<PAGE>
                       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 September 28, 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             (I.R.S. Employer Identification No.)
incorporation or organization)

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 October 31, 2003:


<TABLE>
<CAPTION>
        Class                                            Outstanding
        -----                                             -----------
<S>                                                   <C>
Common Stock, $0.001 Par Value                        11,517,648 shares
</TABLE>


<PAGE>


                                      INDEX

                          INSURANCE AUTO AUCTIONS, INC.

<TABLE>
<CAPTION>
                                                                                              PAGE NUMBER
                                                                                              -----------
<S>                                                                                          <C>
PART I.  FINANCIAL INFORMATION..............................................................      3

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

         Condensed Consolidated Statements of Operations....................................      3
         Condensed Consolidated Balance Sheets..............................................      4
         Condensed Consolidated Statements of Cash Flows....................................      5
         Notes to Condensed Consolidated Financial Statements...............................      6

Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations.....................................................     11
         Overview...........................................................................     11
         Results of Operations..............................................................     11
         Financial Condition and Liquidity..................................................     13
         Factors That May Affect Future Results.............................................     14

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........................     17

Item 4.  Controls and Procedures............................................................     17

PART II. OTHER INFORMATION..................................................................     18

Item 1.  Legal Proceedings..................................................................     18

Item 2.  Changes in Securities and Use of Proceeds..........................................     18

Item 3.  Defaults upon Senior Securities....................................................     18

Item 4.  Submission of Matters to a Vote of Security Holders................................     18

Item 5.  Other Information..................................................................     18

Item 6.  Exhibits and Reports on Form 8-K...................................................     18

SIGNATURE    ...............................................................................     19
</TABLE>

<PAGE>

                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                         THREE MONTH PERIODS ENDED            NINE MONTH PERIODS ENDED
                                                      --------------------------------    --------------------------------
                                                      SEPTEMBER 28,      SEPTEMBER 29,     SEPTEMBER 28,     SEPTEMBER 29,
                                                           2003              2002               2003             2002
                                                      --------------    --------------    --------------    --------------
                                                                 (UNAUDITED)                        (UNAUDITED)
<S>                                                   <C>               <C>               <C>               <C>
Revenues:
     Vehicle sales                                    $        8,847    $       13,459    $       32,343    $       58,269
     Fee income                                               40,280            39,327           126,162           123,487
                                                      --------------    --------------    --------------    --------------
                                                              49,127            52,786           158,505           181,756
Cost of sales:
     Vehicle cost                                              7,299            12,669            28,495            53,528
     Branch cost                                              33,447            30,609            99,256            94,802
                                                      --------------    --------------    --------------    --------------
                                                              40,746            43,278           127,751           148,330
                                                      --------------    --------------    --------------    --------------
         Gross profit                                          8,381             9,508            30,754            33,426

Operating expense:
     Selling, general and administrative                       7,738             6,365            22,415            20,481
     Business transformation costs                             1,157             2,068             2,875             6,254
                                                      --------------    --------------    --------------    --------------

     Earnings (loss) from operations                            (514)            1,075             5,464             6,691

Other (income) expense:
     Interest expense                                            521                38             1,079               762
     Other income                                                (19)              (81)             (141)             (220)
                                                      --------------    --------------    --------------    --------------

     Earnings (loss) before income taxes                      (1,016)            1,118             4,526             6,149

Provision (benefit) for income taxes                            (422)              479             1,864             2,642
                                                      --------------    --------------    --------------    --------------

         Net earnings (loss)                          $         (594)   $          639    $        2,662    $        3,507
                                                      ==============    ==============    ==============    ==============

Earnings (loss) per share:
     Basic                                            $         (.05)   $          .05    $          .23    $          .29
                                                      ==============    ==============    ==============    ==============
     Diluted                                          $         (.05)   $          .05    $          .23    $          .28
                                                      ==============    ==============    ==============    ==============

Weighted average shares outstanding:
     Basic                                                    11,516            12,244            11,694            12,223
     Effect of dilutive securities -- stock options                -               308                77               305
                                                      --------------    --------------    --------------    --------------
     Diluted                                                  11,516            12,552            11,771            12,528
                                                      ==============    ==============    ==============    ==============

</TABLE>

See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>


                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                               SEPTEMBER 28,        DECEMBER 29,
                                                                                   2003                 2002
                                                                              --------------       --------------
ASSETS                                                                          (Unaudited)
<S>                                                                          <C>                   <C>
Current assets:
     Cash and cash equivalents                                                $       25,261       $       10,027
     Accounts receivable, net                                                         42,575               45,594
     Inventories                                                                      11,395               11,158
     Other current assets                                                              2,774                3,571
                                                                              --------------       --------------
            Total current assets                                                      82,005               70,350
                                                                              --------------       --------------

Property and equipment, net                                                           58,580               49,342
Deferred income taxes                                                                  8,892                7,663
Intangible assets, net                                                                 2,233                1,710
Goodwill, net                                                                        134,583              130,474
Other assets                                                                              82                  111
                                                                              --------------       --------------
                                                                              $      286,375       $      259,650
                                                                              ==============       ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                         $       31,756       $       28,656
     Accrued liabilities                                                              13,844               15,312
     Obligations under capital leases                                                  2,830                2,552
     Current installments of long-term debt                                            7,546                   43
     Income taxes                                                                         81                    -
                                                                              --------------       --------------
         Total current liabilities                                                    56,057               46,563
                                                                              --------------       --------------

Deferred income taxes                                                                 17,015               14,835
Other liabilities                                                                      2,718                2,736
Obligation under capital leases                                                        2,578                1,355
Long-term debt, excluding current installments                                        18,774                   59
                                                                              --------------       --------------
         Total liabilities                                                            97,142               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, 12,324,857 shares issued and
         11,517,648 outstanding as of September 28, 2003 and
         12,292,599 shares issued and outstanding as of                                   12                   12
         December 29, 2002
     Additional paid-in capital                                                      144,912              144,420
     Treasury stock, 807,209 shares                                                   (8,012)                   -
     Accumulated other comprehensive income (loss)                                      (756)                (745)
     Retained earnings                                                                53,077               50,415
                                                                              --------------       --------------
         Total shareholders' equity                                                  189,233              194,102
                                                                              --------------       --------------
                                                                              $      286,375       $      259,650
                                                                              ==============       ==============

</TABLE>

See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>


                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                  NINE MONTHS ENDED
                                                                                            -------------------------------
                                                                                             SEPTEMBER 28,    SEPTEMBER 29,
                                                                                                 2003             2002
                                                                                            --------------   --------------
                                                                                              (Unaudited)      (Unaudited)
<S>                                                                                         <C>              <C>
Cash flows from operating activities:
Net earnings                                                                                $        2,662   $        3,507
Adjustments to reconcile net earnings to net cash
   provided by operating activities:
     Depreciation and amortization                                                                   7,519            7,041
     Loss (gain) on disposal of fixed assets                                                           (24)              30
     Loss (gain) on change in fair market value of derivative financial instrument                    (307)             450
     Changes in assets and liabilities (excluding effects of acquired companies):
     (Increase) decrease in:
       Accounts receivable, net                                                                      5,048            9,994
       Inventories                                                                                    (235)           4,786
       Other current assets                                                                            813            2,245
       Other assets                                                                                   (466)             (61)
     Increase (decrease) in:
       Accounts payable                                                                              3,100           (9,302)
       Accrued liabilities                                                                          (1,254)            (369)
       Income taxes, net                                                                             1,032            2,964
                                                                                            --------------   --------------
         Total adjustments                                                                          15,226           17,778
                                                                                            --------------   --------------
     Net cash provided by operating activities                                                      17,888           21,285
                                                                                            --------------   --------------

Cash flows from investing activities:
   Capital expenditures                                                                            (11,666)          (9,600)
   Investments, net                                                                                      -            2,643
   Proceeds from disposal of property and equipment                                                     60              175
   Payments made in connection with acquisitions, net of cash acquired                              (7,872)          (1,510)
                                                                                            --------------   --------------
      Net cash used in investing activities                                                        (19,478)          (8,292)
                                                                                            --------------   --------------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                                              492            1,216
   Proceeds from term loan                                                                          30,000                -
   Purchase of treasury stock                                                                       (8,012)               -
   Principal payments on long-term debt                                                             (3,782)         (20,035)
   Principal payments -- capital leases                                                             (1,874)            (406)
                                                                                            --------------   --------------
Net cash provided (used) by financing activities                                                    16,824          (19,225)
                                                                                            --------------   --------------

Net increase (decrease) in cash and cash equivalents                                                15,234           (6,232)

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

Cash and cash equivalents at end of period                                                  $       25,261   $       18,235
                                                                                            ==============   ==============

Supplemental disclosures of cash flow information:
   Cash paid or refunded during the period for:
     Interest                                                                               $        1,167   $        1,160
                                                                                            ==============   ==============
     Income taxes paid                                                                      $            -   $        2,500
                                                                                            ==============   ==============
     Income taxes refunded                                                                  $            -   $        3,860
                                                                                            ==============   ==============
   Non-cash financing activities:
      Property and equipment additions resulting from capital leases                        $        3,375   $        3,606
                                                                                            ==============   ==============
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>


                          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.     EARNINGS PER SHARE

       The Company incurred a net loss for the three months ended September 28,
       2003, therefore, options were excluded from the calculation of diluted
       earnings per share amounts because the effect would have been
       anti-dilutive. Had the Company reported income for the period, the
       Company would have reported an additional 78,000 dilutive shares
       outstanding in the form of stock options assumed exercised.


4.     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.





                                       6
<PAGE>

       Goodwill and other intangibles are recorded at cost, less accumulated
       amortization, and consist of the following at September 28, 2003 and
       December 29, 2002:

<TABLE>
<CAPTION>
                                                                          September 28,     December 29,
                                                       Assigned Life           2003             2002
                                                       -------------      -------------    -------------
                                                                      (dollars in millions)
<S>                                                    <C>                <C>              <C>
               Goodwill                                Indefinite            $  134.6        $  130.5
               Covenants not to compete                5 to 15 years              2.2             1.7
                                                                             --------        --------
                                                                             $  136.8        $  132.2
                                                                             ========        ========
</TABLE>

       Amortization expense for the three months ended September 28, 2003 and
       September 29, 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 the
       years 2003, 2004, 2005 and 2006 is $0.4 million and $0.3 million for
       2007.


5.     COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
                                                   Three Months Ended                  Nine Months Ended
                                             ------------------------------      ------------------------------
                                              September 28,    September 29,     September 28,    September 29,
                                                   2003             2002             2003              2002
                                             --------------    ------------      ------------    --------------
<S>                                            <C>             <C>               <C>               <C>
        Net earnings (loss)                    $       (594)   $        639      $      2,662      $      3,507
        Other comprehensive loss
            Change in fair value of interest
              rate swap agreement                       276            (813)              (15)           (1,004)
            Income tax benefit (expense)               (106)            350                 4               432
                                               ------------    ------------      ------------      ------------
        Comprehensive income (loss)            $       (424)   $        176      $      2,651      $      2,935
                                               ============    ============      ============      ============
</TABLE>

       The change in fair value of the Company's interest rate swap agreement
       for the nine-month period ended September 28, 2003 was due to a decline
       in interest rates.


6.     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 first
       quarter and less than $0.1 million in the second 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.

       In the third quarter of 2003, the Company recorded a decrease of $0.2
       million to the accumulated comprehensive loss related to the change in
       fair market value of its interest rate swap agreement, net


                                       7
<PAGE>


       of applicable tax effects. At September 28, 2003, the entire swap
       agreement qualified for hedge accounting.

       On February 15, 2003, the Company borrowed all remaining available funds
       under 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 is required 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. On May 14 , 2003, the Company obtained from
       its lenders a waiver for this covenant default. At September 28, 2003,
       the Company was in compliance with its credit facility; however, the
       Company may not meet the leverage ratio covenant of its credit agreement
       in the fourth quarter of 2003. The Company anticipates that it will be
       able to amend the current credit agreement to avoid such a covenant
       default. If the Company fails to obtain an amendment to the credit
       agreement, its operations could be adversely affected.

       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 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 its outstanding
       common stock. At September 28, 2003, the Company has not borrowed any
       funds against the additional $20.0 million revolving line of credit.


7.     TREASURY STOCK

       The Company records treasury stock purchases using the cost method of
       accounting. In March 2003, the Company repurchased 757,409 shares of its
       common stock 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. The Company did not repurchase any shares
       during the third quarter. 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.


8.     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 provisions of Statement of
       Financial Accounting Standards (SFAS) No. 123, "Accounting for
       Stock-Based Compensation," to the measurement of stock-based employee
       compensation, including a straight-line recognition of compensation costs
       over the related vesting periods for fixed awards:



                                       8
<PAGE>


<TABLE>
<CAPTION>
                                                        Three Months Ended                      Nine Months Ended
                                              ------------------------------------       -----------------------------------
                                               September 28,         September 29,       September 28,        September 29,
                                                   2003                  2002                 2003                 2002
                                              --------------        --------------       --------------       --------------
<S>                                           <C>                   <C>                  <C>                  <C>
     Net earnings (loss) as reported          $         (594)       $          639       $        2,662       $        3,507
     Deduct:  Total stock-based
         employee compensation
         expense determined under the
         fair value based method for
         all awards, net of related
         tax effects                                    (388)                 (312)              (1,252)                (937)
                                              --------------        --------------       --------------       --------------

     Pro forma net earnings (loss)            $         (982)       $          327       $        1,410       $        2,570
                                              ==============        ==============       ==============       ==============


     Earnings (loss) per share:
          Basic -- as reported                $         (.05)       $          .05       $          .23       $          .29
                                              ==============        ==============       ==============       ==============


          Basic -- pro forma                  $         (.09)       $          .03       $          .12       $          .21
                                              ==============        ==============       ==============       ==============


          Diluted -- as reported              $         (.05)       $          .05       $          .23       $          .28
                                              ==============        ==============       ==============       ==============


          Diluted -- pro forma                $         (.09)       $          .03       $          .12       $          .21
                                              ==============        ==============       ==============       ==============
</TABLE>



9.     ACQUISITIONS

       The Company acquired six salvage pools in the first half of fiscal 2003.
       All of these acquisitions were accounted for using the purchase method of
       accounting. 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 those markets. 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 aggregate purchase price of these acquisitions is
       $7.9 million, of which 52% is related to goodwill.


10.    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's adoption of this standard did
       not have a material impact on the Company's consolidated financial
       statements.





                                       9
<PAGE>

       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) certain 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 September 28,
       2003.



                                       10
<PAGE>


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, performance, liquidity,
financial condition, prospects and opportunities 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:
the amount and availability of, and the Company's ability to comply with
restrictions and covenants relating to its indebtedness under its credit
facility, 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 and implementation 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. You should not place undue reliance on any
forward-looking statements. Except as expressly required by the federal
securities laws, the Company undertakes no obligations to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, changed circumstances or any other reason.


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 a 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 the second quarter of 2003, the
Company acquired facilities in Wichita, Kansas, Ogden, Utah, Wilmington, North
Carolina, and Orlando, Florida.


RESULTS OF OPERATIONS

Three Months Ended September 28, 2003 Compared to the Three Months Ended
September 29, 2002

Revenues were $49.1 million for the three months ended September 28, 2003, down
from $52.8 million for the same three months 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 and lower same-store sales


                                       11
<PAGE>


volumes. 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 5% of the total
vehicles sold in the third quarter of 2003, versus 8% for the same quarter last
year. Fee income in the third quarter increased 2.5 percent to $40.3 million,
versus $39.3 million in the third quarter of last year.

         Net revenues, defined as gross revenues less vehicle cost, increased to
$41.8 million for the three months ended September 28, 2003 from $40.1 million
for the same three month period last year. The Company uses this revenue
measurement to evaluate its performance by computing all revenues on a
consignment equivalent basis.

         Cost of sales decreased $2.6 million to $40.7 million for the three
months ended September 28, 2003, versus $43.3 million for the same period last
year. Vehicle cost of $7.3 million is $5.4 million less than last year's amount
of $12.7 million. This decrease is primarily related to the Company's shift away
from vehicles sold under the purchase agreement method. Branch costs of $33.4
million increased $2.8 million from $30.6 million for the same period last year.
This increase is primarily related to the additional operating costs associated
with the establishment of new branch facilities.

         Gross profit decreased 12% to $8.4 million for the three months ended
September 28, 2003, from $9.5 million for the comparable period in 2002. The
primary reason for the decline in gross profit is the drop in same-store unit
volumes along with lower profit margins at recently acquired branches.

         Selling, general and administration expense of $7.7 million for the
three months ended September 28, 2003 increased $1.4 million, or 22%, from the
$6.3 million recorded in the same quarter last year. This increase was primarily
due to activities associated with the new system implementation. 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, dedicated training resources and severance costs. Direct
costs related to the system conversion were $1.2 million in this quarter, which
was lower than the $2.1 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 third quarter of 2001.

         Interest expense of $0.5 million for the three months ended September
28, 2003 is $0.5 million higher than the comparable period in 2002. Included in
interest expense for the three months ended September 29, 2002 was a non-cash
benefit of $0.1 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 year's
amount of $0.1 million.

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


Nine Months Ended September 28, 2003 Compared to the Nine Months Ended September
29, 2002

         Revenues were $158.5 million for the nine months ended September 28,
2003, down from $181.8 million for the same nine months 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 and lower same-store sales
volumes. Vehicles sold under the purchase agreement method accounted for 6% of
the total vehicles sold in the first nine months of 2003, versus 10% for the
same period last year. Fee income increased to $126.2 million versus $123.5
million for the same nine months period in 2002.

         Net revenues, defined as gross revenues less vehicle cost, increased to
$130.0 million for the nine months ended September 28, 2003 from $128.2 million
for the same nine month period last year. The Company uses this revenue
measurement to evaluate its performance by computing all revenues on a
consignment equivalent basis.




                                       12
<PAGE>

         Cost of sales decreased $20.5 million to $127.8 million for the nine
months ended September 28, 2003, versus $148.3 million for the same period last
year. Vehicle cost of $28.5 million is $25.0 million less than last year's
amount of $53.5 million. This decrease is primarily related to the Company's
shift away from vehicles sold under the purchase agreement method. Branch costs
of $99.3 million in 2003 represented an increase of $4.5 million from $94.8
million for the same period last year. This increase is primarily the result of
additional operating costs related to the establishment of new branch
facilities.

         Gross profit decreased 8% to $30.8 million for the nine months ended
September 28, 2003, from $33.4 million for the comparable period in 2002. This
decline in gross profit is a result of lower same-store volumes along with lower
profit margins at recently acquired branches.

         Selling, general and administration expense of $22.4 million increased
9% from last year's amount of $20.5 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 $0.3 million in 2003 and $0.2 million in
2002.

         Business transformation costs for the nine months ended September 28,
2003 were $2.9 million versus $6.3 million in the same period last year.
Business transformation costs currently include direct costs to convert the
existing databases to the new system, dedicated training resources and severance
costs related to back office downsizing. 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 third quarter of 2001.

         Interest expense of $1.1 million for the nine months ended September
28, 2003, increased $0.3 million from $0.8 million for the comparable period in
2002. Included in interest expense for the nine months ended September 29, 2002
was a non-cash charge of $0.4 million related to the change in fair value of the
interest rate swap agreement. Other income of $0.1 million declined by $0.1
million from last 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 September 28, 2003, the Company had current assets of $82.0 million,
which includes $25.3 million of cash and cash equivalents. Current liabilities
were $56.1 million. The Company had working capital of $25.9 million at
September 28, 2003, a $2.1 million increase from December 29, 2002.

         At September 28, 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 $26.2 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 interest rate based upon LIBOR. The
aggregate principal balance of the loan is required 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. . On May 14 , 2003, the Company obtained from its
lenders a waiver for this covenant default. At September 28, 2003, the Company
was in compliance with its credit facility; however, the Company may not meet
the leverage ratio covenant of its credit agreement in the fourth quarter of
2003. The Company anticipates that it will be able to amend the current credit
agreement to avoid such a covenant default. If the Company fails to obtain an
amendment to the credit agreement, its operations could be adversely affected.
(See Note 6 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 September 28, 2003 for the post-retirement
benefits liability is approximately $2.7 million.

         Capital expenditures were $11.7 million for the nine months ended
September 28, 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


                                       13
<PAGE>

and equipment additions of $3.4 million resulted from capital lease transactions
entered into during the year. At September 28, 2003, the Company's total future
obligation under all capital leases was $5.4 million.

         The Company has acquired six salvage pools since the beginning of
fiscal 2003. All of these acquisitions were accounted for using the purchase
method of accounting. 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 those markets. In April 2003, the Company also 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 the Company's 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, and cash from
operations. As of September 28, 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 those risks.

         Period 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, but are not limited to, 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, but are not
limited to, 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. Future decreases in the
quality and quantity of inventory, and in particular the availability of newer
and less-damaged vehicles, especially for inventory disposed of under the
purchase agreement method of sale would have a material adverse effect on the
operating results and financial condition of the Company.

         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,
and its operating results may vary significantly due to its relatively fixed
expense levels.. 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.




                                       14
<PAGE>

         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. The Company may not be
able to compete successfully against current or future competitors, which could
impair its ability to grow and achieve or sustain profitability.

         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 these suppliers
have with the Company, could have a material adverse effect on the Company's
operating results, financial condition and quantity or quality of inventory.

         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
shifting 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 5% of the total
vehicles sold in the third quarter of 2003, versus 8% for the same period last
year. The Company expects the purchase agreement method of units sold in future
years to remain at or below 5%.

         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.
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 October 31, 2003, the Company had
converted most of its original databases to the new system. The Company
encountered some unanticipated issues during the implementation phase which
delayed completion of the project and caused the Company to incur additional
costs beyond the project's original estimates . The Company expects to complete
the roll-out of the new system by the end of 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 results with
respect to timing, costs and cost savings.




                                       15
<PAGE>

         Governmental Regulation. The Company's operations are subject to
regulation, supervision and licensing under various federal, state and local
agencies statutes and ordinances. 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.

         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
these expenses by the insurance company suppliers. The Company may not realize
sufficient revenue from these services to cover these expenses, in which case,
its results of operations may be materially adversely affected.

         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. The Company may not be able to continue to acquire new facilities or
add additional facilities on terms economically favorable to the Company or
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 will 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 the Company's
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


                                       16
<PAGE>

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.


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. (See Note 6 of Condensed Consolidated Financial Statements --
Financial Instruments and Hedging Activities and the Financial Condition and
Liquidity section for discussion of bank covenants.)

         The Company is exposed to interest rate fluctuations on its floating
rate credit facility, under which the Company has outstanding a $26.2 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 September
28, 2003, the interest rate swap agreement has a notional amount of $26.2
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 nine month period ended
September 28, 2003, the Company has recorded less than $0.1 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 September
28, 2003, the entire swap agreement qualified for hedge accounting.


ITEM 4. CONTROLS AND PROCEDURES


         The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in its periodic
reports is recorded, processed, summarized and reported on a timely and accurate
basis, and that such information is accumulated and communicated to the
Company's management, including its President and Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures which, by their nature,
can provide only reasonable assurance regarding management's control objectives.

         As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of its
management, including its President and Chief Executive Officer along with its
Chief Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule I3a-l4. Based
upon the foregoing, the Company's President and Chief Executive Officer, along
with its Chief Financial Officer, concluded that its disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in its Exchange Act reports.

         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.



                                       17
<PAGE>

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.  Inapplicable

ITEM 5.  OTHER INFORMATION.  Inapplicable

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

         (a)      EXHIBITS.


                  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 filed a current report on Form 8-K, dated
                  September 26, 2003, which contained a press release to report
                  preliminary third quarter results for the quarter ended
                  September 28, 2003.

                  The Company filed a current report on Form 8-K, dated October
                  24, 2003, which contained a press release announcing financial
                  results for the quarter ended September 28, 2003.




                                       18
<PAGE>

                                   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: November 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)



                                       19
<PAGE>

                                  EXHIBIT INDEX



EXHIBIT NO.


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.



                                       20