UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 2022
For the fiscal year ended January 1, 2023
OR
☐			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(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

IAA

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

_______________________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨x No x¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 x 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 x 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 x

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to (§240.10D-1(b)). ☐

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

The aggregate market value of the registrant's common stock held by non-affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was $74,~~362~~426,~~695~~719,~~560~~223 at ~~June 25~~July 1, ~~2021~~2022, the last business day of the registrant's most recently completed second fiscal quarter.

As of February 1614, ~~2022~~2023, ~~134~~133,~~385~~858,~~539~~743 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

Documents Incorporated by Reference

Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference herein from the registrant's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the registrant's fiscal year ended January 2, 2022.

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Not Applicable

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Index

		Page
PART I
Item 1.	Business	46
Item 1A.	Risk Factors	1215
Item 1B.	Unresolved Staff Comments	2332
Item 2.	Properties	2332
Item 3.	Legal Proceedings	2432
Item 4.	Mine Safety Disclosures	2432
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2432
Item 6.	[Reserved]	2533
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2534
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3443
Item 8.	Financial Statements and Supplementary Data	3545
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7484
Item 9A.	Controls and Procedures	7484
Item 9B.	Other Information	7584
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	7584
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	7685
Item 11.	Executive Compensation	7691
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	76114
Item 13.	Certain Relationships and Related Transactions, and Director Independence	76115
Item 14.	Principal Accounting Fees and Services	76116
PART IV
Item 15.	Exhibits, Financial Statement Schedules	77117
Item 16.	Form 10-K Summary	79119
Signatures		79120

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STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K 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-K 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 our pending merger with Ritchie Bros. Auctioneers Incorporated (“RBA”); the impact of ~~COVID-19~~macroeconomic conditions on our business; our future growth; ~~anticipated~~expectations ~~cost~~regarding ~~savings,~~vehicle ~~revenue~~volume ~~increases~~sales, ~~credit~~results ~~losses~~of operations 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, those under "Summary of Risks Affecting Our Business" below, and further discussed in Item 1A "“Risk Factors"” of this Annual Report on Form 10-K, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission, including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. 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.

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SUMMARY OF RISKS AFFECTING OUR BUSINESS

Investing in our Company involves a high degree of risk. The following summary highlights some of the risks you should consider before deciding to invest in our Company. This summary is not complete, and the risks summarized below are not the only risks we face. You should review and carefully consider the risks and uncertainties described in more detail in Item 1A “Risk Factors” of this Annual Report on Form 10-K, which includes a more complete discussion of the risks summarized below as well as a discussion of other risks related to our business.

The summary of risks affecting our business include:

•The announcement, pendency or consummation of the Mergers (as defined below) with RBA may have an adverse effect on our business, results of operations and stock price.

•The Mergers are subject to various closing conditions, including approvals by our and RBA’s shareholders, as well as other uncertainties. There can be no assurances as to whether or when the Mergers will be completed.

•Failure to complete the Mergers, or a delay in the completion of the Mergers, could negatively impact our business, results of operations, financial condition and stock price.

•Because the exchange ratio is fixed and the market price of RBA’s common shares has fluctuated and will continue to fluctuate, our stockholders cannot be certain of the ultimate value of the Merger Consideration (as defined below) they will receive in the Mergers.

•Potential litigation filed against us or RBA could prevent or delay the completion of the Mergers or result in the payment of damages following completion of the Mergers.

•The Merger Agreement (as defined below) contains provisions that limit our ability to pursue alternatives to the Mergers and could discourage a potential competing acquirer of us or could result in any competing proposal being at a lower price than it might otherwise be.

•While the Merger Agreement is in effect, we are subject to restrictions on our business activities.

•Our business and operating results would be adversely affected due to: loss of one or more significant suppliers, reduction in significant volume from suppliers, an adverse change in our supplier relationships, or a disruption to our supply of damaged, total loss and low-value vehicles.

•Our business and operating results would be adversely affected if we are unable to meet or exceed our buyer customers’ demand and expectations or due to a disruption in demand of damaged, total loss and low-value vehicles.

•Our market position and competitive advantage could be threatened by our competitors and/or disruptive new entrants.

•If our facilities lack the capacity to accept additional vehicles, then our relationships with insurance companies or other vehicle suppliers could be adversely affected.

•The COVID-19 pandemic, or other future epidemic or pandemic diseases, and measures intended to reduce their spread, may adversely affect our business, results of operations and financial condition.

•Macroeconomic factors, including high fuel prices, high labor costs, rising inflation and changes in used car prices, may have an adverse effect on our revenues, gross profit and operating results.

•We may be unable to keep existing facilities or open new facilities in desirable locations and on favorable terms, which could materially and adversely affect our results of operations.

•We may not be successful in the implementation of our business strategy or we may improperly align new strategies with our vision, which could lead to the misapplication of our resources.

•We may not properly leverage or make the appropriate investment in technology advancements, which could result in the loss of any sustainable competitive advantage in products, services and processes.

•If we fail to identify, manage, complete and integrate acquisitions, our operating results, financial condition and growth prospects could be adversely affected.

•Reliance on our subhaulers and trucking fleet operations could materially and adversely affect our business and reputation.

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•Weather-related and other events beyond our control may adversely impact operations.

•An increase in the number of damaged and total loss vehicles we purchase could adversely affect our profitability.

•If we fail to attract and retain key personnel, have inadequate succession planning, or manage labor shortages, we may not be able to execute our business strategies and our financial results could be negatively affected.

•A significant change in used-vehicle prices could impact the proceeds and revenue from the sale of damaged and total loss vehicles.

•We are partially self-insured for certain losses, and our self-insured costs could increase.

•We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.

•We assume the settlement risk for vehicles sold through our marketplaces.

•If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected. Also, we may be subject to patent or other intellectual property infringement claims, which could have an impact on our business or operating results due to a disruption in our business operations, the incurrence of significant costs and other factors.

•Significant disruptions of information technology systems, infrastructure and business information could adversely affect our business and reputation.

•Cyber attacks, including breaches of information technology systems and other cybersecurity incidents, could cause interruptions, malfunctions or other failures that could materially adversely affect our business and reputation and create data security risks.

•Our business is exposed to risks associated with online commerce security and credit card fraud.

•Compliance with U.S. and global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and store data, and the failure to comply with such requirements could subject us to significant fines and penalties, which could adversely affect our business, financial condition and reputation.

•Changes in laws affecting the import and export of damaged and total loss vehicles may have an adverse effect on our business and financial condition.

•We are subject to certain governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions.

•Environmental, health and safety risks could adversely affect our operating results and financial condition.

•Our expansion into markets outside the U.S. and our non-U.S. based operations subject us to unique operational, competitive and regulatory risks.

•A portion of our net income is derived from our international operations, primarily Canada and the United Kingdom, which exposes us to foreign exchange risks that may impact our financial statements. In addition, increases in the value of the U.S. dollar relative to certain foreign currencies may negatively impact foreign buyer participation in our marketplaces.

•The separation and distribution agreement (the “Separation Agreement”) that we entered into with KAR limits our ability to compete in certain markets for a period of time following the Separation.

•We have a substantial amount of debt, which could impair our financial condition and adversely affect our ability to react to changes in our business.

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PART I

Item 1. Description of Our Business

Unless the context suggests otherwise, all references in this Annual Report on Form 10-K to the “Company,” “we,” “us,” or “our,” refer to IAA, Inc. and its subsidiaries on a consolidated basis.

Our Company and Business Segments

We are a leading global digital marketplace connecting vehicle buyers and sellers. Leveraging leading-edge technology and focusing on innovation, our unique platform facilitates the marketing and sale of total-loss, damaged and low-value vehicles for a full spectrum of sellers. Headquartered in Westchester, IL, our company has two operating segments: United States and International. We maintain operations in the United States, which make up the United States segment and operations in Canada and the United Kingdom, which make up the International segment. We have more than ~~200~~210 facilities across both business segments. These two operating segments also represent our two reportable segments. These segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results. See Note - 15 - Segment Information in the notes to consolidated financial statements for additional information. Discussions throughout which refer to "“North America"” or "“North American"” include the combination of the United States segment and operations in Canada from the International segment.

We serve a global buyer base and a full spectrum of sellers, including insurance companies, dealerships, fleet lease and rental car companies, and charitable organizations. We offer sellers a comprehensive suite of services aimed at maximizing vehicle value, reducing administrative costs, shortening selling cycle time and delivering the highest economic returns. Our products provide global buyers with the vehicles they need to, among other things, fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. We provide global buyers with multiple bidding/buying digital channels, innovative vehicle merchandising, efficient evaluation services and online bidding tools, enhancing the overall purchasing experience.

Our Corporate History and Our Separation from KAR Auction Services, Inc. ("“KAR"”)

IAA entered the vehicle salvage business in 1982, and first became a public company in 1991. After growing through a series of acquisitions, IAA was acquired by two private equity firms in 2005. The two private equity firms and certain members of IAA management contributed IAA to KAR in 2007.

On February 27, 2018, KAR announced a plan to pursue the separation and spin-off (the "“Separation"”) of IAA (its salvage auction services business) 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"”). 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."”

~~2021~~Recent Highlights and Developments

~~The~~Proposed ~~COVID-19~~Merger ~~Pandemic~~

~~The~~Merger coronavirus pandemic ("COVID-19") has severely impacted, and continues to impact, worldwide economic activities. Following stay-at-home orders and other mandates implemented by federal, state and local governments in mid-March 2020, miles driven declined significantly and reduced the supply of salvage vehicle assignments. This decline in volume significantly impacted our business in fiscal 2020 and, to a lesser extent, in fiscal 2021. Even with improvement in miles driven and vehicle assignments beginning in the second half of 2020 and continuing through fiscal 2021, miles driven remain slightly lower than pre-COVID-19 levels. In addition, labor, towing and other transportation shortages have increased our associated costs and we expect they will continue to do so at least in the near term. We believe COVID-19 and the efforts taken to reduce its spread may continue to have a negative impact on our business in fiscal 2022.Agreement

~~Acquisitions~~On November 7, 2022, we entered into the Agreement and Plan of Merger and Reorganization (as amended or otherwise modified prior to January 22, 2023, the “Original Merger Agreement”), and on January 22, 2023, we entered into the Amendment to the Agreement and Plan of Merger and Reorganization (such amendment, the “Merger Agreement Amendment” and, together with the Original Merger Agreement, as it may be further amended or modified from time to time, the “Merger Agreement”) with Ritchie Bros. Auctioneers Incorporated, a company organized under the federal laws of Canada (“RBA”), Ritchie Bros. Holdings Inc., a Washington corporation and a direct and indirect wholly owned subsidiary of RBA (“US Holdings”), Impala Merger Sub I, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of US Holdings (“Merger Sub 1”), and Impala Merger Sub II, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of US Holdings (“Merger Sub 2”), providing for RBA’s acquisition of the Company in a stock and cash transaction. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the closing of the transactions (i) Merger Sub 1 will be merged with and into us (the “First Merger”), with the Company surviving as an indirect wholly owned subsidiary of RBA and a direct wholly owned subsidiary of US Holdings (the “Surviving Corporation”), and (ii) immediately following the consummation of the First Merger, the Surviving Corporation will be merged with and into Merger Sub 2 (together with the First Merger, the “Mergers”), with Merger Sub 2 surviving as a direct wholly owned subsidiary of US Holdings.

On October 26, 2021, we acquired SYNETIQ Ltd. ("SYNETIQ"), a leading integrated salvage and vehicle dismantling company in the United Kingdom, providing services at every stage of the salvage journey, from salvage, sale, dismantling and parts sales to scrappage. This transaction is currently undergoing review by the U.K. Competition and Markets Authority (the "CMA"). The results of operations of SYNETIQ are included in our International segment from the date of acquisition.6

On June 18, 2021, we acquired Marisat, Inc. d/b/a Auto Exchange ("Auto Exchange"), a salvage auction provider located in New Jersey, to expand our physical presence in New Jersey and allow us to further serve the growing needs of the customers in the area. The results of operations of Auto Exchange are included in our United States segment from the date of acquisition.

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At the effective time of the First Merger (the “Effective Time”), each issued and outstanding share of common stock of the Company (other than certain customary excluded shares) as of immediately prior to the Effective Time will be converted automatically into the right to receive (A) 0.5252 of a common share, without par value, of RBA (“RBA Common Shares”) and (B) $12.80 in cash, without interest and less any applicable withholding taxes (together, the “Merger Consideration”). Additionally, our stockholders will receive cash in lieu of any fractional RBA Common Shares to which they would otherwise be entitled.

Cooperation Agreement

Also on January 22, 2023, we entered into a Cooperation Agreement (the “Cooperation Agreement”) with Ancora Holdings Group, LLC and/or its applicable affiliates (“Ancora”) regarding the Mergers, the membership and composition of our Board of Directors in certain circumstances and related matters. Pursuant to the Cooperation Agreement, with the prior written consent of RBA, we have agreed to take all necessary actions to designate Timothy James O’Day as an IAA designee for appointment to the combined company board of directors immediately following the Effective Time (subject to the completion of customary vetting and onboarding matters). Ancora irrevocably committed to appear at the special meeting of our stockholders (the “IAA Special Meeting”) to consider and vote its shares, representing approximately 4% of our voting power as of the date of the Cooperation Agreement, in favor of the transactions contemplated by the Merger Agreement, including the Mergers, and certain other matters at the IAA Special Meeting. Additionally, Ancora has committed to vote in accordance with the recommendation of our Board of Directors with respect to director elections and, subject to certain limited exceptions, all other proposals put forth to our stockholders until the later of the closing of the Mergers and the conclusion of our 2023 annual meeting of stockholders. Ancora also has certain replacement rights with respect to Mr. Timothy James O’Day’s appointment to the combined company board of directors, subject to specified ownership thresholds and the prior written consent of RBA.

In the event that the IAA stockholders or the RBA shareholders do not approve the Mergers or we file definitive proxy materials for our 2023 annual meeting of stockholders (the first to occur of such events, a “Transaction Vote Down”), (i) within five business days of the Transaction Vote Down, one of our current directors (other than our Chief Executive Officer) will resign from our Board of Directors and we will, after completion of customary vetting and onboarding matters, appoint Mr. Timothy James O’Day as an observer to our Board of Directors, (ii) we will appoint a second director candidate identified by Ancora and selected pursuant to the procedures described in the Cooperation Agreement as an observer to our Board of Directors (the “Second Director Candidate”), and (iii) we will appoint a third director candidate to be mutually agreed between us and Ancora as an observer to our Board of Directors (the “Mutual Director Candidate” and, together with Mr. Timothy James O’Day and the Second Director Candidate, the “New Director Candidates”). In the event of a Transaction Vote Down, immediately following the 2023 Annual Meeting of Stockholders, we will increase the size of our Board of Directors to 11 directors in order to appoint the New Director Candidates as directors. Thereafter, we will not increase our Board of Directors without prior written consent from Ancora.

Approvals

On December 20, 2022, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired and RBA received a no-action letter from the Canadian Commissioner of Competition with respect to the Mergers. The parties have received all necessary antitrust clearance required by the Merger Agreement. The IAA Special Meeting is scheduled for March 14, 2023 and a special meeting of RBA shareholders to consider and vote on approval of the issuance of RBA Common Shares in connection with the Mergers (the “RBA Special Meeting”) is also scheduled for March 14, 2023. If these matters are approved by our stockholders and RBA shareholders at the IAA Special Meeting and RBA Special Meeting, respectively, we expect to close the Mergers in the first half of 2023, subject to the satisfaction or waiver of additional conditions to closing set forth in the Merger Agreement. We currently operate, and until completion of the Mergers will continue to operate, independently of RBA. See Note 1 – Basis of Presentation in the notes to consolidated financial statements for additional information regarding the proposed Merger.

Acquisition

During the first quarter of fiscal 2022 we received required approvals from the U.K. Competition and Markets Authority (the “CMA”) relating to our acquisition of SYNETIQ Ltd. (“SYNETIQ”) on October 26, 2021. The results of operations of SYNETIQ are included in our International segment from the date of acquisition.

Our Operations, Products and Services

We generate a significant portion of our revenue from auction fees and related services associated with our salvage auctions. Approximately two-thirds of our revenue is earned from buyers. We charge fees to buyers for each vehicle purchased based on a tiered structure that increases with the sales price of the vehicle as well as fees for additional services such as storage, transportation, and vehicle condition reporting. We also charge buyers a fixed registration fee to access auctions. Approximately one-third of our revenue is earned from vehicle suppliers or sellers. We charge vehicle sellers an agreed-upon ~~processing and service fees to facilitate the remarketing of salvage vehicles, including the inbound tow, processing, storage, titling, enhancing and sale at auction.~~

The majority of our business comprises auctioning consigned vehicles. We recognize revenues from consigned vehicles on a net basis in the amount of fees charged. However, our related receivables and payables include the gross value of the vehicles sold. We also purchase vehicles in certain situations and resell them. We recognize revenues from purchased vehicles on a gross basis, which results in lower gross margin versus vehicles sold at auction on a consignment basis.7

~~Our~~Table ~~operating expenses consist~~ of cost of services, cost of vehicle sales, selling, general and administrative and depreciation and amortization. Cost of services is comprised of payroll and related costs, subcontract services, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites. Cost of vehicle sales represents the cost of vehicles purchased. Cost of services and vehicle sales 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.Contents

processing and service fees to facilitate the remarketing of salvage vehicles, including the inbound tow, processing, storage, titling, enhancing and sale at auction.

The majority of our business comprises auctioning consigned vehicles. We recognize revenues from consigned vehicles on a net basis in the amount of fees charged. However, our related receivables and payables include the gross value of the vehicles sold. We also purchase vehicles in certain situations and resell them or, in our International segment, dismantle them and sell the vehicle parts and scrap. We recognize revenues from purchased vehicles on a gross basis, which results in lower gross margin versus vehicles sold at auction on a consignment basis.

Our operating expenses consist of cost of services, cost of vehicle and parts sales, selling, general and administrative and depreciation and amortization. Cost of services is comprised of payroll and related costs, subcontract services, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites. Cost of vehicle and parts sales represents the cost of purchased vehicles and associated parts. Cost of services and cost of vehicle and parts sales exclude 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.

We offer a comprehensive suite of auction, logistics and vehicle-processing services as part of our ability to increasingly function as a “one-stop shop” for vehicle sellers and buyers within IAA’s global digital marketplace. Our integrated products and services aim to maximize the value of vehicles while lowering administrative costs and creating a frictionless customer experience throughout vehicle assignment, transport, inventory management, merchandising and sale.

We market vehicles to prospective buyers through our many marketplaces, 24 hours per day, 7 days per week. Auctions are typically held weekly for most locations and allow bidders to participate virtually at the auction. Certain vehicles are also offered for sale online via IAA Timed AuctionsTM, where bidders may bid on those vehicles for a fixed duration of time, and via IAA Buy NowTM where vehicles are offered for sale at a fixed price. All vehicles which are ready for sale are listed and available online on IAA Auction CenterTM, allowing prospective bidders to preview and bid on vehicles prior to the digital auction event. IAA Auction Center includes a "“Fast Search"” function that allows for filtering to quickly locate specific vehicles and offers logged-in buyers additional services such as "“Enhanced Vehicle Details"” that includes VIN details and Hollander Interchange parts data to help buyers make informed purchasing decisions. IAA Auction Center provides online buyers with an open, competitive digital bidding environment. Our mobile and online capabilities provide buyers the greatest flexibility in their purchasing options, exposing vehicles to bidders from around the globe and allowing bidders to participate in a greater number of auctions. Online inventory browsing, digital alerts (via email or through buyer app) and multiple vehicle payment methods reduce the time required to acquire vehicles, and the broader market exposure and increased competitive bidding generally drive higher selling prices. We believe the capabilities of our auction models maximize auction proceeds and returns for our vehicle sellers.

We have developed proprietary web-based information systems such as Automated Salvage Auction Processing system (ASAP) for the United States segment and VISion for the International segment to streamline all aspects of our operations and centralize operational data collection. These systems provide sellers with 24-hour online access to powerful tools to manage the salvage disposition process, including inventory management, sales price analysis and electronic data interchange of titling information. Our unique digital marketplace, combined with our unique merchandising platform (IAA Interact™), provides buyers detailed information and optionality in how they bid and buy, which are key differentiators of our service offering and helps sellers achieve the highest selling price on a given vehicle. Leveraging leading-edge technology and focusing on innovation, we processed approximately 2.3 million total loss, damaged and low-value vehicles in fiscal ~~2021~~2022.

In addition, we also offer products and services to:

•expedite the process of vehicle pick-up, towing and assignment

•transport vehicles inbound to or outbound from our facilities

•optimize the organization and management of inventory

•merchandize vehicles to engage buyers with detailed vehicle information

•facilitate the digital sale of vehicles to a global audience

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The following table sets forth our selected products and services:

Selected Products and Services Description Catastrophe (CAT) Services™ Industry-leading strategic catastrophe response service focused on real estate capacity, operational execution, transportation logistics and vehicle merchandising and selling. CSAToday® Online reporting and analysis tool that gives seller customers the ability to manage their vehicle assets and monitor salvage performance. IAA AuctionNow™ Our digital auction bidding and buying solution, which features inventory located at physical branches and offsite to a global buyer audience. IAA Buy Now™ Provides a unit for sale for a specific price using analytical data between scheduled auctions. IAA Custom BidTM A digital bidding tool that provides buyer customers focused on recycling the ability to set pre-bids in an auction based on vehicle attributes. IAA Inspection Services® Provides a technology-based system for remote vehicle inspections and appraisals. IAA Interact™ Merchandising platform combining imagery, information, personalization and efficiency. IAA Loan Payoff™ Mitigates the time-consuming process of managing a total loss claim requiring loan payoff and title release. IAA Market Value™ A solution for seller customers looking to estimate the values of their vehicles based on user-provided information and historical auction data. IAA Timed Auctions™ Offers a unit for sale for a specified period of time, allowing for competitive bidding and sale prior to a scheduled auction. IAA Title Services® Full suite of title solutions services that facilitates title documentation, settlement and the title retrieval process. IAA Tow App™ Mobile dispatch solution that assists the tow network. IAA Transport™ An integrated shipping solution allowing buyers to schedule shipment of vehicles during the checkout process.

Our Industry and Trends in Market Demand

The salvage vehicle auction industry provides a venue for sellers, primarily automobile insurance companies, to dispose or liquidate total loss, damaged or low-value vehicles to domestic and international dismantlers, rebuilders, scrap dealers or qualified public buyers.

We believe that demand for our services in the salvage vehicle auction industry is driven and impacted by several factors, including (i) size and age of automotive Car Parc (as defined below), (ii) miles driven, (iii) increases in vehicle complexity and total loss frequency and (iv) higher utilization of recycled and alternative automotive parts.

(i) Size and Age of Automotive Car Parc

The salvage vehicle marketplace has historically benefited from a growing number of vehicles on the road ("“Car Parc"”) and an increasing average age of vehicles. Growth in the number of vehicles in operation contributes to a rising number of automotive accidents, which supports increased volumes through our marketplaces. Meanwhile, vehicle owners have continued to drive the same vehicle for longer periods of time. As vehicles become older and their residual values decline, it becomes more likely that these vehicles will surpass the total loss threshold when involved in an accident and be sold on behalf of insurers through our marketplaces.

Recently, the global economy has experienced extreme volatility, inflationary conditions and disruptions in the global supply chain. The higher production costs and supply chain disruptions related to new vehicles continue to keep new vehicle prices elevated resulting in an increase in used car prices. This increase in used car prices has contributed to our higher average selling prices and revenue per unit, which have been offset slightly by higher purchased vehicle costs.

(ii) Miles Driven

The salvage vehicle marketplace is directly impacted by the number of miles driven. The significant decline in miles driven resulting from the COVID-19 pandemic-related stay-at home orders that were executed in mid-March of fiscal 2020 across North America and the United Kingdom translated into a reduction in the number of car accidents and, in turn, a reduction in vehicle assignment volumes in our marketplace. ~~Beginning~~ in ~~the second half of~~ fiscal 2020, asand ~~certain~~fiscal ~~economies~~2021. ~~began~~During tofiscal ~~re-open~~2022, ~~we saw a gradual recovery in~~ miles driven ~~throughout~~returned ~~fiscal 2021 that resulted in improved vehicle assignments. Miles driven continue~~ to ~~improve,~~near ~~but remain slightly below~~ pre-COVID-19 levels.

~~(iii) Increases in Vehicle Complexity and Total Loss Frequency~~9

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~~The~~(iii) ~~percentage~~Increases ~~of claims resulting~~ in ~~total~~Vehicle ~~losses~~Complexity ~~has~~and ~~steadily~~Total ~~increased~~Loss ~~over the last five years. When a vehicle is deemed a total loss, insurers typically auction the vehicle through a salvage vehicle marketplace.~~Frequency

Vehicle design has become increasingly more complex in recent years, as automotive manufacturers seek to differentiate themselves from competitors by incorporating new complex technologies and other enhancements into their designs in order to reduce weight and improve fuel efficiency. These technological advancements have resulted in higher repair and part replacement costs following an accident, making insurance companies more likely to declare a damaged vehicle a total loss. Based on data from CCC Information Services, the percentage of claims resulting in total losses was approximately 18% in 2022, 20% in 2021 and 21% in 2020. When a vehicle is deemed a total loss, insurers typically auction the vehicle through a salvage vehicle marketplace.

(iv) Higher Utilization of Recycled and Alternative Automotive Parts

As insurance companies continue to identify ways to reduce their claim costs, the utilization and acceptance rates continue to increase for recycled parts from total loss vehicles and aftermarket replacement parts. We believe this trend is helping increase revenue for our buyer base, which in turn increases demand for our marketplaces.

Customers

We obtain our supply of vehicles from insurance companies, used vehicle dealers, rental car and fleet leasing companies, auto lenders and charitable organizations, among others. We have established long-term relationships with virtually all of the major automobile insurance companies in the markets we serve. The vast majority of the vehicles we process are on a consignment basis. The buyers of damaged and total loss vehicles include automotive body shops, rebuilders, used car dealers, automotive wholesalers, exporters, dismantlers, recyclers, brokers, and where allowed, non-licensed (public) buyers, among others. Approximately two-thirds of our revenue is earned from buyers and one-third of our revenue is earned from vehicle suppliers or sellers. During fiscal ~~2021~~2022, approximately 40% of our revenues were associated with vehicles supplied by our ~~three~~four largest insurance customers in the United States segment.

Sales and Marketing

Our sales force solicits prospective customers at the national, regional and local levels. Branch managers address customer needs at the local level. We also participate in a number of local, regional and national trade show events that further promote the benefits of our products and services.

In addition to providing sellers with a means of processing and selling vehicles, we offer a comprehensive suite of services to help maximize returns and shorten the selling and processing time. We help establish workflow integration within our sellers' processes, and view such mutually beneficial relationships as an essential component of our effort to attract and retain suppliers.

Our broad and industry leading geographic coverage allows us to service sellers on a national basis.

Competitive Conditions

In our industry, we compete for sellers who supply vehicles to run through our auctions, and for buyers globally to bid on and purchase those vehicles. To attract sellers to use our global digital marketplace over that of our competitors, among other competitive areas, we focus on the following: providing industry-leading innovative products and services aimed at increasing the proportion of the vehicle processing function as a “one-stop-shop” for sellers in a manner that enhances customer integration with us; delivering a consistent high-satisfaction customer experience; maintaining a broad real estate footprint and capacity to meet market demand for storing and handling their vehicles; and delivering high value through sales results and competitive fee structures.

Similarly, to attract buyers to our global digital marketplace, among other products and services, we offer state of the art merchandising technology that provides additional information, imagery and detail for each auctioned vehicle, thereby increasing buyer confidence and trust. We also offer a full spectrum of transportation services which help to further streamline the purchasing process for buyers, allowing them to schedule and pay for transportation of vehicles within IAA’s system. IAA'’s customized bidding and purchasing experience, flexible bidding and buying channels provide buyers with multiple ways to procure vehicles.

Our principal competitors include Copart, Inc., Total Resource Auctions, a subsidiary of Cox Enterprises, Inc., independent auctions and a limited number of used vehicle auctions that regularly remarket damaged and total loss vehicles. Additionally, some dismantlers of damaged and total loss vehicles and Internet-based companies also enter the market from time to time. While most insurance companies have abandoned or reduced efforts to sell damaged and total loss vehicles without the use of service providers such as us, they may in the future decide to dispose of their vehicles directly to end users. See "“Our market position and competitive advantage could be threatened by our competitors and/or disruptive new entrants"” included in Item 1A, Risk Factors for additional information.

~~Seasonality~~10

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vehicles because fewer traffic accidents occur, resulting in fewer damaged vehicles overall. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.Seasonality

The volume of vehicles sold through our auctions generally fluctuates from quarter to quarter. This seasonality is caused by several factors including weather, the timing of used vehicles available for sale from selling customers, the availability and quality of salvage vehicles, holidays, and the seasonality of the retail market for used vehicles, which affects the demand side of the auction industry. Used vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. However, severe weather conditions, including but not limited to hurricanes and tornadoes, can lead to an increase in the available supply of salvage vehicles volumes. In addition, mild weather conditions and decreases in traffic volume can each lead to a decline in the available supply of salvage vehicles because fewer traffic accidents occur, resulting in fewer damaged vehicles overall. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.

Our Business Strategy

We maintain a long history of strong and consistent execution that has led to growth in the business over several decades in periods under both private and public ownership. We also hold a strong track record of acquiring and integrating independent auction operations and improving profitability. We seek to grow our business through the execution of the following strategies, among others:

Enhance Existing Relationships and Expand Market Share

We continue to maintain strong relationships with virtually all of the major automobile insurance companies in the markets we serve and increase our penetration of non-insurance sellers. Additionally, we provide an alternative venue for damaged and lower-value vehicles and, as a result, non-insurance sellers have contributed to our growth.

Broaden Our Service Offering to Deepen Strategic Relationships

Our market-leading Total Loss Solutions® provides insurance companies with end-to-end outsourced solutions for the portion of the claims process prior to total loss determination and assignment to a salvage vehicle auction, which allows the insurance companies to reduce cycle time and cost, while improving employee engagement and customer service and ultimately increasing policyholder retention. Our expansion of our Inspection Services, a digital solution for remote vehicle inspections and appraisals, provides insurance carriers with high-resolution images and reports with all the information they need, without having to deploy an appraiser to the field. Expediting the appraisal process helps insurers settle with vehicle owners faster, reducing rental car costs, storage fees and cycle times. Our Quick Tow product innovation leverages our data analytics to identify specific vehicles ready for pick-up and streamlines the vehicle release process to eliminate a phone call to the policy holder or storage location. The Quick Tow process has been expedited further with the use of e-Checks to pay advanced towing and storage charges – eliminating the inefficiencies inherent in a traditional paper check process. Our IAA Loan Payoff product, a significant competitive differentiator in our industry, mitigates the time-consuming process of managing a total loss claim requiring loan payoff and title release. Our integration with Fastlane’s LossExpress™ solution expands our lender coverage to nearly all for total loss claims through our Loan Payoff portal. Our integration with Dealertrack’s Dealertrack Accelerated Title® solution expedites the total loss settlement and lien payoff process digitally and expands access to vehicle titles for all parties. We continue to add additional innovative services and capabilities to our leading end-to-end solutions.

Continue to Enhance International Buyer Network

We are a leader in developing an international buyer network and continue to enhance our network through digital marketing, market alliance partners, and in country visits. We have customized our marketing approaches to cater to local cultures and ways of doing business, and have invested significant resources in developing a deep understanding of the unique needs of each international market. Expanding the base of international buyers brings more bidders to our platform and yields better outcomes for sellers in our global digital marketplace.

Our further commitment to our international buyers is demonstrated by our buyer portal, which is available online in 6 languages and our call center, which currently supports 12 languages.

Continue to Expand Margins Through Cost Reductions, Operating Efficiencies and Ancillary Services

We are focused on reducing costs and driving efficiencies while also maintaining our level of customer service. As a part of our buyer digital transformation initiative, we have shifted to a fully online, digital auction model which is generating cost savings by eliminating live physical auctions. Our ongoing initiatives in other areas such as towing, pricing and branch process improvement will further enable us to execute our strategy.

We are also shortening the time it takes a vehicle to move through the auction process through our operational efficiency efforts and service offerings like IAA Total Loss Solutions® and IAA Loan Payoff. The shortened auction process timeline further improves the service we provide our customers, reduces depreciation on vehicle values, and also improves our operating margins by making our real estate usage more efficient. We also continuously analyze our vehicle storage process in order to optimize our real estate usage and our ability to process more volume without incurring incremental costs. We have further deployed additional digital tools into our yard operations to increase the efficiency of the vehicle check-in, title, inventory and sale processes. Consistent with the economy generally, we have recently experienced labor, towing and other transportation shortages, which have resulted in an increase in associated costs. We are focused on leveraging our strong and longstanding towing partnerships, bringing in additional resources, leveraging our Tow App and piloting new technology to mitigate the impact of labor, towing and other transportation shortages. As a result, in the near-term, we may experience higher costs related to labor, towing and transportation, which may delay our ability reduce costs in these areas

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optimize our real estate usage and our ability to process more volume without incurring incremental costs. We have further deployed additional digital tools into our yard operations to increase the efficiency of the vehicle check-in, title, inventory and sale processes. Consistent with the economy generally, we have recently experienced labor, towing and other transportation shortages, which have resulted in an increase in associated costs. We are focused on leveraging our strong and longstanding towing partnerships, bringing in additional resources, leveraging our Tow App and piloting new technology to mitigate the impact of labor, towing and other transportation shortages. As a result, in the near-term, we may experience higher costs related to labor, towing and transportation, which may delay our ability reduce costs in these areas.

Continue to Innovate and Enhance Data Analytics Capabilities

Our products deliver enhanced economic benefits to our customers by increasing transparency and reducing cycle time and friction throughout the process. We continue to broaden our product portfolio by investing in the development of innovative solutions that further improve our customers’ results.

Using our data analytics expertise, we can provide better tools for both sellers and buyers to be better informed and make confident decisions to improve their results and satisfaction.

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Expand Internationally in Attractive Markets

For the year ended January 21, ~~2022~~2023, approximately 1519% of our revenues were generated outside of the United States, and we are in the process of establishing or continuing to build operations in key geographic markets. OnSince the ~~October~~acquisition ~~26,~~of ~~2021~~SYNETIQ in the U.K., we ~~acquired~~have ~~SYNETIQ~~enhanced asour ~~described~~industry ~~above~~relationships ~~under~~and ~~"2021~~expanded ~~Highlights~~our geographic footprint to address the demand for dismantling and ~~Developments~~green parts services." Our auction expertise platform along with SYNETIQ’s capabilities in used parts and dismantling has created an offering that provides broad options to maximize proceeds for customers.

We also intend to strategically enter new markets by pursuing strategic acquisitions, partnerships or greenfield opportunities in high priority markets globally.

Employ Disciplined Capital Allocation Strategy

We generate strong cash flows as a result of our attractive gross margins, the ability to leverage our corporate infrastructure across our multiple auction locations, low maintenance capital expenditures and limited working capital requirements. We ~~are~~have ~~committed to adopting~~ a balanced and disciplined capital allocation policy that ~~will~~enables ~~enable~~ us to deliver attractive long-term stockholder value. Our long-term goal is to drive growth through disciplined investments in our organic business and through acquisitions, while also strengthening our balance sheet through debt reduction and returning capital to stockholders.

Our initiative to strategically build real estate capacity throughout our global footprint, remains one of our most important commitments to servicing our clients and meeting growing demand. Our investment in real estate to start new branches or expand existing locations reflect our continued focus on strategically investing in properties with attractive return on capital.

Government Regulation

Our operations are subject to regulation, supervision and licensing under various federal, state, provincial and local authorities, agencies, statutes and ordinances, which, among other things, require us to obtain and maintain certain licenses, permits and qualifications to operate. They also govern the storage, handling and transfer of ownership of vehicles between buyers and sellers, and prescribe certain disclosures and notices that must be provided in interacting with our wholesale and retail buyer customers. Some of the regulations and laws that apply to our operations include, without limitation, the following:

•The acquisition and sale of totaled and recovered theft vehicles are regulated by state or other local motor vehicle departments in each of the locations in which we operate.

•Some of the transport vehicles used at our marketplaces are regulated by the U.S. Department of Transportation or similar regulatory agencies in the other countries in which we operate.

•In many states and provinces, regulations require that a damaged and total loss vehicle be forever "“branded"” with a salvage notice in order to notify prospective purchasers of the vehicle’s previous salvage status.

•Some state, provincial and local regulations limit who can purchase damaged and total loss vehicles, as well as determine whether a damaged and total loss vehicle can be sold as rebuildable or must be sold for parts or scrap only.

•We are subject to various local zoning requirements with regard to the location of our auction and storage facilities, which requirements vary from location to location.

•We are indirectly subject to the regulations of the Consumer Financial Protection Act of 2010 due to our vendor relationships with financial institutions.

•We deal with significant amounts of cash in our operations at certain locations and are subject to various reporting and anti-money laundering regulations.

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Compliance with these regulations and laws requires human level awareness, performance and expertise, and investments in our enterprise management systems to facilitate efficient workflow, data tracking and auditing capabilities to measure compliance. We invest annually in our information technology systems and infrastructure with a focus towards maintenance, security and system upgrades in order to comply with regulatory changes. Expenditures in these endeavors has been, and could in the future be, significant. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources for additional information.

For additional information on the potential impacts that could result from our failure to comply with the rules and regulations governing our operations, see further Item 1A, Risk Factors under the risk: "“We are subject to certain governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions." ”

Environmental Regulation

Our operations are subject to various foreign, federal, state and local environmental, health and safety laws and regulations, including those governing the emission or discharge of pollutants into the air or water, the generation, treatment, storage and release of hazardous materials and wastes and the investigation and remediation of contamination. Our failure to comply with current or future environmental, health or safety laws or to obtain and comply with permits required under such laws, could subject us to significant liability or require costly investigative, remedial or corrective actions. From time to time, we have incurred, and may in the future incur, expenditures related to compliance with such foreign, federal, state and local environmental, health and safety laws and regulations, and such expenditures, individually or in the aggregate, could be significant.

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current or future environmental, health or safety laws or to obtain and comply with permits required under such laws, could subject us to significant liability or require costly investigative, remedial or corrective actions. From time to time, we have incurred, and may in the future incur, expenditures related to compliance with such foreign, federal, state and local environmental, health and safety laws and regulations, and such expenditures, individually or in the aggregate, could be significant.

In the used vehicle remarketing industry, large numbers of vehicles, including wrecked vehicles at salvage auctions, are stored and/or refurbished at auction facilities and during that time minor releases of fuel, motor oil and other materials may occur. We have investigated or remediated, or are currently investigating or remediating, contamination resulting from various sources, including gasoline, fuel additives (such as methyl tertiary butyl ether, or MTBE), motor oil, petroleum products and other hazardous materials released from aboveground or underground storage tanks or in connection with current or former operations conducted at our facilities. We have incurred, and may in the future incur, expenditures relating to releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, have been and in the future could be significant, and have in the past caused, and could in the future cause, us to incur substantial compliance and other costs.

We implement a rigorous set of protocols and procedures to ensure that any fluid leaks from vehicles are promptly cleaned and storage areas are kept clean. Our employees receive training on how to properly respond to spills in the event any occur. Our employees also receive training on proper housekeeping and material management. We believe implementation of the protocols and procedures minimizes any potential environmental impacts to soil and groundwater at our locations.

Federal and state environmental authorities are currently investigating IAA'’s role, if any, in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington, and the Pyrite Canyon Plume in Riverside, California. IAA'’s potential liability, if any, at these sites cannot be estimated at this time. See Note 14 - Commitments and Contingencies in the notes to consolidated financial statements for a further discussion of this matter.

Human Capital Resources

Recruitment and Retention

In order to create and develop innovative industry leading products and services and to deliver the highest levels of customer service, we believe it is critical that we attract and retain talented and dedicated employees. As part of these efforts, we strive to offer a competitive compensation and benefits program, to create a work environment where everyone feels included and empowered to do to their best work, and to give employees the opportunity to make a difference in the communities we serve.

At January 21, ~~2022~~2023, we had a total of approximately 4,~~446~~914 employees, of which approximately 3,~~490~~768 were located in the United States and approximately ~~956~~1,146 were located in Canada and the United Kingdom. Approximately 9998% of our workforce consists of full-time employees. We use innovative efforts to recruit, train and develop our employees for long-term success with the organization and, to the extent possible, we strive to promote from within the organization. Our employees have rated IAA a Great Place to Work® since 2018.

In addition to the employee workforce, from time to time, we also utilize temporary labor services to assist in handling the vehicles consigned to us and to provide certain other services. Some of the services we provide are outsourced to third party providers that perform the services either on-site or off-site. The use of third party providers depends upon the resources available at each auction facility as well as peaks in the volume of vehicles offered at auction.

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Compensation and Benefits Program

Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders. We provide employees with compensation packages that we believe are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. In addition to cash and, in certain cases, equity compensation, we also offer full-time employees and part-time employees working more than 30 hours per week benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, and a 401(k) plan. ~~We also provide an incentive to attract, retain and reward eligible employees through our employee stock purchase plan.~~

Workplace Safety

We strive to provide a safe work environment for both our employees and customers. We conduct regular employee training in the areas of safety and emergency preparedness. We believe we have an exemplary workplace safety record with a Total Recordable Incident Rate (“TRIR”) rating of 12.9741 during fiscal ~~2021~~2022, outperforming the industry average. We are classified as a motor vehicle and motor vehicle parts and supplies merchant wholesaler (code 423110) by the National American Industry Classification System (“NAICS”). According to the Bureau of Labor Statistics data as of 2019, the industry average TRIR for companies within our NAICS code classification was 3.10.

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Diversity, Equity and Inclusion

We believe that a diverse, equitable and inclusive environment of employees produces more creative solutions, results in better, more innovative products and services and is crucial to our efforts to attract and retain key talent. We have a Diversity, Equity and Inclusion (“DEI”) Council led by senior executives and comprised of employees at every level of the organization. The DEI Council focuses on initiatives to promote inclusion and cultural awareness and appreciation, increasing diversity and representation of historically underrepresented groups at the management levels and above, and also work with industry partners in their diversity, equity and inclusion efforts.

Of the approximately 3,~~490~~768 employees based in the United States, approximately 5355% of them identify as female. We also believe our workforce is ethnically diverse. At January 21, ~~2022~~2023, our U.S. workforce consisted of approximately 5754% individuals identifying as White, 2120% as Hispanic or Latino, 1416% as Black or African American, 5% as Asian, 23% as two or more races, and ~~less than 1~~2% as Native Hawaiian or Pacific Islander or American Indian/Alaskan Native or Not Specified.

Additionally, of the approximately ~~630~~813 employees serving in management roles and above, up to and including executives, 6355% identify as male and 3745% identify as female. Additionally, of those at a manager level and above, up to and including executives, approximately 7073% identify as White, 813% as Hispanic or Latino, 5% as Asian, 47% as Black or African American, 1% as two or more races, ~~and~~ less than 1% as Native Hawaiian or Other Pacific Islander, 12and less than 1% Not Specified.

Community Involvement

We aim to be good corporate citizens in the communities where our employees live and serve. We encourage employees' community service and engagement, including charitable work and social justice initiatives. We offer our employees the opportunity to perform a day of service on a day of their choosing each year and provide flexibility in work schedules to accommodate our employees exercising their right to vote.

Available Information

Our web address is www.iaai.com. Our electronic filings with the Securities and Exchange Commission ("“SEC"”) (including our Registration Statement on Form 10, all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) are available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into or part of this Annual Report.

The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

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Item 1A. Risk Factors

Investing in our Company involves a high degree of risk. You should carefully consider the following risks, as well as all of the other information contained in this Annual Report on Form 10-K, before deciding to invest in our Company. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of our common stock could decline and you could lose all or part of your investment. However, these risks are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects.

Risks Related to ~~the~~Mergers ~~Effects~~with ofRBA ~~COVID-19 and Other Potential Future Health Crises~~

~~Our~~The ~~business~~announcement ~~is subject to risks arising from epidemic~~ and ~~pandemic~~pendency ~~diseases,~~of ~~such as~~ the ~~COVID-19 illness.~~Mergers ~~The~~with ~~COVID-19~~RBA ~~pandemic and measures intended to reduce its spread has affected, and~~ may ~~continue~~have ~~to,~~an ~~adversely~~adverse ~~affect~~effect on our business, results of operations and ~~financial~~stock ~~condition~~price.

~~The~~On ~~global~~November ~~COVID-19~~7, ~~pandemic~~2022, ~~continues~~we toentered ~~severely~~into ~~impact~~the ~~worldwide~~Original ~~economic~~Merger ~~activity.~~Agreement, Aand ~~pandemic,~~on ~~including~~January ~~COVID-19~~22, or2023, ~~other~~we ~~public~~entered ~~health~~into ~~epidemic~~the ~~poses~~Merger ~~the~~Agreement ~~risk~~Amendment. ~~that~~Pursuant weto orthe ~~our~~Merger ~~employees~~Agreement, ~~suppliers,~~RBA ~~subhaulers~~will ~~and~~acquire ~~other~~the ~~partners~~Company ~~may~~in bea ~~prevented~~stock ~~from~~and ~~conducting~~cash ~~business~~transaction. ~~activities~~We atcurrently ~~full capacity for an indefinite period of time~~operate, ~~including~~and ~~due~~until tocompletion ~~spread~~ of the ~~disease~~Mergers ~~within~~will ~~these~~continue ~~groups or due~~ to ~~shutdowns~~operate, ~~that~~independently ~~may~~of ~~be requested or mandated by governmental authorities~~RBA.

~~The~~There ~~continued~~are ~~spread~~material ofuncertainties ~~COVID-19~~ and ~~its~~risks ~~variants~~associated ~~and~~with the ~~measures~~Merger ~~taken~~Agreement ~~by the governments of countries affected~~ and ~~in which we operate have disrupted and may continue to disrupt~~ the ~~supply of salvage vehicles~~Mergers. ~~For~~If ~~example,~~any ~~following~~of ~~stay-at-home~~these ~~orders~~uncertainties and ~~other~~risks ~~mandates~~develop ~~implemented~~into byactual ~~federal~~events, ~~state~~then ~~and local governments in mid-March 2020, miles driven declined significantly and reduced the supply of salvage vehicle assignments. This decline in volume significantly impacted~~ our business ~~in fiscal 2020 and~~, tofinancial ~~a lesser extent~~condition, inresults ~~fiscal 2021. Even with improvement in miles driven~~ and ~~vehicle~~ongoing ~~assignments beginning in the second half of 2020 and continuing through fiscal 2021~~operations, ~~miles~~stock ~~driven~~price ~~remain~~or ~~slightly~~prospects ~~lower~~could ~~than~~be ~~pre-COVID~~materially ~~levels. If the stabilization in miles driven and vehicle assignments is not achieved and sustained, it could~~ adversely ~~affect~~affected. ~~our~~These ~~operating~~uncertainties ~~results~~ and ~~financial~~risks ~~condition. In addition~~include, ~~labor,~~but ~~towing~~are ~~and~~not ~~other~~limited ~~transportation shortages have negatively impacted our costs and we expect they will continue~~ to, ~~do so at least in~~ the ~~near term.~~following:

~~The COVID-19 outbreak and mitigation measures have also had an adverse impact on global economic conditions and could impact our ability to access~~ • the ~~capital markets on terms acceptable to us~~announcement, ifpendency ator ~~all.~~consummation ~~The further spread~~ of ~~COVID-19, including due to more contagious and/or vaccine resistant variants, and actions taken to limit and combat~~ the ~~spread,~~Mergers ~~will~~could adversely impact our ability to ~~carry out our business as normal~~attract, ~~and~~retain ~~may~~or ~~materially~~motivate ~~adversely~~employees ~~impact our business, operating results~~ and ~~financial condition. The extent to which the COVID-19 pandemic continues to impact~~ our ~~business~~relationships ~~and~~with ~~results~~third ~~of operations will depend on future developments that are highly uncertain and cannot be predicted~~parties, including ~~the~~our ~~duration~~current and ~~severity~~prospective ofcustomers, ~~the virus and the actions taken to contain its impact and spread; resurgences of COVID-19 or variants thereof that may continue to occur; other actions taken by governments~~suppliers, ~~businesses~~vendors, ~~and~~landlords ~~individuals in response to the virus~~ and ~~any~~other ~~resulting~~business ~~economic disruption~~partners; ~~and how quickly and to what extent normal economic and operating conditions resume.~~

• we may forego opportunities we might otherwise pursue absent the Mergers with RBA, including as a result of the restrictions imposed on our business and operations pursuant to certain covenants set forth in the Merger Agreement, which may prevent us from pursuing certain business or other strategic opportunities or taking other non-ordinary course actions without RBA’s prior consent, even if those actions would be beneficial to us;

• matters relating to the Mergers, including integration planning, may require substantial commitments of time and resources by our management and employees and may otherwise divert the attention of management and employees, which could otherwise have been devoted to other opportunities that may have been beneficial to us;

• the pendency and outcome of any legal proceedings that may be instituted against us, our directors and others relating to the transactions contemplated by the Mergers, could result in significant costs of defense, indemnification or liability or prevent or delay the consummation of the Mergers; and

• our directors and executive officers have financial interests in the Mergers that may be different from, or in addition to, the interests of our stockholders generally, which could have influenced their decisions to support or approve the Mergers.

In addition, since a majority of the consideration that our stockholders will receive in the Mergers will consist of RBA Common Shares, prior to the closing of the Mergers our stock price will be impacted by changes in RBA’s share price (as discussed below).

In addition, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services, other transaction costs and employee retention costs in connection with the Mergers, many of which fees and costs are payable by us regardless of whether the Mergers are consummated.

The Mergers are subject to various closing conditions, including approvals by our and RBA’s shareholders, as well as other uncertainties. There can be no assurances as to whether or when the Mergers will be completed.

Completion of the Mergers is subject to the satisfaction or waiver of a number of closing conditions. It is possible that such conditions may prevent, delay or otherwise materially impact the completion of the Mergers. The closing of the Mergers is subject to the satisfaction or waiver of certain conditions including, among other things, (a) in the case of RBA, the approval of the issuance of the RBA Common Shares in connection with the Mergers by the affirmative vote of a majority of the votes cast by holders of the outstanding RBA Common Shares at its shareholder meeting, (b) in the case of the Company, the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of the Company’s common stock, (c) the approval for listing by the NYSE and TSX of the RBA Common Shares to be issued pursuant to the Merger Agreement, (d) subject to

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certain materiality exceptions, the accuracy of the representations and warranties of the other party contained in the Merger Agreement and the compliance by the other party with its covenants contained in the Merger Agreement, (e) the absence of a material adverse effect with respect to the other party, (f) the receipt by us of an opinion from tax counsel as to the Mergers qualifying as a “reorganization” and not resulting in gain recognition for certain Company stockholders under the applicable provisions of the Internal Revenue Code and (g) other customary closing conditions. As of December 20, 2022, the parties have received all necessary antitrust clearances required by the Merger Agreement.

Any delay in completing the Mergers may significantly reduce the synergies projected to result from the Mergers and other benefits that the parties expect to achieve if they successfully complete the Mergers. The parties are not obligated to consummate the Mergers under certain circumstances, including if the required approvals by our stockholders and RBA’s shareholders are not obtained. In addition, other factors, such as RBA’s ability to obtain the debt financing it needs to complete the Mergers on acceptable terms and other sources of cash to consummate the Mergers, and any litigation challenging the Merger, may affect when and whether the Mergers will occur. If the Mergers are not completed on or before 5:00 p.m. New York City time on August 7, 2023 (subject to extension as provided in the Merger Agreement), either RBA or we may choose to terminate the Merger Agreement. RBA or we may also elect to terminate the Merger Agreement in certain other circumstances, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the closing, before or after the required stockholder and shareholder approvals, as applicable.

Failure to complete the Mergers, or a delay in the completion of the Mergers, could negatively impact our business, results of operations, financial condition and stock price.

If the Mergers or the other transactions contemplated by the Merger Agreement are not completed for any reason, including as a result of our stockholders failing to adopt the Merger Agreement or RBA’s shareholders failing to approve the issuance of RBA Common Shares in the Mergers, we will remain an independent public company, and our stockholders will not receive any payment for our common stock in connection with the Mergers. Our ongoing business may be materially and adversely affected by the failure to complete the Mergers, or by a delay in the completion of the Mergers, and we may suffer consequences that could adversely affect our business, results of operations, financial condition and stock price, including the following:

•we could be required to pay a termination fee of $189 million if the Merger Agreement is terminated in certain circumstances, including because our Board of Directors has changed its recommendation in favor of the Merger, if we terminate the Merger Agreement to accept a superior proposal or in certain circumstances if an alternative acquisition proposal is made prior to the termination of the Merger Agreement and we enter into a definitive agreement providing an alternative transaction within 12 months of such termination;

•we will be required to make certain changes to the composition of our Board of Directors pursuant to the terms of the Cooperation Agreement, which include, among other things: (i) the resignation of one of the current members of our Board of Directors and (ii) after completion of director information and interviews and in accordance with certain procedures described in the Cooperation Agreement, the appointment of (a) Timothy James O’Day, (b) a second independent director candidate identified by Ancora and (c) a third independent director candidate mutually agreed between the Company and Ancora, in each case, as observers to our Board of Directors and then as directors immediately following our 2023 annual meeting of stockholders;

•matters relating to the Mergers will require substantial commitments of time and resources by our management and the expenditure of significant funds in the form of fees and expenses, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company;

•we may be subject to legal proceedings related to the potential delay of or failure to consummate the Mergers;

•the failure of the Mergers to be consummated may result in negative publicity and a negative impression of us in the investment community, including as a result of the public criticism of the Company, its business and prospects by certain investors that oppose the consummation of the Mergers;

•disruptions to our business resulting from the announcement and pendency of the acquisition, including any adverse changes in our relationships with our customers, business partners and employees, may continue or intensify in the event the Mergers is delayed or not consummated;

•the Merger Agreement places certain restrictions on the conduct of our business, and such restrictions, the waiver of which is subject to the consent of RBA, may prevent us from making certain acquisitions, entering into or amending

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certain contracts, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Mergers that we would have made, taken or pursued if these restrictions were not in place; and

•we may experience an increase in employee departures in the event the Mergers are delayed or not consummated.

Furthermore, on January 18, 2023, Luxor Capital Group, LP (together with its affiliates, “Luxor”) filed a preliminary proxy statement and on February 13, 2023 Luxor filed a definitive proxy statement with the SEC opposing the Mergers and soliciting votes of RBA shareholders in opposition to the recommendations of RBA’s board of directors at the RBA Special Meeting in connection with the Mergers. This proxy contest may cause RBA to incur additional solicitation and other costs, and may negatively impact RBA’s ability to obtain the votes required to approve the issuance of RBA Common Shares in connection with the Mergers at the RBA Special Meeting. If that vote is not obtained, then the Mergers and the other transactions contemplated by the Merger Agreement will not complete and, under certain circumstances, RBA will be required to pay us a maximum amount of $5.0 million in expense reimbursement.

In addition to the above risks, if the Merger Agreement is terminated and our Board of Directors seeks another merger or business combination, our stockholders cannot be certain that we will be able to find a party willing to offer equivalent or more attractive consideration than the consideration RBA has agreed to provide in the Mergers. If the Merger Agreement is terminated under certain circumstances, we or RBA may be required to pay the other a termination fee of $189 million.

In addition, we could be subject to litigation related to any failure to complete the Mergers or related to any proceeding to specifically enforce our performance obligations under the Merger Agreement. Similarly, delays in the completion of the Mergers could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty. If any of these risks materialize, they may materially and adversely affect our business, financial condition, financial results and stock price.

Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact the price of our common stock.

Stockholders may from time to time attempt to effect changes, engage in proxy solicitations or advance stockholder proposals. Certain activist stockholders have made, or have indicated they may make, strategic proposals related to our business, strategy, management or operations, and have requested, or have indicated they may request, changes to the composition of our Board of Directors. We cannot predict, and no assurances can be given as to, the outcome or timing of any such matters. In the event of a proxy contest, our business could be adversely affected. Responding to a proxy contest can be costly, time-consuming and disruptive, and can divert the attention of our management and employees from the operation of our business and execution of our strategic plan. Additionally, if individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively implement our strategic plan and create additional value for our stockholders. Further, perceived uncertainties as to our future direction, including uncertainties related to the composition of our Board of Directors, may lead to the perception of instability or a change in the direction of our business, which may be exploited by our competitors, cause concern to current or potential customers, result in the loss of potential business opportunities, make it more difficult to attract and retain qualified personnel and/or affect our relationships with vendors, customers and other third parties. Moreover, a proxy contest could cause significant fluctuations in the price of our common stock based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Because the exchange ratio is fixed and the market price of RBA’s common shares has fluctuated and will continue to fluctuate, our stockholders cannot be certain of the ultimate value of the Merger Consideration (as defined below) they will receive in the Mergers.

Upon completion of the Mergers, each share of our common stock that is outstanding immediately prior to the Mergers will be automatically converted into the right to receive the Merger Consideration, which consists of (1) 0.5252 of an RBA Common Share and (2) $12.80 in cash, without interest and less any applicable withholding taxes. Our stockholders will receive cash in lieu of any fractional RBA common shares to which they would otherwise be entitled. The exchange ratio is fixed and will not be adjusted to reflect stock price changes of either our common stock or RBA Common Shares prior to the closing of the Mergers. As a result, the ultimate value of the share consideration will depend on the market price of RBA Common Shares at the time the Mergers are completed and our stockholders cannot be sure of the market value of the share component of the Merger Consideration they will receive upon completion of the Mergers.

The market price of RBA Common Shares has fluctuated since the date of the announcement of the Mergers and is expected to continue to fluctuate through and after the date the Mergers are completed, which could occur a considerable amount of time after the date hereof. Changes in the price of RBA’s Common Shares may result from a variety of factors, including, among others:

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•general market and economic conditions and other factors affecting the price of our common stock or RBA Common Shares;

•changes in RBA’s and our respective businesses, operations and prospects and the risks inherent in our respective businesses;

•changes in market assessments of the likelihood that the Mergers will be completed and/or the value that may be generated by the Mergers; and

•changes with respect to expectations regarding the timing of the Mergers and regulatory considerations.

In addition, the use of cash and incurrence of substantial indebtedness in connection with the financing of the Mergers may have an adverse impact on RBA’s liquidity, limit RBA’s flexibility in responding to other business opportunities and increase RBA’s vulnerability to adverse economic and industry conditions, each of which could adversely affect the price of RBA’s Common Shares prior to closing and that of the combined company following closing. Further, public advocacy by stockholders or other market participants against the Mergers and the terms or strategic rationale therefor could adversely affect the price of our common stock or RBA Common Shares prior to closing and that of the combined company following closing. Many of these factors are beyond our and RBA’s control. In addition, the use of cash and incurrence of substantial indebtedness in connection with the financing of the Mergers may have an adverse impact on RBA’s liquidity, limit RBA’s flexibility in responding to other business opportunities and increase RBA’ s vulnerability to adverse economic and industry conditions, each of which could adversely affect RBA’s share price prior to closing and that of the combined company following closing.

Potential litigation filed against us or RBA could prevent or delay the completion of the Mergers or result in the payment of damages following completion of the Mergers.

We and members of our Board of Directors or executive officers are currently parties, among others, to various claims and litigation related to or arising out of the Mergers. As of February 22, 2023, four complaints were filed in federal court by purported stockholders of the Company regarding the Company’s proposed Mergers. The first complaint was filed on December 15, 2022, in the United States District Court for the Southern District of New York and is captioned Shiva Stein v. IAA, Inc., et al., Case No. 1:22-cv-10602. The second complaint was filed on February 14, 2023, in the United States District Court for the Southern District of New York and is captioned Christopher Taylor v. IAA, Inc., et al., Case No. 1:23-cv-1228. The third complaint was filed on February 14, 2023, in the United States District Court for the District of Delaware and is captioned William Johnson v. IAA, Inc., et al., Case No. 1:23-cv-165-UNA. The fourth complaint was filed on February 16, 2023, in the United States District Court for the Southern District of New York and is captioned Brian Jones v. IAA, Inc., et al., Case No. 1:23-cv-1357. The aforementioned four complaints are collectively referred to as the “Complaints.” The Complaints names us and the members of our Board of Directors as defendants. The Complaints asserts violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against members of our Board of Directors. The plaintiffs alleges that the registration statement on Form S-4 and joint proxy statement/prospectus filed with the SEC and applicable Canadian securities regulatory authorities in connection with the Mergers (the “Form S-4”) omitted or misrepresented material information regarding the Mergers. The Complaints seeks, among other relief, (i) injunctive relief preventing the consummation of the Mergers, unless and until certain information, as requested in the Complaint, is disclosed, (ii) rescission and/or rescissory damages in the event the Mergers are consummated, (iii) an order directing the defendants to file a Proxy Statement that does not contain any untrue statements of material fact, (iv) other damages purportedly suffered as a result of the alleged material omissions or misstatements, (v) an award of plaintiff's costs and disbursements in the action, including reasonable attorneys' and expert fees and expenses, and (vi) other and further equitable relief as the court may deem just and proper. In addition, as of February 22, 2023, we have received three demand letters from purported IAA stockholders, which generally seek that certain information allegedly omitted from the Form S-4 be disclosed. It is possible that additional lawsuits will be filed, or additional allegations will be received from IAA stockholders, with respect to the Mergers. RBA and its executive officers and members of its Board of Directors may also be the subject of potential claims and litigation related to or arising out of the Mergers, including claims similar to those asserted in the Complaint and seeking similar remedies, including requests to enjoin the Mergers. The results of complex legal proceedings, including those discussed above, are difficult to predict, and could delay or prevent the Mergers from becoming effective in a timely manner. The existence of litigation relating to the Mergers could impact the likelihood of obtaining the requisite approvals from our stockholders or RBA shareholders. Moreover, the litigation discussed above and any future litigation could be time consuming and expensive, could divert our attention away from regular business, and, if any one of these actual or potential lawsuits is adversely resolved, could have a material adverse effect on our or the combined company’s business, results of operations or financial condition.

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The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Mergers and could discourage a potential competing acquirer of us or could result in any competing proposal being at a lower price than it might otherwise be.

The Merger Agreement contains certain restrictions on our ability to solicit alternative acquisition proposals from third parties, to provide information to third parties, to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, to enter into any commitment with respect to any alternative acquisition proposal or to recommend or approve any alternative acquisition proposal. In addition, subject to certain customary “fiduciary out” exceptions, our Board of Directors is required to recommend that our stockholders vote in favor of the adoption of the Merger Agreement at the special stockholder meeting we will hold in connection with the Mergers. In addition, we may be required to pay RBA a termination fee of $189 million in certain circumstances, including if the Merger Agreement is terminated in certain circumstances following our receipt of an alternative acquisition proposal.

These provisions might discourage an otherwise-interested third party from considering or proposing an acquisition to acquire all or a significant party of the Company, including proposals that may be deemed to offer greater value to our stockholders than the Merger Consideration. Furthermore, even if a third party elects to propose an acquisition, the requirement that we must pay a termination fee to accept any such proposal may cause that third party to offer a lower price to our stockholders than such third party might otherwise have offered.

While the Merger Agreement is in effect, we are subject to restrictions on our business activities.

While the Merger Agreement is in effect, we are generally required to use reasonable efforts to conduct our business in the ordinary course in all material respects and are restricted from taking certain actions set forth in the Merger Agreement without RBA’s prior consent. These limitations include, among other things, issuing stock or equity awards subject to specified carve-outs, hiring, promoting or terminating employees, incurring indebtedness other than certain revolving credit facility borrowings, engaging in capital expenditures beyond certain levels, terminating, materially modifying or materially amending certain material contracts or entering into certain material contracts. These restrictions could prevent us from pursuing strategic business opportunities and taking actions with respect to our business that we may consider advantageous and may, as a result, materially and adversely affect our business, results of operations and financial condition.

After completion of the Mergers, RBA may fail to realize the projected benefits and cost savings of the Mergers, which could adversely affect the value of RBA Common Shares.

The success of the Mergers will depend, in part, on RBA’s ability to realize the anticipated benefits and cost savings from combining the respective businesses of us and RBA, including operational and other synergies that we believe the combined company will be able to achieve. The anticipated benefits and cost savings of the Mergers may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the achievement of operating synergies, may not be realized. The integration process may, for us and RBA, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the Mergers that were not discovered in the course of performing due diligence. Additionally, the integration will require significant time and focus from management following the Mergers.

In addition, in connection with the proposed Mergers, on November 7, 2022, RBA entered into a commitment letter pursuant to which the initial lenders thereunder committed to provide (i) a backstop senior secured revolving credit facility in an aggregate principal amount of up to $750 million (the “Backstop Revolving Facility”) and (ii) a senior secured 364-day bridge loan facility in an aggregate principal amount of up to $2.8 billion (the “Bridge Loan Facility,” and together with the Backstop Revolving Facility, the “Facilities”), which commitments were subsequently reduced to $886.1 million in connection with the sixth amendment to RBA's existing credit facility. On December 9, 2022, RBA entered into a sixth amendment to its existing credit agreement to terminate the backstop commitments (including the Backstop Revolving Facility and $88.9 million of bridge commitments that served as a backstop for RBA’s existing term loans) and replace $1.825 billion of commitments under the Bridge Loan Facility with term A loan commitments. RBA expects to replace remaining amount of the Bridge Loan Facility prior to the closing of the Mergers with permanent financing, which may include the issuance of debt securities and/or one or more senior term loan facilities. Taking on additional indebtedness in connection with the proposed Mergers, as a result of the borrowings under the Bridge Loan Facility and/or other permanent financing that replaces such facility, would increase the cash outlays to service RBA’s debt in future periods. If the combined company’s cash flows and capital resources are insufficient to fund debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness.

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The Mergers also are expected to create revenue, growth, operational enhancement, expansion and other opportunities for the combined company, beyond the identified cost synergies, including through cross-selling opportunities, accelerated marketplace innovation, cross-utilization of yards, strengthening our catastrophic event response and insurance carrier relationships, and acceleration of our international expansion. The identification and scope of these opportunities is based on various assumptions, which may or may not prove to be accurate. These opportunities for the combined company may not arise as expected, or the combined company may not be able to realize the anticipated benefits from these opportunities, from the sources or in the amount manner or time frame expected, or at all. Failure to realize these opportunities could significantly reduce the expected benefits associated with the Mergers.

Risks Related to Supply, Demand and Competition

Our business and operating results would be adversely affected due to: loss of one or more significant suppliers, reduction in significant volume from suppliers, an adverse change in our supplier relationships, or a disruption to our supply of damaged, total loss and low-value vehicles.

Our business depends on suppliers of damaged, total loss and low-value vehicles. Approximately one-third of our revenue is ~~earned~~associated ~~from~~with ~~vehicle~~vehicles supplied by suppliers or sellers. Our vehicle suppliers include insurance companies, used-vehicle dealers, rental car and fleet lease companies, auto lenders and charitable organizations, among others. We have established long-term relationships with virtually all of the major automobile insurance companies. During fiscal ~~2021~~2022, approximately 40% of our revenues were associated with vehicles supplied by our ~~three~~four largest insurance customers in the United States segment. Our agreements with insurance company suppliers are generally subject to cancellation by either party upon 30 to 90 days’ notice. There can be no assurance that our existing agreements will not be canceled or that we will be able to enter into future agreements on favorable terms with these suppliers. We work to develop strong relationships with our suppliers to better understand their needs. From time to time, however, we experience the loss of suppliers or a reduction in volume from our suppliers, including our top vehicle suppliers. If we lose one or more of our significant suppliers, or if one or more of our large suppliers were to significantly reduce volume for any reason or favor competitors or new entrants, we may not be successful in replacing such business and our profitability and operating results could be materially adversely affected.

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Generally, institutional and dealer suppliers make non-binding long-term commitments to us regarding consignment volumes. Changes in the consignment patterns of our key suppliers could have a material adverse effect on our business and operations. There are many factors that can adversely affect volume from suppliers, many of which are beyond our control. These factors include, but are not limited to, the following: a decrease in the number of vehicles in operation or miles driven; mild weather conditions that cause fewer traffic accidents; reduction of policy writing by insurance providers that would affect the number of claims over a period of time; increases in fuel prices that could lead to a reduction in the miles driven per vehicle, which may reduce the accident rate; changes in vehicle technology, an increase in autonomous vehicles and vehicles equipped with advanced driver-assistance systems (ADAS); a decrease in the percentage of claims resulting in a total loss or elimination of automotive collision coverage by consumers; delays or changes in state title processing; government regulations on the standards for producing vehicles; and changes in direct repair procedures that would reduce the number of newer, less damaged total loss vehicles, which tend to have higher salvage values. Furthermore, in periods when the supply of vehicles from the insurance sector declines, salvage operators have acquired and in the future may acquire vehicles on their own. Also, when used vehicle prices are high, used-vehicle dealers may retail more of their trade-in vehicles on their own rather than selling them at auction. If the supply or value of damaged, total loss and low-value vehicles coming to auction declines significantly, our revenues and profitability may be adversely affected.

Our business and operating results would be adversely affected if we are unable to meet or exceed our buyer customers’ demand and expectations or due to a disruption in demand of damaged, total loss and low-value vehicles.

We believe our future success depends in part on our ability to respond to changes in buyer requirements, our ability to meet service level expectations of both buyers and sellers and our ability to meet regulatory requirements for such customers. Our buyer customers include automotive body shops, rebuilders, used car dealers, automotive wholesalers, exporters, dismantlers, recyclers, brokers, and the general public, among others. We work to develop strong relationships and interactive dialogue with our customers to better understand current trends and customer needs. If we are not successful in meeting our customers’ expectations, our customer relationships could be negatively affected and result in a loss of future business, which would adversely affect our operating results and financial condition.

Our market position and competitive advantage could be threatened by our competitors and/or disruptive new entrants.

We face significant competition for the supply of damaged and total loss vehicles and the buyers of those vehicles. Our principal sources of competition historically have come from (1) direct competitors (e.g., Copart, Inc. and Total Resource Auctions, a subsidiary of Cox Enterprises, Inc.), (2) new entrants, including new vehicle remarketing venues, and (3) existing alternative vehicle remarketing venues, including used-vehicle auctions and certain salvage buyer groups. Due to the increasing use of the Internet and other technology as marketing and distribution channels, we may face increasing competition from online wholesale and retail marketplaces (generally without any meaningful physical presence) and from our own customers, including insurance companies, when they sell directly to end users through such platforms rather than remarket vehicles through our marketplaces. Increased competition could result in price reductions, reduced margins or loss of market share.

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alternative vehicle remarketing venues, including used-vehicle auctions and certain salvage buyer groups. Due to the increasing use of the Internet and other technology as marketing and distribution channels, we may face increasing competition from online wholesale and retail marketplaces (generally without any meaningful physical presence) and from our own customers, including insurance companies, when they sell directly to end users through such platforms rather than remarket vehicles through our marketplaces. Increased competition could result in price reductions, reduced margins or loss of market share.

Our future success also depends on our ability to respond to evolving industry trends, changes in customer requirements and new technologies. Some of our competitors may have greater financial and marketing resources than we do, may be able to respond more quickly to evolving industry dynamics and changes in customer requirements, or may be able to devote greater resources to the development, promotion and sale of new or emerging services and technologies. Our ability to successfully grow through investments in the area of emerging opportunities depends on many factors, including advancements in technology, regulatory changes and other factors that are difficult to predict, or that may significantly affect the future of electrification, autonomy, and mobility. If we are unable to compete successfully or to successfully adapt to industry changes, our business, revenues and profitability could be materially adversely affected.

Also, see "The separation and distribution agreement (the "Separation Agreement") that we entered into with KAR limits our ability to compete in certain markets for a period of time following the Separation, and in certain instances, requires that we make revenue and profit sharing payments to KAR related to specific customer segments."

If our facilities lack the capacity to accept additional vehicles, then our relationships with insurance companies or other vehicle suppliers could be adversely affected.

We regularly evaluate our capacity in all of our markets and, where appropriate, seek to increase capacity through the acquisition of additional land and facilities. Capacity at our facilities varies from period to period and by region as a result of various factors, including natural disasters. We may not be able to reach agreements to purchase or lease storage facilities in markets where we have limited available capacity, and zoning restrictions or difficulties obtaining use permits may limit our ability to expand our capacity through acquisitions of new land. If we fail to have sufficient capacity at one or more of our facilities, our relationships with insurance companies or other vehicle suppliers could be adversely affected, which could adversely affect our operating results and financial condition.

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Risks Related to Our Business and Operations

The COVID-19 pandemic, or other future epidemic or pandemic diseases, and measures intended to reduce their spread, may adversely affect our business, results of operations and financial condition.

Current and future outbreaks of COVID-19, other epidemic or pandemic diseases pose 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 disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities.

As we experienced in fiscal 2020, and to a lesser extent in fiscal 2021 and 2022, measures taken by governments to combat the spread of COVID-19, or other future epidemic or pandemic diseases may disrupt the supply of salvage vehicles. Shutdown or stay-at- home orders and other mandates implemented by federal, state and local governments may result in a significant decline in miles driven, reducing the supply of salvage vehicle assignments.

The further spread of COVID-19, including due to more contagious and/or vaccine resistant variants, or the outbreak of other future epidemic or pandemic diseases, and actions taken to limit and combat the spread, could have a material adverse 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 COVID-19 or other future epidemic or pandemic diseases impact our business and results of operations depends on future developments that are highly uncertain and cannot be predicted, including the duration and severity of COVID-19 or any such other future epidemic or pandemic and the actions taken to contain their impact and spread; resurgences of COVID-19 or variants thereof that may continue to occur; other actions taken by governments, businesses, and individuals in response to such epidemics or pandemics and any resulting economic disruption; and how quickly and to what extent normal economic and operating conditions resume.

Macroeconomic factors, including high fuel prices, high labor costs, rising inflation and changes in used car prices, may have an adverse effect on our revenues, gross profit and operating results.

Macroeconomic factors that affect oil prices and the vehicle and commodity markets can have adverse effects on our revenues and operating results. Significant increases in the cost of fuel, whether due to inflationary pressures, the current war between Ukraine and Russia or otherwise, could lead to a reduction in miles driven per car and a reduction in accident rates. A material

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reduction in accident rates, whether due to a reduction in miles driven or other factors, could reduce our vehicle assignment volumes which, in turn, could have a material adverse impact on our revenues. In addition, significant increases in the cost of fuel have resulted and could continue to result in an increase in the prices charged to us by our independent subhaulers and trucking fleet operators. Further, we have recently experienced labor shortages, which have resulted in an increase in associated costs, such as increased overtime to meet demand and increased wages to attract and retain employees. If these conditions or other inflationary pressures continue, our costs for towing and branch labor may continue to rise. To the extent we are unable to pass these costs on to our customers, the increase in prices charged by our independent subhaulers and trucking fleet operators and the increase in labor costs have negatively impacted and could continue to negatively impact our profitability.

Volatility in used car prices could have a material adverse effect on our revenues in future periods. While increased used vehicle prices have recently resulted in an increase in our revenue per unit, a sustained increase in used vehicle prices may result in vehicle owners holding on to their vehicles for longer periods of time, which could negatively impact our vehicle assignment volumes. See “A significant change in used-vehicle prices could impact the proceeds and revenue from the sale of damaged and total loss vehicles” below for additional information.

In addition, we continue to invest in capacity expansion, including the opening of new auction facilities. Adverse economic conditions, including increases in interest rates and lease rates, real estate values and real estate development and construction costs, may increase the costs required to invest in capacity expansion or delay our ability to open new facilities, both of which could have a material impact on our consolidated results of operations and financial position.

We may be unable to keep existing facilities or open new facilities in desirable locations and on favorable terms, which could materially and adversely affect our results of operations.

Local land use and zoning regulations, environmental regulations and other regulatory requirements may impact our ability to find suitable locations and influence the cost of our operations. The majority of our salvage auction vehicle facilities are leased. The termination or expiration of leases at existing facilities may adversely affect us if the renewal terms of those leases are unacceptable to us and we are forced to close the facilities. If we determine to close a location, we may remain obligated under the applicable lease for the remaining lease term and may have to expense the unamortized portion of the right-of-use assets, in part or in full, as an impairment which may have a material impact on our consolidated results of operations and financial position. Also, if we are unable to maintain our existing facilities or open new facilities in desirable locations and on favorable terms, our results of operations could be materially and adversely affected. Further, in an increasing number of markets where we experience significant capacity constraints together with pressing customer demand and a lack of viable alternatives for expansion due to zoning and land use restrictions, we may be required to purchase, lease or occupy industrial sites which may contain significant environmental impacts. See “Environmental, health and safety risks could adversely affect our operating results and financial condition.”

We may not be successful in the implementation of our business strategy or we may improperly align new strategies with our vision, which could lead to the misapplication of our resources.

Our business, results of operations, and financial condition depend on our ability to execute our business strategy. See "“Our Business Strategy"” under "“Item 1. Business"” included in this Annual Report on Form 10-K. There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control. Accordingly, we cannot predict whether or when we will succeed in implementing these strategic initiatives, and even if we do succeed, our strategy may not have the favorable impact on our business, results of operations, or financial condition that we anticipate. Additionally, our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.

We may not properly leverage or make the appropriate investment in technology advancements, which could result in the loss of any sustainable competitive advantage in products, services and processes.

Our business is dependent on information technology. Robust information technology systems, platforms and products are critical to our operating environment, digital online products and competitive position. Rapid technology changes may render our technology obsolete and understanding technology innovation is necessary to remain at the forefront of our industry. While we continue to invest in our core information technology capabilities, we may not be successful in structuring our information technology or developing, acquiring or implementing information systems that are competitive and responsive to the needs of our customers. In addition, we might lack sufficient resources to continue to make the significant investments in information technology necessary to compete with our competitors. Certain information technology initiatives that management considers important to our long-term success will require capital investment, have significant risks associated with their execution, and could take several years to implement. If we are unable to develop/implement these initiatives in a cost-effective, timely manner or at all, it could damage our relationships with our customers and negatively impact our financial condition and results of operations.

~~If we fail to identify, manage, complete and integrate acquisitions, our operating results, financial condition and growth prospects could be adversely affected.~~ 22

Acquisitions are a part of our growth strategy and have enabled us to further broaden and diversify our service offerings. For example, we acquired Decision Dynamics, Inc. in July 2019, Auto Exchange in June 2021 and SYNETIQ in October 2021. In addition, our October 2021 acquisition of SYNETIQ is currently undergoing review by the CMA and there can be no assurance that we will obtain approval from the CMA or, if such approval is obtained, the terms and conditions, if any, of such approval. Our strategy generally involves acquisitions of companies, products, services and technologies to expand our online, digital and mobile capabilities and the acquisition and integration of additional auction sites and personnel. Acquisition of businesses requires substantial time and attention of management personnel and may also require additional equity or debt financings. Further, integration of acquired businesses is often disruptive. There can be no assurance that we will identify appropriate targets, will acquire such businesses on favorable terms, or will be able to successfully integrate such organizations into our business. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and they could materially adversely affect our business, financial condition and results of operations. Acquisitions may also have unanticipated tax, legal, regulatory and accounting ramifications, including as a result of recording goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment

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~~charges.~~If ~~In addition,~~ we ~~expect~~fail to ~~compete~~identify, ~~against~~manage, ~~other~~complete ~~auction~~and ~~groups~~integrate ~~or new industry consolidators for suitable~~ acquisitions., Ifour weoperating ~~are~~results, ~~able~~financial tocondition ~~consummate~~and ~~acquisitions,~~growth ~~such~~prospects ~~acquisitions~~ could be ~~dilutive~~adversely ~~to earnings, and we could overpay for such acquisitions~~affected.

Acquisitions are a part of our growth strategy and have enabled us to further broaden and diversify our service offerings. For example, we acquired Decision Dynamics, Inc. in July 2019, Auto Exchange in June 2021 and SYNETIQ in October 2021. Our strategy generally involves acquisitions of companies, products, services and technologies to expand our online, digital and mobile capabilities and the acquisition and integration of additional auction sites and personnel. Acquisition of businesses requires substantial time and attention of management personnel and may also require additional equity or debt financings. Further, integration of acquired businesses is often disruptive. There can be no assurance that we will identify appropriate targets, will acquire such businesses on favorable terms, or will be able to successfully integrate such organizations into our business. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and they could materially adversely affect our business, financial condition and results of operations. Acquisitions may also have unanticipated tax, legal, regulatory and accounting ramifications, including as a result of recording goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges. In addition, we expect to compete against other auction groups or new industry consolidators for suitable acquisitions. If we are able to consummate acquisitions, such acquisitions could be dilutive to earnings, and we could overpay for such acquisitions.

In pursuing a strategy of acquiring other businesses, we face other risks including, but not limited to:

•incurring significantly higher capital expenditures, operating expenses and operating losses of the business acquired;

•entering new markets with which we are unfamiliar;

•incurring potential undiscovered liabilities at acquired businesses;

•failing to maintain uniform standards, controls and policies;

•incorporating acquired technology and rights into our offerings and unanticipated expenses related to such integration;

•impairing relationships with employees and customers as a result of management changes; and

•increasing expenses for accounting and computer systems, as well as integration difficulties.

Reliance on our subhaulers and trucking fleet operations could materially and adversely affect our business and reputation.

We rely on independent subhaulers and trucking fleet operations to pick up and deliver vehicles to and from our auction facilities. Consistent with the economy generally, we have recently experienced a shortage of towers and haulers, which has resulted in an increase in costs charged to us by towers and subhaulers for these services, and we cannot provide assurances that towers and subhaulers will be available in a timely manner to pick up and deliver vehicles. Failure to pick up and deliver vehicles in a timely manner could harm our brand and reputation, and adversely impact our overall business and results of operations. Further, an increase in fuel cost may lead to increased prices charged by our independent subhaulers and trucking fleet operators, which may significantly increase our cost. We may not be able to pass these costs on to our suppliers or buyers. We are also exposed to risks associated with inclement weather, disruptions in the transportation infrastructure and increase in the price of fuel, any of which could increase our operating costs. If we experience problems or are unable to negotiate or obtain favorable terms with our subhaulers, our results of operations could be materially and adversely affected.

Weather-related and other events beyond our control may adversely impact operations.

Extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires, floods, global pandemics or other health crises, terrorist attacks or war, may adversely affect the overall economic environment, the markets in which we compete, and our operations and profitability. These events, which may increase in frequency and magnitude as a result of climate change, may impact our physical auction facilities, causing a material increase in costs, or delays or cancellation of auction sales, which could have a material adverse impact on our revenues and profitability. In some instances, for example with the severe ~~storm~~storms in August 2021 and September 2022 known as "“Hurricane Ida"” and “Hurricane Ian”, these events may result in a sharp influx in the available supply of damaged and total loss vehicles and there can be no assurance that our business will have sufficient resources to handle such extreme increases in supply. Our failure to meet our customers’ demands in such situations could negatively affect our relationships with such customers and result in a loss of future business, which would adversely affect our operating results and financial condition. In addition, revenues generated as a result of the total loss of vehicles associated with such a catastrophe are typically recognized subsequent to the incurrence of incremental costs and such revenues may not be sufficient to offset the costs incurred.

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Mild weather conditions tend to result in a decrease in the available supply of damaged and total loss vehicles because traffic accidents decrease and fewer vehicles are damaged. Accordingly, mild weather can have an adverse effect on our damaged and total loss vehicle inventories, which would be expected to have an adverse effect on our revenue and operating results and related growth rates.

An increase in the number of damaged and total loss vehicles we purchase could adversely affect our profitability.

In certain countries, the salvage market typically operates on a principal basis, in which a vehicle is purchased and then resold, rather than on an agent basis, in which the auction acts as a sales agent for the owner of the vehicle. Operating on a principal basis exposes us to inventory risks, including losses from theft, damage and obsolescence. If we purchase vehicles, the increased costs associated with acquiring the vehicles could have a material adverse effect on our gross profit margin and operating results. Vehicles sold under purchase agreements were approximately 6% of our vehicles sold both domestically and internationally for fiscal ~~2021~~2022. In addition, when vehicles are purchased, we are subject to changes in vehicle values, such as those caused by changes in commodity prices or changes in used car prices. Decreases in commodity prices, such as steel and platinum, may negatively affect vehicle values and demand at auctions. In addition, declines in used car prices, especially if they occur faster than anticipated, can lead to a significant gap between pre-accident value and sales price, which we recently experienced with respect to our UK business.

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If we fail to attract and retain key personnel, have inadequate succession planning, or manage labor shortages, we may not be able to execute our business strategies and our financial results could be negatively affected.

Our success depends in large part on the performance of our senior executive team and other key employees, including key field, operations, sales and information technology personnel. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decides to join a competitor or otherwise compete with us, we may not be able to effectively implement our business strategies, our business could suffer and the value of our common stock could be materially adversely affected. Our auction business is directly impacted by the business relationships our employees have established with customers and suppliers and, as a result, if we lose key personnel, we may have difficulty in retaining and attracting customers, developing new services, negotiating favorable agreements with customers and providing acceptable levels of customer service. Changes to our senior executive team and other key personnel will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We do not have nor do we currently expect to obtain key person insurance on any of our executive officers. Further, consistent with the economy generally, we have recently experienced labor shortages, which have resulted in an increase in associated costs, such as increased overtime to meet demand and increased wages to attract and retain employees. If we are unable to manage the impact of labor shortages, we may continue to experience higher labor costs and our results of operations could be materially and adversely affected.

A significant change in used-vehicle prices could impact the proceeds and revenue from the sale of damaged and total loss vehicles.

The volume of new vehicle production, accuracy of lease residual estimates, interest rate fluctuations, customer demand and changes in regulations, among other things, all potentially affect the pricing of used vehicles. A sustained reduction in used-vehicle pricing could result in lower proceeds from the sale of damaged and total loss vehicles and a related reduction in revenue per vehicle, a potential loss of consignors and decreased profitability. Conversely, when used vehicle prices are high, used-vehicle dealers may retail more of their trade-in vehicles on their own rather than selling them at auction, which could adversely affect our revenues and profitability.

We are partially self-insured for certain losses, and our self-insured costs could increase.

We self-insure a portion of employee medical benefits under the terms of our employee health insurance program, as well as a portion of our automobile, general liability and workers’ compensation claims. We record an accrual for the claims expense related to our employee medical benefits, automobile, general liability and workers’ compensation claims based upon the expected amount of all such claims. If actual trends, including the severity of claims and medical cost inflation above expectations were to occur, our self-insured costs would increase, which could have an adverse impact on our results of operations and financial position.

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We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.

Goodwill represents the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets acquired. Current accounting standards require that goodwill be periodically evaluated for impairment based on the fair value of the reporting unit. Goodwill represents a significant percentage of our total assets. Declines in our profitability or the value of comparable companies may impact the fair value of our reporting units, which could result in a write-down of goodwill and a reduction in net income.

We assume the settlement risk for vehicles sold through our marketplaces.

Typically, following the sale of a vehicle, we do not release the vehicle to a buyer until such time as we have received full payment for the vehicle. We may be obligated, however, to remit payment to a seller before receiving payment from a buyer and in those circumstances, we may not have recourse against sellers for any buyer’s failure to satisfy its payment obligations. Because we retain possession of the vehicle, we can resell the vehicle to mitigate any potential losses. Since revenue for most vehicles does not include the gross sales proceeds, failure to collect the receivables in full may result in a net loss up to the amount of gross sales proceeds on a per vehicle basis in addition to any expenses incurred to collect the receivables and to provide the services associated with the vehicle. If we are unable to collect payments on a large number of vehicles and we are unable to resell them and recover our costs, the resulting payment obligations to the seller and decreased fee revenues may have a material adverse effect on our results of operations and financial condition.

If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected. Also, we may be subject to patent or other intellectual property infringement claims, which could have an impact on our business or operating results due to a disruption in our business operations, the incurrence of significant costs and other factors.

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We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect our proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects of our intellectual property. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we have taken measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could have an adverse effect on our business and financial results.

From time to time, we may receive notices from others claiming that we infringed or otherwise violated their patent or intellectual property rights, and the number of these claims could increase in the future. Claims of intellectual property infringement or other intellectual property violations could require us to enter into licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question, which could require us to change business practices and limit our ability to compete effectively. Even if we believe that the claims are without merit, the claims can be time-consuming and costly to defend and may divert management’s attention and resources away from our businesses. If we are required to take any of these actions, it could have an adverse impact on our business and operating results.

Risks Related to Data and Cyber Security

Significant disruptions of information technology systems, infrastructure and business information could adversely affect our business and reputation.

Our business involves the receipt and storage of information about our customers and employees and maintaining internal business data. We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of our business processes and activities. The secure operation of these systems, and the processing, maintenance and storage of the information processed by these systems, is critical to our business operations and strategy. Information technology risks (including to the confidentiality, integrity and availability of digital assets) for companies have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. These threats may derive from fraud or malice on the part of third parties or our employees, or may result from human error, accidental technological failure or physical break-ins. In addition, our technology infrastructure, information systems, and data storage facilities are vulnerable to damage or interruption from events beyond our control, including, but not limited to, natural disasters, physical break-ins, power loss and telecommunications failures. Although we have technology and information security processes and disaster recovery plans in place to mitigate our risks to these vulnerabilities, these measures may not be adequate to ensure that our operations will not be significantly disrupted upon the occurrence of any of these events. Our customers and other parties in the payments value chain rely on our digital online products as well as other information technologies, computers, software and networks to conduct their operations. In addition, our customers increasingly use personal smartphones, tablet PCs and other mobile devices to access our online products and services and the security of these third party devices may be beyond our control. Any significant disruptions of our information technology systems or the theft of information from our data storage facilities could negatively impact our business, damage our reputation and materially adversely affect our consolidated financial position and results of operations.

Cyber attacks, including breaches of information technology systems and other cybersecurity incidents, could cause interruptions, malfunctions or other failures that could materially adversely affect our business and reputation and create data security risks.25

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~~business.~~derive ~~Cyber~~from ~~incidents~~fraud ~~can~~or ~~include~~malice ~~computer~~on ~~viruses,~~the ~~computer~~part ~~denial-~~of~~-service~~ ~~attacks~~third parties or our employees, ~~phishing~~or ~~attacks~~may result from human error, ~~ransomware~~accidental technological failure or physical break-ins. In addition, ~~worms~~our technology infrastructure, information systems, and ~~other~~data ~~malicious~~storage ~~software~~facilities ~~programs~~are vulnerable to damage or interruption from events beyond our control, ~~covert~~including, ~~introduction~~but ofnot ~~malware~~limited to, ~~computers~~natural ~~and~~disasters, ~~networks~~physical break-ins, ~~impersonation~~power ofloss ~~authorized~~and ~~users,~~telecommunications failures. Although we have technology and ~~efforts~~information tosecurity ~~discover~~processes and ~~exploit~~disaster ~~any~~recovery ~~design~~plans ~~flaws,~~in ~~bugs,~~place ~~security~~to ~~vulnerabilities~~mitigate orour ~~security~~risks ~~weaknesses~~to these vulnerabilities, asthese ~~well~~measures asmay ~~intentional~~not orbe ~~unintentional~~adequate ~~acts~~to byensure ~~employees~~that orour ~~other~~operations ~~insiders~~will ~~with~~not ~~access~~be ~~privileges,~~significantly ~~intentional~~disrupted ~~acts~~upon the occurrence of ~~vandalism~~any orof ~~fraud~~these byevents. ~~third~~Our ~~parties~~customers and ~~sabotage.~~other Weparties ~~believe~~in ~~cyber~~the ~~attack~~payments ~~attempts~~value ~~are~~chain ~~increasing~~rely inon ~~number~~our digital online products as well as other information technologies, computers, software and ~~that~~networks ~~cyber~~to ~~attackers~~conduct ~~are~~their ~~developing~~operations. In addition, our customers increasingly ~~sophisticated~~use ~~systems~~personal smartphones, tablet PCs and ~~means~~other mobile devices to ~~not~~access ~~only~~our ~~attack~~online products and services and the security of these third party devices may be beyond our control. Any significant disruptions of our information technology systems or the theft of information from our data storage facilities could negatively impact our business, ~~but~~damage ~~also~~our toreputation ~~evade~~and ~~detection~~materially oradversely toaffect ~~obscure~~our ~~their~~consolidated ~~activities~~financial position and results of operations.

We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit, and store electronic information. We have experienced cyber incidents and security breaches of varying degrees to our information technology infrastructure and systems. We believe we will continue to be a potential target of cyber threats and incidents in the future, which may result in unauthorized access to our computer systems and networks, including our cloud-based platforms and the data contained, any of which may materially adversely affect our business. The technology infrastructure and systems of our suppliers, vendors, service providers, cloud solution providers and partners have also in the past experienced cyber incidents and any future cyber incidents involving these third parties may materially adversely affect our business. Cyber incidents can include computer viruses, computer denial-of-service attacks, phishing attacks, ransomware, worms, and other malicious software programs, covert introduction of malware to computers and networks, impersonation of authorized users, and efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, as well as intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. We believe cyber attack attempts are increasing in number and that cyber attackers are developing increasingly sophisticated systems and means to not only attack systems, but also to evade detection or to obscure their activities.

Continuous cyber incidents or a sustained cyber attack could jeopardize data security, lead to service interruptions, malfunctions or other failures in the information technology that supports our business and customers (such as the lack of availability of our value-added systems), as well as the operations of our customers or other third parties. Cyber-incidents, including security breaches involving customer data, could also lead to damage to our reputation with our customers and other parties and the market, additional costs (such as repairing systems, adding new personnel or protection technologies, or compliance costs), regulatory penalties, financial losses to both us and our customers and partners and the loss of customers and business opportunities. If such cyber incidents are not detected in a timely manner, their effects could be compounded.

Although we have technology and information security processes and disaster recovery plans in place to mitigate our risks to these vulnerabilities, these measures may not be adequate to ensure that our operations will not be significantly compromised or disrupted upon the occurrence of any such events. If our information technology is compromised, becomes inoperable for extended periods of time or ceases to function properly, we may have to make a significant investment to fix or replace the information technology and our ability to provide many of our electronic and online solutions to our customers may be impaired, which would have a material adverse effect on our consolidated operating results and financial position. In some instances, efforts to correct vulnerabilities or prevent attacks may reduce the performance of our computer systems and networks, which could negatively impact our business. In addition, as cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Any of the risks described above could disrupt our business, damage our reputation and materially adversely affect our financial position and results of operations.

Our business is exposed to risks associated with online commerce security and credit card fraud.

We rely on encryption and authentication technology of third party partners to securely transmit confidential information such as customer credit card numbers. A compromise or breach of our own or our third party systems used to protect customer transaction data, whether due to viruses transmitted via the Internet and other points of access, employee error, malfeasance, insufficiency, or defective design, could cause a service disruption. We maintain an information security program and our processing systems incorporate multiple levels of protection in order to address or otherwise mitigate these risks. Despite these mitigation efforts, there can be no assurance that we will not suffer losses in the future. Under current credit card practices, we may be held liable for fraudulent credit card transactions and other payment disputes with customers. As such, we have implemented certain anti-fraud measures, including credit card verification procedures and limiting the acceptance of credit cards from certain newly acquired customers. However, a failure to adequately prevent fraudulent credit card transactions could adversely affect our consolidated financial position and results of operations.

Compliance with U.S. and global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and store data, and the failure to comply with such requirements could subject us to significant fines and penalties, which could adversely affect our business, financial condition and reputation.26

We collect and store sensitive and confidential data, including the intellectual property, proprietary business information, proprietary business information of our customers, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks. Aspects of our operations and business are subject to privacy regulation in the United States, including the California Consumer Privacy Act (“CCPA”), California Privacy Rights Act (“CPRA”), and privacy regulations elsewhere around the globe, including the European Union’s General Data Protection Regulation (the “GDPR”). The CCPA, which came into effect beginning in January 2020, imposes notice and privacy policy requirements, and obligations to respond to requests to know and access to personal information, to delete personal information and to allow data subjects to opt out of the sale of their personal information. The CPRA was approved by voters in California in November 2020, and beginning in January 2023 will impose additional data protection obligations on companies doing business in California, including creation of a data protection agency with the power to impose administrative fines, additional consumer rights processes and opt-outs for certain uses of sensitive data. Aspects of the CPRA and its interpretation and enforcement remain uncertain. Similar privacy laws have been and may in the future be enacted by other states. The potential effects of the CCPA, CRPA and other similar state laws, are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply with these regulations. There is also the potential for increased regulatory enforcement by the state agencies empowered to enforce these laws. In addition, the GDPR,

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~~which~~implemented ~~took~~certain ~~effect~~anti-fraud ~~in May 2018~~measures, ~~imposes~~including ~~strict~~credit ~~rules~~card onverification ~~the~~procedures ~~transfer~~and oflimiting ~~personal~~the ~~data~~acceptance ~~out~~ of ~~the~~credit ~~European~~cards ~~Union~~from tocertain ~~the~~newly ~~United~~acquired ~~States~~customers. However, ~~enhances~~a ~~enforcement~~failure ~~authority~~to ~~and~~adequately ~~imposes~~prevent ~~large~~fraudulent ~~penalties~~credit ~~for~~card ~~noncompliance,~~transactions ~~including~~could ~~the~~adversely ~~potential~~affect ~~for~~our ~~fines~~consolidated offinancial upposition toand ~~€20~~results ~~million or 4%~~ of ~~the annual global revenues of the infringer, whichever is greater~~operations.

We collect and store sensitive and confidential data, including the intellectual property, proprietary business information, proprietary business information of our customers, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks. Aspects of our operations and business are subject to privacy regulation in the United States, including the California Consumer Privacy Act (“CCPA”), California Privacy Rights Act (“CPRA”), and privacy regulations elsewhere around the globe, including the European Union’s General Data Protection Regulation (the “GDPR”). The CCPA, which came into effect beginning in January 2020, imposes notice and privacy policy requirements, and obligations to respond to requests to know and access to personal information, to delete personal information and to allow data subjects to opt out of the sale of their personal information. The CPRA was approved by voters in California in November 2020, and beginning in January 2023 impose additional data protection obligations on companies doing business in California, including creation of a data protection agency with the power to impose administrative fines, additional consumer rights processes and opt-outs for certain uses of sensitive data. Aspects of the CPRA and its interpretation and enforcement remain uncertain. Similar privacy laws have been and may in the future be enacted by other states. The potential effects of the CCPA, CRPA and other similar state laws, are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply with these regulations. There is also the potential for increased regulatory enforcement by the state agencies empowered to enforce these laws. In addition, the GDPR, which took effect in May 2018, imposes strict rules on the transfer of personal data out of the European Union to the United States, enhances enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater.

In addition, a growing number of legislative and regulatory bodies have adopted consumer notification and other requirements in the event that consumer information is accessed by unauthorized persons, and additional regulations regarding the use, access, accuracy, and security of such data are possible. In the U.S., state laws provide for disparate notification regimes. If our practices or products are deemed to be an invasion of privacy, whether or not consistent with current or future regulations and industry practices, we may be subject to public criticism, private class actions, reputational harm, or claims by regulators, which could disrupt our business and expose us to increased liability. Our failure to comply with these laws, or any future laws or regulations of a similar nature, could result in substantial regulatory penalties, litigation expense, and loss of revenue.

These laws and regulations as well as laws and regulations in the various states or in other countries could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional costs or restrictions on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our business. Any failure by us to comply with applicable laws or regulations could also result in significant liability to us, including liability to private plaintiffs as a result of individual or class action litigation, or may result in the cessation of our operations or portions of our operations or impositions of fines and restrictions on our ability to carry on or expand our operations. Our operations could also be negatively affected by changes to laws and regulations and enhanced regulatory oversight of our customers and us. These changes may limit the manner in which we conduct our business or otherwise may have a negative impact on our ability to generate revenues, earnings, and cash flows. If we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative impact on our customers, we may experience customer losses or increased operating costs, and our business and results of operations could be negatively affected.

Risks Related to Laws and Regulations

Changes in laws affecting the import and export of damaged and total loss vehicles may have an adverse effect on our business and financial condition.

Our Internet-based auction services have allowed us to offer our products and services to international markets and have increased our international buyer base. As a result, foreign buyers of damaged and total loss vehicles now represent a significant part of our total buyer base. Changes in laws, regulations and treaties that restrict the importation of damaged and total loss vehicles into foreign countries may reduce the demand for damaged and total loss vehicles and impact our ability to maintain or increase our international buyer base. The adoption of such laws or regulations in other jurisdictions that have the effect of reducing or curtailing our activities abroad could have a material adverse effect on our results of operations and financial condition by reducing the demand for our products and services.

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We are subject to certain governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions.

Changes in law or governmental regulations or interpretations of existing law or regulations could result in increased costs, reduced vehicle prices and decreased profitability for us. In addition, failure to comply with present or future laws and regulations or changes in existing laws or regulations or in their interpretation could have a material adverse effect on our operating results and financial condition.

We are also subject from time to time to a variety of legal actions relating to our current and past business operations, including litigation relating to employment-related issues, the environment and personal injury claims. There is no guarantee that we will be successful in defending ourselves in legal and administrative actions or in asserting our rights under various laws. In addition, we could incur substantial costs in defending ourselves or in asserting our rights in such actions. The costs and other effects of pending litigation and administrative actions against us cannot be determined with certainty. Although we currently believe that no such proceedings will have a material adverse effect, there can be no assurance that the outcome of such proceedings will be as expected.

Environmental, health and safety risks could adversely affect our operating results and financial condition.

19Some of the facilities on which we operate are impacted by significant recognized environmental concerns and pollution conditions. We have incurred and may in the future incur expenditures relating to compliance and risk mitigation efforts, releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, could be significant. Federal and state environmental authorities are currently investigating our role in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington and our subsidiary’s role in contributing to the Pyrite Canyon Plume in Jurupa Valley, California. Our potential liability at these sites cannot be estimated at this time. See “Business-Legal Proceedings.”

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Some of the facilities on which we operate are impacted by significant recognized environmental concerns and pollution conditions. We have incurred and may in the future incur expenditures relating to compliance and risk mitigation efforts, releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, could be significant. Federal and state environmental authorities are currently investigating our role in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington and our subsidiary's role in contributing to the Pyrite Canyon Plume in Jurupa Valley, California. Our potential liability at these sites cannot be estimated at this time. See "Business-Legal Proceedings."

Risks Related to International Operations

Our expansion into markets outside the U.S. and our non-U.S. based operations subject us to unique operational, competitive and regulatory risks.

Acquisitions and other strategies to expand our operations beyond North America subject us to additional significant risks and uncertainties. As we continue to explore opportunities to expand our business internationally, we will need to develop policies and procedures to manage our business on a global scale. There can be no assurance that we will identify appropriate international targets, acquire such businesses on favorable terms, or be able to successfully grow and integrate such organizations into our business. Operationally, acquired businesses typically depend on key relationships and our failure to develop or maintain those relationships could have an adverse effect on our operating results and financial condition.

In addition, we anticipate that our non-U.S.-based operations will continue to subject us to risks associated with operating on an international basis, including:

•exposure to foreign currency exchange rate risk, which may have an adverse impact on our revenues and profitability;

•exposure to the principal or purchase auction model rather than the agency or consignment model, which ~~may~~adversely ~~have~~impacts ~~an adverse impact on~~ our margins and ~~expose~~exposes us to inventory risks;

•restrictions on our ability to repatriate funds, as well as repatriation of funds currently held in foreign jurisdictions, which may result in higher effective tax rates;

•tariffs and trade barriers and other regulatory or contractual limitations on our ability to operate in certain foreign markets;

•compliance with the Foreign Corrupt Practices Act;

•compliance with the various privacy regulations, including the GDPR;

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•dealing with unfamiliar regulatory agencies and laws favoring local competitors;

•dealing with political and/or economic instability as well as armed conflict;

•the difficulty of managing and staffing foreign offices, as well as the increased travel, infrastructure, legal and compliance costs associated with international operations;

•localizing our product offerings; and

•adapting to different business cultures and market structures.

As we continue to explore opportunities to expand globally, our success will depend on our ability to anticipate and effectively manage these and other risks associated with operating on an international basis. Our failure to manage these risks could have an adverse effect on our operating results and financial condition.

A portion of our net income is derived from our international operations, primarily Canada and the United Kingdom, which exposes us to foreign exchange risks that may impact our financial statements. In addition, increases in the value of the U.S. dollar relative to certain foreign currencies may negatively impact foreign buyer participation in our marketplaces.

Fluctuations between U.S. and foreign currency values may adversely affect our results of operations and financial position. In addition, there may be tax inefficiencies in repatriating cash from our foreign subsidiaries. Approximately 1519% of our revenues were attributable to our foreign operations for the fiscal year ended January 21, ~~2022~~2023. Changes in the value of foreign currencies, particularly Canadian dollar and pound sterling relative to the U.S. dollar, could negatively affect our profits from foreign operations and the value of the net assets of our foreign operations when reported in U.S. dollars in our financial statements. The strength of the U.S. dollar compared to foreign currencies over the past year has adversely affected our profits and may continue to do so. A 10% change in the average Canadian and U.K. exchange rate for the twelve months ended January 21, ~~2022~~2023 would have impacted net income by approximately $10.85 million.

20In addition, fluctuations in exchange rates may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our foreign operations are translated using period-end exchange rates; such translation gains and losses are reported in “Accumulated other comprehensive income/loss” as a component of stockholders’ equity. The revenues and expenses of our foreign operations are translated using average exchange rates during each period.

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In addition, fluctuations in exchange rates may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our foreign operations are translated using period-end exchange rates; such translation gains and losses are reported in "Accumulated other comprehensive income/loss" as a component of stockholders’ equity. The revenues and expenses of our foreign operations are translated using average exchange rates during each period.

Likewise, we have a significant number of non-U.S.-based buyers who participate in our marketplaces. Increases in the value of the U.S. dollar relative to these buyers’ local currencies may reduce the prices they are willing to pay at auction, which may negatively affect our revenues.

Risks Related to Our Separation and Distribution

The separation and distribution agreement (the "“Separation Agreement"”) that we entered into with KAR limits our ability to compete in certain markets for a period of time following the Separation, and in certain instances, requires that we make revenue and profit sharing payments to KAR related to specific customer segments.

Prior to the Separation, we were a wholly-owned subsidiary of KAR. Accordingly, KAR possessed and exercised sole and absolute discretion to determine and change the terms of the Separation Agreement. The Separation Agreement contains a covenant not to compete, prohibiting us and our affiliates from engaging in certain non-salvage activities in competition with KAR’s business for a period of five years following the Separation in certain jurisdictions, subject to certain exceptions. We are expressly permitted to continue to conduct our salvage auction business as conducted immediately prior to the Separation. The exceptions also permit us 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. These restrictions may limit our ability to compete in certain markets and could materially and adversely affect our business, growth strategy, financial condition and results of operations.

Since the Separation, we also face competition from ADESA, Inc., a wholly-owned subsidiary of KAR ("“ADESA"”), for some of the services that we provide, and the Separation Agreement limits our ability to compete in certain markets for a period of time.

If the Separation and Distribution fail to qualify as a tax-free transaction for U.S. federal income tax purposes, then IAA, KAR and KAR’s stockholders could be subject to significant tax liability or tax indemnity obligations.

KAR received an IRS Ruling on certain issues relevant to the qualification of the Separation and Distribution as tax-free under Sections 368(a)(1)(D) and 355 of the Code, based on certain facts and representations. The IRS Ruling does not address all of the requirements for tax-free treatment of the Separation and Distribution.

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As a condition to the Distribution KAR received an opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, on the basis of certain facts, representations, covenants and assumptions set forth in such opinion, substantially to the effect that, for U.S. federal income tax purposes, the Separation and Distribution, taken together, qualifies as a transaction that generally is tax-free to KAR and KAR’s stockholders, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code. Notwithstanding the tax opinion, the IRS could determine on audit that the distribution should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations or covenants set forth in the tax opinion is not correct or has been violated, or that the Distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the Distribution, or if the IRS were to disagree with the conclusions of the tax opinion. If the Distribution is ultimately determined to be taxable, the Distribution could be treated as a taxable dividend to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liability. In addition, KAR and/or we could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or the tax matters agreement that we entered into with KAR, if it is ultimately determined that certain related transactions were undertaken in anticipation of the Distribution.

We may have received better terms from unaffiliated third parties than the terms we receive in our agreements with KAR.

The agreements we entered into with KAR in connection with the Separation and Distribution, including the Separation Agreement and the ancillary agreements, were prepared in the context of IAA’s separation from KAR while IAA was still a wholly-owned subsidiary of KAR. Accordingly, during the period in which the terms of those agreements were prepared, IAA did not have an independent board of directors or a management team that was independent of KAR and KAR possessed and exercised sole and absolute discretion in determining the terms of the agreements. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s length negotiations between unaffiliated third parties. We may have received better terms from third parties because, among other things, third parties may have competed with each other to win our business.

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We will be required to satisfy certain indemnification obligations to KAR or we may not be able to collect on indemnification rights from KAR.

Under the terms of the Separation and Distribution, we are required to indemnify KAR from and with respect to (i) all debts, liabilities and obligations allocated or transferred to us in connection with the Separation and Distribution (including our failure to pay, perform or otherwise promptly discharge any such debts, liabilities or obligations after the Separation and Distribution), (ii) any breach by us of the Separation Agreement or any of the ancillary agreements, and (iii) any misstatement or omission of a material fact in our Registration Statement on Form 10. We are not aware of any existing indemnification obligations at this time, but any such indemnification obligations that may arise could be significant. Under the terms of the Separation Agreement, KAR is required to indemnify us from and after the Separation and Distribution with respect to (i) all debts, liabilities and obligations allocated to KAR after the Separation and Distribution (including its failure to pay, perform or otherwise promptly discharge any such debts, liabilities or obligations after the separation and distribution) and (ii) any breach by KAR of the Separation Agreement or any of the ancillary agreements. Our and KAR’s ability to satisfy these indemnities, if called upon to do so, will depend respectively upon our and KAR’s future financial strength. If we are required to indemnify KAR, or if we are not able to collect on indemnification rights from KAR, our financial condition, liquidity or results of operations could be materially and adversely affected. We cannot determine whether we will have to indemnify KAR, or if KAR will have to indemnify us, for any substantial obligations after the Distribution.

Risks Related to Our Capital Structure and Organization

We have a substantial amount of debt, which could impair our financial condition and adversely affect our ability to react to changes in our business.

As of January 21, ~~2022~~2023, our total corporate debt was $1.31 billion. Our indebtedness could have important consequences including:

•limiting our ability to borrow additional amounts to fund working capital, capital expenditures, debt-service requirements, execution of our business strategy, acquisitions and other purposes;

•requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on debt, which would reduce the funds available for other purposes, including funding future expansion;

•making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our flexibility in planning for, and making it more difficult to react quickly to, changing conditions; and

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•exposing us to risks inherent in interest rate fluctuations because the majority of our indebtedness is at variable rates of interest, which could result in higher interest expenses in the event of increases in interest rates.

In addition, if we are unable to generate sufficient cash from operations to service our debt and meet other cash needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, particularly because of our high levels of debt and the restrictions imposed by the agreements governing our indebtedness. If we must sell certain of our assets, it may negatively affect our ability to generate revenue. The inability to obtain additional financing could have a material adverse effect on our financial condition.

If we cannot make scheduled payments on our debt, we would be in default and, as a result:

•our debt holders could declare all outstanding principal and interest to be due and payable;

•the lenders under our senior secured credit facilities could terminate their commitments to lend us money and foreclose against the assets securing their borrowings; and

•we could be forced into bankruptcy or liquidation.

Provisions in our amended and restated certificate of incorporation and by-laws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and by-laws contain, and Delaware law contains, provisions that may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our stock.

These provisions include:

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•rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

•permitting our Board to issue preferred stock without stockholder approval;

•granting to the Board, and not the stockholders, the sole power to set the number of directors;

•a provision that directors serving on a classified Board may be removed by stockholders only for cause;

•authorizing vacancies on our Board to be filled only by a vote of the majority of the directors then in office and specifically denying our stockholders the right to fill vacancies in the Board; and

•prohibiting stockholder action by written consent.

These provisions apply even if an offer may be considered beneficial by some stockholders. We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and the provisions could delay or prevent an acquisition that our Board determines is not in the best interests of us and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

We are not subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware (the "“DGCL"”). Section 203 of the DGCL provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock. Accordingly, we are not subject to any anti-takeover effects of Section 203.

Our amended and restated certificate of incorporation and by-laws contain exclusive forum provisions that could limit an IAA stockholder’s ability to choose a judicial forum that it finds favorable for certain disputes with IAA or its directors, officers, stockholders, employees or agents, and may discourage lawsuits with respect to such claims.

Our amended and restated certificate of incorporation ~~provides~~and bylaws provide that unless the Board otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of IAA, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of IAA to IAA or its stockholders, (iii) any action asserting a claim against IAA or any director, officer, stockholder, employee or agent of IAA arising out of or relating to any provision of the DGCL or IAA’s amended and restated certificate of incorporation or by-laws, or (iv) any action asserting a claim against IAA or any director, officer, stockholder, employee or agent of IAA governed by the internal affairs doctrine, in all cases subject to the court having subject matter jurisdiction and personal jurisdiction over an indispensable party named as a defendant (the “Delaware Exclusive Forum Provision”). The ~~exclusive~~Delaware ~~forum~~Exclusive ~~provision~~Forum Provision does not apply to any actions arising under the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for which the U.S. federal courts have exclusive jurisdiction. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for such disputes and may discourage these types of lawsuits. Alternatively, if a court were to find the exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.

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Securities Exchange Act of 1934, as amended (the “Exchange Act”), for which the U.S. federal courts have exclusive jurisdiction, except that if the Delaware Court of Chancery lacks subject matter jurisdiction over any such actions, the Delaware Exclusive Forum Provision would require, subject to the terms thereof, that the federal courts in the State of Delaware have exclusive jurisdiction over such action. In addition, our bylaws further provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action under the Securities Act (the “Federal Forum Provision”). The Federal Forum Provision is intended to apply to claims arising under the Securities Act and would not apply to claims brought pursuant to the Exchange Act.

These exclusive forum provisions will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder and, accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal courts. The exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for such disputes and may discourage these types of lawsuits. Alternatively, if a court were to find the exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.

Item 1b. Unresolved Staff Comments

None.

Item 2. Properties

IAA is headquartered in Westchester, Illinois, with office space being leased through 2027. We own and lease various properties in the United States, Canada and the United Kingdom. These properties are used primarily for auction and storage purposes. As of January 21, ~~2022~~2023, our owned and leased properties used for auction and storage purposes provided us with an aggregate footprint of approximately 9,~~000~~500 acres in the United States and approximately ~~550~~650 acres in Canada and the United Kingdom. Approximately 90% of our total acres in the United States, Canada and the United Kingdom are leased.

We regularly evaluate our capacity in all our markets and where appropriate, seek to increase capacity through the acquisition of additional land and facilities. Capacity at our facilities varies from period to period and by region as a result of various factors, including natural disasters.

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Item 3. Legal Proceedings

See Note 14 - Commitments and Contingencies in the notes to consolidated financial statements for information regarding legal proceedings, which information is incorporated by reference in this Item 3.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders of Record

IAA common stock is traded on the New York Stock Exchange ("“NYSE"”) under the symbol "“IAA"” and has been traded on the NYSE since June 28, 2019. As of February 16, ~~2022~~2023, we had three stockholders of record. Because many shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by the holders of record.

Dividends

Following our Separation from KAR, we have not paid cash dividends on our common stock and have no plan to do so in the foreseeable future. The payment of any dividends in the future, and the timing and amount, thereof, will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors, including our financial condition and prospects, capital requirements and access to capital markets, covenants associated with certain of our debt ~~obligations, general business conditions, and other factors that our Board of Directors may deem relevant.~~

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obligations, general business conditions, and other factors that our Board of Directors may deem relevant. In addition, pursuant to the Merger Agreement, we are restricted from paying dividends on our common stock without RBA’s prior consent.

Issuer Purchases of Equity Securities

~~The~~On ~~following~~August ~~table~~2, ~~presents~~2021, the Company’s Board of Directors authorized a ~~summary~~share repurchase program under which the Company can repurchase up to $400.0 million of shares of its common stock ~~repurchases~~(the ~~made~~“Repurchase Program”). The Repurchase Program expires on August 3, 2026. Pursuant to the Repurchase Program, shares are permitted to be repurchased through open market, privately negotiated transactions, accelerated share repurchase transactions or other means, including under plans complying with the provisions of Rule 10b5-1 of the Securities Exchange Act of 1934. We did not repurchase any shares of our common stock during the three months ended January 2 1, ~~2022:~~2023. Pursuant to the Merger Agreement, we are restricted from repurchasing shares of our common stock without RBA’s prior consent.

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares as Part of Publicly Announced Program (1)	Maximum Approximate Dollar Value of Shares that May Yet BePurchased Under the Program (1)
September 27 - October 31, 2021	—	$	—	—	$	400,000,000
November 1 - November 28, 2021	235,000	52.43		235,000	387,678,950
November 29 - January 2, 2022	442,854	49.00		442,854	365,979,104
Total	677,854			677,854

(1) On August 2, 2021, the Company’s Board of Directors authorized a share repurchase program under which the Company can repurchase up to $400.0 million of shares of its common stock (the "Repurchase Program"). The Repurchase Program expires on August 3, 2026. The shares under the Repurchase Program may be repurchased through open market, privately negotiated transactions, accelerated share repurchase transactions or other means, including under plans complying with the provisions of Rule 10b5-1 of the Securities Exchange Act of 1934.

Stock Price Performance Graph

The graph below shows the cumulative total return of IAA’s common stock, the Standard & Poor'’s 400 Midcap Index and the Nasdaq Industrial Index for the period beginning on June 28, 2019, the Separation Date, and ending on January 21, ~~2022~~2023. Total cumulative return is based on a $100 investment in IAA’s common stock and each of the listed indices on June 28, 2019 and assumes the reinvestment of dividends. No dividends have been declared on our common stock. Stockholder returns shown in the following graph are not indicative of future stock price performance.


Company/Index	6/28/2019		12/29/2019		12/27/2020		1/2/2022		1/1/2023
IAA, Inc.	$	100.00	$	119.60	$	167.46	$	130.53	$	103.15
S&P 400 Midcap Index	$	100.00	$	106.03	$	119.01	$	146.48	$	124.92
NASDAQ Industrial Index	$	100.00	$	104.37	$	155.56	$	172.47	$	112.02

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the following graph are not indicative of future stock price performance.

Company/Index	6/28/2019		12/29/2019		12/27/2020		1/2/2022
IAA, Inc.	$	100.00	$	119.60	$	167.46	$	130.53
S&P 400 Midcap Index	$	100.00	$	106.03	$	119.01	$	146.48
NASDAQ Industrial Index	$	100.00	$	104.37	$	155.56	$	172.47

The stock performance graph above shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Exchange Act or Securities Act.

Item 6. [Reserved]

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K, as well as the “Statement Regarding Forward-Looking Statements” preceding Part I.

Our fiscal year consists of 52 weeks with every fifth year consisting of 53 weeks and ending either the last Sunday in December or the first Sunday in January. As used in this section, references to the:

–“fiscal year ended January 1, 2023” or “fiscal 2022” refer to the 52-week period that began on January 3, 2022 and ended on January 1, 2023.

–“fiscal year ended January 2, 2022” or “fiscal 2021” refer to the 53-week period that began on December 28, 2020 and ended on January 2, 2022.

–“fiscal year ended December 27, 2020” or “fiscal 2020” refer to the 52-week period that began on December 30, 2019 and ended on December 27, 2020.

–“fiscal year ended December 29, 2019” or “fiscal 2019” refer to the 52-week period that began on December 31, 2018 and ended on December 29, 2019.

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Overview

The Separation

On February 27, 2018, 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”). Following the Separation and Distribution, IAA became an independent publicly-traded company.

Proposed Merger

Merger Agreement

On November 7, 2022, we entered into the Original Merger Agreement, and on January 22, 2023, we entered into the Merger Agreement Amendment with RBA, US Holdings, Merger Sub 1, and Merger Sub 2, providing for RBA’s acquisition of the Company in a stock and cash transaction. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the closing of the transactions (i) Merger Sub 1 will be merged with and into us (the “First Merger”), with the Company surviving as an indirect wholly owned subsidiary of RBA and a direct wholly owned subsidiary of US Holdings (the “Surviving Corporation”), and (ii) immediately following the consummation of the First Merger, the Surviving Corporation will be merged with and into Merger Sub 2 (together with the First Merger, the “Mergers”), with Merger Sub 2 surviving as a direct wholly owned subsidiary of US Holdings.

At the effective time of the First Merger (the “Effective Time”), each issued and outstanding share of common stock of the Company (other than certain customary excluded shares) as of immediately prior to the Effective Time will be converted automatically into the right to receive (A) 0.5252 of an RBA Common Share and (B) $12.80 in cash, without interest and less any applicable withholding taxes (together, the “Merger Consideration”). Our stockholders will receive cash in lieu of any fractional RBA Common Shares to which they would otherwise be entitled.

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Cooperation Agreement

Also on January 22, 2023, we entered into a cooperation agreement (the “Cooperation Agreement”) with Ancora Group Holdings, LLC and/or its affiliates (“Ancora”) regarding the Mergers, the membership and composition of our Board of Directors in certain circumstances and related matters, as well as Ancora’s commitment to appear and vote its shares, representing approximately 4% of our voting power as of the date of the Cooperation Agreement, in favor of the Mergers and related proposals at the IAA Special Meeting to consider and vote on the adoption of the Merger Agreement and approval of the transactions contemplated thereby and certain other matters. See Item 1. Business – Recent Highlights and Developments – Proposed Mergers for additional information.

Approvals

On December 20, 2022, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired and RBA received a no-action letter from the Canadian Commissioner of Competition with respect to the Mergers. The parties have received all necessary antitrust clearance required by the Merger Agreement. The IAA Special Meeting is scheduled for March 14, 2023 and the RBA Special Meeting is also scheduled for March 14, 2023. If these matters are approved by our stockholders and RBA shareholders at the IAA Special Meeting and the RBA Special Meeting, respectively, we expect to close the Mergers in the first half of 2023, subject to the satisfaction or waiver of additional conditions to closing set forth in the Merger Agreement. We currently operate, and until completion of the Mergers will continue to operate, independently of RBA. See Note 1 – Basis of Presentation in the notes to consolidated financial statements for additional information regarding the proposed Merger.

Industry Trends

Vehicles deemed a total loss by automobile insurance companies represent the largest category of vehicles sold in the salvage vehicle auction industry. Based on data from CCC Information Services, the percentage of claims resulting in total losses was approximately 2018% in ~~2021~~2022, 2120% in ~~2020~~2021 and 1921% in ~~2019~~2020. There is no central reporting system for the salvage vehicle auction industry that tracks the number of salvage vehicle auction volumes in any given year, which makes estimating industry volumes difficult.

Fluctuations in used vehicle and commodity pricing (aluminum, steel, etc.) have an impact on proceeds received in the salvage vehicle auction industry. In times of rising prices, we experience higher revenue per unit in our auctions, which positively impacts revenue and gross profit. If used vehicle and commodity prices decrease, proceeds, revenue and gross profit at salvage auctions may be negatively impacted, which could adversely affect our level of profitability. The price per ton of crushed auto bodies in North America ~~increased~~decreased approximately 6015% in ~~2021~~2022 as compared to ~~2020~~2021 and increased approximately 1560% in ~~2020~~2021 as compared to ~~2019~~2020.

See Part I, Item 1, Business - Our Industry and Trends in Market Demand for additional information.

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. Buyer revenue represents fees charged based on a tiered structure that increases with the sales price of the vehicle as well as fees for additional services such as storage, transportation, and vehicle condition reporting. Approximately one-third of our revenue is ~~earned~~associated ~~from~~with vehicles supplied by sellers. Seller revenue represents the ~~combination~~revenue ofcollected ~~the~~for ~~inbound tow, processing, storage, titling, enhancing and~~ auctioning of the vehicle~~. In exchange for agreed-upon processing and service fees~~, wecombination ~~sell total loss, damaged and low-value vehicles on behalf~~ of ~~vehicle~~the ~~sellers~~inbound ~~primarily~~tow, ~~on a consignment basis~~processing, meaning that our sellers continue to own their vehicles until they are sold to buyers through one of our digital marketplaces. We recognize revenues from consigned vehicles on a net basis as we have no influence on the vehicle auction selling price agreed by the seller and the buyer at the auction. Howeverstorage, ~~our~~titling ~~related receivables~~ and ~~payables~~enhancing ~~include the gross value~~ of the ~~vehicles sold~~vehicle. We also purchase vehicles in certain situations and resell them. We recognize revenues from purchased vehicles on a gross basis, which results in lower gross margin versus vehicles sold at auction on a consignment basis.

~~Our~~In ~~operating~~exchange ~~expenses~~for ~~consist~~agreed-upon ofprocessing ~~cost~~and ofservice ~~services~~fees, ~~cost~~we sell total loss, damaged and low-value vehicles on behalf of vehicle ~~sales,~~sellers ~~selling~~primarily on a consignment basis, ~~general~~meaning ~~and~~that ~~administrative~~our ~~and~~sellers ~~depreciation~~continue ~~and~~to ~~amortization.~~own ~~Cost~~their ofvehicles ~~services~~until isthey ~~comprised~~are ofsold ~~payroll~~to ~~and~~buyers ~~related~~through ~~costs,~~one ~~subcontract~~of ~~services,~~our ~~supplies,~~digital ~~insurance,~~marketplaces. ~~property~~We ~~taxes,~~recognize ~~utilities,~~revenues ~~service~~from ~~contract~~consigned ~~claims,~~vehicles ~~maintenance~~on ~~and~~a ~~lease~~net ~~expense~~basis ~~related~~as towe have no influence on the vehicle auction ~~sites~~selling price agreed by the seller and the buyer at the auction. ~~Cost~~However, ofour ~~vehicle~~related ~~sales~~receivables ~~represents~~and payables include the ~~cost~~gross value of ~~purchased~~the vehicles sold. ~~Cost~~We ofalso ~~services~~purchase vehicles in certain situations and ~~vehicle~~resell ~~sales~~them ~~excludes~~or, ~~depreciation~~in ~~and~~our ~~amortization.~~International ~~Selling~~segment, ~~general~~dismantle them and ~~administrative~~sell ~~expenses~~the ~~are~~vehicle ~~comprised~~parts ofand ~~payroll~~scrap. ~~and~~We ~~related~~recognize ~~costs,~~revenues ~~sales~~from ~~and~~purchased ~~marketing~~vehicles on a gross basis, ~~information~~which ~~technology~~results ~~services~~in ~~and~~lower ~~professional~~gross ~~fees~~margin versus vehicles sold at auction on a consignment basis.

26Our operating expenses consist of cost of services, cost of vehicle and parts sales, selling, general and administrative and depreciation and amortization. Cost of services is comprised of payroll and related costs, subcontract services, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites. Cost of vehicle and parts sales represents the cost of purchased vehicles. Cost of services and vehicle sales excludes depreciation and amortization. Selling, general and administrative expenses are comprised of payroll and related costs, sales and marketing, information technology services and professional fees.

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~~COVID-19~~Market ~~Impact~~Trends onand ~~our Business~~ Uncertainties

The ~~COVID-19~~global ~~pandemic~~economy has ~~severely~~recently ~~impacted,~~experienced ~~and~~extreme ~~continues~~volatility toand ~~impact~~disruptions, ~~worldwide~~inflationary ~~economic~~conditions, ~~activities.~~including ~~Following~~increases ~~stay-at-home~~in ~~orders~~fuel ~~and~~prices, ~~other~~disruptions ~~mandates~~in ~~implemented~~the byglobal ~~federal,~~supply ~~state~~chain and ~~local~~uncertainty ~~governments~~about ineconomic ~~mid-March~~stability. ~~2020,~~The ~~miles~~higher ~~driven~~production ~~declined~~costs ~~significantly~~ and ~~reduced~~supply ~~the~~chain ~~supply~~disruptions ofrelated ~~salvage~~to ~~vehicle~~new ~~assignments.~~vehicles ~~This~~continue ~~decline~~to inkeep ~~volume~~new ~~significantly~~vehicle ~~impacted~~prices ~~our~~elevated ~~business~~resulting in ~~fiscal~~an ~~2020~~increase ~~and,~~in toused acar ~~lesser~~prices. ~~extent,~~This increase in ~~fiscal~~used ~~2021.~~car ~~Even~~prices ~~with~~has ~~improvement~~contributed into ~~miles~~our ~~driven~~higher average selling prices and ~~vehicle~~revenue ~~assignments~~per ~~beginning~~unit, inwhich ~~the~~have ~~second~~been ~~half~~offset ofslightly ~~2020~~by ~~and~~higher ~~continuing~~purchased ~~through~~vehicle ~~fiscal~~costs. ~~2021,~~As ~~miles~~a ~~driven~~result ~~remain~~of ~~slightly~~macroeconomic ~~lower~~conditions, ~~than~~we ~~pre-COVID~~are ~~levels.~~continuing Into ~~addition,~~experience labor, towing and other transportation ~~shortages~~pressures, which have increased our associated costs and weadversely ~~expect~~impacted ~~they~~our ~~will~~gross ~~continue~~margin. toIn doaddition, sorising atinterest ~~least~~rates inare ~~the~~increasing ~~near~~our ~~term~~interest expense related to our variable debt obligations. We believe ~~COVID-19~~the foregoing direct and ~~the~~indirect ~~efforts~~impacts ~~taken~~of tothe ~~reduce~~current ~~its~~macroeconomic ~~spread~~environment ~~may~~will continue to ~~have a negative~~ impact on our business in fiscal ~~2022~~2023.

~~The~~Recent extent to which the COVID-19 pandemic continues to impact our business and results of operations will depend on future developments that are highly uncertain and cannot be predicted, including the duration and severity of the virus and the actions taken to contain its impact and spread; resurgences of COVID-19 or variants thereof that may continue to occur; other actions taken by governments, businesses, and individuals in response to the virus and any resulting economic disruption; and how quickly and to what extent normal economic and operating conditions resume.Acquisitions

~~Factors~~On ~~Affecting~~October ~~Comparability~~26, 2021, we acquired SYNETIQ, a leading integrated salvage and vehicle dismantling company in the United Kingdom. The cash purchase price for SYNETIQ, including working capital and other adjustments, was $314.2 million (£228.2 million), of ~~Financial~~which ~~Results~~$260.2 million (£189.0 million) was paid out in the fourth quarter of fiscal 2021. The remaining payment of $54.0 million (£39.2 million) was paid out in the first quarter of fiscal 2022 upon receiving required approvals from the U.K. Competition and Markets Authority (“CMA”). The results of operations of SYNETIQ are included in our International segment from the date of the acquisition.

~~COVID-19:~~On June 18, 2021, we acquired Marisat, Inc. d/b/a Auto Exchange (“Auto Exchange”), a salvage auction provider located in New Jersey. The results of operations of Auto Exchange are included in our United States segment from the date of the acquisition.

The COVID-19 pandemic and the efforts taken to reduce its spread adversely affected our operations in fiscal 2021 and fiscal 2020. See above under "COVID-19 Impact on our Business" for additional information.

Acquisitions:

On October 26, 2021, we acquired SYNETIQ, a leading integrated salvage and vehicle dismantling company in the United Kingdom. The cash purchase price for SYNETIQ, including working capital and other adjustments, was $314.2 million (£228.2 million), of which $260.2 million (£189.0 million) was paid out in the fourth quarter of fiscal 2021. The remaining payment of $54.0 million (£39.2 million) is contingent upon receipt of required approvals from the CMA and is held in an escrow account, and presented as Restricted cash on the Consolidated Balance Sheets. This transaction is currently undergoing review by the U.K. Competition and Markets Authority. The results of operations of SYNETIQ are included in our International segment from the date of acquisition.

On June 18, 2021, we acquired Marisat, Inc. d/b/a Auto Exchange ("Auto Exchange"), a salvage auction provider located in New Jersey, for $7.3 million. The results of operations of Auto Exchange are included in our United States segment from the date of the acquisition.

See Note 4 – Acquisitions in the notes to consolidated financial statements for additional information on these acquisitions.

~~Debt~~Share ~~financing:~~Repurchase Program

On ~~April~~August 302, 2021, weour ~~executed~~Board of Directors authorized a ~~new~~share ~~senior~~repurchase ~~secured~~program ~~credit~~under ~~facility,~~which ~~consisting~~we ofcan arepurchase up to $~~650~~400.0 million ~~term~~(exclusive ~~loan~~of fees and acommissions) ~~$525~~of ~~million~~shares ~~revolving~~of ~~credit~~our ~~facility,~~common ~~both~~stock ~~maturing~~(the “Repurchase Program”). The Repurchase Program expires on ~~April~~August 303, 2026. ~~This~~During ~~replaced~~fiscal ~~the~~2022, ~~company’s~~we ~~prior~~repurchased 751,285 shares of our common stock for an aggregate gross purchase price of approximately $~~774~~27.2 million ~~term~~pursuant ~~loan~~to ~~and~~the Repurchase Program. As of January 1, 2023, approximately $~~361~~338.8 million ~~revolving~~remained ~~credit~~available ~~facility,~~under ~~and~~the ~~resulted~~Repurchase inProgram. aSee ~~reduction~~Note 5 - Net Income Per Share in the ~~interest~~notes ~~rate~~to consolidated financial statements for additional information on the Repurchase Program. Pursuant to the Merger Agreement, we are restricted from repurchasing shares of our ~~floating~~common ~~rate~~stock ~~debt~~without RBA’s prior consent.

Results of Operations

Fiscal ~~2021~~2022 Compared to Fiscal ~~2020~~2021

Our fiscal 2022 contained 52 weeks and fiscal 2021 contained 53 weeks. The table below presents consolidated statements of income for the periods indicated and the dollar change and percentage change between periods.

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	Fiscal Years Ended				Change
(Dollars in millions except per share amounts)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		$		%
Revenues:
Service revenues	$	1,~~537~~686.74	$	1,~~233~~537.17	$	~~304~~148.67	249.7	%
Vehicle sales	299.7		151.8		147.9		97.4	%
Vehicle and parts sales	412.5		299.7		112.8		37.6	%
Total revenues	12,~~837~~098.49		1,~~384~~837.94		~~452~~261.5		3214.72	%
Cost of services and vehicle sales:
Cost of services	~~851~~996.5		~~721~~851.75		~~129~~145.80		1817.0	%
Cost of vehicle sales	261.2		125.2		136.0		108.6	%
Cost of vehicle and parts sales	367.7		261.2		106.5		40.8	%
Total cost of services and vehicle sales	1,112.7		846.9		265.8		31.4	%
Selling, general and administrative	212.1		192.3		19.8		10.3	%
Gross profit	724.7		538.0		186.7		34.7	%
Depreciation and amortization	105.6		86.5		19.1		22.1	%
Selling, general and administrative	192.3		144.9		47.4		32.7	%
Operating profit	417.0		445.9		(28.9)		(6.5)	%
Depreciation and amortization	86.5		81.1		5.4		6.7	%
Interest expense	51.0		57.7		(6.7)		(11.6)	%
Operating profit	445.9		312.0		133.9		42.9	%
Other expense, net	4.6		0.2		4.4		NM*
Interest expense	57.7		56.0		1.7		3.0	%
Income before income taxes	361.4		388.0		(26.6)		(6.9)	%
Other expense (income), net	0.2		(1.0)		1.2		NM*
Income taxes	69.0		93.6		(24.6)		(26.3)	%
Income before income taxes	388.0		257.0		131.0		51.0	%
Net income	$	292.4	$	294.4	$	(2.0)	(0.7)	%
Income taxes	93.6		62.2		31.4		50.5	%
Net income	$	294.4	$	194.8	$	99.6	51.1	%
Net income per share
Basic	$	2.18	$	12.4518	$	~~0.73~~—	~~50.3~~—	%
Diluted	$	2.18	$	12.4418	$	~~0.74~~—	~~51.4~~—	%

* NM - Not meaningful

Service Revenues

	Fiscal Years Ended				Change
(Dollars in millions)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		$		%
United States	$	1,~~429~~539.27	$	1,~~134~~429.42	$	~~294~~110.85	267.07	%
International	~~108~~146.57		98108.75		938.82		935.92	%
Total service revenues	$	1,~~537~~686.74	$	1,~~233~~537.17	$	~~304~~148.67	249.7	%

United States service revenues increased $~~294~~110.85 million due to an increase in revenue per unit of 1812%, which primarily resulted from higher average selling prices due to increased buyer participation, enhanced product and service offerings, and higher used car prices. InThis ~~addition,~~increase ~~United~~was ~~States~~partially ~~service~~offset ~~revenues~~by ~~also benefited from~~ a ~~higher~~lower volume of vehicles sold, which ~~increased~~decreased by 84% primarily ~~resulting~~due ~~from~~to ~~higher~~the ~~miles~~previously ~~driven~~disclosed ~~and~~loss aof ~~higher~~significant ~~supply~~volume offrom a single vehicle ~~assignments~~supplier, ~~due~~partially tooffset by volume gains from other vehicle suppliers, and the ~~reopening~~impact of the ~~United~~53rd ~~States~~week ~~economy~~in fiscal 2021.

International service revenues increased by $938.82 million mainly due to anincremental ~~increase in~~ revenue ~~per unit~~ of ~~32%,~~$20.7 ~~which~~million ~~primarily resulted~~ from ~~higher~~SYNETIQ ~~average~~through ~~selling~~its ~~prices~~first ~~due~~year toanniversary ~~increased~~on ~~buyer~~October ~~participation~~26, ~~enhanced product and service offerings~~2022, ~~and~~a higher ~~used car prices. This increase was partially offset by a lower~~ volume of vehicles sold, which ~~decreased~~increased by 9approximately 10% asprimarily ~~the~~due ~~International segment continues~~ to bean ~~impacted~~increase byin ~~the~~miles ~~COVID-19 pandemic~~driven.

Vehicle and Parts Sales

	Fiscal Years Ended				Change
(Dollars in millions)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		$		%
United States	$	~~134~~161.1	$	80134.71	$	5327.40	6620.21	%
International	~~165~~251.64		71165.16		9485.58		~~132~~51.98	%
Total vehicle sales	$	299.7	$	151.8	$	147.9	97.4	%
Total vehicle and parts sales	$	412.5	$	299.7	$	112.8	37.6	%

28United States vehicle sales increased $27.0 million due to an increase in revenue per unit sold of 12%, which primarily resulted from higher average selling prices due to increased buyer participation, enhanced product and service offerings and higher used car prices, as well as a higher volume of vehicles sold, which increased by 7% mainly due to an increase in vehicle purchases.

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~~United~~International ~~States~~ vehicle and parts sales increased $5385.48 million primarily due to aincremental ~~higher~~revenue ~~volume~~ of ~~vehicles~~$113.6 ~~sold,~~million ~~which~~from ~~increased~~SYNETIQ bythrough ~~40%,~~its ~~primarily~~first ~~resulting~~year ~~from~~anniversary anon ~~increase~~October in26, ~~vehicle~~2022, ~~purchases.~~partially Inoffset ~~addition,~~by ~~United~~lower ~~States~~volume ~~vehicle~~of ~~sales~~vehicles ~~also~~sold ~~benefited~~of ~~from~~approximately an8% ~~increase~~and inlower revenue per unit sold of 1910%~~, which primarily resulted from higher average selling prices due to increased buyer participation, enhanced product and service offerings, and higher used car prices~~.

International vehicle sales increased $94.5 million due to incremental revenue of $31.4 million from the SYNETIQ acquisition, a higher volume of vehicles sold, which increased by 35% primarily due to the impact of a provider switching from a consignment model to a purchased vehicle model, and an increase in revenue per unit sold of 40%, which primarily resulted from higher average selling prices due to increased buyer participation, enhanced product and service offerings, and higher used car prices.

Cost of Services

	Fiscal Years Ended				Change
(Dollars in millions)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		$		%
United States	$	~~776~~874.38	$	~~659~~776.83	$	~~116~~98.5	1712.7	%
International	75121.27		6175.92		1346.35		2161.58	%
Total cost of services	$	~~851~~996.5	$	~~721~~851.75	$	~~129~~145.80	1817.0	%

~~United~~As ~~States~~a ~~cost~~result of ~~services~~current ~~increased~~macroeconomic ~~$116.5~~conditions, ~~million~~we ~~primarily~~are ~~due~~continuing to aexperience ~~higher~~labor, ~~volume~~towing ~~of vehicles sold~~ and ~~higher~~other ~~costs~~transportation ~~relating to towing~~pressures, ~~wages,~~which ~~incentive~~have ~~compensation,~~increased ~~vehicle~~our ~~processing~~associated ~~and occupancy, including~~ costs ~~associated~~in ~~with~~both ~~responding to catastrophic events~~segments. ~~These~~See ~~increases~~“Overview—Market ~~were~~Trends ~~partially~~and ~~offset~~Uncertainties” byfor ~~cost~~additional ~~savings from adopting a fully-digital auction model~~information.

~~International~~United States cost of services increased $1398.35 million primarily due to ~~incremental~~higher costs ofrelating ~~$8.7~~to ~~million~~towing, ~~from~~occupancy, ~~the~~wages ~~SYNETIQ~~and ~~acquisition~~vehicle ~~and~~processing, ~~higher~~including ~~towing~~costs ~~and~~associated ~~occupancy~~with ~~costs,~~responding to catastrophic events. These increases were partially offset by a lower volume of vehicles sold and the impact of the 53rd week in fiscal 2021.

	Fiscal Years Ended				Change
(Dollars in millions)	January 2, 2022		December 27, 2020		$		%
United States	$	118.1	$	64.6	$	53.5	82.8	%
International	143.1		60.6		82.5		136.1	%
Total cost of vehicle sales	$	261.2	$	125.2	$	136.0	108.6	%

International cost of services increased $46.5 million primarily due to incremental costs from SYNETIQ through its first year anniversary on October 26, 2022, a higher volume of vehicles sold and higher costs relating to towing, occupancy and wages.

Cost of Vehicles and Parts Sales

United States cost of vehicle sales increased $53.5 million primarily due to a higher volume of vehicles sold and higher average purchase prices due to the mix of vehicles sold.


	Fiscal Years Ended				Change
(Dollars in millions)	January 1, 2023		January 2, 2022		$		%
United States	$	151.9	$	118.1	$	33.8	28.6	%
International	215.8		143.1		72.7		50.8	%
Total cost of vehicle and parts sales	$	367.7	$	261.2	$	106.5	40.8	%

~~International~~United States cost of vehicle sales increased $8233.58 million primarily due to ~~the impact of an international provider switching from~~ a ~~consignment~~higher ~~model~~volume toof avehicles ~~purchased~~sold ~~vehicle~~and ~~model,~~ higher average purchase prices ~~and incremental costs of $24~~.~~4 million from the SYNETIQ acquisition.~~

International cost of vehicle and parts sales increased $72.7 million primarily due to incremental costs from SYNETIQ through its first year anniversary on October 26, 2022 and higher average purchase prices, partially offset by a lower volume of vehicles sold.

Selling, General and Administrative

	Fiscal Years Ended				Change
(Dollars in millions)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		$		%
United States	$	~~178~~189.64	$	~~135~~178.06	$	4310.68	326.30	%
International	1322.7		913.97		39.80		3865.47	%
Total selling, general and administrative expenses	$	~~192~~212.31	$	~~144~~192.93	$	4719.48	3210.73	%

United States selling, general and administrative expenses increased $4310.68 million primarily due to higher ~~employee~~ costs relating to ~~incentive-based compensation and~~ headcount, ~~higher~~professional ~~costs~~services ~~relating~~associated towith ~~professional~~the ~~services~~proposed Mergers, and information technology and ~~severance, and~~ a $25.70 million ~~non-income,~~fair ~~tax~~value ~~related~~adjustment ~~accrual,~~relating to contingent consideration. These increases were partially offset by lower incentive compensation and a $3.2.7 million ~~decrease~~non-income, intax ~~bad~~related ~~debt~~accrual ~~expense~~in ~~compared to~~ the prior year period.

29International selling, general and administrative expenses increased $9.0 million primarily due to incremental expenses from SYNETIQ through its first year anniversary on October 26, 2022.

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International selling, general and administrative expenses increased $3.8 million primarily due to higher employee costs relating to headcount.

Depreciation and Amortization

	Fiscal Years Ended				Change
(Dollars in millions)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		$		%
United States	$	7585.93	$	7475.39	$	19.64	212.24	%
International	1020.63		610.86		39.87		5591.95	%
Total depreciation and amortization	$	86105.56	$	8186.15	$	519.41	622.71	%

Depreciation and amortization increased $519.41 million as compared to the prior year asdue ~~there~~to ~~were~~a ~~more~~higher intangible ~~assets~~asset tobase ~~amortize~~ in both segments ~~in the second half of fiscal 2021 compared to fiscal 2020~~, asincluding ~~well as due to~~ intangible assets acquired in recent acquisitions.

Interest Expense Interest expense ~~increased~~decreased by $16.7 million as compared to the prior year period due to ~~the~~a $10.3 million loss on early extinguishment of debt inrecognized ~~conjunction with the refinancing of our credit facilities~~ in ~~April~~fiscal 2021, partially offset by ~~lower~~higher interest rates on our floating rate debt ~~and~~during afiscal ~~lower average debt balance~~2022.

~~Income~~Other ~~Taxes~~expense ~~The~~(income) ~~effective~~net ~~tax~~Other ~~rate~~expense ~~for~~increased ~~fiscal~~by ~~2021 was 24~~$4.1%4 asmillion ~~compared~~mainly due to ~~24.2%~~unrealized ~~for~~foreign ~~fiscal~~currency ~~2020.~~transaction losses in the current year period.

~~Fiscal~~Income ~~2020~~Taxes ~~Compared~~The effective tax rate for fiscal 2022 was 19.1% as compared to ~~Fiscal~~24.1% ~~2019~~for fiscal 2021. The effective tax rate in fiscal 2022 benefited from favorable adjustments of $15.1 million relating to Foreign Derived Intangible Income and $3.0 million relating to state tax planning initiatives.

~~For~~Fiscal a2021 ~~discussion~~Compared ofto ~~fiscal~~Fiscal 2020 ~~as compared to fiscal 2019, please refer to Part II, Item 7, Management’s Discussion and~~

~~Analysis~~For ofa ~~Financial~~discussion ~~Condition and Results~~ of ~~Operations~~fiscal in2021 ~~our~~as ~~Form~~compared ~~10-K~~to ~~for the~~ fiscal ~~year ended December 27,~~ 2020, ~~filed~~please ~~with~~refer ~~the~~to ~~Securities~~Part ~~and~~II, ~~Exchange~~Item ~~Commission~~7, onManagement’s ~~February~~Discussion ~~22, 2021.~~and

Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended January 2, 2022, filed with the Securities and Exchange Commission on February 28, 2022.

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. Our principal source of liquidity consists of cash generated by operations. Our 2021 Revolving Credit Facility (as defined below) provides another source of liquidity as needed.

Our cash flow is used to invest in new products and services, fund capital expenditures and working capital requirements and, coupled with borrowings under our 2021 Revolving Credit Facility, is expected to be adequate to satisfy our cash requirements, including those listed below, fund future acquisitions, and repurchase shares of our common stock, if any. Our ability to fund our cash requirements will depend on our ongoing ability to generate cash from operations and to access borrowings under our 2021 Revolving Credit Facility. We believe that our cash on hand, future cash from operations, and borrowings available under our 2021 Revolving Credit Facility ~~and access to the debt and capital markets~~ will provide adequate resources to fund our anticipated operating, financing and ~~financing~~other ~~needs~~cash requirements for the next twelve months and beyond. We may also seek to fund future cash needs, including long-term debt obligations, by accessing the debt and capital markets or by refinancing existing obligations.

Our material cash requirements from known contractual and other obligations include:

Debt Service Obligations

On June 6, 2019, we issued $500.0 million aggregate principal amount of 5.500% Senior Notes due 2027 (the "“Notes"”). 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. 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 January 2 1, ~~2022~~2023. On February 17, 2023, we gave conditional notice of optional full redemption that we have elected to redeem on March 20, 2023 (or, at our option, such later date as of which the conditions to redemption are satisfied) all $500.0 million of the Notes. The redemption is conditioned on consummation of the Mergers on or prior to March 20, 2023 or such later date as we may determine in our sole and absolute discretion and our delivery of written notice to the trustee for the Notes confirming satisfaction of such condition and specifying the redemption date and redemption price for the Notes. If the conditions precedent are not satisfied as we determine in our sole and absolute discretion, the redemption notice will be rescinded.

On April 30, 2021, we entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders from time to time party thereto (the "2021 Credit Agreement"). The 2021 Credit Agreement provides for, among other things: (i) a senior secured term loan in an aggregate principal amount of $650 million (the "2021 Term Loan") and (ii) a senior secured revolving credit facility with revolving commitments in an aggregate principal amount of $525 million (the "2021 Revolving Credit Facility" and, together with the 2021 Term Loan, the “2021 Credit Facility”). Borrowing availability under the 2021 Revolving Credit Facility is subject to no default or event of default under the 2021 Credit Agreement having occurred at the time of borrowing. The proceeds of the 2021 Credit Facility, along with cash on hand, were used to repay in full the $774.0 million in outstanding borrowings under our prior seven-year senior secured term loan. The 2021 Credit Facility matures on April 30, 2026. As of January 2, 2022, $650.0 million was outstanding

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~~under~~other lenders from time to time party thereto (the “2021 Credit Agreement”). The 2021 Credit Agreement provides for, among other things: (i) a senior secured term loan in an aggregate principal amount of $650 million (the “2021 Term Loan”) and (ii) a senior secured revolving credit facility with revolving commitments in an aggregate principal amount of $~~165~~525 million (the “2021 Revolving Credit Facility” and, together with the 2021 Term Loan, the “2021 Credit Facility”). Borrowing availability under the 2021 Revolving Credit Facility is subject to no default or event of default under the 2021 Credit Agreement having occurred at the time of borrowing. The proceeds of the 2021 Credit Facility, along with cash on hand, were used to repay in full the $774.0 million in outstanding borrowings under our prior seven-year senior secured term loan. The 2021 Credit Facility matures on April 30, 2026. As of January 1, 2023, $633.8 million was outstanding under the 2021 Term Loan and no borrowings were outstanding under the 2021 Revolving Credit Facility. As of January 1, 2023, the interest rate per annum for the 2021 Term Loan was 5.76%. We were in compliance with the covenants in the 2021 Credit Agreement at January 1, 2023. See Note 10 - Debt in the notes to consolidated financial statements for additional information including future principal payment schedule.

Capital Expenditures

We expend capital to support our operating plan and business strategies. Capital expenditures for the years ended January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022, were $~~135~~178.63 million and $69135.86 million, respectively. Capital expenditures were funded primarily from cash flow from operations. We continue to invest in our core information technology capabilities and capacity expansion. Our capital expenditures during fiscal ~~2021~~2022 primarily related to real estate purchases and development and technology-based investments, including improvements in information technology systems and infrastructure. 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. Pursuant to the Merger Agreement, we are restricted from engaging in capital expenditures beyond certain levels without RBA’s prior consent.

Leases

We enter into leases in the normal course of business. We lease property, software, automobiles, trucks and trailers pursuant to operating lease agreements. Lease obligations for fiscal ~~2021~~2022 were funded primarily from cash flow from operations. We also lease furniture, fixtures and equipment under finance leases. See Note 11 - Leases in the notes to consolidated financial statements for additional information and a schedule of maturities of lease maturities. Future lease obligations would change if we entered into additional lease agreements.

~~During~~Proposed the first quarter of fiscal 2022, we sold a property in South Carolina consisting of land and a building for $37.2 million and simultaneously leased back the same property for an initial term of 20 years. The carrying value of this property included in the Consolidated Balance Sheets within "Property and equipment, net" was $37.2 million as of January 2, 2022.Mergers

In connection with the Mergers, we have agreed to pay J.P. Morgan a transaction fee of 0.65% of the transaction value (which is generally defined as the enterprise value of the transaction based on the consideration RBA has agreed to provide in the Mergers), less $0.5 million, of which $3.0 million became payable by IAA to J.P. Morgan in connection with J.P. Morgan’s delivery of a prior opinion, dated November 6, 2022, $1.5 million of which became payable by IAA to J.P. Morgan in connection with J.P. Morgan’s delivery of its opinion dated January 22, 2023 in connection with the Mergers, and the balance of which becomes payable upon closing of the Mergers. IAA has also agreed to reimburse J.P. Morgan for its expenses incurred in connection with the Mergers, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgan’s engagement. In addition, in connection with the Mergers, IAA is also responsible for the fees and expenses of its own counsel and other advisors.

In addition, under the Merger Agreement, we are permitted to establish a transaction bonus program for employees, including certain executive officers, providing for cash payments of up to $6.0 million that will become payable on the closing of the Mergers, subject to the employee’s continued employment through such date. We are also permitted under the Merger Agreement to establish a retention bonus program for employees, including certain executive officers, providing for cash retention bonuses of up to $19.0 million that will be payable subject to continued employment for at least a period of time after closing of the Mergers.

Acquisitions

OnSome ~~June~~of ~~18,~~our ~~2021,~~prior weyears' ~~acquired~~acquisitions ~~Auto~~included ~~Exchange,~~contingent apayments ~~salvage~~based ~~auction~~on ~~provider~~certain ~~located~~conditions inand ~~New~~future ~~Jersey~~performance. ~~The~~As ~~estimated acquisition date fair value~~ of ~~the~~January ~~total~~1, ~~consideration was $7.3 million~~2023, ~~which~~we ~~consisted~~had ofestimated ~~$2.0~~contingent ~~million~~consideration ofwith ~~cash,~~a ~~and the~~ fair value of ~~contingent~~approximately ~~consideration of~~ $5.35 million, ~~$2.0~~(based ~~million~~on ofLevel ~~which was paid at closing. The remaining $~~3~~.3 million of contingent consideration is payable over five years subject to the achievement of certain performance targets.~~

~~On October 26~~inputs), ~~2021,~~of wewhich ~~acquired~~$2.6 ~~SYNETIQ,~~million ais ~~leading~~reported ~~integrated salvage and vehicle dismantling company~~ in ~~the~~current ~~United~~liabilities, ~~Kingdom.~~Other ~~The~~accrued ~~cash~~expenses ~~purchase price for SYNETIQ~~line, ~~including working capital~~ and ~~other adjustments, was~~ $~~314.~~2 ~~million (£228~~.29 million), ofis ~~which~~reported ~~$260.2 million (£189.0 million) was paid out~~ in ~~the~~non-current ~~fourth~~liabilities, ~~quarter~~Other ofliabilities ~~fiscal~~line, ~~2021.~~within ~~The~~the ~~remaining~~accompanying ~~payment~~consolidated ofbalance ~~$54~~sheet.~~0 million~~ ~~(£39.2~~These ~~million) is~~ contingent ~~upon~~consideration ~~receipt~~payments ofwill ~~required~~be ~~approvals~~made ~~from~~over the UKnext ~~Competition~~4 ~~and~~years, ~~Markets~~subject ~~Authority~~to ~~and~~satisfaction isof ~~held in an escrow account. We funded~~ the ~~acquisition~~relevant ~~with~~conditions ~~cash on hand~~ and ~~$100.0 million~~future ~~in borrowings under our 2021 Revolving Credit Facility~~performance.

~~See Note 4 – Acquisitions in the notes to consolidated financial statements for additional information on these acquisitions.~~40

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Put Option

In November 2020, we entered into an agreement which grants the owner a right during fiscal years 2023 and 2024 to cause the Company to acquire certain assets (the "“Put Option"”) for a price based on a pre-defined formula. We measured and recognized this Put Option at fair value using a Monte Carlo simulation. The estimated fair value of the Put Option at January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022 was zero.

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 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.

31Approximately $36.3 million of available cash was held by our foreign subsidiaries at January 1, 2023. We do not currently expect to incur significant additional tax liabilities if funds held by our foreign subsidiaries were to be repatriated.

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Approximately $47.5 million of available cash was held by our foreign subsidiaries at January 2, 2022. We do not currently expect to incur significant additional tax liabilities if funds held by our foreign subsidiaries were to be repatriated.

Summary of Cash Flows

	Fiscal Years Ended
(Dollars in millions)	January 21, ~~2022~~2023		~~December~~January 272, ~~2020~~2022		Change
Net cash provided by (used by):
Operating activities	$	~~311~~399.13	$	~~310~~311.01	$	188.12
Investing activities	(~~393~~143.90)		(69393.09)		~~(324~~250.9)
Financing activities	12(212.21)		~~(56~~12.3)2		68(224.53)
Effect of exchange rate on cash and restricted cash	0(10.27)		1.0.2		(010.89)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(70.4)	$	185.7	$	(256.1)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	33.5	$	(70.4)	$	103.9

Fiscal 2022 compared to Fiscal 2021

Net cash flow provided by operating activities in fiscal 2022 increased by $88.2 million as compared to fiscal 2021. The increase in operating cash flow was primarily attributable to changes in accounts receivable as a result of the timing of collections from customers and an increase in profitability, net of non-cash adjustments, of $32.8 million. These increases n cash inflows were partially offset by an increase in operating lease payments, a decrease in incentive-based compensation, and changes in payables and accruals as a result of the timing of funds disbursement to tax authorities, vehicle consignors and vendors.

Net cash used by investing activities decreased by $250.9 million in fiscal 2022 as compared to fiscal 2021 primarily due to the acquisition of the Auto Exchange and SYNETIQ businesses and an increase in capital expenditures during fiscal 2021. See “Capital Expenditures” above for additional information.

Net cash used by financing activities changed by $224.3 million in fiscal 2022 as compared to fiscal 2021 primarily due to increases in net payments of our debt of $222.3 million and contingent consideration payments of $53.4 million relating to SYNETIQ and other prior acquisitions. These increases were partially offset by increases in book overdrafts of $39.1 million, decreases in repurchases of our common stock of $6.8 million and decreases in other miscellaneous payments.

Fiscal 2021 compared to Fiscal 2020

~~Net~~For ~~cash~~a ~~flow~~discussion ~~provided~~of ~~by operating activities in~~ fiscal 2021 ~~increased by $1.1 million~~ as compared to fiscal 2020., ~~The~~please ~~increase~~refer ~~in operating cash flow was primarily attributable~~ to anPart ~~increase in profitability~~II, ~~net~~Item ~~of non-cash adjustments~~7, ofManagement’s ~~$132.1~~Discussion ~~million~~ and higher incentive-based compensation accruals. These increases were partially offset by changes in accounts receivable and payable as a result of the timing of collections from customers and other parties, and disbursement of funds to vehicle consignors and vendors of $100.8 million, as well as increases in inventory and prepaid consigned vehicle charges of $30.5 million.

~~Net~~Analysis ~~cash~~of ~~used~~Financial byCondition ~~investing~~and ~~activities~~Summary ~~increased~~of byCash ~~$324.9~~Flows ~~million~~ in ~~fiscal~~our ~~2021~~Form as10-K ~~compared~~for tothe fiscal ~~2020.~~year ~~The~~ended ~~increase~~January 2, in2022, ~~net~~filed ~~cash~~with ~~used by investing activities was primarily due to~~ the ~~acquisition~~Securities ofand ~~the Auto~~ Exchange ~~and~~Commission ~~SYNETIQ~~on ~~businesses~~February 28, ~~and an increase in capital expenditures during fiscal 2021~~2022. ~~See "Acquisitions" and "Capital Expenditures" above for additional information.~~

Net cash provided by financing activities increased by $68.5 million in fiscal 2021 as compared to fiscal 2020. The increase was primarily attributable to a change in book overdrafts of $62.4 million and an increase in net borrowings of $45.0 million to fund a recent acquisition, partially offset by treasury share repurchase of $34.0 million and a decrease in issuance of common stock under stock plans of $7.1 million.41

~~Fiscal~~Table ~~2020~~of ~~compared to Fiscal 2019~~Contents

For a discussion of fiscal 2020 as compared to fiscal 2019, please refer to Part II, Item 7, Management’s Discussion and

Analysis of Financial Condition and Summary of Cash Flows in our Form 10-K for the fiscal year ended December 27, 2020, filed with the Securities and Exchange Commission on February 22, 2021.

Critical Accounting Estimates

In preparing the financial statements in accordance with U.S. generally accepted accounting principles, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex. Consequently, actual results could differ from those estimates. Accounting measurements that management believes are most critical to the reported results of our operations and financial condition include: (1) business combinations; (2) goodwill ~~and other intangible assets~~; and (3) legal proceedings and other loss contingencies.

In addition to the critical accounting estimates, there are other items used in the preparation of the consolidated financial statements that require estimation, but are not deemed critical. Changes in estimates used in these and other items could have a material impact on our financial statements.

We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. In cases where management estimates are used, they are based on historical experience, information from third-party professionals, and various other assumptions believed to be reasonable. In addition, our most significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policies and elsewhere in the notes to consolidated financial statements for additional information.

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Business Combinations

When we acquire businesses, we estimate and recognize the fair values of tangible assets acquired, liabilities assumed, identifiable intangible assets acquired, and contingent consideration, if any. The excess of the purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. The purchase accounting process requires management to make significant estimates and assumptions in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets and contingent consideration.

Critical estimates are often developed using valuation models that are based on historical experience and information obtained from the management of the acquired companies. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, growth rates, royalty rates, obsolescence, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which could affect the accuracy or validity of such estimates. Depending on the facts and circumstances, we may engage an independent valuation expert to assist in valuing significant assets and liabilities.

Goodwill ~~and Other Intangible Assets~~

We assess goodwill for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate that impairment may exist. Important factors that could trigger an impairment review include significant under-performance relative to historical or projected future operating results; significant negative industry or economic trends; and our market valuation relative to our book value. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that a reporting unit’s fair value is not more likely than not greater than its carrying value, then we calculate the estimated fair value of the reporting unit using income approach (discounted cash flows) and market approach (market multiples of companies in similar lines of business).

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for a reporting unit in a given year is influenced by a number of factors, including the size of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, and the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of a reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and apply judgment when estimating future cash flows and earnings, including projected revenue growth and operating expenses related to existing businesses, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate based on the estimated cost of capital that reflects the risk profile of the related business. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives and changes in economic conditions. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approach are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies.

~~The~~If we perform a quantitative assessment of a reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and apply judgment when estimating future cash flows and earnings, including projected revenue growth and operating expenses related to existing businesses, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate based on the estimated ~~fair~~cost ~~value~~of capital that reflects the risk profile of ~~both~~the related business. Estimates of ~~our~~revenue growth and operating expenses are based on internal projections considering the reporting ~~units~~unit’s ~~exceeded~~past ~~their~~performance ~~respective~~and ~~carrying~~forecasted ~~value~~growth, bystrategic ainitiatives ~~substantial~~and ~~amount~~changes in economic conditions. These estimates, as well as the ~~quantitative~~selection ~~assessment~~of ~~performed~~comparable companies and valuation multiples used in ~~2021.~~the ~~Based~~market onapproach ~~our~~are ~~goodwill~~highly ~~assessment~~subjective, and our ability to realize the ~~Company~~future ~~has~~cash ~~not~~flows ~~identified~~used ain ~~reporting~~our ~~unit~~fair ~~for~~value ~~which~~calculations is affected by factors such as the ~~goodwill~~success ~~was~~of ~~impaired~~strategic initiatives, changes in ~~fiscal~~economic ~~2021~~conditions, ~~2020~~changes orin ~~2019~~our operating performance and changes in our business strategies.

As with goodwill, we assess indefinite-lived tradenames for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate that impairment may exist. When assessing indefinite-lived tradenames for impairment using a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist. If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the tradename asset group. The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the tradename asset group's forecasted growth, and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. 42

We review other intangible assets for possible impairment whenever circumstances indicate that their carrying amount may not be recoverable. If it is determined that the carrying amount of an other intangible asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, we would recognize a loss to the extent that the carrying amount exceeds the fair value of the asset. Management judgment is involved in both deciding if testing for recovery is necessary and in

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~~estimating~~United ~~undiscounted~~States ~~cash~~reporting ~~flows.~~unit ~~Our impairment analysis is based on the current business strategy, expected growth rates and estimated future economic conditions.~~ goodwill:

InThe estimated fair value of our United States reporting unit exceeded its carrying value by a substantial amount in our last quantitative assessment during fiscal 2021. During the fourth quarter of fiscal 2022, we performed aour ~~quantitative~~annual ~~impairment~~qualitative assessment for our ~~indefinite-lived~~United ~~tradenames.~~States Wereporting ~~did~~unit ~~not~~and ~~record~~we ~~any~~concluded there were no indicators of impairment ~~relating~~that existed. The goodwill allocated to ~~indefinite-lived~~the ~~tradenames~~United ~~and~~States ~~other~~reporting ~~intangible~~unit ~~assets~~was in$498.6 ~~fiscal~~million ~~2021,~~as ~~2020~~of orJanuary ~~2019~~1, 2023.

International reporting unit goodwill:

During the third quarter of fiscal 2022, we updated our forecasts which resulted in a decline in the International reporting unit's operating results and projections. We identified this as a triggering event and determined that the carrying amount of the International reporting unit’s goodwill should be evaluated for impairment at October 2, 2022. The impairment test indicated that the fair value of the International reporting unit exceeded its carrying value by approximately 40% and therefore

no goodwill impairment was recorded.

During the fourth quarter of fiscal 2022, we performed a qualitative assessment of the International reporting unit and evaluated significant events and circumstances that occurred during the fourth quarter of fiscal 2022. Based on this assessment, we concluded no impairment was required. The goodwill allocated to the International reporting unit was $268.9 million as of January 1, 2023.

The valuation of the International reporting unit requires significant judgment and is sensitive to underlying assumptions including forecasted revenues, costs and discount rate, as well as the selection of comparable companies and valuation multiples. Further declines in future cash flows or valuation multiples could negatively impact the estimated fair value and result in an impairment for the reporting unit which could be material to our consolidated financial statements.

Based on our goodwill assessments, we have not identified a reporting unit for which the goodwill was impaired in fiscal 2022, 2021 or 2020.

Legal Proceedings and Other Loss Contingencies

We are subject to the possibility of various legal proceedings and other loss contingencies, many involving litigation incidental to the business and a variety of environmental laws and regulations. Litigation and other loss contingencies are subject to inherent uncertainties and the outcomes of such matters are often very difficult to predict and generally are resolved over long periods of time. We consider 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. Estimating probable losses requires the analysis of multiple possible outcomes that often are dependent on the judgment about potential actions by third parties. Contingencies are recorded in the consolidated financial statements, or otherwise disclosed, in accordance with ASC 450, Contingencies. We accrue for an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period.

New Accounting Standards

Refer to Note 2 - Summary of Significant Accounting Policies in the notes to consolidated financial statements for a description of recently issued accounting standards.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

Our foreign currency exposure is limited and arises from transactions denominated in foreign currencies as well as from translation of the results of operations from our Canadian and United Kingdom subsidiaries. However, fluctuations between U.S. and non-U.S. currency values may adversely affect our results of operations and financial position. A 10% change in the average Canadian and U.K.'’s exchange rate relative to the U.S. dollar for the year ended January 21, ~~2022~~2023, with all other variables held constant, would have impacted our net income by approximately $10.85 million. We have not entered into any foreign exchange contracts to hedge changes in the Canadian dollar or British pound.

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Interest Rates

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 January 21, ~~2022~~2023, we had $500.0 million of fixed rate debt outstanding from our Notes and $~~815~~633.08 million of variable rate debt outstanding from our 2021 Credit Agreement. Loans under the 2021 Credit Agreement bear interest at an amount equal to the rate calculated based on either adjusted LIBOR or Base Rate plus an applicable margin ranging from 1.375% to 2.25% for adjusted eurodollar loans and from 0.375% to 1.25% for Base Rate loans, in each case depending on our consolidated net leverage ratio (as defined in the 2021 Credit Agreement).

A 10% increase in the interest rates related to our variable rate debt based on the balance outstanding at January 21, ~~2022~~2023 would increase our interest expense by approximately $13.26 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 January 21, ~~2022~~2023, we have not entered into any swap agreements.

In addition, certain publications of LIBOR were phased out at the end of 2021 and all LIBOR publications will cease after June 30, 2023. Organizations are currently working on industry wide and company specific transition plans as it relates to financial and other derivative contracts exposed to LIBOR. Although the secured overnight financing rate (“SOFR”) has been endorsed by the Alternative Reference Rates Committee as its preferred replacement for LIBOR, it remains uncertain whether or when SOFR or other alternative reference rates will be widely accepted by lenders as the replacement for LIBOR. When LIBOR ceases to exist, we may need to enter into an amendment to the 2021 Credit Agreement and we cannot predict whether SOFR or an alternative index would be negotiated with our lenders. If future rates based upon a successor reference rate are higher or more volatile than LIBOR rates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.

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Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

			Page
IAA, Inc.
Report of Independent Registered Public Accounting Firm (PCAOB ID 185)			3646
Consolidated Statements of Income for the Fiscal Years Ended January 2, 2022, December 27, 2020 and December 29, 2019			39
Consolidated Statements of Income for the Fiscal Years Ended January 1, 2023, January 2, 2022 and December 20, 2020			49
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended January 2, 2022, December 27, 2020 and December 29, 2019			40
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended January 1, 2023, January 2, 2022 and December 27, 2020			50
Consolidated Balance Sheets as of January 2, 2022 and December 27, 2020			41
Consolidated Balance Sheets as of January 1, 2023 and January 2, 2022			51
Consolidated Statements of Stockholders' Equity (Deficit) for the Fiscal Years Ended January 2, 2022, December 27, 2020 and December 29, 2019			42
Consolidated Statements of Stockholders' Equity (Deficit) for the Fiscal Years Ended January 1, 2023, January 2, 2022 and December 27, 2020			52
Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 2022, December 27, 2020 and December 29, 2019			43
Consolidated Statements of Cash Flows for the Fiscal Years Ended January 1, 2023, January 2, 2022 and December 27, 2020			53
Notes to Consolidated Financial Statements			4555

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

IAA, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of IAA, Inc. and subsidiaries (the Company) as of January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022, the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit), and cash flows for each of the fiscal years in the three-year period ended January 21, ~~2022~~2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of January 21, ~~2022~~2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 21, ~~2022~~2023, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 21, ~~2022~~2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired SYNETIQ Ltd. during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of January 2, 2022, SYNETIQ Ltd.’s internal control over financial reporting associated with total assets of 12% and total revenues of 2% included in the consolidated financial statements of the Company as of and for the year ended January 2, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of SYNETIQ Ltd.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’'s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Sufficiency of audit evidence over U.S. service revenues from buyer and seller fees

As discussed in Note 2 and 15 to the consolidated financial statements, the Company’s U.S. segment recorded service revenues of $1,~~429~~539.27 million, which included revenues from buyer and seller fees. The Company enters into revenue contracts with sellers of salvage vehicles to facilitate the remarketing of salvage vehicles, including inbound tow, processing, storage, titling, enhancing and selling of such vehicles at auction. The Company also enters into revenue contracts with buyers of salvage vehicles that are generally established via purchase at auction, subject to applicable terms and conditions.

We identified the evaluation of the sufficiency of audit evidence over U.S. service revenues from buyer and seller fees as a critical audit matter. The Company’s use of its proprietary information technology (IT) system to capture and process data to recognize U.S. service revenues from buyer and seller fees required a higher degree of auditor judgment due to the extent and complexity of automation involved in the process. In addition, the nature and extent of audit effort associated with the evaluation of the proprietary IT system and related internal controls relevant to the determination of U.S. service revenues from buyer and seller fees, required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the revenue process, including controls related to the recording of U.S. service revenues from buyer and seller fees. We involved IT professionals with specialized skills and knowledge who assisted in (1) obtaining an understanding of the relevant IT system and processes, and (2) testing general IT and IT application controls related to the system used by the Company in its revenue recognition processes for U.S. service revenues from buyer and seller fees. In addition, we:

•observed a selection of U.S. auction sites to gain an understanding of the revenue related activities, including the use of the IT system.

•evaluated the Company’s revenue recognition policies by examining the Company’s applicable published terms and conditions as they relate to U.S. buyer service fees.

•analyzed a selection of customer contracts to understand the contractual terms and conditions as they relate to U.S. seller service fees.

•selected a sample of both U.S. buyer and seller service revenue transactions and compared the amounts recognized for consistency with underlying documentation.

We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.

~~Preliminary~~Goodwill ~~acquisition-date~~impairment ~~fair~~assessment ~~value~~ of ~~developed~~the ~~technology~~International reporting unit

As discussed in ~~Note~~Notes 2 and 48 to the consolidated financial statements, onthe ~~October~~carrying 26value of goodwill as of January 1, ~~2021~~2023 was $767.5 million, of which $268.9 million related to the International reporting unit. The Company ~~acquired~~assesses ~~SYNETIQ~~goodwill ~~Ltd. As~~for aimpairment ~~result~~annually ofduring the ~~transaction,~~fourth quarter or more frequently when events or changes in circumstances indicate that impairment may exist. Reporting units are tested for impairment by comparing the ~~Company~~fair ~~acquired~~value ~~intangible~~of ~~assets~~each reporting unit with its carrying amount. Management uses a ~~preliminary~~combination ~~acquisition-date~~of both an income approach (discounted cash flows) and a market approach (market multiples of companies in similar lines of business) to estimate the fair value of ~~approximately~~reporting ~~$40~~units.9 ~~million~~During the third quarter of fiscal 2022, ~~which~~the ~~included~~Company ~~developed~~identified ~~technology~~a ~~intangible~~triggering ~~assets~~event for the International reporting unit. The

We identified the evaluation of the preliminary acquisition-date fair value of the developed technology intangible assets as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate significant assumptions used to estimate fair value, specifically the royalty rates and obsolescence factors applied. Changes in these assumptions could 47

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~~have~~Company aperformed ~~significant~~an ~~impact~~impairment ontest ~~the fair value~~ of the ~~developed~~International ~~technology~~reporting ~~intangible~~unit ~~assets. Professionals~~as ~~with~~of ~~specialized~~October ~~skill~~2, ~~and~~2022 ~~knowledge were required to assess the significant assumptions~~ and ~~evaluate~~concluded ~~the~~that ~~evidence~~no ~~obtained~~impairment existed.

~~The~~We ~~following~~identified ~~are~~ the ~~primary~~evaluation ~~procedures~~of wethe ~~performed~~goodwill toimpairment ~~address~~assessment ~~this~~of ~~critical~~the ~~audit~~International ~~matter.~~reporting Weunit ~~evaluated~~during the ~~design~~third ~~and~~quarter ~~tested the operating effectiveness~~ of ~~certain~~fiscal ~~internal~~2022 ~~controls~~as ~~related~~a tocritical ~~the~~audit ~~Company’s~~matter. ~~preliminary~~A ~~acquisition-date~~high ~~fair~~degree ~~value~~of ~~measurement~~subjective ~~process,~~auditor ~~including~~judgment ~~controls~~was ~~related~~required to ~~the~~evaluate ~~development~~certain ~~of the above significant~~ assumptions~~. We~~ ~~assessed~~used ~~the~~in ~~reasonableness of~~ the ~~obsolescence~~Company’s ~~factors~~estimate ~~based~~of on the ~~nature~~fair value of the ~~developed~~International ~~technology~~reporting ~~acquired~~unit. ~~and~~Specifically, bythe ~~comparing~~Company’s ~~those~~determination ~~factors to historical useful lives~~ of ~~developed technology of~~ the ~~Company~~forecasted ~~and~~revenue ~~SYNETIQ~~growth ~~Ltd. We~~rates ~~involved valuation professionals with specialized skills~~ and ~~knowledge, who assisted in (1) evaluating~~ the ~~royalty~~discount ~~rates~~rate byrequired ~~comparing~~subjective ~~them~~and tochallenging ~~royalty~~auditor ~~rates~~judgment. ~~for~~Changes ~~similar~~in ~~companies~~these ~~and~~assumptions ~~licensing~~could ~~transactions~~have ~~considering~~had ~~royalty~~a ~~rates~~significant ~~relative~~effect toon ~~profitability,~~the ~~and~~Company’s ~~(2)~~assessment ~~assessing~~of the ~~reasonableness~~fair value of the ~~obsolescence~~International ~~factors~~reporting byunit. ~~comparing~~Additionally, the ~~implied~~audit ~~useful~~effort ~~lives~~associated ofwith ~~acquired~~the ~~developed~~forecasted ~~technology~~revenue ~~used~~growth byrates ~~the~~and ~~Company~~discount torate ~~certain~~required ~~public~~specialized ~~company~~skills ~~useful~~and ~~life data~~knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment assessment process, including controls related to the forecasted revenue growth rates and the discount rate used to estimate the fair value of the International reporting unit. We evaluated the Company’s forecasted revenue growth rates for the International reporting unit, by comparing them to the Company’s historical growth rates, arrangements with customers and forecasted revenue growth rates of peer companies based on publicly available market data. We involved valuation professionals with specialized skills and knowledge, who assisted in (1) evaluating the appropriateness of the selected guideline public companies and providing revenue growth rate ranges for those companies, and (2) evaluating the Company’s selection of the discount rate by comparing it to discount rate ranges that were independently developed using publicly available market data.

/s/ KPMG LLP

We have served as the Company's auditor since 2018.

Chicago, Illinois

February 2824, ~~2022~~2023

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IAA, Inc.

Consolidated Statements of Income

(In millions, except per share data)

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Revenues:
Service revenues	$	1,~~537~~686.74	$	1,~~233~~537.17	$	1,~~303~~233.81
Vehicle sales	299.7		151.8		133.0
Vehicle and parts sales	412.5		299.7		151.8
Total revenues	12,~~837~~098.49		1,~~384~~837.94		1,~~436~~384.89
Operating expenses:
Cost of services	~~851~~996.5		~~721~~851.75		~~780~~721.17
Cost of vehicle sales	261.2		125.2		108.1
Cost of vehicle and parts sales	367.7		261.2		125.2
Selling, general and administrative	~~192~~212.31		~~144~~192.93		~~142~~144.49
Depreciation and amortization	86105.56		8186.15		8881.41
Total operating expenses	1,~~391~~681.59		1,~~072~~391.95		1,~~119~~072.09
Operating profit	~~445~~417.90		~~312~~445.09		~~317~~312.80
Interest expense, net	5751.70		5657.07		5556.70
Other expense (income), net	04.26		~~(1.~~0).2		(0.1.0)
Income before income taxes	~~388~~361.04		~~257~~388.0		~~262~~257.20
Income taxes	9369.60		6293.26		6962.02
Net income	$	~~294~~292.4	$	~~194~~294.84	$	~~193~~194.28
Net income per share:
Basic	$	2.18	$	12.4518	$	1.45
Diluted	$	2.18	$	12.4418	$	1.44

See accompanying notes to consolidated financial statements

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IAA, Inc.

Consolidated Statements of Comprehensive Income

(In millions)

Fiscal Years Ended

January 2, 2022

December 27, 2020

December 29, 2019

January 1, 2023

January 2, 2022

December 27, 2020

Net income

~~294~~292.4

~~194~~294.84

~~193~~194.28

Other comprehensive (loss) income

Foreign currency translation (loss) gain

(239.81)

3(2.38)

(13.9)3

Comprehensive income

~~291~~253.63

~~198~~291.16

~~191~~198.31

See accompanying notes to consolidated financial statements

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IAA, Inc.

Consolidated Balance Sheets

(In millions, except per share amounts)

	January 2, 2022		December 27, 2020
	January 1, 2023		January 2, 2022
Assets
Current assets
Cash and cash equivalents	$	~~109~~195.49	$	~~232~~109.84
Restricted cash	~~53.0~~—		—53.0
Accounts receivable, net	~~465~~445.72		~~374~~465.87
Prepaid consigned vehicle charges	7268.21		5372.32
Other current assets	6979.62		3169.16
Total current assets	~~769~~788.94		~~692~~769.09
Non-current assets
Operating lease right-of-use assets, net	1,~~024~~203.49		~~866~~1,024.84
Property and equipment, net	~~338~~383.18		~~259~~338.81
Goodwill	~~797~~767.5		~~542~~797.35
Intangible assets, net	~~197~~185.52		~~150~~197.65
Other assets	2634.91		1726.49
Total non-current assets	2,~~384~~574.45		12,~~836~~384.94
Total assets	$	3,~~154~~362.39	$	23,~~528~~154.93

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	~~163~~231.50	$	~~122~~163.65
Short-term right-of-use operating lease liability	9487.36		7894.13
Accrued employee benefits and compensation expenses	4434.20		2344.42
Other accrued expenses	~~124~~64.69		54124.46
Current maturities of long-term debt	~~181~~32.35		4181.03
Total current liabilities	~~607~~450.90		~~282~~607.59
Non-current liabilities
Long-term debt	1,~~120~~090.68		1,~~248~~120.06
Long-term right-of-use operating lease liability	~~984~~1,165.80		~~836~~984.68
Deferred income tax liabilities	7466.89		6574.78
Other liabilities	3222.69		2632.76
Total non-current liabilities	2,~~212~~345.86		2,~~177~~212.08
Commitments and contingencies (Note 14)
Stockholders' equity
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: 134.2 shares at January 2, 2022 and 134.5 shares at December 27, 2020	1.3		1.3
Common stock, $0.01 par value: Authorized 750.0 shares; issued and outstanding: 133.8 shares at January 1, 2023 and 134.2 shares at January 2, 2022	1.3		1.3
Treasury stock, at cost: 0.7 shares at January 2, 2022 and 0.0 shares at December 27, 2020	(34.0)		—
Treasury stock, at cost: 1.4 shares at January 1, 2023 and 0.7 shares at January 2, 2022	(61.2)		(34.0)
Additional paid-in capital	1826.62		1218.06
Retained earnings	~~362~~654.15		67362.71
Accumulated other comprehensive loss	(1453.45)		(1114.64)
Total stockholders' equity	~~333~~567.63		69333.46
Total liabilities and stockholders' equity	$	3,~~154~~362.39	$	23,~~528~~154.93

See accompanying notes to consolidated financial statements

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IAA, Inc.

Consolidated Statements of Stockholders' Equity (Deficit)

(In millions)

	CommonStock			Treasury Stock			AdditionalPaid-InCapital		Retained Earnings (Deficit)		~~Net Parent Investment~~		Accumulated Other Comprehensive Loss		~~Accumulated Other Comprehensive (Loss) Income~~		Total Stockholders' Equity (Deficit)		~~Total Stockholders' Equity (Deficit)~~
	Shares	Amt		Shares	Amt
Balance at December 30, 2018	—	$	—	—	$	—	$	—	$	—	$	576.2			$	(13.0)			$	563.2
Balance at December 29, 2019	133.6	$	1.3	—	$	—	$	3.5	$	(127.1)			$	(14.9)			$	(137.2)
Net income	—	—		—	—		—		87194.48		~~105.8~~		—		—		194.8		~~193.2~~
Cumulative effect adjustment for adoption of ASC Topic 842, net of tax	—	—		—	—		—		—		1.1				—				1.1
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—				3.3				3.3
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		—				(1.9)				(1.9)
Stock-based compensation expense	—	—		—	—		8.5		—				—				8.5
Stock-based compensation expense	—	—		—	—		2.8		—		1.9				—				4.7
Common stock issued for exercise and vesting of stock-based awards	1.1	—		—	—		8.1		—				—				8.1
Exercise of stock options	0.2	—		—	—		1.6		—		—				—				1.6
Common stock issued for employee stock purchase plan	—	—		—	—		1.0		—				—				1.0
Withholding taxes on stock-based awards	—(0.2)	—		—	—		(0.9.1)		—		—		—		—		(9.1)		~~(0.9)~~
Reclassification of net parent investment to common stock and additional paid-in capital	133.4	1.3		—	—		—		(214.5)		213.2				—				—
Balance at December 27, 2020	134.5	1.3		—	—		12.0		67.7				(11.6)				69.4
Dividend paid to KAR	—	—		—	—		—		—		(1,278)				—				(1,278.0)
Net income	—	—		—	—		—		294.4				—				294.4
Net transfer to parent and affiliates	—	—		—	—		—		—		379.8				—				379.8
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—				(2.8)				(2.8)
Balance at December 29, 2019	133.6	1.3		—	—		3.5		(127.1)		—				(14.9)				(137.2)
Purchase of treasury stock	(0.7)	—		0.7	(34.0)		—		—				—				(34.0)
Net income	—	—		—	—		—		194.8		—				—				194.8
Stock-based compensation expense	—	—		—	—		11.4		—				—				11.4
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		—				3.3				3.3
Common stock issued for exercise and vesting of stock-based awards	—	—		—	—		1.0		—				—				1.0
Stock-based compensation expense	—	—		—	—		8.5		—		—				—				8.5
Common stock issued for employee stock purchase plan	0.5	—		—	—		1.6		—				—				1.6
Common stock issued for exercise and vesting of stock-based awards	1.1	—		—	—		8.1		—		—				—				8.1
Withholding taxes on stock-based awards	(0.1)	—		—	—		(7.4)		—				—				(7.4)
Common stock issued for employee stock purchase plan	—	—		—	—		1.0		—		—				—				1.0
Balance at January 2, 2022	134.2	1.3		0.7	(34.0)		18.6		362.1				(14.4)				333.6
Withholding taxes on stock-based awards	(0.2)	—		—	—		(9.1)		—		—				—				(9.1)
Net income	—	—		—			—		292.4				—				292.4
Balance at December 27, 2020	134.5	1.3		—	—		12.0		67.7		—				(11.6)				69.4
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—				(39.1)				(39.1)
Net income	—	—		—			—		294.4		—				—				294.4
Purchase of treasury stock	(0.7)	—		0.7	(27.2)		—		—				—				(27.2)
Foreign currency translation adjustments, net of tax	—	—		—	—		—		—		—				(2.8)				(2.8)
Stock-based compensation expense	—	—		—	—		13.0		—				—				13.0
Purchase of treasury stock	(0.7)	—		0.7	(34.0)		—		—		—				—				(34.0)
Common stock issued for exercise and vesting of stock-based awards	0.4	—		—	—		0.4		—				—				0.4
Stock-based compensation expense	—	—		—	—		11.4		—		—				—				11.4
Common stock issued for employee stock purchase plan	0.1	—		—	—		1.3		—				—				1.3
Common stock issued for exercise and vesting of stock-based awards	—	—		—	—		1.0		—		—				—				1.0
Withholding taxes on stock-based awards	(0.2)	—		—	—		(7.1)		—				—				(7.1)
Common stock issued for employee stock purchase plan	0.5	—		—	—		1.6		—		—				—				1.6
Balance at January 1, 2023	133.8	1.3		1.4	(61.2)		26.2		654.5				(53.5)				567.3
Withholding taxes on stock-based awards	(0.1)	—		—	—		(7.4)		—		—				—				(7.4)
Balance at January 2, 2022	134.2	$	1.3	0.7	$	(34.0)	$	18.6	$	362.1	$	—			$	(14.4)			$	333.6

See accompanying notes to consolidated financial statements

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IAA, Inc.

Consolidated Statements of Cash Flows

(In millions)

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Operating activities
Net income	$	~~294~~292.4	$	~~194~~294.84	$	~~193~~194.28
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	86105.56		8186.15		8881.41
Operating lease expense	~~153~~178.93		~~136~~153.79		~~118~~136.37
Provision for credit losses	1.4		41.4		14.84
Deferred income taxes	(05.78)		2.(0.7)		02.60
Loss on extinguishment of debt	~~10.3~~—		—10.3		—
Amortization of debt issuance costs	32.48		43.24		24.02
Stock-based compensation	1113.40		811.54		48.75
Change in contingent consideration liabilities	25.30		—2.3		—
Other non-cash, net	03.2		(0.7)2		(0.17)
Changes in operating assets and liabilities, net of acquisitions:
Operating lease payments	(~~147~~182.06)		(~~130~~147.90)		(~~119~~130.39)
Accounts receivable and other assets	~~(134~~18.4)0		(54134.34)		(2354.03)
Accounts payable and accrued expenses	29(32.40)		6429.24		464.62
Net cash provided by operating activities	~~311~~399.13		~~310~~311.01		~~271~~310.20
Investing activities
Acquisition of businesses (net of cash acquired)	~~(257.1)~~—		—(257.1)		~~(16.7)~~—
Purchases of property, equipment and computer software	(~~135~~178.63)		(69135.86)		(6869.58)
Proceeds from the sale of property and equipment	039.80		0.8		0.38
Other	(23.07)		—(2.0)		—
Net cash used by investing activities	(~~393~~143.90)		(69393.09)		(8469.90)
Financing activities
Net increase (decrease) in book overdrafts	2867.89		~~(33~~28.6)8		(2633.86)
Proceeds from debt issuance	~~815.0~~—		—815.0		~~1,305.5~~—
Payments on long-term debt	(~~774~~181.03)		(4774.0)		(274.50)
Dividend paid to KAR	—		—		(1,278.0)
Deferred financing costs	(0.1)		(4.8)		(2.9)
Net cash transfers to Parent and affiliates	—		—		(117.8)
Payments on finance leases	(11.3)		(12.7)		(14.3)
Deferred financing costs	(4.8)		(2.9)		(25.2)
Purchase of treasury stock	(27.2)		(34.0)		—
Payments on finance leases	(12.7)		(14.3)		(13.7)
Issuance of common stock under stock plans	0.4		1.0		8.1
Purchase of treasury stock	(34.0)		—		—
Proceeds from issuance of employee stock purchase plan shares	1.3		1.6		1.0
Issuance of common stock under stock plans	1.0		8.1		1.6
Tax withholding payments for vested RSUs	(7.1)		(7.4)		(9.1)
Proceeds from issuance of employee stock purchase plan shares	1.6		1.0		—
Payment of contingent consideration	(54.7)		(1.3)		(1.5)
Tax withholding payments for vested RSUs	(7.4)		(9.1)		(0.9)
Net cash (used) provided by financing activities	(212.1)		12.2		(56.3)
Payment of contingent consideration	(1.3)		(1.5)		—
Effect of exchange rate changes on cash and restricted cash	(10.7)		0.2		1.0
Net cash provided (used) by financing activities	12.2		(56.3)		(182.8)
Net increase (decrease) in cash, cash equivalents and restricted cash	33.5		(70.4)		185.7
Effect of exchange rate changes on cash and restricted cash	0.2		1.0		(4.7)
Cash, cash equivalents and restricted cash at beginning of period	162.4		232.8		47.1
Net (decrease) increase in cash, cash equivalents and restricted cash	(70.4)		185.7		(1.2)
Cash, cash equivalents and restricted cash at end of period	$	195.9	$	162.4	$	232.8
Cash, cash equivalents and restricted cash at beginning of period	232.8		47.1		48.3
Cash paid for interest, net	$	50.1	$	45.2	$	53.7
Cash, cash equivalents and restricted cash at end of period	$	162.4	$	232.8	$	47.1
Cash paid for taxes, net	$	84.6	$	90.0	$	59.7
Cash paid for interest, net	$	45.2	$	53.7	$	29.8
Cash paid for taxes, net	$	90.0	$	59.7	$	71.8

See accompanying notes to consolidated financial statements

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Fiscal Years Ended

January 2, 2022

December 27, 2020

December 29, 2019

January 1, 2023

January 2, 2022

December 27, 2020

Reconciliation of cash, cash equivalents and restricted cash reported in balance sheets

Cash and cash equivalents

~~109~~195.49

~~232~~109.84

47232.18

Restricted cash

~~53.0~~—

—53.0

—

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

~~162~~195.49

~~232~~162.84

47232.18

See accompanying notes to consolidated financial statements

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IAA, Inc.

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation

Description of Business

IAA, Inc., together with its subsidiaries (collectively referred to herein as “IAA” and "“the Company"”) is a leading global digital 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~~210 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 products 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 online 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~~from ~~Distribution~~KAR Auction Services, Inc. ("KAR")

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 IAA (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~~also aentered ~~dividend~~into tovarious ~~KAR~~ancillary ofagreements ~~$1,278.0 million, which included $456.6 million~~ to ~~settle~~effect ~~intercompany~~the ~~debt~~Separation and ~~$40.9~~provide ~~million~~a framework for ~~certain fixed assets transferred to~~ the Company's byrelationship with KAR onafter the Separation ~~Date~~. ~~The~~For ~~Company~~further ~~also~~information ~~paid~~regarding ~~KAR~~these ~~$117.8 million~~agreements, onsee ~~the~~Note ~~Separation~~3 ~~Date~~- toRelationship ~~settle~~with ~~other~~KAR ~~intercompany~~and ~~accounts~~Related ~~in connection with the Separation~~Entities.

InProposed 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 3 - Relationship with KAR and Related Entities.Merger

~~Basis~~On November 7, 2022, the Company entered into the Agreement and Plan of ~~Presentation~~Merger and Reorganization (as amended or otherwise modified prior to January 22, 2023, the “Original Merger Agreement”) with Ritchie Bros. Auctioneers Incorporated, a company organized under the federal laws of Canada and its subsidiaries (collectively referred to as “RBA”). On January 22, 2023, the Company, RBA and the other parties to the Original Merger Agreement entered into the Amendment to the Agreement and Plan of Merger and Reorganization (such amendment, the “Merger Agreement Amendment” and, together with the Original Merger Agreement, as it may be further amended or modified from time to time, the “Merger Agreement”). Per the terms and conditions set forth in the Merger Agreement, at the effective time of the merger, each issued and outstanding share of common stock of the Company (other than certain customary excluded shares) as of immediately prior to such effective time will be converted automatically into the right to receive (A) 0.5252 of a common share, without par value, of RBA (“RBA Common Shares”) and (B) $12.80 in cash, without interest and less any applicable withholding taxes (together, the “Merger Consideration”). The Company's stockholders will receive cash in lieu of any fractional RBA Common Shares to which they would otherwise be entitled. In connection with the Merger Agreement Amendment, the Company also entered into a cooperation agreement (the “Cooperation Agreement”) with Ancora Holdings Group, LLC and/or its applicable affiliates (“Ancora”) regarding the mergers, the membership and composition of the Company’s Board of Directors in certain circumstances and related matters, as well as Ancora’s commitment to appear and vote its shares, representing approximately 4% of the Company’s voting power as of the date of the Cooperation Agreement, in favor of the mergers and related proposals at the special meeting of Company’s stockholders to consider and vote on the adoption of the Merger Agreement and approval of the transactions contemplated thereby and certain other matters.

~~Until~~Consummation of the ~~Separation~~mergers ~~Date,~~is ~~the~~subject ~~Company~~to ~~operated~~the assatisfaction aof ~~separate~~various ~~reportable~~conditions, ~~segment~~including, ~~within~~among ~~KAR~~other ~~and~~things, ~~since~~(1) the ~~Separation~~approval ~~Date,~~of the ~~Company~~issuance ~~has~~of ~~operated~~RBA ~~independently~~Common ~~from~~Shares ~~KAR.~~by ~~The accompanying consolidated financial statements for~~ the ~~period~~affirmative ~~from~~vote ~~December~~of ~~31,~~a ~~2018,~~majority toof the ~~Separation~~votes ~~Date,~~cast ~~and~~by ~~notes~~holders ~~related~~of outstanding ~~thereto~~RBA ~~have~~Common ~~been~~Shares, ~~prepared~~(2) ~~from~~the ~~KAR’s~~adoption ~~historical~~of ~~accounting~~the ~~records~~Merger ~~and~~Agreement by ~~are~~holders ~~presented~~of on a ~~stand-alone~~majority ~~basis~~of ~~as if IAA's operations had been conducted independently from KAR for all periods prior to~~ the ~~Separation~~outstanding ~~Date.~~shares ~~Accordingly,~~of ~~prior to~~ the ~~Separation Date, KAR~~Company’s ~~net~~common ~~investment~~stock inand ~~these operations~~ (~~"Net Parent Investment"~~3) ~~was~~other ~~shown~~customary inclosing ~~lieu of stockholder’s equity (deficit) in the consolidated financial statements~~conditions. The Company’s ~~historical~~currently ~~results of operations~~operates, ~~financial position~~ and ~~cash~~until ~~flows~~completion ~~presented in the consolidated financial statements may not be indicative~~ of ~~what they would have been had~~ the ~~Company~~mergers ~~actually~~will ~~been~~continue ato ~~separate stand-alone entity during such periods~~operate, ~~nor~~independently ~~are they necessarily indicative~~ of ~~the Company's future results of operations, financial position and cash flows~~RBA.

4555

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Notes to Consolidated Financial Statements (Continued)

~~IAA~~In isconnection ~~comprised~~with ofthe ~~certain~~mergers, ~~stand-alone~~the ~~legal~~Company ~~entities~~has ~~for~~agreed ~~which~~to ~~discrete~~pay ~~financial~~J.P. ~~information~~Morgan isa ~~available.~~transaction ~~The~~fee ~~consolidated~~of ~~statements~~0.65% of ~~income~~the ~~include~~transaction ~~all~~value ~~revenues~~(which ~~and~~is ~~costs~~generally ~~directly~~defined ~~attributable~~as tothe ~~IAA,~~enterprise ~~including~~value ~~costs~~of ~~for~~the ~~functions~~transaction ~~and~~based ~~services~~on ~~used~~the byconsideration ~~the~~RBA ~~Company.~~has ~~Prior~~agreed to ~~the~~provide ~~Separation~~in ~~Date~~the mergers), ~~certain~~less ~~shared~~$0.5 million, ~~costs~~of ~~were~~which ~~directly~~$3.0 million ~~charged~~became topayable ~~the Company~~ by ~~KAR~~IAA ~~based~~to onJ.P. ~~specific~~Morgan ~~identification~~in orconnection ~~other~~with ~~allocation methods~~J.P. ~~The Company~~Morgan’s ~~results~~delivery of ~~operations~~a prior toopinion, ~~the~~dated ~~Separation~~November ~~Date~~6, ~~also~~2022, ~~include~~$1.5 million ~~allocations~~ of ~~costs~~which ~~for~~became ~~administrative~~payable ~~functions~~by ~~and~~IAA ~~services~~to ~~performed~~J.P. onMorgan ~~behalf~~in ofconnection ~~the~~with ~~Company~~J.P. byMorgan’s ~~centralized~~delivery ~~staff~~of ~~groups~~its ~~within~~opinion ~~KAR.~~dated ~~Current~~January ~~and~~22, ~~deferred~~2023 ~~income~~in ~~taxes~~connection ~~and~~with ~~related~~the ~~tax~~mergers, ~~expense~~and ~~have~~the ~~been~~balance ~~determined~~of ~~based~~which onbecomes ~~the~~payable ~~Company's~~upon ~~stand-alone~~closing ~~results~~of bythe ~~applying~~mergers. ~~Financial~~IAA ~~Accounting~~has ~~Standards~~also ~~Board~~agreed ~~(“FASB”)~~to ~~Accounting~~reimburse ~~Standards~~J.P. ~~Codification~~Morgan ~~(“ASC”)~~for ~~740, Income~~its ~~Taxes,~~expenses toincurred ~~the~~in ~~Company’s~~connection ~~operations~~with inthe ~~each~~mergers, ~~country~~including asthe iffees ~~the~~and ~~Company~~disbursements ~~was~~of acounsel, ~~separate~~and ~~taxpayer~~will (iindemnify J.eP., ~~following~~Morgan ~~the~~against ~~separate~~certain ~~return~~liabilities ~~methodology).~~arising ~~Allocation~~out ~~methodologies~~of ~~were~~J.P. ~~applied~~Morgan’s toengagement. ~~certain~~In ~~shared~~addition, ~~costs~~in toconnection ~~allocate~~with ~~amounts~~the tomergers, ~~the~~IAA ~~Company~~is asalso ~~discussed~~responsible ~~further~~for inthe ~~Note~~fees 3and -expenses ~~Relationship~~of ~~with~~its ~~KAR~~own counsel and ~~Related~~other ~~Entities~~advisors.

In addition, under the Merger Agreement, the Company is permitted to establish a transaction bonus program for employees, including certain executive officers, providing for cash payments of up to $6.0 million that will become payable on the closing of the mergers, subject to the employee’s continued employment through such date. The Company is also permitted under the Merger Agreement to establish a retention bonus program for employees, including certain executive officers, providing for cash retention bonuses of up to $19.0 million that will be payable subject to continued employment for at least a period of time after closing of the mergers.

The consolidated financial statements of the Company were prepared without consideration of the pending mergers.

Basis of Presentation

The consolidated financial statements of the Company include the accounts of the parent company and its wholly-owned subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.

Note 2—Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of IAA and all of its wholly owned subsidiaries. Intercompany transactions and balances between consolidated IAA businesses have been eliminated. ~~All significant intercompany transactions with KAR are deemed to have been paid in the period the cost was incurred.~~ The financial results of acquired businesses have been included in the Company'’s consolidated financial statements from the date of acquisition.

Fiscal Periods

The Company's fiscal year consists of 52 weeks with every fifth year consisting of 53 weeks and ending either the last Sunday in December or the first Sunday in January. Fiscal 2022 contained 52 weeks, fiscal 2021 contained 53 weeks, and fiscal 2020 ~~and fiscal 2019~~ contained 52 weeks.

Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("“GAAP"”). The preparation of the consolidated financial statements in conformity with 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 changes in contingent liabilities, litigation and other loss contingencies.

Business Segments

The Company has two operating segments: United States, and 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. See Note - 15 - Segment Information ~~in the notes to consolidated financial statements~~ for additional information.

~~Foreign Currency~~56

The local currency is the functional currency for each of the Company's foreign entities. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at average exchange rates in effect during the period. Assets and liabilities of foreign operations are translated using the exchange rates in effect at year end. Foreign currency transaction gains and losses are included in the Consolidated Statements of Income within "Other (expense) income, net" and resulted in a loss of $0.3 million for the year ended January 2, 2022, a gain of $0.3 million for the year ended December 27, 2020, and a loss of $0.2 million for the year ended December 29, 2019. Adjustments arising from the translation of net assets located outside the U.S. (gains and losses) are included in the Consolidated Balance Sheets within "Accumulated other comprehensive loss".

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

Foreign Currency

The local currency is the functional currency for each of the Company’s foreign entities. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at average exchange rates in effect during the period. Assets and liabilities of foreign operations are translated using the exchange rates in effect at year end. Foreign currency transaction gains and losses are included in the consolidated statements of income within “Other (expense) income, net” and resulted in a loss of $5.1 million for the year ended January 1, 2023, a loss of $0.3 million for the year ended January 2, 2022, and a gain of $0.3 million for the year ended December 27, 2020. Adjustments arising from the translation of net assets located outside the U.S. (gains and losses) are included in the consolidated balance sheets within “Accumulated other comprehensive loss”.

Cash Equivalents

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. These investments are valued at cost, which approximates fair value. The Company did not have a cash equivalents balance at January 1, 2023 or January 2, 2022.

Restricted Cash

Restricted cash ~~relates~~as of January 2, 2022 related to the amount held in an escrow account to fund the remaining purchase price of the Company'’s acquisition of SYNETIQ Ltd. ("“SYNETIQ"”), ~~which~~and iswas ~~contingent~~paid out during the first quarter of fiscal 2022 upon receipt of required approvals from the U.K. Competition and Markets Authority. See Note - 4 - Acquisitions ~~in the notes to consolidated financial statements~~ for additional information related to the SYNETIQ acquisition.

Accounts Receivable

Accounts receivable primarily include the unremitted purchase price of vehicles purchased by third parties at the auctions, fees to be collected from those buyers and amounts due for services provided by the Company related to certain consigned vehicles in the Company'’s possession, including advance charges paid on the seller'’s behalf. The amounts due with respect to the consigned vehicles are generally deducted from the sales proceeds upon the eventual auction or other disposition of the related vehicles. Due to the nature of the Company'’s business, substantially all accounts receivable are due from salvage buyers and insurance companies. The Company has possession of vehicles or vehicle titles collateralizing a significant portion of the accounts receivable.

In addition, accounts receivable include amounts to be collected from landlords of certain leased facilities for reimbursement of leasehold improvements.

Accounts receivable are reported net of an allowance for credit losses. The allowance for credit losses is based on management'’s evaluation of the accounts receivable portfolio under current conditions, the volume of the portfolio, overall portfolio credit quality, review of specific collection issues and such other factors which in management'’s judgment merit recognition in estimating losses.

Prepaid Consigned Vehicle Charges

Prepaid consigned vehicle charges include the inbound tow, titling costs and enhancement charges associated with a consigned vehicle. These prepaid charges are recorded in cost of services at the date the vehicle is sold and revenue is recognized.

Other Current Assets

Other current assets consist of inventories, prepaid expenses, taxes receivable and other miscellaneous assets. The inventories, which consist of vehicles acquired under purchase agreement contracts, are accounted for on the specific identification method and are stated at the lower of cost or net realizable value. Inventories included in Other current assets were $4951.74 million and $1449.67 million at January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022, respectively.

~~Leases~~57

The Company has entered into lease arrangements mainly for property, software, vehicles, furniture and fixtures. The Company determines if an arrangement is a lease at inception. The Company classifies leases as finance leases when there is either a transfer of ownership of the underlying asset by the end of the lease term, the lease contains an option to purchase the asset that the Company is reasonably certain will be exercised, the lease term is for the major part of the remaining economic life of the asset, the present value of the lease payments and any residual value guarantee equals or substantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease term. When none of these criteria are met, the Company classifies leases as operating leases.

The Company includes options to extend or terminate the lease in its determination of lease term when it is reasonably certain that the Company will exercise that option. The Company considers leases with an initial term of 12 months or less as short-term in nature and does not record such leases on the balance sheet. The Company records all other leases on the balance sheet with right of use ("ROU") assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. The Company recognizes ROU assets and lease liabilities at the commencement date based on the present value of the lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments as the implicit rate within the leases is generally not determinable. The ROU assets include present

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Notes to Consolidated Financial Statements (Continued)

value of lease payments to be made, initial direct costs incurred and prepaid lease payments and exclude lease incentives. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Leases

The Company includes options to extend or terminate the lease in its determination of lease term when it is reasonably certain that the Company will exercise that option. The Company considers leases with an initial term of 12 months or less as short-term in nature and does not record such leases on the balance sheet. The Company records all other leases on the balance sheet with right of use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. The Company recognizes ROU assets and lease liabilities at the commencement date based on the present value of the lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments as the implicit rate within the leases is generally not determinable. The ROU assets include present value of lease payments to be made, initial direct costs incurred and prepaid lease payments and exclude lease incentives. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, such as fixed maintenance costs, which are accounted for separately. For certain equipment leases, the Company accounts for the lease and non-lease components as a single lease component in calculating ROU assets and lease liabilities.

Goodwill

Goodwill ~~represents~~is calculated as the excess of ~~cost~~consideration paid over fair value of identifiable net assets of businesses acquired. Goodwill is tested for impairment annually in the fourth quarter, or more frequently as impairment indicators arise.

ASC 350, Intangibles—Goodwill and Other, permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined through the qualitative assessment that a reporting unit'’s fair value is more likely than not greater than its carrying value, the quantitative assessment would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment.

Under the quantitative assessment, the fair value of each reporting unit is compared with its carrying value (including goodwill). The fair value of the reporting unit is determined using income approach (discounted cash flows) and market approach (market multiples of companies in similar lines of business). If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired. If the carrying value of the reporting unit exceeds its fair value, the difference, up to the amount of goodwill recorded for the reporting unit, is recognized as an impairment.

Intangible Assets

Intangible assets generally consist of customer relationships, tradenames, computer software and technology, and non-compete agreements which, if ~~amortized~~finite-lived, are amortized ~~using the straight-line method. Customer relationships are amortized~~ over ~~the~~their ~~life~~estimated ~~determined~~useful inlives ~~the~~using ~~valuation of~~ the ~~particular~~straight-line ~~acquisition~~method. Tradenames with indefinite lives are not amortized. Costs incurred related to software and technology developed or obtained for internal use are capitalized during the application development stage of software development ~~and amortized over their estimated useful lives~~. The ~~non-compete agreements are amortized over the life of the agreements. The~~ amortization periods of finite-lived intangible assets are re-evaluated periodically when facts and circumstances indicate that revised estimates of useful lives may be warranted. Indefinite-lived tradenames are assessed for impairment, in accordance with ASC 350, annually in the fourth quarter or more frequently as impairment indicators arise. At the end of each assessment, a determination is also made as to whether the tradenames still have an indefinite life.

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method at rates intended to depreciate the costs of assets over their estimated useful lives. Upon retirement or sale of property and equipment, the cost of the disposed assets and related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to selling, general and administrative expenses. Expenditures for normal repairs and maintenance are charged to expense as incurred. Additions and expenditures for improving or rebuilding existing assets that extend the useful life are capitalized. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.

Other Assets

Other assets consist of deposits and other miscellaneous long-term assets.

Impairment of Long-Lived Assets

Management reviews right-of-use assets, property and equipment, customer relationships and other intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The determination includes evaluation of factors such as current market value, future asset utilization, business climate, and future cash flows expected to result from the use of the related assets. If the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, a loss is recognized in the period to the extent that the carrying amount exceeds the fair value of the asset. The impairment analysis is based on the Company'’s current business strategy, expected growth rates and estimated future economic and regulatory conditions.

48During the third quarter of fiscal 2022, the Company updated its forecasts which resulted in a decline in the International reporting unit’s operating results and projections. The Company identified this as a triggering event and determined that the carrying amount of certain long-lived assets should be evaluated for impairment at October 2, 2022. The Company compared the undiscounted cash flows of these long-lived assets with the carrying value and determined that their fair value exceeded the carrying value by a significant amount and, therefore, no impairment was recorded.

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Notes to Consolidated Financial Statements (Continued)

Accounts Payable

Accounts payable include amounts due to sellers from the proceeds of the sale of their consigned vehicles less any fees, as well as book overdrafts. Book overdrafts represent outstanding checks in excess of funds on deposit. The Company had $2896.87 million book overdrafts at January 21, ~~2022~~2023, and ~~zero~~$28.8 million book overdrafts at ~~December~~January 272, ~~2020~~2022.

Self-Insurance Reserves

The Company self-insures a portion of employee medical benefits, as well as a portion of its automobile, general liability and workers'’ compensation claims. The Company has insurance coverage that limits the exposure on individual claims. The cost of the insurance is expensed over the contract periods. Utilizing historical claims experience, the Company records an accrual for the claims related to its employee medical benefits, automobile, general liability and workers'’ compensation claims based upon the expected amount of all such claims, which includes the cost of claims that have been incurred but not reported. Accrued medical benefits and worker'’s compensation expense are recorded in "“Accrued employee benefits and compensation expenses"” and was $6.28 million and $6.62 million at January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022, respectively. Accrued automobile and general liability expenses are recorded in "“Other accrued expenses"” and amounted to $1.51 million and $1.35 million at January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022, respectively.

Environmental Liabilities

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in "Other accrued expenses" at undiscounted amounts and exclude claims for recoveries from insurance or other third parties.

Unamortized Debt Issuance Costs

Debt issuance costs reflect the expenditures incurred in conjunction with the term loan facility, the revolving credit facility, and the senior notes. The debt issuance costs are amortized to interest expense using the effective interest method or the straight-line ~~method, as applicable, over the lives of the related debt issues. Debt issuance costs are presented as a reduction from the carrying amount of the related debt liability.~~

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Notes to Consolidated Financial Statements (Continued)

method, as applicable, over the lives of the related debt issues. Debt issuance costs are presented as a reduction from the carrying amount of the related debt liability.

Revenue Recognition

The Company generates its revenues from contracts with customers. The Company recognizes revenue when control of the promised goods or services are transferred to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. The Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation. The Company then determines when the goods or services are transferred to the customer in order to determine the timing of revenue recognition.

The Company has disaggregated revenue at the product level by Services and Vehicle Sales, as well as geographically by the United States and International. See Note 15 - Segment Information for disaggregated revenue.

Service Revenues

Service revenues include auction and auction related fees for all vehicles sold by the Company. The Company does not take title to vehicles that are consigned to the Company by the seller and records auction fees on those vehicles on a net basis because it has no influence on the vehicle auction selling price agreed to by the seller and the buyer at the auction. The buyer fees are typically based on a tiered structure with fees increasing with the sale price of the vehicle, while the seller fees are typically fixed. The Company generally enforces its rights to payment for seller transactions through net settlement provisions following the sale of a vehicle. Greater than 90% of the Company'’s revenue is generated at the time of auction as a result of the satisfaction of the seller and buyer performance obligations as described below.

The Company'’s contracts with sellers are short-term in nature. The performance obligation contained within the Company's auction contracts for sellers is to facilitate the remarketing of salvage vehicles, including the inbound tow, processing, storage, titling, enhancing and sale at auction. These services are related to facilitating the sale of vehicles and are not distinct within the context of the contract. Accordingly, revenue for these services is recognized when the single performance obligation is satisfied at the point in time when the vehicle is sold through the auction process. Related costs are deferred and recognized at the time of sale.

49The Company’s contracts with buyers are short-term in nature and are generally established via purchase at auction, subject to standard terms and conditions. These contracts contain a single performance obligation, which is satisfied at a point in time when the vehicle is purchased through the auction process. Buyers also pay a fixed registration fee to access the auctions for a one-year term in addition to the fees paid upon purchase of a vehicle. The performance obligation to provide access to the auctions, associated with the registration, is satisfied ratably over the one- or two-year contractual term of the buyer agreement. Accordingly, registration fee revenue is recognized ratably over the one- or two-year contract term. The Company also offers other services to buyers such as transportation, storage, vehicle condition reporting, and other ancillary services. Revenue from such services is recognized in the period in which such services are provided.

Vehicle and Parts Sales

Vehicle and parts sales represent the selling price of the vehicles, vehicle parts and scrap associated with vehicles purchased by the Company. The Company’s performance obligation is the completion of the sale process. Revenue is recognized at the point in time when the control of the vehicle, vehicle parts or scrap is transferred to the customer, which generally occurs upon delivery to the carrier or the customer. Since the Company acts as a principal in the sale process, the sales price for the vehicle or vehicle parts and scrap is recorded as revenue on a gross basis. Buyer fees associated with vehicle sales are recorded in Service Revenue.

There were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheets as of January 1, 2023 and January 2, 2022. For each of the Company’s primary revenue streams, cash flows are consistent with the timing of revenue recognition.

For the years ended January 1, 2023 and January 2, 2022, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.

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Notes to Consolidated Financial Statements (Continued)

satisfied at the point in time when the vehicle is sold through the auction process. Related costs are deferred and recognized at the time of sale.

The Company's contracts with buyers are short-term in nature and are generally established via purchase at auction, subject to standard terms and conditions. These contracts contain a single performance obligation, which is satisfied at a point in time when the vehicle is purchased through the auction process. Buyers also pay a fixed registration fee to access the auctions for a one-year term in addition to the fees paid upon purchase of a vehicle. The performance obligation to provide access to the auctions, associated with the registration, is satisfied ratably over the one-year contractual term of the buyer agreement. Accordingly, registration fee revenue is recognized ratably over the one-year contract term. The Company also offers other services to buyers such as transportation, storage, vehicle condition reporting, and other ancillary services. Revenue from such services is recognized in the period in which such services are provided.

Vehicle Sales

Vehicle sales represent the selling price of the vehicles that are purchased by the Company and then resold. Buyer fees associated with vehicle sales are recorded in Service Revenue. The Company's performance obligation for these purchased vehicles is the completion of the online auction process and is satisfied at the point in time when the vehicle is sold through the auction process. As the Company acts as a principal, the vehicle sales price is recorded as revenue on a gross basis when the vehicle is sold.

There were no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheets as of January 2, 2022 and December 27, 2020. For each of the Company's primary revenue streams, cash flows are consistent with the timing of revenue recognition.

For the years ended January 2, 2022 and December 27, 2020, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.

Income Taxes

The Company files federal, state and foreign income tax returns in accordance with the applicable rules of each jurisdiction. The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes. The provision for income taxes includes federal, foreign, state and local income taxes payable, as well as deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

In accordance with ASC 740, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation under ASC 718, Compensation—Stock Compensation. The Company recognizes all stock-based compensation as expense in the financial statements over the vesting period and that cost is measured as the fair value of the award at the grant date for equity-classified awards. The Company also recognizes the impact of forfeitures as they occur and excess tax benefits and tax deficiencies related to employee stock-based compensation within income tax expense.

Customer Concentration

The auction of each salvage vehicle includes a sell fee paid by the provider and a buy fee paid by the purchaser of the vehicle. No single provider customer or buyer customer accounted for more than 10% of consolidated revenues in any period presented. During fiscal 2022, approximately 40% of consolidated revenues were associated with vehicles supplied by the Company’s four largest provider customers in the United States segment.

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of accounts receivable. The Company maintains cash and cash equivalents with various major financial institutions. The Company performs periodic evaluations of the relative credit standing of these financial institutions and companies and limits the amount of credit exposure with any one institution. The Company maintains its cash in accounts which may at times exceed Federal Deposit Insurance Corporation insured limits. The Company has not experienced any losses in such accounts. Due to the nature of our business, substantially all of the Company'’s accounts receivable are due from vehicle dealers, salvage buyers and insurance companies. The Company has possession of vehicles or vehicle titles collateralizing a significant portion of the trade receivables. The risk associated with this concentration is limited due to the large number of accounts and their geographic dispersion.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

• Level 1: Inputs that are based upon quoted prices in active markets for identical assets or liabilities.

• Level 2: Inputs, other than quoted prices included within Level 1, which are observable either directly or indirectly.

• Level 3: Unobservable inputs where there is little or no market activity for the asset or liability. These inputs reflect management'’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable and accrued liabilities approximate fair value because of the short-term nature of those instruments.

In November 2020, the Company entered into an agreement which grants the owner a right during fiscal years 2023 and 2024 to cause the Company to acquire certain assets (the "“Put Option"”) for a price based on a pre-defined formula. The carrying value of this Put Option is reported at fair value each reporting period. The Company measured and recognized the fair value of the Put Option using a Monte Carlo simulation. Key assumptions used in the valuation include discount rate, volume volatility, risk-free interest rate, cash flow projections and other details specific to the Put Option. The estimated fair value of the Put Option at January 2, 2022 and December 27, 2020 was zero and was categorized within Level 3 of the fair value hierarchy.

~~See Note 10 - Debt for fair value of debt.~~61

Net Parent Investment

The Consolidated Statements of Stockholders' Equity (Deficit) include net cash transfers and other property transfers between KAR and IAA and are presented as "Net Parent Investment". Prior to the Separation, KAR performed cash management and other treasury related functions on a centralized basis for nearly all of its legal entities, including IAA. The Net Parent Investment account includes assets and liabilities incurred by KAR on behalf of IAA, such as accrued liabilities related to corporate allocations including administrative expenses for accounting, treasury, information technology risk management, safety and security, human resources and other services. Other assets and liabilities recorded by KAR, whose related income and expenses have been pushed down to IAA, are also included in Net Parent Investment.

All intercompany transactions effected through Net Parent Investment were considered cash receipts and payments and are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows.

New Accounting Standards

Recently Issued and Adopted Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes in various areas. The adoption of ASU 2019-12 on December 28, 2020 did not have any impact on the Company's consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The Company adopted

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

of this ~~guidance~~Put inOption is reported at fair value each reporting period. The Company measured and recognized the ~~fourth~~fair ~~quarter~~value of ~~fiscal~~the ~~2021~~Put ~~retrospectively~~Option tousing ~~all~~a ~~business~~Monte ~~combinations~~Carlo ~~completed~~simulation. ~~since~~Key assumptions used in the ~~beginning~~valuation ofinclude ~~fiscal~~discount ~~2021~~rate, volume volatility, risk-free interest rate, cash flow projections and other details specific to the Put Option. The ~~adoption~~estimated fair value of ~~ASU~~the ~~2021-08~~Put ~~did~~Option ~~not~~at ~~have~~January 1, a2023 ~~material~~and ~~impact~~January 2, on2022 ~~the~~was ~~Company's~~zero ~~consolidated~~and ~~financial~~was ~~statements.~~categorized within Level 3 of the fair value hierarchy.

~~Recently~~See ~~Issued~~Note ~~Accounting~~10 ~~Pronouncements~~- ~~Not~~Debt ~~Yet~~for ~~Adopted~~fair value of debt.

New Accounting Standards

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

Note 3—Relationship with KAR and Related Entities

~~Prior~~In toconnection with the Separation ~~Date~~, the Company ~~was~~entered ~~managed~~into ~~and~~a ~~operated~~non-compete inand ~~the~~various ~~normal course of business with~~ other ~~affiliates~~ancillary ofagreements ~~KAR. Accordingly, certain shared costs have been allocated~~ to effect the ~~Company~~Separation and ~~reflected~~provide asa ~~expenses~~framework infor the ~~consolidated financial statements. The~~ Company's ~~considers~~relationship ~~the~~with ~~allocation methodologies used to be reasonable and appropriate reflections of historical expenses of~~ KAR ~~attributable~~after to the ~~Company~~Separation. ~~for~~These ~~purposes~~agreements ofnoted ~~the~~below ~~stand-alone~~govern ~~financial~~certain ~~statements;~~relationships ~~however,~~between the ~~expenses reflected in the consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the~~ Company ~~historically~~and ~~operated~~KAR asafter ~~a separate, stand-alone entity. In addition,~~ the ~~expenses reflected in these consolidated financial statements may not be indicative of expenses that will be incurred in the future by the Company~~Separation.

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 the Company's behalf, are reflected in 2019 Consolidated Statements of Cash Flows as a financing activity in “Net cash transfers to parent and affiliates.”

Corporate Costs/Allocations

These consolidated financial statements for fiscal 2019 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 consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if IAA 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 $2.8 million for fiscal year 2019. 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, no longer reflects these allocations in 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

The Company purchases goods and services from KAR’s other businesses. The cost of products and services obtained from these other businesses were not material for fiscal years 2021, 2020, and 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 mechanism in the event such business exceeds specified volume limits or other thresholds. The Company’s transactions with KAR relating to these non-compete provisions were not material for fiscal years 2022, 2021, and 2020.

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Notes to Consolidated Financial Statements (Continued)

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 mechanism in the event such business exceeds specified volume limits or other thresholds. The Company’s transactions with KAR relating to these non-compete provisions were not material for fiscal years 2021, 2020, and 2019.

Transition Services Agreement

Under the transition services agreement, KAR and its subsidiaries provided, on an interim, transitional basis, various services to the Company for a period of up to two years from the Separation Date. The services provided included information technology, accounts payable, payroll, and other financial functions and administrative services. From time to time, the Company also provided similar services to KAR under the transition services agreement. As of June 28, 2021, the Transition Service Agreement terminated in accordance with its term, and neither party is providing services to the other.

Tax Matters Agreement

The tax matters agreement generally governs the Company'’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 ended 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 4—Acquisitions~~62

2021 Acquisitions

SYNETIQ Ltd.

On October 26, 2021, IAA, through its indirect wholly owned subsidiary, IAA International Holdings Limited, acquired 100% of SYNETIQ, a leading integrated salvage and vehicle dismantling company in the United Kingdom, to expand its footprint in the United Kingdom. The cash purchase price for SYNETIQ, including working capital and other adjustments, was $314.2 million (£228.2 million), of which $260.2 million (£189.0 million) was paid out in the fourth quarter of fiscal 2021. The remaining payment of $54.0 million (£39.2 million) is contingent upon receipt of required approvals from the U.K. Competition and Markets Authority and is held in an escrow account, and presented as Restricted cash on the Consolidated Balance Sheets. The Company funded the acquisition with cash on hand and $100.0 million in borrowings under its 2021 Revolving Credit Facility (as defined in Note 10 - Debt).

This transaction is currently undergoing review by the U.K. Competition and Markets Authority. Revenues and pretax loss of SYNETIQ included in the Company’s consolidated statements of operations from the acquisition date of October 26, 2021 to January 2, 2022 were $35.3 million and $1.0 million, respectively. The transaction costs associated with the acquisition were approximately $6.5 million and were recorded in general and administrative expense during fiscal 2021.

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

	Fair Value
Cash	$	260.2
Fair value of contingent consideration*	51.4
Total fair value of consideration transferred	$	311.6

Note 4—Acquisitions

	Fair Value
Cash	$	7.1
Accounts receivable	4.7
Inventory	17.4
ROU assets	39.0
Property and equipment	12.3
Goodwill	256.6
Intangible assets	40.9
Other assets	1.4
Accounts payable and other accrued expenses	(17.6)
Operating lease liabilities	(39.0)
Other long-term liabilities	(11.2)
Net assets acquired	$	311.6

2021 Acquisitions

~~Given~~SYNETIQ the timing of the acquisition, the Company has not completed its determination of the fair value of assets acquired and liabilities assumed and the amounts shown in the table above are preliminary amountsLtd. The estimates and assumptions used in the preliminary analysis are subject to change if additional information, which existed as of the acquisition date, becomes known to the Company. Accordingly, there could be material adjustments to the preliminary fair values recorded during the measurement period.

~~The~~On ~~intangible~~October ~~assets~~26, 2021, IAA, through its indirect wholly owned subsidiary, IAA International Holdings Limited, acquired ~~related~~100% of SYNETIQ, a leading integrated salvage and vehicle dismantling company in the United Kingdom, to ~~developed~~expand ~~technology~~its ~~(useful~~footprint ~~life~~in 4the ~~years)~~United Kingdom. The cash purchase price for SYNETIQ, including working capital and ~~tradename~~other ~~(useful~~adjustments, ~~life~~was 5$314.2 million ~~years~~(£228.2 million), of which ~~will~~$260.2 million be(£189.0 million) ~~amortized~~was ~~over~~paid aout ~~weighted~~in ~~average-useful~~the ~~life~~fourth quarter of ~~approximately~~fiscal ~~4 years~~2021. The ~~relief~~remaining ~~from~~payment ~~royalty~~of ~~method~~$54.0 million ~~was~~(£39.2 million), ~~used~~which towas ~~value~~held ~~the~~in ~~developed~~an ~~technology~~escrow account, and ~~tradename.~~presented ~~This~~as ~~method~~Restricted ~~requires~~cash ~~forward~~on ~~looking~~the ~~estimates~~consolidated tobalance ~~determine~~sheets ~~fair~~as ~~value~~of January 2, ~~including~~2022, ~~among~~was ~~other~~paid ~~assumptions,~~out ~~forecasted~~during ~~revenue~~the ~~growth,~~first ~~obsolescence,~~quarter ~~and~~of ~~estimated~~fiscal ~~discount~~2022 upon receipt of required approvals from the U.K. Competition and ~~royalty~~Markets ~~rates~~Authority. The ~~goodwill~~Company ~~recognized~~funded ~~from~~the ~~this~~ acquisition ~~reflects~~with ~~expected~~cash ~~synergies~~on ~~resulting~~hand ~~from~~and ~~adding~~$100.0 million ~~SYNETIQ's~~in ~~products~~borrowings ~~and~~under ~~processes~~its to2021 ~~the~~Revolving ~~Company's~~Credit ~~products~~Facility ~~and~~(as ~~processes~~defined in Note 10 - Debt). The ~~acquired~~transaction ~~goodwill~~costs ~~has~~associated ~~been~~with ~~allocated~~the toacquisition ~~the~~were ~~International~~approximately ~~segment~~$6.5 million and iswere ~~deductible~~recorded ~~for~~in ~~tax~~general ~~purposes~~and administrative expense during fiscal 2021.

The Company finalized the purchase price allocation for the SYNETIQ acquisition during the three months ended July 3, 2022. Measurement period adjustments were not material. The following table summarizes the fair value of consideration transferred and the fair values of assets acquired and liabilities assumed as of the date of acquisition (in millions):


	October 26, 2021
Cash	$	260.2
Fair value of contingent consideration*	51.4
Total fair value of consideration transferred	$	311.6

*Recorded in Other accrued expenses line within the consolidated balance sheets.


	As Adjusted October 26, 2021
Cash	$	7.1
Accounts receivable	4.7
Inventory	17.4
ROU assets	39.0
Property and equipment	12.5
Goodwill	256.4
Intangible assets	41.3
Other assets	1.4
Accounts payable and other accrued expenses	(18.9)
Operating lease liabilities	(39.0)
Other long-term liabilities	(10.3)
Net assets acquired	$	311.6

The intangible assets acquired related to developed technology (useful life 4 years) and tradename (useful life 5 years), which will be amortized over a weighted average-useful life of approximately 4 years. The relief from royalty method was used to value the developed technology and tradename. This method requires forward looking estimates to determine fair value, including among other assumptions, forecasted revenue growth, obsolescence, and estimated discount and royalty rates. The goodwill recognized from this acquisition reflects expected synergies resulting from adding SYNETIQ’s products and processes to the Company’s products and processes. The acquired goodwill has been allocated to the International segment and is deductible for tax purposes.

The following unaudited pro forma financial information summarizes the combined results of operations for the Company and SYNETIQ, as though the companies were combined as of the beginning of the Company’s fiscal 2020 (in millions):

	Fiscal Year Ended
	January 2, 2022		December 27, 2020
Net revenue	$	2,011.1	$	1,575.4
Net income	297.9		179.3

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2020, and are not necessarily indicative of the Company's consolidated results of operations in future periods.

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Notes to Consolidated Financial Statements (Continued)

connection with the acquisition of SYNETIQ. In addition, fiscal 2021 pro forma net income was adjusted to exclude $6.5 million of acquisition-related costs incurred in fiscal 2021 and fiscal 2020 pro forma net income was adjusted to include these costs.


	Fiscal Year Ended
	January 2, 2022		December 27, 2020
Net revenue	$	2,011.1	$	1,575.4
Net income	297.9		179.3

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2020, and are not necessarily indicative of the Company’s consolidated results of operations in future periods.

The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets, accretion of contingent consideration and interest expense related to the borrowings under the Company’s 2021 Revolver Facility in connection with the acquisition of SYNETIQ. In addition, fiscal 2021 pro forma net income was adjusted to exclude $6.5 million of acquisition-related costs incurred in fiscal 2021 and fiscal 2020 pro forma net income was adjusted to include these costs.

Auto Exchange

On June 18, 2021, the Company acquired Marisat, Inc. d/b/a Auto Exchange ("“Auto Exchange"”), a salvage auction provider located in New Jersey. The estimated acquisition date fair value of the total consideration was $7.3 million, which consisted of $2.0 million of cash, and the fair value of contingent consideration of $5.3 million, $2.0 million of which was paid at closing and is subject to clawback provisions. The remaining contingent consideration with a fair value of $3.3 million is payable over 5 years subject to the achievement of certain performance targets.

The Company finalized the purchase price allocation for the Auto Exchange acquisition. The fair value of acquired customer relationships and other net assets was $4.1 million and $0.6 million, respectively. The $2.6 million excess of the purchase price consideration over the estimated fair value of the acquired net assets was recognized as goodwill and reflects expected synergies resulting from adding Auto Exchange'’s products and processes to the Company'’s products and processes. The acquired goodwill is allocated to the United States segment and is deductible for tax purposes.

The results of Auto Exchange are included in the Company'’s financial statements since the date of acquisition and did not have a material impact on the Company'’s financial statements and related disclosures for the periods presented. The costs incurred by the Company in connection with this acquisition were not material.

During ~~the~~fiscal ~~fourth~~2022 ~~quarter~~and of fiscal 2021, the Company recorded a charge of $1.9 million and $1.5 million, ~~charge~~respectively, in selling, general and administrative expenses to reflect an increase in the fair value of the contingent consideration liability.

2019 Acquisition

Decision Dynamics, Inc.

On July 31, 2019, the 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 Company finalized the purchase price allocation for the DDI acquisition. The fair value of acquired intangibles assets and other net liabilities assumed was $10.3 million and $0.6 million, respectively. The excess of the purchase price consideration over the estimated fair value of the acquired net assets of $9.5 million was recorded as goodwill.

The intangible assets acquired primarily related to customer relationships, developed technology and tradename, which will be amortized over 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 Company's products and processes. The acquired goodwill is allocated to the United States segment and is deductible for tax purposes.

Annual revenue for DDI was approximately $8.3 million in the twelve months prior to acquisition. The results of DDI are included in the Company's financial statements from the date of acquisition. The pro forma effects of this acquisition are not significant to the Company's reported results for any periods presented. Accordingly, no pro forma financial statements have been presented herein.

During fiscal 2019, the Company incurred costs of $0.2 million in connection with the DDI acquisition which is included in the Consolidated Statements of Income within "Selling, general and administrative" line. During fiscal 2021 and fiscal 2020, the Company paid contingent consideration of $1.3 million and $1.5 million, respectively, which is included in financing activities on the consolidated statements of cash flows.

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Notes to Consolidated Financial Statements (Continued)

Note 5—Stock and 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. Subsequent to 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.

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 business criteria, with respect to one or more business units or IAA and its subsidiaries as a whole. Such 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 January 2, 2022, the number of common shares reserved and available for awards under the 2019 OSIP is 4,756,029 shares, 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 extraordinary cash dividend, stock split, reorganization or other relevant changes 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.64

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 Company issues new shares to satisfy issuances of common stock upon exercise or vesting of stock awards.

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Notes to Consolidated Financial Statements (Continued)

~~The~~Participants ~~Company~~include ~~records~~any ~~stock-based~~employee, ~~compensation~~director, ~~expense~~independent incontractor ~~selling~~or consultant of IAA or any affiliate of IAA selected to receive awards under the 2019 OSIP, ~~general~~and, upon his or her death, his or her successors, heirs, executors and ~~administrative~~administrators, ~~expenses~~as the case may be. ~~The~~As ~~following~~of ~~table~~January 1, ~~summarizes~~2023, the ~~Company's~~number of common shares reserved and available for awards under the 2019 OSIP is 4,354,169 shares, subject to adjustment made in accordance with the 2019 OSIP. Upon the occurrence of certain corporate events that affect the common stock~~-based~~, ~~compensation~~including ~~expense~~but bynot ~~type~~limited to extraordinary cash dividend, stock split, reorganization or other relevant changes in capitalization, appropriate adjustments may be made with respect to the number of ~~award~~shares ~~granted~~available for grants under ~~both~~the 2019 OSIP, the ~~KAR~~number of shares covered by outstanding awards and ~~IAA~~the ~~plans (in~~maximum ~~millions):~~number of shares that may be granted to any participant.

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
Performance-based Restricted Stock Units	$	3.3	$	1.4	$	0.4
Restricted Stock Units and Awards	7.3		6.3		3.9
Stock Options	0.8		0.8		0.4
Total stock-based compensation expense	$	11.4	$	8.5	$	4.7

The Company recorded stock-based compensation expense of $13.0 million, $11.4 million and $8.5 million, respectively, during fiscal 2022, fiscal 2021 and fiscal 2020. As of January 21, ~~2022~~2023, an estimated $1214.84 million of unrecognized expense related to non-vested awards ~~under both KAR and IAA plans~~ is expected to be recognized over a weighted average term of approximately 1.56 years.

Performance-based Restricted Stock Units (PRSU)

Performance-based Restricted Stock Units	Awards	Weighted Average Grant Date Fair Value
Outstanding at December 27, 2020	98,871	$	49.65
Granted	79,181	62.18
Forfeited	(9,589)	56.86
Outstanding at January 2, 2022	168,463	55.13

During fiscal 2022, the Company granted 117,832 PRSUs to certain executive officers and certain other employees of the Company that will 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.

During fiscal 2022, the Company also granted 33,105 PRSUs to certain executive officers and certain other employees. The vesting of such awards is based upon the Company’s total stockholder return relative to the performance of a peer group over a three years performance period ending December 31, 2024. The grant date fair value of $42.18 per share underlying each PRSU award was calculated using a Monte Carlo simulation. The significant assumptions used to estimate the fair value were: grant date stock price of $38.37; term of 2.76 years; risk-free interest rate of 2.49%; expected volatility of IAA’s common stock of 45.48% and the average expected volatility of the common stock of the peer group of 45.18%; correlation coefficients of IAA of 0.60 and the peer group’s average of 0.72; and a dividend yield of 0.00%.

The following table summarizes the Company’s PRSU activity:


Performance-based Restricted Stock Units	Awards	Weighted Average Grant Date Fair Value
Outstanding at January 2, 2022	168,463	$	55.13
Granted	150,937	38.79

Forfeited	(7,228)	49.37
Outstanding at January 1, 2023	312,172	47.36

Restricted Stock Units (RSU)

Restricted Stock Units*	Awards	Weighted Average Grant Date Fair Value
Outstanding at December 27, 2020	771,711	$	33.68
Granted	134,589	62.77
Vested	(378,171)	34.20
Forfeited	(31,558)	43.88
Outstanding at January 2, 2022	496,571	40.46

The RSUs granted by the Company to certain executive officers and management of the Company are contingent upon continued employment and generally vest in three equal annual installments. The following table summarizes the Company’s

* IAA awards, including those held by KAR employees65

The total grant date fair value of shares that vested during fiscal 2021 was $12.9 million.

Restricted Stock Awards (RSA)

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

RSU activity:

Restricted Stock Awards	Awards	Weighted Average Grant Date Fair Value
Restricted Stock Units*	Awards	Weighted Average Grant Date Fair Value
Outstanding at December 27, 2020	8,694	$	42.99
Outstanding at January 2, 2022	496,571	$	40.46
Granted	17235,~~609~~933	5338.8818
Vested	(8381,~~694~~009)	4243.9945
Outstanding at January 2, 2022	17,609	53.88
Forfeited	(16,602)	47.95
Outstanding at January 1, 2023	334,893	44.82

~~The~~* ~~total~~IAA ~~grant~~awards, ~~date~~including ~~fair~~those ~~value~~held ofby ~~shares~~KAR ~~that vested during fiscal 2021 was $0.4 million.~~ employees

The total grant date fair value of shares that vested during fiscal 2022 was $13.3 million.

Restricted Stock Awards (RSA)

The RSAs granted by the Company to non-employee directors prior to fiscal 2021 vest in four equal installments over a one year vesting term. The RSAs granted by the Company to non-employee directors during and after fiscal 2021 vest in one installment on the earlier of the one-year anniversary date of the grant date or the day preceding the Company’s next annual meeting of stockholders following the date of grant. The following table summarizes the Company’s RSA activity:


Restricted Stock Awards	Awards	Weighted Average Grant Date Fair Value
Outstanding at January 2, 2022	17,609	$	53.88
Granted	30,826	35.00
Forfeited	(2,971)	35.00
Vested	(17,609)	52.88
Outstanding at January 1, 2023	27,855	35.00

The total grant date fair value of shares that vested during fiscal 2022 was $0.9 million.

Stock Options

The following table summarizes stock option activity:

Stock Options *	Number of Awards	WeightedAverageExercisePrice		WeightedAverageRemainingContractualTerm (in Years)	AverageIntrinsic Value(in millions)
Outstanding at December 27, 2020	365,376	$	30.80
Outstanding at January 2, 2022	280,232	$	35.63
Exercised	(7825,~~978~~169)	1211.9755
Canceled/Expired	(62,~~166~~000)	~~34.28~~
Outstanding at January 2, 2022	280,232	35.63		5.4	$	4.2
Outstanding at January 1, 2023	253,063	38.20		4.9	$	1.7
Exercisable at January 2, 2022	221,214	32.60		4.9	$	4.0
Exercisable at January 1, 2023	253,063	38.20		5.0	$	1.7

* IAA awards, including those held by KAR employees.

Stock Options	Number of Awards	WeightedAverageGrant-Date Fair Value
Outstanding at December 27, 2020	126,164	$	46.97
Vested	(67,146)	46.97
Outstanding at January 2, 2022	59,018	46.97

Employee Stock Purchase Plan

The Company adopted the IAA, Inc. Employee Stock Purchase Plan ("ESPP") on August 1, 2019. The ESPP is designed to provide an incentive to attract, retain and reward eligible employees and is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. A maximum of 1,000,000 shares of the Company's common stock have been reserved for issuance under the ESPP, of which 924,960 shares remained available for future purchases as of January 2, 2022. The ESPP provides for one month offering periods with a 15% discount from the fair market value of the Company's share on the date of purchase. A participant's annual contribution to the ESPP may not exceed $25,000 per year. Unless terminated earlier, the ESPP will terminate on December 31, 2028. In accordance with ASC 718, Compensation—Stock Compensation, the entire 15% purchase discount is recorded as compensation expense in the period of purchase. The Company's stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for purposes of computing basic and diluted earnings per share. Prior to the adoption of the ESPP, eligible employees participated in KAR's employee stock purchase plan which also provided for one month offering periods with a 15% discount from the fair market value of KAR's share on the date of purchase. Stock-based compensation expense recorded during

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

The total intrinsic value of stock options exercised during fiscal 2022 was $0.6 million. The following table summarizes the activity of non-vested stock options:

the fiscal years ended 2021, 2020 and 2019, in connection with the compensatory elements of the Company's and KAR's employee stock purchase plan, was not significant.


Stock Options	Number of Awards	Weighted Average Grant-Date Fair Value
Outstanding at January 2, 2022	59,018	$	46.97
Vested	(59,018)	46.97
Outstanding at January 1, 2023	—	—

Employee Stock Purchase Plan

The Company adopted the IAA, Inc. Employee Stock Purchase Plan (“ESPP”) on August 1, 2019. The ESPP was suspended in December 2022 pursuant to the Merger Agreement. The ESPP was designed to provide an incentive to attract, retain and reward eligible employees and was intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP provided for one month offering periods with a 15% discount from the fair market value of the Company’s share on the date of purchase. A participant’s annual contribution to the ESPP could not exceed $25,000 per year. In accordance with ASC 718, Compensation—Stock Compensation, the entire 15% purchase discount was recorded as compensation expense in the period of purchase. The Company’s stock purchased through the ESPP was considered outstanding and was included in the weighted-average outstanding shares for purposes of computing basic and diluted earnings per share. Stock-based compensation expense recorded during fiscal 2022, 2021 and 2020, in connection with the compensatory elements of the Company’s employee stock purchase plan, was not significant.

Note 6—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 and includes the effect of dilutive unissued common shares related to the Company'’s stock-based employee compensation program. The effect of stock options and restricted stock 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 summarizes the components of basic and diluted net income per share (in millions except per share amounts):

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Net income	$	~~294~~292.4	$	~~194~~294.84	$	~~193~~194.28
Weighted average common shares outstanding:
Basic	~~134~~133.79		134.17		~~133~~134.41
Effect of dilutive stock options and restricted stock awards	0.62		1.0.6		1.0
Diluted	~~135~~134.31		135.13		~~134~~135.41
Net income per share:
Basic	$	2.18	$	12.4518	$	1.45
Diluted	$	2.18	$	12.4418	$	1.44

	Fiscal Years Ended
	January 2, 2022	December 27, 2020	December 29, 2019
Anti-dilutive awards	—	0.2	0.2
Awards subject to performance conditions not fully satisfied	0.2	0.1	—
	0.2	0.3	0.2

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

~~Share Repurchase Program~~67

On August 2, 2021, the Company’s Board of Directors authorized a share repurchase program under which the Company can repurchase up to $400.0 million (exclusive of fees and commissions) of shares of its common stock (the “Repurchase Program”). The Repurchase Program expires on August 3, 2026. The shares under the Repurchase Program may be repurchased through open market, privately negotiated transactions, accelerated share repurchase transactions or other means, including

under plans complying with the provisions of Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and amount of common stock to be repurchased under this Repurchase Program will be subject to the discretion of the Company based upon market conditions and other opportunities the Company may have to deploy capital. The Repurchase Program does not obligate the Company to acquire any specific number of shares of its common stock, and the Repurchase Program may be suspended or discontinued at any time.

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Notes to Consolidated Financial Statements (Continued)

end of respective reporting periods:

During fiscal year 2021, the Company repurchased 677,854 shares for a gross purchase price of approximately $34.0 million pursuant to the Repurchase Program. As of January 2, 2022, approximately $366.0 million remained available under the Repurchase Program.


	Fiscal Years Ended
	January 1, 2023	January 2, 2022	December 27, 2020
Anti-dilutive awards	0.3	—	0.2
Awards subject to performance conditions not fully satisfied	0.3	0.2	0.1
	0.6	0.2	0.3

Share Repurchase Program

Pursuant to the Repurchase Program, the Company repurchased 751,285 shares of its common stock for an aggregate gross purchase price of approximately $27.2 million during fiscal 2022 and 677,854 shares for a gross purchase price of approximately $34.0 during fiscal 2021. As of January 1, 2023, approximately $338.8 million remained available under the Repurchase Program. Pursuant to the Merger Agreement, the Company is restricted from repurchasing shares of its common stock without RBA’s prior consent.

Note 7—Accounts Receivable and Allowance for Credit Losses

Components of accounts receivable, net were as follows (in millions):

	Fiscal Years Ended
	January 2, 2022		December 27, 2020
	January 1, 2023		January 2, 2022
Advance charges receivable	$	~~322~~319.76	$	~~239~~322.57
Trade accounts receivable	~~139~~131.82		~~126~~139.58
Other receivable	124.32		1612.83
Accounts receivable, gross	~~474~~455.80		~~382~~474.8
Less: Allowance for credit losses	(9.18)		(89.01)
Accounts receivable, net	$	~~465~~445.72	$	~~374~~465.87

The following is a summary of changes in the allowance for credit losses related to accounts receivable (in millions):

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Allowance for Credit Losses
Balance at beginning of period	$	89.01	$	48.20	$	34.32
Provision for credit losses	1.4		41.4		14.84
Less net charge-offs	(0.37)		(0.63)		(0.96)
Balance at end of period	$	9.18	$	89.01	$	48.20

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

Recoveries of accounts receivable were netted with charge-offs, as they were not material. Changes in exchange rates did not have a material effect on the allowance for credit losses.

Note 8—Goodwill and Other Intangible Assets

Goodwill represents the excess cost over fair value of identifiable net assets of businesses acquired. Changes in goodwill were as follows (in millions):

	United States		International		Total
Balance at December 29, 2019	$	496.0	$	45.3	$	541.3
Currency translation adjustments	—		1.0		1.0
Balance at December 27, 2020	$	496.0	$	46.3	$	542.3
Increase for acquisition activity (Note 4)	2.6		256.6		259.2
Increase for acquisition activities (Note 4)	2.6		256.6		259.2
Currency translation adjustments	—		(4.0)		(4.0)
Balance at January 2, 2022	$	498.6	$	298.9	$	797.5
Measurement period adjustments (Note 4)	—		0.2		0.2
Currency translation adjustments	—		(30.2)		(30.2)
Balance at January 1, 2023	$	498.6	$	268.9	$	767.5

60During the third quarter of fiscal 2022, the Company updated its forecasts which resulted in a decline in the International reporting unit’s operating results and projections. The Company identified this as a triggering event and determined that the carrying amount of the International reporting unit’s goodwill should be evaluated for impairment at October 2, 2022. The impairment test indicated that the fair value of the International reporting unit exceeded its carrying value and therefore no goodwill impairment was recorded.

During the fourth quarter of fiscal 2022, the Company performed a qualitative assessment for both the United States reporting unit and the International reporting unit. Based on this assessment, the Company concluded no impairment was required.

Components of intangible assets, net were as follows (in millions):


	January 1, 2023						January 2, 2022
	Gross Carrying Amount		Accumulated Amortization		Carrying Value		Gross Carrying Amount		Accumulated Amortization		Carrying Value
Customer relationships	$	373.4	$	(351.3)	$	22.1	$	376.3	$	(341.5)	$	34.8
Tradenames	68.5		(4.2)		64.3		69.1		(2.2)		66.9
Computer software & technology	352.7		(253.9)		98.8		301.7		(205.9)		95.8

Total	$	794.6	$	(609.4)	$	185.2	$	747.1	$	(549.6)	$	197.5

The table above includes the carrying amount of tradenames with an indefinite life, which was $56.0 million at each of January 1, 2023 and January 2, 2022. The weighted-average remaining useful life of intangible assets with a finite life was 2.7 years (3.7 years for customer relationships, 4.5 years for amortizable tradenames, and 2.3 years for computer software and technology) at January 1, 2023.

Amortization expense for intangibles assets was $62.5 million, $44.9 million and $38.1 million for the years ended January 1, 2023, January 2, 2022 and December 27, 2020, respectively. Future estimated amortization expense of the existing intangible

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

assets with finite life is as follows:

Components of intangible assets, net were as follows (in millions):


	Amount
Fiscal year 2023	$	60.8
Fiscal year 2024	41.3
Fiscal year 2025	20.3
Fiscal year 2026	3.2
Fiscal year 2027	0.8
Thereafter	2.8
Total	$	129.2

	January 2, 2022						December 27, 2020
	GrossCarryingAmount		AccumulatedAmortization		CarryingValue		GrossCarryingAmount		AccumulatedAmortization		CarryingValue
Customer relationships	$	376.3	$	(341.5)	$	34.8	$	371.7	$	(329.1)	$	42.6
Tradenames	69.1		(2.2)		66.9		58.6		(1.8)		56.8
Computer software & technology	301.7		(205.9)		95.8		224.6		(173.4)		51.2
Total	$	747.1	$	(549.6)	$	197.5	$	654.9	$	(504.3)	$	150.6

The table above includes the carrying amount of tradenames with an indefinite life, which was $56.0 million at each of January 2, 2022 and December 27, 2020. The weighted-average remaining useful life of intangible assets with a finite life was 3.2 years (4.0 years for customer relationships, 5.5 years for amortizable tradenames, and 2.7 years for computer software and technology) at January 2, 2022.

	Amount
Fiscal year 2022	$	55.7
Fiscal year 2023	44.0
Fiscal year 2024	24.2
Fiscal year 2025	10.6
Fiscal year 2026	3.3
Thereafter	3.7
Total	$	141.5

Note 9—Property and Equipment

Property and equipment consisted of the following (in millions):

Useful Lives(in years)

January 21, ~~2022~~2023

~~December~~January 272, ~~2020~~2022

Land

~~168~~177.40

~~114~~168.34

Building and leasehold improvements

1 - 30

~~328~~354.20

~~309~~328.32

Furniture, fixtures, equipment and vehicles

3 - 5

~~349~~372.5

~~305~~349.05

Construction in progress

2351.90

1323.19

870.0

741.7

954.5

870.0

Accumulated depreciation

(~~531~~570.97)

(~~481~~531.9)

Property and equipment, net

~~338~~383.18

~~259~~338.81

Depreciation expense for the years ended January 21, ~~2022~~2023, ~~December~~January 272, ~~2020~~2022 and December 2927, ~~2019~~2020 was $4143.61 million, $4241.96 million and $4442.19 million, respectively.

6170

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Notes to Consolidated Financial Statements (Continued)

Note 10—Debt

Debt consisted of the following (in millions):

	January 2, 2022		December 27, 2020
	January 1, 2023		January 2, 2022
2021 Term Loan Facility	~~650~~633.08		$	—650.0
2021 Revolving Credit Facility	~~165.0~~—		—165.0
2019 Term Loan Facility	—		774.0
Notes	500.0		500.0
Total debt	1,~~315~~133.08		1,~~274~~315.0
Unamortized debt issuance costs	(1310.15)		(2213.01)
Current portion of long-term debt	(~~181~~32.35)		(4181.03)
Long-term debt	$	1,~~120~~090.68	$	1,~~248~~120.06

Credit Facility

In connection with the Separation, on June 28, 2019, the Company, as borrower, entered into a credit agreement (the "“2019 Credit Agreement"”) which provided for, among other things: (i) a seven-year senior secured term loan facility in an aggregate principal amount of $800 million (the "“2019 Term Loan Facility"”) and (ii) a five-year revolving credit facility in an aggregate principal amount of $225.0 million (the "“2019 Revolving Credit Facility,"” and together with the Term Loan Facility, the "“2019 Credit Facility"”). On May 1, 2020, the Company entered into an amendment to its 2019 Credit Agreement to increase the aggregate principal amount able to be borrowed under the 2019 Revolving Credit Facility by $136.0 million to $361.0 million. ~~As of December 27, 2020, the interest rate per annum on the 2019 Term Loan Facility was 2.44% and no amounts were outstanding under the 2019 Revolving Credit Facility.~~ The 2019 Credit Agreement was terminated on April 30, 2021.

On April 30, 2021, the Company entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders from time to time party thereto (the "“2021 Credit Agreement"”). The 2021 Credit Agreement provides for, among other things: (i) a senior secured term loan in an aggregate principal amount of $650 million (the "“2021 Term Loan Facility"”) and (ii) a senior secured revolving credit facility with revolving commitments in an aggregate principal amount of $525 million (the "“2021 Revolving Credit Facility"” and, together with the 2021 Term Loan Facility, the "“2021 Credit Facility"”). Borrowing availability under the 2021 Revolving Credit Facility is subject to no default or event of default under the 2021 Credit Agreement having occurred at the time of borrowing. The proceeds of the 2021 Credit Facility were used, along with cash on hand, to repay in full all outstanding borrowings under the Company’s 2019 Term Loan Facility under its 2019 Credit Agreement. Future borrowings under the 2021 Revolving Credit Facility are expected to be used for the Company'’s ongoing working capital needs and general corporate purposes. The 2021 Credit Facility matures on April 30, 2026.

Borrowings under the 2021 Credit Agreement bore interest from April 30, 2021 until November 2, 2021, at a rate equal to either, (A) at the Company’s option, the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1.00% (the “Base Rate”) for base rate borrowings, or (B) one-month LIBOR for eurodollar borrowings, in each case, plus an applicable margin of 0.75% with respect to Base Rate borrowings and 1.75% with respect to eurodollar borrowings. Subsequent to November 2, 2021, borrowings under the 2021 Credit Agreement bear interest at (A) the Base Rate or (B) LIBOR, in each case plus an applicable margin ranging from 0.375% to 1.25% with respect to Base Rate borrowings and 1.375% to 2.25% with respect to eurodollar borrowings, in each case, depending on the Company’s Consolidated Net Leverage Ratio (as defined in the 2021 Credit Agreement). The 2021 Credit Agreement contains additional procedures for transition to a benchmark rate other than one-month LIBOR for eurodollar borrowings. The unused amount of the 2021 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% and 0.30% depending on the Company’s Consolidated Net Leverage Ratio.

As of January 21, ~~2022~~2023, the interest rate per annum for the 2021 Term Loan Facility and 2021 Revolving Credit Facility was 15.4876%.

The 2021 Credit Agreement requires the Company to comply with certain financial covenants, including a requirement that the Company’s Consolidated Net Leverage Ratio not exceed 4:00 to 1:00 as of the last day of any fiscal quarter, subject to certain exceptions for qualifying material acquisitions. Consolidated Net Leverage Ratio is defined as the ratio of Consolidated Total Debt (as defined in the 2021 Credit Agreement) to Consolidated EBITDA (as defined in the 2021 Credit Agreement). The

622021 Credit Agreement also contains other affirmative and negative covenants that are usual and customary for a senior secured credit agreement. The negative covenants include limitations on (i) the disposition of assets, (ii) mergers and acquisitions, (iii) restricted payments, including payment of future dividends, distributions and stock repurchases by the Company, (iv) the

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

2021 Credit Agreement also contains other affirmative and negative covenants that are usual and customary for a senior secured credit agreement. The negative covenants include limitations on (i) the disposition of assets, (ii) mergers and acquisitions, (iii) restricted payments, including payment of future dividends, distributions and stock repurchases by the Company, (iv) the incurrence of additional indebtedness, (v) permitted acquisitions and investments and (vi) the incurrence of additional liens on property. The 2021 Credit Agreement includes customary events of default. ~~The Company was in compliance with the covenants in the 2021 Credit Agreement at January 2, 2022.~~

During the fiscal year 2021, the Company incurred debt issuance costs of $4.8 million in relation to the 2021 Credit Agreement which are included within the long-term debt line of the consolidated balance sheets, and recognized a loss of $10.3 million on early extinguishment of the 2019 Credit Facility which is included within the interest expense, net line of the consolidated statements of income.

Notes

In connection with the Separation, 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. The Notes were issued pursuant to an indenture, dates as of the Closing Date ("“the Indenture"”). 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. The Notes mature on June 15, 2027. The net proceeds from the Notes offering, together with borrowings under the 2019 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 the Company to designate certain of the Company'’s 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 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 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 the Company'’s subsidiaries that will not be Subsidiary Guarantors and effectively junior in right of payment to all of 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~~on ~~from~~or ~~time~~after ~~to time prior to~~ June 15, 2022, the Company may, at its 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, the Company may, at its 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, the Company may, at its 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 the Company has previously or concurrently delivered a redemption notice with respect to all the outstanding Notes, the Company is 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 the Company sells assets outside the ordinary course of business and does not use the net proceeds for specified purposes under the Indenture, the Company 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 the Company and 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. ~~The Company was in compliance with the covenants in the Indenture at January 2, 2022.~~

Canadian Credit Facility

On July 7, 2020, the Company entered into a credit agreement which provides for a revolving credit facility in an aggregate principal amount of $10.0 million Canadian dollars (the “Canadian Credit Facility”). The Canadian Credit Facility was terminated on May 5, 2021.

63Other

At January 1, 2023, the Company had outstanding letters of credit in the aggregate amount of $5.5 million, all of which reduce the amount available for borrowings under the 2021 Revolving Credit Facility.

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Notes to Consolidated Financial Statements (Continued)

principal amount of $10.0 million Canadian dollars (the "Canadian Credit Facility"). As of December 27, 2020, no amounts were outstanding under the Canadian Credit Facility. The Canadian Credit Facility was terminated on May 5, 2021.

Other

At January 2, 2022, the Company had outstanding letters of credit in the aggregate amount of $5.6 million, all of which reduce the amount available for borrowings under the 2021 Revolving Credit Facility. At December 27, 2020, the Company had outstanding letters of credit in the aggregate amount of $6.1 million, all of which reduce the amount available for borrowings under the 2019 Revolving Credit Facility.

Fair Value of Debt

AsThe ~~of January 2, 2022, the~~ estimated fair value of the Company'’s 2021 Term Loan Facility and 2021 Revolving Credit Facility approximated book value as the interest rate is variable in nature~~, and the estimated fair value of the Company's Notes was $517~~.~~5 million. The estimate of fair value of the Company's Notes was based on broker-dealer quotes and is considered Level 2 fair value measurements in the fair value hierarchy.~~

AsThe ~~of December 27, 2020, the~~ estimated fair value of the Company'’s ~~2019~~Notes ~~Term~~as ~~Loan~~of ~~Facility~~January 1, 2023 and ~~Notes~~January 1, 2022 was $~~770~~485.1 0 million and $~~532~~517.5 million, respectively. ~~These~~The ~~estimates~~estimate ~~were~~of fair value of the Company’s Notes was based on broker-dealer quotes ~~as of the respective dates~~ and ~~are~~is considered Level 2 fair value measurements in the fair value hierarchy.

Future Principal Payments

At January 21, ~~2022~~2023, aggregate future principal payments on long-term debt are as follows (in millions):

	Amount
Fiscal year 2022	$	181.3
Fiscal year 2023	$	32.5
Fiscal year 2023	32.5
Fiscal year 2024	28.4
Fiscal year 2025	48.78
Fiscal year 2026	524.1
Thereafter	500.0
Fiscal year 2027	500.0
Total	$	1,~~315~~133.08

Note 11—Leases

The Company leases property, software, automobiles, trucks and trailers, pursuant to operating lease agreements. The Company also leases furniture, fixtures and equipment under finance leases. The leases have varying remaining lease terms with leases expiring through 2092, some of which include options to extend the leases.

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

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Operating lease cost	$	~~153~~178.93	$	~~136~~153.79	$	~~118~~136.37
Finance lease cost:
Amortization of right-of-use assets	1211.34		1412.53		1214.45
Interest on lease liabilities	0.87		0.98		0.89
Short-term lease cost	64.93		46.79		54.37
Total lease cost	$	~~173~~194.97	$	~~156~~173.89	$	~~136~~156.8

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


	Fiscal Years Ended
	January 1, 2023		January 2, 2022		December 27, 2020
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows related to operating leases	$	182.6	$	147.0	$	130.9
Operating cash flows related to finance leases	$	0.7	$	0.8	$	1.0
Financing cash flows related to finance leases	$	11.3	$	12.7	$	14.3
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	280.8	$	256.6	$	291.7
Finance leases	$	12.5	$	17.6	$	18.1

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Notes to Consolidated Financial Statements (Continued)

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows related to operating leases	$	147.0	$	130.9	$	119.3
Operating cash flows related to finance leases	$	0.8	$	1.0	$	1.0
Financing cash flows related to finance leases	$	12.7	$	14.3	$	13.7
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	256.6	$	219.7	$	204.7
Finance leases	$	17.6	$	18.1	$	11.6

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

	January 2, 2022		December 29, 2019
	January 1, 2023		January 2, 2022
Operating Leases
Operating lease right-of-use assets	$	1,~~262~~543.75	$	1,~~030~~262.7
Accumulated amortization	(~~238~~339.36)		(~~163~~238.93)
Operating lease right-of-use assets, net	$	1,~~024~~203.49	$	~~866~~1,024.84
Other accrued expenses	$	9487.36	$	7894.13
Operating lease liabilities	~~984~~1,165.80		~~836~~984.68
Total operating lease liabilities	$	1,~~079~~252.16	$	~~914~~1,079.71
Finance Leases
Property and equipment, gross	$	~~157~~156.6	$	~~144~~157.26
Accumulated depreciation	(~~120~~133.65)		(~~108~~120.96)
Property and equipment, net	$	3723.01	$	3537.30
Other accrued expenses	$	~~10.~~9.1	$	1110.19
Other liabilities	2313.58		1723.25
Total finance lease liabilities	$	3422.49	$	2834.34
Weighted Average Remaining Lease Term (Years)
Operating leases	1112.8953		11.6789
Finance leases	32.5281		3.2752
Weighted Average Discount Rate
Operating leases	5.46%		5.64%
Finance leases	2.54%		32.35%

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

Maturities of lease liabilities as of January 1, 2023 are as follows (in millions):

	OperatingLeases		FinanceLeases
2022	$	148.5	$	11.5
2023	$	156.1	$	9.1
2023	138.2		9.7
2024	157.1		8.4
2024	128.6		8.4
2025	148.5		4.2
2025	119.3		4.2
2026	143.2		2.0
2026	114.1		2.1
2027	135.5		—
Thereafter	~~837~~1,057.1		—
	$	1,~~485~~797.85	$	3523.97
Less: imputed interest	~~406~~544.79		10.58
Total	$	1,~~079~~252.16	$	3422.49

Note 12—Income Taxes

IAA's income taxes for the periods after the Separation are computed and reported on a stand-alone basis. For tax periods ended on or before the Separation Date, IAA has been included in the consolidated income tax returns of KAR and IAA’s income taxes are computed and reported herein under the “separate return method” as if IAA were a separate taxpayer. Use of the separate return method requires judgment and may result in differences when the sum of the amounts presented in stand-alone tax provisions are compared with amounts presented in consolidated financial statements. In that event, the related current and deferred tax assets and liabilities could be significantly different from those presented herein. Taxes, as computed under this separate taxpayer approach, may not be indicative of the income tax expense or income tax to be paid had IAA operated as a stand-alone company.

The components of income before income taxes and the provision for income taxes are as follows (in millions):

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Income before income taxes:
Domestic	$	~~364~~352.40	$	~~233~~364.94	$	~~229~~233.19
Foreign	239.64		23.16		3323.1
Total	$	~~388~~361.04	$	~~257~~388.0	$	~~262~~257.20
Income tax expense (benefit):
Current:
Federal	$	7361.23	$	4573.02	$	4645.40
Foreign	6.13		56.1		105.1
State	157.02		1015.10		1110.91
Total current provision	9474.38		6094.23		6860.42
Deferred:
Federal	0.(2.4)		20.12		12.51
Foreign	(02.13)		(0.21)		(0.8)2
State	(01.81)		(0.38)		(0.13)
Total deferred (benefit) provision	(05.78)		2.(0.7)		02.60
Income tax expense	$	9369.60	$	6293.26	$	6962.02

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

The provision for income taxes was different from the U.S. federal statutory rate applied to income before taxes and is reconciled as follows:

	Fiscal Years Ended
	January 2, 2022		December 27, 2020		December 29, 2019
	January 1, 2023		January 2, 2022		December 27, 2020
Statutory rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net	32.06	%	3.20	%	3.32	%
Reserves for tax exposures	0.42	%	0.24	%	0.2	%
International operations	—0.6	%	0.52	%	10.16	%
Non deductible executive compensation	0.3	%	0.1	%	0.1	%
FDII, GILTI	(4.4)	%	(0.2)	%	(0.1)	%
Stock-based compensation	(0.1)	%	(0.2)	%	(0.2)	%
Non deductible executive compensation	0.1	%	0.3	%	0.1	%
Impact of law and rate change	(0.2)	%	—	%	0.1	%
Stock-based compensation	0.1	%	(0.1)	%	(0.2)	%
Other, net	(0.3)	%	(0.6)	%	0.7	%
Impact of law and rate change	(0.4)	%	(0.2)	%	—	%
Effective rate	24.1	%	24.2	%	26.3	%
Other, net	(0.7)	%	(0.3)	%	(0.6)	%
Effective rate	19.1	%	24.1	%	24.2	%

The effective tax rate for fiscal 2022 was favorably impacted by a $15.1 million adjustment for Foreign Derived Intangible Income (“FDII”), of which $9.4 million was recorded discretely, which was partially offset by the net Global Intangible Low-Taxed Income (“GILTI”).

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

The Company offsets all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and presents them as a single non-current deferred income tax liability. Deferred tax assets and deferred tax liabilities are comprised of the following: (in millions):

	January 2, 2022		December 27, 2020
	January 1, 2023		January 2, 2022
Gross deferred tax assets:
Right-of-use liabilities	$	~~271~~312.56	$	~~229~~271.85
Allowances for accounts receivable	2.01		12.80
Accruals and liabilities	107.02		310.90
Employee benefits and compensation	4.61		4.46
Losses carried forward	0.17		—0.1
Other	3.94		23.69
Total gross deferred tax assets	~~292~~330.1		~~242~~292.51
Deferred tax asset valuation allowance	(0.12)		—(0.1)
Net deferred tax assets	~~292~~329.09		~~242~~292.50
Gross deferred tax liabilities:
Right-of-use assets	(~~256~~296.71)		(~~216~~256.67)
Property and equipment	(2217.4)		(1422.64)
Goodwill and intangible assets	(7268.91)		(6472.89)
Other	(1415.82)		(1214.28)
Total	(~~366~~396.8)		(~~308~~366.28)
Net deferred tax liabilities	$	(7466.89)	$	(6574.78)

Permanently reinvested undistributed earnings of the Company's foreign subsidiaries were approximately $139.8 million for the year ended January 2, 2022. Because these amounts have been or are expected to be permanently reinvested in properties and working capital, the Company has not recorded the deferred taxes associated with these earnings. If the undistributed earnings of foreign subsidiaries were to be remitted, state and local income tax expense and withholding tax expense would need to be recognized, net of any applicable foreign tax credits. It is not practical for the Company to determine the additional tax that would be incurred upon remittance of these earnings.76

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

~~Tax~~Permanently ~~payments~~reinvested undistributed earnings of the Company’s foreign subsidiaries were approximately $144.7 million for ~~fiscal~~the ~~years~~year ended January 21, ~~2022,~~2023. ~~December 27,~~Because ~~2020,~~these amounts have been or are expected to be permanently reinvested in properties and ~~December 29,~~working ~~2019~~capital, ~~were~~the ~~$90.0~~Company ~~million,~~has ~~$59~~not recorded the deferred taxes associated with these earnings.7 ~~million~~If the undistributed earnings of foreign subsidiaries were to be remitted, state and ~~$71.8~~local ~~million~~income tax expense and withholding tax expense would need to be recognized, ~~respectively.~~net ~~For~~of any applicable foreign tax ~~periods~~credits. ~~ended~~It onis ornot ~~before~~practical ~~June~~for ~~28,~~the ~~2019,~~Company to determine the additional tax ~~payments~~that ~~were~~would ~~made~~be byincurred ~~KAR~~upon onremittance ~~IAA's~~of ~~behalf~~these earnings.

~~The~~Tax ~~Company~~payments ~~applies~~for ~~the~~fiscal ~~provisions~~years ofended ~~ASC~~January 1, ~~740~~2023, ~~Income~~January 2, ~~Taxes.~~2022, ~~ASC 740 clarifies the accounting~~ and ~~reporting~~December 27, ~~for~~2020, ~~uncertainty~~were ~~in income taxes recognized in an enterprise's financial statements~~$84.6 ~~These provisions prescribe a comprehensive model for the financial statement recognition~~million, ~~measurement,~~$90.0 ~~presentation~~million, and ~~disclosure~~$59.7 ofmillion, ~~uncertain tax positions taken or expected to be taken on income tax returns~~respectively.

The Company applies the provisions of ASC 740, Income Taxes. ASC 740 clarifies the accounting and reporting for uncertainty in income taxes recognized in an enterprise’s financial statements. These provisions prescribe a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken on income tax returns.

A reconciliation of the beginning and ending amount of unrecognized tax benefits from uncertain tax positions is as follows (in millions):

	January 2, 2022		December 27, 2020
	January 1, 2023		January 2, 2022
Balance at beginning of period	$	46.10	$	34.51
Increase in prior year tax positions	~~0.6~~—		0.16
Increase in current year tax positions	1.9		1.2
Decrease in prior year tax positions	(0.2)		—
Lapse in statute of limitations	(0.6)		(0.7)
Increase in current year tax positions	2.4		1.9
Balance at end of period	$	6.0	$	4.1
Decrease in current year tax positions	(0.3)		—
Lapse in statute of limitations	(1.0)		(0.6)
Balance at end of period	$	6.9	$	6.0

The total amount of unrecognized tax benefits that, if recognized, would affect the Company'’s effective tax rate was $5.19 million and $3.5.1 million at January 21, ~~2022~~2023, and ~~December~~January 272, ~~2020~~2022, respectively.

The Company records interest and penalties associated with the uncertain tax positions within the Company'’s provision for income taxes on the consolidated statements of income. The Company had reserves totaling $0.2 million at each of January 21, ~~2022~~2023 and ~~December~~January 272, ~~2020~~2022 associated with interest and penalties, net of tax.

The provision for income taxes involves management judgment regarding the interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income, and tax planning could change the effective tax rate and tax balances recorded by us. In addition, U.S. and non-U.S. tax authorities periodically review income tax returns filed by us and can raise issues regarding the Company'’s filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business, the Company is subject to examination by taxing authorities in the U.S., Canada, and the United Kingdom. In general, the examination of our material tax returns is complete for the years prior to ~~2018~~2019.

Based on the potential outcome of the Company'’s tax examinations and the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the currently remaining unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the reserve balance is estimated to be in the range of a $01.50 million to $1.05 million decrease.

Note 13—Employee Benefit Plans

401(k) Plan

The Company maintains a defined contribution 401(k) plan that covers substantially all U.S. employees. Participants are generally allowed to make non-forfeitable contributions up to the annual IRS limits. The Company matches 100 percent of the amounts contributed by each individual participant up to 4 percent of the participant's compensation. Participants are 100 percent vested immediately in the Company's contributions. The Company's defined contribution 401(k) plan has been effective since June 2019. Prior to that, the eligible employees of the Company participated in KAR's 401(k) plan which also matched 100 percent of the amounts contributed by each individual participant up to 4 percent of the participant's compensation. For the years ended January 2, 2022, December 27, 2020, and December 29, 2019, amounts contributed to the 401(k) plan were $5.3 million, $4.8 million and $4.5 million, respectively.

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

amounts contributed by each individual participant up to 4 percent of the participant’s compensation. Participants are 100 percent vested immediately in the Company’s contributions. The Company’s defined contribution 401(k) plan has been effective since June 2019. For the years ended January 1, 2023, January 2, 2022, and December 27, 2020, amounts contributed to the 401(k) plan were $6.7 million, $5.3 million and $4.8 million, respectively.

Note 14—Commitments and Contingencies

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. 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 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 the Company'’s financial condition, results of operations or cash flows. Legal fees are expensed as incurred.

Pyrite Canyon

In the fourth quarter of fiscal 2020, the Company’s wholly owned subsidiary, Insurance Auto Auctions, Inc. (hereafter “IAAI”), received a letter from the California Department of Toxic Substances Control (the “DTSC”) styled “Draft Imminent and Substantial Endangerment Determination and Order and Remedial Action Order” (the “ Draft Order”) in which the DTSC states that IAAI, along with nine other respondents named in the Draft Order, has been named as a potential responsible party for the release of hazardous substances at the former Universal Propulsion Company site (the “Former UPCo Site”). The Draft Order states that the Former UPCo Site has been identified as contributing to the Pyrite Canyon Plume of hazardous substances by the U.S. Environmental Protection Agency and prescribes initial steps and a schedule for responding to the release of hazardous substances at the Former UPCo Site. The Draft Order further states that IAAI has been identified as a potential responsible party because it is either the company or the successor of a company responsible for a release of hazardous substances at the Former UPCo Site. The Draft Order is currently unsigned and has not been issued by DTSC.

On January 26, 2021, DTSC hosted an informational teleconference for the respondents named in the Draft Order. At the meeting, DTSC described the background and current status at the Former UPCo Site, but did not provide any information related to possible response actions, associated cost estimates or financial liability determinations. DTSC directed the Respondents to provide comments upon the Draft Order. On March 31, 2021, IAAI provided comments to the Draft Order by the deadline imposed upon it by the DTSC, and subsequently made a technical presentation to the DTSC, asking, among other things, that IAAI be removed from the Draft Order. No additional actions regarding IAAI have been taken by DTSC in this matter. The matter remains pending.

The Company does not believe that IAAI should bear any financial liability for actions taken pursuant to the Draft Order because it does not believe that IAAI is the company or a successor of a company responsible for a release of hazardous substances at the Former UPCo Site. IAAI currently leases 50 gross acres of the Former UPCo Site, having commenced a sublease at the location on or about March 1, 2016. At all times since, IAAI has used the site for vehicle storage and general operations. The most significant contaminants at the Former UPCo Site, and the Pyrite Canyon Plume are perchlorate, NDMA and PCBs. These contaminants pre-date IAAI’s occupancy and operations at the Former UPCo Site and are inconsistent with any chemicals stored at the location or used in its operations.

IAAI also tendered this matter to its landlord pursuant to indemnity provisions in its sublease, and to its environmental insurance carrier. IAAI'’s landlord responded by tendering its own indemnification demand to IAAI, and IAAI in turn notified its environmental insurance carrier of the same. At this time, the Company does not have adequate information to determine IAAI’s liability, if any, for contamination at the Former UPCo Site.

Lower Duwamish Waterway

Since June 2004, IAAI 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 IAAI’s tenancy. On March 25, 2008, the United States Environmental Protection Agency, or the "EPA," issued IAAI 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, or "CERCLA," related to the LDW Site. On November 7, 2012, the EPA issued IAAI a Second General Notice of Potential Liability, or "Second General Notice," for the LDW Site. The EPA's website

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Notes to Consolidated Financial Statements (Continued)

had been designated a Superfund site in 2001, three years prior to IAAI’s tenancy. On March 25, 2008, the United States Environmental Protection Agency, or the “EPA,” issued IAAI 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, or “CERCLA,” related to the LDW Site. On November 7, 2012, the EPA issued IAAI a Second General Notice of Potential Liability, or “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 IAAI that the EPA believed IAAI may be a Potentially Responsible Party, or "“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 IAAI 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. The Company is aware that certain authorities may bring natural resource damage claims against PRPs. On February 11, 2016, IAAI received a Notice of Intent letter from the United States National Oceanic and Atmospheric Administration informing IAAI 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, the Company is unable to predict when RD/RA negotiations with all PRPs might begin.

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 IAAI 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. As of May 31, 2020, IAAI ceased all operations at the site and terminated its remaining lease of the property in June 2020. Accordingly, IAAI submitted a Notice of Termination of its stormwater permit to Ecology, discontinuing IAAI’s ongoing obligations around the stormwater system maintenance and any additional source control measures.

At this time, IAAI has not received any further notices from the EPA and still does not have adequate information to determine IAAI's liability, if any, for contamination at this site, or to estimate the Company's loss as a result of this potential liability which might have been incurred during IAAI’s occupancy.

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Notes to Consolidated Financial Statements (Continued)

Note 15—Segment Information

The Company has two operating segments: United States, and 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. Both segments earn fees by providing services to buyers and sellers of vehicles sold through its channels.

Intercompany (income) expense related to charges for services provided by the United States segment to the International segment are based on the benefits received. Such services are related to technology and other business support services.

Financial information regarding the Company'’s reportable segments is set forth below as of and for the year ended January 21, ~~2022~~2023 (in millions):

United States

International

Consolidated

Revenues:

Service revenues

1,~~429~~539.27

~~108~~146.57

1,~~537~~686.74

Vehicle sales

~~134~~161.1

~~165~~251.64

~~299~~412.75

Total revenues

1,~~563~~700.38

~~274~~398.1

12,~~837~~098.49

Operating expenses:

Cost of services

~~776~~874.38

75121.27

~~851~~996.5

Cost of vehicle sales

~~118~~151.19

~~143~~215.18

~~261~~367.27

Selling, general and administrative

~~178~~189.64

1322.7

~~192~~212.31

Depreciation and amortization

7585.93

1020.63

86105.56

Total operating expenses

1,~~148~~301.94

~~242~~380.65

1,~~391~~681.59

Operating profit

~~414~~399.4

3117.56

~~445~~417.90

Interest expense, net

5851.07

(0.37)

5751.70

Other expense (income), net

0.5.8

(01.32)

04.26

Intercompany (income) expense

(810.53)

810.53

—

Income before income taxes

~~364~~352.42

239.62

~~388~~361.04

Income taxes

8765.60

64.0

9369.60

Net income

~~276~~287.82

175.62

~~294~~292.4

Total assets

2,~~510~~775.18

~~644~~587.21

3,~~154~~362.39

Capital expenditures

~~124~~166.93

1012.70

~~135~~178.63

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Notes to Consolidated Financial Statements (Continued)

Financial information regarding the Company'’s reportable segments is set forth below as of and for the year ended ~~December~~January 272, ~~2020~~2022 (in millions):

	United States		International		Consolidated
Revenues:
Service revenues	$	1,~~134~~429.42	$	98108.75	$	1,~~233~~537.17
Vehicle sales	80134.71		71165.16		~~151~~299.87
Total revenues	1,~~215~~563.13		~~169~~274.81		1,~~384~~837.94
Operating expenses:
Cost of services	~~659~~776.83		6175.92		~~721~~851.75
Cost of vehicle sales	64118.61		60143.61		~~125~~261.2
Selling, general and administrative	~~135~~178.06		913.97		~~144~~192.93
Depreciation and amortization	7475.39		610.86		8186.15
Total operating expenses	~~933~~1,148.79		~~139~~242.26		1,~~072~~391.95
Operating profit	~~281~~414.4		3031.65		~~312~~445.09
Interest expense, net	5658.20		(0.23)		5657.07
Other income, net	(0.7)		(0.3)		(1.0)
Other expense (income), net	0.5		(0.3)		0.2
Intercompany (income) expense	(8.05)		8.05		—
Income before income taxes	~~233~~364.94		23.16		~~257~~388.0
Income taxes	5687.96		56.30		6293.26
Net income	$	~~177~~276.08	$	17.86	$	~~194~~294.84
Total assets	$	2,~~341~~510.1	$	~~187~~644.82	$	23,~~528~~154.93
Capital expenditures	$	52124.39	$	1710.57	$	69135.86

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Notes to Consolidated Financial Statements (Continued)

Financial information regarding the Company'’s reportable segments is set forth below as of and for the year ended December 2927, ~~2019~~2020 (in millions):

	United States		International		Consolidated
Revenues:
Service revenues	$	1,~~196~~134.24	$	~~107~~98.67	$	1,~~303~~233.81
Vehicle sales	6980.97		6371.1		~~133~~151.8
Total revenues	~~1266~~1215.1		~~170~~169.78		~~1436~~1384.89
Operating expenses:
Cost of services	~~714~~659.48		6561.79		~~780~~721.17
Cost of vehicle sales	5464.06		5460.16		~~108~~125.12
Selling, general and administrative	~~131~~135.30		119.19		~~142~~144.49
Depreciation and amortization	8174.83		6.68		8881.41
Total operating expenses	~~981~~933.57		~~137~~139.52		1,~~119~~072.09
Operating profit	~~284~~281.64		3330.26		~~317~~312.80
Interest expense	5556.72		—(0.2)		5556.70
Other (income) expense, net	(0.2)		0.1		(0.1)
Other income, net	(0.7)		(0.3)		(1.0)
Income before income taxes	229.1		33.1		262.2
Intercompany (income) expense	(8.0)		8.0		—
Income taxes	59.7		9.3		69.0
Income before income taxes	233.9		23.1		257.0
Net income	$	169.4	$	23.8	$	193.2
Income taxes	56.9		5.3		62.2
Total assets	$	1,963.4	$	187.8	$	2,151.2
Net income	$	177.0	$	17.8	$	194.8
Capital expenditures	$	64.2	$	4.3	$	68.5
Total assets	$	2,341.1	$	187.8	$	2,528.9
Capital expenditures	$	52.3	$	17.5	$	69.8

Geographic Information

The Company'’s international operations include Canada and the U.K. Information regarding the geographic areas of the Company'’s operations is set forth below (in millions):

	January 2, 2022		December 27, 2020
	January 1, 2023		January 2, 2022
Long-lived assets
U.S.	$	1,~~205~~439.51	$	1,~~040~~205.85
Foreign	~~157~~148.06		85157.80
	$	1,~~362~~587.57	$	1,~~126~~362.65

Note 16—Subsequent Events

~~During~~On ~~the~~February ~~first~~17, ~~quarter of fiscal 2022~~2023, the Company ~~sold~~gave aconditional ~~property~~notice inof ~~South~~optional ~~Carolina~~full ~~consisting~~redemption ofpursuant ~~land~~to ~~and~~the aIndenture that, ~~building~~subject ~~for~~to ~~$37.2 million~~the ~~and~~satisfaction ~~simultaneously~~or ~~leased~~waiver ~~back~~of specified conditions precedent, the ~~same~~Company ~~property~~has ~~for~~elected anto ~~initial~~redeem ~~term~~(the of“Redemption”) 20on ~~years.~~March ~~The~~20, ~~carrying~~2023 ~~value~~or, ofat ~~this~~the ~~property~~Company’s ~~included~~option, insuch ~~the~~later ~~Consolidated~~date ~~Balance~~as ~~Sheets~~such ~~within~~conditions ~~"Property~~are ~~and~~satisfied ~~equipment,~~(the ~~net"~~“Redemption ~~was~~Date”) all $37500.20 million asaggregate ofprincipal ~~January~~amount 2,of ~~2022.~~the Notes.

73The redemption is subject to the satisfaction (or waiver by the Company in its sole discretion) of each of the following conditions precedent: (i) the consummation (as and when determined by the Company in its sole and absolute discretion) on or prior (if applicable) to March 20, 2023 (or such later date as may be determined by the Company in its sole and absolute discretion) of the proposed merger discussed in Note 1 - Basis of Presentation on terms and conditions satisfactory in all respects to the Company in its sole and absolute discretion and (ii) the delivery by the Company to U.S. Bank National Association, as trustee (as successor in interest to U.S. Bank National Association, the “Trustee”) of written notice confirming that the condition in the foregoing clause (i) has been satisfied and stating the final Redemption Date and the exact redemption price. In the event that such conditions precedent will not have been so satisfied (or waived by the Company in its sole

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IAA, Inc.

Notes to Consolidated Financial Statements (Continued)

discretion) by the Redemption Date, the Company will so notify the Trustee and the holders of the Notes, and upon any such notice, the redemption notice shall be rescinded and of no force or effect for any purpose.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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 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 Annual Report on Form 10-K, 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 January 21, ~~2022~~2023.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of January 21, ~~2022~~2023.

We acquired SYNETIQ on October 26, 2021. SYNETIQ's total assets and revenues constituted 12% and 2%, respectively, of the Company’s total assets and revenues as of and for the year ended January 2, 2022. As the acquisition occurred in the fourth quarter of 2021, we excluded SYNETIQ from the scope of our assessment over the effectiveness of our internal control over financial reporting. This exclusion is in accordance with the guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from a company's report on internal control over financial reporting in the year of acquisition.

Attestation Report of Independent Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of January 21, ~~2022~~2023 has been audited by KPMG LLP, our independent registered public accounting firm, as stated in their report, which is included in Item 8, Financial Statements and Supplementary Data under the heading “Report of Independent Registered Public Accounting Firm,” and is incorporated herein by reference.

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Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended January 21, ~~2022~~2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

7584

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

~~The~~Directors ~~information~~and ~~required~~Executive byOfficers ~~this item is incorporated by reference to the definitive Proxy Statement for our 2022 Annual Meeting~~ of ~~Stockholders, which will be filed with~~ the ~~SEC no later than 120 days after the close of our fiscal year ended January 2, 2022.~~ Company

The following table and biographical descriptions provide information regarding our directors and executive officers as of the date of this Annual Report on Form 10-K.

Name

Age

Position(s)

John W. Kett

President, Chief Executive Officer and Director

Susan Healy

Executive Vice President and Chief Financial Officer

Tim O’Day

President, U.S. Operations

Sidney Peryar

Executive Vice President, Chief Legal Officer and Secretary

Maju Abraham

Senior Vice President and Chief Information Officer

John P. Larson

Director, Chairman of the Board

Brian Bales

Director

William Breslin

Director

Sue Gove

Director

Lynn Jolliffe

Director

Peter Kamin

Director

Olaf Kastner

Director

Michael Sieger

Director

Directors

The Company’s Board of Directors currently consists of nine directors. Set forth below is a brief biographical description of each of our directors. The primary experience, qualifications, attributes and skills of each of our directors that led to the conclusion of the Nominating and Corporate Governance Committee and the Board of Directors that such person should serve as a member of the Board of Directors are also described below.


John W. Kett
Chief Executive Officer Director since June 2019			Current Board Committees: Operations Committee
Skills and Qualifications
• Significant knowledge and understanding of the Company’s data, services, operations and business environment. • Extensive business, management and operational experience as senior executive and CEO in the automotive, insurance claims, technology and services industries, which provides him with perspective into our challenges, operations, and strategic opportunities.
Career Highlights
• Chief Executive Officer of IAA since May 2014. o Served a variety of executive roles in his nearly 20 years with IAA, helping IAA become an independent public company in 2019. o In 2021, IAA generated $1.83 billion in revenue. o Served as Senior Vice President of Planning and Business Development, CFO and President between 2001 and 2014. • On the national board of directors for SkillsUSA since 2017. • On the Executive Advisory Council to the Northern Illinois University College of Business. • On the Ravinia Board of Trustees, as well its DEI subcommittee. • An active member of the Economic Club of Chicago, Alliance of Chief Executives, and in 2020 became a Trustee of the Committee for Economic Development (CED). • Held senior financial roles at Central Steel and Wire Co., Safelite Glass Corporation, Newark Electronics and Deloitte LLP between 1985 and 2001. • Graduate of Northern Illinois University and Northwestern University (MBA).


John P. Larson
Independent Chairman since June 2019			Current Board Committees: Operations Committee
Skills and Qualifications
• Extensive business, management and operational experience as CEO in the automotive aftermarket and as a senior executive at one of the world’s largest automakers, General Motors Company, as well as experience in automotive remarketing, captive finance (GMAC), rental car program design and automotive dealer activities, provides him with perspective into the Company’s challenges, operations, and strategic opportunities. • Extensive experience as a senior leader in corporate finance has provided him with key skills, including financial reporting, accounting and control, business planning and analysis and risk management, that are valuable to the oversight of our business.
Career Highlights
• Chief Executive Officer and Director of Bestop, Inc., a leading manufacturer of soft tops and accessories for Jeep vehicles, from 2015 to 2022. • Lead Independent Director KAR Auction Services, led board along with Chairman through spin-off of IAA, from 2015 to 2019. • Director SCA Performance, a leading manufacturer of high-end custom trucks for Ford, GM and Dodge, from 2018 to 2020. • Served in a number of senior management capacities at General Motors Company, from 1986 to 2007. o General Manager overseeing operations for the Buick, Pontiac and GMC Divisions from 2005 to 2007. o General Director of Finance for U.S. Sales, Service and Marketing Operations from 2001 to 2004. o Director General Motors Used Car Remarketing activity from 1999 to 2000. • Chief Executive Officer of Escort Inc., an automotive electronics manufacturer, from 2008 to 2014, and President and Chief Operating Officer from 2007 to 2008. • Graduated from Northern Illinois University (B.S. Finance) and Purdue University (M.S., Management).
Other Public Company Directorships in Last Five Years
• Director and Lead Independent Director of KAR (NYSE: KAR) from 2015 to 2019.


Brian Bales
Independent Director since June 2019			Current Board Committees: Risk & Sustainability Committee (Chair) Audit Committee
Skills and Qualifications
• Significant management experience, including as a leader at a Fortune 300 company with extensive experience in business strategy, transformational growth including mergers, acquisitions & divestitures, risk management & oversight, commercial real estate & infrastructure development, capital markets, capital allocation and investor relations, enables him to provide the Board with additional perspectives on the Company’s operations. • Extensive leadership oversight of environmental and sustainability initiatives, including the development and measurement of goals designed to benefit the environment and society while enhancing the foundation and profitability of a business for the long-term.
Career Highlights
• Executive Vice President, Chief Development Officer, at Republic Services, Inc., a leader in the U.S. environmental services industry, since 2015. • Executive Vice President, Business Development at Republic Services, Inc. from 2008 to 2015, and Vice President, Corporate Development, from 1998 to 2008. • Held roles of increasing responsibility in finance and business development for Ryder System, Inc. from 1993 to 1998. • Chief Financial Officer for EDIFEX & VTA Communications from 1988 to 1993. • Began his professional career as an accountant with Price Waterhouse, now PricewaterhouseCoopers, from 1986 to 1988. • Graduate of the University of Tennessee (BS, Business Administration) and Certified Public Accountant.


William (Bill) Breslin
Independent Director since June 2019			Current Board Committees: Compensation Committee Nominating and Corporate Governance Committee
Skills and Qualifications
• Senior executive leadership and board of directors experience enables him to offer the Board a seasoned corporate governance perspective. • Significant experience in consulting, claims management, and loss management solutions across the insurance and automotive industries.
Career Highlights
• Founder and CEO of Wenonah Consulting, which specializes in delivering service, expense and loss management solutions to claims operations across the insurance industry, since 2009. • President of Buckle TPAs which provides claim services for Gateway Insurance Company from 2020 to 2022. • President of Vericlaim Repair Solutions, a managed repair network of certified local, regional and national contractors, from 2011 to 2017. • Executive Vice President and Chief Operating Officer at TriServ Alliance, a claims management organization established by seven Blue Cross Blue Shield companies to service 2.9 million customers in nine states, from 2008 to 2009. • Led the claims function as Senior Vice President of Claims for USAA from 1999 to 2008; for GE Financial Assurance from 1996 to 1999; and for Prudential Insurance from 1974 to 1996. • Member of the Board of Directors of Insight Services Group, which provides fraud investigations and Independent Medical evaluations for the industry, since 2014. • Board member of West Hill Global, Inc., which is a property manages repair business, from 2018 to 2020. • Board member of Summit TopCo GP, LLC Classic Collision, which provides automobile repair services, since March 2020. • Board member of ABRA Auto Body and Glass, a network of auto body repair facilities for the industry, from 2011 to 2019. • Board member of Pronto Insurance from 2014 to 2018. • Board member of Enservio, Inc, a contents replacement company for homeowner claims, from 2010 to 2016. • EVP at Triserv Alliance, building a company to provide health care for the military and their families in the southern region, from 2008 to 2009. • Graduate of St. Bernard College (BA, Education).


Sue Gove
Independent Director since June 2019			Current Board Committees: Audit Committee (Chair) Risk & Sustainability Committee Operations Committee
Skills and Qualifications
• Background as a chief executive officer, chief operating officer, and chief financial officer provides the Board with significant executive and senior leadership experience in finance, operations, marketing, e-commerce, and strategy. • Extensive experience serving on the boards of directors of other public companies allows her to offer the Board valuable expertise in governance and best practices for a public company on a global scale.
Career Highlights
• President and Chief Executive Officer of Bed Bath & Beyond Inc. since October 2022 and its Interim Chief Executive Officer from June 2022 to October 2022. • Founder and President of Excelsior Advisors, LLC, a retail consulting and advisory firm. • President and CEO of Golfsmith International Holdings, Inc., along with several other senior leadership roles, including Chief Operating Officer, Chief Financial Officer and Executive Vice President, from 2008 to 2014. • Served in senior financial, operating and strategic roles during 25 years at Zale Corporation, including Executive Vice President and Chief Operating Officer from 2002 to 2006, and Chief Financial Officer from 1998 to 2003. • National Association of Corporate Directors (NACD) Board Leadership Fellow since December 2019. • Graduate of the University of Texas at Austin (BBA, Accounting). • Director on the Board of Truck Hero (private company) since 2022.
Other Public Company Directorships in Last Five Years
• Director of Bed Bath and Beyond, Inc. since 2019 (Nasdaq: BBBY). • Director of Conn’s, Inc. since 2020 (Nasdaq: CONN). • Director of Tailored Brands, Inc. from 2017 to 2020 (NYSE: TLRD). • Director of Iconix Brand Group from 2014 to 2019 (Nasdaq: ICON). • Director of Logitech International SA from 2015 to 2018 (Nasdaq: LOGI). • Director of AutoZone Inc. from 2005 to 2017 (NYSE: AZO).


Lynn Jolliffe
Independent Director since June 2019			Current Board Committees: Compensation Committee (Chair) Audit Committee Nominating and Corporate Governance Committee
Skills and Qualifications
• Senior executive leadership and chief financial officer experience, including functional and leadership experience in finance, human resources and general management, executive compensation decisions, strategies and policies for the acquisition and development of employee talent, enables her to offer the Board a seasoned corporate governance and financial management perspective. • Deep understanding of business drivers from the financial, operational and people perspective, as well as diversity in viewpoint and international business experience, gained from experience in multiple industries across three continents.
Career Highlights
• Chief Executive Officer of Jolliffe Solutions, providing consulting in human capital and talent management since 2015. • Held various management positions at Ingram Micro Inc., a technology distribution company from 1999 to 2015, including: o Executive Vice President, Global Human Resources from 2007 to 2015. o Vice President, Human Resources for the North America region from 2006 to 2007. o Regional Vice President, Human Resources and Services for Ingram Micro European Coordination Center from 1999 to 2006. • Served in various capacities, including Vice President and Chief Financial Officer with responsibility for human resources, at two Canadian retailers, including Holt Renfrew, from 1985 to 1999. • Began career at Bell Canada in 1973 and then moved to Bank of Montreal in 1979. • Graduated from Queens University and University of Toronto (MBA).
Other Public Company Directorships in Last Five Years
• Member of the board of directors of KAR (NYSE: KAR) from 2014 to 2019.


Peter Kamin
Independent Director since June 2019			Current Board Committees: Nominating and Corporate Governance (Chair) Audit Committee
Skills and Qualifications
• Service on the boards of a significant number of other companies and his years of experience in the automotive industry bring an in-depth understanding of IAA’s business to the Board. • Significant financial, investment, and management experience in both public and private companies.
Career Highlights
• Founder and Managing Partner of 3K Limited Partnership, which partners with management teams seeking capital to implement growth strategies that create meaningful stockholder value, since 2012. • Founding member and Managing Partner of ValueAct Capital, which grew into a leading investment management organization during Mr. Kamin’s tenure, from 1999 to 2012. • Founder and manager of Peak Investment L.P., which was organized to make investments in select domestic public and private companies, from 1992 to 1999. • Trustee of Tufts University from 2014 to 2022. • Graduate of Tufts University and Harvard’s Graduate School of Business (MBA).
Other Public Company Directorships in Last Five Years
• Member of the board of directors of Tile Shop Holdings (Nasdaq: TTSH) since 2012 and Chairman since 2018. • Member of the board of directors of Psychemedics Corporation (Nasdaq: PMD) since 2022. • Member of the board of directors of MAM Software Limited (formerly Nasdaq: MAMS) since 2012. MAM Software Limited sold the company and delisted its common stock in October 2019.


Olaf Kastner
Independent Director since June 2019			Current Board Committees: Operations Committee (Chair) Compensation Committee Risk & Sustainability Committee
Skills and Qualifications
• Brings to the Board decades of experience and leadership in the automotive industry and international insurance business, as well as a comprehensive understanding of how IAA’s industry operates. • Possesses strong international working experience, including risk and crises management, as well as multinational expertise in leading large cost and change management projects.
Career Highlights
• Strategy Advisor in China for the BMW Group from March to September 2018, after which he stepped into retirement. • Served in various other lead executive positions at the BMW Group from 1998 to 2018: o Regional President and Chief Executive Officer for China for the BMW Group from 2015 to 2018. o President and Chief Executive Officer of BMW Brilliance Automotive Ltd. in China from 2009 to 2015. o Finance Director of BMW (UK) Ltd., Bracknell, from 2006 to 2009. o Managing Director Bavaria Wirtschaftsagentur GmbH, a subsidiary of BMW AG, from 1998 to 2006. • Held various Management and Senior Management positions at Colonia AG/AXA Group from 1985 to 1998. • Graduate of the University of Hamburg (MBA).


Michael Sieger
Independent Director since June 2022			Current Board Committees: Nominating and Corporate Governance Committee Operations Committee
Skills and Qualifications
• Brings to the Board extensive experience and leadership in the automotive insurance industry from over three decades with The Progressive Corporation (NYSE: PGR). • Possesses strong public company executive management experience, as well as significant strategic planning and operational experience.
Career Highlights
• Claims President of Progressive from 2015 until his retirement in January 2022. • Served in various other positions at Progressive from 1990 to 2015: o General Manager Claims Process from 2007 to 2015. o General Manager Northeast Field Claims from 1999 to 2007. o General Manager WA and PA from 1996 to 1999. o Product Manager MS from 1992 to 1996. o Product Manager Corporate Marketing from 1990 to 1992. • Consultant at Frank Lynn & Associates from 1989 to 1990. • Serves on the board of directors of nonprofits Bellefaire JCB and the Jewish Federation of Cleveland. • Graduate of the University of Chicago Graduate School of Business (MBA) and Case Western Reserve University (BS, Electrical Engineering).

Executive Officers

Information on the business background of John W. Kett is set forth above under “Directors.”

Susan Healy has served as Chief Financial Officer of IAA since September 2021. From September 2016 to January 2021, Susan Healy served as the Senior Vice President, Finance for Ulta Beauty, the leading U.S. independent beauty retailer, responsible for Strategy, M&A, FP&A, Treasury and Procurement. From September 2012 to September 2016, Healy was a strategic advisor and CFO to early-stage, venture-backed companies in the consumer, technology, healthcare and renewable energy sectors. She has also held the role of CFO at apparel retailer Lands’ End, where she led the Finance, Accounting, Legal, Procurement and IT teams. After receiving her J.D. from Harvard Law School, Healy spent twelve years at global investment firm Goldman Sachs. Healy also holds a B.S. in Finance from California State Polytechnic University, Pomona.

Tim O’Day has served as President, U.S. Operations of IAA since June 2019. He leads the company’s U.S. operations including over 185 branch locations, title and service call centers, as well as the company’s, transportation logistics, real estate, and IAA’s catastrophe management strategy functions. Mr. O’Day joined IAA in September 2015 as Senior Vice President of Finance, a position he held until June 2019. Prior to joining IAA, Mr. O’Day was Chief Operating Officer and Chief Financial Officer of MedSpeed, a national healthcare transportation and logistics provider, from 2007 to 2015. He was founder and president of Coast to Coast Copiers, a B2B internet technology company, from 2003 to 2006. He also served as President of Braun Events, a regional special event company, from 2000 to 2003, Financial Officer of RentalMax, an equipment rental chain, from 1998 to 2000 and Director of Finance of Vistar Autoglass, a national auto glass company, from 1994 to 1997. Mr. O’Day served in various financial managerial positions at Abbott Laboratories from 1985 to 1994. Mr. O’Day holds a bachelor’s degree in business from Indiana University.

Sidney Peryar has served as Executive Vice President, Chief Legal Officer and Secretary of IAA since June 2019. He is responsible for the company’s general legal affairs, including SEC compliance and filings, mergers and acquisitions, corporate governance and litigation, and leads the company’s climate-related risk management initiatives, corporate responsibility and sustainability efforts and its Diversity, Equity and Inclusion Council. Mr. Peryar previously served as Senior Vice President, General Counsel and Secretary of IAA from February 2017 to June 2019. Mr. Peryar first joined IAA in April 2001 as Corporate Counsel. In 2002, Mr. Peryar became an executive officer of IAA, serving as Vice-President, Corporate Counsel and Secretary, a position he held until October 2004. From October 2004 through February 2017, Mr. Peryar served as Vice President, General Counsel and Secretary of IAA. Prior to joining IAA, Mr. Peryar served as an attorney at Fairbank & Vincent. Mr. Peryar holds an MBA from Northwestern University’s Kellogg Graduate School of Management, a J.D. from Vanderbilt University School of Law and a bachelor’s degree from Auburn University.

Maju Abraham has served as Senior Vice President and Chief Information Officer for IAA since June 2019. He leads the company’s business technology strategy and development spanning from the company’s internal business intelligence platform to external client products and solutions. Mr. Abraham previously served as Vice President of Business Technology of IAA from September 2014 to June 2019. Mr. Abraham first joined IAA in July 2005 and held various other technology roles in the company until December 2010. From December 2010 through September 2014, Mr. Abraham served as Director of Business Technology at IAA. Prior to joining IAA, Mr. Abraham worked at Accubyte Inc. from August 2002 to July 2005 and Diamond InfoTech from 1996 to 2002. Mr. Abraham holds a bachelor’s degree in economics from Mahatma Gandhi University.


Delinquent Section 16(a) Reports

Our directors, executive officers, and beneficial owners of more than 10% of our common stock are required under Section 16(a) of the Exchange Act to file reports of ownership of our common stock and changes thereto with the SEC. Based solely on our review of those reports that have been electronically filed with the SEC during or with respect to fiscal 2022, and written representations by each of our directors and executive officers that a Form 5 was not required for fiscal 2022, we believe that all such reports required by Section 16(a) during fiscal 2022 were filed on a timely basis, with the exception of the Form 4 for Peter Kamin reporting an open market purchase of shares of our common stock on March 1, 2022, which was filed on March 4, 2022.


Code of Ethics

InOur ~~addition, our~~ Board of Directors has adopted a Code of Ethics for Principal Executive and Senior Financial Officers that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and such other persons who are designated by the Board of Directors. Our Board of Directors has also adopted a Code of Business Conduct and Ethics that applies to our employees, officers and directors, as well as temporary service works and independent contractors. The current version of the Code of Ethics for Principal Executive and Senior Financial Officers and the Code of Business Conduct and Ethics are each available on our website under the “Investor Relations” section at investors.iaai.com. To the extent required by rules adopted by the SEC and the ~~New York Stock Exchange~~NYSE, we intend to promptly disclose future amendments to certain provisions of the Code of Ethics for Principal Executive and Senior Financial Officers and the Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on our website under the “Investor Relations” section of our website at investors.iaai.com.


Audit Committee

We have a standing Audit Committee of the Board of Directors. The Audit Committee currently consists of four directors: Mses. Gove and Jolliffe and Messrs. Bales and Kamin. The Board of Directors has determined that each director serving on the Audit Committee is independent under the applicable rules of the NYSE and the Exchange Act and that each of Mses. Gove and Jolliffe and Messrs. Bales and Kamin has been designated as an “audit committee financial expert” as that term is defined by the SEC.

Item 11. Executive Compensation

~~The~~Compensation ~~information~~Discussion ~~required~~and by this item is incorporated by reference to the definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of our fiscal year ended January 2, 2022.Analysis

OVERVIEW

The following discussion and analysis of our compensation program for named executive officers should be read in conjunction with the tables and text elsewhere in this Annual Report on Form 10-K that describe the compensation awarded and paid to the named executive officers.

Named Executive Officers

Our named executive officers for the last completed fiscal year were (i) our Chief Executive Officer; (ii) our Chief Financial Officer; and (iii) each of the three other most highly compensated executive officers who were serving as executive officers at the end of the last completed fiscal year. Our named executive officers, whom we also refer to as our “NEOs,” are:


Name			Title
John W. Kett			President and Chief Executive Officer
Susan Healy			Executive Vice President and Chief Financial Officer
Tim O’Day			President, U.S. Operations
Sidney Peryar			Executive Vice President, Chief Legal Officer & Secretary
Maju Abraham			Senior Vice President and Chief Information Officer

This Compensation Discussion and Analysis is organized into five sections:


			●			Executive Summary (below)


			●			Compensation Philosophy and Objectives


			●			The Role of the Compensation Committee and the Executive Officers in Determining Executive Compensation


			●			Elements Used to Achieve Compensation Philosophy and Objectives


			●			Compensation Policies and Other Information

EXECUTIVE SUMMARY

The Compensation Committee believes that the 2022 compensation of our named executive officers is commensurate with IAA’s size, performance and profitability, the significant scope of their roles and responsibilities, and their strong values-driven leadership. Our executive compensation program is straightforward, consistent, and effective. While remaining true to our guiding principles and sound compensation policies and practices, our program also has the flexibility to incorporate feedback and evolving compensation practices that are important to us and our stockholders, such as the addition of key strategic business initiatives in our short-term cash incentive program.

This Compensation Discussion and Analysis explains the guiding principles, policies, and practices upon which our executive compensation program is based, and the compensation paid to our named executive officers for 2022.

Our Executive Compensation Practices are Aligned with Stockholders’ Interests

We adopted a compensation program structured to achieve a close connection between executive pay and Company performance.


WHAT WE DO
● Pay for performance: Our annual incentive program (the “AIP” or “Annual Incentive Program”) is 100% performance-based and our equity incentive program is heavily performance-based. Our annual long-term equity grants in 2022 consisted of at least 50% PRSUs. ● Independent compensation committee: All members of our Compensation Committee are independent under NYSE rules. ● Independent compensation consultant: The Compensation Committee retains its own independent compensation consultant to evaluate and review our executive compensation program and practices. ● Maximum payout caps: The Compensation Committee sets maximum amounts that may be payable for annual cash incentive compensation and PRSUs. ● Clawback policy for financial misconduct: Our clawback policy provides for the recovery and cancellation of incentive compensation of an executive officer in the event we are required to prepare an accounting restatement due to such executive officer’s intentional misconduct.			● Severance benefits for qualifying termination: Severance benefits for termination without a change-in-control are two times base salary and target bonus for the CEO and 1.5 times base salary and target bonus for the CFO, President, U.S. Operations, and CLO, and one times base salary and target bonus for other executive officers. Change in control severance benefits are three times sum of base salary and target bonus for the CEO and 2.5 times base salary and target bonus for the CFO, President, U.S. Operations, and CLO, and 1.5 times base salary and target bonus for other executive officers. ● “Double-trigger” vesting provisions in equity award agreements: For all IAA equity grants, accelerated vesting of assumed or replaced equity awards upon a change in control of the Company is only permitted if an executive experiences a qualifying termination of employment in connection with or following such change in control. ● Robust equity ownership requirements: We have stock ownership guidelines that are applicable to our executive officers. The stock ownership guideline for our CEO is five times his annual base salary, and the CEO currently holds greater than five times his annual base salary. The stock ownership guideline for our other named executive officers is three times their annual base salary. All executive officers are required to hold 50% of vested shares, net of taxes, until stock ownership guidelines are met.


WHAT WE DON’T DO
● Provide excessive perquisites: We provide a limited number of perquisites that are designed to attract and retain highly qualified executives. ● Maintain a defined benefit pension plan: We do not maintain a defined benefit pension plan for our executive officers.			● Allow hedging or pledging of the Company’s securities: We prohibit hedging, pledging and short sales of Company stock by our directors and executive officers. ● Reprice stock options: Stock option exercise prices are set equal to the grant date market price and cannot be repriced or discounted without stockholder approval.

COMPENSATION PHILOSOPHY AND OBJECTIVES

Our executive compensation program is structured to attract, motivate, and retain highly qualified leaders by rewarding them through a competitive and balanced offering. Our focus is on performance-based components that deliver results consistent with IAA’s success and ensuring their direct contributions to that success. We believe that executive compensation should be aligned to create a direct link between delivering performance and stockholder value.

The principal objectives of our executive compensation program are:


			●			Be competitive in our compensation package, enabling us to attract and retain leadership and talent not only within our industry but comparing across parallel industries as well.


			●			Link executive compensation with the achievement of short-term and long-term company objectives.


			●			Align the interests of our executives with our stockholders by tying a significant portion of compensation to the Company’s financial performance.


			●			Provide competitive upside opportunity without encouraging excessive risk-taking.


			●			Ensure equal pay for equal work to attract and increase gender diversity and underrepresented minority groups in leadership roles.

We utilize the competitive range around the median compensation of companies in the compensation Peer Group as a starting point. Compensation decisions are determined by considering several critical factors, including experience level, tenure, sustained performance measures, and alignment with role specific requirements. The Compensation Committee does not rigidly adhere to a peer-based benchmarking strategy in setting compensation amounts for our named executive officers. Instead, the Peer Group compensation information is one of many data points considered by the Compensation Committee in making compensation decisions using its business judgment.

THE ROLE OF THE COMPENSATION COMMITTEE AND THE EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION

Composition of the Compensation Committee. The Compensation Committee of our Board is comprised of Ms. Jolliffe (Chair) and Messrs. Breslin and Kastner. Ms. Evans was a member of the Compensation Committee prior to her resignation from the board in June of 2022.

Role of the Compensation Committee. The Compensation Committee has primary responsibility for all compensation decisions relating to our named executive officers. The Compensation Committee reviews the aggregate level of our executive compensation, as well as the mix of elements used to compensate our named executive officers on an annual basis.

Compensation Committee’s Use of Peer Group and Survey Data. The Compensation Committee understands that most companies consider pay levels at comparably-sized peer companies when setting named executive officer compensation levels. With assistance from its independent compensation consultant, ClearBridge Compensation Group, the Compensation Committee has developed a meaningful comparator group for the Company.

In order to confirm competitiveness of compensation, the Compensation Committee uses a combination of (i) survey data from WTW and Mercer and (ii) proxy compensation data of a “proxy comparator group” in setting and adjusting compensation levels. In light of the lack of directly comparable companies for IAA’s business, companies in the proxy comparator group were selected based on (i) a focus on digital marketplace and auto-related fields (ii) similarly-sized revenue and market capitalization levels; (iii) comparable market growth, profitability and/or market valuation profiles; and (iv) companies with which IAA competes for executive talent.

Based on the recommendation of ClearBridge, the Compensation Committee selected the below proxy comparator group in 2022, for the purpose of making IAA compensation decisions. The proxy comparator group consists of the following 14 companies, which are the same companies included in our 2021 comparator group except that (1) CDK Global was removed because it was acquired during 2022, and (2) CCC Intelligent Solutions Holdings and Etsy were added to round out the peer group. The compensation paid by the comparator group disclosed in the IAA 2021 proxy statement was considered by the Compensation Committee in making 2022 compensation decisions. The below proxy group was approved by the Compensation Committee on May 4, 2022, and was used, and will be used, in making compensation decisions from that point forward.

2022 Proxy Comparator Group for IAA


CarGurus, Inc.	Dorman Products, Inc.	KAR Auction Services, Inc.
Cars.com Inc.	Etsy, Inc.	Ritchie Bros. Auctioneers Inc.
CCC Intelligent Solutions Holdings	Fair Isaac Corporation	Standard Motor Products, Inc.
Copart, Inc.	Groupon, Inc.	Vroom, Inc.
CoStar Group, Inc.	Herc Holdings Inc.

As described above, the Compensation Committee viewed the proxy comparator group and market data as an important guide, but not as the sole determinant in making its decisions regarding compensation levels.

Role of the Independent Compensation Consultant. Since our Separation from KAR Auction Services on June 28, 2019, the Compensation Committee has used ClearBridge as its independent compensation consultant. ClearBridge provided: (i) advice to the Compensation Committee with respect to the assessment of the Company’s executive compensation practices; (ii) advice regarding the evaluation of long-term incentive compensation practices; (iii) advice and guidance regarding the design of new long-term equity awards; (iv) advice regarding related compensation matters; (v) advice to the Compensation Committee with respect to annual and long-term incentive plan design; (vi) advice to the Compensation Committee on the terms of employment agreements and other employment arrangements for named executive officers; and (vii) guidance on the competitiveness of the executive officers’ elements of compensation. ClearBridge regularly attends Compensation Committee meetings and attends executive sessions as requested by the Chairman of the Compensation Committee. The Compensation Committee has reviewed the independence of ClearBridge in light of SEC rules and NYSE listing standards regarding compensation consultants and has concluded that the work of ClearBridge for the Compensation Committee does not raise any conflict of interest. All work performed by ClearBridge is and was subject to review and approval of the Compensation Committee, and ClearBridge does not perform services for us, except for executive and director compensation-related services on behalf of, and as instructed by, the Compensation Committee.

Role of the Executive Officers. Mr. Kett regularly participates in meetings of the Compensation Committee at which compensation actions involving our named executive officers are discussed. Mr. Kett assists the Compensation Committee by making recommendations regarding compensation actions for the executive officers other than himself. Mr. Kett recuses himself and does not participate in any portion of any meeting of the Compensation Committee at which his compensation is discussed.

Say On Pay Vote. In 2022, stockholders voted on the compensation of our NEOs (this vote is commonly referred to as a “say on pay” vote). At our 2022 annual meeting, approximately 95% of the votes cast supported our say-on-pay proposal. The Compensation Committee believes this high degree of stockholder support for our 2022 say-on-pay proposal, along with the similarly high level of support for our say-on-pay proposal in 2021, affirms stockholders’ support of our executive compensation program.

In our 2020 proxy statement, stockholders were asked to vote on how frequently we should conduct say on pay votes from that year forward (this vote is commonly referred to as a “say on pay frequency” vote). At our 2020 annual meeting, the stockholders cast a say on pay frequency vote for an annual basis so that our stockholders may annually express their views on our executive compensation program.

The Compensation Committee considers the outcome of stockholders’ votes on our executive compensation program when making future compensation decisions for the named executive officers.

ELEMENTS USED TO ACHIEVE COMPENSATION PHILOSOPHY AND OBJECTIVES

Elements of Executive Compensation Program Design

The following table lists the elements of compensation for our executive compensation program. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term incentives. Our incentives are designed to drive overall corporate performance and business unit strategies that correlate to stockholder value and align with our strategic vision.

Fixed

Element

Key Characteristics

Why We Pay This Element

How We Determine Amount

2022 Decisions

Base salary

Fixed compensation component payable in cash.

Reviewed annually and adjusted when appropriate.

Reward the named executive officers for their past performance and facilitate the attraction
and retention of a skilled
and experienced executive
management team.

Company performance, individual performance, experience, job scope, tenure, review of competitive pay practices and base salary as a percentage of total compensation.

All named executive officers other than the CEO
received a salary increase in 2022.

Variable

Element

Key Characteristics

Why We Pay This Element

How We Determine Amount

2022 Outcome

Annual cash incentive awards

Variable compensation component payable in cash based on performance against annually established targets.

Motivate and reward the successful achievement of pre-determined financial objectives at the Company.

Award opportunities are based on individual performance, experience, job scope and review of competitive pay practices.

Actual award payouts were based on achievement of 2022 Adjusted EBITDA for IAA (85% of total opportunity) and non-financial metrics including employee engagement, customer satisfaction and DE&I. (15% of total opportunity).

IAA’s Adjusted EBITDA and strategic objectives performance in 2022 resulted in a payout of 83% to 85% for our named executive officer annual cash incentive awards.

Performance-based restricted stock units (PRSUs)

At least 50% of 2022 IAA annual long-term incentive award consists of PRSUs

PRSUs vest at the end of a three-year performance period.

Motivate and reward executives for performance on key long-term measures.

Align the interests of executives with our stockholders’ interests and serve to retain executive talent.

Award opportunities are based on individual’s ability to impact future results, job scope, individual performance, and review of competitive pay practices.

2022 PRSU awards granted by IAA have three-year cliff vesting and are based on the three-year average ROIC performance and relative TSR through December 31, 2024.

PRSU awards made up at least 50% of the aggregate value of long-term incentives granted to the named executive officers in 2022.

IAA granted PRSUs to all named executive officers in 2022 and the Compensation Committee approved the grants.

IAA’s ROIC performance for the performance period ended in 2022 resulted in a payout of 114.7% of target PRSUs granted in 2020 for the named executive officers, as applicable.

Based on IAA’s actual performance for the performance period ended in 2022, the CEO’s Special PRSU award granted in 2020 did not payout.

Stock options

Stock options will only have value if the price of our common stock increases following the grant date.

Options vest ratably on each of the first three anniversaries of the grant date subject to the named executive officer’s continued employment with the Company.

Motivate and reward executives for driving performance that creates stockholder value.

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