Insurance Auto Auctions Reports Q1 Earnings
22 April 1998
Insurance Auto Auctions Reports 64% Increase in Net Earnings for 1st Quarter
Highlights:
* Net Earnings up 64% for first quarter
* Earnings per share up 60% to $0.08 vs. $0.05 a year ago
* Earnings per share, excluding special charges, at $0.15 vs. $0.05 a
year ago
* Operating profits up 134%, excluding special charges
SCHAUMBURG, Ill., April 22 -- Insurance Auto Auctions, Inc.
, a leading provider of automotive salvage and claims processing
services in the United States, reported a 64 percent increase in net earnings
for the quarter ended March 31, 1998. Net earnings in the quarter were
$869,000, or $0.08 per share, compared with $530,000, or $0.05 per share, for
the first quarter a year ago.
Earnings from operations before interest and taxes, excluding special
charges, were $3.5 million in first quarter 1998, an increase of 134 percent
from $1.5 million in the first quarter a year ago. Net earnings, excluding
special charges, were $1.7 million, or $0.15 per share, for first quarter
1998, compared with $530,000, or $0.05 per share, for first quarter 1997.
Net sales for first quarter 1998 were $68.6 million compared with
$67.9 million for first quarter 1997. Gross profit for first quarter 1998 was
$16.5 million, an increase of 19 percent from first quarter 1997. Gross
profit per unit for first quarter 1998 was $143 per unit compared with $117
per unit in the prior year, an increase of 22 percent. Direct operating
expenses per unit increased to $104 for first quarter 1998, compared with $96
per unit for first quarter 1997. The increase resulted from lower unit volume
and the funding of several value-added services that were in development in
first quarter 1998.
"Our earnings continue to show improvement thanks to our ability to
achieve better margins," said James P. Alampi, president and chief executive
officer. " The significant improvement in margins is the result of changes
made to unprofitable contracts, focus and evaluation of our services, and fee
structures to insure we are providing the best possible services that are
properly valued in the market place."
Strategic Initiative
As previously reported, the company has retained McKinsey & Co., leaders
in consulting to the insurance industry, to assist the company in identifying
and developing additional customer-valued services. The company is focusing
on opportunities to add value to the insurance industry's automobile claims
process and reduce time and costs for these customers. The project also
included evaluation and development of new business offerings that leverage
the company's current competencies, geographic presence and assets. The cost
of the engagement of $990,000 was recorded as a special charge in first
quarter 1998.
"We have undertaken this initiative in our belief that new services we
offer our customers are strategic to the direction of the company," said Mr.
Alampi. "We believe the continued development of new service offerings is
critical to our future growth. We are excited by the results to date. We have
identified many new opportunities to provide services that would streamline
the automobile claims process and greatly reduce costs for insurance
companies."
Settlement with Bradley Scott
Also reflected in the special charges is the settlement agreement entered
into by the company resolving all outstanding differences between Insurance
Auto Auctions, Inc. and Bradley Scott, who has resigned as a director and
chairman of the Board. In the settlement agreement, as previously reported,
various agreements were terminated (including agreements providing for
compensation and certain benefits through June 30, 1999, and all outstanding
stock options). Per the settlement agreement, the company made a lump-sum
payment of $700,000 to Scott. This included a bonus payment for 1997 of
$126,000 pursuant to a 1996 agreement between the company and Scott. The
difference of $574,000 was recorded as a special charge in first quarter 1998.
Acquisition
Continuing the company's renewed focus on growth, the company completed
the acquisition of Auto Disposal Company (ADC) in first quarter 1998, as
previously reported. The acquisition did not have a significant impact on
first-quarter results, or same store changes in net sales and vehicles sold,
as it was completed mid-quarter.
Vehicles Sold
The volume of vehicles sold decreased to 115,000 in the first quarter of
1998, down 3 percent from the 118,000 vehicles processed in the same period
for the previous year. The number of vehicles processed through purchase
agreements for the quarter ended March 31, 1998, represented 30 percent of all
vehicles sold, compared with 31 percent for the same period in 1997. The
decrease is consistent with the shift from purchase agreements to consignment
and percent of sale contracts.
Strategy Unfolding
Mr. Alampi said, "We are making good progress with our efforts to
revitalize Insurance Auto Auctions and transform the company from purely
salvage to a broader service organization. We continue to see new
opportunities in this 2.5 million-vehicle industry.
"We now have 48 sites and will continue to pursue new acquisitions and
greenfields that together will expand our national coverage," he said. "We
believe our three-pronged expansion strategy of acquisitions, new
("greenfield") locations and strategic alliances will assist us in achieving
our growth goals."
Founded in 1982, Insurance Auto Auctions, Inc. is the largest provider of
automotive and specialty salvage services in the United States, providing
insurance companies with cost-effective, turnkey solutions to process and sell
total-loss and recovered-theft vehicles, a $3 billion per year industry.
The company currently has 48 auction sites across the United States.
This press release contains forward-looking information that is subject to
certain risks and uncertainties that could cause actual results to differ
materially form those projected, expressed or implied by such forward looking
information. 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 or Form 10-K for the fiscal year ended December 31, 1997. Among
these risks are legislative acts, weather conditions, changes in the market
value of salvage declining, outcome of litigation, competition, quality and
quantity of inventory available from suppliers, and dependence on key
insurance company suppliers.
Comparative Statistics
(rounded from actuals)
Three months ended
March 31,
Increase
1998 1997 (Decrease)
Total Vehicles 115,000 118,000 (3)%
Per Unit:
Gross Profit $143 $117 22%
Direct Operating Expenses $104 $96 8%
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Month Periods
Ended March 31,
(Unaudited)
1998 1997
Net Sales:
Vehicle sales $47,169,000 $45,156,000
Fee income 21,389,000 22,729,000
68,558,000 67,885,000
Cost and expenses:
Cost of sales 52,092,000 54,053,000
Direct operating expenses 11,997,000 11,374,000
Amortization of acquisition
costs 942,000 950,000
Special charges 1,564,000 -
Earnings (loss) from
operations 1,963,000 1,508,000
Other (income)expense:
Interest expense 528,000 736,000
Interest (income) (174,000) (158,000)
Earnings (loss) before
income taxes 1,609,000 930,000
Income taxes (benefit) 740,000 400,000
Net earnings (loss) $869,000 $530,000
Net earnings (loss) per common and
common equivalent shares
outstanding $.08 $.05
Weighted average common and common
equivalent shares
outstanding 11,380,000 11,312,000
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, December 31,
1998 1997
ASSETS
Current assets:
Cash, cash equivalents &
short-term investments $8,124,000 $9,634,000
Accounts receivable, net 31,065,000 28,992,000
Inventories 10,810,000 11,762,000
Other current assets 1,748,000 1,868,000
Total current assets 51,747,000 52,256,000
Property and equipment,
at cost, net 21,178,000 20,778,000
Deferred income taxes 2,603,000 2,603,000
Other assets, principally
goodwill, net 131,830,000 131,435,000
$207,358,000 $207,072,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $2,034,000 $2,034,000
Accounts payable 15,786,000 16,319,000
Accrued liabilities 7,288,000 7,698,000
Income taxes 862,000 497,000
Total current liabilities 25,970,000 26,548,000
Long-term debt, excluding
current installments 20,214,000 20,246,000
Accumulated postretirement
benefit obligation 3,743,000 3,831,000
Deferred income taxes 5,236,000 5,235,000
Total liabilities 55,163,000 55,860,000
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 11,307,454
and 11,299,561 shares as of March
31, 1998 and December 31, 1997,
respectively 11,000 11,000
Additional paid-in capital 131,923,000 131,809,000
Retained earnings 20,261,000 19,392,000
Total shareholders'
equity 152,195,000 151,212,000
$207,358,000 $207,072,000
SOURCE Insurance Auto Auctions, Inc.