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Insurance Auto Auctions Announces First Quarter Results

SCHAUMBURG, Ill., May 3 -- Insurance Auto Auctions, Inc., a leading provider of automotive salvage and claims processing services in the United States, today reported higher net earnings for the quarter ended March 31, 2002. The Company recorded net earnings of $1.5 million, or $0.12 per diluted share, versus a net loss of $1.6 million, or $0.14 per diluted share, for the same quarter a year ago. Net earnings for the first quarter of 2002, excluding business transformation costs, were $2.6 million, or $0.21 per diluted share.

Revenues for the quarter decreased 11.1 percent to $69.2 million compared with $77.8 million in the first quarter of 2001. The decline in revenues was primarily due to the Company's continued shift away from vehicles sold under the purchase agreement method. The purchase agreement method accounted for 12.7 percent of the total vehicles sold this quarter versus 20.6 percent for the same quarter last year and 15.9 percent for the fourth quarter of 2001. Under the purchase agreement method, the entire purchase price of the vehicle is recorded as revenue, compared to the lower-risk, consignment fee based arrangements, where only the fees collected on the sale of a car are recorded as revenue. This change in contract mix along with increased volumes contributed to the significant growth in fee income for the quarter. Fee income in the first quarter rose 10.2 percent to $41.5 million versus $37.6 million in the first quarter of last year.

Gross profit for the quarter increased 4.4 percent to $12.0 million from $11.5 million for the same quarter a year ago. Earnings from operations for the quarter totaled $2.8 million compared to a loss from operations of $2.7 million for last year's first quarter.

Tom O'Brien, Chief Executive Officer, said, "We are pleased with our first quarter results from both an earnings and a cash flow perspective. More importantly, we had a double digit unit volume increase compared with the first quarter of 2001, reversing the trend from the back half of last year. This momentum has continued and, as a result, we expect to have a positive second quarter as well. Most importantly, we have remained focused on executing our strategic initiatives, which we expect will make IAA a stronger and more efficient organization throughout."

The Company also announced that it adopted the provisions of Financial Accounting Standards Board (FASB) No. 142 regarding goodwill amortization. As such, the Company no longer amortizes goodwill arising from business acquisitions. The effect on the current quarter was a reduction of amortization expense by approximately $1.0 million.

Continued Focus on Strategic Initiatives

"During the quarter we continued to execute on the major strategic initiatives that we have put in place," said O'Brien. "We've remained committed to exiting the purchase agreement method of sale, which fell to 12.7 percent of all vehicles sold during the quarter. As reported earlier, new assignments of vehicles under the purchase agreement method are running at less than 7.0 percent of total assignments in. As a result, we have begun to see a positive impact on our financial results and a more predictable revenue stream."

O'Brien continued, "The new operating procedure model, which was developed with the help of Synergetics, was rolled out in approximately half of the branch offices during the first quarter, and the remaining branches should be implemented by the end of the second quarter. Our employees' reaction to the new processes has been extremely positive, and we are starting to see the financial benefits from adopting these new 'best practices'. We expect to see additional cost savings as the year progresses."

The enterprise-wide systems redesign project through SEI is on schedule, and the new system should be installed in the first branch in June of this year. The Company expects to roll out the new system to the remaining branches during the second half of the year.

In terms of strategic expansion, the Company announced the opening of a new branch operation in Oklahoma City, Oklahoma in March 2002. The 20-acre facility will serve the entire state of Oklahoma and will leverage existing operations. This location builds on IAA's strong presence in Texas and will serve to broaden the Company's reach to new and existing customers in the area.

O'Brien concluded, "This quarter was solid on all fronts -- from the ability of our business to generate solid margins and cash flows, to the continued execution of our strategic initiatives that we expect will make IAA a more efficient organization from top to bottom. We look forward to updating both our customers and investors on our progress throughout the upcoming quarters."

Quarterly Conference Call

The Company previously announced that it will hold its first quarter 2002 results conference call on Friday, May 3 at 11:00 a.m. Eastern Time. To participate by phone, please dial 877-307-4802 and ask to be connected to the Insurance Auto Auctions earnings conference call. Investors may also access the call over the Internet at www.streetevents.com or by visiting IAA's Web site at www.iaai.com. A replay will be available until midnight EST on May 10, 2002. To listen to the replay, please dial 800-642-1687 and enter conference reservation code 3757822 when prompted.

About Insurance Auto Auctions, Inc.

Insurance Auto Auctions, Inc., founded in 1982, a leader in automotive total loss and specialty salvage services in the United States, provides insurance companies with cost-effective, turnkey solutions to process and sell total-loss and recovered-theft vehicles. The Company currently has 63 sites across the United States.

Safe Harbor Statement

This press release contains forward-looking information that is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward- looking information. In some cases, you can identify forward looking statements by our use of words such as "may, will, should, anticipates, believes, expects, plans, future, intends, could, estimate, predict, projects, targeting, potential or contingent," the negative of these terms or other similar expressions. The Company's actual results could differ materially from those discussed or implied herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Company's annual report on Form 10-K for the fiscal year ended December 30, 2001 or subsequent quarterly reports. Among these risks are: accelerated departure from conducting business pursuant to the purchase agreement method of sale, which departure could adversely affect the Company's client base; fluctuations in the actual cash value of salvage vehicles; the quality and quantity of inventory available from suppliers; the ability to pass through increased towing costs; that vehicle processing time will improve; legislative or regulatory acts; competition; the availability of suitable acquisition candidates and greenfield opportunities; the ability to bring new facilities to expected earnings targets; the dependence on key insurance company contracts; the ability of the Company and its outside consultants to successfully implement standardized key processes throughout the Company's operations as well as the ability to successfully complete the re-design of the Company's information systems, both in a timely manner and according to costs and operational specifications; and the level of energy and labor costs.

Additional information about Insurance Auto Auctions, Inc. is available on the World Wide Web at www.iaai.com .

                        INSURANCE AUTO AUCTIONS, INC.
                               AND SUBSIDIARIES

               Condensed Consolidated Statements of Operations
               (dollars in thousands except per share amounts)


                                                   Three Month Periods Ended
                                                    March 31,       April 1,
                                                      2002            2001
                                                          (Unaudited)
    Revenues:
    Vehicle sales                                    $27,751        $40,217
    Fee income                                        41,469         37,627
                                                      69,220         77,844
    Cost of sales:
    Vehicle cost                                      26,057         37,192
    Branch cost                                       31,192         29,144
                                                      57,249         66,336

    Gross profit                                      11,971         11,508

    Operating Expense:
    Selling, general and administration                7,112          7,156
    Amortization of intangible assets                     67          1,006
    Business transformation costs                      1,949              -
    Special charges                                        -          6,047

    Earnings (loss) from operations                    2,843         (2,701)

    Other (income) expense:
    Interest expense                                     248            456
    Interest income                                      (57)          (368)

    Earnings (loss) before income taxes                2,652         (2,789)

    Provision (benefit) for income taxes               1,140         (1,144)

    Net earnings (loss)                               $1,512        $(1,645)

    Net earnings (loss) per share:
    Basic                                               $.12         $ (.14)
    Diluted                                             $.12         $ (.14)

    Weighted average shares outstanding:
    Basic                                             12,198         11,730
    Effect of dilutive securities -stock options         245              -
    Diluted                                           12,443         11,730



                        INSURANCE AUTO AUCTIONS, INC.
                               AND SUBSIDIARIES

                    Condensed Consolidated Balance Sheets
               (dollars in thousands except per share amounts)


                                                     March 31,    December 31,
                                                       2002          2001
                                                    (Unaudited)
    ASSETS

    Current assets:
    Cash and cash equivalents                        $15,211        $24,467
    Accounts receivable, net                          50,351         54,674
    Inventories                                       11,671         13,505
    Short-term investments                                 -          2,131
    Other current assets                               1,824          4,165
    Total current assets                              79,057         98,942


    Property and equipment, net                       40,158         39,655
    Deferred income taxes                              7,877          7,827
    Investments in marketable securities                   -            512
    Intangible assets, principally goodwill, net     131,204        131,268

                                                    $258,296       $278,204

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:
    Accounts payable                                 $39,509        $41,451
    Accrued liabilities                                9,751         10,920
    Accrued special charges                            1,029          1,245
    Income tax                                           925              -
    Current installments of long-term debt                41         20,040
    Total current liabilities                         51,255         73,656

    Deferred income taxes                             12,542         12,172
    Other liabilities                                  3,192          3,279
    Long-term debt, excluding current installments        92            103

    Total liabilities                                 67,081         89,210

    Shareholders' equity:
    Preferred stock, par value of $.001 per share
      Authorized 5,000,000 shares; none issued             -              -
    Common stock, par value of $.001 per share
      Authorized 20,000,000 shares; issued and
       outstanding
      12,215,728 and 12,162,290 shares as of
       March 31, 2002 and December 30, 2001,
       respectively                                       12             12
    Additional paid-in capital                       143,284        142,575
    Retained earnings                                 47,919         46,407

    Total shareholders' equity                       191,215        188,994

                                                    $258,296       $278,204

                        INSURANCE AUTO AUCTIONS, INC.
                               AND SUBSIDIARIES
               Condensed Consolidated Statements of Cash Flows
                            (dollars in thousands)

                                                        Three Months Ended
                                                    March 31,        April 1,
                                                      2002              2001
                                                            (Unaudited)
    Cash flows from operating activities:
    Net earnings (loss)                               $1,512        $(1,645)
    Adjustments to reconcile net earnings
     (loss) to net cash provided by
     operating activities:
    Depreciation and amortization                      2,014          2,335
    Gain on disposal of fixed assets                       -           (407)
    Special charges                                        -          6,047
    Changes in assets and liabilities
     (net of effects of acquired companies):

    (Increase) decrease in:
    Accounts receivable, net                           4,323         (1,397)
    Inventories                                        1,834         (3,686)
    Other current assets                               2,341         (2,394)
    Other assets                                         432             36
    Increase (decrease) in:
    Accounts payable                                  (1,942)         9,228
    Accrued liabilities                               (1,472)          (540)
    Deferred income taxes, net                         1,245            291
    Total adjustments                                  8,775          9,513

    Net cash provided by operating activities         10,287          7,868

    Cash flows from investing activities:
    Capital expenditures                              (2,885)        (4,928)
    Investments, net                                   2,643         (6,826)
    Proceeds from disposal of fixed assets                 -          1,340
    Payments made in connection with acquired
     companies, net of cash acquired                       -           (105)

    Net cash used in investing activities               (242)       (10,519)

    Cash flows from financing activities:
    Proceeds from issuance of common stock               709            107
    Principal payments on long-term debt             (20,010)           (10)

    Net cash (used) provided by
     financing activities                            (19,301)            97

    Net decrease in cash and cash equivalents         (9,256)        (2,554)

    Cash and cash equivalents at
     beginning of period                              24,467         30,938

    Cash and cash equivalents at end of period       $15,211        $28,384

    Supplemental disclosures of cash flow information:
    Cash paid or refund during the period for:
    Interest                                            $863           $870
    Income taxes paid                                    $24             $-
    Income taxes refunded                             $2,250             $-



                        INSURANCE AUTO AUCTIONS, INC.
                               AND SUBSIDIARIES

               Condensed Consolidated Statements of Operations
                           Supplemental Information
               (dollars in thousands except per share amounts)


                      Q1 2001    Q2 2001    Q3 2001    Q4 2001     Total
    Revenues:
    Vehicle sales     $40,217    $36,942    $32,618    $28,650   $138,427
    Fee income         37,627     38,572     38,348     40,016    154,563
                       77,844     75,514     70,966     68,666    292,990
    Cost of sales:
    Vehicle cost       37,192     34,727     31,651     28,113    131,683
    Branch cost        29,144     28,896     30,986     33,841    122,867
                       66,336     63,623     62,637     61,954    254,550

    Gross profit       11,508     11,891      8,329      6,712     38,440

    Operating Expense:
    Selling, general
     and administration 7,156      6,965      6,623      7,383     28,127
    Business
     transformation cost    -         84        668      2,699      3,451
    Amortization of
     intangible assets  1,006      1,005      1,013      1,031      4,055
    Special charges     6,047          -          -      1,969      8,016

    Earnings (loss)
     from operations   (2,701)     3,837         25     (6,370)    (5,209)

    Other (income) expense:
     Interest expense     456        456        441        435      1,788
    Interest income      (368)      (315)      (205)      (137)    (1,025)

    Earnings (loss)
     before income
     taxes             (2,789)     3,696       (211)    (6,668)    (5,972)

    Provision (benefit)
     for income taxes  (1,144)     1,525         (5)    (1,988)    (1,612)

    Net earnings
     (loss)           $(1,645)    $2,171      $(206)   $(4,680)   $(4,360)

    Net earnings (loss)
     per share:
      Basic            $(0.14)     $0.18     $(0.02)    $(0.39)    $(0.37)
      Diluted          $(0.14)     $0.18     $(0.02)    $(0.39)    $(0.37)

    Weighted average
     shares outstanding:
      Basic            11,730     11,761     11,868     12,077     11,940
    Effect of dilutive
     securities -
     stock options          -        208          -          -          -
      Diluted          11,730     11,969     11,868     12,077     11,940