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EX-99.1 - EX-99.1 - KAR Auction Services, Inc.a12-26230_1ex99d1.htm

Exhibit 99.2

 

KAR Auction Services, Inc.

Q3 2012 Supplemental Financial Information

November 6, 2012

 



 

KAR Auction Services, Inc.

EBITDA and Adjusted EBITDA Measures

 

EBITDA and Adjusted EBITDA Measures

 

EBITDA and Adjusted EBITDA as presented herein are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.

 

EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization.  Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in our senior secured credit agreement covenant calculations.  Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors.  In addition, management uses Adjusted EBITDA to evaluate our performance and to evaluate results relative to incentive compensation targets.  EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP.  These measures may not be comparable to similarly titled measures reported by other companies.

 

The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:

 

 

 

Three Months Ended September 30, 2012

 

(Dollars in millions), (Unaudited)

 

ADESA

 

IAA

 

AFC

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5.6

 

$

12.2

 

$

18.8

 

$

(17.4

)

$

19.2

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

4.6

 

7.7

 

10.9

 

(9.4

)

13.8

 

Interest expense, net of interest income

 

0.1

 

0.3

 

3.8

 

25.6

 

29.8

 

Depreciation and amortization

 

23.5

 

17.1

 

5.7

 

0.5

 

46.8

 

Intercompany

 

15.0

 

9.5

 

(4.6

)

(19.9

)

 

EBITDA

 

48.8

 

46.8

 

34.6

 

(20.6

)

109.6

 

Adjustments

 

5.6

 

(2.2

)

(2.6

)

6.9

 

7.7

 

Adjusted EBITDA

 

$

54.4

 

$

44.6

 

$

32.0

 

$

(13.7

)

$

117.3

 

 

 

 

Three Months Ended September 30, 2011

 

(Dollars in millions), (Unaudited)

 

ADESA

 

IAA

 

AFC

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

14.1

 

$

9.7

 

$

14.1

 

$

(5.7

)

$

32.2

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

3.9

 

6.9

 

8.0

 

(4.1

)

14.7

 

Interest expense, net of interest income

 

0.1

 

0.5

 

3.4

 

25.3

 

29.3

 

Depreciation and amortization

 

20.8

 

16.4

 

6.2

 

0.4

 

43.8

 

Intercompany

 

14.8

 

9.6

 

(3.8

)

(20.6

)

 

EBITDA

 

53.7

 

43.1

 

27.9

 

(4.7

)

120.0

 

Adjustments

 

3.7

 

3.8

 

(1.9

)

(9.9

)

(4.3

)

Adjusted EBITDA

 

$

57.4

 

$

46.9

 

$

26.0

 

$

(14.6

)

$

115.7

 

 

2



 

 

 

Nine Months Ended September 30, 2012

 

(Dollars in millions), (Unaudited)

 

ADESA

 

IAA

 

AFC

 

Corporate

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

21.9

 

$

46.7

 

$

51.3

 

$

(50.8

)

$

69.1

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

19.5

 

30.8

 

29.8

 

(27.7

)

52.4

 

Interest expense, net of interest income

 

0.7

 

1.1

 

11.2

 

76.7

 

89.7

 

Depreciation and amortization

 

73.6

 

50.8

 

17.6

 

1.4

 

143.4

 

Intercompany

 

45.2

 

28.7

 

(13.1

)

(60.8

)

 

EBITDA

 

160.9

 

158.1

 

96.8

 

(61.2

)

354.6

 

Adjustments

 

16.5

 

0.3

 

(7.4

)

16.3

 

25.7

 

Adjusted EBITDA

 

$

177.4

 

$

158.4

 

$

89.4

 

$

(44.9

)

$

380.3

 

 

 

 

Nine Months Ended September 30, 2011

 

(Dollars in millions) , (Unaudited)

 

ADESA

 

IAA

 

AFC

 

Corporate

 

Consolidated

 

Net income (loss)

 

$

57.8

 

$

49.6

 

$

42.2

 

$

(91.9

)

$

57.7

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

14.9

 

28.9

 

22.3

 

(57.3

)

8.8

 

Interest expense, net of interest income

 

0.5

 

1.6

 

8.5

 

101.5

 

112.1

 

Depreciation and amortization

 

63.2

 

48.9

 

18.6

 

0.8

 

131.5

 

Intercompany

 

37.5

 

28.8

 

(10.6

)

(55.7

)

 

EBITDA

 

173.9

 

157.8

 

81.0

 

(102.6

)

310.1

 

Adjustments

 

10.6

 

2.6

 

(4.9

)

56.7

 

65.0

 

Adjusted EBITDA

 

$

184.5

 

$

160.4

 

$

76.1

 

$

(45.9

)

$

375.1

 

 

Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters.  The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented:

 

 

 

Three Months Ended

 

Twelve
Months
Ended

 

(Dollars in millions), 
(Unaudited)

 

December
31, 2011

 

March 31,
2012

 

June 30,
2012

 

September
30, 2012

 

September
30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

14.5

 

$

26.0

 

$

23.9

 

$

19.2

 

$

83.6

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

9.0

 

18.4

 

20.2

 

13.8

 

61.4

 

Interest expense, net of interest income

 

30.7

 

30.3

 

29.6

 

29.8

 

120.4

 

Depreciation and amortization

 

48.3

 

48.6

 

48.0

 

46.8

 

191.7

 

EBITDA

 

102.5

 

123.3

 

121.7

 

109.6

 

457.1

 

Nonrecurring charges

 

5.2

 

5.4

 

3.2

 

4.0

 

17.8

 

Noncash charges

 

7.1

 

9.1

 

6.1

 

6.8

 

29.1

 

AFC interest expense

 

(2.7

)

(2.9

)

(2.9

)

(3.1

)

(11.6

)

Adjusted EBITDA

 

$

112.1

 

$

134.9

 

$

128.1

 

$

117.3

 

$

492.4

 

 

3



 

Segment Results

 

ADESA Results

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(Dollars in millions)

 

2012

 

2011

 

2012

 

2011

 

ADESA revenue

 

$

257.0

 

$

241.3

 

$

791.4

 

$

767.1

 

Cost of services*

 

147.2

 

137.7

 

442.6

 

436.4

 

Gross profit*

 

109.8

 

103.6

 

348.8

 

330.7

 

Selling, general and administrative

 

61.6

 

50.1

 

189.6

 

157.6

 

Depreciation and amortization

 

23.5

 

20.8

 

73.6

 

63.2

 

Operating profit

 

$

24.7

 

$

32.7

 

$

85.6

 

$

109.9

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

48.8

 

$

53.7

 

$

160.9

 

$

173.9

 

Adjustments

 

5.6

 

3.7

 

16.5

 

10.6

 

Adjusted EBITDA

 

$

54.4

 

$

57.4

 

$

177.4

 

$

184.5

 

 


* Exclusive of depreciation and amortization

 

Revenue for ADESA for the three months ended September 30, 2012, increased $15.7 million, or 7%, to $257.0 million, as compared with $241.3 million for the three months ended September 30, 2011.  Gross profit for ADESA increased $6.2 million, or 6%, to $109.8 million, as compared with $103.6 million for the three months ended September 30, 2011.  Gross margin for ADESA was 42.7% for the three months ended September 30, 2012 versus 42.9% for the three months ended September 30, 2011.  The increases in revenue and gross profit were primarily a result of a 14% increase in the number of vehicles sold, partially offset by a 6% decrease in revenue per vehicle sold, both as compared to the three months ended September 30, 2011.  Selling, general and administrative expense increased $11.5 million to $61.6 million, primarily due to the acquisition and integration of OPENLANE, which accounted for approximately $9.0 million of the increase, as well as an increase in incentive-based compensation expense, a loss on the sale of idle property and an increase in professional fees, partially offset by decreases in cash and stock-based compensation expense.

 

Revenue for ADESA for the nine months ended September 30, 2012, increased $24.3 million, or 3%, to $791.4 million, as compared with $767.1 million for the nine months ended September 30, 2011.  Gross profit for ADESA increased $18.1 million, or 5%, to $348.8 million, as compared with $330.7 million for the nine months ended September 30, 2011.  Gross margin for ADESA was 44.1% for the nine months ended September 30, 2012 versus 43.1% for the nine months ended September 30, 2011.  The increases in revenue and gross profit were primarily a result of an 11% increase in the number of vehicles sold, partially offset by a 7% decrease in revenue per vehicle sold, both as compared to the nine months ended September 30, 2011.  Selling, general and administrative expense increased $32.0 million to $189.6 million, due primarily to the acquisition and integration of OPENLANE, which accounted for approximately $29.6 million of the increase, as well as an increase in incentive-based compensation expense and a loss on the sale of idle property, partially offset by decreases in cash and stock-based compensation expense, as well as fluctuations in the Canadian exchange rate.

 

For the three months ended September 30, 2012, ADESA’s used vehicle conversion percentage at physical auction locations declined to 55.3% as compared to 57.3% for the three months ended September 30, 2011.  For the nine months ended September 30, 2012, ADESA’s used vehicle conversion percentage at physical auction locations declined to 57.8% as compared to 61.6% for the nine months ended September 30, 2011.  The decrease in conversion rate was primarily due to the relative increase in dealer consignment vehicles sold.

 

4



 

IAA Results

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(Dollars in millions)

 

2012

 

2011

 

2012

 

2011

 

IAA revenue

 

$

167.4

 

$

164.7

 

$

534.1

 

$

513.8

 

Cost of services*

 

106.0

 

100.0

 

322.8

 

301.4

 

Gross profit*

 

61.4

 

64.7

 

211.3

 

212.4

 

Selling, general and administrative

 

14.8

 

20.3

 

52.7

 

59.9

 

Depreciation and amortization

 

17.1

 

16.4

 

50.8

 

48.9

 

Operating profit

 

$

29.5

 

$

28.0

 

$

107.8

 

$

103.6

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

46.8

 

$

43.1

 

$

158.1

 

$

157.8

 

Adjustments

 

(2.2

)

3.8

 

0.3

 

2.6

 

Adjusted EBITDA

 

$

44.6

 

$

46.9

 

$

158.4

 

$

160.4

 

 


* Exclusive of depreciation and amortization

 

Revenue from IAA for the three months ended September 30, 2012 increased $2.7 million, or 2%, to $167.4 million, as compared with $164.7 million for the three months ended September 30, 2011.  Gross profit at IAA decreased to $61.4 million, as compared with $64.7 million for the three months ended September 30, 2011, while the gross margin percentage decreased to 36.7% for the three months ended September 30, 2012, as compared with 39.3% for the three months ended September 30, 2011.  The increase in revenue was a result of an increase in vehicles sold of approximately 5% for the three months ended September 30, 2012, including an increase in vehicles sold under purchase agreements.  Selling, general and administrative expense decreased $5.5 million, or 27%, to $14.8 million, as compared with $20.3 million for the three months ended September 30, 2011.  The decrease in selling, general and administrative expenses was attributable to a gain on the sale of excess property, as well as decreases in stock-based and incentive-based compensation expense.

 

Revenue from IAA for the nine months ended September 30, 2012 increased $20.3 million, or 4%, to $534.1 million, as compared with $513.8 million for the nine months ended September 30, 2011.  Gross profit at IAA decreased to $211.3 million, as compared with $212.4 million for the nine months ended September 30, 2011.  Gross margin for IAA was 39.6% for the nine months ended September 30, 2012 versus 41.3% for the nine months ended September 30, 2011.  The increase in revenue for the nine months ended September 30, 2012 was primarily a result of a 5% increase in vehicles sold, including vehicles sold under purchase agreements.  Selling, general and administrative expense decreased $7.2 million, or 12%, to $52.7 million, as compared with $59.9 million for the nine months ended September 30, 2011.  The decrease in selling, general and administrative expenses was attributable to a gain on the sale of excess property, as well as decreases in stock-based and incentive-based compensation expense.

 

5



 

AFC Results

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(Dollars in millions except volumes and per loan amounts)

 

2012

 

2011

 

2012

 

2011

 

AFC revenue

 

$

50.5

 

$

43.1

 

$

144.2

 

$

125.6

 

Cost of services*

 

10.9

 

9.6

 

31.3

 

28.4

 

Gross profit*

 

39.6

 

33.5

 

112.9

 

97.2

 

Selling, general and administrative

 

5.0

 

5.6

 

16.1

 

16.2

 

Depreciation and amortization

 

5.7

 

6.2

 

17.6

 

18.6

 

Operating profit

 

$

28.9

 

$

21.7

 

$

79.2

 

$

62.4

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

34.6

 

$

27.9

 

$

96.8

 

$

81.0

 

Adjustments

 

(2.6

)

(1.9

)

(7.4

)

(4.9

)

Adjusted EBITDA

 

$

32.0

 

$

26.0

 

$

89.4

 

$

76.1

 

 

 

 

 

 

 

 

 

 

 

Loan transactions

 

313,079

 

269,131

 

924,892

 

792,874

 

Revenue per loan transaction

 

$

161

 

$

160

 

$

156

 

$

158

 

 


* Exclusive of depreciation and amortization

 

Revenue for AFC for the three months ended September 30, 2012 increased $7.4 million, or 17%, to $50.5 million, as compared with $43.1 million for the three months ended September 30, 2011.  Gross profit at AFC increased $6.1 million, or 18%, to $39.6 million, as compared with $33.5 million for the three months ended September 30, 2011.  Gross margin for AFC for the third quarter of 2012 and 2011 was 78%.  The increases in revenue and gross profit were primarily a result of a 16% increase in loan transaction units, as well as an increase in revenue per loan transaction.  Revenue per loan transaction increased primarily as a result of a decrease in the provision for credit losses and an increase in the average portfolio duration, partially offset by a decrease in floorplan and other fee income, as well as a decrease in average loan values.  Selling, general and administrative expense for the three months ended September 30, 2012 decreased $0.6 million to $5.0 million, primarily as a result of decreases in incentive-based and stock-based compensation expense.

 

Revenue for AFC for the nine months ended September 30, 2012 increased $18.6 million, or 15%, to $144.2 million, as compared with $125.6 million for the nine months ended September 30, 2011.  Gross profit at AFC increased $15.7 million, or 16%, to $112.9 million, as compared with $97.2 million for the nine months ended September 30, 2011.  Gross margin for AFC was 78% for the nine months ended September 30, 2012 versus 77% for the nine months ended September 30, 2011.  The increases in revenue and gross profit were primarily a result of a 17% increase in loan transaction units, partially offset by a 1% decrease in revenue per loan transaction.  The decrease in revenue per loan transaction was primarily a result of a decrease in average loan values and a decrease in floorplan and other fee income, partially offset by an increase in the average portfolio duration. Selling, general and administrative expense decreased $0.1 million to $16.1 million, primarily as a result of decreases in professional fees and stock-based compensation expense, partially offset by increases in compensation expense and postage expense.

 

6



 

LIQUIDITY AND CAPITAL RESOURCES

 

The company believes that the significant indicators of liquidity for its business are cash on hand, cash flow from operations, working capital and amounts available under its credit facility.  The company’s principal sources of liquidity consist of cash generated by operations and borrowings under its revolving credit facility.

 

(Dollars in millions)

 

September 30,
2012

 

December 31,
2011

 

September 30,
2011

 

Cash and cash equivalents

 

$

163.7

 

$

97.4

 

$

203.6

 

Restricted cash

 

7.7

 

8.2

 

6.7

 

Working capital

 

319.4

 

177.0

 

330.6

 

Amounts available under credit facility*

 

250.0

 

181.1

 

250.0

 

Cash flow from operations

 

238.0

 

 

 

205.5

 

 


* KAR Auction Services, Inc. has a $250 million revolving line of credit as part of the company’s Credit Agreement, which was undrawn as of September 30, 2012.  There were related outstanding letters of credit totaling approximately $22.8 million, $28.5 million and $28.8 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively, which reduce the amount available for borrowings under the credit facility.

 

For the nine months ended September 30, 2012, the Company used cash of $68.9 million to repay borrowings on the revolving credit facility and $60.8 million to purchase property, plant, equipment and computer software.

 

Non-GAAP Financial Measures

 

The company provides historical and forward-looking non-GAAP measures called EBITDA, Adjusted EBITDA, adjusted net income and adjusted net income per share. Management believes that these measures provide investors additional meaningful methods to evaluate certain aspects of the company’s results period over period and for the other reasons set forth previously.

 

Earnings guidance also does not contemplate future items such as business development activities, strategic developments (such as restructurings or dispositions of assets or investments), significant expenses related to litigation and changes in applicable laws and regulations (including significant accounting and tax matters).  The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company’s reported results for any given period.  Prospective quantification of these items is generally not practicable.  Forward-looking non-GAAP guidance excludes stock-based compensation under certain equity grants related to the 2007 merger, increased depreciation and amortization expense that resulted from the 2007 revaluation of the company’s assets, as well as one-time charges, net of taxes.

 

7