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 $-