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Insurance Auto Auctions Announces Second Quarter Results

SCHAUMBURG, Ill., July 23 -- Insurance Auto Auctions, Inc. , a leading provider of automotive salvage and claims processing services in the United States, today reported higher net earnings for the quarter ended June 27, 2004. The Company recorded net earnings of $2.6 million, or $0.22 per diluted share, versus net earnings of $1.3 million, or $0.11 per diluted share, for the same quarter a year ago. Revenues for the quarter were $60.0 million compared with $53.3 million in the second quarter of 2003. Fee income in the second quarter increased to $51.8 million versus $43.1 million in the second quarter of last year.

"For the second consecutive quarter we are pleased to announce financial results that exceeded our expectations," said Tom O'Brien, CEO. "Our overall goal has been to drive customer service and continued improvements in our operating model, and we were able to accomplish that goal during the quarter. We continued to increase our market share for the second quarter, demonstrated by a double-digit growth in volumes sold. We also continue to generate higher average returns for our customers compared to the prior year. Our business model focuses on providing our customers with live auctions complemented with an Internet bidding capability, which we believe offers the optimal solution for both our insurance company suppliers and our buyers."

Providing an update on the Company's technology platform, O'Brien said, "Following the completion of our system development last year, we remain focused on using our new IT system to create further efficiencies and drive additional visibility for both the management team and our customers. One particular area of focus was the rollout of our recently developed real-time bidding platform, I-bid LIVE(SM), to a number of our major branches. Following a successful testing period in the early part of the quarter, we were able to fully roll it out into ten branches by the end of the second quarter. We plan to complete the rollout of I-bid LIVE by the end of the year."

The Company also continued its expansion strategy with the addition of a new greenfield facility in El Paso, Texas and a strategic acquisition in Jackson, Mississippi. "The two new branches are both strategically located and cost effective for IAA, meeting our stringent expansion requirements," said O'Brien. "However, we do not foresee making many expansion announcements in the third and fourth quarters, focusing instead on the rollout of our real-time bidding platform throughout our network of branches and continuing to focus on our customers."

O'Brien concluded, "In our industry, the volumes in the third and fourth quarters are typically lower than those in the first half of the year. That said, our improved cost structure combined with recent market share gains give us reason to anticipate improved year-over-year earnings results. Assuming no material changes in current volume and pricing expectations, we anticipate earnings per share to be approximately 75 to 80 cents for the full year, representing a significant improvement over the prior year. As this expected year-over-year improvement indicates, we are pleased with the progress we have made in making IAA a stronger company overall, both operationally and competitively, and look forward to updating our shareholders on our continued progress in the quarters ahead."

About Insurance Auto Auctions, Inc.

Insurance Auto Auctions, Inc., founded in 1982, a leader in automotive total loss and specialty salvage services in the United States, provides insurance companies with cost-effective, turnkey solutions to process and sell total-loss and recovered-theft vehicles. The Company currently has 77 sites across the United States.

Additional information about Insurance Auto Auctions, Inc. is available on the World Wide Web at http://www.iaai.com/ .

                       Financial Tables Follow ...

                      INSURANCE AUTO AUCTIONS, INC.
                             AND SUBSIDIARIES

             Condensed Consolidated Statements of Operations
             (dollars in thousands except per share amounts)

                        Three Month Periods Ended  Six Month Periods Ended
                          June 27,     June 29,     June 27,     June 29,
                           2004         2003         2004         2003
                              (Unaudited)               (Unaudited)
  Revenues:
    Vehicle sales         $8,225      $10,192      $15,352      $23,496
    Fee income            51,777       43,146      101,841       85,882
                          60,002       53,338      117,193      109,378
  Cost of sales:
    Vehicle cost           7,187        9,425       13,171       21,196
    Branch cost           39,598       32,845       77,993       65,809
                          46,785       42,270       91,164       87,005
      Gross profit        13,217       11,068       26,029       22,373

  Operating expense:
    Selling, general
     and administrative    8,357        7,509       16,837       14,677
    Business
     transformation
     costs                     -          921            -        1,718

    Earnings from
     operations            4,860        2,638        9,192        5,978

  Other (income) expense:
    Interest expense         410          503          887          558
    Other income             (29)         (43)         (41)        (122)

    Earnings before
     income taxes          4,479        2,178        8,346        5,542

  Provision for
   income taxes            1,824          898        3,390        2,286

      Net earnings        $2,655       $1,280       $4,956       $3,256

  Earnings per share:
    Basic                   $.23         $.11         $.43         $.28
    Diluted                 $.22         $.11         $.42         $.27

  Weighted average
   shares outstanding:
    Basic                 11,545       11,517       11,541       11,784
    Effect of dilutive
     securities - stock
     options                 286           60          243           77
    Diluted               11,831       11,577       11,784       11,861

                      INSURANCE AUTO AUCTIONS, INC.
                             AND SUBSIDIARIES

                  Condensed Consolidated Balance Sheets
             (dollars in thousands except per share amounts)

                                                   June 27,     December 28,
                                                    2004           2003
  ASSETS                                         (Unaudited)

  Current assets:
    Cash and cash equivalents                      $17,628        $15,486
    Accounts receivable, net                        45,440         48,375
    Inventories                                     13,393         13,602
    Other current assets                             2,961          3,099
      Total current assets                          79,422         80,562

  Property and equipment, net                       64,838         60,187
  Deferred income taxes                             10,205          9,788
  Intangible assets, net                             1,837          2,101
  Goodwill, net                                    135,812        135,062
  Other assets                                         477             93
                                                  $292,591       $287,793

  LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities:
    Accounts payable                               $36,288        $35,005
    Accrued liabilities                             13,794         13,195
    Short-term borrowings                                -              -
    Obligations under capital leases                 2,205          2,822
    Income taxes                                     1,410              -
    Current installments of long-term debt           7,547          7,547
      Total current liabilities                     61,244         58,569

  Deferred income taxes                             19,227         17,748
  Other liabilities                                  3,130          3,612
  Obligation under capital leases                    1,069          1,891
  Long-term debt, excluding current installments    13,114         16,887
      Total liabilities                             97,784         98,707

  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; 12,425,708 shares
     issued and 11,618,499 outstanding as of
     June 27, 2004; and 12,325,482 shares issued
     and 11,518,273 outstanding as of
     December 28, 2003                                  12             12
    Additional paid-in capital                     146,217        145,856
    Treasury stock, 807,209 shares                  (8,012)        (8,012)
    Deferred compensation related
     to restricted stock                              (777)          (892)
    Accumulated other comprehensive income (loss)     (335)          (625)
    Retained earnings                               57,702         52,747
      Total shareholders' equity                   194,807        189,086
                                                  $292,591       $287,793

                      INSURANCE AUTO AUCTIONS, INC.
                             AND SUBSIDIARIES
             Condensed Consolidated Statements of Cash Flows
                          (dollars in thousands)
                                                       Six Months Ended
                                                    June 27,      June 29,
                                                      2004          2003
                                                         (unaudited)
  Cash flows from operating activities:
  Net earnings                                      $4,956         $3,256
  Adjustments to reconcile net earnings to
     net cash provided by operating activities:
      Depreciation and amortization                  6,522          4,870
      Loss (Gain) on disposal of fixed assets          (19)           (31)
      Loss on change in fair market value of
       derivative unhedged portion                       -           (307)
      Deferred compensation related to
       restricted stock                                114              -

      Changes in assets and liabilities
       (excluding effects of acquired
       companies):
        (Increase) decrease in:
          Accounts receivable, net                   2,935          7,370
          Inventories                                  209            985
          Other current assets                         137            917
          Other assets                              (1,117)          (754)
        Increase (decrease) in:
          Accounts payable                           1,282         (3,336)
          Accrued liabilities                          407           (684)
          Income taxes, net                          2,470          1,383
            Total adjustments                       12,940         10,412
      Net cash provided by operating activities     17,896         13,669

  Cash flows from investing activities:
    Capital expenditures                           (11,105)        (6,498)
    Proceeds from disposal of
     property and equipment                            200             44
    Payments made in connection with
     acquisitions, net of cash acquired                  -         (7,863)
      Net cash used in investing activities        (10,905)       (14,317)

  Cash flows from financing activities:
    Proceeds from issuance of common stock             361            227
    Proceeds from term loan                              -         30,000
    Principal payments on long-term debt            (3,772)        (1,896)
    Purchase of treasury stock                           -         (8,012)
    Principal payments - capital leases             (1,438)        (1,191)
  Net cash provided (used) by financing activities  (4,849)        19,128

  Net increase (decrease) in cash and
   cash equivalents                                  2,142         18,480

  Cash and cash equivalents at
   beginning of period                              15,486         10,027

  Cash and cash equivalents at end of period       $17,628        $28,507

  Supplemental disclosures of
   cash flow information:
    Cash paid or refunded during the period for:
      Interest                                      $1,025           $647
      Income taxes paid                             $2,026           $797
      Income taxes refunded                         $1,011         $1,250
    Non-cash financing activities:
      Property and equipment additions
       resulting from capital leases                    $-         $3,375