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Insurance Auto Auctions, Inc – ‘10-Q’ for 6/30/03

On: Tuesday, 8/12/03, at 1:29pm ET · For: 6/30/03 · Accession #: 950137-3-4232 · File #: 0-19594

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/12/03  Insurance Auto Auctions, Inc      10-Q        6/30/03    5:325K                                   Bowne Boc/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      19    114K 
 2: EX-10.1     Amended and Restated Credit Agreement                 83    376K 
 3: EX-31.1     Certification by the CEO                               2±     9K 
 4: EX-31.2     Certification by the CFO                               2±     9K 
 5: EX-32.1     Certification by the CEO and CFO                       1      8K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Changes in Securities and Use of Proceeds Controls and Procedures Defaults upon Senior Securities Factors That May Affect Future Results Financial Condition and Liquidity Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to Condensed Consolidated Financial Statements Other Information Overview Part Ii. Other Information Quantitative and Qualitative Disclosures about Market Risk Results of Operations Submission of Matters to a Vote of Security Holders
1	1st Page - Filing Submission
6	Notes to Condensed Consolidated Financial Statements
10	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Overview
"	Results of Operations
12	Financial Condition and Liquidity
13	Factors That May Affect Future Results
16	Item 3. Quantitative and Qualitative Disclosures about Market Risk
"	Item 4. Controls and Procedures
"	Part Ii. Other Information
"	Item 1. Legal Proceedings
"	Item 2. Changes in Securities and Use of Proceeds
"	Item 3. Defaults upon Senior Securities
"	Item 4. Submission of Matters to a Vote of Security Holders
17	Item 5. Other Information

10-Q 1st Page of 19 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-Q

(Mark One)                                                                      

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

For the quarterly period ended June 29, 2003                                    

OR

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

For the transition period from _______________ to ______________                

 Commission File Number: 0-19594

 INSURANCE AUTO AUCTIONS, INC.
 -----------------------------
(Exact name of registrant as specified in its charter)

                Illinois                                    95-3790111
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or              (I.R.S. Employer  
                  organization)                              Identification No.)

850 East Algonquin Road, Suite 100, Schaumburg, Illinois              60173-3855
--------------------------------------------------------------------------------
       (Address of principal executive offices)                       (Zip Code)

(847) 839-3939
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days. Yes [X] No [ ]                               

Indicate by check mark whether the registrant is an accelerated filer (as       
defined in Rule 12B-2 of the Exchange Act.) Yes [ ] No [X]                      

APPLICABLE ONLY TO CORPORATE ISSUERS

Number of shares outstanding of each of the issuer's classes of common stock, as
of July 31, 2003:                                                               

 Class                           Outstanding
 -----                           -----------
Common Stock, $0.001 Par Value            11,515,166 shares         

10-Q 2nd Page of 19 TOC 1st Previous Next ↓Bottom Just 2nd
                                             INDEX

                                             INSURANCE AUTO AUCTIONS, INC.

                                                        [Enlarge/Download Table]

                                                                                             PAGE NUMBER
                                                                                             -----------
                                                                                                        
PART I.  FINANCIAL INFORMATION..............................................................       3    

Item 1.  Financial Statements (Unaudited)...................................................       3    

         Condensed Consolidated Statements of Operations for the Three Month and Six Month              
              Periods ended June 29, 2003 and June 30, 2002.................................       3    
         Condensed Consolidated Balance Sheets as of June 29, 2003 and December 29, 2002....       4    
         Condensed Consolidated Statements of Cash Flows for the Six Month Periods ended                
              June 29, 2003 and June 30, 2002 ..............................................       5    
         Notes to Condensed Consolidated Financial Statements...............................       6    

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of                     
              Operations....................................................................      10    
         Overview...........................................................................      10    
         Results of Operations..............................................................      10    
         Financial Condition and Liquidity..................................................      12    
         Factors That May Affect Future Results.............................................      13    

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........................      16    

Item 4.  Controls and Procedures............................................................      16    

PART II. OTHER INFORMATION..................................................................      16    

Item 1.  Legal Proceedings..................................................................      16    

Item 2.  Changes in Securities and Use of Proceeds..........................................      16    

Item 3.  Defaults upon Senior Securities....................................................      16    

Item 4.  Submission of Matters to a Vote of Security Holders................................      16    

Item 5.  Other Information..................................................................      17    

Item 6.  Exhibits and Reports on Form 8-K...................................................      17    

SIGNATURE    ...............................................................................      18    

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 INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (dollars in thousands except per share amounts)

                                                        [Enlarge/Download Table]

                                                     THREE MONTH PERIODS ENDED      SIX MONTH PERIODS ENDED   
                                                    ---------------------------   --------------------------- 
                                                      JUNE 29,       JUNE 30,       JUNE 29,       JUNE 30,   
                                                        2003           2002           2003           2002     
                                                    ---------------------------   --------------------------- 
                                                            (UNAUDITED)                   (UNAUDITED)         
                                                                                                              
Revenues:                                                                                                     
     Vehicle sales                                  $     10,192   $     17,059   $     23,496   $     44,810 
     Fee income                                           43,146         42,691         85,882         84,160 
                                                    ------------   ------------   ------------   ------------ 
                                                          53,338         59,750        109,378        128,970 
Cost of sales:                                                                                                
     Vehicle cost                                          9,425         14,802         21,196         40,859 
     Branch cost                                          32,845         33,001         65,809         64,193 
                                                    ------------   ------------   ------------   ------------ 
                                                          42,270         47,803         87,005        105,052 
                                                    ------------   ------------   ------------   ------------ 
         Gross profit                                     11,068         11,947         22,373         23,918 

Operating expense:                                                                                            
     Selling, general and administrative                   7,509          6,937         14,677         14,116 
     Business transformation costs                           921          2,237          1,718          4,186 
                                                    ------------   ------------   ------------   ------------ 

     Earnings from operations                              2,638          2,773          5,978          5,616 

Other (income) expense:                                                                                       
     Interest expense                                        503            476            558            724 
     Other income                                            (43)           (82)          (122)          (139)
                                                    ------------   ------------   ------------   ------------ 

     Earnings before income taxes                          2,178          2,379          5,542          5,031 

Provision for income taxes                                   898          1,023          2,286          2,163 
                                                    ------------   ------------   ------------   ------------ 

         Net earnings                               $      1,280   $      1,356   $      3,256   $      2,868 
                                                    ============   ============   ============   ============ 

Earnings per share:                                                                                           
     Basic                                          $        .11   $        .11   $        .28   $        .23 
                                                    ============   ============   ============   ============ 
     Diluted                                        $        .11   $        .11   $        .27   $        .23 
                                                    ============   ============   ============   ============ 

Weighted average shares outstanding:                                                                          
     Basic                                                11,517         12,226         11,784         12,212 
     Effect of dilutive securities - stock options            60            357             77            305 
                                                    ------------   ------------   ------------   ------------ 
     Diluted                                              11,577         12,583         11,861         12,517 
                                                    ============   ============   ============   ============ 

See accompanying notes to condensed consolidated financial statements.          

3 

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 INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES

 CONDENSED CONSOLIDATED BALANCE SHEETS
 (dollars in thousands except per share amounts)

                                                        [Enlarge/Download Table]

                                                                       JUNE 29,     DECEMBER 29, 
                                                                         2003           2002     
                                                                     ------------   ------------ 
                                                                     (Unaudited)                 
                                                                                                 
ASSETS                                                                                           

Current assets:                                                                                  
     Cash and cash equivalents                                       $     28,507   $     10,027 
     Accounts receivable, net                                              40,249         45,594 
     Inventories                                                           10,175         11,158 
     Other current assets                                                   2,671          3,571 
                                                                     ------------   ------------ 
            Total current assets                                           81,602         70,350 
                                                                     ------------   ------------ 

Property and equipment, net                                                55,709         49,342 
Deferred income taxes                                                       8,592          7,663 
Intangible assets, net                                                      2,178          1,710 
Goodwill, net                                                             135,335        130,474 
Other assets                                                                  144            111 
                                                                     ------------   ------------ 
                                                                     $    283,560   $    259,650 
                                                                     ============   ============ 

LIABILITIES AND SHAREHOLDERS' EQUITY                                                             

Current liabilities:                                                                             
     Accounts payable                                                $     25,320   $     28,656 
     Accrued liabilities                                                   14,679         15,312 
     Obligations under capital leases                                       4,785          2,552 
     Current installments of long-term debt                                 7,545             43 
     Income taxes payable                                                     864              - 
                                                                     ------------   ------------ 
         Total current liabilities                                         53,193         46,563 
                                                                     ------------   ------------ 

Deferred income taxes                                                      16,283         14,835 
Other liabilities                                                           2,724          2,736 
Obligation under capital leases                                             1,306          1,355 
Long-term debt, excluding current installments                             20,661             59 
                                                                     ------------   ------------ 
         Total liabilities                                                 94,167         65,548 
                                                                     ------------   ------------ 

Shareholders' equity:                                                                            
     Preferred stock, par value of $.001 per share                                               
         Authorized 5,000,000 shares; none issued                               -              - 
     Common stock, par value of $.001 per share                                                  
         Authorized 20,000,000 shares: 12,307,128 shares issued and                              
         11,499,919 outstanding as of June 29, 2003 and 12,292,599                               
         shares issued and outstanding as of December 29, 2002                 12             12 
     Additional paid-in capital                                           144,648        144,420 
     Treasury stock, 807,209 shares                                        (8,012)             - 
     Accumulated other comprehensive income (loss)                           (926)          (745)
     Retained earnings                                                     53,671         50,415 
                                                                     ------------   ------------ 
         Total shareholders' equity                                       189,393        194,102 
                                                                     ------------   ------------ 
                                                                     $    283,560   $    259,650 
                                                                     ============   ============ 

See accompanying notes to condensed consolidated financial statements.          

4 

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 INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES

 Condensed Consolidated Statements of Cash Flows
(dollars in thousands)

                                                        [Enlarge/Download Table]

                                                                                       SIX MONTHS ENDED      
                                                                                    ------------------------ 
                                                                                     JUNE 29,      JUNE 30,  
                                                                                       2003          2002    
                                                                                    ----------    ---------- 
                                                                                          (Unaudited)        
                                                                                                             
Cash flows from operating activities:                                                                        
Net earnings                                                                        $    3,256    $    2,868 
Adjustments to reconcile net earnings to net cash                                                            
   provided by operating activities:                                                                         
     Depreciation and amortization                                                       4,870         4,275 
     Loss (gain) on disposal of fixed assets                                               (31)           34 
     Loss (gain) on change in fair market value of derivative financial instrument        (307)          472 
     Changes in assets and liabilities (excluding effects of acquired companies):                            
     (Increase) decrease in:                                                                                 
       Accounts receivable, net                                                          7,370        11,355 
       Inventories                                                                         985         4,376 
       Other current assets                                                                917           863 
       Other assets                                                                       (754)          438 
     Increase (decrease) in:                                                                                 
       Accounts payable                                                                 (3,336)       (8,412)
       Accrued liabilities                                                                (684)         (588)
       Income taxes, net                                                                 1,383         1,405 
                                                                                    ----------    ---------- 
         Total adjustments                                                              10,412        14,218 
                                                                                    ----------    ---------- 
     Net cash provided by operating activities                                          13,669        17,086 
                                                                                    ----------    ---------- 

Cash flows from investing activities:                                                                        
   Capital expenditures                                                                 (6,498)       (6,601)
   Investments, net                                                                          -         2,643 
   Proceeds from sale of investments                                                         -           175 
   Proceeds from disposal of property and equipment                                         44             - 
   Payments made in connection with acquisitions, net of cash acquired                  (7,863)            - 
                                                                                    ----------    ---------- 
      Net cash used in investing activities                                            (14,317)       (3,783)
                                                                                    ----------    ---------- 

Cash flows from financing activities:                                                                        
   Proceeds from issuance of common stock                                                  227           901 
   Proceeds from term loan                                                              30,000             - 
   Purchase of treasury stock                                                           (8,012)            - 
   Principal payments on long-term debt                                                 (1,896)      (20,022)
   Principal payments - capital leases                                                  (1,191)            - 
                                                                                    ----------    ---------- 
Net cash provided (used) by financing activities                                        19,128       (19,121)
                                                                                    ----------    ---------- 

Net increase (decrease) in cash and cash equivalents                                    18,480        (5,818)

Cash and cash equivalents at beginning of period                                        10,027        24,467 
                                                                                    ----------    ---------- 

Cash and cash equivalents at end of period                                          $   28,507    $   18,649 
                                                                                    ==========    ========== 

Supplemental disclosures of cash flow information:                                                           
  Cash paid during the period for:                                                                           
     Interest                                                                       $      647    $    1,077 
                                                                                    ==========    ========== 
     Income taxes paid                                                              $      797    $    1,735 
                                                                                    ==========    ========== 
     Income taxes refunded                                                          $    1,250    $    2,250 
                                                                                    ==========    ========== 
   Non-cash financing activities:                                                                            
      Property and equipment additions resulting from capital leases                $    3,375    $        - 
                                                                                    ==========    ========== 

See accompanying notes to condensed consolidated financial statements.          

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 INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

1.       GENERAL                                                                

        The unaudited condensed consolidated financial statements of Insurance
        Auto Auctions, Inc. and its subsidiaries (collectively, the "Company")
         have been prepared on the same basis as the annual audited consolidated
      financial statements and, in the opinion of the Company, reflect all
       adjustments necessary for a fair presentation for each of the periods
  presented. The results of operations for interim periods are not
necessarily indicative of results for full fiscal years.      

         As contemplated by the Securities and Exchange Commission ("SEC") under
       Rule 10-01 of Regulation S-X, the accompanying consolidated financial
     statements and related notes have been condensed and do not contain
certain information that is included in the Company's annual  
  consolidated financial statements and notes thereto. For further
       information, refer to the consolidated financial statements and notes
      thereto included in the Company's annual report on Form 10-K for the
year ended December 29, 2002.                                 

     Fiscal year 2002 consisted of 52 weeks and ended December 29, 2002.
        Fiscal year 2003 will consist of 52 weeks and will end on December 28,
2003.                                                         

      Certain reclassifications have been made to the prior year financial
information to conform to the current year presentation.      

2.       INCOME TAXES                                                           

       Income taxes were computed using the effective tax rates estimated to
       be applicable for the full fiscal years, which are subject to ongoing
review and evaluation by the Company.                         

3.       GOODWILL AND INTANGIBLES                                               

        In July 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
         and Other Intangible Assets", which changes the accounting for goodwill
        and intangibles with an indefinite life from an amortization method to
   an impairment only approach. In accordance with SFAS No. 142, the
         Company completed the transitional impairment test of intangible assets
    during the first quarter of 2002. The results of this test did not
  indicate any impairment. The Company's annual impairment test is
      performed in the first quarter of each year. The current year annual
impairment test did not indicate any impairment.              

       Goodwill and other intangibles are recorded at cost, less accumulated
 amortization, and consist of the following at June 29, 2003 and
December 29, 2002:                                            

                                                                [Download Table]

                                                 June 29,       December 29,
                             Assigned Life         2003             2002    
                             -------------       --------       ------------
                                          (dollars in millions)             
                                                                            
Goodwill                     Indefinite          $  135.3        $   130.5  
Covenants not to compete     5 to 15 years            2.2              1.7  
                                                 --------        ---------  
                                                 $  137.5        $   132.2  
                                                 ========        =========  

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        Amortization expense for the three months ended June 29, 2003 and June
    30, 2002 was $0.1 million in both periods. This amount is included
     within selling, general and administration expense on the Company's
      Condensed Consolidated Statements of Operations. Based upon existing
        intangibles, the projected annual amortization expense for 2003, 2004,
2005 and 2006 is $0.4 million and $0.3 million for 2007.      

4.       COMPREHENSIVE INCOME (LOSS)                                            

        Comprehensive income (loss) consists of net earnings and the change in
      fair value of the Company's interest rate swap agreement as follows:

                                                        [Enlarge/Download Table]

                                             THREE MONTHS ENDED            SIX MONTHS ENDED    
                                           ------------------------   ------------------------ 
                                            JUNE 29,      JUNE 30,     JUNE 29,      JUNE 30,  
                                              2003          2002         2003          2002    
                                           ----------    ----------   ----------    ---------- 
                                                                                               
Net earnings                               $    1,280    $    1,356   $    3,256    $    2,868 
Other comprehensive loss                                                                       
    Change in fair value of interest rate                                                      
      swap agreement                              (25)         (191)        (291)         (191)
    Income tax benefit                             10            82          110            82 
                                           ----------    ----------   ----------    ---------- 
Comprehensive income                       $    1,265    $    1,247   $    3,075    $    2,759 
                                           ==========    ==========   ==========    ========== 

        The change in fair value of the Company's interest rate swap agreement
      for the six-month period ended June 29, 2003 was due to a decline in
interest rates.                                               

5.       FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES                           

    The Company, as a matter of policy, does not enter into derivative
         contracts for trading or speculative purposes. During the first quarter
         of 2002, the Company entered into an interest rate swap to mitigate its
   exposure to interest rate fluctuations and to effectively fix its
     borrowing rate at 5.6%. Under the interest rate swap agreement, the
Company pays a fixed rate of interest of 5.6% and receives a  
       LIBOR-based floating rate. At year-end December 29, 2002, the Company
     recorded a non-cash charge of $0.3 million related to the change in
      fair value for the portion of its interest rate swap agreement which
         did not qualify for hedge accounting. At December 29, 2002, the Company
   also recorded $0.7 million as a comprehensive loss related to the
      change in fair market value of the remaining portion of its interest
rate swap agreement which qualified for hedge accounting.     

       During the first quarter of 2003, the Company recorded a $0.3 million
      non-cash benefit related to the change in fair value of the interest
    rate swap agreement. The Company also recorded $0.2 million in the
        quarter for an accumulated comprehensive loss related to the change in
      fair market value of the remaining portion of its interest rate swap
         agreement, net of applicable tax effects. At March 30, 2003, the entire
swap agreement qualified for hedge accounting.                

         In the second quarter of 2003, the Company recorded an increase of less
        than $0.1 million to the accumulated comprehensive loss related to the
         change in fair market value of its interest rate swap agreement, net of
     applicable tax effects. At June 29, 2003, the entire swap agreement
qualified for hedge accounting.                               

        On February 15, 2003, the Company borrowed all available funds related
 to its $30.0 million credit facility. The credit facility was a
         one-year revolver that converted on February 15, 2003, into a four-year
    term loan carrying a variable rate based upon LIBOR. The aggregate
         principal balance of the loan will be paid in sixteen consecutive equal
      quarterly installments commencing on March 31, 2003. As of March 30,
     2003, the Company was not in compliance with the fixed charge ratio
         provision of the term loan. The Company had obtained from the lenders a
waiver regarding the noncompliance.                           

    On June 25, 2003, the Company entered into an amended and restated
        credit facility. This facility added a $20.0 million revolving line of
  credit, carrying a variable rate based on LIBOR, to the existing

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 term loan. This amended and restated facility also modified all
      existing covenants except for the rent expense covenant. The amended
credit facility also granted the Company latitude to purchase 
      additional shares of the Company's outstanding common stock. At June
  29, 2003, the Company was in compliance with its credit facility
covenants.                                                    

6.       TREASURY STOCK                                                         

       The Company records treasury stock purchases using the cost method of
         accounting. In March 2003, the Company repurchased 757,409 shares at an
    average price of $9.77 per share and a total cost of $7.4 million.
         During the second quarter, the Company repurchased an additional 49,800
         shares at an average price of $12.25 per share and a total cost of $0.6
       million. On a year-to-date basis, the Company has repurchased 807,209
        shares at an average price of $9.93 per share and a total cost of $8.0
million.                                                      

7.       STOCK OPTIONS                                                          

 The Company accounts for its fixed plan stock options under the
     intrinsic value-based method of accounting prescribed by Accounting
  Principles Board Opinion No. 25, "Accounting for Stock Issued to
        Employees," and related interpretations. As such, compensation expense
         would be recorded on the date of grant and amortized over the period of
  service only if the current market value of the underlying stock
        exceeded the exercise price. No stock-based employee compensation cost
        is reflected in net earnings, as each option granted under these plans
   had an exercise price equal to the market value of the underlying
common stock on the date of grant.                            

   The following table illustrates the effect on net earnings if the
       Company had applied the fair value recognition provision of Statement
   of Financial Accounting Standards (SFAS) No. 123, "Accounting for
  Stock-Based Compensation," to stock-based employee compensation,
      including a straight-line recognition of compensation costs over the
related vesting periods for fixed awards:                     

                                                                [Download Table]

                                     Three Months Ended        Six Months Ended    
                                   -----------------------  -----------------------
                                    June 29,     June 30,    June 29,     June 30, 
                                      2003         2002        2003         2002   
                                   ----------   ----------  ----------   ----------
                                                                                   
Net earnings as reported           $    1,280   $    1,356  $    3,256   $    2,868
Deduct: Total stock-based                                                          
    employee compensation expense                                                  
    determined under the fair                                                      
    value based method for all                                                     
    awards, net of related tax                                                     
    effects                               433          304         864          625
                                   ----------   ----------  ----------   ----------
Pro forma net earnings             $      847   $    1,052  $    2,392   $    2,243
                                   ==========   ==========  ==========   ==========

Earnings per share:                                                                
     Basic - as reported           $      .11   $      .11  $      .28   $      .23
                                   ==========   ==========  ==========   ==========

     Basic - pro forma             $      .07   $      .09  $      .20   $      .18
                                   ==========   ==========  ==========   ==========

     Diluted - as reported         $      .11   $      .11  $      .27   $      .23
                                   ==========   ==========  ==========   ==========

     Diluted - pro forma           $      .07   $      .08  $      .20   $      .18
                                   ==========   ==========  ==========   ==========

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8.       ACQUISITIONS                                                           

   The Company has acquired six vehicle auction facilities since the
         beginning of fiscal 2003. All of these acquisitions have been accounted
 for using the purchase method of accounting, and the results of
     operations of the acquired businesses are included in the Company's
     condensed consolidated financial statements from the dates of their
acquisition.                                                  

   In January 2003, the Company acquired Salvage Management Inc., an
       operator of two auto salvage facilities in Buffalo and Rochester, New
         York. In April 2003, the Company acquired Wichita Insurance Pool, Inc.,
located in Wichita, Kansas. In June 2003, the Company acquired
      Wilmington Salvage and Disposal Company, Inc. located in Wilmington,
      North Carolina and the Damaged Vehicle division of Manheim's Orlando
       Orange County Auto Auction, located in Orlando, Florida. All of these
    acquisitions leverage the Company's existing regional coverage. In
     April 2003, the Company also acquired Mountain States Salvage Pool,
  which is located in Ogden, Utah. This acquisition represents the
         penetration of a new market opportunity. The total cost of adding these
      six new facilities was less than $7.9 million. Of the total purchase
     amount of $7.9 million, 62% or $4.9 million is related to goodwill.

9.       NEW ACCOUNTING PRONOUNCEMENTS                                          

         In April 2003, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
  Hedging Activities." SFAS No. 149 amends and clarifies financial
     accounting and reporting for derivative instruments and for hedging
      activities under SFAS No. 133. SFAS 149 requires that contracts with
       comparable characteristics be accounted for similarly. This statement
        is effective for both contracts and hedging activities entered into or
        modified after June 30, 2003. The Company does not anticipate that the
        adoption of this standard will have a material impact on the Company's
consolidated financial statements.                            

    In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
    Financial Instruments with Characteristics of Both Liabilities and
       Equity. The statement required issuers to classify as liabilities (or
       assets in some circumstances) three classes of freestanding financial
   instruments that embody obligations of the issuer. Generally, the
  statement is effective for financial instruments entered into or
         modified after May 31, 2003 and is otherwise effective at the beginning
        of the first interim period beginning after June 15, 2003. The Company
       adopted the provisions of the statement on June 29, 2003. The Company
        did not have any instruments within the scope of the statement at June
29, 2003.                                                     

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS.                                                                  

The discussion in this section contains forward-looking information that is     
subject to certain risks, trends and uncertainties that could cause actual      
results to differ materially from those projected, expressed, or implied by such
forward-looking information. In some cases, you can identify forward looking    
statements by our use of words such as "may, will, should, anticipates,         
believes, expects, plans, future, intends, could, estimate, predict, projects,  
targeting, potential or contingent," the negative of these terms or other       
similar expressions. The Company's actual results could differ materially from  
those discussed or implied herein. Factors that could cause or contribute to    
such differences include, but are not limited to, those discussed herein under  
"Factors that May Affect Future Results" and in the Company's annual report on  
Form 10-K for the fiscal year ended December 29, 2002. Among these risks are:   
changes in the actual cash value of salvage; the quality and quantity of        
inventory available from suppliers; the ability to pass through increased towing
costs; that vehicle processing time will improve; legislative or regulatory     
acts; competition; the availability of suitable acquisition candidates and      
greenfield opportunities; the ability to bring new facilities to expected       
earnings targets; the dependence on key insurance company suppliers; the ability
of the Company and its outside consultants to successfully complete the         
re-design of the Company's information systems, both in a timely manner and     
according to costs and operational specifications; and the level of energy and  
labor costs.                                                                    

OVERVIEW                                                                        

    Insurance Auto Auctions, Inc. offers insurance companies and other
vehicle suppliers cost-effective salvage processing solutions on either a       
consignment fixed fee, consignment percentage of sale, or purchase agreement    
basis. Under the consignment fixed fee method of sale, the Company receives a   
fixed fee per vehicle for its services. Under the consignment percentage of sale
method, the Company receives a percentage of a vehicle's selling price as fee   
for its services. There are, therefore, potentially greater profits to be       
realized under the consignment percentage of sale method versus the consignment 
fixed fee method because the higher the selling price of a vehicle, the greater 
the return for both the Company and its salvage provider. This increased profit 
potential encourages both the Company and the salvage provider to invest in     
vehicle enhancements to maximize vehicle selling prices. Under the percentage of
sale and fixed fee consignment methods, the vehicles are not owned by the       
Company and only the fees associated with processing the vehicle are recorded as
revenue. The proceeds from the sale of the vehicle itself are not included in   
revenue. Under the purchase agreement sales method, the Company purchases       
vehicles from a salvage provider according to pre-arranged contractual terms.   
Because those vehicles are then owned by the Company, the total proceeds from   
the sale of the vehicle are recorded as revenue.                                

  Since its initial public offering in 1991, the Company has grown
primarily through a series of acquisitions and opening of new sites to now      
include 74 sites. During the first quarter of 2003, the Company acquired        
facilities in Rochester and Buffalo, New York, and established new facilities in
Dothan, Alabama and Little Rock, Arkansas. In second quarter 2003, the Company  
acquired facilities in Wichita, Kansas, Ogden, Utah, Wilmington, North Carolina,
and Orlando, Florida.                                                           

RESULTS OF OPERATIONS                                                           

Three Months Ended June 29, 2003 Compared to the Three Months Ended June 30,    
2002                                                                            

       Revenues were $53.3 million for the three months ended June 29, 2003,
down from $59.8 million for the same three month period in 2002. The decline in 
revenues is primarily due to the Company's continued shift away from vehicles   
sold under the purchase agreement method. Under the purchase agreement method,  
the entire purchase price of the vehicle is recorded as revenue compared to only
recording the fees collected on the sale of a vehicle under the lower risk      
consignment fee based arrangements. Vehicles sold under the purchase agreement  
method accounted for 6% of the total vehicles sold in the second quarter of     
2003, versus 9% for the same quarter last year. Fee income in the second quarter
increased to $43.1 million versus $42.7 million in the second quarter of last   
year.                                                                           

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         Net revenues, defined as gross revenues less vehicle cost, decreased to
$43.9 million for the three months ended June 29, 2003 from $44.9 million for   
the same three month period last year. The Company utilizes this revenue        
measurement to evaluate its performance by computing all revenues on a          
consignment equivalent basis.                                                   

     Cost of sales decreased $5.5 million to $42.3 million for the three
months ended June 30, 2003, versus $47.8 million for the same period last year. 
Vehicle cost of $9.4 million is $5.4 million less than last year's amount of    
$14.8 million. This decrease is primarily related to the Company's shift away   
from vehicles sold under the purchase agreement method. Branch cost of $32.8    
million decreased $0.2 million from $33.0 million for the same period last year.
Fixed costs were up substantially due to branches added since the second quarter
of last year. Despite these higher fixed costs, total branch costs were lower in
the second quarter of 2003 due to the efficiencies achieved as a result of the  
business process improvements implemented last year.                            

       Gross profit decreased 7% to $11.1 million for the three months ended
June 29, 2003, from $11.9 million for the comparable period in 2002.            

     Selling, general and administration expense of $7.5 million for the
three months ended June 29, 2003 increased $0.6 million, or 9%, from the $6.9   
million recorded in the same quarter last year. This increase was primarily due 
to activities associated with the new system implementation and branch expansion
during the quarter along with depreciation expense related to the new computer  
system. Amortization of intangible assets is now included within this category  
of expense and amounted to $0.1 million in the quarter for both 2003 and 2002.  

         Business transformation costs currently include direct costs to convert
the existing databases and dedicated training resources. Direct costs related to
the system conversion were $0.9 million in this quarter, which was lower than   
the $2.2 million recorded in the same quarter last year but higher than         
expected. In 2002, business transformation costs included the information       
technology system redesign project, the business process re-engineering project,
severance costs and accelerated depreciation associated with the Company's      
existing computer infrastructure. The Company began recording business          
transformation costs during the second quarter of 2001.                         

      Interest expense of $0.5 million for the three months ended June 29,
2003 was consistent with the comparable period in 2002. Included in interest    
expense for the three months ended June 30, 2002 was a non-cash charge of $0.5  
million related to the change in fair value of the interest rate swap agreement.
Other income of less than $0.1 million declined from last years' amount of $0.1 
million.                                                                        

         The Company's effective income tax rate was 41.2% and 43.0% in 2003 and
2002, respectively.                                                             

Six Months Ended June 29, 2003 Compared to the Six Months Ended June 30, 2002   

      Revenues were $109.4 million for the six months ended June 29, 2003,
down from $129.0 million for the same six month period in 2002. The decline in  
revenues is primarily due to the Company's continued shift away from vehicles   
sold under the purchase agreement method. Vehicles sold under the purchase      
agreement method accounted for 7% of the total vehicles sold in the first six   
months of 2003, versus 11% for the same time frame last year. Fee income        
increased to $85.9 million versus $84.2 million for the same six month period in
2002.                                                                           

         Net revenues, defined as gross revenues less vehicle cost, increased to
$88.2 million for the six months ended June 29, 2003 from $88.1 million for the 
same six month period last year. The Company utilizes this revenue measurement  
to evaluate its performance by computing all revenues on a consignment          
equivalent basis.                                                               

    Cost of sales decreased $18.1 million to $87.0 million for the six
months ended June 29, 2003, versus $105.1 million for the same period last year.
Vehicle cost of $21.2 million is $19.7 million less than last year's amount of  
$40.9 million. This decrease is primarily related to the Company's shift away   
from                                                                            

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vehicles sold under the purchase agreement method. Branch cost of $65.8 million 
increased $1.6 million from $64.2 million for the same period last year. This   
increase is primarily the result of additional operating costs related to new   
branch facilities.                                                              

     Gross profit decreased 6% to $22.4 million for the six months ended
June 29, 2003, from $23.9 million for the comparable period in 2002.            

        Selling, general and administration expense of $14.7 million increased
4% from last year's amount of $14.1 million. This increase is primarily due to  
indirect activities related to the new system implementation and branch         
expansion. Amortization of intangible assets is now included within this        
category of expense and amounted to $0.2 million in 2003 and $0.1 million in    
2002.                                                                           

      Business transformation costs for the six months ended June 29, 2003
were $1.7 million versus $4.2 million in the same period last year. Business    
transformation costs currently include direct costs to convert the existing     
databases and dedicated training resources. In 2002, business transformation    
costs included the information technology system redesign project, the business 
process re-engineering project, severance costs and accelerated depreciation    
associated with the Company's existing computer infrastructure. The Company     
began recording business transformation costs during the second quarter of 2001.

    Interest expense of $0.6 million for the six months ended June 29,
2003, decreased $0.1 million from $0.7 million for the comparable period in     
2002. Included in interest expense for the six months ended June 30, 2002 was a 
non-cash charge of $0.5 million related to the change in fair value of the      
interest rate swap agreement. Other income was unchanged from the prior year's  
amount.                                                                         

         The Company's effective income tax rate was 41.2% and 43.0% in 2003 and
2002, respectively.                                                             

FINANCIAL CONDITION AND LIQUIDITY                                               

    At June 29, 2003, the Company had current assets of $81.6 million,
which includes $28.5 million of cash and cash equivalents. Current liabilities  
were $53.2 million. The Company had working capital of $28.4 million at June 29,
2003, a $4.6 million increase from December 29, 2002.                           

   At June 29, 2003, the Company's long-term debt, including current
installments, consisted of $0.1 million in notes payable, bearing interest at a 
rate of 8.0%, and $28.1 million borrowed under its credit facility. The credit  
facility was a one-year revolver that converted on February 15, 2003, into a    
four-year term loan carrying a variable rate based upon LIBOR. (See Note 5 of   
Notes to Condensed Consolidated Financial Statements - Financial Instruments and
Hedging Activities.) Other long-term liabilities include a post-retirement      
benefits liability that relates to the acquisition in 1994 of Underwriters      
Salvage Company. The amount recorded at June 29, 2003 for the post-retirement   
benefits liability is approximately $2.7 million.                               

      Capital expenditures were $6.5 million for the six months ended June
29, 2003. These capital expenditures include capitalization of certain          
development costs related to the Company's new information technology system    
along with various branch improvements, including upgrades to existing branches 
and the addition of capacity in key markets. In addition to the cash capital    
expenditures, property and equipment additions of $3.4 million resulted from    
capital lease transactions entered into during the year. At June 29, 2003, the  
Company's total future obligation under all capital leases was $6.1 million.    

   The Company has acquired six vehicle auction facilities since the
beginning of fiscal 2003. All of these acquisitions have been accounted for     
using the purchase method of accounting, and the results of operations of the   
acquired businesses are included in the Company's condensed consolidated        
financial statements from their date of acquisition. In January 2003, the       
Company acquired Salvage Management Inc., an operator of two auto salvage       
facilities in Buffalo and Rochester, New York. In April 2003, the Company       
acquired Wichita Insurance Pool, Inc., located in Wichita, Kansas. In June 2003,
the Company acquired Wilmington Salvage and Disposal Company, Inc. located in   
Wilmington, North Carolina and the Damaged Vehicle division of Manheim's Orlando
Orange County Auto Auction, located in Orlando, Florida. All of these           
acquisitions leverage the Company's existing regional coverage. In April 2003,  
the Company also                                                                

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acquired Mountain States Salvage Pool, which is located in Ogden, Utah. This    
acquisition represents penetration into a new market. The total cost of adding  
these six new facilities was less than $7.9 million.                            

       The Company's Board of Directors authorized the purchase of 1,500,000
shares of its common stock in September 2000 and an additional 750,000 shares in
April 2003, for a combined authorization of 2,250,000 shares. Purchases may be  
made from time to time in the open market or in privately negotiated            
transactions, subject to the requirements of applicable laws, and will be       
financed with existing cash and cash equivalents, marketable securities, and    
cash from operations. As of June 29, 2003, the Company had purchased 807,209    
shares pursuant to this authorization at an average price of $9.93 per share.   

       The Company believes that existing cash and cash equivalents, as well
as cash generated from operations will be sufficient to fund capital            
expenditures and provide adequate working capital for operations for the next   
twelve months. Part of the Company's plan is to pursue continued growth,        
possibly through new facility start-ups, acquisitions, and the development of   
new claims processing services. At some time in the future, the Company may     
require additional financing. There can be no assurance that additional         
financing, if required, will be available on favorable terms.                   

FACTORS THAT MAY AFFECT FUTURE RESULTS                                          

       The Company operates in a changing environment that involves a number
of risks, some of which are beyond the Company's control. The following         
discussion highlights some of these risks.                                      

     Quarterly Fluctuations. The Company's operating results have in the
past and may in the future fluctuate significantly depending on a number of     
factors, some of which are more significant for sales under the purchase        
agreement method. These factors include: fluctuations in Actual Cash Value      
("ACV" - the estimated pre-accident fair value of the vehicle) of salvage       
vehicles, changes in the market value of salvage vehicles, delays or changes in 
state title processing, general weather conditions, changes in regulations      
governing the processing of salvage vehicles, the availability and quality of   
salvage vehicles and buyer attendance at salvage auctions. The Company is also  
dependent upon receiving a sufficient number of total-loss vehicles as well as  
recovered theft vehicles to sustain its profit margins. Factors that can affect 
the number of vehicles received include: reduction of policy writing by         
insurance providers, which would affect the number of claims over a period of   
time, and changes in direct repair procedures that would reduce the number of   
newer, less damaged total-loss vehicles, which tend to have the higher salvage  
values. The decreases in the quality and quantity of inventory, and in          
particular the availability of newer and less-damaged vehicles, are further     
aggravated under the purchase agreement method of sale and can have a material  
adverse effect on the operating results and financial condition of the Company. 
Additionally, in the last few years there has been a declining trend in theft   
occurrences. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be   
relied upon as any indication of future performance. Furthermore, revenues for  
any future quarter are not predictable with any significant degree of accuracy, 
while the Company's expense levels are relatively fixed. If revenue levels are  
below expectations, operating results are likely to be adversely affected. Due  
to all of the foregoing factors, it is likely that in some future quarters the  
Company's operating results will be below the expectations of public market     
analysts and investors. Any failure to meet expectations of securities analysts 
or the market in general could adversely affect the market price of the         
Company's common stock.                                                         

      Competition. The Company faces intense competition for the supply of
salvage vehicles as well as competition from processors of vehicles from other  
regional salvage pools. It is possible that the Company may encounter further   
competition from existing competitors and new market entrants that are          
significantly larger and have greater financial and marketing resources. Other  
potential competitors could include used car auction companies, providers of    
claims software to insurance companies, certain salvage buyer groups and        
insurance companies, some of which presently supply auto salvage to the Company.
While most insurance companies have abandoned or reduced efforts to sell salvage
without the use of service providers such as the Company, they may in the future
decide to dispose of their salvage directly to end users. There can be no       
assurance that the Company will be able to compete successfully against current 
or future competitors or that competitive pressures faced by the Company will   
not have a material adverse effect on its operating results and financial       
condition.                                                                      

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        Dependence on Key Insurance Company Suppliers. Historically, a limited
number of insurance companies has accounted for a substantial portion of the    
Company's revenues. For example, in 2002, vehicles supplied by the Company's    
three largest suppliers accounted for approximately 39% of the Company's total  
unit sales. The largest suppliers, State Farm Insurance, Farmers Insurance, and 
Allstate, each accounted for approximately 16%, 14%, and 9%, respectively, of   
the Company's unit sales. A loss or reduction in the number of vehicles from any
of these suppliers, or adverse changes in the agreements that such suppliers    
have with the Company, could have a material adverse effect on the Company's    
operating results and financial condition.                                      

         Purchase Agreement Method. Under the purchase agreement method of sale,
the Company is required to purchase, and the insurance company and other        
non-insurance company suppliers are required to sell to the Company, virtually  
all total-loss and recovered theft vehicles generated by the supplier in a      
designated geographic area. The agreements are customized to each supplier's    
needs, but typically require the Company to pay a specified percentage of a     
vehicle's Actual Cash Value (ACV), depending on the vehicle's age and certain   
other conditions, including whether the vehicle is a total-loss or a recovered  
theft vehicle. Because the Company's purchase price is fixed by contract, higher
ACVs and lower market or auction prices for salvage vehicles have an impact on  
the profitability of the sale of vehicles under the purchase agreement method.  
Beginning late in the second quarter of 2000 and continuing through 2002,       
purchase agreement profitability was impaired by a combination of rising ACVs   
and flat to lower sale prices at auctions in certain areas of the country.      
Further increases in ACVs or declines in the market or auction prices for       
salvage vehicles could have a material adverse effect on the Company's operating
results and financial condition. To mitigate this risk, the Company began shift 
away from the sale of vehicles under the purchase agreement method. In 2002 and 
2001, respectively, approximately 10% and 19% of the units processed by the     
Company were processed through the purchase agreement method of sale. Vehicles  
sold under the purchase agreement method accounted for 8% of the total vehicles 
sold in the first quarter of 2003, versus 13% for the same quarter last year and
8% for the fourth quarter of 2002. The Company expects the purchase agreement   
method to represent a decreasing percentage of units sold in future years and   
ultimately to represent less than 4 % of total units sold.                      

   Enterprise-Wide System Redesign Project. The Company retained the
services of SEI Information Technology to develop a new enterprise-wide         
application to manage the salvage and auction process. The new Web-based system 
will support and streamline vehicle registration and tracking, financial        
reporting, transaction settlement, vehicle title transfer, and                  
branch/headquarters communications. It will speed all aspects of the Company's  
operations, support growth and expansion plans, provide improved reliability and
maintainability, and ultimately, deliver increased profits. As a result of its  
investment in developing and implementing key standardized business processes   
throughout the Company and the Enterprise-Wide System Redesign Project, the     
Company expects to reduce its annual pre-tax operating costs by a minimum of $10
million, and potentially as much as $15 million from the two projects combined. 
Completed development and testing of the enterprise-wide application began in   
the third quarter of 2001. The Company began rolling out the new system to its  
branches during the third quarter of 2002. As of July 31, 2003, the Company had 
converted most of the original databases to the new system. The Company has     
encountered some unanticipated issues in the implementation phase. The Company  
expects to complete the roll-out in 2003. However, there remains inherent risks 
associated with the application and implementation of the new system that could 
continue to adversely impact the Company's expected results with respect to     
timing, costs and cost savings.                                                 

  Governmental Regulation. The Company's operations are subject to
regulation, supervision and licensing under various federal, state and local    
statutes, ordinances and regulations. The acquisition and sale of totaled and   
recovered theft vehicles is regulated by state motor vehicle departments in each
of the locations in which the Company operates. Changes in law or governmental  
regulations or interpretations of existing law or regulations can result in     
increased costs, reduced salvage vehicle prices and decreased profitability for 
the Company. In addition to the regulation of sales and acquisitions of         
vehicles, the Company is also subject to various local zoning requirements with 
regard to the location of its auction and storage facilities. These zoning      
requirements vary from location to location. Failure to comply with present or  
future regulations or changes in existing regulations could have a material     
adverse effect on the Company's operating results and financial condition.      

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         Provision of Services as a National or Regional Supplier. The provision
of services to insurance company suppliers on a national or regional basis      
requires that the Company expend resources and dedicate management to a small   
number of individual accounts, resulting in a significant amount of fixed costs.
The development of a referral based national network service, in particular, has
required the devotion of financial resources without immediate reimbursement of 
such expenses by the insurance company suppliers.                               

        Expansion and Integration of Facilities. The Company seeks to increase
sales and profitability through acquisition of other salvage auction facilities,
new site expansion and the increase of salvage vehicle volume at existing       
facilities. There can be no assurance that the Company will continue to acquire 
new facilities or add additional facilities on terms economically favorable to  
the Company or that the Company will be able to increase revenues at newly      
acquired facilities above levels realized prior to acquisition. The Company's   
ability to achieve these objectives is dependent on, among other things, the    
integration of new facilities, and their information systems, into its existing 
operations, the identification and lease of suitable premises, and the          
availability of capital. There can be no assurance that this integration will   
occur, that suitable premises will be identified or that additional capital will
be available to fund expansion and integration of the Company's business. Any   
delays or obstacles in this integration process could have a material adverse   
effect on the Company's operating results and financial condition. Furthermore, 
the Company has limited sources of additional capital available for             
acquisitions, expansions and start-ups. The Company's ability to integrate and  
expand its facilities will depend on its ability to identify and obtain         
additional sources of capital to finance such integration and expansion. In the 
future, the Company will be required to continue to improve its financial and   
management controls, reporting systems and procedures on a timely basis and     
expand, train and manage its employee work force. The failure to improve these  
systems on a timely basis and to successfully expand and train the Company's    
work force could have a material adverse effect on the Company's operating      
results and financial condition.                                                

     Volatility of Stock Price. The market price of the Company's common
stock has been and could continue to be subject to significant fluctuations in  
response to various factors and events, including variations in the Company's   
operating results, the timing and size of acquisitions and facility openings,   
the loss of vehicle suppliers or buyers, the announcement of new vehicle supply 
agreements by the Company or its competitors, changes in regulations governing  
the Company's operations or its vehicle suppliers, environmental problems or    
litigation. Any failure to meet expectations of securities analysts or the      
market in general could adversely affect the market price of our common stock.  

   Environmental Regulation. The Company's operations are subject to
federal, state and local laws and regulations regarding the protection of the   
environment. In the salvage vehicle auction industry, large numbers of wrecked  
vehicles are stored at auction facilities for short periods of time. Minor      
spills of gasoline, motor oils and other fluids may occur from time to time at  
the Company's facilities and may result in soil, surface water or groundwater   
contamination. Petroleum products and other hazardous materials are contained in
aboveground or underground storage tanks located at certain of the Company's    
facilities. Waste materials such as waste solvents or used oils are generated at
some of the Company's facilities and are disposed of as non-hazardous or        
hazardous wastes. The Company believes that it is in compliance in all material 
respects with applicable environmental regulations and does not anticipate any  
material capital expenditure for environmental compliance or remediation.       
Environmental laws and regulations, however, could become more stringent over   
time and there can be no assurance that the Company or its operations will not  
be subject to significant compliance costs in the future. To date, the Company  
has not incurred expenditures for preventive or remedial action with respect to 
contamination or the use of hazardous materials that have had a material adverse
effect on the Company's operating results or financial condition. The           
contamination that could occur at the Company's facilities and the potential    
contamination by previous users of certain acquired facilities create the risk, 
however, that the Company could incur substantial expenditures for preventive or
remedial action, as well as potential liability arising as a consequence of     
hazardous material contamination, which could have a material adverse effect on 
the Company's operating results and financial condition.                        

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.             

       On February 15, 2003, the Company borrowed available funds related to
its $30.0 million credit facility. The credit facility was a one-year revolver  
that converted on February 15, 2003, into a four-year term loan carrying a      
variable rate based upon LIBOR. The aggregate principal balance of the loan will
be paid in sixteen consecutive equal quarterly installments commencing on March 
31, 2003.                                                                       

      The Company is exposed to interest rate fluctuations on its floating
rate credit facility, under which the Company has outstanding a $28.1 million   
term loan. In 2002, the Company entered into an interest rate swap to mitigate  
its exposure to interest rate fluctuations, and does not, as a matter of policy,
enter into hedging contracts for trading or speculative purposes. At June 29,   
2003, the interest rate swap agreement has a notional amount of $28.1 million   
under which the Company pays a fixed rate of interest of 5.6% and receives a    
LIBOR-based floating rate. The Company recorded a non-cash benefit of $0.3      
million in the first quarter related to the change in fair value for a portion  
of its interest rate swap agreement. For the six month period ended June 29,    
2003, the Company has recorded $0.2 million of an accumulated comprehensive     
loss, net of taxes, related to the change in fair value of the remaining portion
of its interest rate swap agreement. At June 29, 2003, the entire swap agreement
qualified for hedge accounting.                                                 

ITEM 4. CONTROLS AND PROCEDURES                                                 

 Based on an evaluation of the Company's disclosure controls and
  procedures conducted as of the end of the period covered by this
       report, the Company's Chief Executive Officer and its Chief Financial
   Officer have concluded that the Company's disclosure controls and
     procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated
       under the Securities Exchange Act of 1934, are effective. The Company
       is in the process of rolling out a new enterprise-wide application to
      manage the salvage and auction process. The new system contains many
  changes and enhancements to the existing control procedures. The
    Company expects to complete the rollout of the new system in 2003.

PART II. OTHER INFORMATION.                                                     

ITEM 1.  LEGAL PROCEEDINGS. Inapplicable                                        

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Inapplicable                 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable                           

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                    

                  At the Annual Meeting of Shareholders of the Company held June
        18, 2003, the shareholders (i) elected seven directors to serve on the
        Company's Board of Directors, (ii) approved the adoption of a new 2003
        Stock Incentive Plan replacing the Company's Amended and Restated 1991
         Stock Option Plan, and (iii) ratified the Company's appointment of KPMG
        LLP to serve as the Company's independent auditors for the fiscal year
     ending December 28, 2003. Shareholders holding 10,793,660 shares of
 Common Stock, representing 93.46% of the total number of shares
         outstanding and entitled to vote at the meeting, were present in person
or by proxy at the meeting.                                   

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The vote for nominated directors was as follows:                              

                                                                [Download Table]

Director                  Votes For     Votes Withheld
--------                  ---------     --------------
                                                      
Thomas C. O'Brien         10,470,840       322,820    
Maurice A. Cocca          10,454,842       338,818    
Peter H. Kamin            10,464,090       329,570    
Philip B. Livingston      10,463,390       330,270    
Melvin R. Martin          10,457,365       336,295    
Jeffrey W. Ubben          10,459,642       334,018    
John K. Wilcox            10,457,590       336,070    

                  The vote to approve the adoption of a new 2003 Stock Incentive
      Plan to replace the Company's Amended and Restated 1991 Stock Option
         Plan was as follows: For: 7,480,461; Against: 1,270,179; Abstain: 9,587
and not voted: 2,033,433.                                     

             The vote for ratifying the appointment of KPMG LLP as the
        Company's independent auditors for the fiscal year ending December 28,
      2003 was as follows: For: 10,563,743; Against: 229,451; and Abstain:
466.                                                          

ITEM 5. OTHER INFORMATION. Inapplicable                                         

ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.                                        

(a)      EXHIBITS.                                            

              10.1     Amended and Restated Credit Agreement between the
                        Company and LaSalle National Bank dated as of June
25, 2003.                 

                31.1*    Certification by the CEO pursuant to Section 302 of
     the Sarbanes-Oxley Act of 2002.

                31.2*    Certification by the CFO pursuant to Section 302 of
     the Sarbanes-Oxley Act of 2002.

                 32**     Certification by the CEO and CFO pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

*        Filed herewith                     

**       Furnished herewith.                

  (b)      REPORTS ON FORM 8-K. The Company furnished to the SEC a
                 current report on Form 8-K on April 29, 2003 which included a
           press release which contained a report on first quarter
                results of operations; an update on the Company's growth and
                 expansion strategy; and the decision of the Company's current
              Chairman of the Board, Joseph F. Mazzella to not stand for
             re-election to the Company's Board and the appointment of
       director Peter H. Kamin to the Chairman's post upon
     re-election at the Company's 2003 Annual Meeting.

                 The Company furnished to the SEC a current report on Form 8-K
                 on July 28, 2003 to report preliminary second quarter results
                  dated July 15, 2003 and second quarter 2003 results dated July
25, 2003.                                   

17

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SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.                       

                 INSURANCE AUTO AUCTIONS, INC.

Date: August 12, 2003             By:    /s/ Scott P. Pettit                    
                                  ----------------------------------------
          Name:  Scott P. Pettit
                          Title: Senior Vice President and Chief
                                    Financial Officer (Duly Authorized
                                 Officer and Principal Financial
          Officer)

18

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 EXHIBIT INDEX

EXHIBIT NO.                                                                     

10.1     Amended and Restated Credit Agreement between the Company and LaSalle  
National Bank dated as of June 25, 2003.                      

31.1*    Certification by the CEO pursuant to Section 302 of the Sarbanes-Oxley 
Act of 2002.                                                  

31.2*    Certification by the CFO pursuant to Section 302 of the Sarbanes-Oxley 
Act of 2002.                                                  

32**     Certification by the CEO and CFO pursuant to Section 906 of the        
Sarbanes-Oxley Act of 2002.                                   

*        Filed herewith                                                         

**       Furnished herewith.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	12/28/03	6	17	10-K
Filed on:	8/12/03	18
	7/31/03	1	14	4
	7/28/03	17		8-K
	7/25/03	17
	7/15/03	17		8-K
For Period End:	6/30/03	9	11	4
	6/29/03	1	16
	6/25/03	7	19
	6/18/03	16		DEF 14A
	6/15/03	9
	5/31/03	9
	4/29/03	17		8-K
	3/31/03	7	16
	3/30/03	7		10-Q
	2/15/03	7	16
	12/29/02	2	12	10-K, 10-K/A
	6/30/02	2	12	10-Q
				List all Filings

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Filing Submission 0000950137-03-004232 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Insurance Auto Auctions, Inc – ‘10-Q’ for 6/30/03

On: Tuesday, 8/12/03, at 1:29pm ET · For: 6/30/03 · Accession #: 950137-3-4232 · File #: 0-19594

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Quarterly Report — Form 10-QFiling Table of Contents

10-Q — Quarterly ReportDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q
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10-Q — Quarterly Report
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