**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

** **

**For the quarterly period ended March 31, 2005**

 

**Commission File Number****001-32198**

 

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**ADESA, Inc.**

(Exact name of Registrant as specified in itscharter)

 
| **Delaware**                                                    | ** ** | **35-1842546**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**13085 Hamilton Crossing Boulevard**

**Carmel, Indiana 46032**

(Address of principal executive offices)

 

Registrant’s telephone number, including areacode: **(800) 923-3725**

 

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Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes ý No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

Yes o No ý

 

The number of shares of common stock outstanding as of May 11, 2005:

 

| **Class** | ** ** | **Number  of Shares Outstanding** |
|-----------|------------|-----------------------------------|
| Common    |       | 89,324,519                        |

 

 

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**Index**

 
| PART I -  FINANCIAL INFORMATION |                                                                                        |
|---------------------------------|---------------------------------------------------------------------------------------------|
| **Item 1.**                     | **Financial Statements**                                                                    | ** ** |
| *** ***                    | ***Consolidated  Statements of Income***                                                    | *** *** |
|                            | Consolidated  Balance Sheets                                                                |   |
|                            | Consolidated Statements of Stockholders’ Equity                                        |   |
|                            | Consolidated  Statements of Cash Flows                                                      |   |
|                            | Notes to Consolidated Financial Statements                                                  |   |
|                            |                                                                                        |   |
| Item 2.                         | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                            |                                                                                        |   |
| Item 3.                         | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |
|                            |                                                                                        |   |
| Item  4.                        | Controls  and Procedures                                                                    |   |
|                            |                                                                                        |   |
| PART II - OTHER INFORMATION     |                                                                                        |
| **Item 1.**                     | **Legal Proceedings**                                                                       | ** ** |
| ** **                      | ** **                                                                                  | ** ** |
| Item 2.                         | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |
|                            |                                                                                        |   |
| Item 6.                         | Exhibits                                                                                    |   |
|                            |                                                                                        |   |
| Signatures                      |                                                                                        |   |
|                            |                                                                                        |   |
| Exhibit  Index                  |                                                                                        |

 

2

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1**.  Financial Statements

** **

**ADESA, Inc.**

***ConsolidatedStatements of Income***

*(In millions, except per share data)*

*(unaudited)*

* *
| ** **                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                     | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Operating revenues                             | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Auction and related services                   | ** ** | **$**                             | **215.0**  |   | $ | 218.4 |   |
| Dealer financing                               | ** ** | **29.0**                          |       | 28.9 |   |
| Total operating revenues                       | ** ** | **244.0**                         |       | 247.3 |   |
|                                           |       |                              |       |   |   |
| Operating expenses                             |       |                              |       |   |   |
| Cost of services                               | ** ** | **115.2**                         |       | 120.8 |   |
| Selling, general and administrative            | ** ** | **55.5**                          |       | 59.2 |   |
| Depreciation and amortization                  | ** ** | **9.2**                           |       | 9.2 |   |
| Total operating expenses                       | ** ** | **179.9**                         |       | 189.2 |   |
|                                           |       |                              |       |   |   |
| Operating profit                               | ** ** | **64.1**                          |       | 58.1 |   |
|                                           |       |                              |       |   |   |
| Interest expense                               | ** ** | **8.1**                           |       | 4.0 |   |
| Other income, net                              | ** ** | **(1.5**                          | )          | (0.8 | ) |
|                                           |       |                              |       |   |   |
| Income before income taxes                     | ** ** | **57.5**                          |       | 54.9 |   |
|                                           |       |                              |       |   |   |
| Income taxes                                   | ** ** | **22.5**                          |       | 21.6 |   |
|                                           |       |                              |       |   |   |
| Net income                                     | ** ** | **$**                             | **35.0**   |   | $ | 33.3 |   |
|                                           |       |                              |       |   |   |
| Earnings per share—basic                  | ** ** | **$**                             | **0.39**   |   | $ | 0.38 |   |
|                                           |       |                              |       |   |   |
| Earnings per share—diluted                | ** ** | **$**                             | **0.38**   |   | $ | 0.38 |   |
|                                           |       |                              |       |   |   |
| Dividends declared per common share (Note  10) | ** ** | **$**                             | **0.075**  |   | $ | — |   |

 

See notes to consolidated financialstatements

 

3

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**ADESA, Inc.**

**Consolidated Balance Sheets**

*(In millions, except share data)*

 
| ** **                                                                                         | ** ** | **March 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------|-------------|------------------------|------------|
| ** **                                                                                         | ** ** | ***(unaudited)***   | ** **  | ** **             | ** ** |
| **Assets**                                                                                         |       |                |        |                   |       |
| ***Current  assets***                                                                              |       |                |        |                   |       |
| Cash and cash equivalents                                                                          | ** ** | **$**               | **341.6**   |                   | $          | 309.4 |   |
| Trade receivables, net of  allowances of $7.3 (2005) and  $7.5 (2004)                         | ** ** | **286.0**           |        | 161.1                  |       |
| Finance receivables, net of  allowances of $5.4 (2005) and  $4.3 (2004)                       | ** ** | **266.6**           |        | 218.6                  |       |
| Deferred income taxes                                                                              | ** ** | **29.4**            |        | 28.0                   |       |
| Other current assets                                                                               | ** ** | **14.0**            |        | 13.7                   |       |
| Total current assets                                                                               | ** ** | **937.6**           |        | 730.8                  |       |
|                                                                                               |       |                |        |                   |       |
| ***Other  assets***                                                                                |       |                |        |                   |       |
| Goodwill                                                                                           | ** ** | **514.2**           |        | 514.6                  |       |
| Other intangible assets, net of  accumulated amortization of $23.3 (2005) and $25.2 (2004)    | ** ** | **35.4**            |        | 31.6                   |       |
| Other assets                                                                                       | ** ** | **58.1**            |        | 58.3                   |       |
| Total other assets                                                                                 | ** ** | **607.7**           |        | 604.5                  |       |
|                                                                                               |       |                |        |                   |       |
| Property and equipment, net of  accumulated depreciation of  $136.9  (2005) and $130.2 (2004) | ** ** | **583.9**           |        | 578.2                  |       |
|                                                                                               |       |                |        |                   |       |
| Total assets                                                                                       | ** ** | **$**               | **2,129.2** |                   | $          | 1,913.5 |   |

 

See notes to consolidated financialstatements

 

4

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**ADESA, Inc.**

**ConsolidatedBalance Sheets**

*(In millions, except share data)*

 
| ** **                                       | ** **       | **March 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|--------------------------------------------------|------------------|---------------------|-------------|------------------------|------------|
| ** **                                       | ** **       | ***(unaudited)***   | ** **  | ** **             | ** ** |
| **Liabilities and Stockholders’  Equity**   |             |                | ** **  |                   |       |
| ***Current  liabilities***                       |             |                | ** **  |                   |       |
| Accounts payable                                 | ** **       | **$**               | **428.5**   | ** **             | $          | 227.3 |   |
| Employee benefits and  compensation              | ** **       | **30.9**            | ** **  | 40.4                   |       |
| Other accrued expenses                           | ** **       | **45.0**            | ** **  | 36.0                   |       |
| Income taxes payable                             | ** **       | **24.0**            | ** **  | 25.3                   |       |
| Current maturities of long-term  debt            | ** **       | **37.1**            | ** **  | 37.1                   |       |
| Current liabilities of  discontinued operations  | ** **       | **6.5**             | ** **  | 6.5                    |       |
| Total current liabilities                        | ** **       | **572.0**           | ** **  | 372.6                  |       |
|                                             |             |                | ** **  |                   |       |
| ***Non-current  liabilities***                   |             |                | ** **  |                   |       |
| Long-term debt                                   | ** **       | **469.7**           | ** **  | 479.0                  |       |
| Deferred tax liabilities                         | ** **       | **44.1**            | ** **  | 42.1                   |       |
| Other liabilities                                | ** **       | **7.0**             | ** **  | 8.4                    |       |
| Total non-current liabilities                    | ** **       | **520.8**           | ** **  | 529.5                  |       |
|                                             |             |                | ** **  |                   |       |
| Commitments and contingencies  (Note 11)         | ** **       | **—**          | ** **  | —                 |       |
|                                             |             |                | ** **  |                   |       |
| ***Stockholders’  equity***                 |             |                | ** **  |                   |       |
| Preferred stock, $0.01 par  value:               | ** **       | ** **          | ** **  |                   |       |
| Authorized shares: 50,000,000                    | ** **       | **—**          | ** **  | **—**             |       |
| Issued shares: none                              | ** **       | ** **          | ** **  |                   |       |
| Common stock, $0.01 par value:                   | ** **       | ** **          | ** **  |                   |       |
| Authorized shares: 500,000,000                   | ** **       | ** **          | ** **  |                   |       |
| Issued shares: 94,868,104 (2005  and 2004)       | ** **       | **1.0**             | ** **  | 1.0                    |       |
| Additional paid-in capital                       | ** **       | **669.9**           | ** **  | 675.1                  |       |
| Retained earnings                                | ** **       | **410.3**           | ** **  | 382.2                  |       |
| Unearned compensation                            | ** **       | **(3.6**            | **)**       | (3.1                   | )          |
| Treasury stock, at cost:                         | ** **       | ** **          | ** **  |                   |       |
| Shares:                                          | 4,112,778 (2005) | ** **          | ** **  | ** **             |       |   |
|                                             | 4,343,478 (2004) | ** **          | **(82.4**   | **)**                  | (85.9      | ) |
| Accumulated other comprehensive  income          | ** **       | **41.2**            | ** **  | 42.1                   |       |
| Total stockholders’ equity                  | ** **       | **1,036.4**         | ** **  | 1,011.4                |       |
|                                             |             |                | ** **  |                   |       |
| Total liabilities and  stockholders’ equity | ** **       | **$**               | **2,129.2** | ** **             | $          | 1,913.5 |   |

 

See notes to consolidated financialstatements

 

5

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**ADESA, Inc.**

**Consolidated Statements of Stockholders’Equity**

*(In millions)*

 
| ** **                                               | ** ** | **Common  Stock  Shares** | ** ** | **Common  Stock  Amount** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Unearned  Compensation** | ** ** | **Treasury  Stock** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|----------------------------------|------------|------------------------|------------|----------------------------|------------|---------------------|------------|------------------------------------------------------|------------|-----------|------------|
|                                                     |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       |      |       |
| **Balance  at December 31, 2004**                        |       | 94.9                      |       | $                         | 1.0        |                             | $          | 675.1                  |       | $                          | 382.2      |                | $          | (3.1                                                 | )          | $         | (85.9      | ) | $ | 42.1 |   | $ | 1,011.4 |   |
|                                                     |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       |      |       |
| Comprehensive  income:                                   |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       | 35.0      |       |
| Net income                                               |       |                      |       |                      |       |                             |       | 35.0                   |       |                       |       |                |       |                                                 |       |      |       |
| Other comprehensive  income (loss), net of tax:          |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       |      |       |
| Foreign currency  translation                            |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       | (1.9                                                 | )          |      |       |
| Unrealized gain  on interest rate swaps                  |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       | 1.0                                                  |       |      |       |
| Other  comprehensive loss                                |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       | (0.9      | )          |
| Comprehensive  income                                    |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       | 34.1      |       |
| Cash dividends  paid to stockholders                     |       |                      |       |                      |       |                             |       | (6.9                   | )          |                       |       |                |       |                                                 |       | (6.9      | )          |
| Unearned  compensation related to restricted stock units |       |                      |       |                      |       |                             |       |                   |       | (0.5                       | )          |                |       |                                                 |       | (0.5      | )          |
| Issuance of  common stock under stock plans              |       |                      |       |                      |       | (5.2                             | )          |                   |       |                       |       | 12.0                |       |                                                 |       | 6.8       |       |
| Repurchase of  common stock                              |       |                      |       |                      |       |                             |       |                   |       |                       |       | (8.5                | )          |                                                 |       | (8.5      | )          |
|                                                     |       |                      |       |                      |       |                             |       |                   |       |                       |       |                |       |                                                 |       |      |       |
| **Balance  at March 31, 2005*(unaudited)***              | ** ** | **94.9**                  | ** ** | **$**                     | **1.0**    | ** **                       | **$**      | **669.9**              | ** ** | **$**                      | **410.3**  | ** **          | **$**      | **(3.6**                                             | **)**      | **$**     | **(82.4**  | **)** | **$** | **41.2** | ** ** | **$** | **1,036.4** | ** ** |

 

See notes to consolidated financial statements

 

6

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**ADESA, Inc.**

**Consolidated Statements of Cash Flows**

*(In millions)*

*(unaudited)*

 
| ** **                                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                       | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| **Operating activities**                                                                         |       |                              | ** ** |   |   |
| Net income                                                                                       | ** ** | **$**                             | **35.0**   | ** ** | $ | 33.3 |   |
| **Adjustments to reconcile net income to net  cash (used by) provided by operating activities:** |       |                              | ** ** |   |   |
| Depreciation and amortization                                                                    | ** ** | **9.2**                           | ** ** | 9.2 |   |
| Bad debt expense                                                                                 | ** ** | **1.8**                           | ** ** | 1.2 |   |
| Deferred income taxes                                                                            | ** ** | **0.5**                           | ** ** | 2.6 |   |
| Compensation associated with equity  programs                                                    | ** ** | **0.4**                           | ** ** | — |   |
| Other non-cash, net                                                                              | ** ** | **1.1**                           | ** ** | 0.5 |   |
| ** **                                                                                       |       | **48.0**                          | ** ** | 46.8 |   |
| **Changes in operating assets and  liabilities:**                                                |       |                              | ** ** |   |   |
| Finance receivables                                                                              | ** ** | **(49.1**                         | **)**      | (52.6 | ) |
| Trade receivables and other assets                                                               | ** ** | **(125.7**                        | **)**      | (139.7 | ) |
| Accounts payable and accrued expenses                                                            | ** ** | **118.7**                         | ** ** | 159.1 |   |
| **Net cash (used by) provided by operating  activities**                                         | ** ** | **(8.1**                          | **)**      | 13.6 |   |
|                                                                                             |       |                              | ** ** |   |   |
| **Investing activities**                                                                         |       |                              | ** ** |   |   |
| Purchases of property and equipment                                                              | ** ** | **(13.7**                         | **)**      | (1.2 | ) |
| Purchase of intangibles                                                                          | ** ** | **(6.3**                          | **)**      | (0.1 | ) |
| Proceeds from the sale of property and  equipment                                                | ** ** | **0.1**                           | ** ** | — |   |
| **Net cash used by investing activities**                                                        | ** ** | **(19.9**                         | **)**      | (1.3 | ) |
|                                                                                             |       |                              | ** ** |   |   |
| **Financing activities**                                                                         |       |                              | ** ** |   |   |
| Net increase in book overdrafts                                                                  | ** ** | **75.4**                          | ** ** | 84.4 |   |
| Net increase in lines of credit                                                                  | ** ** | **—**                        | ** ** | 95.4 |   |
| Payments on long-term debt                                                                       | ** ** | **(9.3**                          | **)**      | (86.8 | ) |
| Issuance of common stock under stock plans                                                       | ** ** | **5.9**                           | ** ** | — |   |
| Dividends paid to ALLETE                                                                         | ** ** | **—**                        | ** ** | (17.5 | ) |
| Dividends paid to stockholders                                                                   | ** ** | **(6.9**                          | **)**      | — |   |
| Repurchase of common stock                                                                       | ** ** | **(4.7**                          | **)**      | — |   |
| **Net cash provided by financing activities**                                                    | ** ** | **60.4**                          | ** ** | 75.5 |   |
|                                                                                             |       |                              | ** ** |   |   |
| Effect of exchange rate changes on cash                                                          | ** ** | **(0.2**                          | **)**      | (0.5 | ) |
|                                                                                             |       |                              | ** ** |   |   |
| **Net increase in cash and cash equivalents**                                                    | ** ** | **32.2**                          | ** ** | 87.3 |   |
| Cash and cash equivalents at beginning of  period                                                | ** ** | **309.4**                         | ** ** | 116.1 |   |
| Cash and cash equivalents at end of period                                                       | ** ** | **$**                             | **341.6**  | ** ** | $ | 203.4 |   |
|                                                                                             |       |                              | ** ** |   |   |
| **Non-cash activities**                                                                          |       |                              | ** ** |   |   |
| Capital contributions from ALLETE                                                                | ** ** | **$**                             | **—** | ** ** | $ | 1.2 |   |

 

See notes to consolidated financialstatements

 

7

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**ADESA, Inc.**

**Notes to Consolidated****FinancialStatements**

 

##### **Note 1 – Basis ofPresentation**

##### ** **

The accompanying unaudited consolidated financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  Operating results frominterim periods are not necessarily indicative of results that may be expectedfor the year as a whole.  In the opinionof management, the consolidated financial statements reflect all adjustments(consisting only of normal recurring accruals) considered necessary for a fairstatement of the Company’s financial results for the periods presented.  The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets,liabilities, revenues, expenses and related disclosures at the date of thefinancial statements and during the reporting period.  Actual results could differ from theseestimates.  A listing of the Company’scritical accounting estimates is described in the “Critical AccountingEstimates” section of “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”

 

These consolidated financial statements and condensed notes toconsolidated financial statements are unaudited and should be read inconjunction with the audited consolidated financial statements and notesthereto for the year ended December 31, 2004 included in the Company’s AnnualReport on Form 10-K (Commission file number 001-32198) filed with theSecurities and Exchange Commission (“SEC”). As used herein, the terms “the Company” and “ADESA” shall mean ADESA,Inc. and its consolidated subsidiaries. The term “ALLETE” shall mean ADESA’s former parent, ALLETE, Inc. and itsconsolidated subsidiaries.

 

ADESA is the second largest used vehicle auction network in NorthAmerica, based upon the number of used vehicles passing through auctionsannually, and also provides services such as inbound and outbound logistics,reconditioning, vehicle inspection and certification, titling, administrativeand salvage recovery services. Through its wholly owned subsidiary AutomotiveFinance Corporation (“AFC”), the Company also provides short-terminventory-secured financing, known as floorplan financing, to primarily usedvehicle dealers. ADESA is able to serve the diverse and multi-faceted needs ofits customers through the wide range of services offered at its facilities.

 

Certain reclassifications have been made to prior year amounts toconform to current year presentation.

 

**Note 2 – New Accounting Standards**

 

ADESA discloses pro forma net income and earnings per share inaccordance with Statement of Financial Accounting Standards (“SFAS”) 123 *Accounting for Stock-Based Compensation* and 148 *Accounting for Stock-Based Compensation—Transition and Disclosure*.  In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS 123(R), *Share-BasedPayment*.  This statementrevises SFAS 123 and supersedes Accounting Principles Board (“APB”) Opinion No.25, *Accounting for Stock Issued to Employees*.  SFAS 123(R) requires that the cost ofemployees services received in exchange for an award of equity instruments berecognized in the income statement. Compensation cost will be measured based on the grant-date fair value ofthe equity instruments issued.  The costwill be recognized over the period during which an employee is required toprovide service in exchange for the award. No compensation cost is recognized for equity instruments for whichemployees do not render service.

 

In March 2005, the SEC issued Staff Accounting Bulletin 107 (“SAB 107”),which offers guidance on SFAS 123(R). SAB 107 was issued to assist preparers by simplifying some of theimplementation challenges of SFAS 123(R) while enhancing the information thatinvestors receive.  Key topics of SAB 107include discussion on the valuation models available to preparers and guidanceon key assumptions used in these valuation models, such as expected volatilityand expected term, as well as guidance on accounting for the income tax effectsof SFAS 123(R) and disclosure considerations, among other topics.

 

On April 14, 2005, the SEC approved a new rule for public companiesthat delayed the effective date of SFAS 123(R) to annual, rather than interim,periods that begin after June 15, 2005. As such, the Company will adopt SFAS 123(R) on January 1, 2006.  Once adopted, the Company will be required torecord compensation cost as expense for the portion of outstanding unvestedawards, based on the grant-date fair value of those awards calculated using theBlack-Scholes option pricing model used under SFAS 123 for pro formadisclosures.  The Company expects toapply the prospective transition method of SFAS 123(R), which would allow theCompany to prospectively record expense for the compensation costs related tothe portion of outstanding unvested awards at January 1, 2006, withoutrestating any prior periods.  The Companyis currently considering the financial accounting and income tax implicationsof SFAS 123(R) and SAB 107.

 

8

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On March 9, 2005, the Board of Directors of the Company accelerated thevesting of certain unvested and “out-of-the-money” stock options previouslyawarded to employees and officers that have an exercise price of $24.  The awards accelerated were made under theADESA, Inc. 2004 Equity and Incentive Plan in conjunction with ADESA’s initialpublic offering (“IPO”) in June 2004.  Asa result, options to purchase approximately 2.9 million shares of the Company’scommon stock became exercisable immediately. The options awarded in conjunction with the IPO to the Company’s namedexecutive officers and the majority of the other officers would have vested inequal increments at June 15, 2005, 2006 and 2007.  The options awarded to certain otherexecutive officers and employees had different vesting terms.  One-third of the options awarded to the otherexecutive officers and employees vested on December 31, 2004.  The remaining two-thirds of the optionsawarded to these executive officers and other employees in conjunction with theIPO would have vested in equal increments at December 31, 2005 and 2006.  All of these options expire in June2010.  All other terms and conditionsapplicable to the outstanding stock option grants remain in effect.

 

The Company and its Board of Directors considered several factors indetermining to accelerate the vesting of these options.  Primarily, the acceleration will enhance thecomparability of the Company’s financial statements in prior and subsequentperiods.  The options awarded to theexecutive officers were special, one-time grants in conjunction with theCompany’s IPO.  As such, these grants arenot indicative of past grants when ADESA was a subsidiary of ALLETE prior toJune 2004 and are not representative of the Company’s expected futuregrants.  The Company and Board alsobelieve that the acceleration is in the best interest of the stockholders as itwill reduce the Company’s reported stock option expense in future periodsmitigating the impact SFAS 123(R) that will take effect in the first quarter of2006.

 

As a result of the acceleration, the Company has disclosed incremental,pro forma stock-based employee compensation expense of approximately $7.7million, net of tax, in its first quarter 2005 pro forma disclosure.  The acceleration will result in reductions inthe after tax pro forma stock-based employee compensation expense disclosed inthe second, third and fourth quarters of $2.0 million, $1.1 million and $1.1million.  The Company will not record anystock-based employee compensation expense in the consolidated statements ofincome associated with the acceleration of these options because the intrinsicvalue (excess of market price of common stock over the exercise price ofoption) of the options at the date of acceleration was not in excess of theoriginal intrinsic value of the options. The Company expects that the acceleration will reduce the stock optionexpense it otherwise would have been required to recognize in its consolidatedstatements of income in conjunction with adopting SFAS 123(R) by approximately$4.8 million in 2006 and $1.2 million in 2007 on a pre-tax basis.

 

**Note 3 – Stock-Based Compensation**

 

TheCompany has adopted the disclosure-only provisions of SFAS 123, as amended by SFAS 148.  The Company accounts for stock-based compensationunder APB Opinion No. 25, and related interpretations, using the intrinsicvalue method.  Accordingly, theCompany has not recognized compensation expense for employee stock options thathave been granted.

 

On February 15, 2005, the Company granted options to purchaseapproximately 0.7 million shares of ADESA common stock, with an exercise priceof $22.44 per share under the ADESA, Inc. 2004 Equity and Incentive Plan.  The options vest in equal increments atFebruary 14, 2006, 2007, and 2008.  Theoptions have a six year life.

 

Thefollowing table illustrates the effect on net income and earnings per share ifthe Company had applied the fair value recognition provisions of SFAS 123 toall stock options.  The fair value ofstock options was estimated as of the grant date using the Black-Scholesoption-pricing model and the attribution method.  The Black-Scholes option-pricing model doesnot consider the non-traded nature of employee stock options, the lack of transferabilityor a vesting period.  If the model tookthese items into consideration, the resulting estimate for fair value of thestock options could be different.  Thesepro forma amounts may not be representative of the effects on reported netincome for future years due to the uncertainty of stock option grant volume andpotential changes in assumptions driven by market factors.

 

9

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| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ***(in millions except per  share amounts)***                         | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Reported net income (1)                                               | ** ** | **$**                             | **35.0**   | ** ** | $ | 33.3 |   |
| Deduct: total stock option employee  compensation expense, net of tax | ** ** | **(9.9**                          | **)**      | (0.1 | ) |
| Pro forma net income                                                  | ** ** | **$**                             | **25.1**   | ** ** | $ | 33.2 |   |
|                                                                  |       |                              | ** ** |   |   |
| Earnings per share:                                                   |       |                              | ** ** |   |   |
| Basic—as reported                                                | ** ** | **$**                             | **0.39**   | ** ** | $ | 0.38 |   |
| Basic—pro forma                                                  | ** ** | **$**                             | **0.28**   | ** ** | $ | 0.38 |   |
|                                                                  |       |                              | ** ** |   |   |
| Diluted—as reported                                              | ** ** | **$**                             | **0.38**   | ** ** | $ | 0.38 |   |
| Diluted—pro forma                                                | ** ** | **$**                             | **0.28**   | ** ** | $ | 0.38 |   |

 

----

*(1)    *Reportedamounts include expense associated with restricted stock units and performanceshare awards.

 

The expense noted above for employee stock options granted, determinedunder SFAS 123, was calculated using the Black-Scholes option pricingmodel and the following assumptions:

 
| **Assumptions**              | ** ** | **2005** | ** ** | **2004**   | ** ** |
|------------------------------|------------|----------|------------|------------|------------|
| Risk—free interest rate | ** ** | **3.6**  | **%**      | ** ** | 3.6        | % |   |
| Expected life-years          | ** ** | **4**    | ** ** | ** ** | 4          |   |   |
| Expected volatility          | ** ** | **41.0** | **%**      | ** ** | 39.0       | % |   |
| Dividend growth rate         | ** ** | **1.34** | **%**      | ** ** | 1.25       | % |   |

 

During the period ended March 31, 2005, the Company awardedapproximately 40,500 restricted stock units (“RSUs”) under the Company’s 2004Equity and Incentive Plan to employees representing approximately $0.9 millionof unearned compensation at the grant date. Under the Plan, certain executive officers receive an annual RSU grantequal to 25% of the bonus earned in the prior year.  The awards granted during the period endedMarch 31, 2005, included approximately 18,800 RSUs (which vest after threeyears) granted to these certain executive officers of the Company.  The vesting schedule for the remaining RSUsgranted during the period ended March 31, 2005 range from one to three yearsfrom the date of grant.  Compensationexpense related to RSU awards is recognized ratably over the vestingperiod.  Compensation expense for RSUawards totaled $0.4 million for the three months ended March 31, 2005.

 

**Note 4 –Long-Term Debt**

 

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

 
| ** **                             | ** ** | **Interest Rate** | ** ** | **Maturity** | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------|------------|-------------------|------------|--------------|------------|---------------------|------------|------------------------|------------|
|                                   |       |              |       |         |       |                |       |                   |       |
| Term Loan A                            |       | LIBOR + 2.25%     |       | 06/21/2009   | ** ** | **$**               | **148.7**  |                   | $          | 157.5 |   |
| Term Loan B                            |       | LIBOR + 2.50%     |       | 06/21/2010   | ** ** | **198.5**           |       | 199.0                  |       |
| Atlanta capital lease obligation       |       | 5.0%              |       | 12/01/2013   | ** ** | **34.5**            |       | 34.5                   |       |
| Other, secured by property             |       | 6.0%              |       | 12/31/2005   | ** ** | **0.1**             |       | 0.1                    |       |
| Senior subordinated notes              |       | 7 5/8%            |       | 06/15/2012   | ** ** | **125.0**           |       | 125.0                  |       |
| Total debt                             | ** ** | ** **        |       |         |       | **506.8**           |       | 516.1                  |       |
| Less current portion of long-term debt | ** ** | ** **        |       |         |       | **37.1**            |       | 37.1                   |       |
| Long-term debt                         | ** ** | ** **        |       |         |       | **$**               | **469.7**  |                   | $          | 479.0 |   |

 

Concurrent with the Company’s June 2004 initial public offering andnotes offering, the Company entered into a $525 million senior securedcredit facility with a syndicate of lenders, consisting of a $150 millionrevolving credit facility and two term loan facilities aggregating$375 million.  Except for AFC’sspecial purpose subsidiary, the credit facility is guaranteed by substantiallyall of the Company’s direct and indirect domestic subsidiaries and is securedby a pledge of all of the equity interests in the guarantors and a pledge of65% of the equity interests in certain of the Company’s Canadian and Mexicansubsidiaries.  The credit facilitycontains customary affirmative and negative covenants, including restrictionson the ability to incur indebtedness, grant liens, pay dividends or makedistributions to stockholders and make any prepayment or redemption

 

10

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with respect to the senior subordinated notes. The credit facility alsocontains financial covenants including a maximum total leverage ratio, aminimum interest coverage ratio and a minimum fixed charge coverage ratio.  The senior notes contain certain financialand operational restrictions on paying dividends and other distributions,making certain acquisitions or investments and incurring indebtedness, andselling assets.  At March 31, 2005, theCompany is in compliance with the covenants contained in both the creditfacility and senior notes.

 

**Note 5 – Derivatives**

 

TheCompany uses interest rate swap agreements to manage its exposure to interestrate movements and to reduce borrowing costs. In June 2004, the Company entered into two interest rate swapagreements with notional amounts of $105 million and $60 million to manage itsexposure to interest rate movements on its variable rate debt.  Both interest rate swap agreements containamortizing provisions and mature in December 2006.  The Company has designated its interest rateswap agreements as cash flow hedges.  At March31, 2005, the fair value of the interest rate swap agreements is a $1.4 milliongain which is recorded in “Other assets” on the consolidated balancesheet.  At December 31, 2004, the fairvalue of the interest rate swap agreements was a $0.2 million loss which wasrecorded in “Other liabilities” on the consolidated balance sheet.  Changes in the fair value of the interestrate swap agreements designated as cash flow hedges are recorded in “Othercomprehensive income”.  Unrealized gainson interest rate swap agreements at March 31, 2005, totaling $0.9 million, netof taxes of $0.5 million, are included as a component of “Accumulated othercomprehensive income”.  At December 31,2004, there were unrealized losses on interest rate swap agreements totaling$0.1 million, net of taxes of $0.1 million, which were included as a componentof “Accumulated other comprehensive income”.

 

**Note 6 – Finance Receivables**

 

AFCsells the majority of its US dollar denominated finance receivables on arevolving basis and without recourse to a wholly owned, bankruptcy remote,special purpose subsidiary that is consolidated for accounting purposes inaccordance with SFAS 140, *Accounting for Transfersand Servicing of Financial Assets and Extinguishment of Liabilities*.  The special purpose subsidiary, AFC FundingCorporation, was established for the purpose of purchasing AFC’s financereceivables.  AFC and AFC FundingCorporation amended their securitization agreement on October 14,2004, to extend the expiration date to January 2006.  This agreement is subject to annualrenewal and allows for the revolving sale by the subsidiary to a bank conduitfacility of up to a maximum of $500 million in undivided interests in certaineligible finance receivables subject to committed liquidity.  AFC Funding Corporation had $425 million ofcommitted liquidity at March 31, 2005. Receivables sold to the bank conduit facility are not reported on theCompany’s consolidated balance sheet.

 

AtMarch 31, 2005, AFC managed total finance receivables of $657.8 million, ofwhich $574.7 million had been sold to AFC Funding Corporation.  AFC Funding sold $385.8 million of thesefinance receivables to the bank conduit facility with recourse to AFC FundingCorporation at March 31, 2005, leaving $272.0 million of gross financereceivables recorded on the Company’s consolidated balance sheet at March 31,2005.

 

Receivablesunder management, sold, and retained were as follows *(inmillions)*:

 
| **Finance Receivables**    | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------|------------|---------------------|------------|------------------------|------------|
|                       |       |                |       |                   |       |
| Total receivables managed  | ** ** | **$**               | **657.8**  | ** **             | $          | 582.7 |   |
| Less: amounts sold         | ** ** | **(385.8**          | **)**      | (359.8                 | )          |
| Receivables retained       | ** ** | **272.0**           | ** ** | 222.9                  |       |
| Less: allowance for losses | ** ** | **(5.4**            | **)**      | (4.3                   | )          |
| Net finance receivables    | ** ** | **$**               | **266.6**  | ** **             | $          | 218.6 |   |

 

Proceedsfrom the revolving sale of receivables to the bank conduit facility were usedto fund new loans to customers.  AFC andAFC Funding Corporation must maintain certain financial covenants including,among others, limits on the amount of debt AFC can incur, minimum levels oftangible net worth, and other covenants tied to the performance of the financereceivables portfolio.  Thesecuritization agreement also incorporates the financial covenants of ADESA’scredit facility.  At March 31, 2005 the Company was incompliance with the covenants contained in the securitization agreement.

 

**Note 7 – Earnings Per Share**

** **

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

 

11

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| ** **                                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                          | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Net income                                                          | ** ** | **$**                             | **35.0**   |   | $ | 33.3 |   |
|                                                                |       |                              |       |   |   |
| Weighted average common shares outstanding                          | ** ** | **90.69**                         |       | 88.60 |   |
| Effect of dilutive stock options and  restricted stock awards       | ** ** | **0.50**                          |       | — |   |
| Weighted average common shares outstanding  and assumed conversions | ** ** | **91.19**                         |       | 88.60 |   |
|                                                                |       |                              |       |   |   |
| Earnings per share—basic                                       | ** ** | **$**                             | **0.39**   |   | $ | 0.38 |   |
|                                                                |       |                              |       |   |   |
| Earnings per share—diluted                                     | ** ** | **$**                             | **0.38**   |   | $ | 0.38 |   |

 

Basic earnings per share were calculated based upon theweighted-average number of outstanding common shares for the period.  Diluted earnings per share were calculatedconsistent with basic earnings per share including the effect of dilutiveunissued common shares related to the Company’s stock-based employeecompensation programs.  Total options outstanding at March 31, 2005,were approximately 4.8 million.  Therewere no options outstanding at March 31, 2004. Stock options with an exercise price per share greater than the averagemarket price per share were excluded in the calculation of dilutedearnings per share for all periods presented as including these options wouldhave an anti-dilutive impact. Approximately 3.7 million options were excluded from diluted earningsper share for the three months ended March 31, 2005.

 

During the three months ended March 31, 2005, the Company repurchasedapproximately 0.4 million shares of ADESA common stock at an aggregate cost of$8.5 million.  The shares repurchasedduring the first quarter of 2005 included approximately 0.3 million shares atan aggregate cost of $7.5 million repurchased pursuant to the previouslyapproved $130 million share repurchase program. In addition to purchases pursuant to the program approved in August2004, the share activity for the three months ended March 31, 2005, reflectsshares withheld during the first quarter of 2004 to satisfy tax withholdingobligations in connection with the vesting of restricted stock units andperformance share awards during the quarter. On May 12, 2005, the Company completed its $130 million sharerepurchase program. The Company repurchased a cumulative total of 6.2 millionshares at a weighted average price of $20.83 and an aggregate cost of $128.9million pursuant to the program.

 

ADESA’s initial public offering of 6,250,000 shares of common stock wasdeclared effective by the SEC in June 2004. Assuming the issuance of the 6,250,000 shares had occurred at thebeginning of 2004, weighted average common shares outstanding for the threemonths ended March 31, 2004 would have totaled approximately 93.81 millionshares resulting in diluted earnings per share of $0.35 for the three monthsended March 31, 2004.

 

**Note 8 – Comprehensive Income**

** **

Comprehensive income is comprised of net income adjusted for changes inforeign currency translation and unrealized gains or losses on interest rateswap contracts designated and qualifying as cash flow hedges.  For the first quarter 2005 and 2004,comprehensive income was $34.1 million and $30.9 million.  The changes in comprehensive income areprimarily due to changes in net income and volatility in the Canadian currency.

 

**Note 9 – Segment Information**

** **

The Company operates in two business segments: auction and relatedservices and dealer financing. These reportable segments offer differentservices and have fundamental differences in their operations.  The holding company is maintained separatelyfrom the two reportable segments and includes expenses associated with being apublic company, such as salaries, benefits, travel costs for the corporatemanagement team, Board of Directors’ fees, investor relations costs,incremental insurance, treasury, legal, accounting, and risk managementcosts.  Holding company interest includesthe interest incurred on the corporate debt structure.  The majority of costs incurred at the holdingcompany are not allocated to the two business segments.

 

12

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Financial information regarding the Company’s two reportable segmentsis set forth below *(in millions)*:

 
| **Three Months Ended March 31,  2005** | ** ** | **Auction and  Related  Services** | ** ** | **Dealer  Financing** | ** ** | **Holding  Company** | ** ** | **Consolidated** | ** ** |
|----------------------------------------|------------|------------------------------------|------------|-----------------------|------------|----------------------|------------|------------------|------------|
| ** **                             | ** ** | ** **                         | ** ** | ** **            | ** ** | ** **           | ** ** | ** **       | ** ** |
| Operating revenues                     |       | $                                  | 215.0      |                  | $          | 29.0                 |       | $                | —     |   | $ | 244.0 |   |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Operating expenses                     |       |                               |       |                  |       |                 |       |             |       |
| Cost of services                       |       | 109.2                              |       | 6.0                   |       | —               |       | 115.2            |       |
| Selling, general and administrative    |       | 45.5                               |       | 4.9                   |       | 5.1                  |       | 55.5             |       |
| Depreciation and amortization          |       | 8.0                                |       | 1.1                   |       | 0.1                  |       | 9.2              |       |
| Total operating expenses               |       | 162.7                              |       | 12.0                  |       | 5.2                  |       | 179.9            |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Operating profit (loss)                |       | 52.3                               |       | 17.0                  |       | (5.2                 | )          | 64.1             |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Interest expense                       |       | 1.3                                |       | —                |       | 6.8                  |       | 8.1              |       |
| Other income, net                      |       | (0.6                               | )          | —                |       | (0.9                 | )          | (1.5             | )          |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Income (loss) before income taxes      |       | 51.6                               |       | 17.0                  |       | (11.1                | )          | 57.5             |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Income taxes                           |       | 20.3                               |       | 6.5                   |       | (4.3                 | )          | 22.5             |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Net income (loss)                      |       | $                                  | 31.3       |                  | $          | 10.5                 |       | $                | (6.8       | ) | $ | 35.0 |   |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Assets                                 |       | $                                  | 1,402.4    |                  | $          | 345.9                |       | $                | 380.9      |   | $ | 2,129.2 |   |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| **Three Months Ended March 31, 2004**  | ** ** | ** **                         | ** ** | ** **            | ** ** | ** **           | ** ** | ** **       | ** ** |
| ** **                             | ** ** | ** **                         | ** ** | ** **            | ** ** | ** **           | ** ** | ** **       | ** ** |
| Operating revenues                     |       | $                                  | 218.4      |                  | $          | 28.9                 |       | $                | —     |   | $ | 247.3 |   |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Operating expenses                     |       |                               |       |                  |       |                 |       |             |       |
| Cost of services                       |       | 115.5                              |       | 5.3                   |       | —               |       | 120.8            |       |
| Selling, general and administrative    |       | 50.0                               |       | 5.8                   |       | 3.4                  |       | 59.2             |       |
| Depreciation and amortization          |       | 8.1                                |       | 1.1                   |       | —               |       | 9.2              |       |
| Total operating expenses               |       | 173.6                              |       | 12.2                  |       | 3.4                  |       | 189.2            |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Operating profit (loss)                |       | 44.8                               |       | 16.7                  |       | (3.4                 | )          | 58.1             |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Interest expense                       |       | 4.0                                |       | —                |       | —               |       | 4.0              |       |
| Other income, net                      |       | (0.8                               | )          | —                |       | —               |       | (0.8             | )          |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Income (loss) before income taxes      |       | 41.6                               |       | 16.7                  |       | (3.4                 | )          | 54.9             |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Income taxes                           |       | 16.2                               |       | 6.7                   |       | (1.3                 | )          | 21.6             |       |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Net income (loss)                      |       | $                                  | 25.4       |                  | $          | 10.0                 |       | $                | (2.1       | ) | $ | 33.3 |   |
|                                   |       |                               |       |                  |       |                 |       |             |       |
| Assets                                 |       | $                                  | 1,578.2    |                  | $          | 345.6                |       | $                | —     |   | $ | 1,923.8 |   |

 

13

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#### **Note 10 – Dividends**

#### ** **

On April 27, 2005, the Company’s Board of Directors declared a secondquarter dividend of $0.075 per common share payable June 15, 2005, tostockholders of record on May 20, 2005. In the first quarter of 2004, the Company paid dividends totaling $17.5million to its former parent, ALLETE. Cash dividends declared per share excludes dividends declared and paidto ALLETE prior to ADESA becoming an independent public company.

 

##### **Note 11 – Commitmentsand Contingencies**

##### ** **

The Company is involved in litigation and disputes arising in theordinary course of business, such as actions related to injuries, propertydamage, handling or disposal of vehicles, environmental laws and regulations,and other litigation incidental to the business such as employment matters anddealer disputes.  Management considersthe likelihood of loss or the incurrence of a liability, as well as the abilityto reasonably estimate the amount of loss, in determining losscontingencies.  The Company accrues anestimated loss contingency when it is probable that a liability has beenincurred and the amount of loss can be reasonably estimated.  Management regularly evaluates currentinformation available to determine whether accrual amounts should be adjusted.  Accruals for contingencies includinglitigation and environmental matters are included in “Other accrued expenses”and “Other liabilities” at undiscounted amounts and generally exclude claimsfor recoveries from insurance or other third parties.  These accruals are adjusted periodically asassessment and remediation efforts progress, or as additional technical orlegal information become available.  Ifthe amount of an actual loss is greater than the amount accrued, this couldhave an adverse impact on the Company’s operating results in that period.  Legal fees are expensed as incurred.

 

The Company has accrued, as appropriate, for environmental remediationcosts anticipated to be incurred at certain of its auction facilities.  Liabilities for environmental mattersincluded in “Other accrued expenses” and “Other liabilities” were $3.5 millionand $4.8 million at March 31, 2005 and December 31, 2004.  No amounts have been accrued as receivablesfor potential reimbursement or recoveries to offset this liability.

 

The Company stores a significant number of vehicles owned by variouscustomers and consigned to the Company to be auctioned.  The Company is contingently liable for eachconsigned vehicle until the eventual sale or other disposition; however, theCompany is generally not liable for damage related to severe weather conditions,natural disasters or other factors outside of the Company’s control.  Loss is possible; however, at this timemanagement cannot estimate a range of loss that could occur.  Individual stop loss and aggregate insurancecoverage is maintained on the consigned vehicles.  These vehicles are consigned to the Companyand are not included in the consolidated balance sheets.

 

In the normal course of business, the Company also enters into variousother guarantees and indemnities in its relationships with suppliers, serviceproviders, customers and others. These guarantees and indemnifications do notmaterially impact the Company’s financial condition or results of operations,but indemnifications associated with the Company’s actions generally have nodollar limitations and currently cannot be quantified.

 

As noted above, the Company is involved in litigation and disputesarising in the ordinary course of business, such as actions related toinjuries, property damage, handling or disposal of vehicles, environmental lawsand regulations, and other litigation incidental to the business such asemployment matters and dealer disputes. Such litigation is generally not, in the opinion of management, likelyto have a material adverse effect on the financial condition, results ofoperations or cash flows.  Legal andregulatory proceedings which could be material are discussed in the descriptionof legal proceedings in Part II, Item 1 (“Legal Proceedings”) of this report.

 

**Note 12 – Subsequent Event**

 

On May 3, 2005, the Company completed the purchase of certain of theassets of ABC Washington Dulles, LLC to gain access to the Washington, D.C.auction market.  The assets include astate-of-the-art 83-acre leased auction facility located in Sterling, Virginiawhich commenced operations in 2001 offering six auction lanes andreconditioning facilities, the related operating equipment and all customercontracts related to the auction.  Inaddition, the Company assumed operating lease obligations related to thefacility approximating $1.9 million per year through 2025.  The Company did not assume any otherliabilities or indebtedness in connection with the acquisition.  This acquisition, effective May 3, 2005, isan asset purchase and will be accounted for in the Company’s second quarterending June 30, 2005.

 

14

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**Item 2****.  Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

#### **Forward-LookingStatements**

#### ** **

The following discussion containsforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Suchstatements are subject to certain risks, trends, and uncertainties.  In particular, statements made in this reportthat are not historical facts (including but not limited to expectations,estimates, assumptions and projections regarding the industry, business, futureoperating results, and anticipated cash requirements) may be forward-lookingstatements.  Actual results could differmaterially from the results projected, expressed or implied by these forward-lookingstatements.  Factors thatcould cause or contribute to such differences include, but are not limited to,those discussed in “Factors that May Affect Future Results” described in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2004 andfiled on March 29, 2005.  Some of these factors include: generalbusiness conditions; market trends; competition; weather; vehicle production;trends in new and used vehicle sales; business development activities,including acquisitions; economic conditions including exchange rate andinterest rate fluctuations; litigation developments and other risks describedfrom time to time in ADESA’s filings with the Securities and ExchangeCommission (“SEC”) including the Quarterly Reports on Form 10-Q to be filed byADESA in 2005.  Many of these riskfactors are outside of ADESA’s control, and as such, they involve risks whichare not currently known to ADESA that could cause actual results to differmaterially from those discussed or implied herein.  The forward-looking statements in this documentare made as of the date hereof and ADESA does not undertake to update itsforward-looking statements.

 

The Company’s future growth depends on a variety of factors, includingits ability to increase volume, acquire additional auctions, manage expansion,control costs in its operations, introduce modest fee increases and newservices, consolidate future auction acquisitions into existing operations andretain its executive officers and key employees.  In addition, the Company’s indebtedness willrequire it to use a portion of its operating cash flow to pay interest andprincipal on debt instead of for other corporate purposes, including fundingfuture expansion and ongoing capital expenditures.  Accordingly, the Company cannot predictwhether its growth strategy will be successful. The Company cannot predict what portion of overall sales will beconducted through online auctions or other redistribution methods in the futureand what impact this may have on its auction business.

 

The interim financial statements included inthis Quarterly Report on Form10-Q and the following discussion and analysis should be read in conjunctionwith the historical financial statements, related notes thereto, and otherfinancial information included in the Company’s Annual Report on Form 10-K, asfiled with the Securities and Exchange Commission, which includesaudited financial statements for the three years ended December 31, 2004.

 

#### **Executive Overview**

#### ** **

In the firstquarter of 2005, ADESA generated growth in earnings despite the constraints ininstitutional vehicle supply.  Thecontinued decline in off-lease and repossessed volumes contributed to a 5%decrease in vehicles sold at ADESA auctions. The operating results achieved in the first quarter of 2005 demonstratedthe Company’s flexible cost structure which management was able to utilize tocontrol costs.  ADESA achieved operatingprofit growth in both business segments, increased first quarter 2005 loantransactions over 6%, repurchased over 0.3 million shares of its common stockand paid a quarterly dividend. Acceptance of the Company’s real-time interactive Internet biddingsystem, LiveBlockTM, continues as both the number of LiveBlockdealers and auctions expanded.  Inaddition, the Company announced several management realignment changes tobetter position itself for the future and to take advantage of synergies acrossits business lines.  The Companystrengthened its management team with the promotions of Bradley S. Todd toChief Operating Officer of ADESA Corporation, LLC and Paul J. Lips to SeniorVice President of Operations for ADESA Corporation, LLC.  Jonathon Peisner was also appointed VicePresident of Investor Relations and Planning. The Company also announced the departure of James Hallett, Executive VicePresident of ADESA, Inc., and President of ADESA, Corp., LLC. The departure waseffective May 6, 2005.  On May 3, 2005,the Company announced that it has entered the Washington, D.C. auction marketvia the acquisition of ABC Washington Dulles, LLC, an 83 acre state-of-the-artleased facility located in Sterling, Virginia.

 

For the three months ended March 31, 2005, the Company reported revenueof $244.0 million and net income of $35.0 million or $0.38 per diluted share,compared with revenue of $247.3 million and net income of $33.3 million or$0.38 per diluted share for the three months ended March 31, 2004.  Cash used by operations was $8.1 million forthe three months ended March 31, 2005, compared with cash flows generated fromoperations of $13.6 million for the three months ended March 31, 2004.  The Company incurred various charges andincremental expenses in 2004 and 2005 related to its initial public offeringand subsequent separation from ALLETE that affect the comparability of itsreported results of operations.  Theimpact of these transactions on net income is as follows (*in millions*):

 

15

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| ** **                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
| ** **                    | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Non-recurring item:           |       |                              | ** ** |   |   |
| Transaction-related expense * | ** ** | **$**                             | **—** | ** ** | $ | 1.2 |   |
| Incremental expenses          |       |                              | ** ** |   |   |
| Corporate expenses *          | ** ** | **2.9**                           | ** ** | — |   |
| Interest expense *            | ** ** | **4.1**                           | ** ** | — |   |
| ** **                    |       | **7.0**                           | ** ** | — |   |
|                          |       |                              | ** ** |   |   |
| Tax benefit of above items    | ** ** | **(2.7**                          | **)**      | (0.4 | ) |
|                          |       |                              | ** ** |   |   |
| Decrease to net income        | ** ** | **$**                             | **4.3**    | ** ** | $ | 0.8 |   |

 

----

** Thenon-recurring transaction-related expense in 2004 consisted primarily of legaland professional fees associated with the Company’s initial public offering andseparation from ALLETE.  Incrementalcorporate expenses for 2005 consisted of salaries, benefits and other expensesdue to the addition of corporate level personnel, professional fees,incremental insurance and other costs necessary to support an independentpublic company, while incremental interest expense is the result of the Company’srecapitalization and transition to an independent public company.*

 

#### **Critical AccountingEstimates**

#### ** **

In preparing the financial statements in accordance with generallyaccepted accounting principles, management must often make estimates andassumptions that affect the reported amounts of assets, liabilities, revenues,expenses and related disclosures at the date of the financial statements andduring the reporting period.  Some ofthose judgments can be subjective and complex. Consequently, actual results could differ from those estimates.  Accounting measurements that managementbelieves are most critical to the reported results of operations and financialcondition of the Company include: uncollectible receivables and allowance forcredit losses and doubtful accounts, impairment of goodwill and long-livedassets, self-insurance programs, legal proceedings and other losscontingencies, and income taxes.

 

Management has discussed the development and selection of its criticalaccounting estimates with the Audit Committee of ADESA’s Board of Directors.  In addition to the critical accountingestimates, there are other items used in the preparation of ADESA’sconsolidated financial statements that require estimation, but are not deemedcritical based on the above criteria. Changes in estimates used in these and other items could have a materialimpact on ADESA’s financial statements.

 

ADESA continually evaluates the accounting policies and estimates ituses to prepare the consolidated financial statements.  In cases where management estimates are used,they are based on historical experience, information from third-partyprofessionals, and various other assumptions believed to be reasonable.  The Company’s critical accounting estimatesare discussed in the “Critical Accounting Estimates” section of “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inPart II, Item 7 of the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2004, as filed with the Securities and Exchange Commission.  In addition, ADESA’s most significantaccounting polices are discussed in Note 3and elsewhere in the Notes to the Consolidated Financial Statementsincluded in the Company’s Annual Report on Form 10-K, which includes auditedfinancial statements for the three years ended December 31, 2004.

 

#### **Seasonality**

#### ** **

Generally, the volume of vehicles sold at the Company’s auctions ishighest in the first and second calendar quarters of each year and slightlylower in the third quarter.  Fourthquarter volume of vehicles sold is generally lower than all other quarters.This seasonality is affected by several factors including weather, the timingof used vehicles available for sale from selling customers, holidays, and theseasonality of the retail market for used vehicles, which affect the demandside of the auction industry.  Auctionvolumes tend to decline during prolonged periods of winter weather conditions,hurricanes and other major weather related events.  In addition, mild weather conditions anddecreases in traffic volume can each lead to a decline in the available supplyof salvage vehicles because fewer traffic accidents occur, resulting in fewerdamaged vehicles overall.  As a result,revenues and operating expenses related to volume will fluctuate accordingly ona quarterly basis.  The Company’searnings are generally highest in the second calendar quarter followed by thethird calendar quarter.  Although volumeis typically higher in the first calendar quarter than the third calendarquarter, earnings are generally lower due to additional costs

 

16

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associated with winter weather. The fourth calendar quarter typically has the lowest earnings as aresult of the lower volume and additional costs associated with the holidaysand winter weather.

 

#### **Results of Operations**

 

The following table sets forth operations data for the periodsindicated:

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** | **Change** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|------------|------------|
| **Operations Data:**                 | ** ** | **2005**                          | ** ** | **2004**   | ** ** | **$** | ** ** | **%** | ** ** |
| Auction and related services revenue |       |                              |       |       |       |   |   |   |   |
| US revenue                           | ** ** | **$**                             | **171.0**  |       | $          | 175.0 |   |   |   |   |   |
| Canadian revenue                     | ** ** | **44.0**                          |       | 43.4       |       |   |   |   |   |
| Dealer financing revenue             |       |                              |       |       |       |   |   |   |   |
| US revenue                           | ** ** | **27.2**                          |       | 27.3       |       |   |   |   |   |
| Canadian revenue                     | ** ** | **1.8**                           |       | 1.6        |       |   |   |   |   |
| Total revenue                        | ** ** | **244.0**                         |       | 247.3      |       |   | (3.3 | ) |   | (1 | )% |   |
| Cost of services                     | ** ** | **115.2**                         |       | 120.8      |       |   | (5.6 | ) |   | (5 | )% |   |
| Selling, general and administrative  | ** ** | **55.5**                          |       | 59.2       |       |   | (3.7 | ) |   | (6 | )% |   |
| Depreciation and amortization        | ** ** | **9.2**                           |       | 9.2        |       |   | — |   |   | — |   |   |
| Operating profit                     | ** ** | **64.1**                          |       | 58.1       |       |   | 6.0 |   |   | 10 | % |   |
| Net income                           | ** ** | **$**                             | **35.0**   |       | $          | 33.3 |   | $ | 1.7 |   |   | 5 | % |   |

 

The following table sets forth operations data as a percentage of totalrevenue for the periods indicated:

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|
| **Operations Data:**                 | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Auction and related services revenue | ** ** | **88.1**                          | **%**      | ** ** | 88.3 | % |   |
| Dealer financing revenue             | ** ** | **11.9**                          | **%**      | ** ** | 11.7 | % |   |
| Total revenue                        | ** ** | **100.0**                         | **%**      | ** ** | 100.0 | % |   |
| Cost of services                     | ** ** | **47.2**                          | **%**      | ** ** | 48.8 | % |   |
| Selling, general and administrative  | ** ** | **22.7**                          | **%**      | ** ** | 24.0 | % |   |
| Depreciation and amortization        | ** ** | **3.8**                           | **%**      | ** ** | 3.7 | % |   |
| Operating profit                     | ** ** | **26.3**                          | **%**      | ** ** | 23.5 | % |   |

 

The Company’s revenue is derived from auction fees and related servicesat its auction facilities and dealer financing services at AFC.  AFC’s net revenue consists of interest andfee income and gain on sale of finance receivables less provisions for creditlosses.  This net presentation of AFC’srevenues is customary for finance companies. Operating expenses for the Company consist of cost of services, selling,general and administrative expenses and depreciation and amortization.  Cost of services is composed of payroll andrelated costs, subcontract services, supplies, insurance, property taxes,utilities and maintenance.  Selling,general and administrative expenses are composed of indirect payroll andrelated costs, sales and marketing, information technology services andprofessional fees.

 

17

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#### **Three Months EndedMarch 31, 2005**

 

*Operating Revenue*

 

Auction and Related Services

 
| ** **                                                  | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------|------------|------------|------------|
| ***(In millions except  volumes and per vehicle amounts)*** | ** ** | **2005**                          | ** ** | **2004**   | ** ** | **% Change** | ** ** |
|                                                        |       |                              |       |       |       |   |   |
| Auction and related services revenue                        | ** ** | **$**                             | **215.0**  |       | $          | 218.4 |   | (2)% |   |
| Vehicles sold                                               |       |                              |       |       |       |   |   |
| Used                                                        | ** ** | **459,958**                       |       | 481,318    |       | (4)% |   |
| Salvage                                                     | ** ** | **54,488**                        |       | 57,448     |       | (5)% |   |
| Total vehicles sold                                         | ** ** | **514,446**                       |       | 538,766    |       | (5)% |   |
|                                                        |       |                              |       |       |       |   |   |
| Used vehicle conversion percentage                          | ** ** | **69.1**                          | %          | 68.4       | %          |   |   |
| Revenue per vehicle sold                                    | ** ** | **$**                             | **418**    |       | $          | 406 |   | 3% |   |

 

Revenue for auction and related services decreased $3.4 million,or 2%, to $215.0 million for the quarter ended March 31, 2005, compared with$218.4 million for the quarter ended March 31, 2004.  This decline in revenue was a result of a 5%decrease in total auction vehicles sold offset by a 3% increase in revenue pervehicle sold which includes the favorable impact of fluctuations in theCanadian exchange rate during the quarter.

 

The total number of vehicles sold decreased 5% in the first quarter of2005 compared with the first quarter of 2004 resulting in a decrease in auctionand related services revenue of approximately $9.8 million compared with thethree months ended March 31, 2004.  Theanticipated industry-wide decline in off-lease vehicles and declines inrepossessed vehicle volumes available for sale at auctions continued during thequarter.  Despite this decline ininstitutional vehicles available for sale, selective increases in fees andincreased penetration of e-business services and vehicle inspection servicesoffset the decrease in demand for other ancillary services from institutionalsellers in the quarter, thereby increasing revenue per vehicle sold. The usedvehicle conversion percentage, calculated as the number of vehicles sold as apercentage of the number of vehicles entered for sale at the Company’s usedvehicle auctions, increased to 69.1% in the first quarter of 2005 from 68.4% infirst quarter of 2004 driven by short supply of institutional vehiclesavailable for sale combined with strong demand for used vehicles.

 

Revenue per vehicle sold increased $12, or 3%, for the quarter endedMarch 31, 2005 compared with the quarter ended March 31, 2004.  The 3% increase in revenue per vehicle soldresulted in increased auction and related services revenue of approximately$6.4 million including fluctuations in the Canadian exchange rate whichpositively impacted revenue by approximately $3.1 million for the quarter endedMarch 31, 2005, compared with the quarter ended March 31, 2004.  The increase in revenue per vehicle sold isattributable to the effect of changes in the Canadian currency and selectedpricing actions, as well as the Company’s increased penetration rate fore-business services and vehicle inspections services.

 

Dealer Financing

 
| ** **                                               | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|------------|------------|
| ***(In millions except  volumes and per loan amounts)*** | ** ** | **2005**                          | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| Dealer financing revenue                                 |       |                              | ** ** |       |       |   |   |
| Gain on sale of finance receivables                      | ** ** | **$**                             | **15.6**   | ** ** | $          | 15.9 |   |   |   |
| Interest and fee income                                  | ** ** | **14.6**                          | ** ** | 13.2       |       |   |   |
| Other revenue                                            | ** ** | **0.2**                           | ** ** | 0.5        |       |   |   |
| Provision for credit losses                              | ** ** | **(1.4**                          | **)**      | (0.7       | )          |   |   |
| Total dealer financing revenue                           | ** ** | **$**                             | **29.0**   | ** ** | $          | 28.9 |   | <1 | % |   |
|                                                     |       |                              | ** ** |       |       |   |   |   |
| Loan transactions                                        | ** ** | **278,977**                       | ** ** | 263,046    |       | 6 | % |   |
| Revenue per loan transaction                             | ** ** | **$**                             | **104**    | ** ** | $          | 110 |   | (6 | )% |   |

 

Dealer financing revenue increased slightly to $29.0 million for thequarter ended March 31, 2005, compared to $28.9 million for the quarter endedMarch 31, 2004.  The increase in dealerfinancing revenue was driven by a 6% increase in the number of

 

18

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loan transactions for the first quarter of 2005 compared with the firstquarter of 2004 partially offset by a $6 decrease in revenue per loantransaction.  Increases in loantransactions were a result of an increase in the number of active dealerscombined with an increase in floorplan utilization by the existing dealer base.

 

Revenue per loan transaction decreased $6 due to an increase in boththe provision for credit losses and allowance for credit losses related toloans sold resulting from an increase in the size of the loan portfolio.  As AFC’s loan portfolio increases, theprovision for credit losses and accrual for estimated losses on loans sold alsoincrease.  These increases are based onAFC’s historical loss development factors.

 

AFC has been notified that it will be required to relocate loanproduction offices from on-site locations at six of its non-ADESAauctions.  There is a potential new competitor in the floorplan financing business,and this competitor could move on-site at these non-ADESA locations.  AFCexpects to aggressively compete to service its customers in these marketsthrough off-site offices in close proximity to the auctions, as it currentlydoes at twenty-six of its locations.  However, the Company cannot predictwhat, if any, impact this may have on the Company’s results of operations.

 

*Cost of Services*

 

Cost of services (excluding depreciation and amortization) decreased$5.6 million, or 5%, for the three months ended March 31, 2005, comparedwith the three months ended March 31, 2004. The decrease in vehicles sold during the first quarter of 2005 reducedcost of services by approximately $5.2 million compared with the firstquarter of 2004.  In addition, the impactof the used vehicle market mix shift toward more dealer vehicles (fewerancillary services are utilized by dealers), higher average used vehicleconversion rates and lower labor and benefits (primarily medical and incentivecompensation), favorably impacted cost of services by approximately $2.5million for the quarter ended March 31, 2005 compared to the quarter endedMarch 31, 2004.  These favorable impactson cost of services, as compared with the quarter ended March 31, 2004, werepartially offset by the impact of fluctuations in the Canadian exchange rate,which increased cost of services by approximately $1.4 million and an increasein cost of services for the dealer financing segment of $0.7 million as aresult of increasing loan transaction volumes and opening four new branchessince the first quarter of 2004.

 

*Selling, General and Administrative Expenses*

 

Selling, general and administrative expenses decreased$3.7 million, or 6%, for the quarter ended March 31, 2005, compared withthe quarter ended March 31, 2004, primarily due to lower benefits (primarilymedical and incentive compensation) as well as fewer equipment rentals as theCompany has increased its capital spending. In addition, the first quarter of 2004 included $1.2 million ofnon-recurring transaction costs (primarily legal fees) associated with theCompany’s initial public offering. Selling, general and administrative expenses for the first quarter of2005 included approximately $2.9 million of incremental corporate expenses tosupport ADESA as an independent public company. Incremental corporate expenses consisted of salaries, benefits and otherexpenses due to the addition of corporate level personnel, professional fees,incremental insurance and other costs necessary to support an independentpublic company.

 

*Depreciation and Amortization*

 

Depreciation and amortization totaled $9.2 million for the three monthsended March 31, 2005, and was consistent with $9.2 million reported for thethree months ended March 31, 2004.

 

*Operating Profit*

 

Operating profit increased $6.0 million, or 10%, for the three monthsended March 31, 2005, compared with the three months ended March 31, 2004primarily as a result of decreased operating expenses.  As a percentage of revenue, operating profitincreased to 26.3% in the first quarter of 2005 compared with 23.5% in thefirst quarter of 2004.  The mix shiftfrom institutional to dealer vehicles combined with higher average used vehicleconversion rates and lower labor and benefit costs contributed to theimprovement in operating profit margin. The improvement in operating profit also reflects management’s focus inreducing direct costs at the auction sites to match volumes.

 

*Interest Expense*

 

Interest expense increased $4.1 million, or 103%, for the quarterended March 31, 2005, compared with the quarter ended March 31, 2004, as theCompany is carrying additional debt related to its recapitalization.

 

19

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*Provision for Income Taxes*

 

The effective income tax rate on income from continuing operations was39.1% for the quarter ended March 31, 2005, a slight decrease from theeffective rate of 39.3% for the quarter ended March 31, 2004.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company believes that the strongest indicators of liquidity for itsbusiness are cash on hand, cash flow from operations, working capital andamounts available under its new credit facility.

 
| ***(Dollars in millions)***             | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------|------------|---------------------|------------|------------------------|------------|
|                                    |       |                |       |                   |       |
| Cash and cash equivalents               | ** ** | **$**               | **336.7**  |                   | $          | 304.5 |   |
| Restricted cash                         | ** ** | **$**               | **4.9**    |                   | $          | 4.9 |   |
| Working capital                         | ** ** | **$**               | **365.6**  |                   | $          | 358.2 |   |
| Amounts available under credit facility | ** ** | **$**               | **137.3**  |                   | $          | 139.0 |   |
| Current ratio                           | ** ** | **1.6:1**           |       | 2.0:1                  |       |

 

#### **Working Capital**

 

A substantial amount of the Company’s working capital is generatedinternally from payments for services provided. In addition, ADESA has a $150 million revolving line of credit fromwhich no amounts were drawn as of March 31, 2005.  There were outstanding letters of credittotaling approximately $12.7 million at March 31, 2005, which reduce theavailable borrowings under the credit facility. The Company’s Canadian operations have additional letters of creditoutstanding totaling $2.4 million at March 31, 2005, which do not impactavailable borrowings under the credit facility. The credit facility contains certain financial covenants including acovenant requiring ADESA to maintain a fixed charge coverage ratio of not lessthan 1.0 to 1.0.  These financialcovenants affect the Company’s operating flexibility by, among other things,restricting its ability to incur expenses and indebtedness that could be usedto grow the business, as well as to fund general corporate purposes.  At March 31, 2005, the Company was incompliance with the covenants contained in the credit facility.  The Company expects that cash on handtogether with cash generated from operations and amounts available under itscredit facility will allow ADESA to meet its current working capital needs andthose of its subsidiaries.

 

The majority of the Company’s working capital needs are short-term innature, usually less than a week in duration. Due to the decentralized nature of the business, payments for servicesare received at each auction and loan production office and are depositedlocally.  Most of the financialinstitutions place a temporary hold on the availability of the funds depositedthat can range anywhere from one to five business days, resulting in cash inthe Company’s accounts and on its balance sheet that is unavailable for useuntil it is made available by the various financial institutions.  Over the years, the Company has increased theamount of funds that are available for immediate use and is actively working oninitiatives that will continue to decrease the time between the deposit of andthe availability of funds received from customers.  There are outstanding checks (bookoverdrafts) to sellers and vendors included in current liabilities.  Because the majority of these outstandingchecks for operations in the US are drawn upon bank accounts at financialinstitutions other than the financial institutions that hold the unavailablecash, the Company cannot offset the cash and the outstanding checks on itsbalance sheet.

 

AFC offers short-term inventory-secured financing, also known asfloorplan financing, to used vehicle dealers. Financing is provided for an average term of 30 to 45 days.  AFC principally generates its funding throughthe sale of its US dollar denominated receivables.  For further discussion of AFC’ssecuritization arrangements, see “Off-Balance Sheet Arrangements”.

 

20

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#### **Summary of Cash Flows**

 

The Company strives to continuously improve cash flow fromoperations.  ADESA’s strategy includesgrowing its vehicle auction and dealer financing businesses both internally byexpanding facilities, services and operations, and externally throughacquisitions.

 
| ** **                                | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|-----------------------------------|------------|------------|------------|
| ***(In millions)***                       | ** ** | **2005**                          | ** ** | **2004**   | ** ** | **Change** | ** ** |
| Net cash provided by (used by):           |       |                              | ** ** |       |       |   |   |
| Operating activities                      | ** ** | **$**                             | **(8.1**   | **)**      | $          | 13.6 |   | $ | (21.7 | ) |
| Investing activities                      | ** ** | **(19.9**                         | **)**      | (1.3       | )          | (18.6 | ) |
| Financing activities                      | ** ** | **60.4**                          | ** ** | 75.5       |       | (15.1 | ) |
| Effect of exchange rate on cash           | ** ** | **(0.2**                          | **)**      | (0.5       | )          | 0.3 |   |
| Net increase in cash and cash equivalents | ** ** | **$**                             | **32.2**   | ** ** | $          | 87.3 |   | $ | (55.1 | ) |

 

Cash used by operating activities was $8.1 million for the quarterended March 31, 2005, compared with cash provided by operating activities of$13.6 million for the quarter ended March 31, 2004.  The primary reason for the decrease in cashflow from operations was the change in operating assets and liabilities.  Operating cash flow was unfavorably impactedby a $40.4 million decrease in accounts payable and accrued expenses, including$16.0 million increase in cash paid for income taxes in the three months endedMarch 31, 2005, partially offset by an increase in finance and tradereceivables totaling $17.5 million. Historically, the Company made the majority of its tax payments to itsformer parent, ALLETE, in December rather than the first quarter.

 

Net cash used for investing activities was $19.9 million for the threemonths ended March 31, 2005, compared with net cash used by investingactivities of $1.3 million for the three months ended March 31, 2004. This change was principally due to an increase in capital expenditures of $18.7million.  For a discussion of the Company’scapital expenditures, see “Capital Expenditures” below.

 

Cash provided by financing activities was $60.4 million for thequarter ended March 31, 2005, compared with $75.5 million for the quarterended March 31, 2004.  The change isrepresentative of a combination of items including cash used for the repurchaseof common stock of $4.7 million, dividend payments to stockholders of $6.9 million,a net increase in debt payments and increased borrowings under the ALLETE lineof credit totaling $17.9 million, and a decrease in book overdrafts of $9.0million.  These financing activitydecreases were offset by proceeds from the issuance of common stock under stockplans of $5.9 million and the absence of dividend payments to ALLETE in thefirst quarter of 2005, representing a $17.5 million increase in financingactivities.

 

#### **Other Financial Data**

#### ** **

EBITDA is defined as earnings before interest expense, income taxes,depreciation and amortization.  The Companybelieves that EBITDA is a useful supplement and meaningful indicator ofearnings performance to be used by its investors, financial analysts and othersto analyze the Company’s financial performance and results of operations overtime.  In addition, EBITDA is auseful supplement to net cash provided by operating activities to helpinvestors understand the Company’s ability to generate cash flows fromoperations that are available for taxes, debt service and capitalexpenditures.  EBITDA is also used by the Company’s creditors in assessingdebt covenant compliance.

 

Whilethe Company believes that EBITDA is an important financial measure, it is notpresented as an alternative to cash flow, income from continuing operations ornet income as indicators of liquidity or operating performance, and should notbe considered in isolation or as a substitute for measures of performanceprepared in accordance with generally accepted accounting principles (“GAAP”).  This measure may not be comparable tosimilarly titled measures reported by other companies.

 

21

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Thefollowing table reconciles EBITDA to net income:

 
| ** **                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|
| **EBITDA*(In  millions)***    | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| **Net income**                | ** ** | **$**                             | **35.0**   |   | $ | 33.3 |   |
| Add back:                     |       |                              |       |   |   |
| Income tax expense            | ** ** | **22.5**                          |       | 21.6 |   |
| Interest expense              | ** ** | **8.1**                           |       | 4.0 |   |
| Depreciation and amortization | ** ** | **9.2**                           |       | 9.2 |   |
| **EBITDA**                    | ** ** | **$**                             | **74.8**   |   | $ | 68.1 |   |

 

EBITDA for the three months ended March 31, 2005 reflects incrementalcorporate expenses of $2.9 million ($1.8 million after tax or $0.02 per share).

 

Areconciliation of net cash provided by operating activities, another comparableGAAP measure, to EBITDA for each of the periods indicated is presented below.

 
| ** **                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|
| **EBITDA *(In  millions)***                              | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| **Net cash provided by (used by) operating  activities** | ** ** | **$**                             | **(8.1**   | **)** | $ | 13.6 |   |
| Changes in operating assets and liabilities              | ** ** | **56.1**                          | ** ** | 33.2 |   |
| Bad debt expense                                         | ** ** | **(1.8**                          | **)**      | (1.2 | ) |
| Interest expense                                         | ** ** | **8.1**                           | ** ** | 4.0 |   |
| Income tax expense                                       | ** ** | **22.5**                          | ** ** | 21.6 |   |
| Deferred income tax                                      | ** ** | **(0.5**                          | **)**      | (2.6 | ) |
| Compensation associated with equity  programs            | ** ** | **(0.4**                          | **)**      | — |   |
| Other non-cash                                           | ** ** | **(1.1**                          | **)**      | (0.5 | ) |
| **EBITDA**                                               | ** ** | **$**                             | **74.8**   | ** ** | $ | 68.1 |   |

 

#### **Capital Expenditures**

#### ** **

Capital expenditures for the three months ended March 31, 2005 and theyear ended December 31, 2004 were $20.0 million and $31.2 million, andwere funded primarily from internally generated funds.  Planned capital expenditures for theremainder of 2005 are expected to total between $30 million and $40million.  Anticipated expenditures areprimarily attributable to expansions and ongoing improvements at existingvehicle auction facilities and improvements in information technologysystems.  Future capital expenditurescould vary substantially if the Company is required to undertake correctiveaction or incur environmental costs in connection with any outstanding orfuture liabilities.  ADESA may alsopursue expansion opportunities, including the acquisition of other companies.

 

#### **Off-Balance Sheet Arrangements**

#### ** **

AFCsells the majority of its US dollar denominated finance receivables on arevolving basis and without recourse to a wholly owned, bankruptcy remote,special purpose subsidiary that is consolidated for accounting purposes inaccordance with SFAS 140, *Accounting for Transfersand Servicing of Financial Assets and Extinguishment of Liabilities*.  The special purpose subsidiary, AFC FundingCorporation, was established for the purpose of purchasing AFC’s financereceivables.  AFC and AFC FundingCorporation amended their securitization agreement on October 14,2004, to extend the expiration date to January 2006.  This agreement is subject to annualrenewal and allows for the revolving sale by the subsidiary to a bank conduitfacility of up to a maximum of $500 million in undivided interests in certaineligible finance receivables subject to committed liquidity.  AFC Funding Corporation had $425 million ofcommitted liquidity at March 31, 2005. Receivables sold to the bank conduit facility are not reported on theCompany’s consolidated balance sheet.

 

AtMarch 31, 2005, AFC managed total finance receivables of $657.8 million, ofwhich $574.7 million had been sold to AFC Funding Corporation.  AFC Funding Corporation then in turn soldloans, with recourse to AFC Funding Corporation, of $385.8 million

 

22

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tothe bank conduit facility at March 31, 2005, leaving $272.0 million of grossfinance receivables recorded on the Company’s consolidated balance sheet atMarch 31, 2005.

 

Receivablesunder management, sold, and retained were as follows *(inmillions)*:

 
| **Finance Receivables**    | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------|------------|---------------------|------------|------------------------|------------|
|                       |       |                |       |                   |       |
| Total receivables managed  | ** ** | **$**               | **657.8**  | ** **             | $          | 582.7 |   |
| Less: amounts sold         | ** ** | **(385.8**          | **)**      | (359.8                 | )          |
| Receivables retained       | ** ** | **272.0**           | ** ** | 222.9                  |       |
| Less: allowance for losses | ** ** | **(5.4**            | **)**      | (4.3                   | )          |
| Net finance receivables    | ** ** | **$**               | **266.6**  | ** **             | $          | 218.6 |   |

 

Proceedsfrom the revolving sale of receivables to the bank conduit facility were usedto fund new loans to customers.  AFC andAFC Funding Corporation must maintain certain financial covenants including,among others, limits on the amount of debt AFC can incur, minimum levels oftangible net worth, and other covenants tied to the performance of the financereceivables portfolio.  Thesecuritization agreement also incorporates the financial covenants of ADESA’scredit facility.  At March 31, 2005, the Company was incompliance with the covenants contained in the securitization agreement.

 

#### **New Accounting Standards**

#### ** **

ADESA discloses pro forma net income and earnings per share inaccordance with Statement of Financial Accounting Standards (“SFAS”) 123 *Accounting for Stock-Based Compensation* and 148 *Accounting for Stock-Based Compensation—Transition and Disclosure*.  In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS 123(R), *Share-BasedPayment*.  This statementrevises SFAS 123 and supersedes Accounting Principles Board (“APB”) Opinion No.25, *Accounting for Stock Issued to Employees*.  SFAS 123(R) requires that the cost ofemployees services received in exchange for an award of equity instruments berecognized in the income statement. Compensation cost will be measured based on the grant-date fair value ofthe equity instruments issued.  The costwill be recognized over the period during which an employee is required toprovide service in exchange for the award. No compensation cost is recognized for equity instruments for whichemployees do not render service.

 

In March 2005, the SEC issued Staff Accounting Bulletin 107 (“SAB 107”),which offers guidance on SFAS 123(R). SAB 107 was issued to assist preparers by simplifying some of theimplementation challenges of SFAS 123(R) while enhancing the information thatinvestors receive.  Key topics of SAB 107include discussion on the valuation models available to preparers and guidanceon key assumptions used in these valuation models, such as expected volatilityand expected term, as well as guidance on accounting for the income tax effectsof SFAS 123(R) and disclosure considerations, among other topics.

 

On April 14, 2005, the SEC approved a new rule for public companiesthat delayed the effective date of SFAS 123(R) to annual, rather than interim,periods that begin after June 15, 2005. As such, the Company will adopt SFAS 123(R) on January 1, 2006.  Once adopted, the Company will be required torecord compensation cost as expense for the portion of outstanding unvestedawards, based on the grant-date fair value of those awards calculated using theBlack-Scholes option pricing model used under SFAS 123 for pro formadisclosures.  The Company expects toapply the prospective transition method of SFAS 123(R), which would allow theCompany to prospectively record expense for the compensation costs related tothe portion of outstanding unvested awards at January 1, 2006, withoutrestating any prior periods.  The Companyis currently considering the financial accounting and income tax implicationsof SFAS 123(R) and SAB 107.

 

On March 9, 2005, the Board of Directors of the Company accelerated thevesting of certain unvested and “out-of-the-money” stock options previouslyawarded to employees and officers that have an exercise price of $24.  The awards accelerated were made under theADESA, Inc. 2004 Equity and Incentive Plan in conjunction with ADESA’s initialpublic offering (“IPO”) in June 2004.  Asa result, options to purchase approximately 2.9 million shares of the Company’scommon stock became exercisable immediately. The options awarded in conjunction with the IPO to the Company’s namedexecutive officers and the majority of the other officers would have vested inequal increments at June 15, 2005, 2006 and 2007.  The options awarded to certain otherexecutive officers and employees had different vesting terms.  One-third of the options awarded to the otherexecutive officers and employees vested on December 31, 2004.  The remaining two-thirds of the optionsawarded to these executive officers and other employees in conjunction with theIPO would have vested in equal increments at December 31, 2005 and 2006.  All of these options expire in June2010.  All other terms and conditionsapplicable to the outstanding stock option grants remain in effect.

 

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The Company and its Board of Directors considered several factors indetermining to accelerate the vesting of these options.  Primarily, the acceleration will enhance thecomparability of the Company’s financial statements in prior and subsequentperiods.  The options awarded to theexecutive officers were special, one-time grants in conjunction with theCompany’s IPO.  As such, these grants arenot indicative of past grants when ADESA was a subsidiary of ALLETE prior toJune 2004 and are not representative of the Company’s expected futuregrants.  The Company and Board alsobelieve that the acceleration is in the best interest of the stockholders as itwill reduce the Company’s reported stock option expense in future periodsmitigating the impact SFAS 123(R) that will take effect in the first quarter of2006.

 

As a result of the acceleration, the Company has disclosed incremental,pro forma stock-based employee compensation expense of approximately $7.7million, net of tax, in its first quarter 2005 pro forma disclosure.  The acceleration will result in reductions inthe after tax pro forma stock-based employee compensation expense disclosed inthe second, third and fourth quarters of $2.0 million, $1.1 million and $1.1million.  The Company will not record anystock-based employee compensation expense in the consolidated statements ofincome associated with the acceleration of these options because the intrinsicvalue (excess of market price of common stock over the exercise price ofoption) of the options at the date of acceleration was not in excess of the originalintrinsic value of the options.  TheCompany expects that the acceleration will reduce the stock option expense itotherwise would have been required to recognize in its consolidated statementsof income in conjunction with adopting SFAS 123(R) by approximately $4.8million in 2006 and $1.2 million in 2007 on a pre-tax basis.

 

**Item3****.  Quantitative and Qualitative DisclosuresAbout Market Risk**

 

#### **Foreign Currency**

#### ** **

The Company’s foreign currency exposure is limited and arises fromtransactions denominated in foreign currencies, particularly intercompany loansas well as from translation of the results of operations from the Company’sCanadian and, to a much lesser extent, Mexican subsidiaries.  However, fluctuations between US and non-UScurrency values may adversely affect the Company’s results of operations andfinancial position.  In addition, thereare tax inefficiencies in repatriating cash flow from non-US subsidiaries.  To the extent such repatriation is necessaryfor ADESA to meet its debt service or other obligations, these taxinefficiencies may adversely affect ADESA. The Company has not entered into anyforeign exchange contracts to hedge changes in the Canadian or Mexican exchangerates.  Canadian currency translationpositively affected net income by approximately $0.5 million for the threemonths ended March 31, 2005.  Currencyexposure of the Company’s Mexican operations is not material to the results ofoperations.

 

#### **Interest Rates**

#### ** **

The Company is exposed to interest rate risk on borrowings.  Accordingly, interest rate fluctuationsaffect the amount of interest expense the Company is obligated to pay.  In June 2004, the Company entered into twointerest rate swap agreements with notional amounts of $105 million and $60million to manage its exposure to interest rate movements on its variable ratedebt.  Both interest rate swap agreementscontain amortizing provisions and mature in December 2006.  The Company has designated its interest rateswap agreements as cash flow hedges.  Thefair value of the interest rate swap agreements is estimated using pricingmodels widely used in financial markets and represents the estimated amount theCompany would receive or pay to terminate the agreements at the reporting date.  At March 31, 2005, the fair value of theinterest rate swap agreements is a $1.4 million gain which is recorded in “Otherassets” on the consolidated balance sheet. At December 31, 2004, the fair value of the interest rate swapagreements was a $0.2 million loss which was recorded in “Other liabilities” onthe consolidated balance sheet.  Inaccordance with the provisions of SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities,* changes in the fair value of theinterest rate swap agreements designated as cash flow hedges are recorded in “Othercomprehensive income”.  Unrealized gainson interest rate swap agreements at March 31, 2005, totaling $0.9 million, netof taxes of $0.5 million, are included as a component of “Accumulated othercomprehensive income”.  At December 31,2004, there were unrealized losses on interest rate swap agreements totaling$0.1 million, net of taxes of $0.1 million, which were included as a componentof “Accumulated other comprehensive income”. The Company is exposed to credit loss in the event of non-performance bythe counterparties; however, non-performance is not anticipated.  The Company has only partially hedged itsexposure to interest rate fluctuations on its variable rate debt.  A sensitivity analysis of the impact on theCompany’s variable rate debt instruments to a hypothetical 100 basis pointincrease in short-term interest rates for the quarter ended March 31, 2005would have resulted in an increase in interest expense of approximately $0.5million.

 

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**Item 4****.  Controls and Procedures**

 

**Controls Evaluation and Related CEO and CFOCertifications**

 

ADESA conducted an evaluation of theeffectiveness of the design and operation of its “disclosure controls andprocedures” (“disclosure controls”) as of the end of the period covered by thisQuarterly Report on Form 10-Q.  Thecontrols evaluation was done under the supervision and with the participationof management, including the Chief Executive Officer (“CEO”) and ChiefFinancial Officer (“CFO”).  Attached asexhibits to this Quarterly Report on Form 10-Q are certifications of the CEOand the CFO, which are required in accordance with Rule 13a-14 of the ExchangeAct.

 

Disclosure controls are controls and proceduresdesigned to reasonably assure that information required to be disclosed in theCompany’s reports filed under the Exchange Act, such as this Report on Form10-Q, is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls are also designed toreasonably assure that such information is accumulated and communicated toADESA’s management, including the CEO and CFO, as appropriate to allow timelydecisions regarding required disclosure.

 

A control system, no matter how well designedand operated, can provide only reasonable, not absolute, assurance that thecontrol system’s objectives will be met. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issues,if any, within the Company have been detected and reported.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Controls can also be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of thecontrols.  The design of any system ofcontrols is based in part on certain assumptions about the likelihood of futureevents, and there can only be reasonable assurance that any design will succeedin achieving its stated goals under all potential future conditions.  Over time, controls may become inadequatebecause of changes in conditions or deterioration in the degree of compliancewith policies or procedures.  Because ofthe inherent limitations in a cost-effective control system, misstatements dueto error or fraud may occur and not be detected.

 

ADESA’s CEO and CFO have concluded that as ofthe end of the period covered by this report, the Company’s disclosure controlsand procedures were effective.  Therewere no changes to the Company’s internal control over financial reportingduring the first quarter of 2005 that materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

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**PART II**

**OTHER INFORMATION**

 

#### **Item 1**.  Legal Proceedings

#### ** **

The Company is involved in litigation and damage claims arising in theordinary course of business, such as actions related to injuries, propertydamage, handling or disposal of vehicles, environmental laws and regulations,and other litigation incidental to the business such as employment matters and dealerdisputes.  Such litigation is generallynot, in the opinion of management, likely to have a material adverse effect onthe Company’s financial condition, results of operations or cash flows.

 

Certain legal proceedings in which the Company is involved arediscussed in Note 19 to the consolidated financial statements in Part II, Item8 of the Company’s Annual Report on Form 10-K for the year ended December 31,2004 and Part I, Item 3 of the same Annual Report.  The following discussion is limited to certainrecent developments concerning the Company’s Legal and regulatory proceedingsand should be read in conjunction with those earlier Reports.  Unless otherwise indicated, all proceedingsdiscussed in those earlier Reports remain outstanding.

 

***ADESA Impact Tauntonfacility***

As previously reported, in December 2003 the Massachusetts Departmentof Environmental Protection (MDEP) identified the Company as a potentiallyresponsible party regarding contamination of several private drinking waterwells in a residential development that abuts the Taunton, Massachusettssalvage auction facility.

 

The Company has received correspondence and appraisal reports from anattorney representing twenty-six residential households of the adjoiningcommunity claiming (1) damages for diminution in the appraised value of theirrespective residences and (2) reimbursement of certain expenses incurred as aresult of the MTBE release.  Accordingly,there is a possibility that property damage litigation against the Company mayresult.  At this time, the Company doesnot believe that the value of the residences at issue has diminished.  The Company has put its environmentalinsurance carrier on notice of the claims with respect to the Tauntonenvironmental matter.  The insurancecarrier has retained an environmental consultant and is in the processdetermining if and to what extent insurance coverage may exist.

 

The Company has a remaining accrual of $0.5 million at March 31, 2005with respect to the Taunton matter.  Thisamount is included in the $3.5 million liability accrued for environmentalmatters at March 31, 2005.

 

***Related Party Matter***

As previously reported, wholesale vehicle businesses owned by SeanHallett, the son of James Hallett, a former Executive Vice President of ADESA, werein default with respect to three separate lines of credit with AFC and anoutstanding loan through a related entity. As of March 31, 2005, the total amount owed to AFC was $1.7 million.  The lines of credit totaling $0.4 million aresecured with a perfected blanket security interest in the assets of thewholesale vehicle businesses.  The loanis cross-collateralized with one of the credit lines and is secured by certainunencumbered personal property valued between $0.3 million and $0.5million.  Based on an assessment ofrecoverability, the Company recorded provisions for credit losses totaling $1.3million.  AFC had net receivables fromthis individual’s wholesale vehicle business totaling $0.4 million at March 31,2005 and December 31, 2004.

 

On March 4, 2005, AFC andAutomotive Finance Canada, Inc. (the “AFC Entities”) met with Sean Hallett and his related companies (the “HallettEntities”) in Toronto, Canada and participated in a mandatory mediationsession in an unsuccessful effort to resolve the litigation.  The AFC Entities intend to continue toprosecute their claims against the Hallett Entities and the litigation iscurrently in discovery.

 

***Auction Management Solutions, Inc.***

On March 10, 2005, ADESA received notice that Auction Management Solutions,Inc. (“AMS”) has filed a lawsuit in U.S. District Court for the NorthernDistrict of Georgia, Atlanta Division (Civil Action No. 05 CV 0638), alleginginfringement of U.S. Patent No. 6,813,612 (the “612 Patent”) which was issuedNovember 2, 2004 and pertains to an audio/video system for streaminginstantaneous and buffer free data to and from a live auction site. The AMScomplaint has not been formally served. The Company is in the process ofreviewing the 612 Patent and the Internet auction video and streaming audiosoftware it licenses from a third party.

 

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#### **Item 2**.   Unregistered Sales of Equity Securities andUse of Proceeds

#### ** **

**Issuer Purchases of Equity Securities**

** **

The Company’s share repurchase program has and may include open markettransactions executed from time to time at prevailing market prices, as well asprivately negotiated transactions, and will be structured to comply with, andbe conducted under, Rule 10b-18 of the Securities Exchange Act of 1934 andother applicable regulations.  Future purchases will be made at such timesand in such amounts as ADESA deems appropriate and may be discontinued at anytime.  As of March 31, 2005, the Companyhad repurchased a cumulative total of 4.7 million shares at a weighted averageprice of $19.95 for an aggregate cost of $94.2 million.

 

Thefollowing table provides information about purchases by ADESA of its commonshares during the quarter ended March 31, 2005 (*in millions,except per share amounts*):

 
| **ADESA Common Stock Repurchases (1)** | ** ** | **Total  Number of  Shares  Purchased (2)** | ** ** | **Average  Price per  Share(2)** | ** ** | **Total Number  of Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **Approximate  Dollar Value of  Shares That  May Yet Be  Purchased  Under the Plans  or Programs** | ** ** |
|----------------------------------------|------------|---------------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
|                                   |       |                                        |       |                             |       |                                                                                       |       |                                                                                               |       |
| January  1 – January 31           |       | —                                      |       | —                           |       | —                                                                                     |       | $                                                                                                  | 43.3       |   |
| February  1 – February 28         |       | 0.1                                         |       | $                                | 22.44      |                                                                                       | —     |                                                                                               | $          | 43.3 |   |
| March  1 – March 31               |       | 0.3                                         |       | $                                | 22.74      |                                                                                       | 0.3        |                                                                                               | $          | 35.8 |   |
| For  the quarter ended March 31, 2005  |       | 0.4                                         |       | $                                | 22.70      |                                                                                       | 0.3        |                                                                                               | $          | 35.8 |   |

 

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(1)          OnAugust 30, 2004, the Company’s Board of Directors approved a program torepurchase up to $130 million of the Company’s common stock.  The program expires September 23, 2005.

 

(2)          Inaddition to purchases pursuant to the program approved in August 2004, thiscolumn reflects shares repurchased in a private transaction during the firstquarter of 2005 to satisfy tax withholding obligations in connection with thevesting of restricted stock units and performance share awards during thequarter.

 

#### **Item 6**.  Exhibits

#### ** **

**(a)          **Exhibits. The Exhibit Index is incorporated herein by reference.

 

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**SIGNATURES**

 

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

 

 
|   |         | ADESA, Inc.                   |   |
|--------|--------------|-------------------------------|--------|
|   |         | (Registrant)                  |
|   |         |                          |
|   |         |                          |
| Date:  | May 13, 2005 | /s/  Cameron C. Hitchcock     |   |
|   |         | Cameron C. Hitchcock          |
|   |         | Executive Vice President and  |
|   |         | Chief Financial Officer       |
|   |         | (Principal Financial Officer) |
|   |         |                          |
|   |         |                          |
| Date:  | May 13, 2005 | /s/  Scott A. Anderson        |   |
|   |         | Scott A. Anderson             |
|   |         | Controller                    |
|   |         | (Chief Accounting Officer)    |
|        |              |                               |        |  |

 

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**EXHIBITINDEX**

 
| ** **     | ** ** | ** **                                                                               | ** ** | **Incorporated by Reference** | ** ** | ** **   |
|----------------|------------|------------------------------------------------------------------------------------------|------------|-------------------------------|------------|--------------|
| **ExhibitNo.** | ** ** | **Exhibit Description**                                                                  | ** ** | **Form**                      | ** ** | **File No.** | ** ** | **Exhibit** | ** ** | **FilingDate** | ** ** | **FiledHerewith** |
|           |       |                                                                                     |       |                          |       |         |   |   |   |   |   |   |
| 10.19          |       | ADESA,  Inc. 2005 Supplemental Executive Retirement Plan.*                               |       | 10-K                          |       | 001-32198    |   | 10.19 |   | 3/29/05 |   |   |
| 10.20          |       | Acceleration  of Stock Option Vesting*                                                   |       | 10-K                          |       | 001-32198    |   | 10.20 |   | 3/29/05 |   |   |
| 10.21          |       | Executive  Restricted Stock Unit Awards*                                                 |       | 10-K                          |       | 001-32198    |   | 10.21 |   | 3/29/05 |   |   |
| 10.22          |       | Annual  Management Incentive Plan Bonuses and Compensation*                              |       | 10-K                          |       | 001-32198    |   | 10.22 |   | 3/29/05 |   |   |
| 31.1           |       | Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of David G. Gartzke     |       |                          |       |         |   |   |   |   |   | X |
| 31.2           |       | Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of Cameron C. Hitchcock |       |                          |       |         |   |   |   |   |   | X |
| 32.1           |       | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of David G. Gartzke     |       |                          |       |         |   |   |   |   |   | X |
| 32.2           |       | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of Cameron C. Hitchcock |       |                          |       |         |   |   |   |   |   | X |

 

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*        Management contract or compensation plan orarrangement

 

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