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Insurance Auto Auctions Announces Third Quarter Results

SCHAUMBURG, Ill., Oct. 25 Insurance Auto Auctions, Inc.,
a leading provider of automotive
salvage and claims processing services in the United States, today reported
higher earnings for the quarter ended September 29, 2002.  The Company
recorded net earnings, excluding business transformation costs, of
$1.8 million, or $0.15 per diluted share, versus $0.2 million, or $0.02 per
diluted share for the same quarter a year ago.  Net earnings for the third
quarter of 2002, were $0.6 million, or $0.05 per diluted share versus a loss
of $0.02 per diluted share for the third quarter last year.
    Gross vehicle sales proceeds for the third quarter of 2002 were
$181.5 million, up $13.6 million or 8.1 percent from the same quarter of last
year.  Revenues for the quarter decreased 25.6 percent to $52.8 million
compared with $71.0 million in the third 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 7.8 percent of the total vehicles sold during the third quarter
versus 18.4 percent for the same quarter one year ago.  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 the vehicle are recorded as revenue.
Fee income in the third quarter rose 2.6 percent to $39.3 million versus
$38.3 million in the third quarter of last year.
    Excluding the impact of business transformation costs and goodwill
amortization from both years, earnings from operations for the quarter totaled
$3.2 million compared to $1.7 million last year.  The Company no longer
amortizes goodwill arising from business acquisitions.  The effect on the
current quarter was a reduction in amortization expense of approximately
$0.9 million.

    Focus on Strategic Initiatives
    Tom O'Brien, Chief Executive Officer, said, "The strategic initiatives we
set in motion over a year ago have really begun to take root, and the positive
impact is evident in our financial results for the quarter.  The third quarter
was yet another period of stable cash flow and earnings, and our third
consecutive quarter of profitability even after business transformation costs.
In addition, the new business operating procedures are in full swing, the new
system installation is well underway and purchase agreements continue to make
up a smaller percentage of our revenue stream."
    O'Brien added, "Purchase agreement contracts continued to decline as a
percentage of overall sales in the quarter, with that method of sale
representing less than eight percent of total sales during the quarter.  We
are confident that vehicles sold under purchase agreements will fall under
10 percent for the year.   We also took the final step to exit our remaining
purchase agreements and are happy to report that we do not expect any loss of
volume associated with the transition away from these agreements."
    The third quarter marked the first full quarter in which the new operating
procedures, developed as part of the business process re-engineering project,
were in place throughout the organization.  IAA has adopted these new "best
practices" in order to standardize operations and create efficiencies, all in
an effort to eliminate unnecessary costs and provide better service to
customers.  The changes are apparent in the quarterly results which reflect
lower branch and operating expenses.  During the third quarter, Synergetics
also helped transition the project to IAA's own operational audit group to
ensure compliance and a mechanism for continuous improvement.
    On the systems front, O'Brien said, "This quarter we made significant
strides in installing the new system.  We have successfully converted 9 of our
28 databases and are live on the new system in those markets.  Data conversion
has gone better than expected and we are extremely pleased with the system's
overall capabilities and the visibility it provides to manage our business and
meet our customer needs.  The deployment of the system, however, has not
proceeded as rapidly as originally scheduled for a number of reasons.  We have
addressed the relevant issues, continue to enhance the system and ultimately
will end up with a better product.  As a result, we are anticipating
completion of the new system implementation in the first quarter of 2003.  It
is important to note that our experience with the system rollout to date
confirms our original projection of $10 to $15 million in annual savings as a
result of our combined operations and system initiatives.  We also expect the
total cost for the new system to be within our earlier estimate of
$10 million."
    In September, IAA announced the opening of a greenfield facility in Baton
Rouge, Louisiana.  This 24-acre facility is currently serving both Southern
and Central Louisiana.  The new facility represents IAA's first branch in the
state and complements existing operations in neighboring Texas.  Immediately
following its opening, the Baton Rouge branch began servicing a significant
customer in the vicinity and plans to hold its first auction next month.
    O'Brien concluded, "This is an exciting time for our customers and our
employees.  While we have come a long way toward reaching our goal, we remain
focused on the tasks at hand and completion of our key initiatives.  We are
much better positioned for the future from a competitive standpoint than we
were a year ago, and we look forward to reporting our progress in the coming
quarters."

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 66 sites
across the United States.

                        INSURANCE AUTO AUCTIONS, INC.
                               AND SUBSIDIARIES
               Condensed Consolidated Statements of Operations
               (dollars in thousands except per share amounts)

                         Three Month Periods Ended   Nine Month Periods Ended
                          September    September      September    September
                             29,          30,            29,           30,
                            2002          2001           2002         2001
                                (Unaudited)                 (Unaudited)

    Revenues:
      Vehicle sales        $13,459       $32,618       $58,269     $109,777
      Fee income            39,327        38,348       123,487      114,547
                            52,786        70,966       181,756      224,324
    Cost and Expenses:
      Cost of sales         12,669        31,651        53,528      103,570
      Branch cost           30,609        30,986        94,802       89,026
                            43,278        62,637       148,330      192,596
        Gross profit         9,508         8,329        33,426       31,728

    Operating expense:
      Selling, general and
       administration        6,279         6,623        20,261       20,744
      Amortization of
       intangible assets        86         1,013           220        3,024
      Business
       transformation
       costs                 2,068           668         6,254          752
      Special charges            -             -             -        6,047

      Earnings from
       operations            1,075            25         6,691        1,161

    Other (income) expense:
      Interest expense          38           441           762        1,353
      Interest income          (81)         (205)         (220)        (888)

      Earnings before
       income taxes          1,118          (211)        6,149          696

    Provision for
     income taxes              479            (5)        2,642          376

        Net earnings (loss)   $639         $(206)       $3,507         $320

    Earnings per share:
      Basic                   $.05         $(.02)         $.29         $.03
      Diluted                 $.05         $(.02)         $.28         $.03

    Weighted average
     shares outstanding:
      Basic                 12,244        12,077        12,223       11,868
      Effect of dilutive
       securities - stock
       options                 308             -           305          158
      Diluted               12,552        12,077        12,528       12,026

    Other data
      Gross proceeds      $181,518      $167,937      $572,670     $511,390


                        INSURANCE AUTO AUCTIONS, INC.
                               AND SUBSIDIARIES

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

                                                September 29,   December 30,
                                                     2002           2001
    ASSETS                                       (Unaudited)

    Current assets:
      Cash and cash equivalents                    $18,235        $24,467
      Accounts receivable, net                      44,780         54,674
      Inventories                                    8,719         13,505
      Short-term investments                             -          2,131
      Other current assets                           1,920          4,165
        Total current assets                        73,654         98,942

    Property and equipment, net                     45,419         39,240
    Deferred income taxes                            8,076          7,827
    Investments in marketable securities                 -            512
    Intangible assets, net                           1,797          1,617
    Goodwill, net                                  130,474        129,522
    Other assets                                       106            544

                                                  $259,526       $278,204

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:
      Accounts payable                             $32,149        $41,451
      Accrued liabilities                           11,921         10,920
      Accrued special charges                          791          1,245
      Obligations under capital leases               1,838              -
      Income taxes                                   2,700              -
      Current installments of long-term debt            42         20,040
        Total current liabilities                   49,441         73,656

    Deferred income taxes                           12,685         12,172
    Other liabilities                                2,820          3,279
    Obligation under capital leases                  1,362              -
    Long-term debt, excluding
     current installments                               70            103
        Total liabilities                           66,378         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 12,245,749 and 12,162,290 shares
     as of September 29, 2002 and
     December 30, 2001, respectively                    12             12
    Additional paid-in capital                     143,794        142,575
    Accumulated other comprehensive income (loss)     (572)             -
    Retained earnings                               49,914         46,407
        Total shareholders' equity                 193,148        188,994

                                                  $259,526       $278,204


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

                                                      Nine Months Ended
                                                September 29,   September 30,
                                                     2002           2001
                                                 (Unaudited)
    Cash flows from operating activities:
    Net earnings                                    $3,507          $320
    Adjustments to reconcile net
     earnings to net cash
     provided by operating activities:
      Depreciation and amortization                  7,041         7,663
      Loss (gain) on disposal of fixed assets           30          (411)
      Special charges                                    -         6,047
      Loss on change in fair market
       value of derivative                             450             -
      Changes in assets and liabilities
       (net of effects of acquired companies):
      (Increase) decrease in:
        Accounts receivable, net                     9,994        (4,291)
        Inventories                                  4,786        (4,993)
        Other current assets                         2,245        (1,495)
        Other assets                                   (61)           85
      Increase (decrease) in:
        Accounts payable                            (9,302)        3,877
        Accrued liabilities                           (369)       (4,167)
        Deferred income taxes, net                   2,964         1,032
          Total adjustments                         17,778         3,347

      Net cash provided by operating activities     21,285         3,667

    Cash flows from investing activities:
      Capital expenditures                          (9,600)      (15,845)
      Investments, net                               2,643         2,189
      Proceeds from disposal of fixed assets           175         3,975
      Payments made in connection with
       acquired companies, net of cash acquired     (1,510)         (105)

        Net cash used in investing activities       (8,292)       (9,786)

    Cash flows from financing activities:
      Proceeds from issuance of common stock         1,216         5,084
      Principal payments on long-term debt         (20,035)          (28)
      Principal payments - Capital leases             (406)            -

    Net cash (used) provided by
     financing activities                          (19,225)        5,056

    Net decrease in cash and cash equivalents       (6,232)       (1,063)

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

    Cash and cash equivalents at end of period     $18,235       $29,875

    Supplemental disclosures of
     cash flow information:
      Cash paid or refund during the period for:
        Interest                                    $1,160        $1,720
        Income taxes paid                            2,500            $7
        Income taxes refunded                       $3,860            $-