ADESA and Insurance Auto Auctions Report First Quarter 2007 Results

CARMEL, Ind. & WESTCHESTER, Ill.--ADESA, Inc., a leading provider of wholesale vehicle auctions and used vehicle dealer floorplan financing, and Insurance Auto Auctions, Inc., a leading provider of automotive salvage and claims processing services in the United States, today reported their first quarter financial results.

Acquisition of ADESA by Private Equity Group

As previously announced, the acquisition of ADESA by a group of private equity funds consisting of Kelso & Company, GS Capital Partners, an affiliate of Goldman Sachs, ValueAct Capital and Parthenon Capital closed on April 20, 2007. As part of the transaction, Insurance Auto Auctions, Inc. ("IAAI") was contributed to the surviving corporation. Prior to the transaction, IAAI was owned by Kelso & Company, Parthenon Capital and certain members of its senior management. The total transaction value, including the contribution of IAAI, the assumption or refinancing of approximately $700 million of debt and the payment of related fees and expenses, was approximately $3.7 billion.

ADESA First Quarter Results

For the first quarter of 2007, ADESA reported that revenue increased 7 percent to $304.2 million, compared with $285.6 million in the first quarter of 2006. Net income for the first quarter of 2007 was $38.0 million compared with net income of $36.3 million in the first quarter of 2006. Results for the first quarter of 2007 included $2.4 million in transaction expenses related to the acquisition of ADESA by the group of private equity funds.

ADESA Segment Results

Auction Services Group (“ASG”) revenue in the first quarter of 2007 increased 6 percent from $250.4 million to $266.5 million. ASG revenue per vehicle sold increased to $474 as compared with $471 for the first quarter 2006. In addition, ASG experienced a twelve percent increase in operating profit to $54.0 million for the first quarter 2007 versus $48.1 million for the first quarter 2006. The used vehicle conversion rate for the quarter was 66.2 percent versus 66.3 percent in the first quarter of 2006.

Dealer Services Group (“DSG”) revenue in the first quarter of 2007 rose 7 percent to $37.7 million as compared to $35.2 million in last year’s first quarter. DSG loan transaction units increased ten percent to 309,379 loan transaction units in the first quarter of 2007. DSG’s first quarter operating profit increased to $23.6 million compared with $21.4 million in 2006.

IAAI First Quarter Results

IAAI recorded revenues for the quarter of $92.1 million, compared to $77.6 million in the first quarter of 2006, an increase of 19 percent. Fee income in the first quarter increased to $81.5 million versus $66.8 million in the first quarter of last year. IAAI’s earnings from operations increased from $5.5 million in the first quarter of 2006 to $9.2 million in the first quarter of 2007.

About ADESA, Inc.

Headquartered in Carmel, Indiana, ADESA, Inc. is a leading provider of wholesale vehicle auctions and used vehicle dealer floorplan financing. ADESA's operations span North America with 54 ADESA used vehicle auction sites, 42 Impact salvage vehicle auction sites and 85 AFC loan production offices. For further information on ADESA, Inc., visit the company's Web site at http://www.adesainc.com.

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, turn-key solutions to process and sell total-loss and recovered-theft vehicles. The company currently has 99 sites across the United States. Additional information about Insurance Auto Auctions, Inc. is available on the World Wide Web at http://www.iaai.com.

Accompanying Financial Statements

The accompanying unaudited consolidated financial statements and related EBITDA schedule of ADESA and IAAI have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the historical accounting policies of each company. The financial statements presented herein do not reflect any adjustments related to the April 20, 2007 closing of the acquisition of ADESA by a group of private equity funds and the related contribution of IAAI to KAR Holdings, Inc (“KAR”).

No adjustments have been made in the accompanying financial statements to reflect the fair values of the assets acquired and liabilities assumed by KAR as of the closing date of the transaction and the related allocation of purchase price. In addition, no adjustments, if any, necessary to conform ADESA’s and IAAI’s historical accounting policies are reflected in the accompanying statements. The allocation of purchase price as of the closing date will result in changes in the carrying amounts of assets and liabilities of ADESA and IAAI, and the adjustments may be material. Purchase price allocated to depreciable assets and amortizable intangible assets will result in additional depreciation and amortization expense. The transaction resulted in a new capital structure for KAR. As a result, interest expense, debt and debt issue costs will not be comparable between KAR and the predecessor companies (ADESA and IAAI).

The financial information presented herein is for information purposes only and is not intended to represent or be indicative of the post-transaction results of operations or financial positions of ADESA and IAAI, and should not be taken as representative of KAR’s future consolidated results of operations or financial position.

ADESA, Inc. Consolidated Statements of Income (In millions) (Unaudited)
	Three Months Ended March 31, 2007		Three Months Ended March 31, 2006
Operating revenues
Auction services group	$266.5		$250.4
Dealer services group	37.7		35.2
Total operating revenues	304.2		285.6
Operating expenses
Cost of services (exclusive of depreciation & amortization)	153.0		144.2
Selling, general and administrative	69.3		66.9
Depreciation and amortization	12.1		10.8
Transaction expenses (1)	2.4		--
Total operating expenses	236.8		221.9
Operating profit	67.4		63.7
Interest expense	6.3		7.0
Other income, net	(1.1)		(1.7)
Income from continuing operations before income taxes	62.2		58.4
Income taxes	24.1		22.1
Income from continuing operations	$38.1		$36.3
Loss from discontinued operations, net of income taxes	(0.1)		--
Net income	$38.0		$36.3
(1)  In the fourth quarter 2006, the Company entered into a Merger Agreement to be acquired by a group of private equity funds.  For the three months ended March 31, 2007, the Company incurred approximately $2.4 million in transaction expenses, consisting primarily of professional fees associated with the Merger Agreement.

ADESA, Inc. Condensed Consolidated Balance Sheets (In millions) (Unaudited)
		March 31, 2007		December 31, 2006
Cash and cash equivalents		$235.4		$195.7
Restricted cash		17.5		7.8
Trade receivables, net		307.9		192.8
Finance receivables, net		249.1		203.3
Retained interests in finance receivables sold		71.6		69.6
Other current assets		42.9		39.3
Total current assets		924.4		708.5
Goodwill		558.3		557.8
Intangible and other assets		109.2		111.9
Property and equipment, net		596.0		597.1
Total assets		$2,187.9		$1,975.3
Current liabilities, excluding current maturities of debt		$501.3		$353.3
Current maturities of debt		30.0		30.0
Total current liabilities		531.3		383.3
Long-term debt		315.0		322.5
Other non-current liabilities		81.2		66.0
Stockholders’ equity		1,260.4		1,203.5
Total liabilities and equity		$2,187.9		$1,975.3

ADESA, Inc. Consolidated Statements of Cash Flows (In millions) (Unaudited)
	Three Months Ended March 31, 2007		Three Months Ended March 31, 2006
Operating activities
Net income	$38.0		$36.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12.1		10.8
Bad debt expense	0.8		1.8
Deferred income taxes	0.9		1.0
Stock-based compensation expense	1.4		1.8
Other non-cash, net	1.3		0.7
	54.5		52.4
Changes in operating assets and liabilities, net of acquisitions:
Finance receivables held for sale	(35.3)		(24.1)
Retained interests in finance receivables sold	(2.0)		(9.0)
Trade receivables and other assets	(118.7)		(87.8)
Accounts payable and accrued expenses	101.9		70.7
Net cash provided by operating activities	0.4		2.2
Investing activities
Net increase in finance receivables held for investment	(9.5)		(23.2)
Acquisition of businesses, net of cash acquired	--		(29.7)
Purchases of property, equipment and computer software	(9.2)		(6.2)
Purchase of other intangibles	--		(0.2)
Equity investments	--		(12.5)
Transfer to restricted cash	(9.7)		(1.4)
Net cash used by investing activities	(28.4)		(73.2)
Financing activities
Net increase in book overdrafts	60.0		77.9
Payments on long-term debt	(7.5)		(7.5)
Proceeds from issuance of common stock under stock plans	15.1		5.4
Dividends paid to stockholders	--		(6.7)
Excess tax benefits from stock-based compensation	0.4		--
Repurchase of common stock	(0.2)		--
Net cash provided by financing activities	67.8		69.1
Effect of exchange rate changes on cash	(0.1)		0.1
Net increase (decrease) in cash and cash equivalents	39.7		(1.8)
Cash and cash equivalents at beginning of period	195.7		240.2
Cash and cash equivalents at end of period	$235.4		$238.4

Insurance Auto Auctions, Inc. Condensed Consolidated Statement of Operations (In millions) (Unaudited)
	Three Months Ended April 1, 2007		Three Months Ended March 26, 2006
Revenues
Fee income	$81.5		$66.8
Vehicle sales	10.6		10.8
Total revenues	92.1		77.6
Cost of Sales
Branch cost	56.7		48.2
Vehicle cost	9.1		9.2
Total cost of sales	65.8		57.4
Gross profit	26.3		20.2
Operating expenses
Selling, general and administrative	17.2		11.8
Loss related to flood	(0.1)		2.9
Earnings from operations	9.2		5.5
Other (income) expense
Interest expense	8.4		6.4
Other income	(0.1)		(0.1)
Income (loss) before income taxes	0.9		(0.8)
Income taxes (benefit)	0.5		(0.3)
Net income (loss)	$0.4		($0.5)

Insurance Auto Auctions, Inc. Condensed Consolidated Balance Sheets (In millions) (Unaudited)
		April 1, 2007		December 31, 2006
Cash and cash equivalents		$24.4		$14.0
Accounts receivable, net		58.7		56.6
Inventories		19.1		19.2
Income taxes receivable		0.6		1.1
Deferred income taxes		9.7		11.7
Other current assets		6.9		7.2
Total current assets		119.4		109.8
Property and equipment, net		79.0		80.2
Intangible assets, net		144.9		147.5
Goodwill		241.9		241.3
Other assets		9.7		9.7
Total assets		$594.9		$588.5
Accounts payable		$34.3		$37.5
Accrued liabilities		23.4		19.3
Obligations under capital leases		0.2		0.3
Current installments of long-term debt		2.0		2.0
Lines of credit		5.0		--
Total current liabilities		64.9		59.1
Deferred income taxes		34.2		36.1
Other liabilities		12.4		12.4
Senior notes		150.0		150.0
Long-term debt, excluding current installments		192.1		192.6
Shareholders’ equity		141.3		138.3
Total liabilities and shareholders’ equity		$594.9		$588.5

Insurance Auto Auctions, Inc. Condensed Consolidated Statement of Cash Flows (In millions) (Unaudited)
	Three Months Ended April 1, 2007		Three Months Ended March 26, 2006
Cash flows from operating activities
Net income (loss)	$0.4		($0.5)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	7.0		4.9
(Gain) Loss on disposal of fixed assets	--		0.8
Share-based compensation expense	2.6		1.0
Deferred income taxes	0.1		1.9
Changes in assets and liabilities (excluding effects of acquired companies):
Accounts receivable, net	(2.0)		(3.2)
Income tax receivable	0.5		--
Inventories	--		(0.9)
Other current assets	0.2		--
Other assets	(0.5)		0.4
Accounts payable	(3.2)		6.2
Accrued liabilities	4.1		6.4
Net cash provided by operating activities	9.2		17.0
Cash flows from investing activities
Capital expenditures	(2.8)		(4.4)
Acquisition, net of cash acquired	(0.4)		(2.5)
Net cash used in investing activities	(3.2)		(6.9)
Cash flows from financing activities
Contributed capital	--		0.2
Proceeds from short-term borrowings	5.0		--
Principal payments on long-term debt	(0.5)		(0.3)
Principal payments on capital leases	(0.1)		(0.1)
Net cash provided by (used in) financing activities	4.4		(0.2)
Net increase in cash and cash equivalents	10.4		9.9
Cash and cash equivalents at beginning of period	14.0		25.9
Cash and cash equivalents at end of period	$24.4		$35.8

ADESA, Inc. and Insurance Auto Auctions, Inc. EBITDA Schedule (In millions) (Unaudited)
	ADESA		IAAI		Combined
	Three Months Ended March 31, 2007		Three Months Ended April 1, 2007
Net income	$38.0		$0.4		$38.4
Add back:
Income taxes	24.1		0.5		24.6
Interest expense (net of interest income)	5.2		8.4		13.6
Depreciation and amortization	12.1		6.6		18.7
EBITDA	$79.4		$15.9		$95.3
Non-recurring charges (1)	$0.4		$1.0		$1.4
Non-recurring transaction charges (2)	2.4		--		2.4
Non-cash charges (3)	2.0		2.9		4.9
Advisory services (4)	--		0.1		0.1
Adjusted EBITDA	$84.2		$19.9		$104.1
(1)  Non-recurring charges for ADESA consist of minority interest expense of $0.3 million and airplane related costs of $0.1 million.  Non-recurring charges for IAAI consist of $0.8 million of costs incurred related to IAAI acquisitions and $0.2 million of miscellaneous other costs.
(2)  Non-recurring transaction charges primarily represent professional fees related to the merger.
(3)  Non-cash charges consist of non-cash compensation, loss on assets sold, non-cash rent expense recognized in excess of cash rent paid and loss from discontinued operations.
(4)  Management fees paid to private equity partners.

Note: Consolidated EBITDA for the 12 months ended March 31, 2007, as defined pursuant to the KAR Senior Credit Facility, is $382.8 million. Consolidated EBITDA is defined in the credit facility to be $99.4 million, $88.1 million and $80.7 million, respectively, for the fiscal quarters ending on or about June 30, 2006, September 30, 2006 and December 31, 2006. In accordance with the terms of the KAR Senior Credit Facility, Consolidated EBITDA for the 12 months ended March 31, 2007, also includes $10.5 million of anticipated costs savings related to the combination of the salvage auction businesses of IAAI and ADESA.

Adjusted EBITDA is presented in the earnings release because KAR management believes that this statistic is indicative of the relative strength of ADESA’s and IAAI’s operating performance. In addition, Adjusted EBITDA, calculated on a basis consistent with the above presentation, will be used by the creditors of KAR in assessing debt covenant compliance in the periods following the April 20, 2007 closing of the acquisition of ADESA by a group of private equity funds. Adjusted EBITDA as calculated above is consistent with the definition of Consolidated EBITDA under the KAR Senior Credit Facility. EBITDA is defined as net earnings plus income tax provision (benefit), interest expense (net) and depreciation and amortization. The KAR Senior Credit Facility further adjusts EBITDA for certain non−cash charges, non-recurring charges, transaction-related charges and incremental cost savings, among other adjustments, to determine compliance with certain covenants in the senior credit agreement. EBITDA and Adjusted EBITDA are not presented as an alternative to income from continuing operations or net income or loss as an indicator of operating performance, or as an indicator of whether cash flows will be sufficient to fund cash needs. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. These measures may not be comparable to similarly titled measures reported by other companies.