Company Quick10K Filing
IAA
Price-0.00 EPS1
Shares135 P/E-0
MCap-0 P/FCF-0
Net Debt1,290 EBIT158
TEV1,290 TEV/EBIT8
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-28 Filed 2020-08-04
10-Q 2020-03-29 Filed 2020-05-06
10-K 2019-12-29 Filed 2020-03-18
10-Q 2019-09-29 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-13
8-K 2020-08-04 Earnings, Exhibits
8-K 2020-06-17
8-K 2020-05-06
8-K 2020-05-06
8-K 2020-03-18
8-K 2020-02-05
8-K 2020-01-13
8-K 2020-01-13
8-K 2019-11-12
8-K 2019-09-10
8-K 2019-08-13
8-K 2019-07-29
8-K 2019-06-28
8-K 2019-06-28
8-K 2019-06-14

IAA 10Q Quarterly Report

Part I
Item 1. Financial Statements
Note 1 - Basis of Presentation and Nature of Operations
Note 2 - Relationship with Kar and Related Entities
Note 3 - Stock - Based Compensation Plans
Note 4 - Net Income per Share
Note 5 - Long - Term Debt
Note 6 - Leases
Note 7 - Commitments and Contingencies
Note 8 - Segment Information
Note 9 - Business Acquisition
Note 10 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits, Financial Statement Schedules
EX-31.1 iaa-20200628xex311.htm
EX-31.2 iaa-20200628xex312.htm
EX-32.1 iaa-20200628xex321.htm
EX-32.2 iaa-20200628xex322.htm

IAA Earnings 2020-06-28

Balance SheetIncome StatementCash Flow
2.11.61.10.70.2-0.32018201820192020
Assets, Equity
0.40.30.20.20.10.02018201820192020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12018201820192020
Ops, Inv, Fin

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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 June 28, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-38580
iaa-20200628_g1.jpg
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 classTrading symbolName of each exchange on which registered
Common Stock, par value $0.01 per shareIAANew 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     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 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
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 July 29, 2020, 134,049,582 shares of the registrant's common stock, par value $0.01 per share, were outstanding.


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IAA, Inc.
Table of Contents
Page
2

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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 statements. Such statements include statements regarding the impact of COVID-19 on our business; our future growth; anticipated cost savings, revenue increases, credit losses and capital expenditures; tax rates and assumptions; strategic initiatives, greenfields and acquisitions; our competitive position and 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, 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 vehicle seller customers or a reduction in significant volume from such sellers; our ability to meet or exceed customers’ demand and expectations; significant current competition and the introduction of new 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; our ability to implement and maintain measures to protect against 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, including from our margin expansion program; business development activities, including acquisitions and integration of acquired businesses; 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 used-vehicle prices and the volume 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 our Annual Report on Form 10-K filed with the SEC on March 18, 2020 and our Quarterly Report on Form 10-Q filed with the SEC on May 6, 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 statements.

3

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PART I
FINANCIAL INFORMATION
Item 1.    Financial Statements
IAA, Inc.
Consolidated Statements of Income
(In millions, except per share data)
(Unaudited)
Three Months EndedSix Months Ended
June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Revenues$296.8  $366.4  $663.4  $723.6  
Operating expenses:
Cost of services (exclusive of depreciation and amortization)185.1  227.7  416.1  446.1  
Selling, general and administrative34.3  33.7  72.3  67.3  
Depreciation and amortization19.6  22.1  42.1  43.9  
Total operating expenses239.0  283.5  530.5  557.3  
Operating profit57.8  82.9  132.9  166.3  
Interest expense, net13.8  11.9  29.8  21.6  
Other expense (income), net0.1  (0.2) (0.6) (0.1) 
Income before income taxes43.9  71.2  103.7  144.8  
Income taxes10.7  19.9  25.8  39.0  
Net income$33.2  $51.3  $77.9  $105.8  
Net income per share
Basic$0.25  $0.38  $0.58  $0.79  
Diluted$0.25  $0.38  $0.58  $0.79  
See accompanying condensed notes to consolidated financial statements
4

Table of Contents
IAA, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
Three Months EndedSix Months Ended
June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Net income$33.2  $51.3  $77.9  $105.8  
Other comprehensive income (loss):
Foreign currency translation gain (loss)1.9  $(5.2) (5.7) $(2.7) 
Comprehensive income$35.1  $46.1  $72.2  $103.1  
See accompanying condensed notes to consolidated financial statements
5

Table of Contents
IAA, Inc.
Consolidated Balance Sheets
(in millions, except per share amounts)
June 28,
2020
December 29,
2019
(Unaudited)(Audited)
Assets
Current assets
Cash and cash equivalents$187.0  $47.1  
Accounts receivable, net of allowances of $7.3 and $4.2274.4  335.9  
Prepaid consigned vehicle charges41.2  50.1  
Other current assets22.0  26.9  
  Total current assets524.6  460.0  
Non-current assets
Operating lease right-of-use assets, net of accumulated amortization of $117.9 and $75.2809.9  735.9  
Property and equipment, net of accumulated depreciation of $459.6 and $438.3236.2  246.9  
Goodwill539.2  541.3  
Intangible assets, net of accumulated amortization of $484.3 and $465.9147.0  151.7  
Other assets16.6  15.4  
  Total non-current assets1,748.9  1,691.2  
  Total assets$2,273.5  $2,151.2  
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable$74.1  $96.4  
Short-term right-of-use operating lease liability76.0  68.6  
Accrued employee benefits and compensation expenses14.1  29.4  
Other accrued expenses67.5  49.3  
  Total current liabilities231.7  243.7  
Non-current liabilities
Long-term debt1,250.0  1,254.7  
Long-term right-of-use operating lease liability778.3  709.5  
Deferred income tax liabilities62.1  63.7  
Other liabilities18.8  16.8  
  Total non-current liabilities2,109.2  2,044.7  
Commitments and contingencies (Note 7)
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, 134.0 shares at June 28, 2020 and 133.6 shares at December 29, 20191.3  1.3  
Additional paid-in capital1.1  3.5  
Accumulated deficit(49.2) (127.1) 
Accumulated other comprehensive loss(20.6) (14.9) 
  Total stockholders' deficit(67.4) (137.2) 
Total liabilities and stockholders' deficit$2,273.5  $2,151.2  
See accompanying condensed notes to consolidated financial statements
6

Table of Contents
IAA, Inc.
Consolidated Statements of Stockholders' (Deficit) Equity
(In millions)
(Unaudited)
Three Months Ended June 28, 2020
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Total Stockholders' Deficit
Balance at March 29, 2020133.9  $1.3  $  $(82.4) $(22.5) $(103.6) 
Net income—  —  —  33.2  —  33.2  
Foreign currency translation adjustments, net of tax—  —  —  —  1.9  1.9  
Stock-based compensation expense—  —  2.4  —  —  2.4  
Common stock issued for the exercise and vesting of stock-based awards0.1  —  0.3  —  —  0.3  
Withholding taxes on stock-based awards—  —  (1.6) —  —  (1.6) 
Balance at June 28, 2020134.0  $1.3  $1.1  $(49.2) $(20.6) $(67.4) 


Three Months Ended June 30, 2019
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated DeficitNet Parent InvestmentAccumulated
Other
Comprehensive
Loss
Total Stockholders' Equity (Deficit)
Balance at March 31, 2019  $  $  $  $629.4  $(10.5) $618.9  
Net income—  —  —  —  51.3  —  51.3  
Foreign currency translation adjustments, net of tax—  —  —  —  —  (5.2) (5.2) 
Stock-based compensation expense—  —  —  —  0.9  —  0.9  
Reclassification of net parent investment to common stock and additional paid-in capital133.41.3  —  (214.5) 213.2  —    
Dividend paid to KAR—  —  —  —  (1,278.0) —  (1,278.0) 
Net transfer to Parent and affiliates—  —  —  —  383.2  —  383.2  
Balance at June 30, 2019133.4  $1.3  $  $(214.5) $  $(15.7) $(228.9) 
See accompanying condensed notes to consolidated financial statements








7

Table of Contents


IAA, Inc.
Consolidated Statements of Stockholders' (Deficit) Equity (continued)
(In millions)
(Unaudited)
Six Months Ended June 28, 2020
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Total Stockholders' Deficit
Balance at December 29, 2019133.6  $1.3  $3.5  $(127.1) $(14.9) $(137.2) 
Net income—  —  —  77.9  —  77.9  
Foreign currency translation adjustments, net of tax—  —  —  —  (5.7) (5.7) 
Stock-based compensation expense—  —  4.5  —  —  4.5  
Common stock issued for the exercise and vesting of stock-based awards0.6  —  1.1  —  —  1.1  
Withholding taxes on stock-based awards(0.2) —  (8.0) —  —  (8.0) 
Balance at June 28, 2020134.0  $1.3  $1.1  $(49.2) $(20.6) $(67.4) 


Six Months Ended June 30, 2019
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated DeficitNet Parent InvestmentAccumulated
Other
Comprehensive
Loss
Total Stockholders' Equity (Deficit)
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—  —  —  —  105.8  —  105.8  
Foreign currency translation adjustments, net of tax—  —  —  —  —  (2.7) (2.7) 
Stock-based compensation expense—  —  —  —  1.9  —  1.9  
Reclassification of net parent investment to common stock and additional paid-in capital133.41.3  —  (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 June 30, 2019133.4  $1.3  $  $(214.5) $  $(15.7) $(228.9) 
See accompanying condensed notes to consolidated financial statements

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Table of Contents
IAA, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Six Months Ended
June 28, 2020June 30, 2019
Operating activities
Net income$77.9  $105.8  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization42.1  43.9  
Operating lease expense66.3  56.1  
Stock-based compensation4.5  1.9  
Provision for credit losses3.6  1.1  
Amortization of debt issuance costs2.0    
Deferred income taxes(1.5) 0.6  
Gain on disposal of fixed assets(0.1)   
Other  1.3  
Changes in operating assets and liabilities, net of acquisitions:
Operating lease payments(63.8) (54.7) 
  Accounts receivable and other assets65.8  14.0  
  Accounts payable and accrued expenses20.5  (7.9) 
Net cash provided by operating activities217.3  162.1  
Investing activities
Purchases of property, equipment and computer software(22.1) (37.5) 
Proceeds from the sale of property and equipment0.1  0.1  
Net cash used by investing activities(22.0) (37.4) 
Financing activities
Net decrease in book overdrafts(33.6) (2.9) 
Proceeds from debt issuance  1,300.0  
Dividend paid to KAR  (1,278.0) 
Payments of long-term debt(4.0)   
Finance lease payments(7.5) (8.3) 
Net cash transfers to Parent and affiliates  (117.7) 
  Issuance of common stock under stock plans1.1    
  Tax withholding payments for vested RSUs(8.0)   
Deferred financing costs(2.7) (25.2) 
Net cash used by financing activities(54.7) (132.1) 
Effect of exchange rate changes on cash(0.7) 0.7  
Net increase (decrease) in cash and cash equivalents139.9  (6.7) 
Cash and cash equivalents at beginning of period47.1  48.3  
Cash and cash equivalents at end of period$187.0  $41.6  
Cash paid for interest, net$28.9  $0.2  
Cash paid for taxes, net $6.2  $41.4  
See accompanying condensed notes to consolidated financial statements
9

Table of Contents
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” and "the Company") is a leading global marketplace connecting vehicle buyers and sellers. Leveraging leading-edge technology and focusing on innovation, IAA's unique platform facilitates the marketing and sale of total loss, damaged and low-value vehicles for a full spectrum of sellers. Headquartered in Westchester, Illinois, the Company has more than 200 facilities throughout the United States, Canada and the United Kingdom. The Company serves a global buyer base and a full spectrum of sellers, including insurance companies, dealerships, fleet lease and rental car companies, and charitable organizations. The Company offers sellers a comprehensive suite of services aimed at maximizing vehicle value, reducing administrative costs, shortening selling cycle time and delivering the highest economic returns. The Company's solutions provide global buyers with the vehicles they need to, among other things, fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. IAA provides global buyers multiple bidding/buying digital channels, innovative vehicle merchandising, efficient evaluation services and digital bidding tools, enhancing the overall purchasing experience.
The Company operates in two reportable segments: United States and International. The Company earns fees for its services from both buyers and sellers of vehicles sold through its channels.
Separation and Distribution
On February 27, 2018, KAR Auction Services, Inc. (“KAR” or “ 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, the 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 the Company by KAR on the Separation Date. The Company also paid KAR $117.7 million to settle other intercompany accounts in connection with the Separation.

In connection with the Separation, the Company also entered into a non-compete and various other ancillary agreements to effect the Separation and provide a framework for 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 the Company's Separation from KAR and govern certain relationships between the Company and KAR after the Separation. For further information regarding these agreements, see Note 2 - Relationship with KAR and Related Entities.
Basis of Presentation
Until the Separation Date, the Company operated as a separate reportable segment within KAR and, since the Separation Date, the Company has operated independently from KAR. The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 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. 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 the Company actually been a
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separate stand-alone entity during such periods, nor are they necessarily indicative of 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 IAA, including costs for functions and services used by the Company. Prior to the Separation Date, certain shared costs were directly charged to the Company by KAR based on specific identification or other allocation methods. 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 the Company by centralized staff groups within KAR. Current and deferred income taxes and related tax expense have been determined based on the Company's stand-alone results by applying Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes, to the Company's operations in each country as if 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 the 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 29, 2019 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 18, 2020.
As of June 28, 2020 and December 29, 2019, the Company had accrued income taxes of $19.6 million and $1.5 million, respectively, which were included in Other accrued expenses within the Consolidated Balance Sheets.
Fiscal Periods
On June 27, 2019, the Company's board of directors set the fiscal year to end on the last Sunday in December in each year, consisting of either 52 or 53 weeks. Each of fiscal 2019 and 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 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 Quarterly Report on Form 10-Q filed with the SEC on August 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 $2.4 million and decreased other accrued expenses by the same amount as of June 30, 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 August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing
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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 adoption of ASU 2018-15 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 adoption of ASU 2017-4 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 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
Prior to the Separation Date, 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 the Company and reflected as expenses in the stand-alone unaudited consolidated financial statements. The Company considers the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of KAR attributable to the 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 the 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 the Company.
Transactions between KAR and the Company, with the exception of purchase transactions and reimbursements for payments made to third-party service providers by KAR on behalf of the Company, are reflected in equity in the three and six months ended June 30, 2019 Consolidated Statements of Stockholders' (Deficit) Equity as “Net Parent Investment” and in the six months ended June 30, 2019 Consolidated Statements of Cash Flows as a financing activity in “Net cash transfers to 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 the Company. These costs consist of allocated cost pools and identifiable costs. Corporate costs were directly charged to, or allocated to, the Company using methods management believes are consistent and reasonable. The identifiable costs were recorded based on dedicated employee assignments. The method for allocating corporate function costs was based on various proportionate formulas involving allocation factors. The methods for allocating corporate administration costs 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 the Company historically operated as a separate, stand-alone entity. All corporate charges and allocations have been deemed paid 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 $1.1 million and $2.8 million for the three and six months ended June 30, 2019, respectively. The allocated corporate costs were associated with human resources, risk management, information technology and certain finance and other functions.
After the 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 the Consolidated Statements of Income. Costs incurred related to the transition services agreement are recorded in selling, general, and administrative expenses.

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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
The Company purchases goods and services from KAR’s other businesses. The cost of products and services obtained from these other businesses was $0.2 million for both the three months ended June 28, 2020 and June 30, 2019, and $0.5 million for both the six months ended June 28, 2020 and June 30, 2019.

Non-Compete Agreement

Pursuant to the Separation and Distribution Agreement, the 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. The Company is expressly permitted to continue to conduct its salvage auction business as conducted immediately prior to the Separation Date. The exceptions also permit the 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 provide, on an interim, transitional basis, various services to IAA for a period of up to two years from the Separation Date. The services provided 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 IAA's 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 the Company and 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 the Company is responsible for liabilities associated with employees who are employed by it following the Separation, former employees whose last employment was with the Company's businesses and certain specified current and former corporate employees.
Note 3—Stock-Based Compensation Plans

Prior to the Separation, KAR issued equity awards from time to time to select employees and non-employee directors
of IAA. In connection with the Separation, IAA created its own equity plan - the 2019 Omnibus Stock and Incentive Plan (as amended, the "2019 OSIP"), as described below under 2019 Omnibus Stock and Incentive Plan.
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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 performance-based restricted stock units ("PRSUs") granted in 2019 were 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, 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 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 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; (iv) other IAA stock-based awards; or (v) other cash-based awards. Options, restricted shares, and other 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 of 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 June 28, 2020, the number of common shares reserved and available for awards under the 2019 OSIP is 4,661,799, 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 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.

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 EndedSix Months Ended
June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Performance-based Restricted Stock Units$0.4  $0.2  $0.6  $0.4  
Restricted Stock Units and Awards1.8  0.7  3.5  1.5  
Stock Options0.2    0.4    
Total Stock-based Compensation Expense$2.4  $0.9  $4.5  $1.9  


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The following table summarizes the stock-based awards granted by the Company to certain employees and non-employee directors in accordance with the 2019 OSIP during the six months ended June 28, 2020:
Three Months Ended
June 28, 2020
Three Months Ended
March 29, 2020
Number of Awards GrantedWeighted Average Grant Date Fair ValueNumber of Awards GrantedWeighted Average Grant Date Fair Value
Performance-based Restricted Stock Units426  $40.57  99,264  $50.11  
Restricted Stock Awards25,704  42.99  1,127  48.05  
Restricted Stock Units1,862  40.57  114,252  48.05  

The performance-based restricted stock units granted to certain executive officers and management of the Company vest at the end of a three-year performance period if and to the extent that the Company's three year average return on invested capital achieves certain specified goals. The restricted share awards granted to non-employee directors vest in four equal installments over a one year vesting term. The restricted stock units granted to certain executive officers and management of the Company are contingent upon continued employment and have a three year vesting term.
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 the Company's stock-based employee compensation program. The effect of stock options and 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 the Company's common stock at the average market price during the period.
The following table sets forth the computation of net income per share (in millions except per share amounts):
Three Months EndedSix Months Ended
June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Net income$33.2  $51.3  $77.9  $105.8  
Weighted average common shares outstanding133.8  133.4  133.9  133.4  
Effect of dilutive stock awards0.8  0.7  1.0  0.7  
Weighted average common shares outstanding and potential common shares134.6  134.1  134.9  134.1  
Net income per share
Basic$0.25  $0.38  $0.58  $0.79  
Diluted$0.25  $0.38  $0.58  $0.79  

The weighted number of shares outstanding used in the calculation of diluted earnings per share does not include the effect of the following anti-dilutive securities and awards subject to performance conditions which have not been fully satisfied at the end of respective reporting periods:
Three Months EndedSix Months Ended
June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Anti-dilutive awards0.4    0.3    
Awards subject to performance conditions not fully satisfied