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Insurance Auto Auctions Announces Fourth Quarter 2003 Results

SCHAUMBURG, Ill., Feb. 27, 2004 -- Insurance Auto Auctions, Inc. , a leading provider of automotive salvage and claims processing services in the United States, today reported a net loss for the quarter ended December 28, 2003. The Company recorded a net loss of $0.3 million, or a loss of $0.03 per diluted share, versus net earnings of $0.5 million, or $0.04 per diluted share, for the same quarter a year ago.

Revenues for the quarter were $51.1 million compared with $52.4 million in the fourth quarter of 2002. The decline in revenues was primarily due to the Company's shift away from vehicles sold under the purchase agreement method and lower volumes on a same-store basis. The purchase agreement method accounted for 4 percent of the total vehicles sold this quarter versus 8 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 increased to $43.5 million versus $39.4 million in the fourth quarter of last year.

"Our fourth quarter results were in-line with our internal expectations," said Tom O'Brien, CEO. "As the quarter progressed, we were also encouraged by signs of a strengthening operating environment, which included higher incoming volumes and higher proceeds for our customers, and positive market share trends. Finally, during the quarter we completed the conversion of our eagerly anticipated IT system throughout the organization, which we expect to drive additional efficiencies and profits for IAA going forward."

Full-Year 2003 Results

The Company reported full-year 2003 net earnings of $2.3 million, or $0.20 per diluted share, versus net earnings of $4.0 million, or $0.32 cents per diluted share, for 2002. The primary reasons for the decline included higher-than-expected business transformation costs during the year associated with the new IT system and lower volumes, consistent with industry trends.

Revenues for the year were $209.7 million, a 10 percent decline from revenues of $234.2 million in 2002. 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. For the year, the purchase agreement method accounted for 6 percent of the total vehicles sold versus 10 percent in 2002.

"The past year, which represented a period of continued transition and overall improvement at IAA, was extremely difficult due to challenges related to rolling out the new system and lower industry volumes," said O'Brien. "While our financial results were clearly below our original expectations, we met our revised full-year guidance estimates and remained profitable throughout a difficult market. We also demonstrated positive market share trends that bode well for the future. We added eight new branches during the year and continued to invest in our existing infrastructure in order to grow the profitability of our core business. Furthermore, we completed the Company's largest infrastructure enhancement ever with the implementation of our new industry-wide IT system, significantly changing the face of IAA for the better. This specific initiative took more than two years to complete and will help drive better products and services for our customers in the quarters ahead."

Leveraging IAA's Improved Infrastructure

"The strategic initiatives that we executed on over the past year have put IAA in a much stronger competitive position than it was a year ago," said O'Brien. "Our technology system is already contributing to better visibility for our management team and employees and, as a result, we are now able to better meet the needs of our customers. Furthermore, we continued to show our commitment to cost effectively expanding the business through the addition of new facilities and made the necessary investment to keep our existing operations up-to-date. Each of these achievements makes IAA a more attractive partner for both our insurance company suppliers and our buyers."

Remaining committed to its strategic expansion strategy, IAA announced eight new facilities in 2003, bringing the Company's branch total to 74 facilities at year-end. New greenfield facilities were announced in Dothan, Alabama, and Little Rock, Arkansas, each of which cost effectively leverages the Company's existing regional coverage. IAA also announced acquisitions in Buffalo and Rochester, New York, Wilmington, North Carolina, Wichita, Kansas, Orlando, Florida and Salt Lake City, Utah. These acquisitions represent solid businesses that enhanced the Company's geographic coverage in a cost effective manner and generated immediate profits and cash flow on invested capital. Most recently, IAA announced a new greenfield facility in Tucson, Arizona, which leverages the Company's current coverage in Phoenix.

"In the coming months we will be placing a major focus on fully leveraging the new IT system that we have spent such a considerable amount of time and money developing and rolling out throughout the organization," said O'Brien. "We are already recognizing its benefits from a visibility and customer service standpoint, and the anticipated cost savings are also beginning to present themselves. In addition, we will continue to invest in our existing facilities and will attempt to identify new expansion opportunities that offer our shareholders an acceptable return on their investment."

O'Brien concluded, "Although the past two years have been very challenging due to the massive transformation we underwent as a company, IAA has been strengthened considerably as a result of our efforts. Now that the Company's foundation has been solidified, we are excited about the new opportunities that will arise with our enhanced technology and infrastructure, combined with our unwavering focus on providing excellent customer service. Recent customer wins have demonstrated that our customers are accepting our improved operations and receptive of our enhanced service offerings, and we hope to see that trend continue as we become even stronger. In light of that, we are on track to hit or exceed our 15 cent earnings target for the first quarter. We are very excited about our future and believe IAA is well positioned to compete and generate higher returns for both our customers and our shareholders over the long term."

Investors' Conference Call

The Company previously announced that it will hold its fourth quarter 2003 investors' conference call on Friday, February 27 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 5, 2004. To listen to the replay, please dial 800-642-1687 and enter conference reservation code 5412994 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 75 sites across the United States.

Safe Harbor Statement

Certain statements in this document contain 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 29, 2002 or subsequent quarterly reports. Among these risks are: changes in the market value of salvage; 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 suppliers; the ability of the Company and its outside consultants to successfully complete the re-design of the Company's information systems, both in a timely manner and according to costs and operational specifications; the ability of the Company to meet its obligations under its loan agreement and credit facility with its lenders; 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 Period Ended    Twelve Month Period Ended
                     December 28   December 29,  December 28,   December 29,
                         2003         2002           2003          2002
                     (Unaudited)                 (Unaudited)

  Revenues:
      Vehicle sales     $7,620      $13,083       $39,963        $71,352
      Fee income        43,525       39,358       169,687        162,845
                        51,145       52,441       209,650        234,197
  Cost of sales:
      Vehicle cost       6,806       11,935        35,301         65,463
      Branch cost       35,901       30,728       135,157        125,530
                        42,707       42,663       170,458        190,993

        Gross Profit     8,438        9,778        39,192         43,204

  Operating expense:
      Selling, general and
       administration    7,810        7,230        30,225         27,711
      Business transformation
       costs             1,027        1,813         3,902          8,067

      Earnings (loss)
       from operations    (399)         735         5,065          7,426

  Other (income) expense:
      Interest expense     426          (84)        1,505            678
      Interest income       65          (55)          (76)          (275)

      Earnings (loss) before
       income taxes       (890)         874         3,636          7,023

  Provision (benefit) for
   income taxes           (560)         373         1,304          3,015

      Net earnings
       (loss)            $(330)        $501        $2,332         $4,008

  Earnings (loss) per share:
       Basic             $(.03)        $.04          $.20           $.33
       Diluted           $(.03)        $.04          $.20           $.32

  Weighted average shares
   outstanding:
       Basic            11,518       12,271        11,652         12,235
       Effect of dilutive
        securities
        - stock options     --          235            80            296
       Diluted          11,518       12,506        11,732         12,531

                      INSURANCE AUTO AUCTIONS, INC.
                             AND SUBSIDIARIES

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

                                                  December 28,  December 29,
                                                      2003          2002
  ASSETS                                          (Unaudited)

  Current assets:
      Cash and cash equivalents                      $15,486       $10,027
      Accounts receivable, net                        48,375        45,594
      Inventories                                     13,602        11,158
      Other current assets                             3,099         3,571
             Total current assets                     80,562        70,350

  Property and equipment, net                         60,187        49,342
  Deferred income taxes                                9,788         7,663
  Intangible assets, net                               2,101         1,710
  Goodwill, net                                      135,062       130,474
  Other assets                                            93           111
                                                    $287,793      $259,650

  LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities:
      Accounts payable                               $35,005       $28,656
      Accrued liabilities                             14,209        15,312
      Obligations under capital leases                 2,822         2,552
      Current installments of long-term debt           7,547            43
      Total current liabilities                       59,583        46,563

  Deferred income taxes                               17,748        14,835
  Other liabilities                                    2,598         2,736
  Obligation under capital leases                      1,891         1,355
  Long-term debt, excluding current installments      16,887            59
      Total liabilities                               98,707        65,548

  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;
           12,325,482 shares issued and
           11,518,273 outstanding as of
           December 28, 2003; and
           12,292,599 shares issued and
           outstanding as of December 29, 2002            12            12
      Additional paid-in capital                     144,935       144,420
      Treasury stock, 807,209 shares                  (8,012)           --
      Deferred compensation related to
       restricted stock                                   29            --
      Accumulated other comprehensive income (loss)     (625)         (745)
      Retained earnings                               52,747        50,415
          Total shareholders' equity                 189,086       194,102
                                                    $287,793      $259,650

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

                                                         Year Ended
                                                  December 28,  December 29,
                                                      2003          2002
                                                  (Unaudited)
  Cash flows from operating activities:
  Net earnings                                       $2,332        $4,008
  Adjustments to reconcile net earnings to net cash
   provided by operating activities:
      Depreciation and amortization                  10,661         9,901
      Loss (gain) on disposal of fixed assets            54          (104)
      Loss (gain) on change in fair market value
       of derivative financial instrument              (307)          307
      Deferred compensation related to
       restricted stock                                  29            --

      Changes in assets and liabilities
       (excluding effects of acquired companies):
          (Increase) decrease in:
              Accounts receivable, net                 (752)        9,180
              Inventories                            (2,442)        2,347
              Other current assets                      489           594
              Other assets                             (975)          (64)
          Increase (decrease) in:
              Accounts payable                        6,349       (12,795)
              Accrued liabilities                      (878)        2,289
              Income taxes, net                         788         2,827
              Total adjustments                      13,016        14,482
      Net cash provided by operating activities      15,348        18,490

  Cash flows from investing activities:
      Capital expenditures                          (16,343)      (15,241)
      Investments, net                                   --         2,643
      Proceeds from disposal of property and equipment   60           187
      Payments made in connection with
       acquisitions, net of cash acquired            (7,872)       (1,510)
          Net cash used in investing activities     (24,155)      (13,921)

  Cash flows from financing activities:
      Proceeds from issuance of common stock            515         1,845
      Proceeds from term loan                        30,000            --
      Principal payments on long-term debt           (5,668)      (20,041)
      Purchase of treasury stock                     (8,012)           --
      Principal payments - capital leases            (2,569)         (813)
  Net cash provided (used) by financing activities   14,266       (19,009)

  Net increase (decrease) in cash and cash
   equivalents                                        5,459       (14,440)

  Cash and cash equivalents at beginning of period   10,027        24,467

  Cash and cash equivalents at end of period        $15,486       $10,027

  Supplemental disclosures of cash flow information:
      Cash paid or refunded during the period for:
          Interest                                   $1,639        $1,433
          Income taxes paid                            $855        $2,492
          Income taxes refunded                      $1,390        $3,860
      Non-cash financing activities:
          Property and equipment additions
           resulting from capital leases             $3,375        $4,720