Insurance Auto Auctions Announces Fourth Quarter Results
SCHAUMBURG, Ill., Feb. 28 -- Insurance Auto Auctions, Inc. , a leading provider of automotive salvage and claims processing services in the United States, today reported improved earnings for the quarter ended December 29, 2002. The Company reported adjusted net earnings, excluding the after-tax effects of business transformation costs in both years and goodwill and special charges in 2001, of $1.5 million, or $0.12 per diluted share, versus adjusted net earnings of $0.2 million, or $0.01 per diluted share for the same quarter a year ago. Net earnings for the fourth quarter of 2002 was $0.5 million, or $0.04 per diluted share versus a net loss of $4.7 million or ($0.39) per diluted share for the fourth quarter of 2001.
Tom O'Brien, Chief Executive Officer, said, "We are pleased to announce the fourth consecutive quarter of solid earnings. Although we experienced lower volumes and gross proceeds in the fourth quarter compared to the prior year, we delivered significantly higher profitability on a year-over-year basis. This increased profitability is primarily due to our newly streamlined operations and a continued focus on improving efficiencies throughout the organization."
Revenues for the quarter decreased to $52.4 million compared with $68.7 million in the fourth 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 8 percent of the total vehicles sold during the fourth quarter versus 17 percent for the same quarter one year earlier. 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 fourth quarter decreased to $39.4 million versus $40.0 million in the fourth quarter of last year. Gross proceeds for the fourth quarter of 2002 were $167.2 million, down $0.2 million from the same quarter of last year.
Full-Year 2002 Results
The Company's adjusted net earnings for the year, excluding the after-tax effects of business transformation costs in both years and goodwill and special charges in 2001, totaled $8.8 million, or $0.70 per diluted share versus adjusted net earnings of $7.8 million, or $0.65 per diluted share in 2001. Net earnings for 2002 of $4.0 million, or $0.32 per diluted share, improved from a net loss of $4.4 million, or $(0.37) per share in 2001.
Revenues for the year were $234.2 million, a 20.0 percent decline from revenues of $293.0 million in 2001. Similar to the fourth quarter, the decline in annual revenues was primarily attributable to the change in revenue mix, stemming from the move away from the purchase agreement method of sale. Gross proceeds for the year were $739.8 million, up 9.5 percent over gross proceeds of $675.8 million for the full year 2001.
Continued Focus on Strategic Initiatives
"The strategic initiatives outlined over a year ago have clearly had a positive impact across the company. Our overall business has become much more stable than in the past and we have significantly improved our ability to service customers," said O'Brien. "Despite softer volume, in the second half of the year, we still made significant strides in profitability year-over-year and repositioned the business to support even greater earnings growth going forward."
O'Brien added, "Our team did a commendable job in delivering on one of our most critical strategic goals for 2002 - transitioning the business away from the purchase agreement method of sale. This success, we believe, will translate into a more consistent revenue stream and a lowered risk of doing business. This allowed us to achieve our business mix goal for the year, as vehicles sold under purchase agreements made up less than 10 percent of total volume in 2002, compared to 26 percent in 2000 and 19 percent in 2001. Furthermore, the transition was completed with a minimal impact on our customer base."
The fourth quarter marked the second full quarter in which the new operating procedures were in place throughout the company. Building on the implementation phase completed in the first half of the year, the Company's operational audit group performed comprehensive audits of roughly half of its branches to check for compliance with the standard operating procedures. These audits and related key metrics confirm the positive impact this process has had on proceeds, cycle times and the Company's overall cost structure.
"During the fourth quarter we continued to take major steps toward completing the implementation of the new system throughout the company," O'Brien said. "To this point we have successfully converted 20 of our 28 databases and are live in these markets. The system's overall capabilities have been well received by our employees and the visibility it provides to manage our business has been excellent. Some branch implementations are taking longer in order to provide customized solutions tailored to individual markets and to make sure the system fits the needs of our customers. We anticipate completing the implementation of the new system in the second quarter."
Continuing to focus on strategic expansion, in 2002 the Company acquired a branch in Springfield, Missouri. The Company also opened three new operations during the year in Oklahoma City, Oklahoma; Duluth, Minnesota; and Baton Rouge, Louisiana. Each of these new facilities leverages the Company's existing regional coverage. In the first two months of 2003, the Company acquired two branches in Buffalo and Rochester, New York, and also opened greenfields in Dothan, Alabama and Little Rock, Arkansas.
O' Brien concluded, "2002 was a challenging yet defining year for the Company. During the year we focused on positioning the Company for the future by diligently executing the strategic initiatives outlined in the beginning of the year, including a substantial reduction of volume derived from purchase agreement contracts, the implementation of standard operating procedures, the development of our new enterprise-wide IT system and the continued growth in regional coverage. The Company is a much stronger organization now than it was a year ago and we are confident in our ability to compete on a national level going forward. We look forward to updating our customers and shareholders alike on our success in the year ahead."
Quarterly Conference Call
The Company previously announced that it will hold its fourth quarter 2002 results conference call on Friday, February 28 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 the Company's Web site at www.iaai.com . A replay will be available until midnight EST on March 7, 2003. To listen to the replay, please dial 800-642-1687 and enter conference reservation code 8494936 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 69 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: 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; changes in the market value of salvage; 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 suppliers; 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
(in thousands except per share amounts)
Three Months Ended Years Ended
Dec. 29, Dec. 30, Dec. 29, Dec. 30,
2002 2001 2002 2001
(unaudited) (unaudited)
Revenues:
Vehicle sales $13,083 $28,650 $71,352 $138,427
Fee income 39,358 40,016 162,845 154,563
52,441 68,666 234,197 292,990
Cost of sales:
Vehicle cost 11,935 28,113 65,463 131,683
Branch cost 30,728 33,841 125,530 122,867
42,663 61,954 190,993 254,550
Gross Profit 9,778 6,712 43,204 38,440
Operating expense:
Selling, general and
administration 7,143 7,383 27,404 28,127
Amortization of intangible
assets 87 1,031 307 4,055
Business transformation costs 1,813 2,699 8,067 3,451
Special charges - 1,969 - 8,016
Earnings (loss) from operations 735 (6,370) 7,426 (5,209)
Other (income) expense:
Interest expense (84) 435 678 1,788
Interest income (55) (137) (275) (1,025)
Earnings (loss) before income
taxes 874 (6,668) 7,023 (5,972)
Provision (benefit) for income
taxes 373 (1,988) 3,015 (1,612)
Net earnings (loss) $501 $(4,680) $4,008 $(4,360)
Earnings (loss) per share:
Basic $ .04 $(.39) $ .33 $(.37)
Diluted $ .04 $(.39) $ .32 $(.37)
Weighted average shares
outstanding:
Basic 12,271 12,077 12,235 11,940
Effect of dilutive securities
- stock options 235 - 296 -
Diluted 12,506 12,077 12,531 11,940
Other data
Gross proceeds $167,166 $167,430 $739,836 $675,772
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands except per share amounts)
December 29, December 30,
2002 2001
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $10,027 $24,467
Accounts receivable, net 45,594 54,674
Inventories 11,158 13,505
Short-term investments - 2,131
Other current assets 3,571 4,165
Total current assets 70,350 98,942
Property and equipment, net 49,342 39,655
Deferred income taxes 7,663 7,827
Investments in marketable securities - 512
Intangible assets, net 1,710 1,617
Goodwill, net 130,474 129,522
Other assets 111 129
$259,650 $278,204
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $28,656 $41,451
Accrued liabilities 15,312 12,165
Obligations under capital leases 2,552 -
Current installments of long-term debt 43 20,040
Total current liabilities 46,563 73,656
Deferred income taxes 14,835 12,172
Other liabilities 2,736 3,279
Obligation under capital leases 1,355 -
Long-term debt, excluding current installments 59 103
Total liabilities 65,548 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 12,292,599 and 12,162,290 shares
as of December 29, 2002 and December 30, 2001,
respectively 12 12
Additional paid-in capital 144,420 142,575
Accumulated other comprehensive income (loss) (745) -
Retained earnings 50,415 46,407
Total shareholders' equity 194,102 188,994
$259,650 $278,204
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
Years Ended
Dec. 29, Dec. 30,
2002 2001
(Unaudited)
Cash flows from operating activities:
Net earnings (loss) $4,008 $(4,360)
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization 9,901 10,649
Gain on disposal of fixed assets (104) (439)
Special charges - 8,016
Loss on change in fair market value of
derivative 307 -
Changes in assets and liabilities (excluding
effects of acquired companies):
(Increase) decrease in:
Accounts receivable, net 9,180 (6,673)
Inventories 2,347 (2,917)
Other current assets 594 (1,053)
Other assets (64) 113
Increase (decrease) in:
Accounts payable (12,795) 3,221
Accrued liabilities 2,289 612
Deferred income taxes, net 2,827 (970)
Total adjustments 14,482 10,559
Net cash provided by operating activities 18,490 6,199
Cash flows from investing activities:
Capital expenditures (15,241) (20,765)
Proceeds from sale of investments 2,643 4,456
Proceeds from disposal of property and
equipment 187 4,094
Payments made in connection with acquired
companies, net of cash acquired (1,510) (6,033)
Net cash used in investing activities (13,921) (18,248)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,845 5,613
Principal payments on long-term debt (20,041) (35)
Principal payments - capital leases (813) -
Net cash (used in) provided by financing
activities (19,009) 5,578
Net decrease in cash and cash equivalents (14,440) (6,471)
Cash and cash equivalents at beginning of period 24,467 30,938
Cash and cash equivalents at end of period $10,027 $24,467
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $1,433 $1,733
Income taxes paid $2,492 $7
Income taxes refunded $3,860 $-
Non-cash financing activities:
Capital leases $4,720 $-