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Letter to the Editor

Insurance Auto Auctions Announces Fourth Quarter Results; Opens California Greenfield Site

SCHAUMBURG, Ill -- Insurance Auto Auctions, Inc. has reported increased revenues and lower net earnings for the fourth quarter ended December 31, 2000. The company recorded a net loss, including special charges of $1.2 million, or $0.11 per diluted share, versus net income of $3.4 million, or $0.29 per share, for the same quarter a year ago.

The net loss amount for the fourth quarter reflects special charges of $4.8 million. The largest component of the charge, in the amount of $3.0 million, is associated with the abandonment or disposal of computer hardware and software. The second major component of the charge relates to the February 2000 plane crash that damaged the company's facility in Rancho Cordova, California. The company increased reserves by $1.2 million related to costs incurred to clean up and repair the site. Excluding the effects of the special charges, net earnings for the fourth quarter would have been $1.6 million or $0.13 per diluted share.

Net sales for the quarter increased 4.9 percent to $81.8 million compared with $78.0 million in the fourth quarter of 1999. Gross profit for the quarter increased 1.2 percent to $20.5 million, up from $20.3 million for the same quarter a year ago. The loss from operations for the quarter totaled $2.1 million, compared to income from operations of $5.6 million for the same quarter a year ago.

"We are encouraged by our top line performance in light of a difficult operating environment during the fourth quarter," said Tom O'Brien, chief executive officer. "A review of all facets of our operations has illustrated the difficult work that lies ahead in repositioning our company for increased profitability. Since joining the company in November, my top priority has been on executing that directive. I have had to make some hard choices, but they are necessary for Insurance Auto Auctions to realize its full potential."

The company has also eliminated a number of positions, primarily from its headquarters staff. The reductions are expected to save more than $3.0 million per year after the payment of severance costs.

Consistent with a leaner, more focused organization, the company cancelled a planned expansion at its headquarters. Management is pursuing subleasing the space and will incur a restructuring charge of $1.8 million on a pre-tax basis in the first quarter of 2001. O'Brien added that the lease charges will not adversely affect the operating flexibility of IAAI or its growth goals.

The total restructuring and special charges approximate $10.3 million, and will be recorded in the fourth quarter of 2000 and first quarter of 2001. Approximately $5.3 million of these charges will result in future cash outlays by the company.

"The net result of these actions will be a leaner, more efficient organization that will be better prepared to increase earnings and cash flow," added O'Brien. "We remain at our core a fundamentally sound company, with virtually no debt and a strong cash position. The changes we are instituting within the company are designed to leverage the operational excellence we have throughout the organization."

For the year ended December 31, 2000, net earnings decreased 23.4 percent to $10.5 million, or $0.89 per diluted share, as compared with $13.7 million, or $1.18 per share, for 1999. Earnings from operations decreased to $17.9 million, down from $23.9 million for the prior year.

Net revenues for the year were $333.2 million compared with $317.4 million in 1999, an increase of 5.0 percent. "Gross profit for the year was $89.4 million, up 7.1 percent from 1999."

Insurance Auto Auctions Announces Greenfield Facility In Los Angeles, California

Insurance Auto Auctions has announced the opening of a new greenfield facility in the heart of Los Angeles. This 40-acre site will not only replace the existing Gardena, California location, but will provide much needed additional capacity for vehicle processing in the large southern California market.

"Our new Los Angeles facility is destined to set a new standard for both branch operational efficiency and customer service," commented Tom O'Brien, Chief Executive Officer. "By combining customer-valued amenities and services with ample storage space, we will be in a position to improve our customers' salvage returns as well as our market share in this important region.

"As with our recent acquisition in Pittsburgh, Pennsylvania, and our greenfield in Philadelphia, Pennsylvania, the announcement of the Los Angeles facility is continued evidence of our commitment to market expansion," O'Brien continued. "Throughout the coming year, we will continue to explore additional opportunities to increase market coverage through acquisition and new site development in markets where we can add value."

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