | Operating lease liabilities | $361.1 | | Total operating lease liabilities | $394.8 | | Property and equipment, net (Finance Leases) | $21.5 | | Total finance lease liabilities | $26.6 | | Weighted Average Remaining Lease Term (Operating) | 11.0 years | | Weighted Average Remaining Lease Term (Finance) | 2.1 years | | Weighted Average Discount Rate (Operating) | 6.1% | | Weighted Average Discount Rate (Finance) | 5.1% | Note 10—Commitments and Contingencies This note addresses the company's involvement in various litigation and disputes, stating that management believes these matters are not likely to have a material adverse effect on financial results - The company is involved in various litigation and disputes in the ordinary course of business, including actions related to injuries, property damage, environmental laws, and employment matters, which management believes are generally not likely to have a material adverse effect on financial condition, results of operations, or cash flows[96] Note 11—Accumulated Other Comprehensive Loss This note presents the components of accumulated other comprehensive loss, primarily driven by foreign currency translation adjustments Accumulated Other Comprehensive Loss (Millions) | Component | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------- | :----------- | :----------- | | Foreign currency translation loss | $(45.2) | $(61.3) | | Total accumulated other comprehensive loss | $(45.2) | $(61.3) | Note 12—Segment Information This note provides financial information for the company's reportable segments, ADESA Auctions and AFC, including operating revenues, operating profit, and geographic revenue distribution - Following the IAA spin-off, KAR Auction Services operates with two reportable business segments: ADESA Auctions and AFC, with the former IAA segment results now reported as discontinued operations[98] - The holding company's expenses include corporate office costs, certain HR, IT, and accounting costs, and insurance, treasury, legal, and risk management costs, with holding company interest expense covering capital leases and corporate debt[99] Segment Operating Revenues (Millions) | Segment | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ADESA Auctions | $613.6 | $527.0 | $1,845.7 | $1,593.4 | | AFC | $88.3 | $85.4 | $264.9 | $255.6 | | Total Consolidated | $701.9 | $612.4 | $2,110.6 | $1,849.0 | Segment Operating Profit (Loss) (Millions) | Segment | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ADESA Auctions | $68.5 | $75.5 | $215.5 | $249.1 | | AFC | $55.1 | $52.1 | $165.4 | $150.2 | | Holding Company | $(37.9) | $(42.0) | $(128.4) | $(129.4) | | Total Consolidated | $85.7 | $85.6 | $252.5 | $269.9 | Geographic Operating Revenues (Millions) | Region | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. | $565.6 | $519.4 | $1,726.4 | $1,569.1 | | Foreign | $136.3 | $93.0 | $384.2 | $279.9 | | Total | $701.9 | $612.4 | $2,110.6 | $1,849.0 | - Foreign operating revenues for the three and nine months ended September 30, 2019, were approximately 60% and 64% from Canada, respectively, and the 2019 acquisition of COTW increased the percentage of operating revenues from Europe[106] Note 13—Subsequent Event This note discloses a subsequent event where the board of directors authorized a new $300 million share repurchase program in October 2019 - On October 30, 2019, the board of directors authorized a new share repurchase program of up to $300 million of common stock through October 30, 2021[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting performance for the three and nine months ended September 30, 2019, compared to 2018. It covers revenue and profit drivers for ADESA Auctions and AFC segments, the impact of the IAA spin-off, and details on liquidity, capital resources, debt, and recent acquisitions. Key trends in the whole car and automotive finance industries are also discussed Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements subject to risks and uncertainties, including future growth, cost savings, revenue increases, credit losses, capital expenditures, dividend payments, stock repurchases, tax rates, strategic initiatives, competitive position, and investments in information technology[109] - Factors that could cause actual results to differ materially include the ability to maintain IT systems, protect against cyber-attacks, manage competition and pricing pressures, implement business strategies, meet customer expectations, integrate acquisitions, and manage fluctuations in vehicle demand and supply[109] Overview This section provides an overview of KAR Auction Services' business, detailing its ADESA Auctions and AFC segments, their services, and the role of the holding company - KAR Auction Services provides whole car auction services in North America and Europe, operating through two reportable segments: ADESA Auctions and AFC[114] - ADESA Auctions offers live and online auctions through 74 North American facilities, providing remarketing solutions to various consignors and value-added services like transportation and reconditioning, and includes TradeRev and ADESA Europe (formerly CarsOnTheWeb)[116] - AFC provides short-term, inventory-secured floorplan financing primarily to independent used vehicle dealers across 122 locations in the U.S. and Canada, and also sells vehicle service contracts through Preferred Warranties, Inc. (PWI)[116] - The holding company manages corporate expenses, including salaries, benefits, IT, accounting, insurance, treasury, legal, and risk management costs, with intercompany charges primarily related to interest on intercompany debt and administrative allocations[118] Industry Trends This section discusses key trends in the North American used vehicle auction and automotive finance industries, including market volumes, digital expansion, dealer challenges, and seasonality - North American used vehicle auction volumes (including online) were approximately 11.5 million in 2018 and are expected to exceed 11 million units in 2019, 2020, and 2021[119] - Mobile applications like TradeRev could expand the total addressable market for whole car auctions by approximately 5 million units, though TradeRev incurred operating losses of $51.6 million and $37.3 million for the nine months ended September 30, 2019 and 2018, respectively[120] - AFC's North American dealer base was approximately 15,800 in 2018, with 1.8 million loan transactions, but key challenges for independent used vehicle dealers include demand, pricing volatility, access to consumer financing, and increased competition, which could negatively impact AFC's results[121][122] - Auction volumes are seasonal, typically declining in the fourth calendar quarter due to weather, holidays, and retail market seasonality, affecting revenues and operating expenses[123] - Revenue is derived from auction fees and related services for whole car auctions, and from dealer financing fees, interest income, and other service revenue at AFC, while operating expenses include cost of services, selling, general and administrative, and depreciation and amortization[124][125] Results of Operations - Three Months Ended September 30, 2019 and 2018 This section analyzes the company's consolidated and segment-specific financial performance for the three months ended September 30, 2019, compared to the prior year, detailing revenue, profit, and expense drivers Overall Performance This section summarizes the consolidated financial performance for the three months ended September 30, 2019, highlighting changes in revenue, operating profit, net income, and the impact of the IAA spin-off Consolidated Financial Highlights (Three Months Ended September 30) | Metric (Millions) | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Total revenues | $701.9 | $612.4 | $89.5 | 15% | | Operating profit | $85.7 | $85.6 | $0.1 | 0.1% | | Net income from continuing operations | $34.4 | $30.9 | $3.5 | 11.3% | | Net income from discontinued operations | $0.9 | $46.6 | $(45.7) | -98.1% | | Net income | $35.3 | $77.5 | $(42.2) | -54.4% | | Diluted EPS from continuing operations | $0.26 | $0.23 | $0.03 | 13.0% | - Revenue increased by 15% to $701.9 million, with acquired businesses contributing $54.8 million (8%), and excluding purchased vehicles, revenue increased by 7%[127] - Depreciation and amortization increased by $5.0 million (12%) to $46.4 million, primarily due to new assets and acquisitions[128] - Interest expense decreased by $11.1 million (23%) to $37.9 million, mainly due to a $1.13 billion decrease in average corporate debt balance following the IAA spin-off debt paydown, partially offset by a 0.30% increase in weighted average interest rate[129] - A $2.2 million pretax charge was recorded for loss on extinguishment of debt in September 2019 due to refinancing Term Loan B-4 and B-5[132] - The effective tax rate increased to 27.7% from 22.0%, as the prior year benefited from higher tax deductions from stock option exercises[133] - Income from discontinued operations (IAA) significantly decreased from $46.6 million in 2018 to $0.9 million in 2019 due to the spin-off[134] - Foreign currency fluctuations (Canadian exchange rate) decreased revenue by $0.8 million and operating profit by $0.2 million[135] ADESA Results This section details ADESA's financial and operational performance for the three months ended September 30, 2019, focusing on revenue growth, vehicle sales volume, online penetration, and gross profit margins ADESA Financial and Operational Highlights (Three Months Ended September 30) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue (Millions) | $613.6 | $527.0 | $86.6 | 16% | | Operating profit (Millions) | $68.5 | $75.5 | $(7.0) | -9.3% | | Vehicles sold (Thousands) | 957 | 876 | 81 | 9% | | Physical auction vehicles sold (North America, Thousands) | 526 | 522 | 4 | 1% | | Online only vehicles sold (North America, Thousands) | 396 | 343 | 53 | 15.5% | | Vehicles sold in Europe (Thousands) | 35 | 11 | 24 | 218.2% | | Online sales volume (% of total) | 59% | 54% | 5% | | | Physical auction revenue per vehicle sold (excl. purchased) | $893 | $850 | $43 | 5% | | Online only revenue per vehicle sold (excl. purchased) | $151 | $126 | $25 | 19.8% | | Gross profit as % of revenue | 37.1% | 41.6% | -4.5% | | - Revenue increased by 16% due to a 9% increase in vehicles sold (7% excluding acquisitions) and a 6% increase in average revenue per vehicle, with acquisitions contributing $54.8 million to revenue[137] - Online sales volume grew to 59% of total vehicles sold (from 54%), with upstream, midstream, and TradeRev sales accounting for 75% of North American online sales volume[138] - Gross profit as a percentage of revenue decreased from 41.6% to 37.1%, primarily due to increased purchased vehicles (COTW acquisition, ADESA Assurance) and higher lower-margin ancillary services[141] - Selling, general and administrative expenses increased by $9.9 million (9%) to $121.7 million, driven by TradeRev costs ($5.9 million), acquisitions ($5.8 million), and IT costs ($2.2 million), partially offset by decreases in compensation and marketing[142] AFC Results This section details AFC's financial and operational performance for the three months ended September 30, 2019, focusing on revenue growth, loan transactions, credit loss provision, and gross profit margins AFC Financial and Operational Highlights (Three Months Ended September 30) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue (Millions) | $88.3 | $85.4 | $2.9 | 3% | | Operating profit (Millions) | $55.1 | $52.1 | $3.0 | 5.8% | | Loan transactions (Thousands) | 442 | 433 | 9 | 2% | | Revenue per loan transaction (excl. Warranty) | $180 | $177 | $3 | 2% | | Provision for credit losses (% of average managed receivables) | 1.7% | 1.5% | 0.2% | | | Gross profit as % of revenue | 72.0% | 73.2% | -1.2% | | - Revenue increased by 3% due to a 2% increase in loan transactions and a 2% increase in revenue per loan transaction, driven by higher interest yield from prime rate increases and average loan values[144][145] - The provision for credit losses increased to 1.7% of average managed receivables from 1.5%[145] - Gross profit as a percentage of revenue decreased to 72.0% from 73.2% due to an 8% increase in cost of services, mainly from PWI expenses and compensation[146] - Selling, general and administrative expenses decreased by $2.2 million (27%) to $5.9 million, primarily due to lower compensation and travel expenses[147] Holding Company Results This section details the Holding Company's financial performance for the three months ended September 30, 2019, focusing on selling, general, and administrative expenses and operating loss Holding Company Financial Highlights (Three Months Ended September 30) | Metric (Millions) | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Selling, general and administrative | $31.3 | $34.8 | $(3.5) | -10% | | Operating loss | $(37.9) | $(42.0) | $4.1 | 9.8% | - Selling, general and administrative expenses decreased by $3.5 million (10%) to $31.3 million, mainly due to lower incentive-based compensation and medical expenses, partially offset by increased IT and telecom costs, and $1.5 million in fees from IAA for services[149] Results of Operations - Nine Months Ended September 30, 2019 and 2018 This section analyzes the company's consolidated and segment-specific financial performance for the nine months ended September 30, 2019, compared to the prior year, detailing revenue, profit, and expense drivers Overall Performance This section summarizes the consolidated financial performance for the nine months ended September 30, 2019, highlighting changes in revenue, operating profit, net income, and the impact of the IAA spin-off Consolidated Financial Highlights (Nine Months Ended September 30) | Metric (Millions) | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Total revenues | $2,110.6 | $1,849.0 | $261.6 | 14% | | Operating profit | $252.5 | $269.9 | $(17.4) | -6.4% | | Net income from continuing operations | $77.1 | $102.5 | $(25.4) | -24.8% | | Net income from discontinued operations | $91.6 | $158.2 | $(66.6) | -42.1% | | Net income | $168.7 | $260.7 | $(92.0) | -35.3% | | Diluted EPS from continuing operations | $0.58 | $0.76 | $(0.18) | -23.7% | - Revenue increased by 14% to $2,110.6 million, with acquired businesses contributing $137.9 million (7%), and excluding purchased vehicles, revenue increased by 7%[151] - Depreciation and amortization increased by $8.8 million (7%) to $138.6 million, primarily due to new assets and acquisitions[153] - Interest expense increased by $11.3 million (8%) to $150.0 million, driven by borrowings on revolving credit and European lines, $1.8 million from accelerated debt issuance cost amortization, and a $5.8 million increase at AFC due to higher interest rates, partially offset by $4.3 million from interest rate cap agreements[154] - A $2.2 million pretax charge was recorded for loss on extinguishment of debt in September 2019 due to refinancing Term Loan B-4 and B-5[155] - The effective tax rate increased to 26.9% from 24.1%, as the prior year benefited from higher tax deductions from stock option exercises[156] - Income from discontinued operations (IAA) decreased from $158.2 million in 2018 to $91.6 million in 2019, including $31.3 million in one-time transaction costs for the spin-off[157] - Foreign currency fluctuations (Canadian exchange rate) decreased revenue by $7.4 million, operating profit by $1.8 million, and net income by $0.7 million[158] ADESA Results This section details ADESA's financial and operational performance for the nine months ended September 30, 2019, focusing on revenue growth, vehicle sales volume, online penetration, and gross profit margins ADESA Financial and Operational Highlights (Nine Months Ended September 30) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue (Millions) | $1,845.7 | $1,593.4 | $252.3 | 16% | | Operating profit (Millions) | $215.5 | $249.1 | $(33.6) | -13.5% | | Vehicles sold (Thousands) | 2,897 | 2,661 | 236 | 9% | | Physical auction vehicles sold (North America, Thousands) | 1,635 | 1,629 | 6 | 0.4% | | Online only vehicles sold (North America, Thousands) | 1,179 | 998 | 181 | 18.1% | | Vehicles sold in Europe (Thousands) | 83 | 34 | 49 | 144.1% | | Online sales volume (% of total) | 58% | 54% | 4% | | | Physical auction revenue per vehicle sold (excl. purchased) | $883 | $836 | $47 | 6% | | Online only revenue per vehicle sold (excl. purchased) | $149 | $120 | $29 | 24.2% | | Gross profit as % of revenue | 37.7% | 42.2% | -4.5% | | - Revenue increased by 16% due to a 9% increase in vehicles sold (7% excluding acquisitions) and a 6% increase in average revenue per vehicle, with acquisitions contributing $137.9 million to revenue[161] - Online sales volume grew to 58% of total vehicles sold (from 54%), with upstream, midstream, and TradeRev sales accounting for 74% of North American online sales volume[162] - Gross profit as a percentage of revenue decreased from 42.2% to 37.7%, primarily due to increased purchased vehicles (COTW acquisition, ADESA Assurance) and higher lower-margin ancillary services, with an inventory loss of $5.4 million at High Tech Locksmiths also contributing to the decline[165][166] - Selling, general and administrative expenses increased by $41.3 million (13%) to $370.2 million, driven by TradeRev costs ($19.8 million), acquisitions ($16.5 million), and IT costs ($5.5 million), partially offset by foreign exchange fluctuations and decreases in stock-based compensation and marketing[167] AFC Results This section details AFC's financial and operational performance for the nine months ended September 30, 2019, focusing on revenue growth, loan transactions, credit loss provision, and gross profit margins AFC Financial and Operational Highlights (Nine Months Ended September 30) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Revenue (Millions) | $264.9 | $255.6 | $9.3 | 4% | | Operating profit (Millions) | $165.4 | $150.2 | $15.2 | 10.1% | | Loan transactions (Thousands) | 1,340 | 1,332 | 8 | 0.6% | | Revenue per loan transaction (excl. Warranty) | $178 | $173 | $5 | 3% | | Provision for credit losses (% of average managed receivables) | 1.7% | 1.5% | 0.2% | | | Gross profit as % of revenue | 72.7% | 73.3% | -0.6% | | - Revenue increased by 4% due to a 3% increase in revenue per loan transaction, driven by higher interest yield from prime rate increases and average loan values[170][171] - The provision for credit losses increased to 1.7% of average managed receivables from 1.5%[171] - Gross profit as a percentage of revenue decreased to 72.7% from 73.3% due to a 6% increase in cost of services, mainly from PWI expenses, compensation, and travel[172] - Selling, general and administrative expenses decreased by $4.1 million (17%) to $19.5 million, primarily due to lower compensation, incentive-based compensation, and travel expenses[173] Holding Company Results This section details the Holding Company's financial performance for the nine months ended September 30, 2019, focusing on selling, general, and administrative expenses and operating loss Holding Company Financial Highlights (Nine Months Ended September 30) | Metric (Millions) | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :--- | :--- | :--------- | :--------- | | Selling, general and administrative | $107.6 | $107.6 | $0.0 | 0% | | Operating loss | $(128.4) | $(129.4) | $1.0 | 0.8% | - Selling, general and administrative expenses remained flat at $107.6 million, with a decrease in incentive-based compensation offset by increases in IT costs and other miscellaneous expenses[175] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the company's liquidity and capital resources, including cash flow, working capital, credit facilities, senior notes, securitization, and non-GAAP measures like EBITDA Overview of Liquidity This section provides an overview of the company's liquidity, highlighting key indicators such as cash, working capital, and available credit facilities - Key liquidity indicators include cash on hand, cash flow from operations, working capital, and available amounts under the Credit Facility, with principal sources being cash from operations and revolving credit facility borrowings[176] Liquidity Indicators (Millions) | Metric | Sep 30, 2019 | Dec 31, 2018 | Sep 30, 2018 | | :--------------------------------------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $508.6 | $277.1 | $401.3 | | Restricted cash | $23.3 | $27.6 | $22.6 | | Working capital | $741.5 | $450.3 | $615.3 | | Amounts available under Credit Facility | $325.0 | $350.0 | $350.0 | | Cash flow from operations (9 months) | $291.1 | | $326.9 | Working Capital This section discusses the company's working capital generation, the impact of the IAA spin-off on debt prepayment, and the cash held by foreign subsidiaries - Working capital is largely generated from service payments, with most needs being short-term (less than a week), and the IAA spin-off involved raising $1.3 billion in debt, transferred to IAA, which then paid a $1.278 billion cash dividend to KAR to prepay term loans[179][180] - Approximately $152.1 million of available cash was held by foreign subsidiaries at September 30, 2019, with expected repatriation tax less than $7 million[181] Credit Facilities This section details the company's credit facilities, including term loan prepayments, refinancing activities, and compliance with financial covenants - In June 2019, KAR prepaid $518.6 million of Term Loan B-4 and $759.4 million of Term Loan B-5 using cash from the IAA Separation[182] - On September 19, 2019, the company refinanced existing term loans with a new $950 million Term Loan B-6 and a $325 million Revolving Credit Facility[183] - The Credit Facility is secured by company assets and guaranteed by domestic subsidiaries, with covenants including a Consolidated Senior Secured Net Leverage Ratio not to exceed 3.5 (commencing Dec 31, 2019), and KAR's ratio was 1.74 at September 30, 2019, indicating compliance[188][189] - At September 30, 2019, $950.0 million was outstanding on Term Loan B-6, with no borrowings on the revolving credit facility, but $27.7 million in outstanding letters of credit[187] Senior Notes This section describes the company's $950 million senior notes, including their interest rate, maturity date, and redemption terms - The company has $950 million of 5.125% senior notes due June 1, 2025, with interest paid semi-annually, and these notes are redeemable prior to June 1, 2020, at 100% principal plus a make-whole premium, and thereafter at a declining premium[192] Securitization Facilities This section explains AFC's securitization agreements for floorplan financing, detailing managed receivables, allowance for losses, and covenant compliance - AFC funds its floorplan financing through securitization agreements, selling U.S. dollar finance receivables to AFC Funding Corporation and Canadian receivables to a third-party conduit, which are accounted for as secured borrowings[193][194] - AFC managed $2,110.4 million in finance receivables at September 30, 2019, with an allowance for losses of $14.8 million, and $2,064.6 million of receivables and a 1% cash reserve secured $1,428.4 million in obligations[195][196] - AFC, AFC Funding Corporation, and AFCI must maintain financial covenants, including debt limits and minimum tangible net worth, and were in compliance at September 30, 2019[197] EBITDA and Adjusted EBITDA This section defines and presents the company's non-GAAP measures, EBITDA and Adjusted EBITDA, used by management and creditors to evaluate financial performance - EBITDA and Adjusted EBITDA are non-GAAP measures used by management and creditors to evaluate performance, with EBITDA being net income plus interest, taxes, depreciation, and amortization, and Adjusted EBITDA further adjusting for specific income/expense items and expected revenue/cost savings[198][199] Consolidated EBITDA and Adjusted EBITDA (Three Months Ended September 30) | Metric (Millions) | 2019 | 2018 | | :-------------------------- | :--- | :--- | | Net income (loss) from continuing operations | $34.4 | $30.9 | | EBITDA | $131.2 | $128.7 | | Adjusted EBITDA | $129.2 | $126.4 | Consolidated EBITDA and Adjusted EBITDA (Nine Months Ended September 30) | Metric (Millions) | 2019 | 2018 | | :-------------------------- | :--- | :--- | | Net income (loss) from continuing operations | $77.1 | $102.5 | | EBITDA | $392.2 | $400.9 | | Adjusted EBITDA | $388.0 | $394.7 | Consolidated EBITDA and Adjusted EBITDA (Twelve Months Ended September 30, 2019) | Metric (Millions) | Amount | | :-------------------------- | :----- | | Net income (loss) from continuing operations | $92.2 | | EBITDA | $502.9 | | Adjusted EBITDA | $498.5 | Summary of Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2019, highlighting significant changes Summary of Cash Flows (Nine Months Ended September 30) | Activity (Millions) | 2019 | 2018 | | :--------------------------------------- | :----- | :----- | | Operating activities - continuing operations | $291.1 | $326.9 | | Operating activities - discontinued operations | $156.7 | $238.2 | | Investing activities - continuing operations | $(367.3) | $(196.2) | | Investing activities - discontinued operations | $(37.4) | $(37.9) | | Financing activities - continuing operations | $(1,140.5) | $(199.0) | | Financing activities - discontinued operations | $1,317.6 | $(6.7) | | Net increase in cash, cash equivalents and restricted cash | $227.2 | $120.4 | - Cash flow from continuing operating activities decreased to $291.1 million from $326.9 million, primarily due to changes in operating assets and liabilities and decreased profitability[203] - Net cash used by continuing investing activities increased to $367.3 million from $196.2 million, driven by higher cash used for acquisitions ($97.4 million), capital expenditures ($44.9 million), and a net increase in finance receivables ($28.8 million)[204][205] - Net cash used by continuing financing activities increased significantly to $1,140.5 million from $199.0 million, mainly due to increased net debt payments (including $1.3 billion prepayment from IAA cash), higher common stock repurchases ($69.7 million), and cash transferred to IAA ($50.9 million)[204][205] Capital Expenditures This section details the company's capital expenditures for the nine months ended September 30, 2019, and provides the full fiscal year 2019 forecast, emphasizing technology investments - Capital expenditures for the nine months ended September 30, 2019, were $127.6 million, up from $82.7 million in 2018, and fiscal year 2019 capital expenditures are expected to be approximately $160 million, with about half allocated to technology-based investments[206] Dividends This section outlines the cash dividends declared by the company, including the most recent declaration and previous payments in 2019 - The company declared a cash dividend of $0.19 per share payable on January 3, 2020, with previous dividends in 2019 including $0.19 per share (paid Oct 3, 2019) and two $0.35 per share dividends (paid June 17, 2019, and April 4, 2019)[207] Acquisitions This section details the 2019 acquisitions of Dent-ology and CarsOnTheWeb, outlining their strategic rationale, aggregate purchase price, and impact on goodwill - In January 2019, KAR acquired Dent-ology to enhance mobile reconditioning and expand wheel repair and hail catastrophe response services[208] - Also in January 2019, the company acquired CarsOnTheWeb (COTW), an online auction company in Continental Europe, to advance its international strategy[209] - The aggregate purchase price for 2019 acquisitions was $169.2 million (net of cash acquired), including $120.7 million in net cash payments, resulting in $138.4 million in goodwill, recorded in the ADESA Auctions segment, and were immaterial to consolidated results for the nine months ended September 30, 2019[211] Contractual Obligations This section discusses material changes to the company's contractual obligations since December 31, 2018, including debt repayments and refinancing activities - Material changes to contractual obligations since December 31, 2018, include the repayment of approximately $1,280.4 million of term loans in the first six months of 2019 (mostly from IAA spin-off cash) and the refinancing of Term Loan B-4 and B-5 with the new Term Loan B-6 (maturity September 2026), reducing expected interest payments[214] - Operating and capital lease obligations were reduced due to the IAA separation and also change in the ordinary course of business[214] Critical Accounting Estimates This section refers readers to the Annual Report on Form 10-K for a discussion of critical accounting estimates, noting no new material changes in this quarterly report - Critical accounting estimates are discussed in the Annual Report on Form 10-K for the year ended December 31, 2018, with no new material changes noted in this quarterly report[216] Off-Balance Sheet Arrangements This section confirms that the company had no off-balance sheet arrangements as of September 30, 2019 - As of September 30, 2019, the company had no off-balance sheet arrangements[217] New Accounting Standards This section directs readers to Note 1 of the financial statements for a description of new accounting standards that could affect the company - For a description of new accounting standards that could affect the Company, refer to the 'New Accounting Standards' section of Note 1 to the Unaudited Consolidated Financial Statements[218] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically foreign currency and interest rate risks. It details the impact of currency fluctuations on Canadian operations and the use of interest rate caps to manage variable rate debt exposure, along with a sensitivity analysis for interest rate changes - Foreign currency exposure is limited, primarily from Canadian operations, with fluctuations in the Canadian exchange rate negatively affecting net income by approximately $0.7 million for the nine months ended September 30, 2019, and a 1% decrease in the average Canadian exchange rate would have resulted in an increase in interest expense of approximately $0.3 million and $3.7 million for the three and nine months ended September 30, 2019, respectively[220][224] - The company uses interest rate cap agreements to manage exposure to variable interest rate borrowings, with changes in fair value recognized as 'Interest expense', and two $800 million notional caps matured on September 30, 2019, while two $400 million notional caps matured on March 31, 2019[221][222][223] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2019, concluding they were effective. No material changes in internal control over financial reporting occurred during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[225] - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2019[226] PART II—OTHER INFORMATION This section provides additional information beyond the financial statements, covering legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is involved in various legal proceedings and disputes arising in the ordinary course of business, which management believes are generally not likely to have a material adverse effect on its financial condition, results of operations, or cash flows. No significant changes to legal proceedings related to continuing operations were reported since the 2018 Annual Report on Form 10-K - The company is involved in ordinary course litigation (injuries, property damage, environmental, employment, dealer disputes) which management believes will not materially adversely affect financial condition, results of operations, or cash flows[228] - There has been no significant change in legal and regulatory proceedings related to continuing operations since the Annual Report on Form 10-K for the year ended December 31, 2018[96][229] Item 1A. Risk Factors Readers should consider the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2018, as these factors could materially affect the business, financial condition, or future results. The company also acknowledges that additional unknown or currently immaterial risks may adversely affect its operations - Readers should carefully consider the risk factors outlined in the Annual Report on Form 10-K for the year ended December 31, 2018, as they could materially affect the company's business, financial condition, or future results[230] - Additional risks and uncertainties not currently known or deemed immaterial may also adversely affect the business[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the quarter ended September 30, 2019. The company completed its $500 million repurchase authorization by repurchasing 4,753,300 shares for $119.7 million in August 2019. A new $300 million repurchase program was authorized in October 2019 Issuer Purchases of Equity Securities (Quarter Ended September 30, 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (Millions) | | :-------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | July 1 - July 31 | — | $— | — | $119.7 | | August 1 - August 31 | 4,753,300 | $25.18 | 4,753,300 | — | | September 1 - September 30 | — | $— | — | — | | Total | 4,753,300 | $25.18 | 4,753,300 | | - The company completed its $500 million share repurchase authorization (through