<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-19594
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INSURANCE AUTO AUCTIONS, INC.
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(Exact name of registrant as specified in its charter)
California 95-3790111
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1270 West Northwest Highway, Palatine, Illinois 60067
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(Address of principal executive offices) (Zip Code)
(847) 705-9550
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
/X/ Yes / / No
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each of the issuer's classes of common stock, as
of September 30, 1996:
Class Outstanding September 30, 1996
----- ------------------------------
Common Stock, $0.001 Par Value 11,282,088 shares
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INDEX
INSURANCE AUTO AUCTIONS, INC.
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PAGE NUMBER
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PART I. FINANCIAL INFORMATION......................................... 3
Item 1. Financial Statements (Unaudited).............................. 3
Condensed Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995........... 3
Condensed Consolidated Statements of Operations for the
Three Month Periods ended September 30, 1996 and
September 30, 1995 and the Nine Month Periods ended
September 30, 1996 and September 30, 1995................. 4
Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods ended September 30, 1996 and
September 30, 1995........................................ 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8
PART II. OTHER INFORMATION............................................ 15
Item 1. Legal Proceedings and Other Matters........................... 15
Item 2. Changes in Securities ........................................ 15
Item 3. Defaults upon Senior Securities............................... 15
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 5. Other Information............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures............................................................. 16
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 4,383,000 $ 362,000
Short-term investments 8,802,000 6,820,000
Accounts receivable, net 32,485,000 30,198,000
Inventories 9,377,000 9,495,000
Other current assets 2,773,000 3,591,000
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Total current assets 57,820,000 50,466,000
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Property and equipment, at
cost, net 22,684,000 21,144,000
Other assets, principally
goodwill, net 137,542,000 139,023,000
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$218,046,000 $210,633,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 2,064,000 $ 4,015,000
Accounts payable 22,956,000 20,531,000
Accrued liabilities 12,052,000 11,306,000
Income taxes 2,884,000 2,427,000
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Total current liabilities 39,956,000 38,279,000
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Long-term debt, excluding
current installments 31,577,000 28,973,000
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Total liabilities 71,533,000 67,252,000
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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
11,282,088 and 11,270,141
shares as of September 30, 1996
and December 31, 1995, respectively 11,000 11,000
Additional paid-in capital 131,676,000 131,575,000
Retained earnings 14,826,000 11,795,000
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Total shareholders' equity 146,513,000 143,381,000
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$218,046,000 $210,633,000
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3
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales:
Vehicle sales $48,707,000 $47,634,000 $156,922,000 $138,259,000
Fee income 19,973,000 17,348,000 60,616,000 52,145,000
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68,680,000 64,982,000 217,538,000 190,404,000
Cost and expenses:
Cost of sales 54,941,000 52,125,000 172,568,000 147,533,000
Direct operating
expenses 11,010,000 11,100,000 35,200,000 31,178,000
Amortization of
acquisition costs 931,000 903,000 2,796,000 2,481,000
Special charges -- 4,226,000 -- 4,226,000
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Earnings from
operations 1,798,000 (3,372,000) 6,974,000 760,000
Other (income)expense:
Interest expense 713,000 718,000 2,289,000 1,659,000
Interest (income) (232,000) (183,000) (632,000) (753,000)
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Earnings (loss)
before income
taxes 1,317,000 (3,907,000) 5,317,000 4,080,000
Income taxes (benefit) 566,000 (1,660,000) 2,286,000 1,734,000
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Net earnings
(loss) $ 751,000 $(2,247,000) $ 3,031,000 $ 2,346,000
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Net earnings (loss)
per common and
common equivalent
shares outstanding $ .07 $ (.20) $ .27 $ .21
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Weighted average
common and common
equivalent shares
outstanding 11,320,000 11,284,000 11,338,000 11,307,000
4
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Month Periods
Ended September 30,
-------------------------
1996 1995
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Cash flows from operating activities:
Net earnings $ 3,031,000 $ 2,346,000
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Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,195,000 4,733,000
Non-cash special charges -- 2,512,000
Change in assets and liabilities (net of
effects of acquired companies):
(Increase) decrease in:
Accounts receivable, net (2,287,000) (387,000)
Inventories 118,000 (2,291,000)
Other current assets 818,000 (510,000)
Other assets (84,000) (110,000)
Increase (decrease) in:
Accounts payable 2,351,000 (1,599,000)
Accrued liabilities 1,241,000 1,967,000
Income taxes payable 457,000 (1,859,000)
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Total adjustments 8,809,000 2,456,000
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Net cash provided by operating activities 11,840,000 4,802,000
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Cash flows from investing activities:
Sale (purchase) of short-term investments (1,982,000) 1,973,000
Capital expenditures (4,939,000) (8,249,000)
Payments made in connection with
acquired companies, net of cash acquired (1,797,000) (18,474,000)
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Net cash used in investing activities (8,718,000) (24,750,000)
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Cash flows from financing activities:
Payment of notes payable (3,770,000) (856,000)
Net proceeds from issuance of Senior Notes
and notes payable 4,568,000 19,605,000
Proceeds from issurance of common stock 101,000 367,000
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Net cash provided by financing activities 899,000 19,116,000
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Net increase (decrease) in cash 4,021,000 (832,000)
Cash and cash equivalents at beginning of period 362,000 2,529,000
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Cash and cash equivalents at end of period $ 4,383,000 $ 1,697,000
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Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,597,000 $ 1,177,000
Income taxes 1,858,000 4,039,000
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5
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The unaudited condensed consolidated financial statements of Insurance
Auto Auctions, Inc. and its subsidiaries (collectively, the "Company") have
been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of operations
for interim periods are not necessarily indicative of results for full
fiscal years.
As contemplated by the Securities and Exchange Commission ("SEC") under
Rule 10-01 of Regulation S-X, the accompanying consolidated financial
statements and related notes have been condensed and do not contain certain
information that will be included in the Company's annual consolidated
financial statements and notes thereto. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
2. INCOME TAXES
Income taxes were computed using the effective tax rate estimated to be
applicable for the full fiscal year, which is subject to ongoing review and
evaluation by management.
3. NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is based on the weighted average number of
shares of common and common share equivalents outstandin
