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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File Number: 000-28600
CCC INFORMATION SERVICES GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1242469
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
WORLD TRADE CENTER CHICAGO
444 MERCHANDISE MART
CHICAGO, ILLINOIS 60654
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(312) 222-4636
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.10 par value
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting shares (based on the closing price of
those shares listed on the Nasdaq National Market and the consideration received
for those shares not listed on a national or regional exchange) held by
non-affiliates (as defined in Rule 405) of the registrant as of April 16, 2001
was $68,729,122. Solely for purposes of determining the aggregate market
value of voting shares held by non-affiliates, we have deemed voting shares
held by directors, officers and entities on whose behalf they act to be held
by ""affiliates.''
As of April 16, 2001, 21,782,956 shares of CCC Information Services
Group Inc. common stock, par value $0.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
portions of the registrant's Notice of 2001 Annual Meeting of Stockholders and
Proxy Statement.
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CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE(S)
-------
PART I
Item 1. Business................................................ 1-7
Item 2. Properties ............................................. 7
Item 3. Legal Proceedings ...................................... 7-10
Item 4. Submission of Matters to a Vote of Security Holders .... 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 10-11
Item 6. Selected Financial Data................................. 11-13
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition................... 13-23
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk............................................. 23
Item 8. Financial Statements and Supplementary Data............. 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... ..... 23
PART III
Item 10. Directors and Executive Officers of the Registrant...... 23
Item 11. Executive Compensation.................................. 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 23
Item 13. Certain Relationships and Related Transactions.......... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................ 24-55
Signatures......................................................... 56
Directors and Executive Officers................................... 57
Corporate Information.............................................. 58
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
In addition to historical facts or statements of current conditions, this
report contains forward-looking statements. Forward-looking statements provide
our current expectations or forecasts of future events. These may include
statements regarding market prospects of our products, sales and earnings
projections, and other statements regarding matters that are not historical
facts. Some of these forward-looking statements may be identified by the use of
words in the statements such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe," or other words and terms of similar meaning. Our
performance and financial results could differ materially from those reflected
in these forward-looking statements due to general financial, economic,
regulatory and political conditions affecting the technology industry as well as
more specific risks and uncertainties such as those set forth above and in the
report. Given these risks and uncertainties, any or all of these forward-looking
statements may prove to be incorrect. Therefore, you should not rely on any such
forward-looking statements. Furthermore, we do not intend, nor are we obligated,
to update publicly any forward-looking statements. Risks that we anticipate are
discussed in more detail in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Risks
Related to Our Business." This discussion is permitted by the Private Securities
Litigation Reform Act of 1995.
PART I
ITEM 1. BUSINESS
ORGANIZATION
CCC Information Services Group Inc., incorporated in Delaware in 1983
and headquartered in Chicago, Illinois, is a holding company that operates
through its wholly owned subsidiary, CCC Information Services Inc. ("CCC")
(collectively referred to as the "Company"), which is comprised of four
business segments: CCC U.S., CCC Consumer Services, CCC International and
DriveLogic; and shared service groups that provide product development,
management information systems, legal, finance and administration. Our four
business segments, together with our shared service groups, employ
approximately 1,550 full-time employees. We automate the process of
evaluating and settling automobile physical damage claims, which allows our
customers to integrate estimate information, labor time and cost, and various
other calculations derived from our extensive databases, electronic images,
documents and other related information into organized electronic workfiles.
We develop, market and supply a variety of automobile claims services which
enable customers in the automobile claims industry, including automobile
insurance companies, collision repair facilities, independent appraisers,
automobile dealers and consumers, to manage the automobile claims and vehicle
restoration process. Our primary products and services are TOTAL LOSS and
PATHWAYS, which provide our customers with access to various automobile
information databases and claims management software.
As of December 31, 2000, White River Ventures Inc. ("White River") held
approximately 33% of our outstanding common stock. In June 1998, White River
Corporation, the sole shareholder of White River, was acquired in a merger
with Demeter Holdings Corporation, which is solely controlled by the
President and Fellows of Harvard College, a Massachusetts educational
corporation and title-holding company for the endowment fund of Harvard
University. Charlesbank Capital Partners LLC is acting as investment manager
with respect to the investment of White River in the Company.
CCC U.S.
OVERVIEW
Through CCC U.S., we provide our TOTAL LOSS, PATHWAYS, EZNET, GUIDEPOST
and CLAIMSCOPE NAVIGATOR products and services to our customers in the United
States. CCC U.S. had revenues of $176.9 million in the year ended December 31,
2000, which represented 84.3% of our total revenues. Revenues from our TOTAL
LOSS services and PATHWAYS services were $49.3 million and $113.9 million,
respectively, for the year ended December 31, 2000. CCC U.S. has approximately
938 full-time employees.
COLLISION ESTIMATING AND APPRAISAL SERVICES
PATHWAYS COLLISION ESTIMATING. We developed PATHWAYS software to
allow users to manage all aspects of their day-to-day automobile claims
activities, including receipt of new assignments, preparation of estimates,
communication of status and
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completed activity and maintenance of notes and reports. The PATHWAYS platform
allows customers to integrate our other services, including our digital imaging
product and our vehicle valuation and appraisal services, in order to organize
individual claims information in electronic workfiles, which can be stored on
our EZNET communications network. PATHWAYS increases ease of training for our
customers. We currently intend to integrate all of our existing and future
products and services onto our PATHWAYS platform. We have received three United
States patents for our PATHWAYS line.
CCC developed "PATHWAYS COLLISION ESTIMATING software," in 1995.
Automobile insurance companies, collision repair facilities and independent
appraisers use Pathways Collision Estimating to prepare estimates for damaged
vehicles. Workfiles are created in PATHWAYS COLLISION ESTIMATING software which
include a vehicle description, damage description, estimates and other
information derived from PATHWAYS COLLISION ESTIMATING databases. Pathways
Collision Estimating software can be used on either user-owned laptops or
desktop computers or laptop computers leased from us.
Pathways Collision Estimating software gives customers access to a
comprehensive estimating guide, the MOTOR Crash Estimating Guide prepared by
Motor Information Systems, a unit of Hearst Business Publishing, Inc.
("Hearst"), which provides pricing information for original equipment
manufactured parts. We use this guide to create a database of parts, price
and labor time for various repairs. An exclusive license from Hearst permits
us to publish this guide electronically, which is the integral component of
our Pathways Collision Estimating software. In 1998, we extended the term of
this exclusive license with Hearst for a term of 20 years. For more
information about this license, please see the description under
"Intellectual Property."
Customers also use PATHWAYS COLLISION ESTIMATING software to access
other databases of information gathered from various vendors. These databases
include a database which provides regional information on prices and
availability of aftermarket parts compiled from over 850 vendors; a database
which gathers data from local providers and lists local market pricing on
over 8 million available recycled or salvaged parts; and a database which
includes information on pricing and local availability of over 12,000 tires
from 26 different manufacturers. For example, a customer may access the
database of recycled or salvaged parts to determine if a specific recycled
part is available from an identified vendor in his region and to ascertain
the price of that part. If the customer selects that part for use in the
repair process, Pathways Collision Estimating software integrates that choice
into the estimate workfile.
The MOTOR Crash Estimating Guide database and the other associated
databases (except for the Recycled Parts database, which is updated nightly) are
updated for our customers monthly using a CD-ROM update. We sell PATHWAYS
COLLISION ESTIMATING to automobile insurance companies, collision repair
facilities and independent appraisers under multi-year contracts on a monthly
subscription basis, which are billed to our customers one month in advance.
PATHWAYS DIGITAL IMAGING. PATHWAYS DIGITAL IMAGING allows automobile
insurance companies, collision repair facilities and independent appraisers
to digitally photograph and instantly transmit digital images of damaged
vehicles to the PATHWAYS estimate workfile. These electronic images can be
accessed by a licensed participant in the automobile claims process at any
time and from any location. For example, an adjuster in the field in
California may add a digital image of a damaged vehicle to the PATHWAYS
estimate workfile using the integrated imaging function. The estimate can
then be stored on EZNET, which allows an insurance company representative in
New York to access the same workfile and digital image, review the estimate
and approve the claim. PATHWAYS DIGITAL IMAGING reduces the need for onsite
inspections and eliminates film, travel and overnight delivery costs. We sell
PATHWAYS DIGITAL IMAGING to our customers under multi-year contracts on a
monthly subscription basis, which are billed to customers one month in
advance.
PATHWAYS ENTERPRISE SOLUTION. PATHWAYS ENTERPRISE SOLUTION is internal
shop management software for multiple location collision repair operations
that allows repair shops to manage accounts, prepare employee schedules and
perform various other management functions. We sell PATHWAYS ENTERPRISE
SOLUTION to our customers under multi-year contracts on a monthly
subscription basis, which are billed to customers one month in advance.
PATHWAYS PROFESSIONAL ADVANTAGE. PATHWAYS PROFESSIONAL ADVANTAGE offers a
computerized management information system similar to PATHWAYS ENTERPRISE
SOLUTION to single location collision repair facilities. We have approximately
100 customers for PATHWAYS ENTERPRISE SOLUTION and PATHWAYS PROFESSIONAL
ADVANTAGE. We sell PATHWAYS PROFESSIONAL ADVANTAGE to our customers under
multi-year contracts on a monthly subscription basis, which are billed to
customers one
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month in advance.
PATHWAYS APPRAISAL QUALITY SOLUTION. PATHWAYS APPRAISAL QUALITY
SOLUTION is the first computerized solution which allows for electronic
audits of automobile repair claims files and estimates prepared by direct
repair facilities, independent appraisers and internal staff for quality
control and for identification and correction of errors or discrepancies
prior to the completion of repairs. In addition, PATHWAYS APPRAISAL QUALITY
SOLUTION allows automobile insurance companies to use available historical
data to track performance of appraisers and provides a mechanism to establish
and monitor compliance with certain reinspection objectives developed by the
automobile insurance company. For example, PATHWAYS APPRAISAL QUALITY
SOLUTION allows a reinspector to establish certain criteria for reviewing
the preparation of estimates, which allow the reinspector to determine if an
appraiser prepared the estimate using the most cost-efficient and effective
alternatives. We sell PATHWAYS APPRAISAL QUALITY SOLUTION to our customers on
a subscription and/or per transaction basis under multi-year agreements.
VEHICLE VALUATION SERVICES
TOTAL LOSS. Our TOTAL LOSS service is used primarily by automobile
insurance companies in processing claims involving vehicles that have been
heavily damaged or stolen. Typically, when the cost to repair a vehicle exceeds
70% to 90% of the vehicle's value, the automobile insurance company will declare
that vehicle to be a "total loss." In such cases, CCC provides the insurer with
the local market value of the vehicle to assist the insurer in processing the
claim. CCC's values are based on local market data that identifies the specific
location and price of comparable vehicles. To compile this data, more than 300
CCC representatives survey over 4,000 car dealerships in more than 250 markets
at least twice each month to obtain detailed information on the vehicles on the
dealers' lot. In addition, CCC subscribes to more than 1,800 local newspapers
and other publications and culls information from the classified advertisements
to provide additional information on vehicle availability and pricing. We
believe our TOTAL LOSS database is among the most current and comprehensive
vehicle database in North America. Each TOTAL LOSS valuation also includes a
vehicle identification search under VINguard, which matches current claims
against our database of previously totaled or stolen vehicles to help detect
fraud.
Customers of TOTAL LOSS who are also customers of PATHWAYS may access
the TOTAL LOSS program electronically through the PATHWAYS program. Customers
also have the option to obtain TOTAL LOSS valuations from us by telephone or
facsimile. TL2000 SOLUTION, one of our newer products, now allows customers
and their insureds to access TOTAL LOSS services through the Internet.
Customers may store TOTAL LOSS valuations on EZNET as part of a claims
workfile.
We sell TOTAL LOSS to all of our customers, including those who are
PATHWAYS customers, on a per transaction basis. Customers are billed in the
month following the transaction.
TOTAL LOSS ADVANTAGE. TOTAL LOSS ADVANTAGE permits customers who are not
users of our PATHWAYS products to submit TOTAL LOSS valuation requests
electronically to CCC.
COMMUNICATIONS SERVICES
EZNET COMMUNICATIONS NETWORK. Our EZNET communications network is a
central communications hub and repository for automobile insurance companies.
Our customers can access EZNET in various ways, including, but not limited to,
use of dedicated lines, public networks and/or dial up modems. The network
allows customers to electronically communicate claim information, including
assignments, work files, estimates and audible estimate data, internally and
among appraisers, collision repair facilities, reinspectors and other parties
involved in the automobile claims process. EZNET allows customers to share
information and review claims, regardless of the location. EZNET provides
customers with an electronic organizational library to catalog, organize and
store completed claims files.
When a customer completes an estimate, the customer may store the estimate
on our secure EZNET communications services network in the electronic
organizational library. For example, a claims adjuster in the field in New York
may prepare an estimate using PATHWAYS and store the finished estimate on EZNET.
EZNET allows the adjuster's supervisor and other members of his company's
automobile claims team to access the estimate on a confidential basis using a
claim reference number. We sell EZNET to our customers on both a per transaction
basis and a monthly subscription basis.
GUIDEPOST AND GUIDELINES DECISION SUPPORT. GUIDEPOST and GUIDELINES allow
users to manage and review data. Through GUIDEPOST, insurance managers
electronically evaluate results, format reports, gather information for review
of a
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particular subject or personnel and compare performance to industry and
regional indices from data generated in PATHWAYS. We distribute GUIDEPOST
updates to our customers monthly. GUIDELINES provides similar services for
collision repair managers, but is an Internet-based service which is
accessible to users via a Web browser. With GUIDELINES, a collision repair
facility can compare itself with state and national averages on key
performance measures such as repair costs, supplement costs, parts usage,
labor rates and labor usage from data generated in PATHWAYS and TOTAL LOSS.
We are not currently offering GUIDELINES to new customers, although
GUIDELINES remains available to current subscribers. We plan to phase out
GUIDEPOST and migrate customers to CLAIMSCOPE NAVIGATOR.
CLAIMSCOPE NAVIGATOR. CLAIMSCOPE NAVIGATOR is our next generation, on-line
Web-based information service that is designed to replace our GUIDEPOST product
by providing a more comprehensive method to create management reports comparing
industry and company performance using PATHWAYS data. CLAIMSCOPE NAVIGATOR
permits our customers to conduct in-depth analyses of claims information by
parts and labor usage, cycle time measurements and vehicle type and condition.
We finished our roll-out of CLAIMSCOPE NAVIGATOR in February of 2001. The
ability to generate reports from information gathered through TOTAL LOSS data is
expected to roll out in June of 2001.
SALES AND MARKETING
All of our services are currently sold throughout the United States. Our
sales and marketing strategy is to strengthen our relationships with existing
customers and to expand our current customer base by providing efficient,
integrated and value added services in the automobile claims industry. We
utilize approximately 230 sales and service professionals to market and sell our
services.
TRAINING AND SUPPORT
Our training and support staff, consisting of approximately 240 employees,
provides advanced training courses, basic training in the field, telephonic
technical support and implementation services. Our training and support staff
consists of individuals with technical knowledge relating not only to software,
operating systems and network communications, but also to new and used
automobile markets and collision repair. We routinely analyze customer calls to
modify services or training and, whenever necessary, will dispatch a field
representative to the customer's location to provide process assistance.
CUSTOMERS AND CUSTOMER CONTRACTS
We provide our services primarily to automobile insurance companies and
collision repair facilities. Our insurance company customers include the largest
U.S. automobile insurance companies and most small to medium size automobile
insurance companies serving primarily regional or local markets. Our collision
repair customers include more than 14,000 collision repair facilities, located
in all 50 states, including most major metropolitan markets. No single customer
accounted for more than 5.5% of our total revenues in any of the last three
years. In 2000, we had approximately 624 customers for our TOTAL LOSS services
and 14,662 customers for our PATHWAYS services. We charge fees for our services
based on either a monthly subscription or a per transaction basis. Of our ten
largest insurance customers under multi-year contracts, 5 were renewed in 2000
and 2 are due for renewal in 2001.
CHOICEPARTS JOINT VENTURE
On May 4, 2000, we formed a new limited liability company, ChoiceParts,
LLC ("ChoiceParts") with Automatic Data Processing, Inc. ("ADP") and The
Reynolds and Reynolds Company. ChoiceParts develops and operates an
electronic parts exchange for the auto parts marketplace for franchised auto
retailers, collision repair facilities and other parts suppliers. Due to our
initial $1.4 million capital contribution, we now own a 27.5% equity interest
in ChoiceParts. In addition, we had committed to fund an additional $5.5
million to ChoiceParts based on our pro-rata ownership percentage through
April 2001, although we recently reached an agreement in principle with ADP
and Reynolds to extend the deadline to April 2002. In December 2000, we
funded $1.4 million in connection with this additional funding commitment. We
expect to fund the remaining commitment of $4.1 million in 2001; $2.1 million
was funded in March 2001.
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CCC INTERNATIONAL
INTERNATIONAL SERVICES
CCC International provides claims consulting for a large insurance
company, in which we are helping identify potential collision repair
facilities for this insurer to acquire. This will allow the insurance
customer to perform its own repair jobs for their clients. In December of
2000, we made a decision to shut-down D.W. Norris, a business we acquired in
August of 1999. D.W. Norris failed to perform at expected levels and lost one
of its significant customers, thus making it unlikely they would be
profitable in the future. D.W. Norris's operating losses were $10.5 million
for 2000, which had a large effect on CCC International's operating results.
The closure of D.W. Norris should allow CCC International to improve its
performance in future years. For the year ended December 31, 2000, CCC
International had revenues of approximately $7.8 million, or 3.7% of our
total revenues, of which D.W. Norris accounted for $5.2 million. CCC
International has approximately 176 full-time employees, of which 86 are
employed at D.W. Norris and will be terminated as part of the shut-down of
that business.
In 1998, CCC International entered into a joint venture, Enterstand
Limited ("Enterstand"), with Hearst Communications Inc. ("Hearst
Communications"). to assist Hearst Communications with the development and
implementation of our services for the European market. As part of this joint
venture, we intend to deliver our collision estimating services with a
European version of our proprietary software and database developed using
Hearst's comprehensive estimating guide, as well as an enhanced
communications network. The enhanced communications network would include our
PATHWAYS APPRAISAL QUALITY SOLUTION, PATHWAYS COLLISION ESTIMATING, GUIDEPOST
ONLINE, a business-to-business web based information management tool and the
OFFICE TOOL KIT, a web based business-to-business claims office management
tool.
DRIVELOGIC
OVERVIEW
Through DriveLogic, we aim to optimize efficiencies in the auto claims
and collision repair industries through Internet-based applications and
communications. DriveLogic's strategy is to combine a collaborative Internet
interchange with multiple, integrated e-commerce solutions delivered via an
application service provider model. DriveLogic's solutions will target the
entire auto claims process, benefiting supply chain participants. Although
DriveLogic did not produce revenues in the year ended December 31, 2000, we
expect DriveLogic to begin generating revenues in 2001. DriveLogic has
approximately 70 full-time employees.
INTERNET SERVICES
DriveLogic provides the COLLISION REPAIR SOLUTION to collision repair
facilities to help them market and operate their business while simultaneously
improving customer relations. The product is offered in "Basic Package" and
"Plus Package" versions. The Basic Package includes various Internet services to
facilitate customer interaction. For example, the Basic Package allows repair
facilities to develop a custom Website providing their customers with individual
shop information such as hours, locations and services; provide e-mail service
for customer inquiries and complaints; allow customers to provide information
regarding their satisfaction with the shop's performance and go on-line to find
out the status of their vehicle that is being repaired. The Basic Package also
contains an operational program, Repair Status Management, which allows
collision repair facilities to track the status of all their ongoing repair
jobs. The Plus Package includes the Basic Package and automatic status e-mails
that alert a customer when their car reaches various stages of the repair
process, detailed customer satisfaction index reports and appointment scheduling
for consumers. Both the Basic and Plus Packages of COLLISION REPAIR SOLUTION are
currently being furnished at no cost to our customers in an attempt to market
the product. We currently have approximately 896 customers using COLLISION
REPAIR SOLUTION.
DriveLogic currently is planning to provide several other Internet-based
solutions in 2001. These solutions include a resource management product that
optimizes the scheduling and wireless dispatching of appraisal resources, a
triage tool that provides claim-routing recommendations, a towing tool that
allows routing of the vehicle to the optimal location for storage and appraisal
and further enhancements to the COLLISION REPAIR SOLUTION to allow document
exchange with automobile insurance companies that offer direct repair programs.
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CONSUMER SERVICES
OVERVIEW
Through Consumer Services, we provide third party outsourcing services
to the insurance industry. Consumer Services' ACCESS product is dependent on
certain software resources of CCC U.S. and would be unable to provide this
service without use of certain CCC U.S. resources. Consumer Services has seen
both a decline in revenue and in the number of transactions processed for its
customers; and, as a result of these factors, it is likely that this segment
will continue to operate at a loss. We are currently examining strategic
options for Consumer Services in order to reduce the losses generated by this
segment. Consumer Services had revenues of $25.1 million in the year ended
December 31, 2000, which represented 12.0% of our total revenues. Consumer
Services has approximately 366 full-time employees.
CLAIMS OUTSOURCING SERVICES
THIRD PARTY CLAIMS ADMINISTRATION. Consumer Services offers third party
claims administration, a claims processing outsourcing service. This service
manages the claim process from the initial loss notification through settlement
of the claim. We sell these services to our customers on a transaction basis
under multi-year agreements.
ACCESS. ACCESS is our database of collision repair facilities that
identifies repair facilities meeting a customer's criteria for providing service
to its claimants. As part of ACCESS, our personnel provide electronic appraisal
review of estimates prepared by collision repair facilities and reinspection
services. Insurance companies use ACCESS to appraise and settle claims without
hiring either additional staff or independent appraisers and to provide
reinspection and restoration management staff. We sell ACCESS to our customers
on a per claim basis under multi-year agreements.
INTELLECTUAL PROPERTY AND LICENSES
Our competitive advantage depends upon our proprietary technology. We rely
primarily on a combination of patents, contracts, intellectual property laws,
confidentiality agreements and software security measures to protect our
proprietary rights. We distribute our services under written license agreements,
which grant our customers a license to use our services and contain provisions
to protect our ownership and the confidentiality of the underlying technology.
We also require all of our employees and other parties with access to our
confidential information to sign agreements prohibiting the unauthorized use or
disclosure of our technology.
We have trademarked virtually all of our products and services, and we use
our trademarks in the advertising and marketing of our products and services.
PATHWAYS and CCC are well-known marks within the automobile insurance and
collision repair industries. We have patents for our collision estimating
service pertaining to the comparison and analysis of the "repair or replace" and
the "new or used" parts decisions. In 1999, we received a patent for the
PATHWAYS method for managing insurance claim processing. Although we do not have
a patent for the TOTAL LOSS calculation process, the processes involved in this
program are our trade secrets and are essential to our TOTAL LOSS business.
Despite these precautions, we believe that existing laws provide only limited
protection for our technology. A third party may misappropriate our technology
or independently develop similar technology. Additionally, it is possible that
other companies could successfully challenge the validity or scope of our
patents and that our patents may not provide a competitive advantage to us.
We license certain data used in our services from third parties to whom
we pay royalties. With the exception of the estimating guide that we license
from Hearst, we do not believe that our services are significantly dependent
upon licensed data. Although we have licensed the estimating guide from
Hearst through April 1, 2018, we do not have access to an alternative
database that would provide comparable information in the event the license
is terminated. Hearst may terminate the license if any of the following
events occur: (1) we fail to make payment of license fees, royalties and
other charges due under the agreement; (2) we do not comply with the material
terms and conditions of the agreement; (3) we become bankrupt or insolvent
and we are unable to perform our obligations under the agreement; or (4) upon
two years' notice, if Hearst discontinues or abandons publication of the
estimating guide.
Any interruption of our access to the estimating guide provided by MOTOR
could have a material adverse effect on our business, financial condition and
results of operations.
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We are not engaged in any material disputes with other parties with
respect to the ownership or use of our proprietary technology. We cannot assure
you that other parties will not assert technology infringement claims against us
in the future. Defending any such claim may involve significant expense and
management time. In addition, if any such claim were successful, we could be
required to pay monetary damages, refrain from distributing the infringing
product or obtain a license from the party asserting the claim, which may not be
available on commercially reasonable terms.
COMPETITION
The industry in which we compete is highly competitive. We compete mainly
by offering services we believe to be unique and by providing superior customer
service. Historically, our principal competitors have included the dealers
services division of ADP, which offers a personal computer-based collision
estimating and digital imaging system and a total loss product to the automobile
insurance industry and a collision estimating and digital imaging system to the
collision repair industry, and Mitchell International Inc., which publishes
crash guides for both the automobile insurance and collision repair industries
and markets collision estimating, shop management and imaging products. Over the
past few years, however, we have faced new competition from several new
companies, many of which focus on the delivery of services over the Internet. We
also compete with companies offering both collision estimating programs that are
not computer based and claim settlement services similar to our ACCESS program.
Over the past few years, we have experienced steady competitive price pressure,
particularly in collision estimating and vehicle valuation services.
We intend to address competitive price pressures by providing higher
quality services that offer more advanced features to our clients. We also
intend to continue to develop unified, user-friendly claims services that
incorporate our comprehensive proprietary inventory of data. We expect that
PATHWAYS will continue to provide a unique service for our insurance and
collision repair customers and allow us to compete effectively against
competitive price pressures.
At times, insurance companies have entered into agreements with companies
(including ADP, Mitchell and CCC) that provide that the insurance company will
either use the product or service of that company exclusively or designate the
company as its preferred provider of that product or service. If the agreement
is exclusive, the insurance company requires that collision repair facilities,
independent appraisers and regional offices use the particular product or
service. If the company is simply a preferred provider, the collision repair
facilities, appraisers and regional offices are encouraged to use the preferred
product, but may still choose another company's product or service. Being
included on the approved list of an insurance company or having a product that
is endorsed by the insurance company provides certain benefits, including
immediate customer availability and an advantage over competitors who may not
have such approval. To the extent an insurance company has endorsed ADP or
Mitchell, but not us, we will experience a competitive disadvantage.
ITEM 2. PROPERTIES
Our corporate office is located in Chicago, Illinois, where we lease space
of a multi-tenant facility under two leases, one for approximately 104,000
square feet which expires in November 2008 and the second for approximately
37,000 square feet which expires in January 2004. In Glendora, California, we
lease approximately 84,000 square feet of a facility under a lease expiring in
December 2004, where a satellite development center and distribution center are
housed. DriveLogic, located in Chicago, Illinois, leases approximately 34,000
feet of a multi-tenant facility under a lease expiring in March 2006. Consumers
Services' Professional Claims Services, Inc. leases approximately 17,000 square
feet of a facility in Placentia, California under a lease expiring in March
2004. We purchased a 50,000 square foot facility in Sioux Falls, South Dakota in
1998 in connection with relocating certain customer service and claims
processing operations. In addition, we have two offices in the U.K., where CCC
International leases 9,500 square feet of a facility through February 2009 in
Peterborough and D.W. Norris Limited leases 14,400 square feet of a facility
through April 2006 in Shipley. As result of the decision to shutdown the D.W.
Norris business, the office in Shipley will be closed. We believe that
our existing facilities and additional or alternative space available to us are
adequate to meet our requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On January 31, 2000, a putative class action lawsuit was filed against
CCC, Dairyland Insurance Co., and Sentry Insurance Company in the Circuit Court
of Johnson County, Illinois. The case is captioned SUSANNA COOK V. DAIRYLAND
INS. CO., SENTRY INS. AND CCC INFORMATION SERVICES INC., NO. 2000 L-1. Plaintiff
alleges that her
7
insurance company, using a valuation prepared by CCC, offered an inadequate
amount for her automobile. Plaintiff seeks to represent a nationwide class of
all insurance customers, who, during the period from January 28, 1989, up to the
date of trial, had their total loss claims settled using a valuation report
prepared by CCC. The complaint also seeks certification of a defendant class
consisting of all insurance companies who used the Company's valuation reports
to determine the "actual cash value" of totaled vehicles. Plaintiff asserts
various common law and contract claims against the defendant insurance
companies, and various common law claims against CCC. Plaintiff seeks an
unspecified amount of compensatory and punitive damages, as well as an award of
attorney's fees and costs. Dairyland and Sentry filed a motion to compel an
appraisal under the terms of the Plaintiff's policy, which motion was denied by
the trial court. Dairyland and Sentry have appealed the denial of that motion.
During January and February of 2001, the group of plaintiffs' lawyers who
filed the COOK lawsuit filed ten (10) additional putative class action lawsuits
against CCC and several of its insurance company customers in the Circuit Court
of Madison County, Illinois. Those cases are captioned as follows: LANCEY V.
COUNTRY MUTUAL INS. CO., COUNTRY CASUALTY INS. d/b/a COUNTRY COMPANIES, AND CCC
INFORMATION SERVICES INC., CASE NO. 01 L 113 (FILED 1/29/01); SCHOENLEBER V.
PRUDENTIAL PROPERTY AND CASUALTY INC. CO. AND CCC INFORMATION SERVICES INC.,
CASE NO. 01 L 99 (FILED 1/18/01); EDWARDS V. MID-CENTURY INS. CO. d/b/a FARMERS
INS. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 151 (FILED 2/6/01);
BORDONI V. CGU INS. GROUP d/b/a CGU INS. CO. OF ILLINOIS AND CCC INFORMATION
SERVICES INC., CASE NO. 01 L 157 (FILED 2/6/01); RICHARDSON V. PROGRESSIVE
PREMIER INS. CO. OF ILLINOIS d/b/a PROGRESSIVE AND CCC INFORMATION SERVICES
INC., CASE NO. 01 L 149 (FILED 2/6/01); BILLUPS V. GEICO GENERAL INS. CO. AND
CCC INFORMATION SERVICES INC., CASE NO. 01 L 159 (FILED 2/6/01); HUFF V.
HARTFORD INS. CO. OF ILLINOIS d/b/a THE HARTFORD AND CCC INFORMATION SERVICES
INC., CASE NO. 01 L 158 (FILED 2/6/01); KNACKSTEDT V. ST. PAUL FIRE AND MARINE
INS. CO. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 153 (FILED 2/6/01);
MOORE V. SHELTER INS. COS. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 160
(FILED 2/6/01); TRAVIS V. KEMPER CASUALTY INS. CO. d/b/a KEMPER INSURANCE AND
CCC INFORMATION SERVICES INC., CASE NO. 01 L 290 (FILED 2/16/01).
In each case, the plaintiff alleges that his or her insurance company,
using a valuation prepared by CCC, offered an inadequate amount to settle his
or her total loss claim. Each plaintiff seeks to represent a nationwide class
of the defendant insurance company's customers, who, during the period from
January 28, 1989, up to the date of trial, had their total loss claims
settled using a valuation report prepared by CCC. Plaintiff asserts various
common law and contract claims against the defendant insurance companies, and
various common law claims against CCC. Plaintiff seeks an unspecified amount
of compensatory and punitive damages, as well as an award of attorney's fees
and costs. CCC has not yet responded to these complaints.
Between October of 1999 and July of 2000, a separate group of plaintiffs'
attorneys filed a series of putative class action lawsuits against CCC and
several of its insurance company customers in the Circuit Court of Cook County,
Illinois. The cases are captioned as follows: ALVAREZ-FLORES V. AMERICAN
FINANCIAL GROUP, INC., ATLANTA CASUALTY CO., AND CCC INFORMATION SERVICES INC.,
NO. 99 CH 15032 (FILED 10/19/99); GIBSON V. ORIONAUTO, GUARANTY NATIONAL INS.
CO. AND CCC INFORMATION SERVICES INC., NO. 99 CH 15082 (FILED 10/20/99); KEILLER
V. FARMERS INSURANCE GROUP OF COMPANIES, FARMERS GROUP, INC., FARMERS INSURANCE
EXCHANGE, FARMERS INSURANCE CO. OF OREGON, AND CCC INFORMATION SERVICES INC.,
NO. 99 CH 15485 (FILED 10/20/99); STEPHENS V. THE PROGRESSIVE CORP., PROGRESSIVE
PREFERRED INS. CO. AND CCC INFORMATION SERVICES INC., NO. 99 CH 15557 (FILED
10/28/99); MYERS V. TRAVELERS PROPERTY CASUALTY CORP., THE TRAVELERS INDEMNITY
COMPANY OF AMERICA AND CCC INFORMATION SERVICES INC., NO. 00 CH 2793 (FILED
2/22/00); LEPIANE V. THE HARTFORD FINANCIAL SERVICES GROUP, INC., HARTFORD
INSURANCE COMPANY OF THE MIDWEST AND CCC INFORMATION SERVICES INC., NO. 00 CH
10545 (FILED 7/18/00).
In the ALVAREZ-FLORES case, the insurance company defendants filed a
motion to compel an appraisal and to stay the litigation pending the appraisal.
The court granted that motion on April 14, 2000. On December 8, 2000, following
the conclusion of the appraisal, the Court granted a motion by the Plaintiff to
lift the stay, except that the Court continued the stay with regard to
discovery. The Court further ordered the defendants to file dispositive motions
regarding the appraisal to be filed by January 26, 2001. CCC and Atlanta
Casualty each filed a motion to dismiss on that date. Those motions are fully
8
briefed and scheduled for oral argument on April 19, 2001.
In the GIBSON case, the insurance company defendants filed a motion to
compel an appraisal and to stay the litigation pending the appraisal. The court
granted that motion on May 30, 2000. The appraisal is ongoing and the case
remains stayed.
In the KEILLER case, the plaintiff voluntarily dismissed the case without
prejudice on July 6, 2000.
In the MYERS case, the defendants filed motions to dismiss or stay the
plaintiffs' claims on June 15, 2000. The motions were granted in part and denied
in part on September 12, 2000. The Plaintiff filed a First Amended Class Action
Complaint on September 22, 2000. The defendants filed motions to dismiss or stay
the plaintiffs' claims on October 20, 2000. On February 15 and 16, 2001, the
Court dismissed all but one of the plaintiff's claims without prejudice.
Plaintiff filed her Second Amended Class Action Complaint on March 2, 2001.
CCC's answer or other responsive pleading is due on April 9, 2001. Briefing is
scheduled to be completed on any motions to dismiss the Second Amended Class
Action Complaint on June 7, 2001, and oral argument is currently scheduled for
June 14, 2001.
In the STEPHENS case, the Progressive defendants filed a motion to dismiss
the plaintiff's claims on January 10, 2000. The plaintiff subsequently requested
and was granted leave to file a First Amended Class Action Complaint, which was
filed on September 14, 2000. On December 12, 2000, all defendants filed motions
to stay or dismiss Plaintiffs' claims. Those motions are fully briefed and are
scheduled for oral argument on April 19, 2001.
In the LEPIANE case, CCC filed a motion to dismiss or stay plaintiffs'
claims on October 30, 2000. The motion was scheduled for hearing on February 23,
2001; at that time, however, the Circuit Court judge recused herself. The case
was reassigned to a different judge on February 26, 2001. The motions have not
yet been scheduled for hearing.
On August 23, 2000, a putative statewide class action was filed in the
Circuit Court for Hillsborough County, Florida, against CCC and USAA Casualty
Insurance Company. SINTES V. USAA CASUALTY INS. CO. AND CCC INFORMATION SERVICES
INC., CASE NO. 2000-0006380. Plaintiffs allege that USAA contracted with CCC to
provide valuations of "total loss" vehicles and that CCC supplied valuations
that were intentionally below the fair market value of the insured vehicle. The
plaintiffs assert various common law claims against USAA seeking unspecified
damages. The plaintiffs also assert a single claim for injunctive relief against
USAA and CCC. Plaintiffs also request an award of pre and post-judgment interest
and an award of attorneys' fees, litigation expenses and costs. The group of
plaintiffs' attorneys who filed the Sintes case includes several attorneys who
have previously filed similar cases against CCC and various of its customers in
the Circuit Court of Cook County, Illinois (see above). CCC filed a motion to
dismiss Plaintiffs' Class Action Complaint and a motion to strike Plaintiffs'
claim for attorneys' fees on December 7, 2000. On February 16, 2001, the Court
entered an order granting CCC's motion to strike Plaintiffs' claim for
attorneys' fees and CCC's motion to dismiss the Class Action Complaint. Although
the Court gave Plaintiffs' leave to file an amended complaint within twenty days
of that order, Plaintiffs declined to do so. Plaintiffs' claims against CCC have
therefore been dismissed without prejudice.
Between June and August of 2000, a separate group of plaintiffs' attorneys
filed three putative class action cases against CCC and various of its insurance
company customers in the State Court of Fulton County, Georgia. Those cases are
MCGOWAN V. PROGRESSIVE CASUALTY INS. CO., PROGRESSIVE INS. CO., AND CCC
INFORMATION SERVICES INC., CASE NO. 00VS006525 (FILED 6/16/00), DASHER V.
ATLANTA CASUALTY CO. AND CCC INFORMATION SERVICES INC., CASE NO. 00VS006315
(FILED 6/16/00) AND WALKER V. STATE FARM MUTUAL AUTOMOBILE INS. CO. AND CCC
INFORMATION SERVICES INC., CASE NO. 00VS007964 (FILED 8/2/00). The plaintiff in
each case alleges that his or her insurance company, using a valuation prepared
by CCC, offered plaintiff an inadequate amount for his or her automobile and
that CCC's TOTAL LOSS valuation product provides values that do not comply with
the applicable Georgia regulations. The plaintiffs assert various common law and
statutory claims against the defendants and seek to represent a nationwide class
of insurance company customers. Additionally plaintiffs seek to represent a
similar statewide sub-class for claims under the Georgia RICO statute.
Plaintiffs seek unspecified compensatory, treble and punitive damages, as well
as an award of attorneys' fees and expenses.
In all three of these cases, the insurance company defendants filed
motions to compel appraisals under the terms of the plaintiffs' insurance
policies. All three cases are pending before the same judge, who held a
consolidated hearing on the
9
insurers' motions on December 19, 2000. At that hearing, the Court granted the
insurers' motions to compel appraisals and to stay the litigation pending the
appraisal process. The cases, including the plaintiffs' claims against CCC, are
now stayed pending the appraisals.
On August 2, 2000, a putative class action purportedly on behalf of
certain residents of fourteen states was filed in the Franklin County Court of
Common Pleas, State of Ohio, against Nationwide Mutual Insurance Company and
CCC. WHITWORTH V. NATIONWIDE MUTUAL INS. CO. AND CCC INFORMATION SERVICES INC.,
CASE NO. CVH-08-6980. The Whitworth lawsuit was filed by a group of plaintiffs'
attorneys that includes certain attorneys who previously filed three putative
class actions against CCC and various of its customers in Fulton County State
Court (reported above). The plaintiffs assert substantially the same claims and
seek substantially the same relief as in those previously filed Fulton County
actions. The plaintiffs further allege that CCC's TOTAL LOSS valuation service
provides values that do not comply with applicable regulations in Ohio and
thirteen other states. Nationwide filed a motion to dismiss the Plaintiffs'
Complaint on October 16, 2000. CCC filed a motion to dismiss the Complaint on
October 23, 2000. On January 19, 2001, after the briefing on those motions was
completed but before the Court had ruled on them, Plaintiffs filed a First
Amended Complaint. Nationwide and CCC both filed motions to dismiss the First
Amended Complaint on February 26, 2001. No briefing schedule or oral argument
date has been set.
On or about March 27, 1998 a case entitled GARDNER V. ALLSTATE INDEMNITY
CO., CIVIL ACTION 98-D-480-N (M.D. ALA.), was filed in the Circuit Court of
Montgomery County, Alabama. CCC is not named as a defendant in the case, and no
relief is sought against CCC by the plaintiffs. In the Complaint, plaintiffs
asserted claims against one of CCC's customers, Allstate Indemnity Co., for
unjust enrichment and constructive trust and for breach of contract based on
Allstate's use of an unidentified total loss valuation product. Allstate removed
the case to the United States District Court for the Middle District of Alabama
in April 1998 (GARDNER V. ALLSTATE INDEMNITY CO., CIVIL ACTION 98-D-480-N).
Plaintiffs moved for class certification on August 28, 1998. Plaintiffs' class
certification motion was granted on April 28, 2000. Pursuant to the April 28,
2000 order, the district court certified a plaintiff class of all Alabama
customers who, from March 26, 1992 through the time of final judgment in the
case, (1) have been insured under or paid pursuant to an Allstate auto policy,
(2) whose vehicles have been declared a total loss by Allstate; and (3) to whom
Allstate has paid out a claim for a total loss adjusted based on CCC valuations.
The United States District Court for the Middle District of Alabama entered an
order on February 20, 2001 remanding the case to the Circuit Court of Montgomery
County, Alabama. The District Court, which had certified a statewide class of
Allstate customers whose total loss claims had been adjusted by Allstate based
on total loss valuations prepared by CCC, found that it did not have subject
matter jurisdiction over the case.
Four of the Company's automobile insurance company customers have made
contractual and, in some cases, also common law indemnification claims
against the Company for litigation costs, attorneys' fees, settlement
payments and other costs allegedly incurred by them in connection with
litigation relating to their use of the Company's TOTAL LOSS valuation
product. With respect to one of these claims, the Company believes that it is
questionable whether the Company has any responsibility, and in any event,
the Company believes that any amount owed would be immaterial with respect to
both results of operations and financial position. With regard to the
remaining three claims, the Company has not yet been advised of specific
facts to support these customers' demands for indemnification nor has any
specific dollar amount been demanded. In any event, the Company believes it
has defenses to these claims, including, in one instance a general release
and counterclaims for indemnification.
CCC intends to vigorously defend all of the above described lawsuits
and claims to which it is a party, and support its customers in other
actions. Due to the numerous legal and factual issues that must be resolved
during the course of litigation, CCC is unable to predict the ultimate
outcome of any of these actions. If CCC were held liable in any of the
actions (or otherwise concludes that it is in CCC's best interest to settle
any of them), CCC could be required to pay monetary damages (or settlement
payments). Depending upon the theory of recovery or the resolution of the
plaintiff's claims for compensatory and punitive damages, or potential claims
for indemnification or contribution by CCC's customers in any of the actions,
these monetary damages (or settlement payments) could be substantial and
could have a material adverse effect on CCC's business, financial condition
or results of operations. The Company is unable to estimate the magnitude of
its exposure, if any, at this time. As additional information is gathered and
the litigations proceed, CCC will continue to assess its potential impact.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock (symbol: CCCG) is traded on the Nasdaq National Market
("Nasdaq"). For the last two fiscal years, low and high sales prices of our
common stock were as follows:
10
2000 1999
---------------------------------------- --------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
Low..................... $6.25 $8.06 $8.88 $14.88 $9.88 $9.50 $10.94 $11.50
High.................... $9.75 $11.25 $18.25 $30.13 $17.13 $13.19 $13.50 $16.13
Since our initial public offering of common stock in August of 1996, no
dividends have been declared on shares of our common stock and our Board of
Directors currently has no intention of declaring such dividends. As of April
16, 2001, there were 21,782,956 shares of common stock issued and
outstanding. There were 84 stockholders of record on April 12, 2001.
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................................... $209,780 $207,797 $188,169 $159,106 $130,977
Expenses:
Operating expenses........................................ 211,692 189,810 164,813 133,401 110,846
Restructuring charges..................................... 6,017 2,242 1,707 -- --
Litigation settlements.................................... 2,375 -- 1,650 -- --
----------- ---------- ----------- ---------- ----------
Operating income (loss) ..................................... (10,304) 15,745 19,999 25,705 20,131
Interest expense............................................. (3,202) (1,399) (258) (139) (2,562)
Other income, net............................................ 5,113 412 697 1,505 636
Gain on exchange of investment securities, net............... 18,437 -- -- -- --
Equity in losses of ChoiceParts investment................... (2,071) -- -- -- --
----------- ---------- ----------- ---------- ----------
Income before income taxes................................... 7,973 14,758 20,438 27,071 18,205
Income tax provision......................................... (1,568) (7,361) (8,860) (11,239) (2,683)
----------- ---------- ----------- ---------- ----------
Income before equity losses, minority interest and
extraordinary item........................................ 6,405 7,397 11,578 15,832 15,522
Equity in net losses of affiliates........................... (15,650) (6,645) (11,658) -- --
Minority share in (earnings) losses of subsidiaries.......... 2 -- (1) -- --
----------- ---------- ----------- ---------- ----------
Income (loss) before extraordinary item...................... (9,243) 752 (81) 15,832 15,522
Extraordinary loss on early retirement of debt, net of income
taxes..................................................... -- -- -- -- (678)
----------- ---------- ----------- ---------- ----------
Net income (loss)............................................ (9,243) 752 (81) 15,832 14,844
Dividends and accretion on mandatorily redeemable preferred
stock..................................................... -- (2) 43 (365) (6,694)
----------- ---------- ----------- ---------- ----------
Net income (loss) applicable to common stock................. $(9,243) $750 $(38) $15,467 $8,150
=========== ========== =========== ========== ==========
INCOME (LOSS) PER COMMON SHARE--BASIC
Income (loss) applicable to common stock from:
Income (loss) before extraordinary item................... $(0.42) $0.03 $-- $0.65 $0.46
Extraordinary loss on early retirement of debt, net of
income taxes........................................... -- -- -- -- (0.03)
----------- ---------- ----------- ---------- ----------
Net income (loss) applicable to common stock................. $(0.42) $0.03 $-- $0.65 $0.43
=========== ========== =========== ========== ==========
INCOME (LOSS) PER COMMON SHARE--DILUTED
Income (loss) applicable to common stock from:
Income (loss) before extraordinary item................... $(0.42) $0.03 $-- $0.62 $0.43
Extraordinary loss on early retirement of debt, net of
income taxes........................................... -- -- -- -- (0.03)
----------- ---------- ----------- ---------- ----------
Net income (loss) applicable to common stock................. $(0.42) $0.03 $-- $0.62 $0.40
=========== ========== =========== ========== ==========
Weighted average shares outstanding:
11
Basic..................................................... 21,851 22,856 24,616 23,807 19,056
Diluted................................................... 21,851 23,162 25,188 24,959 20,367
12
DECEMBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- --------- ----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and marketable securities........................... $1,634 $1,378 $1,526 $32,118 $18,404
Working capital.......................................... (21,979) (3,868) 3,281 28,735 8,093
Total assets............................................. 97,859 84,549 79,018 83,494 58,268
Current portion of long-term debt........................ 314 440 -- 111 120
Long-term debt, excluding current maturities............. 42,000 24,685 11,000 -- 111
Mandatorily redeemable preferred stock................... -- -- 688 5,054 4,688
Stockholders' equity..................................... 2,118 15,261 35,303 45,827 24,293
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical facts or statements of current condition, this
report contains forward-looking statements. Forward-looking statements provide
our current expectations or forecasts of future events. These may include
statements regarding market prospects for our products, sales and earnings
projections, and other statements regarding matters that are not historical
facts. Some of these forward-looking statements may be identified by the use of
words in the statements such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe," or other words and terms of similar meaning. Our
performance and financial results could differ materially from those reflected
in these forward-looking statements due to general financial, economic,
regulatory and political conditions affecting the technology industry as well as
more specific risks and uncertainties such as those set forth above and in this
report. Given these risks and uncertainties, any or all of these forward-looking
statements may prove to be incorrect. Therefore, you should not rely on any such
forward-looking statements. Furthermore, we do not intend (and we are not
obligated) to update publicly any forward-looking statements. This discussion is
permitted by the Private Securities Litigation Reform Act of 1995.
13
RESULTS OF OPERATIONS
The Company's results of operations for the periods indicated are set
forth below:
YEAR ENDED DECEMBER 31,
-----------------------------------
14
2000 1999 1998
----------- ----------- ---------
(IN THOUSANDS)
Revenues:
CCC U.S................................................ $176,888 $173,723 $168,135
Consumer Services...................................... 25,140 28,776 19,358
CCC International...................................... 7,752 5,298 676
----------- ----------- ---------
Total revenue............................................. 209,780 207,797 188,169
Expenses:
Production and customer support........................ 62,609 63,343 48,242
Commissions, royalties and licenses.................... 13,637 16,372 21,495
Selling, general and administrative.................... 91,193 76,480 60,053
Depreciation and amortization.......................... 12,614 10,497 9,210
Product development and programming.................... 31,639 23,118 25,813
Restructuring charges.................................. 6,017 2,242 1,707
Litigation settlements................................. 2,375 -- 1,650
----------- ----------- ---------
Operating income (loss)................................... (10,304) 15,745 19,999
Interest expense.......................................... (3,202) (1,399) (258)
Other income, net......................................... 5,113 412 697
Gain on exchange of investment securities, net............ 18,437 -- --
Equity in losses of ChoiceParts investment................ (2,071) -- --
----------- ----------- ---------
Income before income taxes................................ 7,973 14,758 20,438
Income tax provision...................................... (1,568) (7,361) (8,860)
----------- ----------- ---------
Income before equity losses and minority interest......... 6,405 7,397 11,578
Equity in net losses of affiliates........................ (15,650) (6,645) (11,658)
Minority share in earnings of subsidiaries................ 2 -- (1)
----------- ----------- ---------
Net income (loss)......................................... $(9,243) $752 $(81)
=========== =========== =========
15
NET INCOME (LOSS) AS A PERCENTAGE OF REVENUE
To aid in your analysis and understanding, the following table sets forth
our revenues, expenses and net income (loss), as a percentage of revenue for the
last three fiscal years:
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
------------ ----------- -----------
Revenues:
CCC U.S................................ 84.3% 83.6% 89.4%
Consumer Services...................... 12.0 13.8 10.3
CCC International...................... 3.7 2.6 0.3
------------ ----------- -----------
Total revenues............................ 100.0 100.0 100.0
Expenses:
Production and customer support........ 29.8 30.5 25.7
Commissions, royalties and licenses.... 6.5 7.9 11.4
Selling, general and administrative.... 43.5 36.8 31.9
Depreciation and amortization.......... 6.0 5.1 4.9
Product development and programming.... 15.1 11.1 13.7
Reduction-in-force..................... 2.9 1.1 0.9
Litigation settlement.................. 1.1 -- 0.9
------------ ----------- -----------
Operating income (loss)................... (4.9) 7.5 10.6
Interest expense.......................... (1.5) (0.7) (0.1)
Other income, net......................... 2.4 0.2 0.4
Gain on exchange of investment
securities, net........................ 8.8 -- --
Equity in losses of ChoiceParts investment (1.0) -- --
------------ ----------- -----------
Income before income taxes................ 3.8 7.0 10.9
Income tax provision...................... (0.7) (3.5) (4.7)
------------ ----------- -----------
Income before equity losses and minority 3.1 3.5 6.2
interest...............................
Equity in net losses of affiliates........ (7.5) (3.2) (6.2)
Minority share in (earnings) losses of
subsidiaries........................... -- -- --
------------ ----------- -----------
Net income (loss)......................... (4.4)% 0.3% 0.0%
============ =========== ===========
2000 COMPARED WITH 1999
For the year ended December 31, 2000, we reported a net loss applicable to
common stock of $(9.2) million, or $(0.42) per share on a diluted basis, versus
net income applicable to common stock of $0.8 million, or $0.03 per share on a
diluted basis, for the same period last year. For the year ended December 31,
2000, we had an operating loss of $(10.3) million compared to operating income
of $15.7 million in 1999. The decline in operating income of $26.0 million from
1999 was principally the result of an increase in operating expenses. Operating
expenses increased $28.0 million, or 14.6%, reflecting a full year of spending
of $18.4 million associated with DriveLogic, which was established late in 1999,
costs of $6.0 million associated with the shutdown of International's D.W.
Norris outsourcing business in December 2000 and $2.4 million of litigation
settlements in 2000 related to the settlement cost of an arbitration proceeding
with Autobody Software Solutions, Inc. and a lawsuit settlement with American
Salvage Pool Association.
For 2000, CCC U.S. had revenues of $176.9 million, Consumer Services had
revenues of $25.1 million and CCC International had revenues of $7.8 million,
which represented 84.3%, 12.0% and 3.7% of the total 2000 consolidated revenues,
respectively. For 1999, CCC U.S. had revenues of $173.7 million, Consumer
Services had revenues of $28.8 million and CCC International had revenues of
$5.3 million, which represented 83.6%, 13.8% and 2.6% of the total 1999
consolidated revenues, respectively.
In 2000, operating margins (operating income (loss) as a percentage of
revenue), for our four revenue producing
16
segments were 61.1% for CCC U.S., (21.4)% for Consumer Services and (131.2)% for
CCC International compared to 51.1% for CCC U.S., (0.1)% for Consumer Services
and (21.2)% for CCC International in 1999. DriveLogic had no revenues in both
2000 and 1999 and had operating losses of $19.1 million in 2000 compared to $0.7
million in 1999. Shared services operating expenses, which are currently not
allocated, are primarily incurred in support of CCC U.S. Shared services consist
primarily of product development, management information systems ("MIS"), legal,
finance and administration totaled, $83.8 million for 2000 compared to $71.0
million in 1999.
CCC U.S. has well-established products in the marketplace and as such, is
currently able to generate higher operating margins than the other segments. CCC
U.S.'s operating income and margin improved from 1999 based on cost reduction
efforts over the last two years. These efforts included, but were not limited
to, a reduction-in-force and the sale of its dealer services business both of
which occurred in the fourth quarter of 1999 and the relocation of certain
claims settlement functions to Sioux Falls, South Dakota in 1998. In addition,
in the fourth quarter of 2000, CCC U.S. recorded a gain of $4.6 million related
to the final resolution of previously accrued expenses related to a vendor
agreement focused on technology testing and roll-out of certain products and
services. Offsetting these decreases in operating expenses from 1999, were the
costs associated with settling two litigation matters totaling $2.4 million and
a charge of $1.9 million related to the determination that certain prepaid
marketing fees paid to a third party related to the CCC U.S. Division's shop
management products were impaired. This impairment determination was based on an
analysis of projected future revenue and profitability streams of the shop
management products associated with this marketing fee. In addition, certain
contractual committed consulting fees and development expenses of $0.8 million
related to this third party were recorded in the third quarter of 2000.
Consumer Services revenue declined from 1999 primarily as a result of
lower ACCESS revenues, driven by lower transaction volume with two customers.
However, although operating expenses associated with ACCESS declined along with
revenue, this was more than offset by a charge of $2.9 million recorded in the
fourth quarter of 2000 for the abandonment of an internally developed new claims
processing management system to be used by internal staff to process claims. We
are currently exploring strategic alternatives for the Consumer Services segment
to reduce the related operating losses of this segment going forward.
CCC International's operating losses were mainly the result of its D.W.
Norris outsourcing business acquired in August of 1999. D.W. Norris operating
losses were $10.5 million for 2000 and accounted for the majority of CCC
International's operating losses. D.W. Norris's results in 2000 included total
charges of $6.8 million associated with our decision in December 2000 to
shutdown the business. The decision to shutdown the business was the result of
continued under performance and expected future losses due to the loss of a
significant customer.
DriveLogic had significant operating losses reflecting our continued
development of new product offerings that will utilize the Internet. This new
business unit was formed in late 1999.
Shared Services operating expenses for 2000 of $83.8 million increased
$14.7 million from $69.1 million in 1999, excluding the reduction-in-force
charge of $1.9 million. The increase in expenses was primarily related to higher
amortization expense related to internal use software costs, mainly those
relating to a new customer relationship management system implemented in late
1999 and a new human resources and payroll system implemented in 2000. Further,
increased MIS costs associated with internal infrastructure and consulting costs
associated with the Company reviewing strategic alternatives for its Consumer
Services segment contributed to the increase operating expenses. Offsetting
these increases, in part, was a one-time compensation charge of $1.2 million
recorded in 1999 as a result of a stock repurchase from a charitable trust
funded by our former chairman, David M. Phillips.
REVENUES. Revenues for the year ended December 31, 2000 of $209.8 million
were $2.0 million, or 1.0%, higher than the same period last year. The increase
in revenues was primarily attributable to an increase in CCC U.S.'s revenue of
$3.2 million, or 1.9%, from its EZNet communications network and a reduction in
CCC U.S.'s accounts receivable allowance reserves in the first quarter of 2000
of approximately $1.2 million. This adjustment, which was reversed to the same
line as the original provisions were recorded, was based on a detailed analysis
of exposures and required reserves on an individual account basis of our
accounts receivables. CCC International revenues increased year-over-year by
$2.5 million, or 46.3%, due to the acquisition of D.W. Norris Limited, in late
1999. Offsetting these increases in revenue was a decline in
17
Consumer Services' revenue of $3.6 million, or 12.6%, primarily related to its
ACCESS product.
PRODUCTION AND CUSTOMER SUPPORT. Production and customer support
decreased from $63.3 million, or 30.5% of revenue, to $62.6 million, or 29.8%
of revenue. The year over year decrease was due primarily to lower expenses
associated with CCC U.S.'s automotive services group and claims settlement
group. In addition, Consumer Services had lower claims processing and support
costs. CCC U.S.'s automotive services group decrease was principally due to
lower training and implementation fees associated with the PATHWAYS DIGITAL
IMAGING and PATHWAYS ENTERPRISE SOLUTION products and the sale of the CCC
U.S.'s dealer services business in December 1999. CCC U.S.'s claims settlement
decrease was primarily due to lower headcount and associated costs due to
improved efficiency in the customer support area and lower monthly production
costs associated with PATHWAYS COLLISION ESTIMATING product's monthly updates.
The decrease in Consumer Services' claims processing and support costs,
primarily lower headcount and third party services, was mainly driven by
revenue declines. These decreases were offset, in part, by higher operating
costs resulting from CCC International's acquisition of D.W. Norris in August
of 1999.
COMMISSIONS, ROYALTIES AND LICENSES. Commission, royalties and licenses
decreased from $16.4 million, or 7.9% of revenues, to $13.6 million, or 6.5% of
revenues. The decrease in dollars and as a percentage of revenue was due mainly
to a decrease in commissions resulting from CCC U.S.'s conversion of its
independent sales representatives for collision repair facilities to salaried
employees and the elimination of CCC U.S.'s highly commissioned dealer services
products as part of the sale of this business in late 1999. In the third quarter
of 2000, we determined that certain prepaid marketing fees paid to a third party
for CCC U.S.'s PATHWAYS ENTERPRISE SOLUTION were impaired. This impairment
determination was based on an analysis of projected future revenue and
profitability streams of the shop management products associated with this
marketing fee. We recorded a charge of $1.9 million in connection with the
write-off of this asset that offset, in part, the decreases in commissions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
increased from $76.5 million, or 36.8% of revenues, to $91.2 million, or 43.5%
of revenues. Of this increase, approximately $12.1 million, or 82.3% of the net
increase, was due to costs associated with DriveLogic. Additional increases
were the result of CCC U.S.'s conversion of its independent sales
representatives for collision repair facilities to salaried employees,
consulting of $1.5 million associated with reviewing strategic alternatives for
Consumer Services and a bad debt provision of $0.8 million recorded in
connection with the decision to shut-down CCC International's D.W. Norris
business in December 2000. These increases were offset, in part, by the impact
of a 1999 one-time compensation charge of $1.2 million as a result of a stock
repurchase from a charitable trust funded by our former chairman, David M.
Phillips and lower consulting costs for projects aimed at improving the
internal telecommunications and customer service infrastructure incurred in the
first half of 1999. In addition, CCC U.S. recorded a fourth quarter 2000 gain
of $4.6 million related to the final resolution of previously accrued expenses
associated with a vendor agreement focused on technology testing and roll-out
of certain products and services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
from $10.5 million, or 5.1% of revenues, to $12.6 million, or 6.0% of revenues.
The increase was mainly the result of additional amortization of internal use
software costs, primarily those relating to a new customer relationship
management system implemented in late 1999 and a new human resources and payroll
system in 2000. In addition, as a result of the D.W. Norris acquisition in late
1999, goodwill amortization and depreciation on acquired fixed assets increased
year-over year for CCC International. Depreciation and amortization also
increased as a result of increased investment in computer equipment and software
and DriveLogic's leasehold improvements and office furniture associated with its
new office space.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
increased from $23.1 million, or 11.1% of revenue, to $31.6 million, or 15.1% of
revenue. The dollar and percentage of revenue increases were due primarily to
DriveLogic's new product development efforts and CCC U.S.'s Total Loss
development efforts. In addition, Consumer Services abandoned development
efforts on a new internally developed claims processing system in the fourth
quarter of 2000 resulting in a charge of $2.9 million.
RESTRUCTURING CHARGES. In December 2000, we decided to shutdown the D.W.
Norris outsourcing business due to the significant losses incurred since the
acquisition, the continued deterioration of the overall business and the poor
long-term assessment of the business. As a result, the Company recorded a charge
of $6.0 million in the fourth quarter of 2000 to write-
18
off the goodwill, severance and related costs to terminate approximately 86
employees, write-down the fixed assets to net realizable value and contractual
commitments. Excluding the restructuring charge, D.W. Norris had a net loss of
$5.1 million in 2000. In the fourth quarter of 1999, the company recorded a
reduction-in-force charge of $2.2 million. This charge consisted primarily of
severance and outplacement costs related to the termination of approximately 100
employees. This reduction was part of a company-wide effort to improve
profitability to help fund new initiatives, such as DriveLogic.
LITIGATION SETTLEMENTS. We recorded a charge of $1.4 million in the
third quarter of 2000 related to settlement costs of an arbitration
proceeding before the American Arbitration Association captioned AUTOBODY
SOFTWARE SOLUTIONS, INC. V. CCC INFORMATION SERVICES INC. In addition, we
recorded a charge of $1.0 million in the fourth quarter of 2000 related to
settlement costs of a litigation matter with American Salvage Pool
Association. See Note 9--Litigation Settlements.
INTEREST EXPENSE. Interest expense increased from $1.4 million in 1999 to
$3.2 million in 2000. The increase from 1999 was due to a higher level of
borrowings in late 1999 and 2000 under our bank credit facility. The increase in
borrowings was mainly the result of our stock repurchase program, acquisitions,
funding to Enterstand and startup costs for DriveLogic.
OTHER INCOME, NET. Other income, net increased from $0.4 million in 1999
to $5.1 million in 2000. The increase from prior year was principally due to a
$4.1 million gain recorded in the first quarter of 2000 on the termination of
the sales and marketing agreement between InsurQuote Systems, Inc. and CCC. See
Note 3--Investment in InsurQuote/ChannelPoint.
GAIN ON EXCHANGE OF INVESTMENT SECURITIES, NET. We recorded a gain in the
second quarter of 2000 of approximately $18.4 million in connection with the
exchange of our equity investment in InsurQuote securities for ChannelPoint
common stock. Net of income taxes, the gain was approximately $17.7 million.
See Note 3--Investment in InsurQuote/ChannelPoint.
EQUITY IN LOSSES OF CHOICEPARTS. We recorded a charge of $2.1 million for
the period May 4, 2000 through December 31, 2000 related to our share of the
losses of ChoiceParts, LLC. See Note 5--Investment in ChoiceParts.
INCOME TAXES. Income taxes decreased from $7.4 million, or 49.9% of income
before taxes, to $1.6 million, or 19.7% of income before taxes. The dollar
decrease and the rate increase were mainly attributable to lower pretax income.
EQUITY IN NET LOSSES OF AFFILIATES. Equity in net losses of affiliates
increased from $6.6 million in 1999 to $15.7 million in 2000. The results
included $4.2 million in losses relating to InsurQuote for 1999, and $15.7
million and $2.4 million in losses relating to Enterstand for 2000 and 1999,
respectively. The increase in Enterstand losses reflects the change in
percentage of losses recognized from 19.9% to 85% for the period April 1,
2000 through September 30, 2000 which corresponded to the level of funding we
provided Enterstand during that period. During the fourth quarter of 2000, we
funded 100% of the operating losses of Enterstand. As a result of this
funding, we recorded 100% of the losses incurred during this period. We also
recorded a charge of $3.7 million to write-off our net investment and
receivables from Enterstand given its recent level of losses and future
projections for cash flow and profits. We ceased recording the net losses of
InsurQuote in the second quarter of 1999 as a result of a new investor
funding InsurQuote's net losses subsequent to March 31, 1999.
1999 COMPARED WITH 1998
For the year ended December 31, 1999, we reported net income applicable to
common stock of $0.8 million, or $0.03 per share on a diluted basis, versus a
net loss applicable to common stock of $38,000, or $0.00 per share on a diluted
basis, for the same period in 1998. Operating income for the year ended December
31, 1999 of $15.7 million declined $4.3 million, or 21.3%.
For 1999, CCC U.S. had revenues of $173.7 million, Consumer Services had
revenues of $28.8 million and CCC International had revenues of $5.3 million,
which represented 83.6%, 13.8% and 2.6% of the total 1999 consolidated revenues,
respectively. For 1998, CCC U.S. had revenues of $168.1 million, Consumer
Services had revenues of $19.4
19
million and CCC International had revenues of $0.6 million, which represented
89.4%, 10.3% and 0.3% of the total 1998 consolidated revenues, respectively.
DriveLogic, established in 1999, had no revenues.
In 1999, operating margins (operating income as a percentage of revenue),
for our four revenue producing segments were 51.1% for CCC U.S., (0.1)% for
Consumer Services and (21.2)% for CCC International compared to 47.4% for CCC
U.S., (2.1)% for Consumer Services and (65.8)% for CCC International in 1998.
DriveLogic, established in the fourth quarter of 1999, had no revenues and had
operating losses of $0.7 million in 1999. Shared services operating expenses,
which are currently not allocated, are primarily incurred in support of CCC U.S.
Shared services consist primarily of product development, management information
systems ("MIS"), legal, finance and administration totaled, $71.0 million for
1999 compared to $58.8 million in 1998.
CCC U.S. has well-established products in the marketplace and as such, is
currently able to generate higher operating margins than the other divisions.
CCC U.S.'s operating income and margin improved from 1998 based on both the
growth in revenues and a reduction in operating expenses. In 1998, CCC U.S.
recorded a non-recurring charge of $1.7 million for a settlement of a litigation
matter and $1.7 million in restructuring charges for the relocation of certain
claims settlement functions to Sioux Falls, South Dakota. As a result of the
relocation of the claims settlement function, the CCC U.S. gained operating
efficiencies in 1999 that contributed to the improvement in operating income.
Consumer Services had revenue growth from 1998 mainly through acquisitions
of Professional Claims Services and Fleming and Hall. However, with this revenue
growth, Consumer Services incurred additional expenses to handle the higher
volume of claims being processed including infrastructure costs such as hiring
and training of new employees. In addition to the higher claims processing
expenses, goodwill amortization increased by $0.3 million compared to 1998 as a
result of the acquisitions mentioned above.
CCC International's operating losses were mainly the result of $0.7
million operating losses incurred by the D.W. Norris outsourcing business
acquired in August of 1999. D.W. Norris's operating losses included a $0.4
million charge in the fourth quarter of 1999 related to a reduction-in-force
charge aimed at improving the profitability of this business. In addition, CCC
International included $0.2 million in goodwill amortization resulting from the
D.W. Norris acquisition.
DriveLogic had operating losses reflecting the initial investment costs of
this new business unit that was formed in the fourth quarter of 1999.
Shared Services operating expenses for 1999 of $69.1 million, excluding
the reduction-in-force charge of $1.9 million, increased $10.3 million from
$58.8 million in 1998. The increase in expenses was primarily related to
consulting costs for projects aimed at improving internal telecommunications and
customer service infrastructure, a compensation charge of $1.2 million as a
result of a stock repurchase from a charitable trust funded by our former
chairman, David M. Phillips and severance for an executive terminated in first
quarter.
REVENUES. Revenues for the year ended December 31, 1999 of $207.8 million
were $19.6 million, or 10.4%, higher than the same period last year. The
increase in revenues was primarily attributable to continued growth in the
Consumer Services and CCC International segments as well as growth in CCC U.S.'s
digital imaging and collision estimating products. Revenues for CCC U.S. for the
year ended December 31, 1999 were $173.7 million, or 3.3%, higher than 1998.
Consumer Services' revenues of $28.8 million were $9.4 million, or 48.7%, higher
than the same period last year. Of this increase, approximately $5.7 million can
be attributed to the acquisition in late 1998 of Professional Claims Services,
Inc. In addition, revenues for CCC International for the year ended December 31,
1999 of $5.3 million were $4.6 million, or 683.7%, higher than 1998. Of this
increase, approximately $4.6 million can be attributed to the acquisition of CCC
International and D.W. Norris Limited, in late 1999.
PRODUCTION AND CUSTOMER SUPPORT. Production and customer support increased
from $48.2 million, or 25.7% of revenue, to $63.3 million, or 30.5% of revenue.
The year over year increase was due primarily to additional production and
customer support related to the Consumer Services Division and the International
Division. In addition, the introduction of PATHWAYS ENTERPRISE SOLUTION product
of CCC U.S. increased customer training costs year-over-year.
20
COMMISSIONS, ROYALTIES AND LICENSES. Commission, royalties and licenses
decreased from $21.5 million, or 11.4% of revenues, to $16.4 million, or 7.9% of
revenues. The decrease in dollars and as a percentage of revenue was due
primarily to a decrease in commissions. The commission decrease was a result of
CCC U.S.'s conversion of a portion of its independent sales representatives for
collision repair facilities to salaried employees and the Company's elimination
of certain of its highly commissioned dealer services products.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
increased from $60.1 million, or 31.9% of revenues, to $76.5 million, or 36.8%
of revenues. The increase in dollars was due primarily to consulting costs for
projects aimed at improving the internal telecommunications and customer service
infrastructure, a compensation charge of $1.2 million as a result of a stock
repurchase from a charitable trust funded by our former chairman, David M.
Phillips, and reorganization costs of CCC U.S.'s automotive services group. The
automotive services group reorganization costs of $4.1 million include severance
costs and conversion costs of independent sales representatives to salaried
employees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
from $9.2 million, or 4.9% of revenues, to $10.5 million, or 5.1% of revenues.
The increase in dollars was mainly the result of an increase in goodwill
amortization resulting from acquisitions occurring in late 1998 and 1999 and an
increase in amortization of internal use software costs, primarily those
relating to a new customer relationship management system.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
decreased from $25.8 million, or 13.7% of revenue, to $23.1 million, or 11.1% or
revenue. The dollar and percentage of revenue decreases were due primarily to
our development efforts on international claims processing tool products being
reimbursed monthly by the Enterstand Joint Venture, an international joint
venture which develops products for the European marketplace ("Enterstand"). See
Note 4--Enterstand Joint Venture of the consolidated financial statements.
RESTRUCTURING CHARGE. We incurred a reduction-in-force charge of $2.2
million in the fourth quarter of 1999. The charge consisted primarily of
severance and outplacement costs related to the termination of approximately 100
employees. This reduction was part of a company-wide effort to improve
profitability to help fund new initiatives, such as DriveLogic.
INTEREST EXPENSE. Interest expense increased from $0.3 million in 1998 to
$1.4 million in 1999. The increase from 1998 was due to borrowings in 1999 under
our bank credit facility and increased costs associated with the amended bank
credit facility. The increase in borrowings was mainly the result of our stock
repurchase program and acquisitions.
OTHER INCOME, NET. Other income, net decreased from $0.7 million in 1998
to $0.4 million in 1999. The decline from prior year was primarily the result of
lower interest income from the investment of excess cash.
INCOME TAXES. Income taxes decreased from $8.9 million, or 43.4% of income
before taxes, to $7.4 million, or 49.9% of income before taxes. The dollar
decrease and the rate increase were mainly attributable to lower pretax income.
EQUITY IN NET LOSSES OF AFFILIATES. Equity in net losses of affiliates
decreased from $11.6 million in 1998 to $6.6 million in 1999. The results
included $4.2 million and $11.4 million in losses relating to InsurQuote Systems
Inc. ("InsurQuote") for 1999 and 1998, respectively, and $2.4 million and $0.2
million in losses relating to Enterstand for 1999 and 1998, respectively. We
ceased recording the net losses of InsurQuote in the second quarter of 1999 as a
result of a new investor funding InsurQuote's net losses subsequent to March 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2000, net cash provided by operating
activities was $20.1 million. In addition, CCC borrowed $18.0 million under its
credit facility. In 2000, funds from operations and borrowings were used to
purchase equipment and software for $17.6 million and to invest and fund our
European joint venture Enterstand for $13.7 million. We also repurchased 0.7
million of our outstanding shares for $8.2 million.
On October 28, 1998, the credit facility between CCC and its commercial
bank was amended and restated from the original revolving credit agreement
entered into on August 22, 1996. Under the amended credit facility with LaSalle
National Bank, CCC increased its ability to borrow under the revolving line of
credit from $20 million to $50 million and provided
21
that the credit facility would be increased from $50 million to $100 million
when the bank syndicate participating in the credit facility was completed,
which occurred on February 10, 1999. CCC requested an increase in the credit
facility to provide financing to pursue strategic acquisitions, to provide
CCC with the flexibility for growth opportunity investments and to fund
working capital requirements, as necessary. Under the terms of the amended
and restated agreement, the revolving line of credit commitment was to be
reduced by $10 million on October 31, 2001, $15 million on October 31, 2002
and $75 million on October 31, 2003. The interest rate under the amended bank
credit facility was the London Interbank Offered Rate ("LIBOR") plus 1.0% or
the prime rate in effect from time to time, as selected by CCC. During the
years ended December 31, 2000 and 1999, the weighted average interest rates
were 7.6% and 6.8%, respectively. CCC made cash interest payments of $2.6
million and $1.1 million, during the years ended December 31, 2000 and 1999,
respectively. During 2000, CCC had net borrowings under the line of credit of
$18.0 million resulting from draws under the credit facility of $53.0 million
and repayments of $35.0 million.
Under the bank credit facility, CCC has been, with certain exceptions,
prohibited from making certain sales or transfers of assets, incurring
nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its
capital stock, among other restrictions. In addition, the bank credit
facility required CCC to maintain certain levels of operating cash flow and
debt coverage, and limited CCC's ability to make investments and declare
dividends. At December 31, 2000, CCC was not in compliance with certain of
the covenants included in the bank credit facility. On February 15, 2001, CCC
received a waiver from its banks with respect to those covenants. The credit
facility agreement was also amended on February 15, 2001 to reduce the
available credit line from $100 million to $60 million effective December 31,
2000, to place a general security lien on our assets on behalf of the banks
and to increase interest rates to reflect current market and credit
conditions.
On April 17, 2001, CCC and its agent bank, LaSalle National Bank,
amended the existing bank credit facility agreement. This amendment provides
CCC with a waiver of certain covenants for the quarter ending March 31, 2001
and restates future covenants. Under the terms of the amended agreement, the
credit facility has been reduced to $55 million effective April 17, 2001, the
maturity date has been changed to September 30, 2002, the credit facility
availability will be reduced by $3.0 million per quarter beginning on
September 30, 2001 and other mandatory prepayments or reductions of the
credit facility apply in the event of certain transactions or events. The
amended bank credit facility is secured by a blanket first priority lien on
all assets of CCC and our subsidiaries assets, and with certain exceptions,
CCC is prohibited from making certain sales or transfers of assets. In
addition, the amended bank credit facility revised certain covenants that
require CCC to maintain specified levels of operating cash flow, debt
coverage and net worth and that limit CCC's ability to make investments,
including investments in DriveLogic, ChoiceParts and Enterstand. These
revised covenants were based on our business plan and related financial plans
for the year ending December 31, 2001. CCC is also required to provide the
bank group with monthly financial and covenant reporting. CCC expects to be
in compliance with all the covenants in the April 17, 2001 amended credit
facility agreement based on the 2001 business plan and other potential
operating and financial actions available to us, if required.
On February 23, 2001, CCC Capital Trust, a wholly-owned subsidiary of
the Company ("CCC Trust"), issued 15,000 Trust Preferred Securities ("Trust
Preferred Securities") and the Company issued 100 shares of its Series F
Preferred Stock, par value $1.00 per share, and a warrant to purchase
1,200,000 shares of its Common Stock at an exercise price of $10.00 per share
to Capricorn Investors III, L.P., one of our existing stockholders. We
received an aggregate purchase price of $15.0 million from the sale of these
securities. The proceeds from the sale have been, and will be, used for
general corporate purposes.
In connection with CCC Trust's issuance of the Trust Preferred
Securities and our related purchase of all of the Trust's common securities,
we issued an Increasing Rate Note Due 2006 in the principal amount of $15.5
million, due February 23, 2006 ("Increasing Rate Note"), to the Trust. The
sole asset of the Trust is the Increasing Rate Note and any interest accrued
thereon. The interest payment dates on the Increasing Rate Note correspond to
the distribution dates on the Trust Preferred Securities. The Trust Preferred
Securities mature simultaneously with the Increasing Rate Note. We
unconditionally guaranteed all of the Trust Preferred Securities to the
extent of the assets of CCC Trust.
The Increasing Rate Note is subordinated to our bank debt. Cumulative
distributions on the Trust Preferred Securities accrue at a rate of (i) 9% per
annum, payable in cash or in kind at our option, for the first three years from
February 23, 2001 and (ii) 11% per annum, payable in cash, thereafter. The
Trust Preferred Securities are mandatorily redeemable on February 23, 2006. In
addition, all or any portion of the outstanding Trust Preferred Securities may
be called
22
for redemption at our option at any time on or after February 23, 2004. The
redemption price for both the mandatory and the optional redemptions is equal
to the liquidation amount of the Trust Preferred Securities plus accrued but
unpaid distributions.
Our principal liquidity requirements include our operating activities,
including product development for CCC U.S. and DriveLogic, our investments in
internal and customer capital equipment and funding requirements for our
ChoiceParts and Enterstand investments.
CCC has the ability to operate with a working capital deficit, as we
receive substantial payments from our customers for its services in advance of
recognizing the revenues and the costs incurred to provide such services. CCC
invoices each customer a month in advance for the following month's PATHWAYS
COLLISION ESTIMATING software services. As such, CCC typically receives cash
from its customers prior to recognizing the revenue and incurring the expense
for the services provided. These amounts are reflected as deferred revenue in
the consolidated balance sheet until these amounts are earned and recognized as
revenues.
We have over the past three years been able to fund all of our working
capital needs and capital expenditures from cash generated from operations.
Management believes that cash flows from operations, its available credit
line facility, the funding it received from Capricorn and other financing
alternatives currently being pursued will be sufficient to meet our liquidity
needs for the year ending December 31, 2001. There can be no assurance,
however, that we will be able to satisfy our liquidity needs in the future
without engaging in financing activities beyond those described above.
CERTAIN RISKS RELATED TO OUR BUSINESS
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP NEW SERVICES, WHICH MAY ADVERSELY
AFFECT OUR BUSINESS.
The markets in which we compete are increasingly characterized by
technological change. The introduction of competing services incorporating new
technologies could render some or all of our services unmarketable. We believe
that our future success depends on our ability to enhance our current services
and to develop new services that address the increasingly sophisticated needs of
our customers. As a result, we have in the past and intend to continue to commit
substantial resources to product development and programming. The development of
new products may result in unanticipated expenditures and capital costs which
may not be recovered in the event of an unsuccessful product. Our failure to
develop and introduce new or enhanced services and products in a timely and
cost-effective manner in response to changing technologies or customer
requirements would have a material adverse effect on our business, financial
condition and results of operations.
OUR ABILITY TO PROVIDE COLLISION ESTIMATING SERVICES TO OUR CUSTOMERS COULD BE
SEVERELY LIMITED IF ACCESS TO THE DATA SUPPLIED BY HEARST IS INTERRUPTED.
A substantial portion of the data utilized in our collision estimating
products is derived from the Motor Crash Estimating Guide, a publication of a
subsidiary of The Hearst Corporation. We have a license to use the Motor Crash
Estimating Guide data under an agreement with Hearst which expires on April 1,
2018. There can be no assurance that we will be able to renew the Hearst license
on economic terms that are beneficial to us or at all. We do not believe that we
have access to an alternative database that would provide comparable
information. Any interruption of our access to the Motor Crash Estimating Guide
data could have a material adverse effect on our business, financial condition
and results of operations. For additional information regarding our license with
Hearst, see Item 1. Business--Intellectual Property and Licenses.
IF WE ARE UNABLE TO PROTECT OUR TRADE SECRETS AND PROPRIETARY INFORMATION, OUR
ABILITY TO COMPETE EFFECTIVELY COULD BE ADVERSELY IMPACTED.
We regard the technology underlying our services and products as
proprietary. We rely primarily on a combination of intellectual property laws,
patents, trademarks, confidentiality agreements and contractual provisions to
protect our proprietary rights. We have registered certain of our trademarks.
Our TOTAL LOSS calculation process is not patented; however, the underlying
methodology and processes are trade secrets and are essential to our TOTAL LOSS
business. Existing trade secrets and copyright laws afford us limited
protection. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our software or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
software is difficult. There can be no assurance that the obligations to
maintain the confidentiality of our trade secrets and proprietary information
will effectively prevent disclosure of our confidential information or provide
meaningful protection for our confidential information, or that our trade
secrets or proprietary information will not be independently developed by our
competitors. There can be no assurance that our trade secrets or proprietary
information will provide competitive advantages or will not be challenged or
circumvented by its competitors. We may be required to litigate to defend
against claims of infringement, to protect our intellectual property rights and
could result in substantial cost to, and diversion of efforts by, us. There can
be no assurance that we would prevail in any such litigation. If we are unable
to protect our proprietary rights in our intellectual property, it could have a
material adverse effect on our business, financial condition and results of
operations.
WE ARE CURRENTLY COMMITTING A SIGNIFICANT AMOUNT OF CAPITAL TO DRIVELOGIC, WHICH
MAY NEVER BE PROFITABLE.
We are currently committing a significant amount of capital to our
newest segment, DriveLogic in the belief that this investment will result in
a family of new products that can be used by the insurance claims industry to
make the claims process more efficient. However, development projects can be
lengthy and are subject to changing market requirements and unforeseen
factors which can result in delays, therefore we can not be certain that
DriveLogic will develop into a profitable entity. Currently, DriveLogic has
only one fully operational product, COLLISION REPAIR SOLUTION. This product
does not generate revenue at this time and may never do so. Although we
believe we are close to marketing several new products that will be favorable
received by the insurance industry, we cannot guarantee that these products
will ever be operational or be adopted by a large customer base. Therefore,
the large amount of capital currently being invested in DriveLogic may never
show a profitable return.
WE ARE INVOLVED IN LEGAL PROCEEDINGS THAT, IF ADVERSELY ADJUDICATED OR SETTLED,
COULD MATERIALLY IMPACT OUR FINANCIAL CONDITION.
We are currently involved in several legal proceedings that may result
in substantial payments by the Company. We currently are defendants in 20
class actions suits regarding our TOTAL LOSS product. If we were to face a
full court trial and an unfavorable resolution of these cases, we could incur
significant legal and settlement expenses that may have a significant
negative impact on our revenue. See Item 3. Legal Proceedings for further
discussion.
WE HAVE A HISTORY OF OPERATING LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN,
WHICH MAY IMPACT OUR ABILITY TO CONTINUE OPERATIONS.
We have an accumulated net deficit from inception of approximately $55.0
million through December 31, 2000. Additionally, we failed to generate a profit
for the years 2000 and 1998, and have seen a persistent decrease in cash flow
for the last three years. Losses have resulted principally from costs incurred
in product acquisition and development, from servicing of debt and from general
and administrative costs. These costs have exceeded our revenues in most years,
which have been derived primarily from the sale of our TOTAL LOSS product and
PATHWAYS services. Although we increased our revenue in each of the years ended
December 31, 2000, 1999 and 1998, there can be no assurance that we will be able
to sustain this growth or achieve or maintain profitability in the future.
IF WE ARE UNABLE TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR INDEBTEDNESS
OR OTHER OBLIGATIONS OR FIND ALTERNATIVE FINANCING SOURCES, OUR BUSINESS MAY
BE ADVERSELY AFFECTED.
Our ability to make payments on our indebtedness and other obligations
and to fund planned expenditures depends on our ability to generate future
cash flow. This, to some extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. In addition, our ability to borrow funds under our $55.5 million
credit facility ("Credit Facility"), depends on our satisfying various
covenants, which require us to maintain certain levels of operating cash
flow, debt coverage and net worth and limits our ability to make investments
including investments in DriveLogic, ChoiceParts and Enterstand. As of
December 31, 2000, we were not in compliance with certain of these covenants.
However, we received a waiver on February 15, 2001 from the banks lending
under the Credit Facility with respect to these covenants. In addition, on
April 17, 2001, we received waivers for certain covenants for the quarter
ending March 31, 2001 and restated future covenants.
We cannot assure you that our business will generate cash flow from
operations or that future borrowings will be available to us under the Credit
Facility or otherwise. However, we can give no assurances as to whether we
will be able to obtain additional financing from other sources. Inability to
obtain financing from alternative sources may have an adverse effect on our
financial position, results of operations and cash flow.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a result of the 1998 acquisition of CCC International and the 1999
acquisition of D.W. Norris Limited, we have operations in the U.K. All foreign
operations are measured in British Pounds. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in the foreign markets in which we have operations.
As CCC International's growth expands and the potential exposure to foreign
currency fluctuations increases, we will monitor such exposure and may engage in
hedging against foreign currency fluctuations, as management deems appropriate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required with respect to
this Item 8 are listed in Item 14(a)(1) and 14(a)(2) included elsewhere in this
filing.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference
in our definitive proxy statement, which is to be filed with the Securities and
Exchange Commission within 120 days of the Company's fiscal year ended December
31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
in our definitive proxy statement, which is to be filed with the Securities and
Exchange Commission within 120 days of the Company's fiscal year ended December
31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
in our definitive proxy statement, which is to be filed with the Securities and
Exchange Commission within 120 days of the Company's fiscal year ended December
31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
in our definitive proxy statement, which is to be filed with the Securities and
Exchange Commission within 120 days of the Company's fiscal year ended December
31, 2000.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements and Schedules
1. Consolidated Financial Statements
PAGE(S)
-------
Report of Independent Accountants..................... 25
Consolidated Financial Statements:
Consolidated Statement of Operations............... 26
Consolidated Balance Sheet......................... 27
Consolidated Statement of Cash Flows............... 28
Consolidated Statement of Stockholders' Equity..... 29
Notes to Consolidated Financial Statements......... 30-53
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts......... 54
All other schedules have been omitted because the required information
is included in the financial statements or notes thereto or because
they are not required.
3. Exhibits
Index to Exhibits..................................... 55
(b) Reports on Form 8-K
No reports on Form 8-K were filed by CCC Information Services Group Inc.
for the quarter ended December 31, 2000.
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of CCC Information Services Group Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 14(a)1 present fairly, in all
material respects, the financial position of CCC Information Services Group
Inc. and its subsidiaries ("Company") at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the accompanying
index appearing under Item 14(a)2 presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of CCC Information Services Group
Inc.'s management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 15, the Company has obtained waivers for certain
covenants in the credit facility that were not complied with as of December
31, 2000 and March 31, 2001. Further, the Company has amended their credit
facility with their lending group as of April 17, 2001. This amendment
includes revisions to the existing financial covenants and requires the
Company to comply with certain non-financial covenants. The Company's plans
regarding these matters during 2001 are described in Note 15.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 23, 2001, except as to paragraph 3
of Note 15, which is as of April 17, 2001
25
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Revenues....................................................................... $209,780 $207,797 $188,169
Expenses:
Production and customer support............................................. 62,609 63,343 48,242
Commissions, royalties and licenses......................................... 13,637 16,372 21,495
Selling, general and administrative......................................... 91,193 76,480 60,053
Depreciation and amortization............................................... 12,614 10,497 9,210
Product development and programming......................................... 31,639 23,118 25,813
Restructuring charges....................................................... 6,017 2,242 1,707
Litigation settlements...................................................... 2,375 -- 1,650
---------- ---------- ----------
Operating income (loss)........................................................ (10,304) 15,745 19,999
Interest expense............................................................... (3,202) (1,399) (258)
Other income, net.............................................................. 5,113 412 697
Gain on exchange of investment securities, net................................. 18,437 -- --
Equity in losses of ChoiceParts investment..................................... (2,071) -- --
---------- ---------- ----------
Income before income taxes..................................................... 7,973 14,758 20,438
Income tax provision........................................................... (1,568) (7,361) (8,860)
---------- ---------- ----------
Income before equity losses and minority interest.............................. 6,405 7,397 11,578
Equity in net losses of affiliates............................................. (15,650) (6,645) (11,658)
Minority share in (earnings) losses of subsidiaries............................ 2 -- (1)
---------- ---------- ----------
Net income (loss).............................................................. (9,243) 752 (81)
Dividends and accretion on mandatorily redeemable preferred stock.............. -- (2) 43
---------- ---------- ----------
Net income (loss) applicable to common stock................................... $(9,243) $750 $(38)
========== ========== ==========
PER SHARE DATA:
Income (loss) per common share--basic....................................... $(0.42) $0.03 $--
========== ========== ==========
Income (loss) per common share--diluted..................................... $(0.42) $0.03 $--
========== ========== ==========
Weighted average shares outstanding
Basic....................................................................... 21,851 22,856 24,616
Diluted..................................................................... 21,851 23,162 25,188
The accompanying notes are an integral part of these consolidated
financial statements.
26
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
------------
2000 1999
---------- ----------
ASSETS
Cash......................................................................................... $1,634 $1,378
Accounts receivable, net..................................................................... 21,382 24,377
Other current assets......................................................................... 5,283 11,546
---------- ----------
Total current assets................................................................. 28,299 37,301
Property and equipment, net ................................................................. 22,099 17,807
Goodwill, net ............................................................................... 9,595 16,358
Deferred income taxes........................................................................ 8,038 6,719
Investments.................................................................................. 23,051 --
Notes receivable............................................................................. 5,257 --
Investments in affiliates.................................................................... 724 3,402
Other assets................................................................................. 796 2,962
---------- ----------
Total assets......................................................................... $97,859 $84,549
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Book overdraft............................................................................... $8,682 $1,630
Accounts payable and accrued expenses........................................................ 35,300 33,918
Income taxes payable......................................................................... 1,071 1,188
Current portion of long-term debt............................................................ 314 440
Deferred revenues............................................................................ 4,911 3,993
---------- ----------
Total current liabilities............................................................ 50,278 41,169
Long-term debt............................................................................... 42,000 24,685
Deferred revenues............................................................................ 120 368
Other liabilities............................................................................ 3,340 3,061
Minority interest............................................................................ 3 5
---------- ----------
Total liabilities.................................................................... 95,741 69,288
---------- ----------
Commitments and contingencies (Notes 22 and 24)..............................................
Common stock ($0.10 par value, 40,000,000 and 30,000,000 shares authorized, 21,759,279 and
21,991,826 shares issued and outstanding at December 31, 2000 and 1999, respectively)..... 2,593 2,549
Additional paid-in capital................................................................... 103,279 98,799
Accumulated deficit.......................................................................... (54,962) (45,719)
Accumulated other comprehensive loss......................................................... (423) (65)
Treasury stock, at cost (4,286,665 and 3,618,115 common shares in treasury at December 31,
2000 and 1999, respectively).............................................................. (48,369) (40,303)
---------- ----------
Total stockholders' equity........................................................... 2,118 15,261
---------- ----------
Total liabilities and stockholders' equity........................................ $97,859 $84,549
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
27
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
---- ---- ----
Operating Activities:
Net income (loss)...................................................................... $ (9,243) $752 $(81)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Equity in net losses of affiliates................................................... 15,650 6,645 11,658
Equity in losses of ChoiceParts...................................................... 2,071 -- --
Minority share in losses (earnings) of subsidiaries ................................. (2) -- 1
Depreciation and amortization of property and equipment.............................. 9,788 7,967 7,566
Amortization of goodwill............................................................. 2,666 2,415 1,604
Deferred income tax provision (benefit).............................................. (1,319) 721 (296)
Gain on exchange of investment securities, net....................................... (18,437) -- --
Gain on settlement of marketing agreement............................................ (3,644) -- --
D.W. Norris restructuring charge..................................................... 6,017 -- --
Write-off of internally developed software........................................... 2,906 -- --
Other, net........................................................................... (86) 947 535
Changes in:
Accounts receivable, net........................................................... 2,096 2,158 (4,119)
Other current assets............................................................... 1,569 (6,320) (438)
Other assets....................................................................... 1,439 606 (2,324)
Accounts payable and accrued expenses.............................................. 6,629 9,719 4,370
Current income taxes............................................................... 1,277 2,336 253
Deferred revenues.................................................................. 670 (1,007) (2,289)
Other liabilities.................................................................. 45 (764) (527)
--------- --------- ---------
Net cash provided by operating activities....................................... 20,092 26,175 15,913
--------- --------- ---------
Investing Activities:
Capital expenditures................................................................... (17,627) (10,357) (12,788)
Purchase of investment securities...................................................... -- (1,484) (12,778)
Purchase of subsidiaries, net of cash received......................................... -- (5,584) (4,485)
Investment in affiliates............................................................... (13,691) -- (22,000)
Purchase of InsurQuote securities...................................................... (527) -- --
Proceeds from sales of investment securities........................................... -- 1,484 42,832
Other, net............................................................................. (75) (768) (15)
--------- --------- ---------
Net cash used for investing activities.......................................... (31,920) (16,709) (9,234)
--------- --------- ---------
Financing Activities:
Principal payments on long-term debt................................................... (35,811) (41,142) (5,111)
Proceeds from issuance of long-term debt............................................... 53,000 54,000 16,000
Redemption of preferred stock, including accrued dividends............................. -- (690) (4,323)
Proceeds from exercise of stock options................................................ 2,498 1,602 1,202
Proceeds from employee stock purchase plan............................................. 632 762 712
Payments to acquire treasury stock..................................................... (8,235) (24,146) (15,697)
--------- --------- ---------
Net cash provided by (used for) financing activities............................ 12,084 (9,614) (7,217)
--------- --------- ---------
Net increase (decrease) in cash............................................................ 256 (148) (538)
Cash:
Beginning of year.......................................................................... 1,378 1,526 2,064
--------- --------- ---------
End of year................................................................................ $1,634 $1,378 $1,526
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
28
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
OUTSTANDING
COMMON STOCK ACCUMULATED TREASURY STOCK
--------------------- ADDITIONAL OTHER -------------------- TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED COMPREHENSIVE NUMBER OF STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT LOSS SHARES COST EQUITY
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
December 31, 1997............. 24,577,910 $2,458 $90,273 $(46,431) $-- 117,618 $(473) $45,827
Preferred stock
accretion and -- -- -- 43 -- -- -- 43
dividends accrued.......
Stock options exercised
including income tax
benefit................. 464,337 47 4,593 -- -- 4,307 (115) 4,525
Employee stock purchase
plan.................... 57,918 5 707 -- -- -- -- 712
Treasury stock purchases... (1,400,000) -- -- -- -- 1,400,000 (15,697) (15,697)
Translation adjustment..... -- -- -- -- (26) -- -- (26)
Net loss................... -- -- -- (81) -- -- -- (81)
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
Comprehensive loss......... -- -- -- (81) (26) -- -- (107)
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
December 31, 1998............. 23,700,165 2,510 95,573 (46,469) (26) 1,521,925 (16,285) 35,303
Preferred stock
dividends accrued....... -- -- -- (2) -- -- -- (2)
Stock options exercised
including income tax
benefit................. 310,467 31 2,448 -- -- -- -- 2,479
Employee stock purchase
plan.................... 77,384 8 754 -- -- -- -- 762
Treasury stock purchases... (2,108,190) -- -- -- -- 2,108,190 (24,146) (24,146)
Translation adjustment..... -- -- -- -- (39) -- -- (39)
Other...................... 12,000 -- 24 -- -- (12,000) 128 152
Net income................. -- -- -- 752 -- -- -- 752
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
Comprehensive income
(loss).................. -- -- -- 752 (39) -- -- 713
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
December 31, 1999............. 21,991,826 2,549 98,799 (45,719) (65) 3,618,115 (40,303) 15,261
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
Stock options exercised
including income tax
benefit................. 358,267 36 3,856 -- -- -- -- 3,892
Employee stock purchase
plan.................... 77,736 8 624 -- -- -- -- 632
Treasury stock purchases... (683,550) -- -- -- -- 683,550 (8,235) (8,235)
Translation adjustment..... -- -- -- -- (358) -- -- (358)
Other...................... 15,000 -- -- -- -- (15,000) 169 169
Net loss................... -- -- -- (9,243) -- -- -- (9,243)
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
Comprehensive loss......... -- -- -- (9,243) (358) -- -- (9,601)
------------ -------- ---------- ------------ ------------ --------- ---------- -----------
December 31, 2000............. 21,759,279 $2,593 $103,279 $(54,962) $(423) 4,286,665 $(48,369) $2,118
============ ======== ========== ============ ============ ========= ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
29
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESSES AND ORGANIZATION
CCC Information Services Group Inc., incorporated in Delaware in 1983 and
headquartered in Chicago, Illinois, is a holding company that operates through
its wholly owned subsidiary, CCC Information Services Inc. ("CCC")
(collectively referred to as the "Company"), and four business segments: CCC
U.S., Consumer Services, CCC International and DriveLogic; and shared service
groups that provide product development, management information systems, legal,
finance and administration. Our four business segments, together with our
shared service groups, employ approximately 1,550 full-time employees. We
automate the process of evaluating and settling automobile claims, which allows
our customers to integrate estimate information, labor time and cost, recycled
parts and various other calculations derived from our extensive databases,
electronic images, documents and other related information into organized
electronic workfiles. We develop, market and supply a variety of automobile
claims services which enable customers in the automobile claims industry,
including automobile insurance companies, collision repair facilities,
independent appraisers, automobile dealers and consumers, to manage the
automobile claims and vehicle restoration process. Our primary products and
services are TOTAL LOSS and PATHWAYS which provide our customers with access to
various automobile information databases and claims management software.
As of December 31, 2000, White River Ventures Inc. ("White River") held
approximately 33% of our outstanding common stock. In June 1998, White River
Corporation, the sole shareholder of White River, was acquired in a merger with
Demeter Holdings Corporation, which is solely controlled by the President and
Fellows of Harvard College, a Massachusetts educational corporation and
title-holding company for the endowment fund of Harvard University. Charlesbank
Capital Partners LLC acts as the investment manager with respect to the
investment of White River in the Company.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, which are currently wholly owned or majority
owned. The consolidated financial statements for the year ended December 31,
2000 include the results of companies acquired during each year from the date of
acquisition. See Note 6 -- Acquisitions.
REVENUE RECOGNITION
Revenues are recognized after products and services are provided, when
evidence of arrangements exists and when collection is probable. During the
years 2000, 1999 and 1998, 67%, 67% and 65%, respectively, of consolidated
revenues were derived from insurance companies. The Company has adopted Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements",
("SAB 101"). The adoption of SAB 101 did not have a material effect on the
Company's consolidated results of operations or financial position.
ACCOUNTS RECEIVABLE
Accounts receivable as presented in the accompanying consolidated
balance sheet are net of reserves for customer allowances and doubtful
accounts. As of December 31, 2000 and 1999, $3.7 million, and $4.0 million,
respectively, have been applied as a reduction of accounts receivable. As of
December 31, 2000, the reserve balance includes a bad debt provision of $0.8
million recorded in connection with the decision to shut-down CCC
International's D.W. Norris business in December 2000. Of total accounts
receivable, net of reserves, at December 31, 2000 and 1999, $20.1 million and
$20.3 million, respectively, were due from insurance companies.
CHANGE IN ESTIMATE
Effective January 1, 2000, the Company modified its methodology for
determining allowances for accounts receivable. The previous method applied
primarily a predetermined percentage to the accounts receivable aging balances,
while considering the specific identification of customer accounts requiring
allowances. The modified method incorporates a higher degree of specific
identification of customer accounts requiring allowances in conjunction with
the general percentage application on remaining accounts receivable balances.
As a result of the change, the Company reduced reserves by approximately $1.2
million in the first quarter of 2000. This amount is reflected in revenue in
the consolidated statement of operations for the year ended December 31, 2000.
The adjustment was reflected in revenue as the original provisions for
allowances were recorded against revenue. Management believes that the new
methodology provides for a more accurate valuation of the Company's accounts
receivable balances.
30
SOFTWARE DEVELOPMENT COSTS
The Company expenses research and development costs as incurred. The
Company has evaluated the establishment of technological feasibility of its
software products in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." The Company sells its products in a
market that is subject to rapid technological change, new product development
and changing customer needs. Accordingly, technological feasibility of the
Company's products is generally not established until the development of the
product is nearly complete. The Company defines technological feasibility as
the completion of a working model. The time period during which costs could
be capitalized, from the point of reaching technological feasibility until
the time of general product release, has been typically very short and,
consequently, amounts subject to capitalization have not been significant.
For the years 2000, 1999 and 1998, research and development costs of
approximately $11.1 million, $3.9 million and $4.9 million, respectively, are
reflected in the accompanying consolidated statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation of equipment is computed on a straight-line basis over estimated
useful lives. The Company uses a 2-3 year life for computer equipment; 3 year
life for purchased software, licenses and databases; 5 year life for furniture
and other equipment; the life of the lease, ranging from 3 to 15 years for
leasehold improvements and 20 year life for buildings.
GOODWILL
The excess of purchase price paid over the estimated fair value of
identifiable tangible and intangible net assets of acquired businesses is
capitalized and amortized on a straight-line basis over periods not exceeding
20 years. When events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable, the Company performs an analysis
of undiscounted future cash flows to determine whether recorded amounts are
impaired. See Note 8 -- Restructuring Charges for discussion of the write-off
of D.W. Norris's goodwill in 2000.
DEBT ISSUE COSTS
As of December 31, 2000 and 1999, deferred debt issue costs, net of
accumulated amortization, of $0.4 million and $0.6 million, respectively, were
included in other assets in the Company's consolidated balance sheet.
FOREIGN CURRENCY
The Company has determined that the functional currency of each foreign
operation is the local currency. Assets and liabilities denominated in foreign
currencies are translated into United States dollars at the exchange rate on
the balance sheet date, while revenues and expenses are translated at average
rates of exchange prevailing during the period. Translation adjustments of
$(0.4) million and $(0.1) million for 2000 and 1999, respectively, are included
in accumulated other comprehensive loss as a separate component of
stockholders' equity in the consolidated balance sheet.
INCOME TAXES
The Company has established deferred income tax asset valuation allowances
for its losses incurred at CCC International and D.W. Norris Limited
(collectively "International"). These valuation allowances were established
based on International's history of operating losses and an inability to project
future taxable income with certainty to utilize the net operating losses.
STOCK BASED COMPENSATION
The Company follows SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). As allowed by SFAS 123, the Company has elected to
continue to account for its stock based compensation programs according to the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company has
31
adopted the disclosure provisions required by SFAS 123. The Financial
Accounting Standards Board ("FASB") issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB Opinion No. 25 in March 2000 ("FIN 44"). The Company
adopted FIN 44 which did not have a material effect on the Company's
consolidated results of operations or financial position.
PER SHARE INFORMATION
The Company follows SFAS No. 128, "Earnings Per Share" ("SFAS 128") in
computing per share information. SFAS 128 requires the presentation of basic
and diluted earnings per share. Earnings per share are based on the weighted
average number of shares of common stock outstanding and common stock
equivalents using the treasury stock method. See Note 21--Earnings Per Share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 2000, the carrying amount of the Company's financial
instruments, principally its investment in ChannelPoint (See Note 3--Investment
in InsurQuote/ChannelPoint), approximates their estimated fair value based upon
market prices for the same or similar type of financial instruments.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements, and that affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
SAB 101 that provided the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. The Company
adopted SAB 101 in the fourth quarter of 2000. The adoption of SAB 101 did
not have a material effect on the Company's consolidated results of
operations or financial position.
On January 1, 2001, the Company adopted the provisions of SFAS No. 133,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities", ("SFAS 133"). SFAS 133 requires the Company to recognize all
derivative instruments as assets or liabilities in its balance sheet and
measure them at fair value. The effect of adopting SFAS 133 did not have a
material effect on our consolidated results of operations or financial
position, as we are currently not party to any derivative instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements in order to conform to the current year's presentation.
NOTE 3--INVESTMENT IN INSURQUOTE/CHANNELPOINT
On February 10, 1998, the Company invested $20.0 million in InsurQuote
Systems, Inc. ("InsurQuote"). InsurQuote, formed in 1989, was a provider of
insurance rating information and software tools used to manage that information.
The Company's $20.0 million investment included 19.9% of InsurQuote common
stock, an $8.9 million subordinated note, warrants, shares of Series C
redeemable convertible preferred stock and Series D convertible preferred stock.
32
In February 1998, which was subsequently amended in March of 1999, the
Company and InsurQuote entered into a sales and marketing agreement that gave
the Company certain rights to market and sell InsurQuote products to the
automobile insurance carrier market. In March 2000, the Company and InsurQuote
entered into an agreement to terminate the marketing and sales agreement. As
part of the termination agreement, the Company received $5.0 million, of which
$4.5 million was paid in the form of an unsecured, subordinated promissory note
that matures in September 2002 and bears interest at 7.5%, and $0.5 million was
paid in cash. As a result of the termination agreement, the Company recorded a
gain on the settlement of this marketing agreement of approximately $4.1 million
in the first quarter 2000. This settlement gain was included in other income in
the consolidated statement of operations for the year ended December 31, 2000.
The Company accounted for its investment in InsurQuote on the equity
method. Notwithstanding the Company's 19.9% common stock equity share, the
Company recorded 100% of InsurQuote's net losses for the period from the
Company's initial investment, February 10, 1998 to March 31, 1999. The recording
of 100% of InsurQuote's losses was the result of the Company's $20.0 million
investment being the primary source of funding for InsurQuote's operating losses
during that period. On March 31, 1999, InsurQuote received a $20.0 million
investment from a new investor for convertible preferred stock with a 19.0%
voting interest. As a result of this new investment, the Company's ownership
percentage decreased to 14.7% and the Company ceased recording losses on its
investment, unless it was determined that its remaining investment was impaired.
The Company has not recorded an income tax benefit on the InsurQuote losses
recorded in 1999 and 1998.
On April 7, 2000, ChannelPoint, Inc., an e-commerce exchange services and
technology platform provider for insurance and benefits companies, acquired
InsurQuote. Under the terms of the transaction, the Company exercised its
warrant for InsurQuote common stock in exchange for surrendering its $8.9
million subordinated note from InsurQuote. In addition, the Company invested
$0.5 million in cash and converted $0.3 million in interest receivables
associated with the $8.9 million subordinated note for additional common stock.
Subsequent to these transactions being completed, the Company's securities in
InsurQuote were then exchanged for common stock in the combined entity,
ChannelPoint, Inc. ("ChannelPoint"). As a result of this transaction, the
Company now owns 5,036,635 shares, representing approximately 5.8%, on a fully
diluted basis, of ChannelPoint's common stock.
In connection with the Company exchanging its equity investment in
InsurQuote securities for ChannelPoint's common stock, the Company's investment
was recorded at its fair market value, and as a result, a gain, recorded in the
second quarter of 2000, was reflected in the consolidated statement of
operations for the year ended December 31, 2000. The Company accounts for its
investment in ChannelPoint as a cost based investment. Prior to the end of the
second quarter of 2000, the Company reviewed its carrying value of the
ChannelPoint common stock. Based on this review, the Company determined that
there had been an other than temporary decline in market value of these
securities. This determination was based on market conditions for like
companies, restrictions on the stock holding, delay in the initial public
offering of ChannelPoint's common stock and the limited liquidity of a private
security. The resulting charge related to this change in carrying value has been
included in the net gain on the exchange of securities of $18.4 million
reflected in the consolidated statement of operations for the year ended
December 31, 2000. The impact on the Company's tax provision resulting from this
gain on exchange of investment securities was minimal, since for tax purposes it
primarily represented a reversal of prior equity losses for which no tax benefit
was recorded. As such, the tax impact of $0.7 million related to the increase
from the original cost of the investment of $20.8 million to the current
carrying value of $22.7 million as of December 31, 2000. The Company reviewed
its carrying value of the ChannelPoint investment at December 31, 2000 and
determined that there has been no change in the estimated fair value of its
investment in ChannelPoint since the end of the second quarter of 2000.
Set forth below is summary InsurQuote financial information as of its
fiscal years ended June 30, 1999 and 1998:
1999 1998
----------- -----------
(IN THOUSANDS)
33
Revenues.............................................. $9,919 $11,908
Loss from operations.................................. $(16,763) $(8,119)
Net loss applicable to common shareholders............ $(17,826) $(8,899)
Current assets........................................ $12,795 $9,005
Total assets.......................................... $17,986 $14,259
Current liabilities................................... $5,526 $4,569
Preferred stock....................................... $32,423 $12,523
Notes payable to shareholders......................... $9,100 $9,100
Shareholders' deficit................................. $2,559 $4,777
NOTE 4--ENTERSTAND JOINT VENTURE
On December 30, 1998, the Company and Hearst Communications, Inc.
("Hearst Communications") established a joint venture, Enterstand Limited
("Enterstand"), in Europe to develop and market claims processing tools to
insurers and collision repair facilities. Under the provision of the
Subscription and Stockholders Agreement ("Subscription Agreement"), the
Company invested $2.0 million for a 19.9% equity interest. The Subscription
Agreement provides the Company with an option to purchase 85% of Hearst
Communication's shares of Enterstand at an agreed upon purchase price. The
option is exercisable by the Company after one year from the date of the
Subscription Agreement.
On March 17, 2000, the Company and Hearst Communications agreed to terms
for an amendment to the Subscription Agreement. Under the terms of the
amendment, both parties contributed additional funds to Enterstand to provide
additional working capital. On March 20, 2000, the Company funded $0.5 million
and Hearst Communications funded $5.0 million to Enterstand. After these
investments, the Company's ownership percentage decreased to 14.2%. The
Company's option was adjusted to include a right to purchase 78% of the shares
issued to Hearst Communications in connection with this transaction and would
give the Company an 84.5% ownership in the joint venture if exercised.
In addition, on March 31, 2000, the Company and Hearst Communications
loaned Enterstand $8.5 million and $1.5 million, respectively, which were
evidenced by promissory notes. Of the $8.5 million loaned to Enterstand by the
Company, $3.5 million was funded in cash and $5.0 million of receivables from
Enterstand were converted into the note receivable. These promissory notes
mature in March 2005 and bear interest at 9.0%. This investment was treated as
an additional investment in affiliates for financial statement purposes.
The Company applies the equity method of accounting for its investment
in Enterstand. Since the inception date through March 31, 2000, the Company
recorded 19.9% of Enterstand's losses. Notwithstanding the Company's current
ownership percentage of 14.2%, for the period April 1, 2000 through September
30, 2000, the Company recorded 85.0% of Enterstand losses based on the
Company's proportionate share of the total funding to Enterstand which
occurred on March 31, 2000. During the fourth quarter of 2000, the Company
funded 100% of the operating losses of Enterstand. As a result of this
funding, the Company recorded 100% of the losses incurred during this period.
In addition, at December 31, 2000, the Company recorded a charge of $3.7
million as a result of review of the Company's net investments in and
receivables from Enterstand. This write-off was based on Enterstand's recent
level of losses and future projections for cash flow and profits of this
business. The Company's equity in net losses of Enterstand totaled $15.7
million, $2.4 million and $0.2 for the years ended December 31, 2000, 1999 and
1998, respectively. The Company has not recorded any income tax benefit on the
equity in Enterstand's losses recorded since inception.
During 1998, CCC and Enterstand entered into an agreement whereby CCC is
developing, for the benefit of Enterstand, certain claims processing software
tools and databases. During 2000, 1999 and 1998, CCC charged Enterstand $4.4
million, $8.8 million and $0.6 million, respectively, for development work
performed. In addition, CCC International and Enterstand entered into an
agreement whereby CCC International provides Enterstand with certain
administrative and operating services and office
34
space. For the years ended December 31, 2000, 1999 and 1998, CCC International
charged Enterstand $8.9 million, $4.1 million and $0.5 million, respectively,
for these services. These reimbursements from Enterstand are shown as reductions
of the Company's operating expenses in the consolidated statement of operations.
Summary Unaudited Enterstand financial information for the years ended
December 31, 2000, 1999 and 1998 was as follows:
2000 1999 1998
-------- ---------- --------
(IN THOUSANDS)
Revenues................................... $-- $-- $--
Loss from operations....................... $15,904 $12,891 $1,059
Net loss .................................. $16,457 $12,453 $1,059
Current assets............................. $553 $516 $10,000
Total assets............................... $1,457 $2,267 $10,000
Current liabilities........................ $5,394 $5,674 $1,059
Stockholders' equity (deficit)............. (3,937) $(3,407) $8,941
NOTE 5--INVESTMENT IN CHOICEPARTS, LLC
On May 4, 2000, the Company formed a new limited liability company,
ChoiceParts, LLC ("ChoiceParts") with Automatic Data Processing, Inc. ("ADP")
and The Reynolds and Reynolds Company. ChoiceParts develops and operates an
electronic parts exchange for the auto parts marketplace for franchised auto
retailers, collision repair facilities and other parts suppliers. On May 4,
2000, the Company invested approximately $1.4 million in ChoiceParts for a
27.5% equity interest. In addition to the initial capital contribution, the
Company had a commitment to fund an additional $5.5 million to ChoiceParts
based on its pro-rata ownership percentage through April 2001, although we
recently reached an agreement in principle with ADP and Reynolds and Reynolds
Company to extend the deadline to April 2002. In December 2000, the Company
funded $1.4 million in connection with this additional funding commitment.
The Company expects to fund the remaining commitment of $4.1 million in 2001;
$2.1 million was funded in March 2001. The Company applies the equity method
of accounting for its investment in ChoiceParts and recorded a charge of $2.1
million from the inception date May 4, 2000 through December 31, 2000. Based
on the nature of the Company's investment, the Company has recorded a related
income tax benefit on its share of the losses.
Summary financial information for ChoiceParts from inception date of May
4, 2000 through December 31, 2000 was as follows:
2000
--------------
(IN THOUSANDS)
--------------
Revenues................................................. $9,817
Gross profit............................................. $3,803
Operating loss........................................... $(7,583)
Net loss................................................. $(7,445)
Net loss applicable to non-preferred members' interest... $(7,530)
Current assets........................................... $5,503
Total assets............................................. $6,856
Current liabilities...................................... $3,878
35
Mandatorily Redeemable Preferred Member's Interest....... $1,160
Members' equity.......................................... $1,818
NOTE 6--ACQUISITIONS
On July 1, 1998, the Company acquired 93.75% of Rayfield Limited d/b/a
CCC International, for $1.9 million in cash. CCC International's business
included claims consulting and expertise for insurance companies in the United
Kingdom. In connection with this acquisition, CCC International's president and
current minority shareholder obtained the right to require CCC to repurchase
his shares in CCC International. This put option can be exercised at the
earlier of July 1, 2001 or in the event of his termination at fair market value
of his shares, subject to certain adjustments.
On August 31, 1998, the Company's Consumer Services segment acquired
99.2% of Professional Claims Services, Inc. ("PCSI") for $2.9 million in
cash. PCSI provides claims adjusting and third-party claims administration to
automobile insurance companies and self-insured entities in the western
United States. The PCSI purchase agreement provides for the payment of a
contingent purchase price between $1.8 million and $7.0 million and is based
on certain performance measures of PCSI through December 31, 2002. As of
December 31, 2000 and 1999, the Company has recorded contingent purchase
price of $0.8 million and $0.5 million, respectively, which is included in
other liabilities in the consolidated balance sheet.
On August 13, 1999, the Company's CCC International segment acquired 100%
of the outstanding stock of D.W. Norris Limited ("D.W. Norris") for $5.2 million
in cash. D.W. Norris provides vehicle accident damage assessment, accident
investigation, theft investigation and other third-party insurance services
throughout the United Kingdom. The purchase agreement provided for the payment
of a contingent purchase price, not to exceed approximately $3 million, in the
event that D.W. Norris met certain performance measures through December 2002.
As part of a settlement agreement with the former owner and the Company's
decision to shut-down the business, no further commitments exists related to the
contingent purchase price associated with the D.W. Norris acquisition. See
Note 8--Restructuring Charges.
On October 13, 1999, the Company's Consumer Services segment acquired
certain assets of Fleming and Hall Administrators for a purchase price of
$0.3 million in cash. Fleming and Hall Administrators provides third-party
claims administration to automobile insurance companies in the southeastern
United States. The purchase agreement provides for the payment of a
contingent purchase price, not to exceed approximately $1.4 million, in the
event that Fleming and Hall meets certain performance measures through
December 2004. No amounts have been earned or accrued for this contingent
purchase price.
The above acquisitions were all accounted for as purchases and results of
operations were included in the consolidated financial statements from their
respective acquisitions dates. The purchase price for each acquisition was
allocated based on estimated fair values at the date of acquisition.
Substantially all the purchase prices were allocated to goodwill, which is being
amortized on a straight-line basis over its estimated useful life. See Note
13--Goodwill. There were no acquisitions for the year ended December 31, 2000.
The following summarized unaudited pro forma condensed statement of
operations has been prepared as if the acquisitions in 1999 and 1998 had
occurred on January 1, 1998.
1999 1998
---- ----
Revenue:
As reported.................................... $207,797 $188,169
Pro forma...................................... $211,314 $194,552
Net income (loss) applicable to common stock:
As reported.................................... $750 $(38)
Pro forma...................................... $52 $(809)
Per share net income (loss) applicable to common
stock assuming dilution:
As reported.................................... $0.03 $0.00
Pro forma...................................... $0.00 $(0.03)
36
In management's opinion, the summarized pro forma condensed statement of
operations does not purport to present what actual results would have been had
the above transactions occurred on January 1, 1998, or to project results for
any future period.
NOTE 7--DISPOSITIONS
On December 23, 1999, the Company sold certain net assets related to its
dealer services products to Info4cars.com Inc. ("Info4cars") in exchange for a
note receivable of $0.6 million and common stock representing a 9.0% interest in
Info4cars. Info4cars provides vehicle history reports and other products, such
as custom auto buying programs, warranties, and competitive finance/lease
programs. In connection with this disposition, the Company recorded a loss of
$0.2 million, which is a component of other income, net in the consolidated
statement of operations. The note receivable matures on November 1, 2002. The
annual interest rate is the lesser of the prime rate as published by the Chase
Manhattan Bank plus 2% or 9%, and is payable quarterly commencing February 1,
2000, and quarterly thereafter. Commencing on December 1, 2000 and continuing
every month thereafter, principal and interest is payable in equal installments
of approximately $29,500. In addition, in December 1999, the Company invested
approximately $0.3 million for an additional 7.5% interest in Info4cars.
During 2000, Info4cars failed to make interest payments due and payable
to the Company under the terms of the note on February 1, May 1, and August 1.
In September 2000, the Company and Info4cars agreed to amend the principal
amount and terms of repayment of the note receivable ("Amended Note"). The
Amended Note includes the past due interest payments owed to the Company on the
original note, matures in May 2003 and bears interest at the prime rate. In
addition, the Company converted its common stock into shares of Series A
Convertible Preferred Stock ("Series A Preferred Stock"). As holders of the
Series A Preferred Stock, the Company is entitled to receive, when and as
declared by the board of directors of Info4cars, cash dividends at the rate of
8.0% of the original issue price per annum on each outstanding share of Series
A Preferred Stock.
See discussion in Note 8 - Restructuring Charges concerning the Company's
decision to shut-down the D.W. Norris business in late December 2000.
NOTE 8--RESTRUCTURING CHARGES
In December 2000, the Company decided to shutdown the D.W. Norris
outsourcing business due to the significant losses incurred since the
acquisition, the continued deterioration of the overall business and the poor
long-term assessment of the business. As a result, the Company recorded a
related charge of $6.0 million. This charge included a write-off of the
remaining goodwill of $4.3 million, contractual commitments, including the
office lease, of $0.8 million, severance and related costs to terminate
approximately 86 employees of $0.5 million and a write-down of the fixed
assets to net realizable value of $0.4 million. At December 31, 2000, no
payments had been made for the severance and contractual commitments.
In the fourth quarter of 1999, the Company recorded a reduction-in-force
charge of approximately $2.2 million of which, $1.9 million was paid in 1999 and
the remaining $0.3 million was paid in 2000. The charge consisted primarily of
severance costs and included approximately $0.1 million for health care and
outplacement costs related to the termination of approximately 100 employees.
The actual expenditures related to the reduction-in-force approximated the
amount originally estimated. This reduction-in-force was part of a company-wide
effort to improve the Company's profitability to fund new initiatives.
In the second quarter of 1998, the Company recorded a relocation charge of
$1.7 million related to the relocation of certain customer service and claims
processing operations to South Dakota. The charge for the relocation consisted
primarily of severance and other incremental costs directly related to the
relocation of 100 employees. The actual expenditures related to the relocation
approximated the amount originally estimated and all expenditures associated
with this relocation were completed by December 31, 1998. In connection with the
relocation, the Company acquired a building and land at a total
37
cost of $1.8 million.
NOTE 9--LITIGATION SETTLEMENTS
In December 2000, the Company completed a settlement of a lawsuit
against the American Salvage Pool Association. The settlement called for (i)
an immediate cash payment by CCC of $0.9 million which was made on December
28, 2000; (ii) a cash payment of $0.3 million to be made on or before March
31, 2001; (iii) a cash payment of $0.3 million to be made on or before June
30, 2001; (iv) the shortening of the covenant not to compete by 6 months, to
June 30, 2002; and (v) a general release of all claims.
CCC was a defendant in an arbitration proceeding before the AMERICAN
ARBITRATION ASSOCIATION CAPTIONED AUTOBODY SOFTWARE SOLUTIONS, INC. V. CCC
INFORMATION SERVICES INC. The plaintiff had demanded damages in excess of
$23.0 million in that proceeding. The parties have settled this action by
execution of a Release and Settlement Agreement ("Settlement Agreement") as
of October 12, 2000, pursuant to which CCC has paid the plaintiff $0.3
million and conveyed 15,000 shares of the Company's common stock. The Company
will also make a total of four additional annual payments in the amount of
$0.2 million each, commencing six months after the date of the Settlement
Agreement. The plaintiff has released CCC from all claims and has stipulated
to the dismissal of its action with prejudice. In connection with this
settlement, the Company has recorded and included a charge of $1.4 million in
the consolidated statement of operations for the year ended December 31, 2000.
In March 1999, the Company completed settlement of a lawsuit involving a
former independent sales representative. The settlement resulted in a charge of
$1.7 million including among other things payment for past earned commissions,
resolution of disputed commissions and other costs associated with the
resolution of the dispute. This charge was included in the consolidated
statement of operations for the year ended December 31, 1998.
NOTE 10--INCOME TAXES
Income taxes applicable to income (loss) before equity losses and minority
interest consisted of the following:
2000 1999 1998
------------ ----------- ------------
(IN THOUSANDS)
Current provision:
Federal............................................... $(2,616) $(5,736) $(7,837)
State................................................. (273) (904) (1,318)
Foreign............................................... (4) -- --
------------ ----------- ------------
Total current provision............................ (2,893) (6,640) (9,155)
------------ ----------- ------------
Deferred (provision) benefit:
Federal............................................... 1,192 (406) 600
State................................................. 195 (315) (305)
Foreign............................................... (62) -- --
------------ ----------- ------------
Total deferred (provision) benefit................. 1,325 (721) 295
------------ ----------- ------------
Total income tax provision......................... $(1,568) $(7,361) $(8,860)
============ =========== ============
The Company's effective income tax rate applicable to continuing
operations differs from the federal statutory rate as follows:
2000 1999 1998
--------------------- ---------------------- -----------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Federal income tax provision at
statutory rate............... $(2,791) (35.0)% $(5,165) (35.0)% $(7,153) (35.0)%
38
State and local taxes, net of
federal income tax effect and
before valuation allowances.. (51) (0.5) (793) (5.4) (1,055) (5.2)
Foreign taxes................... (448) (5.5) (41) (0.3) (118) (0.6)
Goodwill amortization........... (1,125) (13.9) (839) (5.7) (562) (2.7)
Change in valuation allowance... (2,826) (34.9) 150 1.0 -- --
Nondeductible expenses.......... (284) (3.5) (294) (2.0) (225) (1.1)
InsurQuote investment........... 5,800 71.7 15 0.1 (342) (1.7)
Other, net...................... 157 1.9 (394) (2.6) 595 2.9
--------- ---------- ----------- --------- ----------- --------
Income tax provision............ $(1,568) (19.7)% $(7,361) (49.9)% $(8,860) (43.4)%
========= ========== =========== ========= =========== ========
See Note 3 - Investment in InsurQuote/ChannelPoint for discussion of
income taxes as it relates to our investment in InsurQuote.
During 2000, 1999 and 1998, the Company made income tax payments, net of
refunds, of $1.6 million, $4.3 million and $8.8 million, respectively. In
conjunction with the exercise of certain stock options, the Company has reduced
current income taxes payable with an offsetting credit to paid-in-capital for
the tax benefit of these option exercises. During 2000, 1999 and 1998, these tax
benefits totaled $1.4 million, $0.9 million and $3.3 million, respectively.
The approximate income tax effect of each type of temporary difference
giving rise to deferred income tax assets and liabilities was as follows:
DECEMBER 31,
------------------
2000 1999
--------- --------
(IN THOUSANDS)
Deferred income tax assets:
Deferred revenue.................................................... $1,396 $1,155
Depreciation and amortization....................................... 1,826 1,578
Bad debt expense.................................................... 873 1,441
Rent................................................................ 939 912
Litigation settlement............................................... 606 329
Accrued compensation................................................ 768 253
Intangible amortization............................................. 1,110 --
Foreign net operating losses........................................ 2,826 --
Other, net.......................................................... 1,268 1,240
--------- --------
Subtotal............................................................... 11,612 6,908
Valuation allowance.................................................... (2,826) --
--------- --------
Total deferred income tax asset........................................ $8,786 $6,908
Deferred income tax liabilities........................................ (748) (189)
--------- --------
Net deferred income tax asset.......................................... $8,038 $6,719
========= ========
NOTE 11--OTHER CURRENT ASSETS
Other current assets consisted of the following:
DECEMBER 31,
------------------
2000 1999
--------- --------
(IN THOUSANDS)
Prepaid data royalties................................................ $1,892 $1,429
39
Prepaid equipment maintenance......................................... 926 585
Receivable from Enterstand............................................ -- 6,798
Computer inventory.................................................... 603 774
Other................................................................. 1,862 1,960
--------- --------
Total........................................................... $5,283 $11,546
========= ========
NOTE 12--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31,
------------------
2000 1999
--------- --------
(IN THOUSANDS)
Computer equipment..................................................... $25,267 $36,398
Purchased software, licenses and databases............................. 15,199 9,142
Furniture and other equipment.......................................... 7,281 7,522
Leasehold improvements................................................. 4,957 3,227
Building and land...................................................... 1,796 1,796
--------- --------
Total, gross..................................................... 54,500 58,085
Less accumulated depreciation.......................................... (32,401) (40,278)
--------- --------
Total, net....................................................... $22,099 $17,807
========= ========
As a result of a review of the Company's computer equipment and software
in 2000, the Company wrote-off out-of-service fully depreciated assets totaling
$15.8 million.
As of December 31, 2000 and 1999, computer equipment, net of accumulated
depreciation, that is on lease to certain customers under operating leases of
$1.0 million and $1.8 million, respectively, is included in computer equipment.
Future minimum rentals under noncancelable customer leases aggregate
approximately $1.0 million and $0.2 million in 2001 and 2002, respectively.
NOTE 13--GOODWILL
Goodwill consisted of the following:
DECEMBER 31,
-----------------------
2000 1999
----------- -----------
LIFE (IN THOUSANDS)
----------
CCC acquisition (1988).............................................. 20 years $16,458 $16,458
UCOP acquisition (1994)............................................. 7 years 3,665 3,665
CCC International acquisition (1998)................................ 7 years 1,910 1,910
PCSI acquisition (1998)............................................. 7 years 3,059 2,825
D.W. Norris acquisition (1999)...................................... 12 years -- 4,891
Fleming and Hall acquisition (1999)................................. 7 years 350 350
Other (1999)........................................................ 3 years 518 518
----------- -----------
Total, gross.................................................. 25,960 30,617
40
Less accumulated amortization....................................... (16,365) (14,259)
----------- -----------
Total, net.................................................... $9,595 $16,358
=========== ===========
See discussion in Note 8 - Restructuring Charges concerning the Company's
decision to shut-down the D.W. Norris business in late 2000 and the write-off of
D.W. Norris's goodwill.
NOTE 14--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
DECEMBER 31,
----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Accounts payable..................................................... $16,228 $17,779
Compensation......................................................... 10,347 5,805
Professional fees.................................................... 2,016 5,032
Litigation settlement................................................ 1,623 873
Sales tax............................................................ 1,589 1,827
Health insurance..................................................... 887 638
Commissions.......................................................... 874 1,151
Other, net........................................................... 1,736 813
---------- ----------
Total................................................................ $35,300 $33,918
========== ==========
NOTE 15--LONG-TERM DEBT
On October 28, 1998, the credit facility between CCC and its commercial
bank was amended and restated from the original revolving credit agreement
entered into on August 22, 1996. Under the amended credit facility with
LaSalle National Bank, CCC increased its ability to borrow under the
revolving line of credit from $20 million to $50 million and provided that
the credit facility would be increased from $50 million to $100 million when
the bank syndicate participating in the credit facility was completed, which
occurred on February 10, 1999. CCC requested an increase in the credit
facility to provide financing to pursue strategic acquisitions, to provide
CCC with the flexibility for growth opportunity investments and to fund
working capital requirements, as necessary. The revolving line of credit
commitment was to be reduced by $10 million on October 31, 2001, $15 million
on October 31, 2002 and $75 million on October 31, 2003. The interest rate
under the amended bank credit facility was the London Interbank Offered Rate
("LIBOR") plus 1.0% or the prime rate in effect from time to time, as
selected by CCC. During the years ended December 31, 2000, 1999 and 1998, the
weighted average interest rates were 7.6%, 6.8% and 6.5%, respectively. CCC
made cash interest payments of $2.6 million, $1.1 million and $0.1 million,
during the years ended December 31, 2000, 1999 and 1998, respectively. During
2000 and 1999, CCC had net borrowings under the line of credit of $18.0
million and $13.0 million, respectively, resulting from draws under the
credit facility of $53.0 million and $54.0 million, respectively, and
repayments of $35.0 million and $41.0 million, respectively, on those draws.
CCC pays a commitment fee of 0.25% on any unused portion of the revolving
credit facility. When borrowings are outstanding, interest payments are due
quarterly.
Under the bank credit facility, CCC has been, with certain exceptions,
prohibited from making certain sales or transfers of assets, incurring
nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its
capital stock, among other restrictions. In addition, the bank credit
facility required CCC to maintain certain levels of operating cash flow and
debt
41
coverage, and limited CCC's ability to make investments and declare dividends.
At December 31, 2000, CCC was not in compliance with certain of the covenants
included in the bank credit facility. On February 15, 2001, CCC received a
waiver from its banks with respect to those covenants. The credit facility
agreement was also amended on February 15, 2001 to reduce the available credit
line from $100 million to $60 million effective December 31, 2000, place a
general security on our assets on behalf of the banks and increase interest
rates to reflect current market and credit conditions.
On April 17, 2001, CCC and its agent bank, LaSalle National Bank,
amended the existing bank credit facility agreement. This amendment provides
CCC with a waiver of certain covenants for the quarter ending March 31, 2001
and restates future covenants. Under the terms of the amended agreement, the
credit facility has been reduced to $55 million effective April 17, 2001, the
maturity date has been changed to September 30, 2002, the credit facility
availability will be reduced by $3.0 million per quarter beginning on
September 30, 2001 and other mandatory prepayments or reductions of the
credit facility apply in the event of certain transactions or events. The
amended bank credit facility is secured by a blanket first priority lien on
all assets of CCC and its subsidiaries assets, and with certain exceptions,
CCC is prohibited from making certain sales or transfers of assets. In
addition, the amended bank credit facility revised certain covenants that
require CCC to maintain specified levels of operating cash flow, debt
coverage and net worth and that limit CCC's ability to make investments,
including investments in DriveLogic, ChoiceParts and Enterstand. These
revised covenants were based on our business plan and related financial plans
for the year ending December 31, 2001. CCC is also required to provide the
bank group with monthly financial and covenant reporting. CCC expects to be
in compliance with all the covenants in the April 17, 2001 amended credit
facility agreement based on the 2001 business plan and other potential
operating and financial actions available to the Company, if required.
Our principal liquidity requirements include our operating activities,
including product development for CCC U.S. and DriveLogic, our investments in
internal and customer capital equipment and funding requirements for our
ChoiceParts and Enterstand investments.
CCC has the ability to operate with a working capital deficit, as we
receive substantial payments from our customers for its services in advance
of recognizing the revenues and the costs incurred to provide such services.
CCC invoices each customer a month in advance for the following month's
PATHWAYS COLLISION ESTIMATING software services. As such, CCC typically
receives cash from its customers prior to recognizing the revenue and
incurring the expense for the services provided. These amounts are reflected
as deferred revenue in the consolidated balance sheet until these amounts are
earned and recognized as revenues.
We have over the past three years been able to fund all of our working
capital needs and capital expenditures from cash generated from operations.
Management believes that cash flows from operations, its available credit
line facility, the funding it received from Capricorn and other financing
alternatives currently being pursued will be sufficient to meet our liquidity
needs for the year ending December 31, 2001. There can be no assurance,
however, that we will be able to satisfy our liquidity needs in the future
without engaging in financing activities beyond those described above.
In connection with the acquisition of D.W. Norris in August of 1999, the
Company assumed $0.5 million of debt outstanding under a credit facility
agreement with Barclays Bank PLC bearing interest at LIBOR plus 3%. This credit
facility was paid in full in December 2000 and no further borrowings are
permitted under this facility. D.W. Norris made cash interest payments of $0.2
million and $0.1 million during the years ended December 31, 2000 and 1999.
Long-term debt consisted of the following:
DECEMBER 31,
------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
Bank revolving credit facility................................... $42,000 $24,000
D.W. Norris credit facility...................................... -- 510
Capital lease obligations........................................ 314 615
----------- -----------
Total debt................................................. 42,314 25,125
Due within one year.............................................. 314 440
----------- -----------
Due after one year............................................... $42,000 $24,685
=========== ===========
NOTE 16--CCC CAPITAL TRUST
On February 23, 2001, CCC Capital Trust, a wholly-owned subsidiary of the
Company ("CCC Trust"), issued 15,000 Trust Preferred Securities ("Trust
Preferred Securities") and the Company issued 100 shares of its Series F
Preferred Stock, par value $1.00 per share, and a warrant to purchase 1,200,000
shares of its Common Stock at an exercise price of $10.00 per share to
Capricorn Investors III, L.P., an existing stockholder of the Company. The
Company received an aggregate purchase price of $15.0 million from the sale of
these securities. The proceeds from the sale have been, and will be, used for
general corporate purposes.
In connection with CCC Trust's issuance of the Trust Preferred
Securities and the related purchase by the Company of all of CCC Trust's
common securities, the Company issued an Increasing Rate Note Due 2006 in the
principal amount of $15.5 million, due February 23, 2006 ("Increasing Rate
Note") to CCC Trust. The sole asset of CCC Trust is the Increasing Rate Note
and any interest accrued thereon. The interest payment dates on the
Increasing Rate Note correspond to the distribution dates on the Trust
Preferred Securities. The Trust Preferred Securities mature simultaneously
with the Increasing Rate Note. The Company has unconditionally guaranteed all
the Trust Preferred Securities to the extent of the assets of CCC Trust.
The Increasing Rate Note is subordinated to the Company's bank debt.
Cumulative distributions on the Trust Preferred Securities accrue at a rate of
(i) 9% per annum, payable in cash or in kind at the Company's option, for the
first three years from February 23, 2001 and (ii) 11% per annum, payable in
cash, thereafter. The Trust Preferred Securities are mandatorily redeemable on
February 23, 2006. In addition, all or any portion of the outstanding Trust
Preferred
42
Securities may be called for redemption at the option of the Company at any time
on or after February 23, 2004. The redemption price for both the mandatory and
the optional redemptions is equal to the liquidation amount of the Trust
Preferred Securities plus accrued but unpaid distributions.
NOTE 17--MANDATORILY REDEEMABLE PREFERRED STOCK
On June 16, 1994, pursuant to a reorganization and recapitalization, the
Company issued: (a) 5,000 shares of its preferred stock, par value $1.00,
designated as Series C Cumulative Redeemable Preferred Stock ("Series C
Preferred Stock"), (b) 34,000 shares of its preferred stock, par value $1.00,
designated as Series D Cumulative Redeemable Preferred Stock ("Series D
Preferred Stock") and (c) 7,050,840 shares of the Company's Common Stock, par
value $0.10, to White River in exchange for the Company's subordinated debt and
Series A, B and C warrants acquired from the original subordinated debtholders
by White River on April 15, 1994.
Through the date of redemption, Preferred Stock dividends accrued at a
rate of 2.75% per annum. Because the Company completed the required
redemption of Preferred Stock through the use of proceeds from the Company's
initial public offering of common stock, Preferred Stock dividends from the
date of redemption through June 16, 1998 have been eliminated. Beginning June
17, 1998, Preferred Stock dividends, payable quarterly, accrued at an annual
rate of 8%. The Preferred Stock was mandatorily redeemable, at stated value
plus accrued dividends, on June 16, 1999. Prior to the mandatory redemption
date, under the terms of the Preferred Stock, White River was only required
to accept an offer to redeem that was funded through a public offering of the
Company's common stock. On May 29, 1998, the Company made an offer to White
River to redeem all outstanding Preferred Stock. This redemption offer was
declined by White River. Accordingly, under the terms of the Preferred Stock,
the dividend rate on the Preferred Stock subject to the redemption offer was
reduced from 8% to 1%.
On December 31, 1998, the Company redeemed all of the Series C Preferred
stock outstanding and 3,601 Shares of Series D Preferred Stock at a discounted
value of 14% of the future redemption value and stated dividends plus accrued
dividends as of December 31, 1998. As a result of this early redemption
discount, the Company recorded a gain of $0.2 million on early redemption of
Preferred Stock. This amount was included in the dividends and accretion line in
the Company's consolidated statement of operations. In accordance with the terms
of the Preferred Stock, the remaining 184
43
Shares of Series D Preferred Stock and 500 Shares of Series E Preferred Stock
were redeemed on June 16, 1999.
NOTE 18--TREASURY STOCK
During 1999 and 1998, the Board of Directors authorized the Company to
repurchase 4.1 million common shares at a price not to exceed $15 per share.
On June 12, 2000, the Board of Directors authorized the Company to purchase
an additional 2.0 million common shares. At December 31, 2000, the Company
has authorization to purchase 1.9 million of its common shares. The Company
repurchased in 2000, 1999 and 1998 approximately 0.7 million shares, 2.1
million shares and 1.4 million shares, respectively, with cash outlays of
$8.2 million, $24.1 million and $15.7 million, respectively. As part of the
legal settlement between CCC and Autobody Software Solutions, Inc
("Autobody") (See Note 9--Litigation Settlements), the Company issued 15,000
common shares at a cost of $0.2 million to Autobody. In 1999, the Company
recorded a compensation charge of $1.2 million as a result of a stock
repurchase of 500,000 common shares from a charitable trust funded by the
Company's former chairman, David M. Phillips. In addition, in June 1999, the
Company issued 12,000 common shares valued at $12.75 per share on the date of
issuance as additional compensation to a member of the Company's Board of
Directors.
NOTE 19--EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION SAVINGS AND INVESTMENT PLAN
The Company sponsors a defined contribution savings and investment plan
("Savings Plan"). Participation in the Savings Plan is voluntary, with
substantially all employees eligible to participate. Expenses related to the
Savings Plan consist primarily of Company contributions that are based on
percentages of certain employees' contributions. Defined contribution expense
for 2000, 1999 and 1998 was $1.1 million, $1.2 million and $0.7 million,
respectively.
EMPLOYEE STOCK PURCHASE PLAN
In March of 1998, the Company established an employee stock purchase plan
that enables eligible employees to purchase shares of the Company's common
stock at the lesser of (i) 85 percent of the fair market value of the Company's
stock on the applicable grant date (February 1, May 1, August 1, or November 1)
or (ii) 85 percent of the fair market value of the Company's stock on the last
day of that month during the offering period. Under the employee stock purchase
plan, 500,000 shares have been authorized for issuance. During 2000, 1999 and
1998, the Company issued 77,736, 77,384 and 57,918 shares
44
pursuant to the employee stock purchase plan at prices ranging from $5.63 to
$14.13, $8.18 to $11.05 and $9.35 to $20.61, respectively. See Note 20 -- Stock
Option Plan for pro forma results had compensation expense been recognized
based on fair value as of the grant dates as prescribed by SFAS 123.
NOTE 20--STOCK OPTION PLAN
In May 1988, the Company's Board of Directors adopted a nonqualified stock
option plan ("1988 Plan"). Under the 1988 Plan, as amended in 1992, options may
be granted at a per share price of not less than the greater of $1.375 or the
fair market value as of the date of grant, as determined by the Compensation
Committee of the Board of Directors ("Committee"). The 1988 Plan's options are
generally exercisable within 5 years from the date of grant, subject to vesting
schedules determined at the discretion of the Committee. In general, however,
option grants vest over 4 years. Under the 1988 Plan, 2,956,040 total options
were available to be granted. At December 31, 2000, no additional options can be
granted and 356,165 options were outstanding under the 1988 Plan.
During 1997, the Company's Board of Directors adopted a new stock option
plan ("1997 Plan") that provides for the granting of 675,800 options to purchase
the Company's common stock. As under the 1988 Plan, options are generally
exercisable within five years from the date of grant. In 1998, the 1997 Plan was
amended to increase the number of shares available to be granted to 1,500,000
shares. In addition, the term of the option was extended from 5 years to 10
years on new stock option grants. The 1997 Plan was amended in 1999 to increase
the number of shares available to be granted up to 2,500,000.
On June 28, 2000, the Company's shareholders approved a new stock
incentive plan ("2000 Plan") as an amendment and restatement of the 1997 Plan.
The terms of the 2000 Plan were applied to all outstanding options under the
1997 Plan. No additional awards will be granted under the 1997 Plan. The 2000
Plan provides that the aggregate number of shares of the Company's common stock
that may be issued under the 2000 Plan, including shares authorized but not
issued or reserved under the 1997 Plan, shall not exceed 3,900,000. In the event
of a lapse, expiration, termination, forfeiture or cancellation of any option
granted under the 2000 Plan or the 1997 Plan without the issuance of shares or
payment of cash, the common stock subject to or reserved for such incentive may
be used again. At December 31, 2000, additional options of 969,998 are available
to be granted under the 2000 Plan.
On September 23, 1998, the Company's Board of Directors approved a
one-time stock option exchange program, whereby all non-executive management
option holders could exchange their outstanding options for new options at a
strike price of $12.125. The 164,975 stock options that were part of the
exchange program are included in the 1998 option activity below as corresponding
grants and terminations.
Option activity during 2000, 1999 and 1998 is summarized below:
2000 1999 1998
-------------------------- -------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- ---------- ----------- -------------
Options Outstanding:
Beginning of year................ 2,210,136 $6.48 1,975,050 $9.64 1,815,603 $6.62
Granted.......................... 1,911,671 $10.45 871,775 $11.80 901,375 $13.95
Exercised........................ (358,267) $6.95 (310,467) $4.15 (468,644) $2.24
Surrendered or terminated........ (573,527) $12.83 (326,222) $13.54 (273,284) $16.50
---------- ---------- -----------
End of year................... 3,190,013 $10.57 2,210,136 $6.48 1,975,050 $9.64
========== ========== ===========
Options exercisable at year-end..... 788,665 $10.29 858,274 $8.25 761,653 $5.72
========== ========= ========== ========== =========== =============
45
Weighted average fair value of
options granted during the year.. $4.72 $11.80 $13.85
========== ========== ===========
The following table summarizes information about fixed stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
- ------------------------- ------------ ---------------- ---------------- --------------- ---------------
$ 1.38 to $ 1.38.................. 154,680 3.23 $1.38 154,680 $1.38
$ 6.25 to $ 8.69.................. 1,028,448 9.92 $8.44 -- $--
$ 9.50 to $ 10.63................. 558,450 9.32 $10.39 27,125 $9.50
$11.13 to $11.20.................. 447,388 5.08 $11.16 264,863 $11.18
$12.00 to $14.75.................. 652,574 7.37 $12.68 264,497 $12.47
$15.19 to $23.13.................. 348,473 6.74 $16.48 77,500 $17.90
------------ ---------------
$1.38 to $23.13................... 3,190,013 7.94 $10.57 788,665 $10.29
============ ===============
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model. The principal determinants of
option pricing are: fair market value of the Company's common stock at the date
of grant, expected volatility, risk-free interest rate, expected option lives
and dividend yields. Weighted average assumptions employed by the Company were:
expected volatility of 41%, 36% and 32% for 2000, 1999 and 1998, respectively;
and a risk-free interest rate of 5.9%, 5.5% and 4.7% for 2000, 1999 and 1998,
respectively. In addition, the Company assumed an expected option life of 5.5
years for 2000 and 1999 and 4.5 years to 5.5 years for 1998. No dividend yield
was assumed for all years.
The Company applies Accounting Principle Board Opinion No. 25 in
accounting for its fixed stock option plans and employee stock purchase plan,
and accordingly, has not recognized compensation cost in the accompanying
consolidated statement of operations. Had compensation cost been recognized
based on fair value as of the grant dates as prescribed by SFAS 123, the
Company's net income (loss) applicable to common stock and related per share
amounts would have been impacted as indicated below:
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income (loss) applicable to common stock:
As reported.......................................................... $(9,243) $750 $(38)
Pro forma............................................................ $(11,051) $(638) $(836)
Per share net income (loss) applicable to common stock assuming dilution:
As reported.......................................................... $(0.42) $0.03 $--
Pro forma............................................................ $(0.51) $(0.03) $(0.03)
The effects of applying SFAS 123 in the above pro forma disclosures are
not necessarily indicative of future amounts as they do not include the effects
of awards granted prior to 1995, some of which would have had income statement
effects in 2000, 1999 and 1998. Additionally, future amounts are likely to be
affected by the number of grants awarded since
46
additional awards are generally expected to be made at varying amounts.
NOTE 21--EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share for
the years ended December 31, 2000, 1999 and 1998, is presented below (in
thousands, except per share data):
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ----------- ----------
Net income (loss).................................................................. $(9,243) $752 $(81)
Less: Dividends and accretion on mandatorily redeemable preferred stock............ -- (2) 43
---------- ----------- ----------
Net income (loss) applicable to common stock....................................... $(9,243) $750 $(38)
========== =========== ==========
Weighted average common shares..................................................... 21,851 22,856 24,616
Effect of common stock options..................................................... -- 306 572
---------- ----------- ----------
Weighted average diluted shares.................................................... 21,851 23,162 25,188
========== =========== ==========
Income per common share--basic...................................................... $(0.42) $0.03 $--
========== =========== ==========
Income per common share--diluted................................................... $(0.42) $0.03 $--
========== =========== ==========
Options to purchase a weighted average number of 820,178 shares, 708,919
shares and 251,136 shares of common stock for 2000, 1999 and 1998, respectively,
were not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares during those periods. The price of these options ranged from
$12.63 to $21.88 per share. At December 31, 2000, 738,202 of these options,
which expire between 2002 and 2010, were still outstanding. In addition, since
the Company had a net loss for the year ended December 31, 2000, options to
purchase a weighted average of 228,849 shares were not included in the
computation of diluted earnings per share because the options, if included,
would have been antidilutive.
NOTE 22--COMMITMENTS AND CONTINGENCIES
The Company leases facilities, computers, telecommunications and office
equipment under noncancelable operating lease agreements that expire at various
dates through 2008. As of December 31, 2000, future minimum cash lease payments,
including amounts due under operating leases entered into in 2001, were as
follows:
(IN THOUSANDS)
--------------
2001...................................................... $14,102
2002...................................................... 14,428
2003...................................................... 13,972
2004...................................................... 4,890
2005...................................................... 3,583
Thereafter................................................ 8,019
--------------
Total..................................................... $58,994
==============
During 2000, 1999 and 1998, operating lease rental expense was $7.6
million, $6.7 million and $5.1 million, respectively.
The Company has a $0.1 million letter of credit available until October
2003 for the CCC International office space in Peterborough, United Kingdom and
a $.7 million letter of credit available until March 31, 2002 for DriveLogic's
office space in Chicago. Under the terms of this agreement, interest rates are
determined at the time of borrowing. There was no amount outstanding under the
letter of credits at December 31, 2000.
47
NOTE 23--BUSINESS SEGMENTS
SFAS 131, "Disclosures About Segments for Enterprise and Related
Information," requires companies to provide certain information about their
operating segments.
The Company has four reportable segments: CCC U.S., Consumer Services,
International and DriveLogic (formerly described as the Company's Internet
Business-to-Business Division). CCC U.S.'s products and services generally are
used by its customers to facilitate the processing of automobile physical
damage claims, improve decision making and communication between various
parties, such as automobile insurance companies and collision repair
facilities, involved in the automobile claims process. Consumer Services offers
a suite of products and services for the complete outsourcing of automobile
physical damage claims processing. CCC International provides claims consulting
for a large insurance company and other products to help manage the claims
process and settlement of repairable automobile claims in Europe. DriveLogic,
formed in 1999, is developing products and services that will serve the
automobile claims industry supply chain through the Internet.
The Company's reportable segments are based upon the nature of the
products and services within the Company and the methods used to distribute
these products and services. The Company is organized into revenue producing
divisions and shared services organizations (e.g. product development, finance
and administration) tasked with facilitating the performance of the revenue
producing divisions. Segment expenses represent principally salaries and related
employee expenses directly related its activities. Each revenue division and
support organization is led by a president or executive vice president that
reports to the Chief Executive Officer. Management evaluates performance at the
total company profit level and at the product revenue level. The shared services
costs are not currently allocated to the revenue producing segments and include
product engineering, management information systems, legal, finance and
administration costs. These costs are mainly incurred for the benefit of CCC
U.S.
Financial information relating to each reportable segment was as follows
(In thousands):
CONSUMER CCC SHARED CCC
CCC U.S. SERVICES INTERNATIONAL DRIVELOGIC SERVICES CONSOLIDATED
----------- ----------- -------------- ---------- ---------- ------------
2000
- ----
Revenues.......................... $ 176,888 $ 25,140 $ 7,752 $ -- $ -- $ 209,780
Operating expenses................ (66,381) (30,510) (11,906) (19,135) (83,760) (211,692)
Restructuring charges............. -- -- (6,017) -- -- (6,017)
Litigation settlements............ (2,375) -- -- -- -- (2,375)
----------- ----------- -------------- ---------- ---------- ------------
Operating income (loss)........... 108,132 (5,370) (10,171) (19,135) (83,760) (10,304)
Gain on settlement of marketing
agreement 4,144 -- -- -- -- 4,144
Gain on exchange of investment
securities, net 18,437 -- -- -- -- 18,437
Equity in loss of affiliates...... -- -- (15,650) (2,071) -- (17,721)
----------- ----------- -------------- ---------- ---------- ------------
Division operating margin......... $ 130,713 $ (5,370) $ (25,821) $ (21,206) $(83,760) $ (5,444)
=========== =========== ============== ========== ========== ============
Accounts receivable, net.......... $ 14,889 $ 5,269 $ 1,224 $ -- $ -- $ 21,382
=========== =========== ============== ========== ========== ============
1999
- ----
Revenues.......................... $ 173,723 $ 28,776 $ 5,298 $ -- $ -- $ 207,797
Operating expenses................ (84,877) (29,059) (6,034) (731) (69,109) (189,810)
Restructuring charges............. -- -- (389) -- (1,853) (2,242)
----------- ----------- -------------- ---------- ---------- ------------
Operating income (loss)........... 88,846 (283) (1,125) (731) (70,962) 15,745
Equity in loss of affiliates...... (4,167) -- (2,478) -- -- (6,645)
----------- ----------- -------------- ---------- ---------- ------------
48
Division operating margin......... $ 84,679 $ (283) $ (3,603) $ (731) $(70,962) $ 9,100
=========== =========== ============== ========== ========== ============
Accounts receivable, net.......... $ 11,433 $ 8,542 $ 4,402 $ -- $ -- $ 24,377
=========== =========== ============== ========== ========== ============
1998
- ----
Revenues.......................... $ 168,135 $ 19,358 $ 676 $ -- $ -- $ 188,169
Operating expenses................ (85,154) (19,768) (1,121) -- (58,770) (164,813)
Restructuring charges............. (1,707) -- -- -- -- (1,707)
Litigation settlements............ (1,650) -- -- -- -- (1,650)
----------- ----------- -------------- ---------- ---------- ------------
Operating income (loss)........... 79,624 (410) (445) -- (58,770) 19,999
Equity in loss of affiliates...... (11,447) -- (211) -- -- (11,658)
----------- ----------- -------------- ---------- ---------- ------------
Division operating margin......... $ 68,177 $ (410) $ (656) $ -- $(58,770) $ 8,341
=========== =========== ============== ========== ========== ============
Accounts receivable, net.......... $ 16,325 $ 5,985 $ 902 $ -- $ -- $ 23,212
=========== =========== ============== ========== ========== ============
During the years ended December 31, 2000, 1999 and 1998, substantially
all revenues recognized in CCC U.S. and Consumer Services were derived from
customers located in the United States. During those same periods,
substantially all revenues recognized in CCC International were derived from
customers located in Europe, mainly in the United Kingdom.
Revenue by major products include:
2000 1999 1998
------------ ----------- ------------
Pathways Workstation/Collision Estimating Services and Products............ $113,892 $109,585 $102,941
Vehicle Valuation Services and Products.................................... 49,331 51,229 51,061
Claims Outsourcing & Third Party Administration Services and Products ..... 28,111 26,104 12,432
ACCESS..................................................................... 4,780 7,970 7,602
Other...................................................................... 13,666 12,909 14,133
------------ ----------- ------------
Total $209,780 $207,797 $188,169
============ =========== ============
NOTE 24--LEGAL PROCEEDINGS
On January 31, 2000, a putative class action lawsuit was filed against
CCC, Dairyland Insurance Co., and Sentry Insurance Company in the Circuit Court
of Johnson County, Illinois. The case is captioned SUSANNA COOK V. DAIRYLAND
INS. CO., SENTRY INS. AND CCC INFORMATION SERVICES INC., NO. 2000 L-1. Plaintiff
alleges that her insurance company, using a valuation prepared by CCC, offered
an inadequate amount for her automobile. Plaintiff seeks to represent a
nationwide class of all insurance customers, who, during the period from January
28, 1989, up to the date of trial, had their total loss claims settled using a
valuation report prepared by CCC. The complaint also seeks certification of a
defendant class consisting of all insurance companies who used the Company's
valuation reports to determine the "actual cash value" of totaled vehicles.
Plaintiff asserts various common law and contract claims against the defendant
insurance companies, and various common law claims against CCC. Plaintiff seeks
an unspecified amount of compensatory and punitive damages, as well as an award
of attorney's fees and costs. Dairyland and Sentry filed a motion to compel an
appraisal under the terms of the Plaintiff's policy, which motion was denied by
the trial court. Dairyland and Sentry have appealed the denial of that motion.
During January and February of 2001, the group of plaintiffs' lawyers who
filed the COOK lawsuit filed ten (10) additional putative class action lawsuits
against CCC and several of its insurance company customers in the Circuit Court
of Madison County, Illinois. Those cases are captioned as follows: LANCEY V.
COUNTRY MUTUAL INS. CO., COUNTRY CASUALTY INS. d/b/a COUNTRY COMPANIES, AND CCC
INFORMATION SERVICES INC., CASE NO. 01 L 113 (FILED 1/29/01); SCHOENLEBER V.
PRUDENTIAL PROPERTY AND CASUALTY INC. CO. AND CCC INFORMATION
49
SERVICES INC., CASE NO. 01 L 99 (FILED 1/18/01); EDWARDS V. MID-CENTURY INS. CO.
d/b/a FARMERS INS. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 151 (FILED
2/6/01); BORDONI V. CGU INS. GROUP d/b/a CGU INS. CO. OF ILLINOIS AND CCC
INFORMATION SERVICES INC., CASE NO. 01 L 157 (FILED 2/6/01); RICHARDSON V.
PROGRESSIVE PREMIER INS. CO. OF ILLINOIS d/b/a PROGRESSIVE AND CCC INFORMATION
SERVICES INC., CASE NO. 01 L 149 (FILED 2/6/01); BILLUPS V. GEICO GENERAL INS.
CO. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 159 (FILED 2/6/01); HUFF V.
HARTFORD INS. CO. OF ILLINOIS d/b/a THE HARTFORD AND CCC INFORMATION SERVICES
INC., CASE NO. 01 L 158 (FILED 2/6/01); KNACKSTEDT V. ST. PAUL FIRE AND MARINE
INS. CO. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 153 (FILED 2/6/01);
MOORE V. SHELTER INS. COS. AND CCC INFORMATION SERVICES INC., CASE NO. 01 L 160
(FILED 2/6/01); TRAVIS V. KEMPER CASUALTY INS. CO. d/b/a KEMPER INSURANCE AND
CCC INFORMATION SERVICES INC., CASE NO. 01 L 290 (FILED 2/16/01).
In each case, the plaintiff alleges that his or her insurance company,
using a valuation prepared by CCC, offered an inadequate amount to settle his
or her total loss claim. Each plaintiff seeks to represent a nationwide class
of the defendant insurance comany's customers, who, during the period from
January 28, 1989, up to the date of trial, had their total loss claims
settled using a valuation report prepared by CCC. Plaintiff asserts various
common law and contract claims against the defendant insurance companies, and
various common law claims against CCC. Plaintiff seeks an unspecified amount
of compensatory and punitive damages, as well as an award of attorney's fees
and costs. CCC has not yet responded to these complaints.
Between October of 1999 and July of 2000, a separate group of plaintiffs'
attorneys filed a series of putative class action lawsuits against CCC and
several of its insurance company customers in the Circuit Court of Cook County,
Illinois. The cases are captioned as follows: ALVAREZ-FLORES V. AMERICAN
FINANCIAL GROUP, INC., ATLANTA CASUALTY CO., AND CCC INFORMATION SERVICES INC.,
NO. 99 CH 15032 (FILED 10/19/99); GIBSON V. ORIONAUTO, GUARANTY NATIONAL INS.
CO. AND CCC INFORMATION SERVICES INC., NO. 99 CH 15082 (FILED 10/20/99); KEILLER
V. FARMERS INSURANCE GROUP OF COMPANIES, FARMERS GROUP, INC., FARMERS INSURANCE
EXCHANGE, FARMERS INSURANCE CO. OF OREGON, AND CCC INFORMATION SERVICES INC.,
NO. 99 CH 15485 (FILED 10/20/99); STEPHENS V. THE PROGRESSIVE CORP., PROGRESSIVE
PREFERRED INS. CO. AND CCC INFORMATION SERVICES INC., NO. 99 CH 15557 (FILED
10/28/99); MYERS V. TRAVELERS PROPERTY CASUALTY CORP., THE TRAVELERS INDEMNITY
COMPANY OF AMERICA AND CCC INFORMATION SERVICES INC., NO. 00 CH 2793 (FILED
2/22/00); LEPIANE V. THE HARTFORD FINANCIAL SERVICES GROUP, INC., HARTFORD
INSURANCE COMPANY OF THE MIDWEST AND CCC INFORMATION SERVICES INC., NO. 00 CH
10545 (FILED 7/18/00).
In the ALVAREZ-FLORES case, the insurance company defendants filed a
motion to compel an appraisal and to stay the litigation pending the appraisal.
The court granted that motion on April 14, 2000. On December 8, 2000, following
the conclusion of the appraisal, the Court granted a motion by the Plaintiff to
lift the stay, except that the Court continued the stay with regard to
discovery. The Court further ordered the defendants to file dispositive motions
regarding the appraisal to be filed by January 26, 2001. CCC and Atlanta
Casualty each filed a motion to dismiss on that date. Those motions are fully
briefed and scheduled for oral argument on April 19, 2001.
In the GIBSON case, the insurance company defendants filed a motion to
compel an appraisal and to stay the litigation pending the appraisal. The court
granted that motion on May 30, 2000. The appraisal is ongoing and the case
remains stayed.
In the KEILLER case, the plaintiff voluntarily dismissed the case without
prejudice on July 6, 2000.
In the MYERS case, the defendants filed motions to dismiss or stay the
plaintiffs' claims on June 15, 2000. The motions were granted in part and denied
in part on September 12, 2000. The Plaintiff filed a First Amended Class Action
Complaint on September 22, 2000. The defendants filed motions to dismiss or stay
the plaintiffs' claims on October 20, 2000. On February 15 and 16, 2001, the
Court dismissed all but one of the plaintiff's claims without prejudice.
Plaintiff filed her Second Amended Class Action Complaint on March 2, 2001.
CCC's answer or other responsive pleading is due on April 9,
50
2001. Briefing is scheduled to be completed on any motions to dismiss the Second
Amended Class Action Complaint on June 7, 2001, and oral argument is currently
scheduled for June 14, 2001.
In the STEPHENS case, the Progressive defendants filed a motion to dismiss
the plaintiff's claims on January 10, 2000. The plaintiff subsequently requested
and was granted leave to file a First Amended Class Action Complaint, which was
filed on September 14, 2000. On December 12, 2000, all defendants filed motions
to stay or dismiss Plaintiffs' claims. Those motions are fully briefed and are
scheduled for oral argument on April 19, 2001.
In the LEPIANE case, CCC filed a motion to dismiss or stay plaintiffs'
claims on October 30, 2000. The motion was scheduled for hearing on February 23,
2001; at that time, however, the Circuit Court judge recused herself. The case
was reassigned to a different judge on February 26, 2001. The motions have not
yet been scheduled for hearing.
On August 23, 2000, a putative statewide class action was filed in the
Circuit Court for Hillsborough County, Florida, against CCC and USAA Casualty
Insurance Company. SINTES V. USAA CASUALTY INS. CO. AND CCC INFORMATION SERVICES
INC., CASE NO. 2000-0006380. Plaintiffs allege that USAA contracted with CCC to
provide valuations of "total loss" vehicles and that CCC supplied valuations
that were intentionally below the fair market value of the insured vehicle. The
plaintiffs assert various common law claims against USAA seeking unspecified
damages. The plaintiffs also assert a single claim for injunctive relief against
USAA and CCC. Plaintiffs also request an award of pre- and post-judgment
interest and an award of attorneys' fees, litigation expenses and costs. The
group of plaintiffs' attorneys who filed the Sintes case includes several
attorneys who have previously filed similar cases against CCC and various of its
customers in the Circuit Court of Cook County, Illinois (see above). CCC filed a
motion to dismiss Plaintiffs' Class Action Complaint and a motion to strike
Plaintiffs' claim for attorneys' fees on December 7, 2000. On February 16, 2001,
the Court entered an order granting CCC's motion to strike Plaintiffs' claim for
attorneys' fees and CCC's motion to dismiss the Class Action Complaint. Although
the Court gave Plaintiffs' leave to file an amended complaint within twenty days
of that order, Plaintiffs declined to do so. Plaintiffs' claims against CCC have
therefore been dismissed without prejudice.
Between June and August of 2000, a separate group of plaintiffs' attorneys
filed three putative class action cases against CCC and various of its insurance
company customers in the State Court of Fulton County, Georgia. Those cases are
MCGOWAN V. PROGRESSIVE CASUALTY INS. CO., PROGRESSIVE INS. CO., AND CCC
INFORMATION SERVICES INC., CASE NO. 00VS006525 (FILED 6/16/00), DASHER V.
ATLANTA CASUALTY CO. AND CCC INFORMATION SERVICES INC., CASE NO. 00VS006315
(FILED 6/16/00) AND WALKER V. STATE FARM MUTUAL AUTOMOBILE INS. CO. AND CCC
INFORMATION SERVICES INC., CASE NO. 00VS007964 (FILED 8/2/00). The plaintiff in
each case alleges that his or her insurance company, using a valuation prepared
by CCC, offered plaintiff an inadequate amount for his or her automobile and
that CCC's TOTAL LOSS valuation product provides values that do not comply with
the applicable Georgia regulations. The plaintiffs assert various common law and
statutory claims against the defendants and seek to represent a nationwide class
of insurance company customers. Additionally plaintiffs seek to represent a
similar statewide sub-class for claims under the Georgia RICO statute.
Plaintiffs seek unspecified compensatory, treble and punitive damages, as well
as an award of attorneys' fees and expenses.
In all three of these cases, the insurance company defendants filed
motions to compel appraisals under the terms of the plaintiffs' insurance
policies. All three cases are pending before the same judge, who held a
consolidated hearing on the insurers' motions on December 19, 2000. At that
hearing, the Court granted the insurers' motions to compel appraisals and to
stay the litigation pending the appraisal process. The cases, including the
plaintiffs' claims against CCC, are now stayed pending the appraisals.
On August 2, 2000, a putative class action purportedly on behalf of
certain residents of fourteen states was filed in the Franklin County Court of
Common Pleas, State of Ohio, against Nationwide Mutual Insurance Company and
CCC. WHITWORTH V. NATIONWIDE MUTUAL INS. CO. AND CCC INFORMATION SERVICES INC.,
CASE NO. CVH-08-6980. The Whitworth lawsuit was filed by a group of plaintiffs'
attorneys that includes certain attorneys who previously filed three putative
class actions against CCC and various of its customers in Fulton County State
Court (reported above). The plaintiffs
51
assert substantially the same claims and seek substantially the same relief as
in those previously filed Fulton County actions. The plaintiffs further allege
that CCC's TOTAL LOSS VALUATION product provides values that do not comply with
applicable regulations in Ohio and thirteen other states. Nationwide filed a
motion to dismiss the Plaintiffs' Complaint on October 16, 2000. CCC filed a
motion to dismiss the Complaint on October 23, 2000. On January 19, 2001, after
the briefing on those motions was completed but before the Court had ruled on
them, Plaintiffs filed a First Amended Complaint. Nationwide and CCC both filed
motions to dismiss the First Amended Complaint on February 26, 2001. No briefing
schedule or oral argument date has been set.
On or about March 27, 1998 a case entitled GARDNER V. ALLSTATE INDEMNITY
CO., CIVIL ACTION 98-D-480-N (M.D. ALA.), was filed in the Circuit Court of
Montgomery County, Alabama. CCC is not named as a defendant in the case, and no
relief is sought against CCC by the plaintiffs. In the Complaint, plaintiffs
asserted claims against one of CCC's customers, Allstate Indemnity Co., for
unjust enrichment and constructive trust and for breach of contract based on
Allstate's use of an unidentified total loss valuation product. Allstate removed
the case to the United States District Court for the Middle District of Alabama
in April 1998 (GARDNER V. ALLSTATE INDEMNITY CO., CIVIL ACTION 98-D-480-N).
Plaintiffs moved for class certification on August 28, 1998. Plaintiffs' class
certification motion was granted on April 28, 2000. Pursuant to the April 28,
2000 order, the district court certified a plaintiff class of all Alabama
customers who, from March 26, 1992 through the time of final judgment in the
case, (1) have been insured under or paid pursuant to an Allstate auto policy,
(2) whose vehicles have been declared a total loss by Allstate; and (3) to whom
Allstate has paid out a claim for a total loss adjusted based on CCC valuations.
The United States District Court for the Middle District of Alabama entered an
order on February 20, 2001 remanding the case to the Circuit Court of Montgomery
County, Alabama. The District Court, which had certified a statewide class of
Allstate customers whose total loss claims had been adjusted by Allstate based
on total loss valuations prepared by CCC, found that it did not have subject
matter jurisdiction over the case.
Four of the Company's automobile insurance company customers have made
contractual and, in some cases, also common law indemnification claims
against the Company for litigation costs, attorneys' fees, settlement
payments and other costs allegedly incurred by them in connection with
litigation relating to their use of the Company's TOTAL LOSS valuation
product. With respect to one of these claims, the Company believes that it is
questionable whether the Company has any responsibility, and in any event,
the Company believes that any amount owed would be immaterial with respect to
both results of operations and financial position. With regard to the
remaining three claims, the Company has not yet been advised of specific
facts to support these customers' demands for indemnification nor has any
specific dollar amount been demanded. In any event, the Company believes it
has defenses to these claims, including, in one instance a general release
and counterclaims for indemnification.
CCC intends to vigorously defend all of the above described lawsuits
and claims to which it is a party, and support its customers in other
actions. Due to the numerous legal and factual issues that must be resolved
during the course of litigation, CCC is unable to predict the ultimate
outcome of any of these actions. If CCC were held liable in any of the
actions (or otherwise concludes that it is in CCC's best interest to settle
any of them), CCC could be required to pay monetary damages (or settlement
payments). Depending upon the theory of recovery or the resolution of the
plaintiff's claims for compensatory and punitive damages, or potential claims
for indemnification or contribution by CCC's customers in any of the actions,
these monetary damages (or settlement payments) could be substantial and
could have a material adverse effect on CCC's business, financial condition
or results of operations. The Company is unable to estimate the magnitude of
its exposure, if any, at this time. As additional information is gathered and
the litigations proceed, CCC will continue to assess its potential impact.
NOTE 25--SUMMARIZED QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table sets forth unaudited consolidated statements of
operations for the quarters in the years ended December 31, 2000 and 1999. These
quarterly statements of operations have been prepared on a basis consistent with
the audited financial statements. They include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
quarterly results of operations, when such results are read in conjunction with
the audited consolidated financial statements and the notes thereto. The
operating results for any quarter are not necessarily indicative of results for
any future period. Amounts are in thousands, except for per share data.
2000 1999
--------------------------------------------- ---------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
---------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
Revenues................... $ 55,424 $ 51,265 51,461 $ 51,630 $ 49,909 $ 50,968 51,649 $ 55,271
Operating expenses......... (48,949) (51,006) (55,925) (55,812) (43,590) (50,337) (47,932) (47,951)
Restructuring charges...... -- -- -- (6,017) -- -- -- (2,242)
Litigation settlements..... -- -- (1,425) (950) -- -- -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
Operating income (loss).... 6,475 259 (5,889) (11,149) 6,319 631 3,717 5,078
52
Interest expense........... (667) (755) (881) (899) (195) (186) (412) (606)
Other income, net.......... 4,377 225 148 363 39 189 175 9
Gain on exchange of
investment securities,
net..................... -- 18,437 -- -- -- -- -- --
Equity in losses of
ChoiceParts............. -- (312) (476) (1,283) -- -- -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
Income (loss) before
income taxes............ 10,185 17,854 (7,098) (12,968) 6,163 634 3,480 4,481
Income tax benefit
(provision)............. (4,837) 2,899 3,153 (2,783) (2,679) (58) (2,099) (2,525)
---------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
Income (loss) before
equity losses and
minority interest....... 5,348 20,753 (3,945) (15,751) 3,484 576 1,381 1,956
Equity in net losses of
affiliates.............. (813) (3,496) (3,657) (7,684) (4,495) (501) (814) (835)
Minority share in earnings
of subsidiaries......... -- -- -- 2 -- -- 1 (1)
---------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
Net income (loss).......... 4,535 17,257 (7,602) (23,433) (1,011) 75 568 1,120
Dividends and accretion on
mandatorily redeemable
preferred stock......... -- -- -- -- (1) (1) -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------- ----------
Net income (loss)
applicable to common
stock................... $4,535 $17,257 $(7,602) $(23,433) $(1,012) $74 $568 $1,120
========== ========== =========== =========== =========== ========== =========== ==========
PER SHARE DATA:
Income (loss) per
common share--basic... $0.20 $0.79 $(0.35) $(1.08) $(0.04) $(0.00) $0.03 $0.05
========== ========== =========== =========== =========== ========== =========== ==========
Income (loss) per
common share--diluted. $0.20 $0.78 $(0.35) $(1.08) $(0.04) $(0.00) $0.03 $0.05
========== ========== =========== =========== =========== ========== =========== ==========
Weighted average shares
outstanding:
Basic................... 22,149 21,959 21,613 21,687 23,720 23,381 22,429 21,920
Diluted................. 22,811 22,113 21,613 21,687 24,135 23,685 22,670 22,225
53
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER ADDITIONS/ AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ------------ ---------- ---------- ---------- ---------
1998 Allowance for Doubtful Accounts. 2,663 8,331 22 (b) (7,758) (a) 3,258
1999 Allowance for Doubtful Accounts. 3,258 8,280 -- (7,563) (a) 3,975
2000 Allowance for Doubtful Accounts. 3,975 4,494 200 4,971 (a) 3,698
1998 Deferred Income Tax Valuation
Allowance......................... 293 -- -- 48 341
1999 Deferred Income Tax Valuation
Allowance......................... 341 -- -- (341) --
2000 Deferred Income Tax Valuation
Allowance......................... -- -- -- 2,826 2,826
- -----------
(a) Accounts receivable write-offs, net of recoveries.
(b) Opening reserve balance for Professional Claims Services Inc.
54
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation for the Company*
3.3 Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 of the Company's 1998 Annual Report on Form
10-K, as amended, Commission File Number 000-28600 filed on April 1,
1999)
10.1 Amended and Restated Credit Facility Agreement between CCC Information
Services Inc., LaSalle Bank National Association and the other financial
institutions party thereto (incorporated herein by reference to Exhibit
10.1 of the Company's 1998 Annual Report on Form 10-K, as amended,
Commission File Number 000-28600 filed on April 1, 1999)
10.2 Waiver and Amendment to Amended and Restated Credit Facility Agreement
between CCC Information Services, Inc. and LaSalle Bank National
Association*
10.3 Second Waiver and Amendment to Amended and Restated Credit Facility
Agreement between CCC Information Services, Inc. and LaSalle Bank
National Association*
10.4* Amended and Restated Security Agreement between CCC Information
Services Inc. and LaSalle Bank National Association
10.5 Amended and Restated MOTOR Crash Estimating Guide Data License
(incorporated herein by reference to Exhibit 10.2 of the Company's 1998
Annual Report on Form 10-K, as amended, Commission File Number 000-28600
filed on April 1, 1999)
10.6 European Version of MOTOR Crash Estimating Guide Data License
(incorporated herein by reference to Exhibit 10.1 of the Company's 1998
Annual Report on Form 10-K, as amended, Commission File Number 000-28600
filed on April 1, 1999)
10.7 Stock Option Plan (incorporated herein by reference to Exhibit 4.03 of
the Company's Registration Statement on Form S-8, Commission File Number
333-15207 filed October 31, 1996)
10.8 1997 Stock Option Plan, as amended (incorporated herein by reference to
Exhibit 4.04 of the Company's Registration Statement on Form S-8,
Commission File Number 333-67645 filed November 20, 1998)
10.9 1997 Stock Option Plan, as amended (incorporated herein by reference to
the Company's Registration Statement on Form S-8, Commission File Number
333-79983 filed June 4, 1999)
10.10 401(K) Company Retirement Saving & Investment Savings Plan (incorporated
herein by reference to Exhibit 4.04 of the Company's Registration
Statement on Form S-8, Commission Number 333-32139 filed July 25, 1997)
10.11 1998 Employee Stock Purchase Plan (incorporated herein by reference to
Exhibit 4.04 of the Company's Registration Statement on Form S-8,
Commission File Number 333-47205 filed March 2, 1998)
10.12 Sale and Purchase Agreement between the Company and Phillip Carter dated
July 1, 1998 (incorporated herein by reference to Exhibit 10.1 of the
Company's 1998 Annual Report on Form 10-K, as amended, Commission File
Number 000-28600 filed on April 1, 1999)
10.13 ChoiceParts, LLC Members' Agreement By and Among ChoiceParts, LLC, ADP,
Inc., CCC Information Services, Inc. and The Reynolds and Reynolds
Company dated May 4, 2000*
10.14 Securities Purchase Agreement dated as of February 23, 2001 Among CCC
Information Services Group Inc., CCC Capital Trust and Capricorn
Investors III, L.P.*
10.15 Registration Rights Agreement dated as of February 23, 2001 Between CCC
Information Services Group Inc. and Capricorn Investors III, L.P.*
10.16 Warrant dated as of February 23, 2001 issued by CCC Information Services
Group Inc. for the benefit of Capricorn Investors III, L.P.*
10.17 Letter Agreement dated as of February 23, 2001 between CCC Information
Services Group Inc. and Capricorn Investors III, L.P.*
10.18 2000 Stock Incentive Plan (incorporated herein by reference to
Exhibit 4.01 of the Company's Registration Statement on Form S-8
Commission File Number 333-51328 filed on December 6, 2000.
10.19* Domestic Subsidiary Security Agreement between CCC Information Services
Inc.'s Subsidiaries and LaSalle Bank National Association
10.20* Waiver and Third Amendment to Amended and Restated Credit Agreement
between CCC Information Services Inc. and LaSalle Bank National
Association
10.21* Pledge Agreement of Domestic Subsidiaries between CCC Information
Services Inc.'s Subsidiaries and LaSalle Bank National Association
13.1 ChoiceParts, LLC Audited Financial Statements for the period May 4, 2000
(Inception) to December 31, 2000*
21 List of Subsidiaries*
23 Consent of PricewaterhouseCoopers LLP*
- -----------------------
*Filed herewith
55
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 17, 2001 CCC INFORMATION SERVICES GROUP
By: /s/ Githesh Ramamurthy By: /s/ Thomas L. Kempner
----------------------------------------------------- -----------------------------------------
Name: Githesh Ramamurthy Name: Thomas L. Kempner
Title: Chairman, President and Chief Executive Officer Title: Director
By: /s/ Reid E. Simpson By: /s/ Dudley C. Mecum
----------------------------------------------------- -----------------------------------------
Name: Reid E. Simpson Name: Dudley C. Mecum
Title: Executive Vice President and Chief Financial Officer Title: Director
By: /s/ Morgan W. Davis By: /s/ Mark A. Rosen
----------------------------------------------------- -----------------------------------------
Name: Morgan W. Davis Name: Mark A. Rosen
Title: Director Title: Director
By: /s/ Michael R. Eisenson By: /s/ Herbert S. Winokur
----------------------------------------------------- -----------------------------------------
Name: Michael R. Eisenson Name: Herbert S. Winokur
Title: Director Title: Director
56
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
Directors Morgan W. Davis
Senior Advisor
White Mountain Insurance Group
Michael R. Eisenson
Managing Director and Chief Executive Officer
Charlesbank Capital Partners LLC
Thomas L. Kempner
Chairman and Chief Executive Officer
Loeb Partners Corporation
Dudley C. Mecum
Managing Director
Capricorn Holdings, LLC and Capricorn Holdings III, LLC
Githesh Ramamurthy
Chairman, President and Chief Executive Officer
CCC Information Services Group Inc.
Mark A. Rosen
Managing Director
Charlesbank Capital Partners LLC
Herbert S. "Pug" Winokur
Chairman and Chief Executive Officer
Capricorn Holdings, Inc.
Executive Officers Githesh Ramamurthy
Chairman, President and Chief Executive Officer
J. Laurence Costin Jr.
Vice Chairman
Phillip J. Carter
President -- CCC International
Stanislav K. Fritz
Executive Vice President -- Product Development
Peter J. Largen
President and Chief Operating Officer -- DriveLogic, Inc.
Blaine R. Ornburg
President -- CCC Consumer Services Inc.
Mary Jo Prigge
President -- CCC U.S.
Reid E. Simpson
Executive Vice President and Chief Financial Officer
57
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CORPORATE INFORMATION
CORPORATE OFFICE
World Trade Center Chicago
444 Merchandise Mart
Chicago, Illinois 60654
(312) 222-4636
TRANSFER AGENT REGISTRAR FOR COMMON STOCK
Computershare Investor Services
Shareholder Inquiries
P.O. Box A3504
Chicago, Illinois 60602
(312)-588-4990
(312)-461-5633 (TDD)
STOCKHOLDER SERVICES
You should contact the Transfer Agent for the stockholder
services listed below:
Change of Mailing Address
Consolidation of Multiple Accounts
Elimination of Duplicate Report Mailings
Lost or Stolen Certificates
Transfer Requirements
Duplicate 1099 Forms
Please be prepared to provide your tax identification or social
security number, description of securities and address of record.
STOCK LISTING AND TRADING SYMBOL
Our common stock is listed on the Nasdaq National
Market System under the trading symbol CCCG.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
203 North LaSalle Street
Chicago, Illinois 60601
STOCKHOLDER AND INVESTMENT
COMMUNITY INQUIRIES
Written inquiries should be sent to the Chief Financial Officer
at our corporate office.
ADDITIONAL INFORMATION
This Annual Report on Form 10-K provides all annual
information filed with the Securities and Exchange
Commission, except for exhibits. A listing of exhibits appears
on page 55 of this Form 10-K. Copies of exhibits will be
provided upon request for a nominal charge. Written requests
should be directed to the Investor Relations Department
at our corporate office.
58