IAA, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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.

Overview

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, we have 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 210 facilities across both business segments.

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.

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 18% in 2022, 20% in 2021 and 21% in 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 decreased
approximately 15% in 2022 as compared to 2021 and increased approximately 60% in
2021 as compared to 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 associated with
vehicles supplied by sellers. Seller revenue represents the revenue collected
for auctioning of the vehicle, combination of the inbound tow, processing,
storage, titling and enhancing of the vehicle.

In exchange for agreed-upon processing and service fees, we sell total loss,
damaged and low-value vehicles on behalf of vehicle sellers primarily on a
consignment basis, 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.
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. 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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Market Trends and Uncertainties

The global economy has recently experienced extreme volatility and disruptions,
inflationary conditions, including increases in fuel prices, disruptions in the
global supply chain and uncertainty about economic stability. 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. As a result of macroeconomic conditions, we are continuing to
experience labor, towing and other transportation pressures, which have
increased our associated costs and adversely impacted our gross margin. In
addition, rising interest rates are increasing our interest expense related to
our variable debt obligations. We believe the foregoing direct and indirect
impacts of the current macroeconomic environment will continue to impact our
business in fiscal 2023.

Recent 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) 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.

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.

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

Share Repurchase Program

On August 2, 2021, our Board of Directors authorized a share repurchase program
under which we can repurchase up to $400.0 million (exclusive of fees and
commissions) of shares of our common stock (the "Repurchase Program"). The
Repurchase Program expires on August 3, 2026. During fiscal 2022, we repurchased
751,285 shares of our common stock for an aggregate gross purchase price of
approximately $27.2 million pursuant to the Repurchase Program. As of January 1,
2023, approximately $338.8 million remained available under the Repurchase
Program. See Note 5 - Net Income Per Share in the notes to consolidated
financial statements for additional information on the Repurchase Program.
Pursuant to the Merger Agreement, we are restricted from repurchasing shares of
our common stock without RBA's prior consent.

Results of Operations

Fiscal 2022 Compared to Fiscal 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
                                                   January 1,          January 2,
(Dollars in millions except per share amounts)        2023                2022                $                 %
Revenues:
Service revenues                                  $  1,686.4          $  1,537.7          $ 148.7               9.7  %
Vehicle and parts sales                                412.5               299.7            112.8              37.6  %
Total revenues                                       2,098.9             1,837.4            261.5              14.2  %
Cost of services and vehicle sales:
Cost of services                                       996.5               851.5            145.0              17.0  %
Cost of vehicle and parts sales                        367.7               261.2            106.5              40.8  %

Selling, general and administrative                    212.1               192.3             19.8              10.3  %
Depreciation and amortization                          105.6                86.5             19.1              22.1  %
Operating profit                                       417.0               445.9            (28.9)             (6.5) %
Interest expense                                        51.0                57.7             (6.7)            (11.6) %
Other expense, net                                       4.6                 0.2              4.4                  NM*
Income before income taxes                             361.4               388.0            (26.6)             (6.9) %
Income taxes                                            69.0                93.6            (24.6)            (26.3) %
Net income                                        $    292.4          $    294.4          $  (2.0)             (0.7) %
Net income per share
Basic                                             $     2.18          $     2.18          $     -                 -  %
Diluted                                           $     2.18          $     2.18          $     -                 -  %


* NM - Not meaningful

Service Revenues
                                    Fiscal Years Ended                      Change
(Dollars in millions)     January 1, 2023       January 2, 2022          $           %
United States            $        1,539.7      $        1,429.2      $ 110.5        7.7  %
International                       146.7                 108.5         38.2       35.2  %
Total service revenues   $        1,686.4      $        1,537.7      $ 148.7        9.7  %



United States service revenues increased $110.5 million due to an increase in
revenue per unit 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. This increase was partially offset by a
lower volume of vehicles sold, which decreased by 4% primarily due to the
previously disclosed loss of significant volume from a single vehicle supplier,
partially offset by volume gains from other vehicle suppliers, and the impact of
the 53rd week in fiscal 2021.

International service revenues increased by $38.2 million mainly due to
incremental revenue of $20.7 million from SYNETIQ through its first year
anniversary on October 26, 2022, a higher volume of vehicles sold, which
increased by approximately 10% primarily due to an increase in miles driven.

Vehicle and Parts Sales
                                           Fiscal Years Ended                       Change
(Dollars in millions)             January 1, 2023      January 2, 2022          $            %
United States                    $     161.1          $          134.1      $  27.0        20.1  %
International                          251.4                     165.6     

85.8 51.8 %
Total vehicle and parts sales $ 412.5 $ 299.7 $ 112.8 37.6 %

United 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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International vehicle and parts sales increased $85.8 million primarily due to
incremental revenue of $113.6 million from SYNETIQ through its first year
anniversary on October 26, 2022, partially offset by lower volume of vehicles
sold of approximately 8% and lower revenue per unit sold of 10%.

Cost of Services

                                   Fiscal Years Ended                       

Change

(Dollars in millions) January 1, 2023 January 2, 2022 $

         %
United States            $     874.8          $          776.3      $  98.5        12.7  %
International                  121.7                      75.2         46.5        61.8  %
Total cost of services   $     996.5          $          851.5      $ 145.0        17.0  %

As a result of current macroeconomic conditions, we are continuing to experience
labor, towing and other transportation pressures, which have increased our
associated costs in both segments. See “Overview-Market Trends and
Uncertainties” for additional information.

United States cost of services increased $98.5 million primarily due to higher
costs relating to towing, occupancy, wages and vehicle processing, including
costs associated with 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.

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

                                                             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  %

United States cost of vehicle sales increased $33.8 million primarily due to a
higher volume of vehicles sold and higher average purchase prices.

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 1, 2023          January 2, 2022             $               %
United States                                    $     189.4             $          178.6          $ 10.8              6.0  %
International                                           22.7                         13.7             9.0             65.7  %
Total selling, general and administrative
expenses                                         $     212.1             $          192.3          $ 19.8             10.3  %



United States selling, general and administrative expenses increased $10.8
million primarily due to higher costs relating to headcount, professional
services associated with the proposed Mergers, and information technology and a
$5.0 million fair value adjustment relating to contingent consideration. These
increases were partially offset by lower incentive compensation and a $2.7
million non-income, tax related accrual in the prior year period.

International 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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Depreciation and Amortization

                                                             Fiscal Years Ended                              Change
(Dollars in millions)                            January 1, 2023           January 2, 2022             $               %
United States                                   $      85.3              $           75.9          $  9.4             12.4  %
International                                          20.3                          10.6             9.7             91.5  %
Total depreciation and amortization             $     105.6              $           86.5          $ 19.1             22.1  %

Depreciation and amortization increased $19.1 million as compared to the prior
year due to a higher intangible asset base in both segments, including
intangible assets acquired in recent acquisitions.

Interest Expense Interest expense decreased by $6.7 million as compared to the
prior year period due to a $10.3 million loss on early extinguishment of debt
recognized in fiscal 2021 partially offset by higher interest rates on our
floating rate debt during fiscal 2022.

Other expense (income) net Other expense increased by $4.4 million mainly due to
unrealized foreign currency transaction losses in the current year period.

Income Taxes The effective tax rate for fiscal 2022 was 19.1% as compared to
24.1% 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.

Fiscal 2021 Compared to Fiscal 2020

For a discussion of fiscal 2021 as compared to fiscal 2020, please refer to Part
II, Item 7, Management's Discussion 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 will provide adequate resources to fund
our anticipated operating, financing and other 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 1, 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

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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 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 1, 2023 and January 2, 2022, were
$178.3 million and $135.6 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 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 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.

Proposed 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

Some of our prior years' acquisitions included contingent payments based on
certain conditions and future performance. As of January 1, 2023, we had
estimated contingent consideration with a fair value of approximately $5.5
million (based on Level 3
inputs), of which $2.6 million is reported in current liabilities, Other accrued
expenses line, and $2.9 million is reported in non-current liabilities, Other
liabilities line, within the accompanying consolidated balance sheet. These
contingent consideration payments will be made over the next 4 years, subject to
satisfaction of the relevant conditions and future performance.

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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 1, 2023 and January 2, 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.

Approximately $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.

Summary of Cash Flows

                                                                    Fiscal Years Ended
(Dollars in millions)                                 January 1, 2023          January 2, 2022            Change
Net cash provided by (used by):
Operating activities                                 $     399.3             $          311.1          $    88.2
Investing activities                                      (143.0)                      (393.9)             250.9
Financing activities                                      (212.1)                        12.2             (224.3)

Effect of exchange rate on cash and restricted cash (10.7)

               0.2              (10.9)
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

For a discussion of fiscal 2021 as compared to fiscal 2020, 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 January 2, 2022, filed with the Securities and Exchange
Commission on February 28, 2022.
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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 (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.

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

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.
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United States reporting unit goodwill:

The 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 our
annual qualitative assessment for our United States reporting unit and we
concluded there were no indicators of impairment that existed. The goodwill
allocated to the United States reporting unit was $498.6 million as of January
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.

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