IAAI Insurance Auto Auctions (MM)

Insurance Auto Auctions Announces Fourth Quarter Results SCHAUMBURG, Ill., Feb. 27 /PRNewswire-FirstCall/ -- Insurance Auto Auctions, Inc. , a leading provider of automotive salvage and claims processing services in the United States, today reporteda 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 outthe 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 toinvest 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 http://www.streetevents.com/ or by visiting the Company's Web site at http://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 http://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 DATASOURCE: Insurance Auto Auctions, Inc. CONTACT: Scott Pettit, Chief Financial Officer of Insurance Auto Auctions, Inc., +1-847-839-4040; or General Inquiries: Chris Kettmann of Ashton Partners, +1-312-553-6716, for Insurance Auto Auctions, Inc. Web site: http://www.iaai.com/

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