UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 29, ~~2019~~2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38580

IAA, Inc.

(Exact name of Registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		83-1030538 (I.R.S. Employer Identification No.)

Two Westbrook Corporate Center, Suite 500, Westchester, Illinois, 60154

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (708) 492-7000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered

Common Stock, par value $0.01 per share	IAA	New York Stock Exchange

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. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer ý	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of ~~October 31, 2019, 133,513,165~~April 29, 2020, 133,948,593 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

IAA, Inc.

Table of Contents

~~Special Note Regarding Forward-Looking Statements~~STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made in this report on Form 10-Q that are not historical facts may be forward-looking statements. Words such as "should," "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify ~~forward-looking~~forward- looking statements.

Such statements include statements regarding the expected impact of COVID-19 on our ~~expectations as an independent company~~business; our future growth; anticipated cost savings, revenue increases, credit losses and ~~our ability to enhance~~capital expenditures; tax rates and assumptions; strategic initiatives, greenfields and acquisitions; our competitive position and ~~drive long-term value for shareholders.~~retention of customers; and our continued investment in information technology. Such statements are based on management’s current expectations, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. These risks and uncertainties ~~include:~~include, but are not limited to: uncertainties regarding the duration and severity of the COVID-19 pandemic and measures intended to reduce its spread; the loss of one or more significant ~~customers;~~suppliers or a reduction in significant volume from such suppliers; our ability to meet or exceed customers’ ~~expectations, as well as develop~~demand and ~~implement information systems responsive to customer needs;~~expectations; significant current competition and the introduction of new ~~competitors;~~competitors or other disruptive entrants in our industry; the risk that our facilities lack the capacity to accept additional vehicles and our ability to obtain land or renew/enter into new leases at commercially reasonable rates; our ability to effectively maintain or update information and technology ~~systems and~~systems; our ability to implement and maintain measures to protect against ~~cyberattacks;~~cyberattacks and comply with applicable privacy and data security requirements; our ability to successfully implement our business strategies or realize expected cost savings and revenue ~~enhancements;~~enhancements, including from our margin expansion program; business development activities, including acquisitions and integration of acquired businesses; ~~fluctuations~~our expansion into markets outside the U.S. and the operational, competitive and regulatory risks facing our non-U.S. based operations; our reliance on subhaulers and trucking fleet operations; changes in ~~consumer demand for~~used-vehicle prices and in the ~~supply~~volume of damaged and total loss vehicles and the resulting impact on auction sales volumes; competitive pricing pressures; the ability of consumers to lease or finance the purchase of new and/or used vehicles; changes in the market value of vehicles auctioned, including changes in the actual cash value of damaged and total loss vehicles;we purchase; economic conditions, including fuel prices, commodity prices, foreign exchange rates and interest rate fluctuations; trends in new- and used-vehicle sales and incentives; and other risks and uncertainties identified in our filings with the Securities and Exchange Commission (the “SEC”), including under Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and Item 1A "Risk Factors" in our ~~information statement filed as Exhibit 99.1 to our Registration Statement~~Annual Report on Form 1010-K filed with the SEC on ~~June 13, 2019.~~March 18, 2020, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC, including subsequent Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made and we do not undertake to update our ~~forward-looking~~forward- looking statements.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

IAA, Inc.

Consolidated Statements of Income

(In millions, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended						Three Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019			September 30, 2018			March 29, 2020			March 31, 2019
Revenues	$	357.3	$	321.1	$	1,080.9		$	991.6		$	366.6		$	357.2
Operating expenses:
Cost of services (exclusive of depreciation and amortization)	221.3		202.5		667.4			610.3			231.0			218.4
Selling, general and administrative	38.9		31.7		106.2			95.6			38.0			33.6
Depreciation and amortization	22.1		24.3		66.0			73.1			22.5			21.8
Total operating expenses	282.3		258.5		839.6			779.0			291.5			273.8
Operating profit	75.0		62.6		241.3			212.6			75.1			83.4
Interest expense	17.5		9.6		39.1			28.9
Other income, net	—		—		(0.1		)	(0.8		)
Interest expense, net											16.0			9.7
Other (income) expense, net											(0.7		)	0.1
Income before income taxes	57.5		53.0		202.3			184.5			59.8			73.6
Income taxes	15.7		14.0		54.7			47.4			15.1			19.1
Net income	$	41.8	$	39.0	$	147.6		$	137.1		$	44.7		$	54.5
Net income per share
Basic	$	0.31	$	0.29	$	1.11		$	1.03		$	0.33		$	0.41
Diluted	$	0.31	$	0.29	$	1.10		$	1.02		$	0.33		$	0.41

See accompanying condensed notes to consolidated financial statements

IAA, Inc.

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)


	Three Months Ended					Nine Months Ended					Three Months Ended
	September 29, 2019			September 30, 2018		September 29, 2019			September 30, 2018		March 29, 2020			March 31, 2019
Net income	$	41.8		$	39.0	$	147.6		$	137.1	$	44.7		$	54.5
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(1.8		)	$	8.0	(4.5		)	$	3.8
Foreign currency translation (loss) gain											(7.6		)	$	2.5
Comprehensive income	$	40.0		$	47.0	$	143.1		$	140.9	$	37.1		$	57.0

See accompanying condensed notes to consolidated financial statements

IAA, Inc.

Consolidated Balance Sheets

(in millions, except per share amounts)


	September 29, 2019			December 30, 2018			March 29, 2020			December 29, 2019
	(Unaudited)			(Audited)			(Unaudited)			(Audited)
Assets
Current assets
Cash and cash equivalents	$	49.8		$	60.0		$	86.1		$	47.1
Trade receivables, net of allowances of $4.4 and $3.3	298.8			311.0
Accounts receivable, net of allowances of $4.7 and $4.2							316.0			335.9
Prepaid consigned vehicle charges	46.8			48.5			49.4			50.1
Other current assets	31.2			34.0			24.3			26.9
Total current assets	426.6			453.5			475.8			460.0
Non-current assets
Operating lease right-of-use assets, net of accumulated amortization of $96.2 and $75.2							796.6			735.9
Property and equipment, net of accumulated depreciation of $504.4 and $438.3							241.5			246.9
Goodwill							538.6			541.3
Intangible assets, net of accumulated amortization of $475.0 and $465.9							146.5			151.7
Other assets							16.5			15.4
Operating lease right-of-use assets, net of accumulated amortization of $54.2 and $0.0	704.8			—
Goodwill	547.6			530.2
Customer relationships, net of accumulated amortization of $306.5 and $286.7	55.6			74.8
Other intangible assets, net of accumulated amortization of $162.0 and $148.2	87.4			86.1
Other assets	13.4			10.4
Total other assets	1,408.8			701.5
Property and equipment, net of accumulated depreciation of $364.0 and $389.2	244.5			345.2
Total non-current assets							1,739.7			1,691.2
Total assets	$	2,079.9		$	1,500.2		$	2,215.5		$	2,151.2

Liabilities and Stockholders' (Deficit) Equity
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	76.8		$	129.0		$	65.4		$	96.4
Short-term right-of-use operating lease liability	58.9			—			73.6			68.6
Accrued employee benefits and compensation expenses	29.5			29.6			15.9			29.4
Current maturities of long-term debt	8.0			456.6
Income taxes payable	1.6			2.2
Accrued interest	18.6			—
Other accrued expenses	51.5			53.6			64.7			49.3
Total current liabilities	244.9			671.0			219.6			243.7
Non-current liabilities
Long-term debt	1,267.7			—			1,251.7			1,254.7
Long-term right-of-use operating lease liability	681.3			—			766.5			709.5
Deferred income tax liabilities	63.2			63.1			63.3			63.7
Deferred rent	—			186.8
Other liabilities	9.7			16.1			18.0			16.8
Total non-current liabilities	2,021.9			266.0			2,099.5			2,044.7
Commitments and contingencies (Note 7)
Stockholders' (deficit) equity
Preferred stock, $0.01 par value: 150.0 shares authorized; 0 shares issued and outstanding as of September 29, 2019	—			—
Common stock, $0.01 par value: 750.0 shares authorized;133.5 shares issued and outstanding as of September 29, 2019	1.3			—
Stockholders' deficit
Preferred stock, $0.01 par value: Authorized, 150.0 shares; issued and outstanding, none							—			—
Common stock, $0.01 par value: Authorized, 750.0 shares; issued and outstanding, 133.9 and 133.6 shares, respectively							1.3			1.3
Additional paid-in capital	2.0			—			—			3.5
Accumulated deficit	(172.7		)	—			(82.4		)	(127.1		)
Accumulated other comprehensive loss	(17.5		)	(13.0		)	(22.5		)	(14.9		)
Net Parent Investment	—			576.2
Total stockholders' (deficit) equity	(186.9		)	563.2
Total liabilities and stockholders' (deficit) equity	$	2,079.9		$	1,500.2
Total stockholders' deficit							(103.6		)	(137.2		)
Total liabilities and stockholders' deficit							$	2,215.5		$	2,151.2

See accompanying condensed notes to consolidated financial statements

IAA, Inc.

Consolidated Statements of Stockholders' (Deficit) Equity

(In millions)

(Unaudited)

Three Months September 29, 2019

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-In
Capital
Accumulated Deficit Net Parent Investment
Accumulated
Other
Comprehensive
Loss
Total Stockholders' (Deficit) Equity
Balance at July 1, 2019 133.4
$ 1.3
$ —
$ (214.5 ) $ —
$ (15.7 ) $ (228.9 )
Net income —
—
41.8
—
—
41.8
Foreign currency translation adjustments, net of tax —
—
—
—
(1.8 ) (1.8 )
Share-based compensation expense —
1.4
—
—
—
1.4
Exercise of Stock Options 0.1
—
0.7
—
—
—
0.7
Withholding taxes withheld on share based awards —
(0.1 ) —
—
—
(0.1 )
Balance at September 29, 2019 133.5
$ 1.3
$ 2.0
$ (172.7 ) $ —
$ (17.5 ) $ (186.9 )



	Three Months Ended March 29, 2020
	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
Balance at December 29, 2019	133.6	$	1.3	$	3.5		$	(127.1	)	$	(14.9	)	$	(137.2	)
Net income	—	—		—			44.7			—			44.7
Foreign currency translation adjustments, net of tax	—	—		—			—			(7.6		)	(7.6		)
Stock-based compensation expense	—	—		2.1			—			—			2.1
Common stock issued for the exercise and vesting of stock-based awards	0.3	—		0.8			—			—			0.8
Withholding taxes on stock-based awards	—	—		(6.4		)	—			—			(6.4		)
Balance at March 29, 2020	133.9	$	1.3	$	—		$	(82.4	)	$	(22.5	)	$	(103.6	)

Three Months Ended September 30, 2018

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-In
Capital
Accumulated Deficit Net Parent Investment
Accumulated
Other
Comprehensive
Loss
Total Stockholders' (Deficit) Equity
Balance at July 2, 2018 —
$ —
$ —
$ —
$ 564.3
$ (15.5 ) $ 548.8
Net income —
—
—
39.0
—
39.0
Foreign currency translation adjustments, net of tax —
—
—
—
8.0
8.0
Stock-based compensation expense —
—
—
1.0
—
1.0
Net transfer to Parent and affiliates —
—
—
(61.0 ) —
(61.0 )
Balance at September 30, 2018 —
$ —
$ —
$ —
$ 543.3
$ (7.5 ) $ 535.8

~~See accompanying condensed notes to consolidated financial statements~~

~~IAA, Inc.~~

~~Consolidated Statements of Stockholders' (Deficit) Equity (continued)~~

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended September 29, 2019

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-In
Capital
Accumulated Deficit Net Parent Investment
Accumulated
Other
Comprehensive
Loss
Total Stockholders' (Deficit) Equity
Balance at December 30, 2018 —
$ —
$ —
$ —
$ 576.2
$ (13.0 ) $ 563.2
Cumulative effect adjustment for adoption of
ASC Topic 842, net of tax —
—
—
1.1
—
1.1
Net income —
—
41.8
105.8
—
147.6
Foreign currency translation adjustments, net of tax —
—
—
—
(4.5 ) (4.5 )
Share-based compensation expense —
1.4
—
1.9
—
3.3
Exercise of Stock Options 0.1
—
0.7
—
—
—
0.7
Withholding taxes withheld on share based awards —
(0.1 ) —
—
—
(0.1 )
Reclassification of net parent investment to common stock and additional paid-in capital 133.4
1.3
—
(214.5 ) 213.2
—
—
Dividend Paid to KAR —
—
—
(1,278.0 ) —
(1,278.0 )
Net transfer to Parent and affiliates —
—
—
379.8
—
379.8
Balance at September 29, 2019 133.5
$ 1.3
$ 2.0
$ (172.7 ) $ —
$ (17.5 ) $ (186.9 )

Nine Months Ended September 30, 2018

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-In
Capital
Accumulated Deficit Net Parent Investment
Accumulated
Other
Comprehensive
Loss
Total Stockholders' (Deficit) Equity
Balance at December 31, 2017 —
$ —
$ —
$ —
$ 582.6
$ (11.3 ) $ 571.3
Cumulative effect adjustment for adoption of
ASC Topic 606, net of tax —
—
—
(3.0 ) —
(3.0 )
Net income —
—
—
137.1
—
137.1
Foreign currency translation adjustments, net of tax —
—
—
—
3.8
3.8
Share-based compensation expense —
—
—
2.8
—
2.8
Net transfer to Parent and affiliates —
—
—
(176.2 ) —
(176.2 )
Balance at September 30, 2018 —
$ —
$ —
$ —
$ 543.3
$ (7.5 ) $ 535.8



	Three Months Ended March 31, 2019
	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit		Net Parent Investment			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at December 30, 2018	—	$	—	$	—	$	—	$	576.2		$	(13.0	)	$	563.2
Cumulative effect adjustment for adoption of ASC Topic 842, net of tax	—	—		—		—		1.1			—			1.1
Net income	—	—		—		—		54.5			—			54.5
Foreign currency translation adjustments, net of tax	—	—		—		—		—			2.5			2.5
Stock-based compensation expense	—	—		—		—		1.0			—			1.0
Net transfer to Parent and affiliates	—	—		—		—		(3.4		)	—			(3.4		)
Balance at March 31, 2019	—	$	—	$	—	$	—	$	629.4		$	(10.5	)	$	618.9

See accompanying condensed notes to consolidated financial statements

IAA, Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine Months Ended						Three Months Ended
	September 29, 2019			September 30, 2018			March 29, 2020			March 31, 2019
Operating activities
Net income	$	147.6		$	137.1		$	44.7		$	54.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	66.0			73.1			22.5			21.8
Operating lease expense							32.7			27.3
Stock-based compensation							2.1			1.0
Provision for credit losses							0.7			0.7
Amortization of debt issuance costs	1.1			—			1.0			—
Non-cash right of use amortization	86.7			—
Stock-based compensation	3.2			2.8
Deferred rent	—			1.8
Provision for credit losses	2.0			2.1
Deferred income taxes	0.2			(2.2		)	(0.3		)	(0.1		)
Gain on disposal of fixed assets	—			(0.5		)	(0.1		)	—
Changes in operating assets and liabilities:
Other							—			0.8
Changes in operating assets and liabilities, net of acquisitions:
Operating lease payments	(94.5		)	—			(31.4		)	(26.5		)
Trade receivables and other assets	11.5			20.9
Accounts receivable and other assets							16.0			(37.3		)
Accounts payable and accrued expenses	25.8			6.7			9.4			(5.7		)
Net cash provided by operating activities	249.6			241.8			97.3			36.5
Investing activities
Acquisition of businesses (net of cash acquired)	(16.8		)	—
Purchases of property, equipment and computer software	(56.4		)	(38.4		)	(10.6		)	(21.6		)
Proceeds from the sale of property and equipment	0.1			0.5			0.1			—
Net cash used by investing activities	(73.1		)	(37.9		)	(10.5		)	(21.6		)
Financing activities
Proceeds from debt issuance	1,300.0			—
Dividend paid to KAR	(1,278.0		)	—
Net (decrease) increase in book overdrafts							(33.6		)	1.0
Payments on long-term debt							(4.0		)	—
Payments on finance leases							(3.8		)	(5.6		)
Net cash transfers to Parent and affiliates	(117.7		)	(176.2		)	—			(3.4		)
Issuance of common stock under stock plans	0.7			—			0.8			—
Tax withholding payments for vested RSUs	(0.1		)	—			(6.4		)	—
Deferred financing costs	(25.2		)	—
Payments on finance leases	(10.9		)	(12.5		)
Net (decrease) increase in book overdrafts	(51.4		)	5.8
Net cash used by financing activities	(182.6		)	(182.9		)	(47.0		)	(8.0		)
Effect of exchange rate changes on cash	(4.1		)	(0.3		)	(0.8		)	0.6
Net (decrease) increase in cash and cash equivalents	(10.2		)	20.7
Net increase in cash and cash equivalents							39.0			7.5
Cash and cash equivalents at beginning of period	60.0			33.1			47.1			48.3
Cash and cash equivalents at end of period	$	49.8		$	53.8		$	86.1		$	55.8
Cash paid for interest	$	0.3		$	0.8
Cash paid for taxes, net of refunds	$	57.7		$	49.4
Cash paid for interest, net							$	8.3		$	0.1
Cash paid for taxes, net							$	4.0		$	4.7

See accompanying condensed notes to consolidated financial statements

IAA, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

Note 1—Basis of Presentation and Nature of Operations

Description of Business

IAA, Inc., together with its subsidiaries (collectively referred to herein as “IAA”~~, "we," "us," "our"~~ and "the Company") is a leading provider of auction solutions for total loss, damaged and low-value vehicles in North America and ~~is also a provider of auction services in~~ the United Kingdom. ~~We operate in one reportable segment. We facilitate~~The Company facilitates the marketing and sale of total loss, damaged and low-value vehicles for a full spectrum of sellers. ~~Our~~The Company's solutions, which are focused on a diverse set of global customers, provide buyers with the vehicles they need to, among other things, fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. ~~Fees~~The Company operates in two reportable segments: United States and International.

The Company earns fees for ~~our solutions are~~its services from both buyers and sellers of vehicles sold through its channels. Approximately two-thirds of the Company's revenue is earned from ~~both sellers~~buyers and ~~buyers~~one-third of ~~vehicles. In return for agreed-upon fees, vehicles are sold on behalf of our sellers, who continue to own~~ the revenue is earned from vehicle until it is sold to buyers through our marketplaces. Over 80% of volume that passes through our marketplaces is associated with insurance total loss vehicles, including vehicles from catastrophic events like hurricanes, floods and hail damage, and the remaining volume is associated with noninsurance customers such as dealerships, rental car companies, fleet lease companies, charitable organizations and the general public. At September 29, 2019, properties utilized by IAA included 182 salvage vehicle auction facilities insuppliers or sellers. The Company operates over 200 sites across the United States, Canada and ~~Canada, most~~the United Kingdom, representing total acreage of ~~which are leased. The IAA North American~~approximately 8,100 gross acres. Most of the Company's properties are leased and used primarily for auction and storage ~~purposes consisting on average of approximately 30 acres of land per site. IAA also includes HBC Vehicle Services Limited, which operated 14 locations in the United Kingdom at September 29, 2019.~~purposes.

Separation and Distribution

On February 27, 2018, KAR Auction Services, Inc. (“KAR” or ~~“Parent”~~“ Former Parent”), a Delaware corporation, announced a plan to pursue the separation and spin-off (the “Separation”) of its salvage auction business into a separate public company, IAA Spinco Inc. IAA Spinco Inc. was incorporated in Delaware on June 19, 2018 and was renamed IAA, Inc. on June 27, 2019. On June 28, 2019 (the "Separation Date"), KAR completed the distribution of 100% of the issued and outstanding shares of common stock of IAA to the holders of record of KAR's common stock on June 18, 2019, on a pro rata basis (the "Distribution"). On the Separation Date, each KAR common stockholder of record received one share of IAA common stock for every one share of KAR common stock held by such stockholder as of the record date. As a result of the Distribution, KAR does not retain any ownership interest in IAA. The Distribution was made pursuant to the Separation and Distribution Agreement, dated June 27, 2019 (the "Separation and Distribution Agreement"), pursuant to which KAR contributed the subsidiaries that operated the salvage auction business to IAA. The Distribution is expected to be a tax-free transaction under provisions of the Internal Revenue Code. Following the Distribution, IAA became an independent publicly-traded company and is listed on the New York Stock Exchange under the symbol “IAA.”

In connection with the Separation, on the Separation Date, wethe Company paid a dividend to KAR of $1,278.0 million, which included $456.6 million to settle intercompany debt and $40.9 million for certain fixed assets transferred to usthe Company by KAR on the Separation Date. WeThe Company also paid KAR $117.8 million on the Separation Date to settle other intercompany accounts in connection with the Separation.

In connection with the Separation, wethe Company also entered into a non-compete and various other ancillary agreements to effect the Separation and provide a framework for ~~our~~the Company's relationship with KAR after the Separation, including a transition services agreement, a tax matters agreement and an employee matters agreement. These agreements provide for the allocation of assets, employees, liabilities and obligations attributable to periods prior to, at and after ~~our~~the Company's Separation from KAR and govern certain relationships between usthe Company and KAR after the Separation. For further information regarding these agreements, see Note 2 - Relationship with KAR and Related Entities.

Basis of Presentation

~~Throughout the periods covered by these unaudited consolidated financial statements and until~~Until the Separation Date, wethe Company operated as a separate reportable segment within KAR and, since the Separation Date, ~~we have~~the Company has operated independently from KAR. The accompanying unaudited consolidated financial statements for the three months ended March 31, 2019 and condensed notes related thereto have been prepared from KAR’s historical accounting records and are presented on a stand-alone basis as if IAA's operations had been conducted independently from KAR for all periods prior to the Separation Date. Accordingly, prior to the Separation Date, KAR’s net investment in these operations (Net Parent Investment) was shown in lieu of stockholder’s (deficit) equity in the unaudited consolidated financial statements. ~~Our~~The Company's historical results of operations, financial position and cash flows presented in the unaudited consolidated financial statements may not be indicative of what they would have been had wethe Company actually been a separate stand-alone entity during such periods, nor are they necessarily indicative of ~~our~~the Company's future results of operations, financial position and cash flows.

IAA is comprised of certain stand-alone legal entities for which discrete financial information is available. The unaudited consolidated statements of income include all revenues and costs directly attributable to ~~us,~~IAA, including costs for functions and services used by ~~us.~~the Company. Prior to the Separation Date, certain shared costs were directly charged to usthe Company by KAR based on specific identification or other allocation methods. ~~Our~~The Company's results of operations prior to the Separation Date also include allocations of costs for administrative functions and services performed on behalf of usthe Company by centralized staff groups within KAR. Current and deferred income taxes and related tax expense have been determined based on ~~our~~the Company's stand-alone results by applying Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes, to ~~our~~the Company's operations in each country as if ~~we were~~the Company was a separate taxpayer (i.e., following the separate return methodology). Allocation methodologies were applied to certain shared costs to allocate amounts to usthe Company as discussed further in Note 2 - Relationship with KAR and Related Entities.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. Operating results for interim periods are not necessarily indicative of results that may be expected for the year as a whole. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, generally consisting of normal recurring accruals, necessary for a fair statement of our results of operations, cash flows and financial position for the periods presented. These unaudited consolidated financial statements and condensed notes thereto are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto, for the year ended December ~~30, 2018~~29, 2019 included in ~~our Registration Statement~~the Company's Annual Report on Form ~~10, as amended,~~10-K filed with the Securities and Exchange Commission (the "SEC") on June 13, 2019. The consolidated balance sheet data as of December 30, 2018 included in this Form 10-Q was derived from the audited financial statements referenced above and does not include all disclosures required by U.S. GAAP for annual financial statements.March 18, 2020.

~~IAA operates as one reportable segment.~~ Fiscal Periods

On June 27, 2019, the Company's board of directors set ~~our~~the fiscal year to end on the last Sunday in December in each year, consisting of either 52 or 53 weeks. Each of ~~2018~~fiscal 2019 and ~~2019~~fiscal 2020 contain 52 weeks.

Use of Estimates

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates based in part on assumptions about current, and for some estimates, future economic and market conditions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Although the current estimates contemplate current conditions and expected future changes, as appropriate, it is reasonably possible that future conditions could differ from these estimates, which could materially affect ~~our~~the Company's results of operations and financial position. Among other effects, such changes could result in future impairments of goodwill, intangible assets and long-lived assets, additional allowances on accounts receivable and deferred tax assets and changes in litigation and other loss contingencies.

Reclassification

Certain amounts reported in the Company's Registration Statement on Form 10 filed with the SEC on June 13, 2019 have been reclassified to conform to the current year’s presentation. The reclassification is related to the presentation of outstanding checks of one of the Company's subsidiaries. The reclassification reduced cash and cash equivalents by $11.7 million, and decreased other accrued expenses by the same amount at December 30, 2018, and reduced cash and cash equivalents by $10.4 million and decreased other accrued expenses by the same amount at March 31, 2019. As a result of this reclassification, certain line items have been amended in the Consolidated Statements of Cash Flows.

Recent Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

In ~~February 2016,~~August 2018, the FASB issued Accounting Standards Update ("ASU") ~~2016-02,~~ ~~Leases~~ (Topic 842), which replaces the existing lease guidance in Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use (“ROU”) assets and corresponding lease liabilities on the balance sheet, with an exception for leases that meet the definition of a short-term lease. The new guidance continues to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income.

~~We adopted Topic 842 in the first quarter of 2019 and, as permitted by ASU 2018-11,~~ ~~Leases~~ (Topic 842): Targeted Improvements, we applied the new standard at the adoption date and recognized the cumulative-effect of initially applying the new standard as an increase of $1.1 million to the opening balance of retained earnings. The cumulative-effect adjustment related to the derecognition of existing fixed assets for which we were determined to be the accounting owner under Topic 840 and related liabilities associated with certain sale leaseback transactions in build-to-suit arrangements that did not qualify for sale accounting under Topic 840. Depreciation related to these fixed assets was recorded consistently with owned property and equipment in depreciation expense. In accordance with Topic 842, the lease agreements associated with the derecognized fixed assets and related liabilities generated ROU assets and lease liabilities that will be amortized to lease expense over the lease term. In addition, we recognized additional operating liabilities of approximately $684 million with related ROU assets of

~~approximately $641 million based on the present value of the remaining minimum rental payments for existing operating leases.~~

We determine if an arrangement is a lease at inception. Operating leases are included in “Operating lease right-of-use assets,” “Short-term operating lease liabilities” and “Long-term operating lease liabilities” in our consolidated balance sheets. Finance leases are included in “Property and equipment, net,” “Other accrued expenses” and “Other liabilities” in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, we account for the lease and non-lease components as a single lease component.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In August 2018, the FASB issued ASU~~ 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to

develop or obtain internal-use software. The ~~new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the~~ adoption of ASU 2018-15 ~~will~~on December 30, 2019 did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-4, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 (implied fair value measurement). Instead goodwill impairment would be measured as the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The ~~new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the~~ adoption of ASU 2017-4 ~~will~~on December 30, 2019 did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which updates the guidance related to the measurement of credit losses on financial instruments, including trade receivables. This ASU requires the recognition of credit losses on financial instruments based on an estimate of expected losses, replacing the incurred loss model in the prior guidance. The adoption of ASU 2016-13 on December 30, 2019 did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

The Company does not believe that any ~~other~~ recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material impact on its unaudited consolidated financial statements or disclosures.

Note 2—Relationship with KAR and Related Entities

~~Historically, prior~~Prior to the Separation Date, ~~we were~~the Company was managed and operated in the normal course of business with other affiliates of KAR. Accordingly, certain shared costs have been allocated to usthe Company and reflected as expenses in the stand-alone unaudited consolidated financial statements. ~~We consider~~The Company considers the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of KAR attributable to usthe Company for purposes of the stand-alone financial statements; however, the expenses reflected in the unaudited consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if wethe Company historically operated as a separate, stand-alone entity. In addition, the expenses reflected in these unaudited consolidated financial statements may not be indicative of expenses that will be incurred in the future by ~~us.~~the Company.

Transactions between KAR and ~~us,~~the Company, with the exception of purchase transactions and reimbursements for payments made to third-party service providers by KAR on ~~our~~ behalf of the Company, are reflected in equity in the ~~2018~~2019 Consolidated ~~Balance Sheets~~Statements of Stockholders' (Deficit) Equity as “Net Parent Investment” and in the ~~2018 and~~ 2019 Consolidated Statements of Cash Flows as a financing activity in “Net cash transfers to ~~parent~~Parent and affiliates.”

Corporate Costs/Allocations

These unaudited consolidated financial statements include corporate costs incurred by KAR for services that were provided to or on behalf of ~~us.~~the Company. These costs consist of allocated cost pools and identifiable costs. Corporate costs were directly charged to, or allocated to, usthe Company using methods management believes are consistent and reasonable. ~~Our~~The identifiable costs were recorded based on dedicated employee assignments. The method for allocating corporate function costs ~~to us~~ was based on various proportionate formulas involving allocation factors. The methods for allocating corporate administration costs ~~to us~~ were based on revenue, headcount or the proportion of related expenses. However, the expenses reflected in these unaudited consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if wethe Company historically operated as a separate, stand-alone entity. All corporate charges and allocations have been deemed paid ~~by us~~ to KAR in the period in which the cost was recorded in the Consolidated Statements of Income.

Allocated corporate costs included in selling, general and administrative expenses were ~~$0.0 million and $2.9~~$1.7 million for the three months ended September 29, 2019 and September 30, 2018, respectively. For the nine months ended September 29, 2019 and September 30, 2018, allocated corporate costs included in selling, general and administrative expenses were $2.8 million and $7.6 million, respectively.March 31, 2019. The allocated corporate costs were associated with human resources, risk management, information technology and certain finance and other functions.

~~Beginning in~~After the ~~third quarter of 2019, we are~~Separation Date, the Company is invoiced for services provided by KAR under the transition services agreement described below and, therefore, will no longer reflect these allocations in ~~our~~the Consolidated Statements of Income. Costs incurred related to the transition services agreement are recorded in selling, general, and administrative expenses.

Cash Management and Financing

KAR generally used a centralized approach to cash management and financing its operations, including the operations of IAA. Accordingly, none of KAR’s corporate cash and cash equivalents was allocated to IAA in the historical consolidated financial statements. Prior to the Separation Date, cash transferred daily, based on IAA’s balances, to centralized accounts maintained by KAR. As cash was disbursed or received by KAR, it was accounted for by IAA through the Net Parent Investment.

Transactions with Other KAR Businesses

~~Throughout the periods covered by these unaudited consolidated financial statements, we purchased~~The Company purchases goods and services from KAR’s other businesses. The cost of products and services obtained from these other businesses were $0.3 million and ~~$0.6~~$0.3 million for the three months ended ~~September~~March 29, ~~2019~~2020 and ~~September 30, 2018, respectively. For the nine months ended September 29,~~March 31, 2019, ~~and September 30, 2018, the cost of products and services obtained from these other businesses was $0.8 million and $2.1 million,~~ respectively.

Non-Compete Agreement

Pursuant to the Separation and Distribution Agreement, wethe Company agreed not to compete with KAR in certain non-salvage activities for a period of five years following the Separation Date in certain jurisdictions, subject to certain exceptions. ~~We are~~The Company is expressly permitted to continue to conduct ~~our~~its salvage auction business as conducted immediately prior to the Separation Date. The exceptions also permit usthe Company to conduct certain non-salvage business, in some cases subject to a revenue sharing mechanic in the event such business exceeds specified volume limits or other thresholds.

Transition Services Agreement

Under the transition services agreement, KAR and its subsidiaries ~~will~~ provide, on an interim, transitional basis, various services to IAA for a period of up to two years from the Separation Date. The services ~~to be~~ provided ~~will~~ include information technology, accounts payable, payroll, and other financial functions and administrative services. From time to time, IAA may provide similar services to KAR under the transition services agreement.

Tax Matters Agreement

The tax matters agreement generally governs our and KAR’s respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Separation, the Distribution or certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes for any tax period ending on or before the Separation Date, as well as tax periods beginning after the date of the Distribution.

In addition, the tax matters agreement imposes certain restrictions on usthe Company and ~~our~~its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) designed to preserve the tax-free status of the Separation, the Distribution and certain related transactions. The tax matters agreement also provides special rules that allocate tax liabilities in the event the Separation, the Distribution, or certain related transactions fail to qualify as tax-free for U.S. federal income tax purposes.

Employee Matters Agreement

The employee matters agreement allocated liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs and other related matters. The employee matters agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company. The employee matters agreement provides that, unless otherwise specified, KAR will be responsible for liabilities associated with employees who are employed by KAR following the Separation, former employees whose last employment was with the KAR businesses and certain specified current and former corporate employees, and ~~we are~~the Company is responsible for liabilities associated with employees who are employed by usit following the Separation, former employees whose last employment was with ~~our~~the Company's businesses and certain specified current and former corporate employees.

Note 3—~~Stock and~~ Stock-Based Compensation Plans

~~Equity Awards Granted by KAR and IAA~~

Prior to the Separation, KAR issued equity awards from time to time to select employees and non-employee directors

of IAA. All outstanding employee equity awards (stock options, restricted stock units and restricted stock) granted by KAR were granted prior to the Separation Date. We recognized stock-based compensation expense associatedIn connection with these awards in net income based on the fair value of the awards on the date of grant. Under KAR’s long-term incentive plans, KAR common stock and restricted stock was made available for grant, at the discretion of the Compensation Committee of KAR’s Board of Directors or KAR’s Board of Directors, to non-employee directors, executive officers and key employees of IAA in the form of stock options, performance-based restricted stock units (“PRSUs”) and time-based restricted stock units (“RSUs”). Subsequent to the Separation, IAA created its own equity ~~plan—~~plan - the 2019 Omnibus Stock and Incentive Plan (as amended, the "2019 OSIP"), as described below under 2019 Omnibus Stock and Incentive Plan. ~~The following table summarizes our stock-based compensation expense by type of award granted under both the KAR and IAA plans~~ ~~(in millions)~~:

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
PRSUs $ 0.3
$ 0.4
$ 0.7
$ 0.9
RSUs 1.0
0.6
2.5
1.9
Total stock-based compensation expense $ 1.3
$ 1.0
$ 3.2
$ 2.8

The employee matters agreement entered into with KAR in connection with the Separation required that the outstanding KAR equity awards held by IAA employees and non-employee directors be converted into adjusted awards of IAA pursuant to the 2019 OSIP. The awards were adjusted based on the following principles:

For each award recipient, the intent was to maintain the economic value of those awards before and after the Separation Date; and

The terms of the equity awards, such as the vesting schedule, will generally continue unchanged, except that the performance criteria for certain ~~PRSUs~~performance-based restricted stock units ("PRSUs") granted in 2019 will be subject to adjusted performance criteria. Such PRSUs were converted into time-based restricted stock units ("RSUs") with two-year cliff vesting in February 2020, since the adjusted performance criteria were determined to have been met.

2019 Omnibus Stock and Incentive Plan

On June 27, 2019, ~~our~~the Company's board of directors approved the 2019 OSIP. The purpose of the 2019 OSIP is to provide an additional incentive to selected management employees, directors, independent contractors, and consultants of the Company whose contributions are essential to the growth and success of ~~our business,~~the Company, in order to strengthen the commitment of such persons, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability for ~~us.~~the Company.

Benefits granted under the 2019 OSIP may be granted in any one or a combination of (i) options to purchase IAA common stock; (ii) IAA share appreciation rights (“SARs”); (iii) restricted shares of IAA common stock; ~~(vi) RSUs of IAA common stock; (vii)~~(iv) other IAA stock-based awards; or ~~(viii)~~(v) other cash-based awards. Options, restricted shares, ~~RSUs,~~ and other ~~share-~~

~~based~~share-based awards or cash awards may constitute performance-based awards. The granting or vesting of any performance-based awards will be based on achievement of performance objectives that are based on one or more financial or business criteria, with respect to one or more business units or IAA and its subsidiaries as a whole. Such financial or business criteria may be adjusted to account for unusual or infrequently occurring items or changes in accounting.

Participants include any employee, director, independent contractor or consultant of IAA or any affiliate of IAA selected to receive awards under the 2019 OSIP, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be. As of ~~September~~March 29, ~~2019,~~2020, the number of common shares reserved and available for awards under the 2019 OSIP is ~~4,846,884 shares,~~4,734,811, subject to adjustment made in accordance with the 2019 OSIP. Upon the occurrence of certain corporate events that affect the common stock, including but not limited to any extraordinary cash dividend, stock split, reorganization or other relevant ~~changes~~change in capitalization, appropriate adjustments may be made with respect to the number of shares available for grants under the 2019 OSIP, the number of shares covered by outstanding awards and the maximum number of shares that may be granted to any participant.

The aggregate awards granted during any calendar year to any single individual will not exceed: (i) 1,000,000 shares subject to options or SARs, (ii) 500,000 shares subject to restricted shares or other share-based awards and (iii) $5,000,000 with respect to any cash-based award. A non-employee director of IAA may not be granted awards under the 2019 OSIP during any calendar year that, when aggregated with such non-employee director’s cash fees received with respect to such calendar year, exceed $750,000 in total value.

~~Third Quarter Share Based Compensation Awards~~The following table summarizes the Company's stock-based compensation expense by type of award granted under both the KAR plans and the 2019 OSIP (in millions):



	Three Months Ended
	March 29, 2020		March 31, 2019
Performance-based Restricted Stock Units	$	0.2	$	—
Restricted Stock Units and Awards	1.7		1.0
Stock Options	0.2		—
Total Stock-based Compensation Expense	$	2.1	$	1.0

InDuring the ~~third~~first quarter of ~~2019,~~2020, the Company granted share-based awards to certain employees ~~and non-employee directors~~ in accordance with the 2019 OSIP. Details on those grants were as follows:

~~Stock Options~~

During the third quarter of 2019, a total 189,237 stock options were granted to certain employees and had a grant date fair value of $13.76 per option. The fair value of each option was estimated on the grant date using the Black-Scholes Merton option pricing model. Assumptions included in that model were the following: stock price at date of grant of $46.97; 3 years graded vesting period; term of 10 years; risk-free interest rate of 1.88%; volatility of 26% based on peer public companies; expected life of 6 years; and a dividend yield of 0%.

Restricted Share Units

~~During the third quarter of 2019, a total of 18,955 RSUs were granted.~~ (RSU): The Company granted 114,252 RSUs. The RSUs have a three year vesting term, and a weighted average grant date fair value of ~~$46.79~~$48.05 per share.

Performance-based Restricted ~~Stock Awards~~

~~During the third quarter of 2019,~~Share Units (PRSU): The Company granted 99,264 PRSUs. The PRSUs have a ~~total of 13,840 restricted stock awards were granted to non-employee directors. The restricted stock awards had a~~weighted average grant date fair value of ~~$46.97~~$50.11 per share and ~~have~~will vest at the end of a ~~one~~three-year performance period if and to the extent that the Company's three year ~~vesting term.~~

average return on invested capital attains certain specified goals.

Note 4—Net Income Per Share

Basic net income per share was calculated by dividing net income by the weighted average number of outstanding common shares for the period. Diluted net income per share was calculated consistent with basic net income per share including the effect of dilutive unissued common shares related to ~~our~~the Company's stock-based employee compensation program. The effect of stock options and ~~restricted stock~~RSUs on net income per share-diluted is determined through the application of the treasury stock method, whereby net proceeds received by the Company based on assumed exercises are hypothetically used to repurchase ~~our~~the Company's common stock at the average market price during the period.

For the three months ended March 31, 2019, the weighted average common shares outstanding and the dilutive securities as of June 28, 2019, the Separation Date, were assumed to be outstanding in the calculation of basic weighted average shares and dilutive weighted average shares, respectively.

The following table sets forth the computation of net income per share (in millions except per share amounts):



	Three Months Ended
	March 29, 2020		March 31, 2019
Net income	$	44.7	$	54.5
Weighted average common shares outstanding	133.7		133.4
Effect of dilutive stock awards	1.3		0.7
Weighted average common shares outstanding and potential common shares	135.0		134.1
Net income per share
Basic	$	0.33	$	0.41
Diluted	$	0.33	$	0.41

Stock options that would have an anti-dilutive effect on net income per diluted share and PRSUs subject to performance conditions which have not yet been satisfied are excluded from the calculations. ~~Approximately 0.1 million options were excluded from~~The weighted number of shares outstanding used in the calculation of diluted ~~net income~~earnings per share ~~for each~~does not include the effect of the ~~three and nine months ended September 29, 2019 and September 30, 2018, as they would be~~following anti-dilutive ~~in nature. Approximately 0.3 million and 0.6 million PRSUs were excluded from the calculation of diluted net income per share for the~~

~~three and nine months ended September 29, 2019 and September 30, 2018, respectively. Total options outstanding at September 29, 2019 and September 30, 2018 were 1.0 million.~~

Basic and dilutive net income per share was calculated by dividing net income by the weighted average number of outstanding common shares for the period. The following table sets forth the computation of net income per share securities:~~(in millions except per share amounts):~~

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Net income $ 41.8
$ 39.0
$ 147.6
$ 137.1
Weighted average common shares outstanding 133.5
133.5
133.3
133.3
Effect of dilutive stock awards 1.2
1.2
0.9
0.9
Weighted average common shares outstanding and potential common shares 134.7
134.7
134.2
134.2
Net income per share
Basic $ 0.31
$ 0.29
$ 1.11
$ 1.03
Diluted $ 0.31
$ 0.29
$ 1.10
$ 1.02

Note 5—Long-Term Debt

Long-term debt consisted of the following (in millions):


	September 29, 2019			December 30, 2018			March 29, 2020			December 29, 2019
Term Loan Facility	$	800.0		$	—		$	774.0		$	778.0
Notes	500.0			—			500.0			500.0
Other	—			456.6
Total debt	1,300.0			456.6			1,274.0			1,278.0
Unamortized debt issuance costs	(24.3		)	—			(22.3		)	(23.3		)
Current maturities of long-term debt	(8.0		)	(456.6		)	—			—
Long-term debt	$	1,267.7		$	—		$	1,251.7		$	1,254.7

Credit Facility

In connection with the Separation, on June 28, 2019, ~~IAA, Inc. (formerly IAA Spinco Inc.),~~the Company, as borrower, entered into a credit agreement (the “Credit Agreement”), by and among IAA, the several banks and other financial institutions or entities from time to time party thereto as lenders, the issuing lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreementwhich provides for, among other things: (i) a seven-year senior secured term loan facility in an aggregate principal amount of $800 million (the “Term Loan Facility”) and (ii) a five-year revolving credit facility in an aggregate principal amount of $225 million (the “Revolving Credit Facility,” and together with the Term Loan Facility, the “Credit Facility”). Subsequent to March 29, 2020, the Company entered into an amendment to its Credit Agreement to increase the aggregate principal amount able to be borrowed under the Revolving Credit Facility by $136.0 million to $361.0 million. See Note 10, Subsequent Events for additional information. The Revolving Credit Facility also includes a $50 million sub-limit for issuance of letters of credit and a $50 million sublimit for swing line loans, which can be borrowed on same-day notice. The Term Loan Facility matures on June 28, 2026. WeThe Company must make principal payments of $2 million each quarter, commencing on September 30, 2019 and continuing on the last day of each September, December, March and June thereafter. The Revolving Credit Facility matures on June 28, 2024. WeThe Company may prepay the obligations under ~~our~~its Term Loan Facility and Revolving Credit Facility at any time without penalties. The obligations under the Credit Facility are subject to mandatory prepayments for certain debt offerings, asset sales and insurance recovery events, subject to customary exceptions and reinvestment rights.

~~We used~~The proceeds from the Term Loan Facility were used to finance the transactions relating to the Separation and Distribution related thereto. ~~We used the~~The remaining proceeds from the Term Loan Facility were used for ~~IAA's~~the Company's ongoing working capital needs and general

corporate purposes. During the three months ended March 29, 2020, the Company made an optional principal pre-payment of $4.0 million on the Term Loan Facility. As of March 29, 2020, $774.0 million was outstanding under the Term Loan Facility. The Revolving Credit Facility may be used for ongoing working capital needs and general corporate purposes. As of ~~September~~March 29, ~~2019,~~2020, no amounts were outstanding under the Revolving Credit Facility.

~~As set forth in the Credit Agreement, the~~The Term Loan Facility accrues interest at an adjusted LIBOR rate plus 2.25% (or at ~~IAA’s~~the Company's election, Base Rate (as defined in the Credit Agreement) plus 1.25%). Loans under the Revolving Credit Facility will bear interest at an amount equal to the rate calculated based on the type of borrowing (either adjusted LIBOR or Base Rate) and ~~our~~the Company's Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), with such rate ranging from 2.25% to 1.75% for adjusted LIBOR loans and from 1.25% to 0.75% for Base Rate loans. ~~We will also pay~~The unused amount of the Revolving Credit Facility is subject to a commitment fee between 25 to 35 basis points, payable quarterly, based on the ~~average daily unused amount of the Revolving Credit Facility based on our~~Company's Consolidated Senior Secured Net Leverage ~~Ratio, from time to time.~~

~~The obligations~~Ratio. As of ~~IAA, Inc. under~~March 29, 2020 and December 29, 2019, the ~~Credit~~interest rate per annum for the Term Loan Facility ~~are guaranteed by certain domestic subsidiaries of IAA, Inc. (the “Subsidiary Guarantors”)~~was 3.9% and are secured by substantially all of the assets, subject to certain exceptions, of IAA, Inc. and the Subsidiary Guarantors, including but not limited to pledges of and first priority perfected security interests in 100% of the equity interests of the Subsidiary Guarantors and 65% of the equity interests of any Subsidiary Guarantors’ first tier foreign subsidiaries.4.0%, respectively.

The Credit Agreement contains affirmative and negative covenants that are usual and customary for a senior secured credit agreement. The negative covenants include, among other things, limitations on asset sales, mergers and acquisitions, indebtedness, liens, dividends, investments and transactions with ~~our~~the Company's affiliates. The Credit Agreement also requires usthe Company to maintain a maximum Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) not to exceed 3.50 to 1.00 as of each test date on which any Revolving Loans (as defined in the Credit Agreement) are outstanding. ~~We were~~The Company was in compliance with the covenants in the Credit Agreement at ~~September~~March 29, ~~2019.~~2020. The Credit Agreement also includes customary events of default, including non-payment, cross-default and change of control, in each case, subject to customary grace periods.

Notes

In connection with the Separation, ~~IAA, Inc.~~the Company issued $500.0 million aggregate principal amount of 5.500% Senior Notes due 2027 (the “Notes”) on June 6, 2019 (the "Closing Date") in a private offering exempt from the registration requirements of the Securities ~~Act.~~Act of 1933, as amended. The Notes were issued pursuant to an indenture, dated as of the Closing Date (the “Indenture”)~~, between IAA Inc. and U.S. Bank National Association, as trustee (the “Trustee”)~~. ~~We must pay interest~~Interest on the Notes is due in cash on June 15 and December 15 of each year at a rate of 5.500% per annum, commencing on December 15, 2019. The Notes mature on June 15, 2027. ~~We used the~~The net proceeds from the Notes offering, together with borrowings under the Term Loan Facility, were used to make a cash distribution to KAR and to pay fees and expenses related to the Separation and Distribution.

Under certain circumstances, the Indenture permits us to designate certain of our subsidiaries as unrestricted subsidiaries, which subsidiaries will not be subject to the covenants in the Indenture and will not guarantee the Notes.

The Notes are the general unsecured senior obligations of ~~IAA, Inc.~~the Company and such obligations are guaranteed by the Subsidiary Guarantors. Each guarantee is the general unsecured senior obligation of each Subsidiary Guarantor. The Notes and the related guarantees rank equal in right of payment with all of ~~IAA, Inc.'s~~the Company's and the Subsidiary Guarantors’ unsubordinated indebtedness. The Notes are structurally subordinated in right of payment to all indebtedness and other liabilities of ~~our~~the Company's subsidiaries that will not be Subsidiary Guarantors and effectively junior in right of payment to all of ~~our~~the Company's and the Guarantors’ secured indebtedness to the extent of the value of the collateral securing such indebtedness, including indebtedness under the Credit Facility.

At any time and from time to time prior to June 15, 2022, we may, at our option, redeem the Notes in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. Thereafter, we may, at our option, redeem the Notes in whole or in part at the prices set forth in the Indenture. In addition, at any time and from time to time prior to June 15, 2022, we may, at our option, at a redemption price of 105.5% of the principal amount of Notes redeemed, redeem up to 40% of the original aggregate principal amount of the Notes issued under the Indenture with the proceeds of certain equity offerings.

In the event of a Change of Control Repurchase Event (as defined in the Indenture), unless we have previously or concurrently delivered a redemption notice with respect to all the outstanding Notes, we are required to make an offer to repurchase all of the Notes at 101% of their aggregate principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. If we sell assets outside the ordinary course of business and do not use the net proceeds for specified purposes under the

Indenture, we may be required to use such net proceeds to make an offer to repurchase the Notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The Indenture contains covenants which, among other things, limit ~~our~~the Company and ~~our~~its restricted subsidiaries’ ability to pay dividends on or make other distributions in respect of equity interests or make other restricted payments, make certain investments, incur liens on certain assets to secure debt, sell certain assets, consummate certain mergers or consolidations or sell all or substantially all assets, or designate subsidiaries as unrestricted. The Indenture also provides for customary events of default, including non-payment of principal, interest or premium, failure to comply with covenants, and certain bankruptcy or insolvency events. ~~We were~~The Company was in compliance with the covenants in the Indenture at ~~September~~March 29, ~~2019.~~2020.

Other

At December 30, 2018, ~~our~~the Company had intercompany debt with KAR ~~was~~of $456.6 million. This debt was eliminated in the Separation. This debt was comprised of three promissory notes, payable on demand, with a weighted average interest rate of 8.27%. ~~In addition, we~~

At March 29, 2020, the Company had outstanding letters of credit in the aggregate amount of $7.3 million, of which $7.0 million reduce the amount available for borrowings under its Revolving Credit Facility. At December 29, 2019, the Company had outstanding letters of credit in the aggregate amount of $7.0 million ~~and $2.1 million at September 29, 2019 and December 30, 2018, respectively,~~ which reduce the amount available for borrowings under ~~our~~its Revolving Credit Facility.

Fair Value of Debt

As of ~~September~~March 29, ~~2019,~~2020, the estimated fair value of ~~our~~the Company's long-term debt amounted to ~~$1.34~~$1.2 billion. The estimates of fair value were based on broker-dealer quotes for ~~our~~the Company's debt as of ~~September~~March 29, ~~2019.~~2020. The estimates presented on long-term financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange.

Note 6—Leases

~~We lease~~The Company leases property, software, automobiles, trucks and trailers, pursuant to operating lease agreements. WeThe Company also ~~lease~~leases furniture, fixtures and equipment under finance leases. ~~Our~~The leases have varying remaining lease terms with leases expiring through 2038, some of which include options to extend the leases.

The components of ~~lease~~leases expense were as follows (~~in millions~~)(in millions):


					Three Months Ended
	Three Months Ended September 29, 2019		Nine Months Ended September 29, 2019		March 29, 2020		March 31, 2019
Operating lease cost	$	30.6	$	86.7	$	32.7	$	27.3

Finance lease cost:
Amortization of right-of-use assets	$	4.1	$	11.7	$	3.7	$	3.8
Interest on lease liabilities	0.3		0.8		0.2		0.3
Total finance lease cost	$	4.4	$	12.5	$	3.9	$	4.1

Supplemental cash flow information related to leases was as follows (in millions):


					Three Months Ended
	Three Months Ended September 29, 2019		Nine Months Ended September 29, 2019		March 29, 2020		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	39.8	$	94.5	$	31.4	$	26.5
Operating cash flows related to finance leases	$	0.3	$	0.8	$	0.3	$	0.3
Financing cash flows related to finance leases	$	2.6	$	10.9	$	3.8	$	5.6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	69.3	$	118.3	$	81.7	$	1.9
Finance leases	$	—	$	—	$	5.2	$	—

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):


	September 29, 2019			March 29, 2020			December 29, 2019
Operating Leases
Operating lease right-of-use assets	$	704.8		$	892.8		$	811.1
Accumulated amortization				(96.2		)	(75.2		)
Operating lease right-of-use assets, net				$	796.6		$	735.9
Other accrued expenses	$	58.9		$	73.6		$	68.6
Operating lease liabilities	681.3			766.5			709.5
Total operating lease liabilities	$	740.2		$	840.1		$	778.1
Finance Leases
Property and equipment, gross	$	119.5		$	131.6		$	127.4
Accumulated depreciation	(87.1		)	(94.3		)	(90.9		)
Property and equipment, net	$	32.4		$	37.3		$	36.5
Other accrued expenses	$	10.6		$	11.6		$	12.4
Other liabilities	7.5			14.0			12.6
Total finance lease liabilities	$	18.1		$	25.6		$	25.0
Weighted Average Remaining Lease Term (Years)
Operating leases	11.96			11.56			11.81
Finance leases	1.14			2.83			1.58
Weighted Average Discount Rate
Operating leases	6.0		%	5.6		%	5.7		%
Finance leases	4.5		%	3.8		%	4.6		%

Maturities of lease liabilities as of ~~September~~March 29, ~~2019~~2020 were as follows (in millions):

Operating
Leases
Finance Leases
2019 (excluding the nine months ended September 29, 2019) $ 17.9
$ 2.8
2020 109.7
10.7
2021 97.9
5.2
2022 88.7
0.3
2023 81.6
—
Thereafter 668.0
—
Total lease payments 1,063.8
19.0
Less imputed interest (323.6 ) (0.9 )
Total $ 740.2
$ 18.1

As previously disclosed in our Registration Statement on Form 10 as filed with the SEC on June 13, 2019, maturities of lease liabilities under the accounting guidance effective at that date were as follows as of December 31, 2018:


	Operating Leases		Finance Leases		Operating Leases			Finance Leases
2019	$	97.2	$	15.2
2020	87.1		9.7
2020 (excluding the three months ended March 29, 2020)					$	88.5		$	10.0
2021	81.1		4.4		114.7			8.8
2022	73.6				103.4			3.9
2023	64.4				95.3			2.2
2024					90.0			2.2
2025					87.1			0.1
Thereafter	526.9				581.8			—
Total lease payments	930.3		29.3
Less: Interest Portion of Finance Leases			1.5
					1,160.8			27.2
Less imputed interest					(320.7		)	(1.6		)
Total	$	930.3	$	27.8	$	840.1		$	25.6

Note 7—Commitments and Contingencies

~~We are~~The Company is and may from time to time become involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business. Management considers the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. ~~We accrue~~The Company accrues an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies, including litigation and environmental matters, are included in “Other accrued expenses” at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on ~~our~~the Company's operating results in that period. Such matters are generally not, in the opinion of management, likely to have a material adverse effect on ~~our~~its financial condition, results of operations or cash flows. Legal fees are expensed as incurred. ~~There has been no significant change in the legal and regulatory proceedings which were disclosed in our audited consolidated financial statements for the fiscal year ended December 30, 2018.~~

IAA—Lower Duwamish Waterway

Since June 2004, IAA has operated a branch on property it leases in Tukwila, Washington just south of Seattle. The property is located adjacent to a Superfund site known as the Lower Duwamish Waterway Superfund Site ("LDW Site"). The LDW Site had been designated a Superfund site in 2001, three years prior to IAA’s tenancy. On March 25, 2008, the United States Environmental Protection Agency (the "EPA") issued IAA a General Notice of Potential Liability, or "General Notice," pursuant to Section 107(a), and a Request for Information pursuant to Section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") related to the LDW Site. On November 7, 2012, the EPA issued IAA a Second General Notice of Potential Liability (the "Second General Notice") for the LDW Site. The EPA's website indicates that the EPA has issued general notice letters to approximately 116 entities, and has issued Section 104(e) Requests to more than 300 entities related to the LDW Site. In the General Notice and Second General Notice, the EPA informed IAA that the EPA believed IAA may be a Potentially Responsible Party ("PRP"), but the EPA did not specify the factual basis for this assertion. At this time, the EPA still has not specified the factual basis for this assertion and has not demanded that IAA pay any funds or take any action apart from responding to the Section 104(e) Information Request. Four PRPs, The Boeing Company, the City of Seattle, the Port of Seattle and King County - the Lower Duwamish Waterway Group ("LDWG"), have funded a remedial investigation and feasibility study related to the cleanup of the LDW Site. In December 2014, the EPA issued a Record of Decision ("ROD"), detailing the final cleanup plan for the LDW Site. The ROD estimated the cost of cleanup to be $342 million, with the plan involving dredging of 105 acres, capping 24 acres, and enhanced natural recovery of 48 acres. The estimated length of the cleanup was 17 years, including 7 years of active remediation, and 10 years of monitored natural recovery. IAA is aware that certain authorities may bring natural resource damage claims against PRPs. On February 11, 2016, IAA received a Notice of Intent letter from the United States National Oceanic and Atmospheric Administration informing IAA that the Elliott Bay Trustee Council were beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicated that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. Shortly thereafter, in a letter dated August 16, 2016, EPA issued a status

update to the PRPs at the LDW Site. The letter stated that EPA expected the bulk of the pre-remedial design work currently

being performed by the LDWG to be completed by the beginning of 2018, with the Remedial Design/Remedial Action ("RD/RA") phase to follow. The EPA previously anticipated that the pre-design work would be completed sometime during 2018, and the Company is not aware of any further information regarding that schedule. Accordingly, RD/RA negotiations with all PRPs may begin sometime ~~later this year, or~~ in 2020. At this time, the Company has not received any further notices from the EPA and does not have adequate information to determine IAA's responsibility, if any, for contamination at this site, or to estimate IAA's loss as a result of this potential liability.

In addition, the Washington State Department of Ecology ("Ecology") is working with the EPA in relation to the LDW Site, primarily to investigate and address sources of potential contamination contributing to the LDW Site. In 2007, IAA installed a stormwater capture and filtration system designed to treat sources of potential contamination before discharge to the LDW Site. The immediate-past property owner, the former property owner and IAA have had discussions with Ecology concerning possible source control measures, including an investigation of the water and soils entering the stormwater system, an analysis of the source of contamination identified within the system, if any, and possible repairs and upgrades to the stormwater system if required. Additional source control measures, if any, are not expected to have a material adverse effect on future recurring operating costs.

Note 8—Segment Information

~~ASC 280,~~ ~~Segment Reporting, requires reporting of segment information that is consistent with the manner in which the chief operating decision maker operates and views the Company. Our operations are grouped into three~~The Company has two operating segments: United States ~~Canada~~ and ~~United Kingdom.~~International. The Company's two operating segments represent its two reportable segments. These segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results. We have one reportable business segment: United States. Canada and United Kingdom do not meet the criteria to be considered reportable segments but have been presented as “International” in the tables below to reconcile the amounts presented to consolidated totals.

Financial information regarding ~~our~~the Company's reportable ~~segment~~segments is set forth below as of and for the three ~~and nine~~ months ended ~~September~~March 29, ~~2019~~2020 (in millions):


	Three Months Ended September 29, 2019						Nine Months Ended September 29, 2019								Three Months Ended March 29, 2020
	United States		International		Total		United States		International			Total			United States			International			Total
Revenues	$	318.1	$	39.2	$	357.3	$	952.9	$	128.0		$	1,080.9		$	321.1		$	45.5		$	366.6
Operating expenses:
Cost of services (exclusive of depreciation and amortization)	193.4		27.9		221.3		578.3		89.1			667.4			198.0			33.0			231.0
Selling, general and administrative	36.5		2.4		38.9		97.2		9.0			106.2			35.1			2.9			38.0
Depreciation and amortization	20.5		1.6		22.1		61.0		5.0			66.0			20.8			1.7			22.5
Total operating expenses	250.4		31.9		282.3		736.5		103.1			839.6			253.9			37.6			291.5
Operating profit	67.7		7.3		75.0		216.4		24.9			241.3			67.2			7.9			75.1
Interest expense	17.5		—		17.5		39.1		—			39.1
Interest expense, net															16.1			(0.1		)	16.0
Other expense, net	—		—		—		—		(0.1		)	(0.1		)	(0.1		)	(0.6		)	(0.7		)
Income before income taxes	50.2		7.3		57.5		177.3		25.0			202.3			51.2			8.6			59.8
Income taxes	13.7		2.0		15.7		47.7		7.0			54.7			12.8			2.3			15.1
Net income	$	36.5	$	5.3	$	41.8	$	129.6	$	18.0		$	147.6		$	38.4		$	6.3		$	44.7
Total assets	$	1,886.9	$	193.0	$	2,079.9	$	1,886.9	$	193.0		$	2,079.9		$	2,036.4		$	179.1		$	2,215.5

Financial information regarding our reportable segment is set forth below as of and for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 (in millions):


	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018								Three Months Ended March 31, 2019
	United States		International		Total		United States			International		Total			United States		International		Total
Revenues	$	286.4	$	34.7	$	321.1	$	889.9		$	101.7	$	991.6		$	314.3	$	42.9	$	357.2
Operating expenses:
Cost of services (exclusive of depreciation and amortization)	178.2		24.3		202.5		543.0			67.3		610.3			189.1		29.3		218.4
Selling, general and administrative	28.8		2.9		31.7		86.7			8.9		95.6			30.0		3.6		33.6
Depreciation and amortization	22.6		1.7		24.3		68.0			5.1		73.1			20.0		1.8		21.8
Total operating expenses	229.6		28.9		258.5		697.7			81.3		779.0			239.1		34.7		273.8
Operating profit	56.8		5.8		62.6		192.2			20.4		212.6			75.2		8.2		83.4
Interest expense	9.6		—		9.6		28.9			—		28.9
Interest expense, net															9.7		—		9.7
Other expense, net	—		—		—		(0.8		)	—		(0.8		)	0.1		—		0.1
Income before income taxes	47.2		5.8		53.0		164.1			20.4		184.5			65.4		8.2		73.6
Income taxes	12.5		1.5		14.0		41.9			5.5		47.4			16.7		2.4		19.1
Net income	$	34.7	$	4.3	$	39.0	$	122.2		$	14.9	$	137.1		$	48.7	$	5.8	$	54.5
Total assets	$	1,276.1	$	154.3	$	1,430.4	$	1,276.1		$	154.3	$	1,430.4		$	1,812.5	$	204.1	$	2,016.6

Note 9—Business Acquisition

On July 31, 2019, wethe Company acquired Decision Dynamics, Inc. ("DDI"), a leading electronic lien and title technology firm located in Lexington, South Carolina. The Company acquired all of the outstanding equity of DDI pursuant to a stock purchase agreement, which contains customary representations, warranties, covenants and indemnities by the sellers and the Company. The acquisition date fair value of the total consideration transferred was $19.2 million, which consists of an initial cash price of $16.7 million, net of cash acquired of $0.3 million, and the fair value of contingent consideration of $2.5 million which is payable upon achievement of certain performance targets over three years.

The purchase price for this acquisition has been finalized and allocated to the ~~transaction was approximately $17~~acquired intangibles assets and other net liabilities based on their respective fair values of $10.3 million and ~~could increase by an additional $4.1~~$0.6 million. The excess of the purchase price consideration over the estimated fair value of the acquired net assets of $9.5 million was allocated to goodwill.

The intangible assets acquired primarily related to customer relationships, developed technology and tradename, which will be amortized over ~~three years, contingent on certain terms, conditions~~a weighted average-useful life of approximately 12 years. The goodwill recognized from this acquisition reflects expected synergies resulting from adding DDI products and processes to the ~~achievement of various performance targets.~~ Company's products and processes. The acquired goodwill is allocated to the United States segment and is deductible for tax purpose.

Annual revenue for DDI was approximately $8.3 million in the twelve months prior to acquisition. The results of DDI ~~Inc.~~ are included in the Company's financial statements from the ~~time~~date of acquisition. The pro forma effects of this acquisition ~~through the end of the quarter ended September 29, 2019. DDI's results of operations did~~are not ~~have a material impact on~~significant to the Company's reported results for any periods presented. Accordingly, no pro forma financial statements and related disclosures for the period ended September 29, 2019. The Company has recorded provisional amounts for the fair value of contingent consideration and the acquired assets and assumed liabilities associated with the transaction as the determination of their respective fair values has nothave been ~~finalized.~~

presented herein.

Note 10—Subsequent Events

~~On September 30, 2019,~~In response to the uncertainty around COVID-19, on May 1, 2020, the Company ~~repaid $12~~entered into an amendment to its Credit Agreement to increase the aggregate principal amount able to be borrowed under the Revolving Credit Facility by $136.0 million to $361.0 million. As of ~~its Term Loan Facility, consisting~~May 6, 2020, no amounts were outstanding under the Revolving Credit Facility.

The Company has evaluated all events that occurred after the balance sheet date of ~~$2 million required principal payment~~March 29, 2020 through the date these financial statements were issued, and ~~a $10 million optional principal pre-payment.~~did not have any material recognizable events after March 29, 2020 other than described above.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

We refer to IAA, Inc. and its subsidiaries collectively as “IAA”, “the Company”, “we”, “our” and “us”. Our fiscal year ends on the last Sunday in December in each year, consisting of either 52 or 53 weeks.

The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws, and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. See ~~“Forward-Looking~~“Statement Regarding Forward-Looking Statements” ~~immediately prior to~~preceding Part I, Item 1 in this Quarterly Report on Form 10-Q.”

Unless the context suggests otherwise, all reference in this Quarterly Report on Form 10-Q to the "Company," "we," "us," refer to IAA, Inc. together with its subsidiaries, and all references to "KAR Auction Services" and "KAR" refer to KAR Auction Services, Inc.

Executive Overview

Our Business

~~IAA is~~We are a leading provider of auction solutions for total loss, damaged and low-value vehicles in North America and ~~is also a provider of auction services in~~ the United Kingdom. Leveraging leading-edge technology and focusing on innovation, ~~IAA’s~~our unique multi-channel platform processes approximately 2.5 million total-loss, damaged and low-value vehicles annually. Headquartered near Chicago in Westchester, IL, we have ~~over 3,600~~approximately 3,800 talented ~~employees and over 190 facilities throughout the US, Canada and the United Kingdom. IAA serves~~employees. We serve a global buyer base and a full spectrum of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies and charitable organizations. We offer customers a comprehensive suite of services aimed at maximizing vehicle value, reducing administrative costs, shortening selling cycle time and delivering customers the highest economic returns. Buyers have access to industry leading, innovative vehicle evaluation and bidding tools, enhancing the overall purchasing experience.

~~At September 29, 2019, properties utilized by IAA included 182 salvage vehicle auction~~We currently operate over 200 facilities inthroughout the United States, Canada and ~~Canada, most~~the United Kingdom, representing total acreage of ~~which are leased. The IAA North American~~approximately 8,100 gross acres. Most of our properties are leased and used primarily for auction and storage purposes consisting on average of approximately 30 acres of land per site. IAA also includes HBC Vehicle Services Limited, which operated 14 locations in the United Kingdom at September 29, 2019.storages purposes.

The Separation ~~and Distribution~~

On February 27, 2018, KAR Auction Services, Inc. ("KAR") announced a plan to pursue the separation and spin-off (the "Separation") of its salvage auction businesses into a separate public company. On June 28, 2019 (the "Separation Date"), KAR completed the distribution of 100% of the issued and outstanding shares of common stock of IAA to the holders of record of KAR's common stock on June 18, 2019, on a pro rata basis (the "Distribution"). On the Separation Date, each KAR common stockholder of record received one share of IAA common stock for every one share of KAR common stock held by such stockholder as of the record date. Following the Separation and Distribution, IAA became an independent publicly-traded ~~company and is listed on the New York Stock Exchange under the symbol “IAA.”~~company. See Note 1 - Basis of Presentation and Nature of Operations in the condensed notes to unaudited consolidated financial statements for additional information.

~~2019 Highlights~~COVID-19 Impact on our Business

The recent outbreak of coronavirus disease (COVID-19), which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. In an effort to contain and combat the spread of COVID-19, government and health authorities around the world have taken extraordinary and wide-ranging actions, including orders to close all business not deemed “essential”, quarantines, “stay-at-home” orders, and the practice of social distancing.

Given our operations, we are classified as “essential” and have remained open for business and our branches continue to be operational. We have implemented strict health and sanitization protocols to keep our employees and customers safe. We have also taken precautionary measures to help minimize the risk of the virus to our employees, including temporarily requiring employees to work remotely where possible, suspending all non-essential travel worldwide for our employees, and discouraging employee attendance at in-person work-related meetings. We have also activated contingency plans to ensure continued operations and business continuity across our global network. Since the stay-at home orders were executed across North-America and the United Kingdom in mid-March, we have seen a significant impact on our business as the significant decline in miles driven has translated into a reduction in the number of car accidents, and in turn a reduction in vehicle assignments. The impact of COVID-19 and overall negative impact on the economy has also impacted, and may continue to impact, the number of potential buyers attending our virtual auctions, as well as the proceeds on individual vehicles from those buyers. Given the dynamic nature of these circumstances, the duration of business disruption and the related financial effects cannot be reasonably estimated at this time. However, we expect COVID-19 and the efforts taken to reduce its spread to have a negative impact on our consolidated financial statements in fiscal 2020, the impact of which may be material. See Item 1A, Risk Factors for additional information.

In response to the uncertainty surrounding COVID-19, we have taken a series of actions to reduce costs and cash outlays, including, but not limited to, a temporary reduction in salaries at the senior leadership level, a temporary reduction in the

annual cash retainer payable in quarterly installments to directors, aggressive cost reductions across all departments, reduced branch labor hours across most locations, employee furloughs in select locations and a reduction or deferral of certain non-critical capital spending. In addition, we have enhanced our liquidity position by entering into an amendment to our Credit Agreement to increase the aggregate principal amount to be borrowed under our Revolving Credit Facility (as defined below) by $136.0 million to $361.0 million. See Note 10, Subsequent Events for additional information. We will continue to actively monitor the rapidly evolving situation and guidance from the government and public health authorities and may take additional actions that we determine are in the best interest of the Company and all our stakeholders.

The COVID-19 pandemic had limited impact on our operations in the first quarter of fiscal 2020, but is affecting our operations in the second quarter of ~~2019 marked a significant milestone in~~fiscal 2020, and may continue to do so thereafter. All of the factors described above may have far-reaching impacts on our ~~history as we successfully executed~~business, operations, and financial results and conditions, directly and indirectly, including, but not limited to, impacts on vehicle assignments, branch operations, the health of our ~~spin-off from KAR to become an independent publicly traded company.~~

~~In connection with~~management and employees, and on the Separation, we entered into a $225 million five-year revolving credit facility, an $800 million seven-year senior secured term loan facility and we issued $500 million of senior unsecured notes due 2027. See ~~Note 5 - Long-Term Debt~~ ~~in the condensed notes to unaudited consolidated financial statements for additional information.~~

On July 31, 2019, we acquired Decision Dynamics, Inc. ("DDI"), a leading electronic lien and title technology firm located in Lexington, South Carolina. The purchase price for the transaction was approximately $17 million, and could increase by an additional $4.1 million over three years, contingent on certain terms, conditions and the achievement of various performance targets. Annual revenue for DDI was approximately $8.3 million in the 12 months prior to acquisition.overall economy.

Sources of Revenues and Expenses

A significant portion of our revenue is derived from auction fees and related services associated with our salvage auctions. Approximately two-thirds of our revenue is earned from buyers and represents fees charged based on a tiered structure that increases with the sales price of the vehicle as well as service fees for additional services. In addition, approximately one-third of our revenue is earned from sellers and represents the combination of the inbound tow, processing, storage, titling, enhancing and auctioning of the vehicle. We purchase only a small amount of vehicles as the majority of our business comprises auctioning vehicles on consignment. However, when we do purchase vehicles, we record the entire sale price as revenue and the purchase price as cost of services, which results in lower gross margin versus vehicles sold at auction on a consignment

basis. Although auction revenues primarily include the auction services and related fees, our related receivables and payables include the gross value of the vehicles sold.

Our operating expenses consist of cost of services, selling, general and administrative and depreciation and amortization. Cost of services is comprised of payroll and related costs, subcontract services, the cost of vehicles purchased, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites. Cost of services excludes depreciation and amortization. Selling, general and administrative expenses are comprised of, among other things, payroll and related costs, sales and marketing, information technology services and professional fees.

Factors Affecting Comparability of Financial Results

Historical KAR Cost Allocations versus IAA as a Stand-Alone Company:

Our historical consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The financial statements for periods prior to the Separation include certain expenses of KAR that were allocated to IAA for certain corporate functions including accounting, treasury, tax, internal audit, risk management, human resources, safety, and security, and information technology risk. These costs may not be representative of the costs IAA will incur as an independent, publicly traded company. In addition, our financial information for periods prior to the Separation does not reflect changes that IAA expects to experience as a result of IAA’s separation from KAR, including changes in IAA’s cost structure, personnel needs, tax structure, capital structure, financing and business operations. The consolidated financial statements also do not reflect the assignment of certain assets and liabilities between KAR and IAA. Consequently, the financial information included here may not necessarily reflect IAA’s financial position, results of operations and cash flows in the future or what IAA’s financial position, results of operations and cash flows would have been had IAA been an independent, publicly traded company during the periods prior to the Separation.

Debt Financing:

In connection with the Separation, we entered into the Credit Agreement (as defined below) on June 28, 2019. We borrowed (i) an aggregate principal amount of $800 million under the Term Loan Facility (as defined below) and (ii) an aggregate principal amount of $225 million under the Revolving Credit Facility.

In connection with the Separation, on June 6, 2019, we also issued $500.0 million aggregate principal amount of 5.50% Senior Notes due 2027 (the "Notes").

We used the net proceeds from the Notes offering, together with borrowings under the Term Loan Facility, to make a cash distribution to KAR and to pay fees and expenses related to the Separation and Distribution. We used the remaining proceeds from the Term Loan Facility for our ongoing working capital needs and general corporate purposes.

Acquisitions:

On July 31, 2019, we acquired Decision Dynamics, Inc. ("DDI"), a leading electronic lien and title technology firm located in Lexington, South Carolina for $19.2 million which includes the fair value of contingent consideration of $2.5 million.

Results of Operations


	Three Months Ended									Nine Months Ended									Three Months Ended						Change
(Dollars in millions)	September 29, 2019			September 30, 2018			% Change			September 29, 2019			September 30, 2018			% Change			March 29, 2020			March 31, 2019			$			%

Revenues	$	357.3		$	321.1		11.3	%		$	1,080.9		$	991.6		9.0	%		$	366.6		$	357.2		$	9.4		2.6	%
Cost of services*	221.3			202.5			9.3	%		667.4			610.3			9.4	%		231.0			218.4			12.6			5.8	%
Gross profit*	136.0			118.6			14.7	%		413.5			381.3			8.4	%		135.6			138.8			(3.2		)	(2.3	)%
Gross margin	38.1		%	36.9		%	110		bp	38.3		%	38.5		%	(20)		bp	37.0		%	38.9		%				(190)		bp
Selling, general and administrative	38.9			31.7			22.7	%		106.2			95.6			11.1	%		38.0			33.6			4.4			13.1	%
Depreciation and amortization	22.1			24.3			(9.0	)%		66.0			73.1			(9.7	)%		22.5			21.8			0.7			3.2	%
Operating profit	75.0			62.6			19.8	%		241.3			212.6			13.5	%		75.1			83.4			(8.3		)	(10.0	)%
Interest expense	17.5			9.6			82.1	%		39.1			28.9			35.2	%
Other income, net	—			—			NM**			(0.1		)	(0.8		)	(85.8	)%
Interest expense, net																			16.0			9.7			6.3			64.9	%
Other (income) expense, net																			(0.7		)	0.1			(0.8		)	NM**
Income before income taxes	57.5			53.0			8.6	%		202.3			184.5			9.7	%		59.8			73.6			(13.8		)	(18.8	)%
Income taxes	15.7			14.0			12.3	%		54.7			47.4			15.4	%		15.1			19.1			(4.0		)	(20.9	)%
Net income	$	41.8		$	39.0		7.2	%		$	147.6		$	137.1		7.7	%		$	44.7		$	54.5		$	(9.8	)	(18.0	)%
Net income per share
Basic	$	0.31		$	0.29		7.2	%		$	1.11		$	1.03		7.7	%		$	0.33		$	0.41		$	(0.08	)	(18.1	)%
Diluted	$	0.31		$	0.29		7.2	%		$	1.10		$	1.02		7.7	%		$	0.33		$	0.41		$	(0.08	)	(20.1	)%

________________

* Exclusive of depreciation and amortization

** NM-Not meaningful

Revenues

~~In the third quarter of 2019, total consolidated~~



	Three Months Ended				Change
(Dollars in millions)	March 29, 2020		March 31, 2019		$		%
United States	$	321.1	$	314.3	$	6.8	2.2	%
International	45.5		42.9		2.6		6.1	%
Total revenues	$	366.6	$	357.2	$	9.4	2.6	%

United States revenues increased ~~$36.2~~$6.8 million ~~or 11.3%, to $357.3 million from $321.1 million in the third quarter of fiscal 2018~~ primarily due to ~~increased volumes of approximately 5% and~~ an increase in revenue per vehicle sold of ~~approximately 5%. U.S.~~4% and additional revenues ~~increased $31.7~~from the DDI acquisition of $2.4 million, ~~or 11.1%, to $318.1 million~~partially offset by a decrease in ~~the third quarter~~volume of ~~2019 from $286.4 million in the prior year period.~~ 2%.

International revenues increased ~~$4.5~~$2.6 million ~~in the third quarter of 2019, or 13.0%, to $39.2 million from $34.7 million in the comparable prior year period. The increase in international revenues was~~ primarily due to an increase in ~~volume.~~

~~For the nine months ended September 29, 2019, total consolidated revenues increased $89.3 million, or 9.0%~~volume of 7%, to $1,080.9 million from $991.6 million in the comparable prior year period primarily due to increased volumes of approximately 4% and an increase in revenue per vehicle sold of approximately 5%. U.S. revenues increased $63.0 million, or 7.1%, in the nine months ended September 29, 2019 to $952.9 million from $889.9 million in the comparable prior year period. International revenues increased $26.3 million, or 25.9%, to $128.0 million from $101.7 million in the comparable prior year period. The increase in international revenues was primarily due toincluding a higher mix of purchased vehicles, ~~as well as~~partially offset by an ~~increase in volume and revenue per unit.~~unfavorable foreign currency impact of $0.4 million.

Gross ~~Profit~~profit



	Three Months Ended				Change
(Dollars in millions)	March 29, 2020		March 31, 2019		$			%
United States	$	123.1	$	125.2	$	(2.1	)	(1.7	)%
International	12.5		13.6		(1.1		)	(8.1	)%
Total gross profit	$	135.6	$	138.8	$	(3.2	)	(2.3	)%

Gross profit ~~which~~ is defined as total consolidated revenues minus cost of services and excludes depreciation and ~~amortization, increased by $17.4~~amortization.

United States gross profit decreased $2.1 million ~~or 14.7%,~~as compared to ~~$136.0 million from $118.6 million in~~ the ~~third quarter of fiscal 2018,~~three months ended March 31, 2019 primarily due to ~~the~~a decline in volume of vehicles sold and an increase in ~~revenues, which was~~occupancy, processing and labor costs; partially offset by anincreased revenue per vehicle sold and a $1.4 million contribution from the DDI acquisition.

International gross profit decreased $1.1 million as compared to the three months ended March 31, 2019 mainly due to the increase in our cost of services ~~which was primarily driven by an increase in volumes. Gross margin increased 110 basis points to 38.1% in the third quarter of 2019 compared to the third quarter of 2018 primarily~~for vehicles sold due to ~~a higher revenue per unit.~~

For the nine months ended September 29, 2019, gross profit increased $32.2 million, or by 8.4%, to $413.5 million from $381.3 million in the comparable prior year period, primarily due to the increase in revenues, which was partially offset by an increase in our cost of services which was primarily driven by an increase in volumes. Gross margin decreased 20 basis points to 38.3% primarily due to a higher mix of purchased vehicles and an increase in ~~our international business.~~labor and occupancy costs.

Selling, General and Administrative

Selling, general and administrative expenses increased $7.2 million, or 22.7%, to $38.9 million from $31.7 million in the third quarter of fiscal 2018 primarily due to $3.4 million of expenses related to our spin-off from KAR.

~~For the nine months ended September 29, 2019,~~



	Three Months Ended				Change
(Dollars in millions)	March 29, 2020		March 31, 2019		$			%
United States	$	35.1	$	30.0	$	5.1		17.0	%
International	2.9		3.6		(0.7		)	(19.4	)%
Total selling, general and administrative expenses	$	38.0	$	33.6	$	4.4		13.1	%

United States selling, general and administrative expenses ~~increased $10.6 million, or 11.1%, to $106.2 million from $95.6 million in the prior year period primarily due to $4.4 million of expenses related to our spin-off from KAR.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization decreased $2.2 million, or 9.0%, to $22.1 million for three months ended September 29, 2019, compared with $24.3 million~~ for the three months ended ~~September 30, 2018. For~~March 29, 2020 increased $5.1 million as compared to the ~~nine~~three months ended ~~September~~March 31, 2019 primarily due to the incremental costs of $3.6 million related to IAA becoming a stand-alone company, higher professional services costs of $1.8 million and additional costs from the DDI acquisition of $1.1 million; partially offset by lower incentive compensation and other miscellaneous expenses.

International selling, general and administrative expenses for the three months ended March 29, 2020 decreased 0.7 million as compared to the three months ended March 31, 2019 ~~depreciation~~primarily due to lower bad debt expense of $0.3 million and decreases in other miscellaneous expenses.

Depreciation and Amortization



	Three Months Ended				Change
(Dollars in millions)	March 29, 2020		March 31, 2019		$			%
United States	$	20.8	$	20.0	$	0.8		4.0	%
International	1.7		1.8		(0.1		)	(5.6	)%
Total depreciation and amortization	$	22.5	$	21.8	$	0.7		3.2	%

Depreciation and amortization ~~decreased $7.1~~increased $0.7 million ~~or 9.7%,~~as compared to ~~$66.0 million compared with $73.1 million for~~ the ~~nine~~three months ended ~~September 30, 2018. The decrease~~March 31, 2019 primarily due to certain assets placed in ~~depreciation and amortization in both periods was primarily~~service during fiscal 2020 within the ~~result of the derecognition of fixed assets associated with certain sale leaseback transactions associated with the adoption of Topic 842 in the first quarter of 2019. See~~ ~~Note 1 - Basis of Presentation and Nature of Operations~~ ~~in the condensed notes to unaudited consolidated financial statements of additional information.~~United States segment.

Interest Expense

Interest expense ~~was $17.5~~for the three months ended March 29, 2020 increased $16.0 million ~~in the third quarter of 2019~~as compared to ~~$9.6 million in~~ the comparable quarter of ~~2018. Interest expense for the nine months ended September 29,~~ 2019 ~~was $39.1 million compared~~due to ~~$28.9 million in the comparable prior year period. The increases over the prior year for both the quarter and year-to-date period were driven by~~ a higher total debt balance since the Separation Date.

Income Taxes

The effective tax rate of ~~27.3%~~25.3% for the three months ended ~~September~~March 29, ~~2019 was negatively impacted by less than 1.0% primarily due to certain discrete tax items. This compares to an effective tax rate of 26.4%~~2020 as compared 26.0% in the corresponding ~~period of the~~ prior ~~year.~~

~~The effective tax rate for the nine months ended September 29, 2019 and September 30, 2018 was 27.0% and 25.7%, respectively. The~~ year to date September 29, 2019 effective tax rate was negatively impacted by 1.3% primarily due to adjustments of $1.0 million to our deferred taxes related to our spin-off from KAR and other discrete items.

~~Net Income and EPS~~

~~For the three months ended September 29, 2019, net income was $41.8 million, or $0.31 per diluted share, compared to $39.0 million, or $0.29 per diluted share, in the third quarter of fiscal 2018.~~

~~For the nine months ended September 29, 2019, net income was $147.6 million, or $1.10 per diluted share, compared to $137.1 million, or $1.02 per diluted share, in the third quarter of fiscal 2018.~~period.

Liquidity and Capital Resources

We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations and working capital. ~~Historically,~~Prior to the Separation, we transferred ~~our~~the cash flow generated by our operations to KAR to support its overall cash management strategy. Cash was transferred daily, based on our balances, to centralized accounts maintained by KAR. As cash was disbursed or received by KAR, it was ~~accounted for by us~~recognized through Net Parent Investment on our balance ~~sheet, statement~~sheets, statements of cash ~~flow~~flows and ~~statement~~statements of stockholders' (deficit) equity.

On the Separation Date, our capital structure and sources of liquidity changed significantly. We no longer participate in cash management and funding arrangements with KAR. Subsequent to the Separation Date, our principal source of liquidity consists of cash generated by operations, and our Revolving Credit Facility ~~(as defined below)~~ provides another source of liquidity as needed. Our internally generated cash flow will be used to invest in new products and services, fund capital expenditures and ~~fund~~ working

capital requirements, and is expected to be adequate to service any future debt, ~~pay any future dividends, fund any stock repurchases~~ and fund future acquisitions, if any. Our ability to fund these capital needs will depend on our ongoing ability to generate cash from operations and to access borrowings under our Revolving Credit Facility and the capital markets. We believe that our cash on hand, future cash from operations, borrowings available under our Revolving Credit Facility and

access to the debt and capital markets will provide adequate resources to fund our operating and financing needs for at least the next twelve months.

Working Capital

A substantial amount of our working capital is generated from the payments received for services provided. The majority of our working capital needs are short-term in nature, usually less than three months in duration. Due to the decentralized nature of the business, payments for most vehicles purchased are received at each auction and branch. Most of the financial institutions place a temporary hold on the availability of the funds deposited that generally can range up to two business days, resulting in cash in our accounts and on our balance sheet that is unavailable for use until it is made available by the various financial institutions. There are outstanding checks (book overdrafts) to sellers and vendors included in current liabilities. Because a portion of these outstanding checks for operations in the United States are drawn upon bank accounts at financial institutions other than the financial institutions that hold the cash, we cannot offset all the cash and the outstanding checks on our balance sheet. Changes in working capital vary from quarter-to-quarter as a result of the timing of collections and disbursements of funds to consignors from auctions held near period end.

Approximately $14.9 million of available cash was held by our foreign subsidiaries at March 29, 2020. If funds held by our foreign subsidiaries were to be repatriated, state and local income tax expense and foreign withholding tax expense would need to be recognized, net of any applicable foreign tax credits.

Summary of Cash Flows


							Three Months Ended
(in millions)	Nine Months ended September 30, 2019			Nine Months ended September 30, 2018			March 29, 2020			March 31, 2019			Change
Net cash provided by (used by):
Operating activities	$	249.6		$	241.8		$	97.3		$	36.5		$	60.8
Investing activities	(73.1		)	(37.9		)	(10.5		)	(21.6		)	11.1
Financing activities	(182.6		)	(182.9		)	(47.0		)	(8.0		)	(39.0		)
Effect of exchange rate on cash	(4.1		)	(0.3		)	(0.8		)	0.6			(1.4		)
Net increase (decrease) in cash and cash equivalents	$	(10.2	)	$	20.7		$	39.0		$	7.5		$	31.5

~~Operating~~Net cash ~~flows:~~ flow provided by operating activities during the three months ended March 29, 2020 increased by $60.8 million as compared to the three months ended March 31, 2019. The increase in operating cash flow ~~in the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018~~ was primarily attributable to ~~increased profitability adjusted for non-cash items,~~ changes in operating assets ~~and liabilities~~ as a result of the timing of collections from customers and other parties and the ~~disbursement~~timing of ~~funds~~cash payments for taxes and interest, partially offset by decreased profitability.

Net cash used by investing activities was $10.5 million for the three months ended March 29, 2020 as compared to ~~consignors~~$21.6 million for ~~auctions held near period-end.~~

~~Investing cash flows:~~ the three months ended March 31, 2019. The ~~increase~~decrease in net cash used by investing activities ~~in the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018~~ was primarily ~~attributable~~due to ~~an increase~~decrease in cash used for capital ~~expenditures, as well as~~expenditures.

Net cash used by financing activities was $47.0 million for the ~~acquisition of DDI, Inc.~~three months ended March 29, 2020 as compared to $8.0 million for the three months ended March 31, 2019. The decrease in net cash used by financing activities was primarily attributable to a decrease in bank overdrafts during the ~~third~~first quarter of ~~2019.~~

~~Financing cash flows:~~ ~~Financing cash flows were largely unchanged~~fiscal 2020 as a result of ~~off-setting amounts~~timing of ~~outflows for dividends and distributions paid~~disbursements to ~~KAR prior to and as at the time of the Separation, partially off-set by the net proceeds from offering of Notes and~~ our ~~Term Loan Facility.~~vendors.

Our Outstanding Indebtedness

In connection with the Separation, on June 28, 2019 we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and ~~other~~the lenders party thereto from time to time ~~party thereto~~ (the “Credit Agreement”), which provides for, among other things, a ~~seven year senior secured term loan facility~~Term Loan Facility in an aggregate principal amount of $800 million ~~(the “Term Loan Facility”)~~ and a ~~five year revolving credit facility~~Revolving Credit Facility in an aggregate principal amount of ~~$225 million (the “Revolving Credit Facility”).~~$225.0 million. The Revolving Credit Facility also includes a ~~$50~~$50.0 million sub-limit for issuance of letters of credit and a ~~$50~~$50.0 million sublimit for swing line loans, which can be borrowed on same-day notice. As of ~~September~~March 29, ~~2019,~~2020, no amounts were outstanding under the Revolving Credit Facility. We were in compliance with the covenants in the Credit Agreement at ~~September~~March 29, ~~2019.~~ 2020.

See Note 5 - ~~Long Term~~ Debtin the ~~condensed~~ notes to ~~unaudited~~ consolidated financial statements for additional information.

~~On September 30,~~During the first quarter of fiscal 2020, we made an optional principal pre-payment of $4.0 million on the Term Loan Facility. During fiscal 2019, ~~the Company~~we repaid ~~$12~~$22.0 million of ~~its~~the Term Loan Facility, consisting of $2a $2.0 million required principal payment and a ~~$10~~$20.0 million optional principal pre-payment.

As of March 29, 2020, $774.0 million was outstanding under the Term Loan Facility.

On June 6, 2019, we issued $500.0 million aggregate principal amount of 5.500% Senior Notes due ~~2027 (the “Notes”).~~2027. We must pay interest on the Notes in cash on June 15 and December 15 of each year at a rate of 5.500% per annum, with the first interest payment date being December 15, 2019. The Notes will mature on June 15, 2027. The net proceeds from the Notes offering, together with borrowings under our prior senior credit facility, were used to make a cash distribution to KAR and to pay fees and expenses related to the Separation. We were in compliance with the covenants in the indenture governing the Notes at ~~September~~March 29, ~~2019.~~2020. See Note 5 - ~~Long Term~~ Debt in the ~~condensed~~ notes to ~~unaudited~~ consolidated financial statements for additional information.

~~Prior~~Subsequent to March 29, 2020, in response to the ~~Separation Date, we had intercompany debt with KAR totaling $456.6~~uncertainty around COVID-19, the Company entered into an amendment to its Credit Agreement to increase the aggregate principal amount able to be borrowed under the Revolving Credit Facility by $136.0 million to $361.0 million. ~~This debt, which was eliminated on the Separation Date, was comprised of three promissory notes, payable on demand, with a weighted average interest rate of 8.27%.~~

(Dollars in millions) September 29, 2019 December 30, 2018
Net Debt
Term Loan Facility $ 800.0
$ —
Notes 500.0
—
Revolving Credit Facility —
—
Total finance lease liabilities 18.1
—
Other —
456.6
Total debt 1,318.1
456.6
Less: Cash (49.8 ) (60.0 )
Net debt $ 1,268.3
$ 396.6

See Note 10, Subsequent Events for additional information.

Capital Expenditures

Capital expenditures for the ~~nine~~three months ended ~~September~~March 29, 2020 and March 31, 2019 ~~and September 30, 2018~~ were ~~$56.4~~$10.6 million and ~~$38.4~~$21.6 million, respectively. Capital expenditures were funded primarily from internally generated funds. We continue to invest in our core information technology capabilities and capacity expansion. ~~Approximately half of our 2019~~Our capital expenditures ~~are expected~~during the three months ended March 29, 2020 primarily related to ~~relate to~~real estate development and technology-based investments, including improvements in information technology systems and infrastructure. ~~Other anticipated capital expenditures are primarily attributable to improvements and expansion at our facilities.~~ Future capital expenditures could vary substantially based on capital project timing, the opening of new auction facilities, capital expenditures related to acquired businesses and the initiation of new information systems projects to support our business strategies. In response to the uncertainty around COVID-19, we have reduced or deferred certain non-critical expenditures for the remainder of fiscal 2020.

Off-Balance Sheet Arrangements

As of ~~September~~March 29, ~~2019,~~2020, we had no off-balance sheet arrangements pursuant to Item 303(a)(4) of Regulation S-K under the Securities Exchange Act of 1934, as amended ("Exchange Act").

Contractual Obligations

Our contractual cash obligations for capital lease obligations and operating leases as of December 30, 2018 are summarized in the table of contractual obligations disclosed under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations” in our information statement filed as Exhibit 99.1 to our Registration Statement on Form 10 filed with the SEC on June 13, 2019. Our operating lease obligations change in the ordinary course of business as we lease most of our facilities, as well as other property and equipment under operating leases. Future operating lease obligations will continue to change if renewal options are exercised and/or if we enter into additional operating lease agreements.

~~Other than as described in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, there~~There have been no material changes to the contractual obligations ofreported in our Annual report on Form 10-K for the ~~Company since~~fiscal year ended December ~~30, 2018.~~29, 2019 filed with the SEC on March 18, 2020.

Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. If these estimates differ significantly from

actual results, the impact to the consolidated financial statements may be material. There have been no material changes in our critical accounting policies disclosed ~~under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates”~~ in our ~~information statement filed as Exhibit 99.1 to our Registration Statement~~Annual Report on Form 1010-K for the fiscal year ended December 29, 2019 filed with the SEC on ~~June 13, 2019.~~March 18, 2020. For further information about recently issued accounting pronouncements, see Note 1 - Summary of Significant Accounting Policies in the condensed notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our outstanding indebtedness reflects a mix of fixed and variable rate debt and we are exposed to interest rate risk with respect to our variable rate indebtedness. As of September 29, 2019, we had outstanding $500.0 million of fixed rate debt from our outstanding Notes and $800.0 million of variable rate debt from our Term Loan Facility. The Term Loan Facility accrues interest at an adjusted LIBOR rate plus 2.25% (or at IAA’s election, Base Rate (as defined in the Credit Agreement) plus 1.25%). Loans under the Revolving Credit Facility bear interest at an amount equal to the rate calculated based on either adjusted LIBOR or Base Rate plus an applicable margin ranging from 2.25% to 1.75% for adjusted LIBOR loans and from 1.25% to 0.75% for Base Rate loans, in each case depending on our consolidated senior secured net leverage ratio (as defined in the Credit Agreement). A 100 basis point increase in the interest rates related to our variable rate debt based on the balance outstanding at September 29, 2019 would increase our interest expense by approximately $8.0 million annually. We may in the future manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. As of September 29, 2019, we have not entered into any swap agreements.

~~Other than described above, there~~There were no material changes to market risks and related disclosures from those disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Quantitative and Qualitative Disclosures About Market Risks” in our ~~information statement filed as Exhibit 99.1 to our Registration Statement~~Annual Report on Form 1010-K filed with the SEC on ~~June 13, 2019.~~March 18, 2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the ~~“Exchange Act”~~Exchange Act that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of ~~September~~March 29, ~~2019.~~2020.

Changes in Internal Control over Financial Reporting

Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until ~~after~~ the filing of our Annual Report on Form 10-K for the year ending December ~~29, 2019.~~27, 2020. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See Note 7 - Commitments and Contingencies in the condensed notes to the unaudited consolidated financial statements for information regarding legal proceedings, which information is incorporated by reference in this Item 1.

Item 1A. Risk Factors

In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the "Risk Factors" disclosed under "Item 1A. Risk Factors" in our ~~registration statement~~Annual Report on Form ~~10, as amended,~~10-K which was filed with the SEC on ~~June 13, 2019.~~March 18, 2020. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes from the risk factors previously disclosed in "Item 1A. Risk Factors" in our ~~information statement filed as Exhibit 99.1 our Registration Statement~~Annual Report on Form 1010-K filed with the SEC on ~~June 13, 2019.~~March 18, 2020 other than as disclosed below.

The COVID-19 pandemic and measures intended to reduce its spread has, and may continue to, adversely affect our business, results of operations and financial condition.

The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that we or our employees, suppliers, subhaulers and other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the full impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected and in which we operate have disrupted and may continue to disrupt the supply of salvage vehicles. For example, due to stay at home orders and other mandates implemented by federal, state and local governments, many individuals are staying at home and off the roads. As a result, total miles driven have declined significantly and may continue to decline, which has reduced and may continue to reduce accident frequency and, as a result, could adversely affect our operating results and financial condition. The overall negative impact of COVID-19 on the economy has also impacted, and may continue to impact, the number of potential buyers attending our virtual auctions, as well as the proceeds on individual vehicles from those buyers. The COVID-19 outbreak and mitigation measures have also had an adverse impact on global economic conditions, which has had and could continue to have an adverse effect on our business and financial condition, and could impact our ability to access the capital markets on terms acceptable to us, if at all. In addition, although our operations have been classified as “essential,” we have taken and may further take temporary precautionary measures intended to help minimize the risk of the virus to our employees, including reducing branch labor hours across most locations, temporarily requiring employees to work remotely where possible, suspending all non-essential travel worldwide for our employees, and discouraging employee attendance at in-person work-related meetings, which could negatively affect our business. The further spread of COVID-19 and actions taken to limit and combat the spread will impact our ability to carry out our business as normal, and may materially adversely impact our business, operating results and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

Item 6. Exhibits, Financial Statement Schedules

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit
Filing
Date

Filed
Herewith
2.1

Separation and Distribution Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.†
8-K 001-38580 2.1 6/28/2019
3.1

Amended and Restated Certificate of Incorporation of IAA, Inc., dated as of June 27, 2019
8-K 001-38580 3.1 6/28/2019
3.2

Amended and Restated By-laws of IAA, Inc., dated as of June 27, 2019
8-K 001-38580 3.2 6/28/2019
31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X**
32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X**
101.INS
XBRL Instance Document X
101.SCH
XBRL Taxonomy Extension Schema X
101.CAL
XBRL Taxonomy Extension Calculation Linkbase X
101.DEF
XBRL Taxonomy Extension Definition Linkbase X
101.LAB
XBRL Taxonomy Extension Label Linkbase X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase X

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed

Herewith

2.1

Separation and Distribution Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.†

8-K

001-38580

2.1

6/28/2019

3.1

Amended and Restated Certificate of Incorporation of IAA, Inc., dated as of June 27, 2019

8-K

001-38580

3.1

6/28/2019

3.2

Amended and Restated By-laws of IAA, Inc., dated as of June 27, 2019

8-K

001-38580

3.2

6/28/2019

10.1

Form of Letter Agreement with Executive Officers Regarding Temporary Reduction in Base Salary

10.2

Letter Agreement with Non-Employee Directors Regarding Temporary Reduction in Director Compensation

10.3

Incremental Commitment Agreement No. 1

8-K

001-38350

10.1

5/6/2020

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase


*	Furnished herewith.


†	Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to the registrant if publicly disclosed.


**	~~Furnished herewith.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		IAA, Inc.
		(Registrant)

Date:	~~November 12, 2019~~May 6, 2020	/s/ John W. Kett
		John W. Kett President and Chief Executive Officer (Principal Executive Officer)


Date:	~~November 12, 2019~~May 6, 2020	/s/ Vance C. Johnston
		Vance C. Johnston Executive Vice President, Chief Financial Officer (Principal Financial Officer)

3130



		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements

	Unaudited Consolidated Statements of Income	4

	Unaudited Consolidated Statements of Comprehensive Income	5

	Unaudited Consolidated Balance Sheets	6

	Unaudited Consolidated Statements of Stockholders' Equity	7

	Unaudited Consolidated Statements of Cash Flows	98

	Condensed Notes to Consolidated Financial Statements	109

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2321

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2826

Item 4.	Controls and Procedures	2826

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	2928

Item 1A.	Risk Factors	2928

Item 6.	Exhibits	3029

Signatures		3130



	Three Months September 29, 2019
	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital			Accumulated Deficit			Net Parent Investment		Accumulated Other Comprehensive Loss			Total Stockholders' (Deficit) Equity
Balance at July 1, 2019	133.4	$	1.3	$	—		$	(214.5	)	$	—	$	(15.7	)	$	(228.9	)
Net income		—		—			41.8			—		—			41.8
Foreign currency translation adjustments, net of tax		—		—			—			—		(1.8		)	(1.8		)
Share-based compensation expense		—		1.4			—			—		—			1.4
Exercise of Stock Options	0.1	—		0.7			—			—		—			0.7
Withholding taxes withheld on share based awards		—		(0.1		)	—			—		—			(0.1		)
Balance at September 29, 2019	133.5	$	1.3	$	2.0		$	(172.7	)	$	—	$	(17.5	)	$	(186.9	)



	Operating Leases			Finance Leases
2019 (excluding the nine months ended September 29, 2019)	$	17.9		$	2.8
2020	109.7			10.7
2021	97.9			5.2
2022	88.7			0.3
2023	81.6			—
Thereafter	668.0			—
Total lease payments	1,063.8			19.0
Less imputed interest	(323.6		)	(0.9		)
Total	$	740.2		$	18.1

Three Months Ended

March 29, 2020

March 31, 2019

Stock-based awards