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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2002
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:
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of June 28, 2002, the aggregate market value of the registrant's common
stock held by non-affiliates was approximately $117,379,626, based upon the
closing sales price of the registrant's common stock on NASDAQ on such date.
For purposes of this calculation, all directors, executive officers and holders
of more than 5% of the registrant's outstanding common stock as of such date
were deemed to be "affiliates" of the registrant.
As of March 7, 2003, 26,202,116 shares of the registrant's 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 2003 Annual Meeting of Stockholders and
Proxy Statement.
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CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Organization 1
Products and Services 2
Sales and Marketing 5
Training and Support 5
Customers 5
ChoiceParts Joint Venture 6
Intellectual Property and Licenses 6
Competition 7
Regulation 7
Research and Development 8
Certain Risks Related to our Business 8
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 26
Item 14. Controls and Procedures 26
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27
Signatures 63
Certifications 64
Directors and Executive Officers 68
Corporate Information 69
FORWARD-LOOKING STATEMENTS
In addition to historical facts or statements of current conditions, this
Annual Report on Form 10-K for the year ended December 31, 2002 ("Form 10-K")
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 elsewhere in the Form 10-K.
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. ("CCCG"), 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" and
together with CCCG, collectively referred to as the "Company" or "we"). As a
result of consolidating, divesting and winding down certain operations, the
Company now operates in one business segment. We employed 834 full-time
employees at December 31, 2002, compared to 862 at the end of 2001. 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 related information into organized electronic workfiles.
We develop, market and supply a variety of automobile claim products and
services which enable customers in the automobile claims industry, including
automobile insurance companies, collision repair facilities, independent
appraisers and automobile dealers to manage the automobile claim and vehicle
restoration process.
Our principal products and services are Pathways collision estimating
software, which provide our customers with access to various automobile
information databases and claims management software and Total Loss valuation
services. Revenues from our Pathways collision estimating software
represented 60.6%, 58.3% and 55.6% of our consolidated revenues for the years
ended December 31, 2002, 2001 and 2000, respectively. Revenues from our Total
Loss valuation services represented 23.7%, 25.5% and 26.7% of our consolidated
revenues for the years ended December 31, 2002, 2001 and 2000, respectively.
As of December 31, 2002, 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 by 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 serves as the investment manager with respect to the investment of
White River in the Company.
1
Our principal executive office is located at World Trade Center Chicago,
444 Merchandise Mart, Chicago, Illinois, 60654. Our telephone number is (312)
222-4636 and our Internet home page is located at www.cccis.com; however, the
information in, or that can be accessed through, our home page is not part of
this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to such reports, if any, are
available free of charge, on our Internet home page as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities Exchange Commission (the "SEC").
PRODUCTS AND SERVICES
OVERVIEW
Our products and services include Pathways collision estimating software
and appraisal solution products, and Total Loss valuation services, workflow
products and information services products. CCC has long been a leader and
innovator in the automotive claims and collision repair market. Our Total Loss
product is an established market leader. The Pathways collision estimating
product today has over 25,600 insurance and repair-facility installations in the
U.S. We have also pioneered value-added network communications between
industries involved in claims settlement and today our EZNet network handles an
average of over 1 million claims-related transactions each business day. We
continue to seek products and services to anticipate and respond to changing
demands in the auto-claims industry.
PATHWAYS
Pathways collision estimating software, now referred to as Pathways
Appraisal Solution (for insurance customers), Pathways Estimating Solution (for
repair facility customers), and Pathways Independent Appraiser Solution (for
independent appraisers) helps automobile insurance companies, collision repair
facilities and independent appraisers manage aspects of their day-to-day
automobile claim activities, including receipt of new assignments, preparation
of estimates, communication of status and completed activity and maintenance of
notes and reports. The Pathways platform allows customers to integrate our other
services, including our Digital Imaging product, Recycled Parts Services and
Total Loss valuation services, in order to organize individual claim information
in electronic workfiles, which can be stored on our EZNet communications
network, described in greater detail later in this section under "Workflow
Products." We have received three United States patents for our Pathways line.
Pathways collision estimating software can be used on laptops or desktop
computers.
Pathways gives customers access to the MOTOR Crash Estimating Guide, a
comprehensive estimating guide, prepared by Motor Information Systems, a unit of
Hearst Business Publishing, Inc. ("Hearst"), which provides pricing, labor and
refinishing information for original equipment manufactured parts and recycled
assemblies. 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 an integral component of Pathways. In March
2002, we extended the term of this exclusive license with Hearst until June 30,
2021. For more information about this license, please see the description under
"Intellectual Property and Licenses."
Customers also use Pathways to access databases of information gathered
from various vendors. The databases included in Pathways include one database,
which compiles data from over 850 sources, on local part availability and price
information on aftermarket and reconditioned parts, and another database, which
includes information on pricing and availability of over 12,000 tire models from
26 different manufacturers. Customers using Pathways with Recycled Parts
Services also have access to a database that provides local part availability
and price information on over 15 million available recycled or salvage parts.
For example, a customer may access the database of recycled or salvage 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 integrates that choice into the
estimate workfile.
2
Recycled Parts Services is sold to our customers on a subscription and/or
per transaction basis under multi-year agreements.
We update the MOTOR Crash Estimating Guide and the other integrated
databases used by Pathways for our customers monthly via a CD-ROM except for the
Recycled Parts database, which the vendor updates electronically.
We sell Pathways to automobile insurance companies, collision repair
facilities and independent appraisers under multi-year contracts and bill
customers on a monthly subscription basis one month in advance.
PATHWAYS DIGITAL IMAGING. Imaging integration allows automobile insurance
companies, collision repair facilities and independent appraisers to digitally
photograph and transmit images of damaged vehicles to the Pathways estimate
workfile. These electronic images can be accessed by an authorized participant
in the automobile claim process at any time and from any location that is
web-enabled. 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 our EZNet
communications network, which allows an insurance company representative in New
York to access the same workfile and digital image, review the estimate and
approve the claim. Our EZNet communications network is described in greater
detail later in this section under "Workflow Products." Pathways Digital
Imaging reduces the need for onsite inspections and eliminates film, photo
processing, travel and overnight delivery costs.
We sell Digital Imaging to our customers under multi-year contracts and
bill our customers on a monthly subscription basis one month in advance.
TOTAL LOSS VALUATION SERVICES
TOTAL LOSS. Our Total Loss valuation service, effective February 23, 2003
referred to as CCC VALUESCOPE CLAIM SERVICES, 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, we provide the insurer with
the local market value of the vehicle to assist the insurer in processing the
claim. Our values are based on local market data that identifies the specific
location and price of comparable vehicles. To compile this data, CCC
representatives survey over 3,950 car dealerships in more than 250 markets at
least twice each month to obtain detailed information on the vehicles on the
dealers' used car lots. In addition, we subscribe to more than 1,800 local
newspapers and other publications and cull 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 databases in North America. Each Total Loss valuation also
includes a vehicle identification search under VINguard, which matches a current
vehicle claim against our database of previously totaled or stolen vehicles to
identify potential duplication or possible fraud.
Customers of Total Loss who are also customers of Pathways may access the
Total Loss program electronically using Pathways software. Customers may also
obtain Total Loss valuations from us by telephone, email or facsimile. Our
TL2000 Solution allows customers to submit Total Loss valuation requests and
retrieve Total Loss valuation reports through the Internet via secured access.
In addition, our customers' insureds and claimants can access their own vehicle
valuation reports via the Internet. Customers may store Total Loss valuations on
our EZNet communications network as part of a claims workfile.
TOTAL LOSS ADVANTAGE. Total Loss Advantage permits customers who are not
users of our Pathways collision estimating software to submit Total Loss
valuation requests electronically to us. Our Total Loss valuation service can
also be accessed through Pathways, Total Loss Advantage telephone, facsimile or
the Internet.
COMMERCIAL AND RECREATIONAL VEHICLE VALUATION SERVICES ("CRV"). CRV is the
Company's Total Loss valuation service for commercial and recreational vehicles.
CRV provides valuations for specialty vehicles including trucks, semi-trailers,
marine craft, motorcycles, recreational vehicles and pre-fabricated housing.
3
We sell Total Loss and CRV to our customers, including those who are
Pathways customers, on a per transaction basis under multi-year contracts.
Customers are billed in the month following the transaction.
WORKFLOW PRODUCTS
EZNET COMMUNICATIONS NETWORK. Our EZNet communications network is a secure
network that allows clients to communicate estimates and claim information
electronically. Our customers can access EZNet in various ways, including
dedicated data lines and/or telephone lines via modems. We offer various
services such as dispatch of assignment information, estimate and supplement
retrieval and electronic review of automobile appraisals to our customers that
are provided over our EZNet communications network, all of which comprise our
Electronic Direct Repair services. The network allows customers to
electronically communicate claim information, including assignments, work files,
estimates, images and auditable 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 library to catalog, organize and store completed claims files.
When a customer completes an estimate, the customer may store the estimate
information on our EZNet communications network in the electronic library. For
example, a remote claims adjuster in New York may prepare an estimate using
Pathways collision estimating software and store the completed estimate on
EZNet. EZNet then allows the adjuster's supervisor and other members of his
company's automobile claim team in California to access the estimate on a
confidential basis using a claim reference number.
We sell EZNet services to our customers under multi-year contracts and bill
customers on a per transaction basis. Customers are billed at the beginning of
the month following the transactions.
PATHWAYS APPRAISAL QUALITY SOLUTION. Pathways Appraisal Quality Solution
(QAAR Plus) allows for electronic audits of automobile repair estimates prepared
by direct repair facilities, independent appraisers and internal insurance 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 the 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 an insurance company to establish certain
criteria for reviewing the preparation of estimates, which allows the insurance
company to determine if an appraiser prepared an accurate estimate.
We sell Pathways Appraisal Quality Solution to our customers on a per
transaction basis under multi-year agreements. Customers are billed at the
beginning of the month following the transactions.
CCC AUTOVERSE. During the third quarter of 2002, we launched CCC Autoverse
Claim Management (for insurance customers) and CCC Autoverse Repair Management
(for multiple location repair facilities), both of which are web-based open
workflow solutions that allow for the exchange of claims information derived
from using Pathways products as well as established collision estimating systems
that meet the Collision Industry Electronic Commerce Association EMS standard.
In January 2003, we released version 2.1 of CCC Autoverse. CCC Autoverse permits
the free-flow of communication between those who write damage estimates and
insurers, who process claims.
We sell CCC Autoverse products to our customers on a per transaction basis.
Customers are billed at the beginning of the month following the transactions.
4
INFORMATION SERVICES PRODUCTS
CLAIMSCOPE NAVIGATOR. ClaimScope Navigator is our on-line, web-based
information service that provides a comprehensive method to create management
reports comparing industry and company performance using Pathways and Total Loss
data. ClaimScope Navigator permits our customers to conduct in-depth analyses of
claim information by parts and labor usage, cycle time measurements and vehicle
type and condition. In January 2002, we released ClaimScope Navigator 2.0,
which introduced significant enhancements and added Total Loss data.
We sell our ClaimScope Navigator service on a subscription basis under
multi-year agreements, which are billed to customers one month in advance.
OTHER PRODUCTS AND SERVICES
PATHWAYS ENTERPRISE SOLUTION AND PATHWAYS PROFESSIONAL ADVANTAGE. Pathways
Enterprise Solution is an automotive repair shop management software system for
multiple location collision repair facilities that allows them to manage
accounts, prepare employee schedules and perform various other management
functions. Pathways Professional Advantage, similar to Pathways Enterprise
Solution, is a shop management software system for a single store location.
We sell Pathways Professional Advantage and Pathways Enterprise Solution to
our customers under multi-year contracts and bill customers on a monthly
subscription basis one month in advance.
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 186 sales and service professionals to market and
implement our services.
TRAINING AND SUPPORT
Our training and support staff, which consists of approximately 96
employees, provides basic training in the field, advanced training courses,
telephonic technical support and implementation services. Our training and
support staff consists of individuals with technical knowledge relating not only
to CCC software and services, 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 a customer's location.
CUSTOMERS
We provide our services primarily to automobile insurance companies and
collision repair facilities. Our insurance company customers include most of the
largest U.S. automobile insurance companies and small to medium size automobile
insurance companies serving regional or local markets. Our automotive collision
repair customers include approximately 15,300 collision repair facilities,
located in all 50 states, including most major metropolitan markets. In 2002,
our insurance customer base consisted of approximately 666 Total Loss services
customers and 658 Pathways customers, as well as 138 customers for both Pathways
Enterprise Solution and Pathways Professional Advantage. We charge fees for our
services based on either a monthly subscription or a per transaction basis. No
single customer accounted for more than 6.4% of our total revenues in any of the
last three fiscal years.
5
CHOICEPARTS JOINT VENTURE
On May 4, 2000, we formed a new independent company, ChoiceParts, LLC
("ChoiceParts") with Automatic Data Processing, Inc. ("ADP") and The Reynolds
and Reynolds Company ("Reynolds"). ChoiceParts develops and operates an
electronic parts exchange for the auto parts marketplace for franchised auto
retailers, collision repair facilities and other parts suppliers. We have a
27.5% equity interest in ChoiceParts. See Note 5, "Investment in ChoiceParts,
LLC" for additional information.
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, which we
use 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 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 MOTOR Crash Estimating Guide that we
license from a division of Hearst, we do not believe that our services are
significantly dependent upon licensed data that cannot be obtained from other
vendors. Although we have licensed the estimating guide from Hearst through June
30, 2021, 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 MOTOR Crash Estimating Guide provided
by a division of Hearst could have a material adverse effect on our business,
financial condition and results of operations.
In addition, we license data used in the Recycled Parts database, and in
June 2002, we entered into a data supply agreement with a new provider of
recycled parts data, Car-Part.com. Any interruption of our access to the data
contained in the Recycled Parts database could have a material adverse effect on
our business.
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.
6
COMPETITION
The industry in which we participate is highly competitive. We compete by
offering value added products and services that we believe are unique and by
providing superior customer service for these solutions. Historically, our
principal competitors have included the Claims Services Group of ADP and
Mitchell International Inc. ("Mitchell"). The Claims Services Group of ADP
offers a collision estimating, digital imaging system and a vehicle valuation
service to the automobile insurance industry and a collision estimating and
digital imaging system and a shop management system to the collision repair
industry. Mitchell publishes crash guides for both the automobile insurance and
collision repair industries and markets collision estimating, shop management
and imaging products. In addition, over the past few years we have faced
competition from several new companies, many of which focus on the delivery of
services over the Internet. Over the past few years, we have experienced steady
competitive price pressure.
We intend to address competitive price pressures by providing higher
quality value-added solutions and services that offer more advanced features to
our clients. We also intend to continue to develop unified, user-friendly claim
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 effectively address 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, independent appraisers and regional offices are encouraged to use
one of the approved products, but may choose any other vendor'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.
REGULATION
The Company's insurance company customers are subject to laws and
regulation by individual state insurance regulatory agencies. In many states,
those agencies have promulgated regulations governing the settlement of total
loss insurance claims, and the Company monitors these regulations and their
impact on our Total Loss valuation service. A large portion of the revenue from
our Total Loss valuation service during the year ended December 31, 2002 came
from those states with the largest number of registered vehicles, such as
California, Florida, Illinois, New York, Pennsylvania, Ohio, New Jersey, Georgia
and Texas, with no specific state accounting for more than approximately 17.5%
of the Company's volume for Total Loss.
The Company's Total Loss valuation service has been expressly approved for
use by regulators in several states. In most states, there is no formal
approval process for total loss valuation products, but the Company's Total Loss
product is indirectly affected by the actions of insurance regulators because
the Company's customers are subject to regulation.
Periodically, the Company or its customers receive inquiries from state
insurance regulators regarding various aspects of the Company's Total Loss
valuation service. Most such inquiries are of a routine nature and are addressed
in the ordinary course. However, from time to time, individual state Departments
Of Insurance have taken positions as to whether the use of the Total Loss
service produces valuations is in compliance with a state's claim handling
regulations.
7
The Company recently learned that the California Department of Insurance
has advised some of the Company's customers (which management estimates to be
approximately 10.5% of that product's total revenue earned in 2002) that their
use of our Total Loss valuation product has not been in compliance with
applicable California insurance regulations with respect to a particular
component of the product's methodology. The Company believes the product is, and
has been, in compliance with the current California regulations. In addition,
the California Department of Insurance has proposed new regulations, which, if
enacted, would require the Company to change its methodology for computing Total
Loss valuations in California. Nevertheless, the Company believes that the
methodology employed by its Total Loss product can be revised to meet any
methodology or deadlines imposed by the new California regulations.
RESEARCH AND DEVELOPMENT
For the years 2002, 2001 and 2000 we incurred research and development
costs of $7.6 million, $13.0 million and $11.1 million, respectively.
CERTAIN RISKS RELATED TO OUR BUSINESS
Set forth below and elsewhere in this Report and in other documents we file
with the SEC are risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements contained in this report.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND SERVICES, WHICH MAY
ADVERSELY AFFECT OUR BUSINESS.
The markets in which we compete are increasingly characterized by
technological change. The introduction of competing products and services
incorporating new technologies could render some or all of our products and
services unmarketable. We believe that our future success depends on our ability
to enhance our current products and services and to develop new products and
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 and services may result in unanticipated expenditures and capital
costs, which may not be recovered in the event one or more of our products is
unsuccessful. Our failure to develop and introduce new or enhanced products and
services 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 OUR ACCESS TO DATA 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 June 30,
2021. 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.
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 "Business - Intellectual Property and Licenses" of this section.
8
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 products and services 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 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 12 class
action suits regarding our Total Loss service. If we were to face a full court
trial and be held liable in any of the actions (or otherwise determine that it
is in our best interests to settle any of them), we could incur significant
legal expenses and be required to pay monetary damages (or settlement payments)
that may have a significant negative impact on our financial condition. See Note
23, "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 $62.9
million through December 31, 2002. Additionally, we failed to generate a profit
for the years 2001 and 2000 and prior to 2002 had a persistent decrease in cash
flow in each year, from 1998 to 2001. Losses had resulted principally from
costs incurred in product acquisition and development, from servicing of debt
and from general and administrative costs. The costs exceeded our revenues in
most years prior to 2002. Although we increased our revenue in each of the years
ended December 31, 2002, 2001 and 2000 and generated operating income of $37.3
million in 2002, there can be no assurance that we will be able to sustain this
revenue growth or achieve or maintain profitability in the future.
IF WE ARE UNABLE TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR OBLIGATIONS OR
FIND ALTERNATIVE FINANCING SOURCES, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Our ability to make payments on our 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 $30 million 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
certain investments. As of December 31, 2002, we were in compliance with all of
these covenants and had no advances under the Credit Facility.
9
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. In addition, 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.
VARIOUS STATE LAWS AND REGULATIONS GOVERN THE USE OF OUR TOTAL LOSS SERVICE BY
INSURANCE COMPANIES.
Changes in the content or interpretation of those laws or regulations in a
way that restricts the use of this service by insurance companies may have a
material adverse effect on our business, financial condition and results of
operations.
IT MAY BECOME INCREASINGLY EXPENSIVE TO OBTAIN AND MAINTAIN LIABILITY INSURANCE.
We contract for insurance to cover a variety of potential risks and
liabilities. In the current market, insurance coverage is becoming more
restrictive, and, when insurance coverage is offered, the deductible for which
we are responsible is larger. In light of these circumstances, it may become
more difficult to maintain insurance coverage at historical levels, or if such
coverage is available, the cost to obtain or maintain it may increase
substantially. This may result in our being forced to bear the burden of an
increased portion of risks for which we have traditionally been covered by
insurance, which could negatively impact our results of operations.
TERRORIST ACTS AND ACTS OF WAR MAY SERIOUSLY HARM OUR BUSINESS AND REVENUE,
COSTS AND EXPENSES AND FINANCIAL CONDITION.
Terrorist acts or acts of war may cause damage or disruption to CCC, our
employees, facilities, suppliers, or customers, which could significantly impact
our revenue, costs and expenses and financial condition. The potential for
future terrorist attacks, the national and international responses to terrorist
attacks or perceived threats to national security, and other acts of war or
hostility have created many economic and political uncertainties that could
adversely affect our business and results of operations in ways that cannot
presently be predicted.
10
ITEM 2. PROPERTIES
Our corporate office is located in Chicago, Illinois, where we lease two
spaces of a multi-tenant facility, 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 42,000 square feet of a facility under a lease expiring in June
2012, where a satellite development center and distribution center are housed.
We own a 50,000 square foot facility in Sioux Falls, South Dakota used primarily
for certain customer service and claims processing operations. During 2001, we
vacated approximately 34,000 feet of a multi-tenant facility in Chicago
previously occupied by our discontinued DriveLogic segment under a lease
expiring in March 2006. We are currently attempting to sublease these premises.
In addition, we vacated facilities previously occupied by CCC Consumer Services
and CCC International, both of which were shut down in 2001, and we are
currently subleasing 9,329 square feet of our Sioux Falls facility. We believe
that our existing facilities are adequate to meet our requirements for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The information provided in Note 23 of the financial statements contained
in Item 15(a) 1 of this Form 10-K is incorporated herein by reference.
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 is traded on the Nasdaq National Market under the symbol
"CCCG." The following table sets forth the high and low closing sales prices per
share of our common stock for the fiscal periods indicated:
2002 2001
-------------- --------------
HIGH LOW HIGH LOW
------ ------ ------ ------
First Quarter $ 9.42 $ 6.60 $ 9.88 $6.75
Second Quarter $14.29 $ 9.41 $10.35 $5.94
Third Quarter $13.99 $ 9.79 $ 7.47 $4.95
Fourth Quarter $20.35 $13.52 $ 8.15 $5.37
Our policy has been to retain cash to fund future growth. Accordingly,
since our initial public offering of common stock in August of 1996, we have not
paid any dividends. As of March 7, 2003, there were 26,202,116 shares of common
stock outstanding. There were 70 stockholders of record on March 7, 2003.
11
ITEM 6. SELECTED FINANCIAL DATA
Below are the Company's condensed consolidated statements of operations and
selected balance sheet information for the five years ended December 31, 2002.
This information should be read in conjunction with the Consolidated Financial
Statements, which are included elsewhere in this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues . . . . . . . . . . . . . . . . . . . . $ 191,860 $ 187,941 $ 184,641 $ 179,021 $ 168,811
Expenses:
Operating expenses . . . . . . . . . . . . . . 153,688 175,768 181,018 160,751 145,045
Restructuring charges. . . . . . . . . . . . . 869 10,499 6,017 2,242 1,707
Litigation settlements . . . . . . . . . . . . - 4,250 2,375 - 1,650
-----------------------------------------------------
Operating income (loss). . . . . . . . . . . . . 37,303 (2,576) (4,769) 16,028 24,409
Interest expense . . . . . . . . . . . . . . . . (708) (5,680) (3,135) (1,358) (252)
Other income (expense), net. . . . . . . . . . . 455 (248) 5,101 412 697
Gain on exchange of investment securities, net . - - 18,437 - -
Loss on investment securities and notes. . . . . - (28,267) - - -
CCC Capital Trust minority interest expense. . . (3,984) (1,371) - - -
Equity in net losses of ChoiceParts investment . (291) (2,486) (2,071) - -
-----------------------------------------------------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 32,775 (40,628) 13,563 15,082 20,854
Income tax (provision) benefit . . . . . . . . . (10,420) 18,329 (3,452) (7,352) (8,997)
-----------------------------------------------------
Income (loss) from continuing operations before
equity losses. . . . . . . . . . . . . . . . . 22,355 (22,299) 10,111 7,730 11,857
Equity in net losses of affiliates . . . . . . . - (2,354) (15,650) (6,645) (11,658)
-----------------------------------------------------
Income (loss) from continuing operations . . . . 22,355 (24,653) (5,539) 1,085 199
Income (loss) from discontinued operations, net
of income taxes. . . . . . . . . . . . . . . . 354 (5,972) (3,704) (333) (280)
-----------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . 22,709 (30,625) (9,243) 752 (81)
Dividends and accretion on mandatorily
redeemable preferred stock . . . . . . . . . . - - - (2) 43
-----------------------------------------------------
Net income (loss) applicable to common stock . . $ 22,709 $ (30,625) $ (9,243) $ 750 $ (38)
=====================================================
INCOME (LOSS) PER COMMON SHARE-BASIC
Income (loss) from continuing operations . . . $ 0.86 $ (1.12) $ (0.25) $ 0.05 $ 0.01
Income (loss) from discontinued operations . . 0.01 (0.27) (0.17) (0.02) (0.01)
-----------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . $ 0.87 $ (1.39) $ (0.42) $ 0.03 $ -
=====================================================
INCOME (LOSS) PER COMMON SHARE-DILUTED
Income (loss) from continuing operations . . . $ 0.83 $ (1.12) $ (0.25) $ 0.05 $ 0.01
Income (loss) from discontinued operations . . 0.01 (0.27) (0.17) (0.02) (0.01)
-----------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . $ 0.84 $ (1.39) $ (0.42) $ 0.03 $ -
=====================================================
Weighted average shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . 25,850 21,967 21,851 22,856 24,616
Diluted. . . . . . . . . . . . . . . . . . . . 26,904 21,967 21,851 23,162 25,188
12
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------
(in thousands)
SELECTED CONSOLIDATED BALANCE SHEET DATA:
Cash and marketable securities. . . . . . . . . $ 20,200 $ 766 $ 912 $ 1,378 $ 1,526
Working capital . . . . . . . . . . . . . . . . (4,444) (20,256) (24,886) (3,868) 3,281
Total assets. . . . . . . . . . . . . . . . . . 67,843 62,194 94,688 84,549 79,018
Long-term debt, excluding current maturities. . - 7,145 42,000 24,685 11,000
Mandatorily redeemable preferred stock. . . . . - 13,370 - - 688
Stockholders' equity (deficit). . . . . . . . . $ 21,184 $ (6,811) $ 2,118 $ 15,261 $ 35,303
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read together with the Company's
consolidated financial statements and notes thereto, appearing elsewhere in this
Form 10-K. This item contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed in Item 1, "Business - Certain Risks
Related to our Business."
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of our financial condition and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. We review the accounting policies, including those
described in Note 2, "Significant Accounting Policies," we use in reporting our
financial results on a regular basis. The preparation of these financial
statements requires us to make estimates, assumptions and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to our accounts receivable, net,
income taxes, goodwill, software development costs, fair value of financial
instruments and commitments and contingencies. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions. Our senior management has reviewed these critical accounting
policies and related disclosures with the Audit Committee and Disclosure
Committee. (See, "Preparation of Financial Information" in this section, for
further discussion of the Disclosure Committee.)
We believe the following critical accounting policies relate to those
policies that are most important to the presentation of our financial statements
and require the most difficult, subjective and complex judgments.
ACCOUNTS RECEIVABLE, NET. Accounts receivable as presented in the
accompanying consolidated balance sheet are net of reserves for customer
allowances and doubtful accounts. We determine allowances for accounts
receivable based on specific identification of customer accounts requiring
allowances and the application of a predetermined percentage to the remaining
accounts receivable balances. Generally, we determine the allowance based on our
assessment of the realization of receivables using historical information and
current economic trends, including assessing the probability of collection from
customers. If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than our historical experience, the recoverability
of amounts due could be adversely affected.
13
INCOME TAXES. Deferred income taxes are provided for timing differences in
recognizing certain income and expense items for financial reporting purposes.
Such deferred income taxes primarily relate to the timing of recognition of
certain revenue and expense items, the timing of the deductibility of certain
reserves and accruals for income tax purposes. We establish a tax valuation
allowance to the extent that it is more likely than not that the deferred tax
assets will not be realizable against future taxable income. During 2001 we
recorded a net loss of $27.1 million on the write-off of the ChannelPoint
investment and note receivable, including accrued interest. For tax purposes,
$20.8 million of this loss was considered a capital loss, which can only be
offset with net capital gains. We believe that it is more likely than not that
the capital loss will not be realized; therefore, a valuation allowance has been
established for this item. We also have foreign net operating losses from prior
years related to our former CCC International operations. We have established a
valuation allowance for the full amount of these foreign net operating losses
because realization of these assets is not more likely than not.
We have considered future market growth, forecasted earnings, future
taxable income, the mix of earnings in the jurisdictions in which we operate and
prudent and feasible tax planning strategies in determining the need for
valuation allowances. In the event we were to determine that we would not be
able to realize all or part of our net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to earnings in the period
such determination is made. Likewise, if we later determine that it is more
likely than not that the deferred tax assets would be realized, the previously
provided valuation allowances would be reversed.
During the third quarter of 2002, the Company filed amended income tax
returns to claim research and experimentation tax credits applicable to the
years 1998, 1999 and 2000 and recorded a credit to income tax expense of
$2 million, which is the Company's best estimate of the amount of tax credits to
be realized. The Company also recorded research and experimentation credits of
$0.4 million for 2002. We believe that our approach in determining the amount
of credits is reasonable, however this could ultimately result in changes, once
they are reviewed by taxing authorities.
GOODWILL. In 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 became effective for the Company
January 1, 2002. Under SFAS 142, goodwill is no longer amortized to earnings,
but instead is reviewed for impairment on at least an annual basis. The Company
completed the required transitional impairment analysis on June 30, 2002 and
determined that there was no impairment in the value of goodwill. In addition,
when events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable, we perform an analysis of undiscounted future
cash flows to determine whether recorded amounts are impaired. As of December
31, 2002, no such events or changes in circumstances have occurred since our
impairment analysis was performed in June 2002.
The unamortized goodwill balance as of December 31, 2002 was $4.9 million.
This goodwill originated from a 1988 acquisition that included the Total Loss
service. We currently generate approximately 24% of our total revenue from Total
Loss and related services. In the future, net cash flows from the Total Loss
service will be utilized in determining if the goodwill is impaired. At December
31, 2002, no such impairment existed.
SOFTWARE DEVELOPMENT COSTS. The Company expenses research and development
costs as they are 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 software 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 software products is generally not established
until the development of the software product is nearly complete. The Company
defines technological feasibility as the completion of a working model. The
period of time during which costs could be capitalized, from the point of
reaching technological feasibility until the time of general product release,
has historically been very short and, consequently, amounts subject to
capitalization have not been significant. Should our development process change
significantly the Company would reevaluate the impact of SFAS No. 86.
14
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of our financial
instruments approximates their estimated fair value based upon market prices for
the same or similar type of financial instruments. We perform an impairment
review whenever events or changes in circumstances indicate that the carrying
value of these investments and notes receivable may not be recoverable. Factors
we consider important which could trigger an impairment review include market
conditions, valuations for similar companies, financial performance and a going
concern risk. During the year ended December 31, 2001, we determined that
certain investments and notes receivable had incurred a decline in value that
was considered other than temporary. We determined that the carrying value of
our investments in and related notes receivable from ChannelPoint and Info4cars
may not be recoverable based upon the existence of one or more of the above
impairment factors. We recorded a charge of $22.7 million and $0.3 million for
ChannelPoint and Info4cars, respectively, which represented the remaining
carrying value of these investments. In addition, we provided allowances of
$4.9 million and $0.8 million for the notes receivables and accrued interest
from ChannelPoint and Info4cars, respectively.
COMMITMENTS AND CONTINGENCIES. Loss contingencies are recorded as
liabilities when it is probable that a liability has been incurred and the
amount of the loss is reasonably estimable. Contingent liabilities are often
resolved over long time periods. Estimating probable losses requires analysis
of multiple factors that often depend on judgments about potential actions by
third parties such as regulators. We regularly evaluate current information
available to us to determine whether such accruals should be adjusted.
In 2001, we recorded a charge of $4.3 million to write off excess office
space in Chicago, formerly occupied by DriveLogic. This charge was recorded
after a complete review of our short-term and long-term facility requirements.
The charge included future rent commitments of $5.4 million and the write off of
leasehold improvements of $2.1 million, net of expected future sublease income
of $3.2 million. During 2002, the Company recorded an additional $0.9 million
charge to revise the estimated future sublease income from $3.2 million to $2.3
million as a result of the current weak conditions of the real estate market. If
the Company has not sublet the office space by September 30, 2003, we will
reevaluate the amount recorded, at that time. However, if events or
circumstances change prior to September 30, 2003, the Company will reevaluate
the charge at that time. The lease for this office space expires March 31, 2006.
While we believe that the assumptions used are appropriate, significant
differences in actual experience or significant changes in assumptions would
affect the charge recorded.
We recorded a charge of $4.3 million, net of an expected insurance
reimbursement of $2.0 million, in 2001 as an estimate of the amount we will
contribute towards the potential settlement of the largest of the class action
lawsuits related to our Total Loss valuation service. This charge was based on
Statement of Financial Accounting Standards No. 5 "Accounting For Contingencies"
that establishes standards of financial accounting and reporting for loss
contingencies. We anticipate that the settlement would eliminate the viability
of class claims in 7 of the 12 class action suits pending against the Company
related to the Total Loss service. Upon completion, the anticipated settlement
would resolve potential claims arising out of approximately 30% of the Company's
total transaction volume during the time period covered by the lawsuit. The
Company currently anticipates that the proposed settlement would include a
resolution of any potential claims for indemnification or contribution by its
customers relating to the transactions covered by the settlement. As of December
31, 2002, the Company believes that the charge recorded is an appropriate
estimate for the settlement of the claims covered by the anticipated settlement.
As additional information is gathered and the litigations (both those covered by
the anticipated settlement, as well as others) proceed, we will continue to
assess their potential impact.
PREPARATION OF FINANCIAL INFORMATION
We believe that the application of accounting standards is as important as
the underlying financial data in reporting our financial position, results of
operations and cash flows. The Company believes that its accounting policies are
prudent and provide a clear view of the Company's financial performance. The
Company has formed a Disclosure Committee, composed of senior management,
including senior financial and legal personnel, to help ensure the completeness
and accuracy of the Company's financial results and disclosures. In addition,
prior to the release of the Company's financial results, the Company's key
management reviews the Company's annual and quarterly results, along with key
accounting policies and estimates, with the audit committee of our Board of
Directors.
15
2002 COMPARED WITH 2001
OPERATING INCOME. Operating income increased year over year by $39.9
million, to $37.3 million, in 2002, due to a decrease in expenses of $36.0
million and an increase in revenues of $3.9 million. Our operating margins
(operating income (loss) as a percentage of revenue), increased to 19.4% for the
year ended 2002 compared to (1.4%) in 2001. The increase in operating income and
margin for the year ended 2002 was due primarily to a continued improvement in
profitability resulting from our restructuring, which occurred in June 2001.
Operating loss for the year ended 2001 included a restructuring charge of
$(10.5) million, an estimated charge for settlement of a lawsuit related to our
Total Loss valuation service of $(4.3) million and an operating loss of $(3.4)
million for CCC International, which was shut down in June 2001.
REVENUES. Revenues for the year ended December 31, 2002 of $191.9 million
were $3.9 million, or 2.1%, higher than the same period last year. Revenues
from our U.S. business increased $5.6 million, or 3.0% in 2002, compared to the
same period last year.
Revenue by major product and service groups are as follows:
2002 2001 2000
-------------------------------
Pathways. . . . . . . . . . . . . . . . . . . $ 116,231 $ 109,568 $ 102,585
Total Loss Valuation Services . . . . . . . . 45,463 47,977 49,332
Workflow Products . . . . . . . . . . . . . . 22,602 19,706 14,054
Information Services Products . . . . . . . . 1,134 828 487
Other Products and Services . . . . . . . . . 6,430 8,180 10,431
------------------------------
Total Revenue from U.S.Operations . . . . . 191,860 186,259 176,889
Total Revenue from International Operations - 1,682 7,752
-------------------------------
Total Revenue . . . . . . . . . . . . . . $ 191,860 $ 187,941 $ 184,641
===============================
Revenues from our Pathways' products increased for the year ended 2002 by
$6.7 million, or 6.1%, compared to the same period of 2001. This was primarily
led by an increase in the number of new automotive collision repair customers,
an increase in units from existing collision repair facilities and an increase
in the number of Pathways Digital Imaging product units used by our automotive
collision repair customers.
Revenues from our Total Loss valuation services decreased by $2.5 million,
or 5.2%, from the year ended December 31, 2001 compared to the same period of
2002 as a result of lower transaction volumes due primarily to a customer
switching to an in-house solution.
Revenues from our workflow products, including our EZNet communications
network, our Pathways Appraisal Quality Solution and our CCC Autoverse Claim
Management solution, increased in 2002 by $2.9 million, or 14.7%, compared to
the same period of 2001. This was mainly due to increased transaction volume
from several new customers and existing insurance companies adding new direct
repair transactions to the EZNet communications network.
Revenue from information services increased $0.3 million, or 37.0%, due to
an insurance customer adopting ClaimScope Navigator in 2002.
Revenues from our other products and services, which include the
Computerized Automobile Rental System ("CARS") and the leasing of computer
hardware, decreased by $1.8 million, or 21.4%. The decrease was mainly
attributable to a decrease in transaction volume related to our CARS service, a
decrease in the number of units leased and a renegotiated price for a customer
leasing hardware.
16
OPERATING EXPENSES. Operating expenses as a percentage of revenues are
summarized as follows:
2002 2001 2000
------------------------------------------------------
Revenues. . . . . . . . . . . . . . . . $ 191,860 100.0% $ 187,941 100.0% $ 184,641 100.0%
Production and Customer Support . . . . 28,376 14.8 32,498 17.3 41,449 22.4
Commissions, Royalties and Licenses . . 10,411 5.4 10,129 5.4 13,512 7.3
Selling, General and Administrative . . 77,449 40.4 90,892 48.4 86,663 46.9
Depreciation and Amortization . . . . . 9,069 4.7 11,820 6.3 11,499 6.2
Product Development and Programming . . 28,383 14.8 30,429 16.2 27,895 15.1
Restructuring Charges . . . . . . . . . 869 0.5 10,499 5.6 6,017 3.3
Settlements . . . . . . . . . . . . . . - - 4,250 2.3 2,375 1.3
Total Operating Expenses. . . . . . . . 154,557 80.6 190,517 101.4 189,410 102.6
PRODUCTION AND CUSTOMER SUPPORT. Production and customer support decreased
from $ 32.5 million, or 17.3% of revenue, to $28.4 million, or 14.8% of
revenue. The year-over-year decrease was due to a decrease of $1.5 million as a
result of our shut down of CCC International, $1.3 million due to lower
headcount and associated costs related to improved efficiency in the customer
support area, including the consolidation of certain customer support functions
and $0.9 million due to renegotiated reduced rates for telecommunication,
service bureau and network costs.
COMMISSIONS, ROYALTIES AND LICENSES. Commissions, royalties and licenses
increased from $10.1 million, or 5.4% of revenues, to $10.4 million, or 5.4%
of revenues. These expenses remained relatively stable year-over-year.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
decreased from $90.9 million, or 48.4% of revenues, to $77.4 million, or
40.4% of revenues. These expenses decreased primarily as a result of the
benefits of the restructuring in 2001 and profit improvement initiatives in
2002. Other contributing factors were lower communication expenses, lower web
hosting fees and reduced conferences held in 2002.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased from
$11.8 million, or 6.3% of revenues, to $9.1 million, or 4.7% of revenues.
Depreciation and amortization decreased as a result of fewer investments in
internal use software and customer leased computer equipment and our adoption in
January 2002 of SFAS 142, which ceased the amortization of goodwill.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
decreased from $30.4 million, or 16.2% of revenue, to $28.4 million, or 14.8%
of revenue. The decrease was due to lower development expenses, resulting from
the consolidation of our DriveLogic business unit and the associated
reduction-in-force partially offset by hiring additional staff and additional
consulting work for increased product development efforts.
RESTRUCTURING CHARGES. In June 2001, we announced a set of strategic
decisions as part of a company-wide effort to improve profitability. As a
result, we recorded a restructuring charge of $2.8 million, which consisted
primarily of severance and outplacement costs related to the termination of 130
employees.
In addition, we recorded a charge of $3.4 million in June 2001 related to
our decision to shut down CCC International in order to focus on U.S. market
opportunities. This charge consisted of a write-off of goodwill of $1.1
million, contractual commitments (including office space) of $0.5 million and
severance and related costs to terminate 39 employees of $1.8 million.
17
During 2001, we also recorded a charge of $4.3 million to write off excess
office space in Chicago, formerly occupied by DriveLogic. This charge was
recorded after a complete review of our short-term and long-term facility
requirements. The charge included future rent commitments of $5.4 million and
the write off of leasehold improvements of $2.1 million, net of expected future
sublease income of $3.2 million. In 2002, the Company recorded an additional
$0.9 million charge to revise the estimated future sublease income from $3.2
million to $2.3 million as a result of the current weak conditions of the real
estate market. If the Company does not sublet the office space by September 30,
2003, it will need to reevaluate the amount recorded, at that time. The lease
for this office space expires March 31, 2006. See Note 7, "Restructuring
Charges."
LITIGATION SETTLEMENTS. We recorded a charge of $4.3 million, net of an
expected insurance reimbursement of $2.0 million, in 2001 as an estimate of the
amount we will contribute towards the potential settlement of the largest of the
class action lawsuits related to our Total Loss valuation service. This charge
was based on Statement of Financial Accounting Standards No. 5 "Accounting For
Contingencies" that establishes standards of financial accounting and reporting
for loss contingencies. We anticipate that the settlement would eliminate the
viability of class claims in 7 of the 12 class action suits pending against the
Company related to the Total Loss service. Upon completion, the anticipated
settlement would resolve potential claims arising out of approximately 30% of
the Company's total transaction volume during the time period covered by the
lawsuit. The Company currently anticipates that the proposed settlement would
include a resolution of any potential claims for indemnification or contribution
by its customers relating to the transactions covered by the settlement. As of
December 31, 2002, the Company believes that the charge recorded is an
appropriate estimate for the settlement of the claims covered by the anticipated
settlement. As additional information is gathered and the litigations (both
those covered by the anticipated settlement, as well as others) proceed, we will
continue to assess their potential impact.
INTEREST EXPENSE. Interest expense decreased from $5.7 million in 2001 to
$0.7 million in 2002. The decrease from 2001 was driven by a lower level of
borrowings, a decrease in interest rates charged and lower amortization of
deferred financing fees related to our Credit Facility. The lower level of
borrowings was due primarily to the utilization of net proceeds of $18.1 million
from a rights offering in December 2001 to reduce our outstanding debt, in
addition to the cash generated from operations associated with increased
profitability. In April 2002, we repaid the remaining balance on our Credit
Facility and have had no borrowings since that time.
LOSS ON INVESTMENT SECURITIES AND NOTES. We recorded a loss in the second
quarter of 2001 of approximately $27.1 million in connection with the write-off
of the investment in ChannelPoint, including a $4.9 million allowance related to
a note receivable plus accrued interest. This charge was based on our
evaluation of the collectibility of the note and the review of our carrying
value of the ChannelPoint common stock. See Note 3, "Investment in
InsurQuote/ChannelPoint." In addition, we recorded a loss in 2001 of
approximately $1.1 million for the write-off of our investment in Info4cars.com
Inc., a provider of vehicle history reports and other products ("Info4cars"),
including a $0.8 million allowance related to notes receivable plus accrued
interest. This charge was based on a review of Info4cars' financial statements
and representations from Info4cars' management. Both notes were settled and are
no longer outstanding as of December 31, 2002.
MINORITY INTEREST EXPENSE. We recorded minority interest expense of $4.0
million for the year ended 2002 versus $1.4 million for the same period last
year. The minority interest expense is associated with the issuance on February
23, 2001 of the Trust Preferred Securities to Capricorn Investors III, L.P and
represents Capricorn Investors III, L.P.'s share of CCC Capital Trust's income.
In October of 2002 we purchased the outstanding Trust Preferred Securities from
Capricorn, and as a result will not have any interest expense relating to these
securities starting in November 2002. See Note 14, "CCC Capital Trust." Assuming
the Trust Preferred Securities had not been repurchased early, the following is
the Company's estimate of the amount of minority interest expense that would
have been incurred in the year's 2003 through the scheduled maturity date of the
Trust Preferred Securities in 2006.
TOTAL 2003 2004 2005 2006
--------------------------------------
Minority interest expense savings $7,607 $2,107 $2,392 $2,695 $ 413
======================================
18
EQUITY IN NET LOSSES OF CHOICEPARTS. We recorded a charge of $0.3 million
for the year ended December 31, 2002 related to our 27.5% share of the losses in
ChoiceParts compared to a charge of $2.5 million for the same period in 2001.
ChoiceParts was established in May 2000. See Note 5, "Investment in
ChoiceParts, LLC."
INCOME TAXES. Income taxes increased from a benefit of $18.3 million, or
45.1% of losses from continuing operations before taxes, in 2001, to a tax
provision of $10.4 million, or 31.8% of income from continuing operations
before taxes, in 2002. The tax benefit of $18.3 million in 2001, reflects the
tax effect of the shut down of CCC International of $13.9 million, the
ChannelPoint allowance recorded of $2.4 million and other pre-tax losses of $2.0
million. The 2002 increase was mainly attributable to pretax income partially
offset by research tax credits of $2.4 million.
EQUITY IN NET LOSSES OF AFFILIATES. In conjunction with our decision to
reduce investments in and shut down CCC International, in May 2001 we ceased
funding the operating losses of Enterstand. As a result, the operations of
Enterstand ceased.
DISCONTINUED OPERATIONS. Income from discontinued operations, the former
CCC Consumer Services segment, net of income taxes increased from a loss of
$6.0 million in 2001 to income of $0.4 million in 2002. See Note 8,
"Discontinued Operations."
2001 COMPARED WITH 2000
For the year ended December 31, 2001, we reported a net loss of $(30.6)
million, or $(1.39) per share on a diluted basis, versus a net loss applicable
to common stock of $(9.2) million, or $(0.42) per share on a diluted basis, for
the same period in 2000. For the year ended December 31, 2001, we had an
operating loss of $(2.6) million compared to an operating loss of $(4.8) million
in 2000. The decrease in operating losses of $2.2 million from 2000 was
principally the result of an increase in revenues of $3.3 million, or 1.8% being
offset, in part, by an increase in operating expenses of $1.1 million, or 0.58%.
For 2001, CCC U.S. had revenues of $186.3 million and CCC International had
revenues of $1.6 million, which represented 99.1% and 0.9% of the total 2001
consolidated revenues, respectively. For 2000, CCC U.S. had revenues of $176.9
million and CCC International had revenues of $7.8 million, which represented
95.8% and 4.2% of the total 2000 consolidated revenues, respectively. These
changes were primarily due to an increase in CCC U.S.'s revenue from its EZNet
communications network and its Pathways Appraisal Quality Solution and Pathways
collision estimating products, and our decision in the second quarter of 2001 to
shut down CCC International.
In 2001, operating margins (operating income (loss) as a percentage of
revenue), for our two revenue producing segments were 0.50% for CCC U.S. and
(206.2)% for CCC International compared to 3.1% for CCC U.S. and (131.2)% for
CCC International in 2000. The operating margins for CCC U.S. include operating
results for DriveLogic, previously reported as a segment, and shared services
and exclude the results for the discontinued operations of CCC Consumer
Services, which we wound down during 2001.
REVENUES. Revenues for the year ended December 31, 2001 of $187.9 million
were $3.2 million, or 1.8%, higher than the same period last year. The increase
in revenues was primarily attributable to an increase in CCC U.S.'s revenue of
$9.4 million, or 5.3%, from its EZNet communications network due to higher
transaction volume and its Pathways collision estimating product due to an
increase in the number of units used by automotive collision repair customers.
Electronic Direct Repair, Pathways Appraisal Quality Solution and Recycled Parts
Service, which comprised less than 15% of our total consolidated revenues in
2001, increased by approximately 30% in 2001 over the prior year. CCC
International revenues decreased year-over-year by $6.2 million, or 78.3%, due
to the Company's decision in June 2001 to shut down these operations. The
decision to shut down the business was the result of continued underperformance
and expected future losses.
19
PRODUCTION AND CUSTOMER SUPPORT. Production and customer support decreased
from $41.4 million, or 22.5% of revenue, to $32.5 million, or 17.3% of revenue.
The year over year decrease was due primarily to lower expenses associated with
the Company's decision to shut down CCC International. The expenses related to
CCC International decreased $8.0 million. In addition, CCC U.S.'s decrease was
primarily due to lower headcount and associated costs related to improved
efficiency in the customer support area including the consolidation of certain
customer support functions from Glendora, California to our headquarters in
Chicago, Illinois in March 2001.
COMMISSIONS, ROYALTIES AND LICENSES. Commission, royalties and licenses
decreased from $13.5 million, or 7.3% of revenues, to $10.1 million, or 5.4% of
revenues. The decrease in dollars and as a percentage of revenues was due mainly
to a reduction in license fees associated with our Pathways Enterprise Solution
and Pathways Professional Advantage products. In the third quarter of 2000, we
determined that certain prepaid marketing fees paid to a third party associated
with these products were impaired. This determination was based on an analysis
of projected future revenue and profitability streams of the shop management
products associated with this marketing fee. As a result we recorded a charge of
$1.9 million in connection with the write-off of this asset. In addition,
outside sales commissions paid to independent sales representatives decreased
from the completion of the conversion of these representatives to salaried
employees in the first half of 2000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
increased from $86.7 million, or 46.9% of revenues, to $90.9 million, or 48.4%
of revenues. This increase is primarily attributable to the investments of $3.0
million made in the first half of 2001 in DriveLogic, when DriveLogic was
operated as a separate business unit. In addition, CCC U.S. recorded a fourth
quarter 2000 gain of $4.3 million related to the final resolution of previously
accrued expenses associated with a vendor agreement focused on technology
testing and rollout of certain products and services. Other contributing
factors in the increase of expenses, was the conversion of independent sales
representatives to salaried employees and higher outside legal fees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
from $11.5 million, or 6.2% of revenues, to $11.8 million, or 6.3% of revenues.
The increase was mainly the result of additional amortization of internal use
software costs of $0.6 million, primarily a new human resources and payroll
system implemented in 2000. Depreciation and amortization also increased as a
result of additional investments in computer equipment and software, leasehold
improvements and office furniture associated with our former DriveLogic segment.
Partially offsetting this increase was a decrease of $1.1 million in CCC
International due to our decision to shut down the operations in the U.K.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
increased from $27.9 million, or 15.1% of revenue, to $30.4 million, or 16.2% of
revenue. This increase occurred during the first half of 2001 due to new
product development efforts related to DriveLogic, a former segment of CCC. In
June of 2001, we instituted a cost savings plan as part of a company-wide effort
to improve profitability. As a result, we consolidated the development efforts
of CCC U.S. and DriveLogic and reduced expenses in the second half of the year
by $2.8 million.
RESTRUCTURING CHARGES. In June 2001, we announced a set of strategic
decisions as part of a company-wide effort to improve profitability. As a
result, we recorded a restructuring charge of $2.8 million, which consisted
primarily of severance and outplacement costs related to the termination of 130
employees. During the fourth quarter of 2001, we recorded a charge of $4.3
million to write off excess office space in Chicago, formerly occupied by
DriveLogic. This charge was recorded after a complete review of our short-term
and long-term facility requirements. The charge included future rent
commitments of $5.4 million and the write off of leasehold improvements of $2.1
million, net of expected future sublease income of $3.2 million. See Note 7,
"Restructuring Charges."
20
In addition, we recorded a charge of $3.4 million in June 2001 related to
our decision to shut down CCC International in order to focus on U.S. market
opportunities. This charge consisted of a write-off of goodwill of $1.1
million, contractual commitments, including office space, of $0.5 million and
severance and related costs to terminate 39 employees of $1.8 million. 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-off the goodwill, severance and related costs to
terminate approximately 86 employees, write-down the fixed assets to net
realizable value and contractual commitments. See Note 7, "Restructuring
Charges."
LITIGATION SETTLEMENTS. We recorded a charge of $4.3 million, net of an
expected insurance reimbursement of $2.0 million, in the fourth quarter of 2001
as an estimate of the amount we will contribute towards the potential settlement
of the largest of the class action lawsuits related to our Total Loss valuation
service. This charge was based on Statement of Financial Accounting Standards
No. 5 "Accounting For Contingencies" that establishes standards of financial
accounting and reporting for loss contingencies. It requires accrual by a
charge to income for an estimated loss from a loss contingency if two conditions
are met: (a) information available prior to issuance of the financial statements
indicates that it is probable that an asset has been impaired or a liability has
been incurred at the date of the financial statements, and (b) the amount of
loss can be reasonably estimated. CCC anticipates that the settlement would
eliminate the viability of class claims in 14 of the 21 class action suits
pending against the Company related to the Total Loss service. Upon completion,
the anticipated settlement would resolve potential claims arising out of
approximately 30% of the Company's total transaction volume during the time
period covered by the lawsuit. The Company currently anticipates that the
proposed settlement would include a resolution of any potential claims for
indemnification or contribution by its customers relating to the transactions
covered by the settlement.
In 2000, we recorded a charge of $1.4 million 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 $3.2 million in 2000 to
$5.7 million in 2001. The increase from 2000 was driven by a higher level of
borrowings, an increase in interest rates charged and higher amortization of
deferred financing fees related to amendments to the Company's credit facility
agreement, including the write off of unamortized deferred financing fees of
$1.4 million related to the prior credit facility.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased from
$5.1 million in 2000 to $(0.2) million in 2001. The decrease 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."
LOSS ON INVESTMENT SECURITIES AND NOTES. We recorded a loss in the second
quarter of 2001 of approximately $27.1 million in connection with the write-off
of the investment in ChannelPoint, including a $4.9 million allowance related to
a note receivable plus accrued interest. This charge was based on our
evaluation of the collectibility of the note and the review of our carrying
value of the ChannelPoint common stock. See Note 3, "Investment in
InsurQuote/ChannelPoint". In addition, we recorded a loss in the fourth quarter
of 2001 of approximately $1.1 million for the write-off of our investment in
Info4cars.com Inc., a provider of vehicle history reports and other products
("Info4cars"), including a $0.8 million allowance related to notes receivable
plus accrued interest. This charge was based on a review of Info4cars'
financial statements and representations from Info4cars' management.
21
MINORITY INTEREST EXPENSE. We recorded minority interest expense of $1.4
million associated with the issuance on February 23, 2001 of the Trust Preferred
Securities to Capricorn Investors III, L.P. The minority interest expense
represents Capricorn Investors III, L.P.'s share of CCC Capital Trust's income.
EQUITY IN NET LOSSES OF CHOICEPARTS. We recorded a charge of $2.5 million
for the year ended December 31, 2001 related to our share of the losses in
ChoiceParts compared to a charge of $2.1 million for the period May 4, 2000
through December 31, 2000. ChoiceParts was established in May 2000. See Note
5, "Investment in ChoiceParts, LLC."
INCOME TAXES. Income taxes decreased from $3.5 million, or 25.5% of income
from continuing operations before taxes, to a tax benefit of $18.3 million, or
45.1% of losses from continuing operations before taxes. The tax benefit of
$18.3 million reflects the tax effect of the shut down of CCC International of
$13.9 million, the ChannelPoint allowance recorded of $2.4 million and other
pre-tax losses of $2.0 million.
EQUITY IN NET LOSSES OF AFFILIATES. Equity in net losses of affiliates
decreased from $15.7 million in 2000 to $2.4 million in 2001. The Enterstand
losses during the year ended December 31, 2000 reflect 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 and the first
quarter of 2001, we funded 100% of the operating losses of Enterstand and
recorded 100% of Enterstand's operating losses. In conjunction with our
decision to reduce investments in and shut down CCC International, in May 2001,
we ceased funding the operating losses of Enterstand. As a result, the
operations of Enterstand ceased and we stopped recording the losses of
Enterstand.
DISCONTINUED OPERATIONS. Loss from discontinued operations, the former CCC
Consumer Services segment, net of income taxes, increased from $3.7 million in
2000 to $6.0 million in 2001.
22
QUARTERLY RESULTS OF OPERATIONS/SUPPLEMENTARY FINANCIAL INFORMATION
The following table sets forth unaudited condensed consolidated statements
of operations for the quarters in 2002 and 2001. These condensed 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.
Three-Month Period Ended
-----------------------------------------------------------------------------------------
MAR.31, JUNE 30, SEPT.30, DEC.31, MAR.31, JUNE 30, SEPT.30, DEC.31,
2001 2001 2001 2001 2002 2002 2002 2002
-----------------------------------------------------------------------------------------
Revenues. . . . . . . . . . . . . . . $ 47,390 $ 46,128 $ 46,592 $ 47,831 $ 47,500 $ 48,178 $ 47,797 $ 48,385
Operating expenses. . . . . . . . . . (45,632) (46,885) (42,741) (40,510) (38,290) (38,978) (38,641) (37,779)
Restructuring charges . . . . . . . . - (6,199) - (4,300) - - (869) -
Litigation settlements. . . . . . . . - - - (4,250) - - - -
-----------------------------------------------------------------------------------------
Operating income (loss) . . . . . . . 1,758 (6,956) 3,851 (1,229) 9,210 9,200 8,287 10,606
Interest expense. . . . . . . . . . . (1,251) (1,188) (1,145) (2,096) (228) (168) (160) (152)
Other income (expense), net . . . . . 286 401 44 (979) 217 (7) 76 169
CCC Capital Trust minority interest
expense. . . . . . . . . . . . . . (150) (384) (410) (427) (448) (461) (475) (2,600)
Loss on investment securities and
notes. . . . . . . . . . . . . . . - (27,595) - (672) - - - -
Equity in income (loss) of
ChoiceParts. . . . . . . . . . . . (876) (795) (481) (334) (292) (50) 47 4
-----------------------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes . . (233) (36,517) 1,859 (5,737) 8,459 8,514 7,775 8,027
Income tax benefit (provision). . . . 105 17,957 (946) 1,213 (3,243) (3,218) (754) (3,205)
-----------------------------------------------------------------------------------------
Income (loss) from continuing
operations before equity losses. . (128) (18,560) 913 (4,524) 5,216 5,296 7,021 4,822
Equity in net income (losses) of
affiliates . . . . . . . . . . . . (2,692) 79 259 - - - - -
-----------------------------------------------------------------------------------------
Income (loss) from continuing
operations . . . . . . . . . . . . (2,820) (18,481) 1,172 (4,524) 5,216 5,296 7,021 4,822
Income (loss) from discontinued
operations, net of income taxes. . (6,982) - - 1,010 - - 354 -
-----------------------------------------------------------------------------------------
Net income (loss) . . . . . . . . . . $ (9,802) $ (18,481) $ 1,172 $ (3,514) $ 5,216 $ 5,296 $ 7,375 $ 4,822
=========================================================================================
PER SHARE DATA:
Income (loss) per common share-
basic. . . . . . . . . . . . . . . $ (0.45) $ (0.85) $ 0.05 $ (0.16) $ 0.20 $ 0.21 $ 0.28 $ 0.19
=========================================================================================
Income (loss) per common share-
diluted. . . . . . . . . . . . . . $ (0.45) $ (0.85) $ 0.05 $ (0.16) $ 0.20 $ 0.20 $ 0.27 $ 0.17
=========================================================================================
Weighted average shares outstanding:
Basic. . . . . . . . . . . . . . . . 21,768 21,794 21,821 22,480 25,699 25,826 25,873 26,000
Diluted. . . . . . . . . . . . . . . 21,768 21,794 21,895 22,480 26,138 26,767 26,904 27,574
23
OUTLOOK FOR 2003
As part of the Company's fourth quarter earnings release, the Company
provided initial guidance for 2003 results.
Revenue is expected to increase in the low to mid-single digit range, with
growth accelerating in the second half of the year. Operating income is expected
to be in the $40 to $43 million range. We expect income and operating margin
growth to also accelerate in the second half of the year as our new product
releases are expected to add meaningfully to the baseline. Our EPS target range
is $0.92 to $0.96 cents per share, using a fully diluted base of 27.7 million
shares in our calculation.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2002, net cash provided by operating
activities was $45.6 million and proceeds received from the exercise of stock
options was $3.1 million. The Company used $13.4 million to purchase the Trust
Preferred Securities, $8.6 million for the purchase of equipment and software
and $6.5 million, net, for the repayment of our Credit Facility. Included in the
$45.6 million net cash provided by operating activities is interest expense of
$4.0 million related to the Trust Preferred Securities.
Our principal liquidity requirements consist of our operating activities,
including product development, our investments in internal and customer capital
equipment and potential funding requirements for our ChoiceParts investment and
other business development activities. We have the ability to operate with a
working capital deficit, as we receive substantial payments from our customers
for our services in advance of recognizing the revenues and the costs incurred
to provide such services. We invoice each customer one month in advance for the
following month's Pathways' services. As such, we typically receive cash from
our 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. In addition, management believes that cash flows from operations and
our available Credit Facility will be sufficient to meet our liquidity needs for
the year ending December 31, 2003. 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.
OFF-BALANCE SHEET ARRANGEMENTS
We are not party to any transactions, arrangements and other relationships
with unconsolidated entities or other persons that are reasonably likely to
materially affect liquidity or the availability of or requirements for capital
resources.
EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
On February 23, 2001, CCC Capital Trust issued 15,000 Trust Preferred
Securities and CCCG 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, which was later reduced to $6.875 per
share, to Capricorn Investors III, L.P., one of our existing stockholders. CCCG
and CCC Capital Trust received an aggregate purchase price of $15.0 million from
the sale of these securities. The proceeds from the sale were used for general
corporate purposes. During the fourth quarter of 2002, the Company purchased the
outstanding Trust Preferred Securities from Capricorn for $16.3 million and
recorded a $2.5 million pre-tax charge. See Note 14, "CCC Capital Trust."
Three of our largest institutional stockholders and warrant holders, White
River Ventures, Inc., Capricorn Investors II L.P. and Capricorn Investors III
L.P., agreed to purchase their pro-rata share of the Rights Offering, as well as
all of the shares not subscribed for by our other stockholders or warrant
holders, up to an aggregate of $20 million. In consideration for this, we issued
these stockholders a total of 293,000 warrants, in December 2001, to purchase
shares of our common stock at a price of $5.50 per share. The closing of the New
Credit Facility prior to the Rights Offering required the utilization of an
interim loan provided by White River Ventures Inc., Capricorn Investors II L.P.
and Capricorn Investors III L.P. as part of their agreement to purchase all
those shares not subscribed for by our other stockholders or warrant holders. In
consideration for this, we issued White River Ventures Inc., Capricorn Investors
II L.P. and Capricorn Investors III L.P., a total of 99,612 warrants to purchase
shares of our common stock at a price of $5.50 per share. This interim loan was
repaid upon the closing of the Rights Offering on December 31, 2001. See Note
15, "Rights Offering."
24
In January 2002, we received a promissory note from the Chief Executive
Officer and Chairman of the Board in the amount of $1.2 million for the purchase
of 192,000 treasury shares at a price of $6.25 per share. This promissory note
accrues interest, payable on a quarterly basis beginning March 1, 2003, at 6.75%
and matures in January 2007.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Our contractual obligations under capital leases and operating leases are
as follows:
TOTAL 2003 2004 2005 2006 2007 THEREAFTER
--------------------------------------------------------------
Capital lease obligations $ 646 487 158 - - - -
Operating leases. . . . . $39,919 11,994 11,020 9,342 2,668 2,529 2,366
--------------------------------------------------------------
Total . . . . . . . . . . $40,565 $12,481 $11,178 $9,342 $2,668 $2,529 $ 2,366
==============================================================
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Due to the shut down of our operations in the United Kingdom, in 2001, we
no longer believe our financial results will be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in the
foreign markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required with respect to
this Item 8 are listed in Item 15(a)(1) and 15(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, 2002.
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, 2002.
25
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, 2002.
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, 2002.
ITEM 14. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934 as amended (the "Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, the Company has investments in certain
unconsolidated entities. As the Company does not control or manage these
entities, its disclosure controls and procedures with respect to such entities
are necessarily substantially more limited than those it maintains with respect
to its consolidated subsidiaries.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.
Changes in internal controls
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
26
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements and Schedules
1. Consolidated Financial Statements
PAGE
Report of Independent Accountants 28
Consolidated Financial Statements:
Consolidated Statements of Operations 29
Consolidated Balance Sheets 30
Consolidated Statements of Cash Flows 31
Consolidated Statements of Stockholders' Equity (Deficit) 33
Notes to Consolidated Financial Statements 34
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts 59
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
The exhibits required by this item are set forth on the exhibit
index attached hereto 60
(b) Reports on Form 8-K
A report on Form 8-K, dated October 21, 2002, was filed on October 28,
2002, disclosing information related to the purchase of the Trust
Preferred Securities issued by CCC Capital Trust to Capricorn Investors
III, L.P., one of the Company's major stockholders.
27
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 index
appearing under Item 15(a)1 present fairly, in all material respects, the
financial position of CCC Information Services Group Inc. and its subsidiaries
at December 31, 2002 and December 31, 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002 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 index appearing under Item 15(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 the
Company'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.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
January 30, 2003
28
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-------------------------------
2002 2001 2000
-------------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191,860 $187,941 $184,641
Expenses:
Production and customer support . . . . . . . . . . . . . . . . 28,376 32,498 41,449
Commissions, royalties and licenses . . . . . . . . . . . . . . 10,411 10,129 13,512
Selling, general and administrative . . . . . . . . . . . . . . 77,449 90,892 86,663
Depreciation and amortization . . . . . . . . . . . . . . . . . 9,069 11,820 11,499
Product development and programming . . . . . . . . . . . . . . 28,383 30,429 27,895
Restructuring charges . . . . . . . . . . . . . . . . . . . . . 869 10,499 6,017
Litigation settlements. . . . . . . . . . . . . . . . . . . . . - 4,250 2,375
-------------------------------
Operating income (loss). . . . . . . . . . . . . . . . . . . . . 37,303 (2,576) (4,769)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (708) (5,680) (3,135)
Other income (expense), net. . . . . . . . . . . . . . . . . . . 455 (248) 5,101
Gain on exchange of investment securities, net . . . . . . . . . - - 18,437
Loss on investment securities and notes. . . . . . . . . . . . . - (28,267) -
CCC Capital Trust minority interest expense. . . . . . . . . . . (3,984) (1,371) -
Equity in losses of ChoiceParts investment . . . . . . . . . . . (291) (2,486) (2,071)
-------------------------------
Income (loss) from continuing operations before income taxes . . 32,775 (40,628) 13,563
Income tax (provision) benefit . . . . . . . . . . . . . . . . . (10,420) 18,329 (3,452)
-------------------------------
Income (loss) from continuing operations before equity losses. . 22,355 (22,299) 10,111
Equity in net losses of affiliates . . . . . . . . . . . . . . . - (2,354) (15,650)
-------------------------------
Income (loss) from continuing operations . . . . . . . . . . . . 22,355 (24,653) (5,539)
Income (loss) from discontinued operations, net of income taxes. 354 (5,972) (3,704)
-------------------------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 22,709 $(30,625) $(9,243)
===============================
PER SHARE DATA:
Income (loss) per common share - basic from:
Income (loss) from continuing operations. . . . . . . . . . . . $ 0.86 $ (1.12) $ (0.25)
Income (loss) from discontinued operations. . . . . . . . . . . 0.01 (0.27) (0.17)
-------------------------------
Income (loss) per common share-basic. . . . . . . . . . . . . . $ 0.87 $ (1.39) $ (0.42)
===============================
Income (loss) per common share - diluted from:
Income (loss) from continuing operations. . . . . . . . . . . . $ 0.83 $ (1.12) $ (0.25)
Loss from discontinued operations . . . . . . . . . . . . . . . 0.01 (0.27) (0.17)
-------------------------------
Income (loss) per common share-diluted. . . . . . . . . . . . . $ 0.84 $ (1.39) $ (0.42)
===============================
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,850 21,967 21,851
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,904 21,967 21,851
The accompanying notes are an integral part of these
consolidated financial Statements.
29
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------------
2002 2001
-------------------------
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,200 $ 766
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,281 11,346
Current portion deferred income taxes. . . . . . . . . . . . . . . . . . . . . - 5,322
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,499 6,461
-------------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,980 23,895
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . 12,407 13,487
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,896 4,896
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . 10,454 18,587
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479 302
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 1,027
-------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,843 $ 62,194
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Book overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 1,205
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,424 7,658
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,441 28,570
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,568 -
Current portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . 6,503 6,297
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 488 421
-------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 43,424 44,151
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,145
Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 66
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,222 3,737
Net liabilities of discontinued operations . . . . . . . . . . . . . . . . . . - 536
-------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,659 55,635
-------------------------
Commitments and contingencies (Notes 21 and 23)
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely company-guaranteed debentures. . . . . . . . . . . . . - 13,370
-------------------------
Common stock ($0.10 par value, 40,000,000 shares authorized, 26,074,889 and
25,503,567 shares outstanding at December 31, 2002 and 2001, respectively). 3,005 2,967
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 128,766 124,188
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,878) (85,587)
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . - (10)
Notes receivable from officer. . . . . . . . . . . . . . . . . . . . . . . . . 1,506) -
Treasury stock, at cost (4,094,665 and 4,286,665 common shares in treasury at
December 31, 2002 and December 31, 2001, respectively). . . . . . . . . . . (46,203) (48,369)
-------------------------
Total stockholders' equity (deficit). . . . . . . . . . . . . . . . . . . . . 21,184 (6,811)
-------------------------
Total liabilities and stockholders' equity (deficit). . . . . . . . . . . . . $ 67,843 $ 62,194
=========================
The accompanying notes are an integral part of these
consolidated financial statements.
30
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31,
---------------------------------
2002 2001 2000
---------------------------------
Operating Activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,709 $(30,625) $ (9,243)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
(Income) loss from discontinued operations, net of income taxes. . . . . (354) 5,972 3,704
Equity in net losses of affiliates . . . . . . . . . . . . . . . . . . . - 2,354 15,650
Equity in net losses of ChoiceParts. . . . . . . . . . . . . . . . . . . 291 2,486 2,071
Depreciation and amortization of property and equipment. . . . . . . . . 9,069 10,574 9,698
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . - 1,247 2,173
Deferred income tax provision (benefit). . . . . . . . . . . . . . . . . 13,456 (17,331) (1,254)
Loss on investment securities and notes receivable . . . . . . . . . . . - 28,267 -
Gain on exchange of investment securities, net . . . . . . . . . . . . . - - (18,437)
Gain on settlement of marketing agreement. . . . . . . . . . . . . . . . - - (3,644)
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . 869 10,499 6,017
CCC Capital Trust minority interest expense. . . . . . . . . . . . . . . - 1,371 -
Interest on notes receivable from officer. . . . . . . . . . . . . . . . (106) - -
Write-off of internally developed software . . . . . . . . . . . . . . . - - 2,906
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 326 (86)
Changes in:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . 1,065 5,521 1,824
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . (1,649) (1,331) 1,619
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 1,689 1,439
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (437) (9,649) (1,818)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,021) 4,518 2,629
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 3,459 3,533 1,101
Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . 153 2,198 895
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,543) 112 (22)
---------------------------------
Net cash provided by operating activities:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . 45,552 21,731 17,222
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . 30 (3,485) (4,783)
---------------------------------
Net cash provided by operating activities. . . . . . . . . . . . . . . . 45,582 18,246 12,439
---------------------------------
Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (8,609) (2,889) (17,508)
Capitalized acquisition costs. . . . . . . . . . . . . . . . . . . . . . (193) - -
Investment in affiliates . . . . . . . . . . . . . . . . . . . . . . . . (275) (5,163) (13,691)
Issuance of warrants to Hearst . . . . . . . . . . . . . . . . . . . . . 318 475 -
Purchase of InsurQuote securities. . . . . . . . . . . . . . . . . . . . - - (527)
Settlement of ChannelPoint note receivable . . . . . . . . . . . . . . . - 460 -
Proceeds from sale of discontinued businesses. . . . . . . . . . . . . . - 657 -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 120 (75)
---------------------------------
Net cash used for investing activities . . . . . . . . . . . . . . . . . (8,759) (6,340) (31,801)
---------------------------------
31
Financing Activities:
Book overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (7,477) 7,052
Principal repayments on long-term debt . . . . . . . . . . . . . . . . . (28,500) (88,875) (35,811)
Proceeds from borrowings on long-term debt . . . . . . . . . . . . . . . 22,000 53,375 53,000
Proceeds from Rights Offering. . . . . . . . . . . . . . . . . . . . . . - 20,000 -
Payment of Trust Preferred, Credit Facility and Rights Offering costs. . - (4,342) -
Proceeds from issuance of Trust Preferred Securities and warrants. . . . - 15,206 -
Purchase of Trust Preferred Securities . . . . . . . . . . . . . . . . . (13,369) - -
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . 3,112 109 2,498
Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . 377 530 632
Payments to acquire treasury stock . . . . . . . . . . . . . . . . . . . - - (8,235)
Principal repayments of capital lease obligations. . . . . . . . . . . . (421) (578) -
Principal repayments on short term note. . . . . . . . . . . . . . . . . (588) - -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (51)
---------------------------------
Net cash provided by (used for) financing activities . . . . . . . . . . (17,389) (12,052) 19,085
---------------------------------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . 19,434 (146) (277)
Cash and cash equivalents
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 912 1,189
---------------------------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,200 $ 766 $ 912
=================================
The accompanying notes are an integral part of these
consolidated financial statements.
32
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
OUTSTANDING
COMMON STOCK ACCUMULATED
------------------- ADDITIONAL OTHER
NUMBER OF PAR PAID-IN ACCUMULATED COMPREHENSIVE
SHARES VALUE CAPITAL DEFICIT LOSS (INCOME)
--------------------------------------------------------------
December 31, 1999. . . . . . . . . . . . . . . . . . . . . 21,991,826 $2,549 $ 98,799 $ (45,719) $ (65)
Stock options exercised including income tax benefit . . 358,267 36 3,856 - -
Employee stock purchase plan . . . . . . . . . . . . . . 77,736 8 624 - -
Treasury stock purchases . . . . . . . . . . . . . . . . (683,550) - - - -
Translation adjustment . . . . . . . . . . . . . . . . . - - - - (358)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 - - - -
Net loss . . . . . . . . . . . . . . . . . . . . . . . . - - - (9,243) -
--------------------------------------------------------------
Comprehensive loss . . . . . . . . . . . . . . . . . . . - - - (9,243) (358)
--------------------------------------------------------------
December 31, 2000. . . . . . . . . . . . . . . . . . . . . 21,759,279 $2,593 $103,279 $ (54,962) $ (423)
--------------------------------------------------------------
Rights Offering proceeds, net of offering costs. . . . . 3,636,364 363 18,108 - -
Issuance of warrants in connection with interim loan . . - - 206 - -
Warrants issued in connection with Trust Preferred
Securities . . . . . . . . . . . . . . . . . . . . . . . - - 3,000 - -
Issuance costs of Trust Preferred Securities . . . . . . - - (1,039) - -
Stock options exercised including income tax benefit . . 14,600 1 114 - -
Employee stock purchase plan . . . . . . . . . . . . . . 93,324 10 520 - -
Translation adjustment . . . . . . . . . . . . . . . . . - - - - 413
Net loss . . . . . . . . . . . . . . . . . . . . . . . . - - - (30,625) -
--------------------------------------------------------------
Comprehensive loss . . . . . . . . . . . . . . . . . . . - - - (30,625) 413
--------------------------------------------------------------
December 31, 2001. . . . . . . . . . . . . . . . . . . . . 25,503,567 $2,967 $124,188 $ (85,587) $ (10)
--------------------------------------------------------------
Issuance of warrants to Hearst . . . . . . . . . . . . . - - 793 - -
Treasury stock purchases . . . . . . . . . . . . . . . . 192,000 - (966) - -
Interest on notes receivable from officer . . . . . . . - - - - -
Stock options exercised including income tax benefit . . 334,402 35 3,781 - -
Employee stock purchase plan . . . . . . . . . . . . . . 44,920 3 374 - -
Tax benefit related to issuance costs of Trust Preferred
Securities . . . . . . . . . . . . . . . . . . . . . . . - - 399 - -
Translation adjustment . . . . . . . . . . . . . . . . . - - - - 10
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - - 197 - -
Net income . . . . . . . . . . . . . . . . . . . . . . . - - - 22,709 -
--------------------------------------------------------------
December 31, 2002. . . . . . . . . . . . . . . . . . . . . 26,074,889 $3,005 $128,766 $ (62,878) $ -
==============================================================
NOTES TREASURY STOCK
RECEIVABLE --------------------- TOTAL
FROM NUMBER OF STOCKHOLDERS'
OFFICER SHARES COST EQUITY (DEFICIT)
---------------------------------------------------
December 31, 1999. . . . . . . . . . . . . . . . . . . . . $ - 3,618,115 $(40,303) $ 15,261
Stock options exercised including income tax benefit . . - - - 3,892
Employee stock purchase plan . . . . . . . . . . . . . . - - - 632
Treasury stock purchases . . . . . . . . . . . . . . . . - 683,550 (8,235) (8,235)
Translation adjustment . . . . . . . . . . . . . . . . . - - - (358)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - (15,000) 169 169
Net loss . . . . . . . . . . . . . . . . . . . . . . . . - - - (9,243)
---------------------------------------------------
Comprehensive loss . . . . . . . . . . . . . . . . . . . - - - (9,601)
---------------------------------------------------
December 31, 2000. . . . . . . . . . . . . . . . . . . . . $ - 4,286,665 $(48,369) $ 2,118
---------------------------------------------------
Rights Offering proceeds, net of offering costs. . . . . - - - 18,471
Issuance of warrants in connection with interim loan . . - - - 206
Warrants issued in connection with Trust Preferred
Securities . . . . . . . . . . . . . . . . . . . . . . . - - - 3,000
Issuance costs of Trust Preferred Securities . . . . . . - - - (1,039)
Stock options exercised including income tax benefit . . - - - 115
Employee stock purchase plan . . . . . . . . . . . . . . - - - 530
Translation adjustment . . . . . . . . . . . . . . . . . - - - 413
Net loss . . . . . . . . . . . . . . . . . . . . . . . . - - - (30,625)
---------------------------------------------------
Comprehensive loss . . . . . . . . . . . . . . . . . . . - - - (30,212)
---------------------------------------------------
December 31, 2001. . . . . . . . . . . . . . . . . . . . . $ - 4,286,665 $(48,369) $ (6,811)
---------------------------------------------------
Issuance of warrants to Hearst . . . . . . . . . . . . . - - - 793
Treasury stock purchases . . . . . . . . . . . . . . . . (1,200) (192,000) 2,166 -
Interest on notes receivable from officer . . . . . . . (106) - - (106)
Stock options exercised including income tax benefit . . - - - 3,816
Employee stock purchase plan . . . . . . . . . . . . . . - - - 377
Tax benefit related to issuance costs of Trust Preferred
Securities . . . . . . . . . . . . . . . . . . . . . . . - - - 399
Translation adjustment . . . . . . . . . . . . . . . . . - - - 10
Other. . . . . . . . . . . . . . . . . . . . . . . . . . (200) - - (3)
Net income . . . . . . . . . . . . . . . . . . . . . . . - - - 22,709
---------------------------------------------------
December 31, 2002. . . . . . . . . . . . . . . . . . . . . $ (1,506) 4,094,665 $(46,203) $ 21,184
===================================================
The accompanying notes are an integral part of these
consolidated financial statements.
33
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESSES AND ORGANIZATION
CCC Information Services Group Inc. ("CCCG"), 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" and
together with CCCG, collectively referred to as the "Company" or "we"), which
operates as one business segment. As of December 31, 2002 we employed 834
full-time employees, compared to 862 at the end of 2001. We automate the process
of evaluating and settling automobile claims. Our products and services allow
our customers to integrate estimate information, including labor time and cost
and various other calculations derived from our extensive databases, electronic
images, documents and 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 and
automobile dealers to manage the automobile claims and vehicle restoration
process. Our principal products and services are Total Loss valuation services
and Pathways collision estimating software, which provide our customers with
access to various automobile information databases and claims management
software.
As of December 31, 2002, 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 by 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 serves 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original or remaining maturity of less than three months at the date of purchase
to be cash equivalents. All cash equivalents are carried at cost, which
approximates fair value. Any realized gains or losses are shown in the
accompanying consolidated statements of operations in other income or expense.
REVENUE RECOGNITION
Revenues are recognized after services are provided, when persuasive
evidence of an arrangement exists, the fee is fixed and determinable and when
collection is probable. Revenue is deferred until all of the above-mentioned
criteria are met. Revenues are reflected net of customer allowances, which are
based on the application of a predetermined percentage. During the years ended
December 31, 2002, 2001 and 2000, 57%, 60% and 62%, respectively, of
consolidated revenues were derived from insurance companies.
34
ACCOUNTS RECEIVABLE, NET
Accounts receivable as presented in the accompanying consolidated balance
sheets are net of reserves for customer allowances and doubtful accounts. The
Company determines allowances for accounts receivable based on specific
identification of customer accounts requiring allowances and the application of
a predetermined percentage to the remaining accounts receivable balances. As of
both, December 31, 2002 and 2001, $2.3 million has been applied as a reduction
of accounts receivable. Of total accounts receivable, net of reserves, at
December 31, 2002 and 2001, $9.5 million and $10.4 million, respectively, were
due from insurance companies.
Activity in the allowance for doubtful account is as follows:
BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND OTHER NET OF END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
- ---------------------------------------- ------------------------------------------------------------------
2000 Allowance for Doubtful Accounts (a) $ 3,914 4,172 97 (4,912) $ 3,271
2001 Allowance for Doubtful Accounts (a) $ 3,271 1,920 83 (2,986) $ 2,288
2002 Allowance for Doubtful Accounts $ 2,288 1,755 26 (1,756) $ 2,313
(a) The allowance for doubtful accounts for 2000 and 2001 have been
restated to exclude balances related to discontinued operations.
SOFTWARE DEVELOPMENT COSTS
The Company expenses research and development costs as they are 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 period of time during which costs could be capitalized, from
the point of reaching technological feasibility until the time of general
product release, has historically been very short and, consequently, amounts
subject to capitalization have not been significant. For the years 2002, 2001
and 2000, research and development costs of approximately $7.6 million, $13.0
million and $11.1 million, respectively, are reflected in the accompanying
consolidated statements 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; 2-3 year
life for purchased software, licenses and databases; 5 year life for furniture
and other equipment; the term of the lease, ranging from 3 to 15 years for
leasehold improvements; the term of the lease for capital leases and 20 year
life for buildings.
35
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 reviewed for impairment on at least an annual basis. In
addition, when events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable, we perform an analysis of
undiscounted future cash flows to determine whether recorded amounts are
impaired. As of December 31, 2002, no such impairment existed. The goodwill
balance as of December 31, 2002 was $4.9 million. This goodwill originated from
a 1988 acquisition that included the Total Loss service. We currently generate
approximately 24% of our total revenue from Total Loss and related services. In
the future, net cash flows from the Total Loss service will be utilized in
determining if the goodwill is impaired.
See Note 7, "Restructuring Charges" for discussion of the write-off of
goodwill in 2000 and 2001 related to the shut down of CCC International.
The following table presents the impact of SFAS 142 on net income (loss)
and net income (loss) per share had the accounting standard been in effect for
fiscal 2001 and 2000 (in thousands, except per-share amounts):
2002 2001 2000
----------------------------
Net income (loss) - as reported . . . . . . . . . . $22,709 $(30,625) $(9,243)
Amortization of goodwill. . . . . . . . . . . . . . - 1,247 2,173
----------------------------
Net income (loss) - as adjusted . . . . . . . . . . $22,709 $(29,378) $(7,070)
============================
Basic net income (loss) per share - as reported . . $ 0.87 $ (1.39) $ (0.42)
============================
Basic net income (loss) per share - as adjusted . . $ 0.87 $ (1.34) $ (0.32)
============================
Diluted net income (loss) per share - as reported . $ 0.84 $ (1.39) $ (0.42)
============================
Diluted net income (loss) per share - as adjusted . $ 0.84 $ (1.34) $ (0.32)
============================
DEFERRED FINANCING COSTS
Deferred financing costs are capitalized and amortized over the life of the
underlying financing agreement. As of December 31, 2002 and 2001, deferred
financing costs, net of accumulated amortization, of $0.6 million and $0.9
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. During the fourth quarter of 2001, the
Company recorded a foreign currency loss of $0.4 million in connection with the
shut down of CCC International. Translation adjustments of $0.4 million and
$(0.4) million for 2001 and 2000, respectively, are included in accumulated
other comprehensive loss as a separate component of stockholders' equity
(deficit) in the consolidated balance sheet.
36
INCOME TAXES
Deferred income taxes are provided for timing differences in recognizing
certain income and expense items for financial reporting purposes. Such
deferred income taxes primarily relate to the timing of recognition of certain
revenue and expense items, the timing of the deductibility of certain reserves
and accruals for income tax purposes. The Company establishes a tax valuation
allowance to the extent that it is more likely than not that the deferred tax
assets will not be realizable against future taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments approximates its
estimated fair value based upon market prices for the same or similar type of
financial instruments. The Company performs an impairment review whenever events
or changes in circumstances indicate that the carrying value of these
investments and notes receivable may not be recoverable. Factors the Company
considers important, which could trigger an impairment review include market
conditions, valuations for similar companies, financial performance and a going
concern risk. See Note 3, "Investment in InsurQuote/ChannelPoint" and Note 6,
"Dispositions."
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 ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company has adopted the disclosure provisions required by
SFAS 123.
PER SHARE INFORMATION
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 20, "Earnings Per Share."
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
On July 30, 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"). The standard requires companies to recognize costs
associated with exit or disposal activities at fair value, when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company anticipates that the adoption of SFAS 146
will not have a significant effect on the Company's results of operations or its
financial position.
37
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability
be recorded in the guarantor's balance sheet upon issuance of a guarantee. The
adoption of FIN 45 did not have a significant effect on the Company's results of
operations or its financial position.
In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. CCC is currently
evaluating the effect that the adoption of EITF Issue No. 00-21 will have on its
results of operations and financial condition.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of FASB Statement No. 123" ("SFAS 148"). The standard
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to
require prominent disclosure in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company will adopt the new
disclosure requirements, as required in the quarterly report on Form 10-Q for
the quarterly period ended March 31, 2003. The Company anticipates that the
adoption of SFAS 148 will not have a significant effect on the Company's results
of operations or its financial position.
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
In 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 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.
Also in 1998, 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. This agreement was
subsequently amended in March 1999. In March 2000, the Company and InsurQuote
agreed to terminate the sales and marketing 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 maturing in
September 2002 and bearing interest at 7.5%, and was paid $0.5 million in cash.
As a result of the termination agreement, the Company recorded a gain on the
settlement of this agreement of approximately $4.1 million, which was included
in other income in the consolidated statement of operations for the year ended
December 31, 2000.
In 2001, the Company evaluated the collectibility of the $4.5 million note
receivable from ChannelPoint, which had since acquired InsurQuote. Based on the
evaluation, the Company provided an allowance of $4.9 million for the note
receivable and accrued interest through June 30, 2001. A deferred tax benefit
of $1.8 million was recorded as a result of this allowance. This determination
was based on ChannelPoint's financial performance, cash balances and a going
concern risk. Subsequently, the Company received $460,000 from ChannelPoint in
full settlement of the loan obligations outstanding.
38
In 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.
As a result of 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 was reflected in the
consolidated statement of operations for the year ended December 31, 2000.
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 Company accounted for its investment in ChannelPoint as a
cost based investment. 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
carrying value of $22.7 million.
In 2001, the Company again 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 fair market value of these securities. This
determination was based on market conditions, valuations for similar companies,
financial performance and a going concern risk. As a result, the Company
recorded a charge of $22.7 million, representing the remaining carrying value of
its investment in ChannelPoint, which is reflected in the consolidated statement
of operations for the year ended December 31, 2001.
The carrying value of this investment and related note receivable of $27.1
million, net of $0.5 million received in full settlement of the loan obligations
outstanding, was fully written off in 2001 after an impairment review. On June
27, 2002, ChannelPoint, Inc. filed a certificate of dissolution with the
Delaware Secretary of State and is now proceeding with its dissolution in
accordance with the plan of complete liquidation and dissolution.
NOTE 4 - ENTERSTAND JOINT VENTURE
In 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 relating to the formation of Enterstand ("Subscription
Agreement"), the Company invested $2.0 million for a 19.9% equity interest in
Enterstand. The Subscription Agreement also provided the Company with an option
to purchase 85% of Hearst Communication's shares of Enterstand at an agreed upon
purchase price. The option was exercisable by the Company beginning one year
after the date of the Subscription Agreement.
39
In 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. 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, 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 were to mature in March 2005 and beared interest at 9.0%.
The Company applied 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. For the period April 1, 2000 through
September 30, 2000, the Company recorded 85.0% of Enterstand's 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 and through May
2001, 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 May 2001, the Company ceased funding the operating losses of
Enterstand in connection with the decision to shut down CCC International.
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 $4.3 million
and $15.7 million for the years ended December 31, 2001 and 2000, 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
developed, for the benefit of Enterstand, certain claims processing software and
databases. During 2001 and 2000, CCC charged Enterstand $0.7 million and $4.4
million, respectively, for development work performed. In addition, CCC
International and Enterstand entered into an agreement whereby CCC International
provided Enterstand with certain administrative and operating services and
office space. For the years ended December 31, 2001 and 2000, CCC International
charged Enterstand $2.4 million and $8.9 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.
The operations of Enterstand were discontinued in 2001. In 2002, CCC
International and Hearst Communications terminated their joint venture
agreement, CCC International purchased Hearst Communications' interest in the
venture for a nominal sum, and CCCG issued a warrant to Hearst Communications,
exercisable for five years, to purchase up to 250,000 shares of the common stock
of CCCG for $12 per share. The Company recorded a charge of $0.5 million for
these warrants in 2001.
NOTE 5 - INVESTMENT IN CHOICEPARTS, LLC
In 2000, the Company formed a new independent company, ChoiceParts, LLC
("ChoiceParts") with ADP and The Reynolds and Reynolds Company. ChoiceParts
operates an electronic parts exchange for the auto parts marketplace for
franchised auto retailers, collision repair facilities and other parts
suppliers. The Company has a 27.5% equity interest in ChoiceParts, which the
Company accounts for by applying the equity method. The Company recorded its
share of equity losses of $0.3 million, $2.5 million and $2.1 million for the
years ended December 31, 2002, 2001 and 2000, respectively. Approximately $1.7
million of the original $5.5 million commitment was still outstanding as of
December 31, 2002 and there are no specific plans to fund this commitment at
this time. Based on the nature of the Company's investment, the Company has
recorded a deferred income tax benefit on its share of the losses.
40
NOTE 6 - DISPOSITIONS
In 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
addition, 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. 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.
Based on a review of Info4cars' financial statements and representations
from Info4cars' management, the Company determined that Info4cars would not have
the ability to satisfy its obligations to the Company. In 2001, the Company
recorded a loss of approximately $1.1 million in connection with the write-off
of our investment in Info4cars, including a $0.8 million bad debt provision
related to the notes receivable plus accrued interest. In 2002, the Company
received $0.5 million from Info4cars in full settlement of the loan obligations
outstanding. In addition, the Company converted its 174 shares of Series A
Convertible Preferred Stock to 43 shares of common stock representing 8% of the
common stock outstanding. The carrying value of these shares of common stock on
the Company's balance sheet is zero.
See discussion in Note 7, "Restructuring Charges" concerning the Company's
decision to shut down the D.W. Norris business in 2000 and International in 2001
and Note 8, "Discontinued Operations" concerning the Company's decision to
discontinue the operations of its CCC Consumer Services segment in 2001.
NOTE 7 - RESTRUCTURING CHARGES
In 2000, the Company decided to shutdown the D.W. Norris outsourcing
business due to the significant losses incurred since the acquisition in 1999,
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.
In 2001, the Company announced a set of strategic decisions as part of a
company-wide effort to improve profitability. As a result, the Company recorded
a restructuring charge of $2.8 million, which consisted primarily of severance
and outplacement costs related to the termination of 130 employees. In December
2001, the Company decreased the original restructuring charge by $0.3 million
based on a review of final severance and outplacement.
41
In addition, the Company recorded a charge of $3.4 million related to the
shut down of CCC International's operations. This charge included a write-off of
the remaining goodwill of $1.1 million, contractual commitments, including
office space, of $0.5 million and severance and related costs to terminate 39
employees of $1.8 million. In connection with this shut down, CCC repurchased
the shares of CCC International's president and minority shareholder for a
nominal sum and sold the claims consulting business of CCC International back to
the president.
Also in 2001, the Company recorded a charge of $4.3 million to write-off
excess office space in Chicago, formerly occupied by its DriveLogic business.
This charge was recorded after a complete review of the Company's short-term and
long-term facility requirements. The charge included future rent commitments of
$5.4 million and the write-off of leasehold improvements of $2.1 million, net of
expected future sublease income of $3.2 million.
During 2002, the Company recorded an additional charge of $0.9 million to
revise the original expected future sublease income from $3.2 million to $2.3
million as a result of the current weak conditions of the real estate market. If
the Company has not sublet the office space by September 30, 2003, it will need
to reevaluate the amount recorded, at that time. However, if events or
circumstances change, the Company will reevaluate the charge earlier. The lease
for this office space expires March 31, 2006.
The following summarizes the activity in the restructuring accrual:
BALANCE AT ADDITIONAL CASH BALANCE AT
DECEMBER 31, CHARGES FOR PAYMENTS AND DECEMBER 31,
2001 2002 WRITE-OFFS 2002
----------------------------------------------------------
Excess Facilities $ 2,400 $ 869 $ (1,290) $ 1,979
Asset impairments 325 - (325) -
Reduction-in-Force 540 - (540) -
----------------------------------------------------------
Total $ 3,265 $ 869 $ (2,155) $ 1,979
==========================================================
NOTE 8 - DISCONTINUED OPERATIONS
In 2001, the Company discontinued the operations of its CCC Consumer
Services segment. The Company's plan included the sale of certain assets and
the closure of the remaining Consumer Services segment business. Proceeds from
the sale of the related assets, as discussed below, were $0.7 million. As a
result of this decision, the Company recorded a loss from discontinued
operations of $7.0 million, net of an income tax benefit of $2.6 million. This
original loss was comprised of operating losses of $1.0 million, net of tax,
prior to the measurement date, and estimated loss on disposal, net of tax, of
$6.0 million. Included in the loss on disposal are severance costs related to
the termination of 365 employees, loss on the disposal of the assets of this
business and operating losses after the measurement date through the completion
of the wind-down of operations in December 2001. In December 2001, the Company
reviewed its remaining obligations related to the disposal of this segment, and
as result, recorded a favorable adjustment of $1.0 million from the original
estimate. This adjustment consisted of a reduction to the loss on disposal of
$0.6 million and an increase to the tax benefit associated with the full loss on
discontinued operations of $0.4 million. As of December 31, 2001, accrued
charges of $0.7 million for severance costs and other contractual commitments
were included in the consolidated balance sheet.
42
In 2001, the Company completed the sale of the assets of its subsidiary,
CCC Consumer Services Southeast, Inc., ("CCC SE") to Fleming and Hall
Administrators. Net proceeds from the sale were approximately $0.6 million.
The Company purchased this claims administration business from Fleming and Hall
Administrators in 1999. In addition, the Company also completed the sale
Of Professional Claims Services, Inc. ("PCSI") and received cash proceeds of
approximately $0.1 million. PCSI was sold to a company affiliated with certain
of the individuals from whom PCSI was purchased in 1998. The losses on disposal
of CCC SE and PCSI were $0.8 million and $2.6 million, respectively.
In 2001, the Company completed the sale of its policy services and loss
reporting operation, based in Sioux Falls, South Dakota and its remaining claims
administration operation, based in Battle Creek, Michigan. Proceeds from each
sale were minimal.
Revenues and income (loss) from discontinued operations were as follows:
2002 2001 2000
-------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ - $ 4,587 $25,139
=========================
Income (loss) before income taxes. . . . . . . . . . . $ - $(1,920) $(5,590)
Income tax benefit . . . . . . . . . . . . . . . . . . - 931 1,886
-------------------------
Income (loss) from operations. . . . . . . . . . . . . - (989) (3,704)
-------------------------
Gain (loss) on disposal. . . . . . . . . . . . . . . . 566 (7,105) -
Income tax (provision) benefit . . . . . . . . . . . . (212) 2,122 -
-------------------------
Net gain (loss) on disposal. . . . . . . . . . . . . . 354 (4,983) -
-------------------------
Income (loss) from discontinued operations, net of tax $ 354 $(5,972) $(3,704)
=========================
During 2002, the Company recorded a benefit of $0.2 million, from the cash
receipt of a disputed receivable that was fully reserved. The Company also
reviewed its remaining obligations related to the disposal of this segment, and
as a result, recorded a favorable adjustment of $0.4 million.
The net liabilities of discontinued operations as of December 31, 2001
consisted of the following:
Accounts receivable. . . . . . . . . . . . $ 114
Accounts payable and accruals. . . . . . . $(650)
------
Net liabilities of discontinued operations $(536)
======
NOTE 9 - LITIGATION SETTLEMENTS
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 settled this action by execution of a
Release and Settlement Agreement ("Settlement Agreement") as of October 12,
2000, pursuant to which CCC 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 Company has made all
required payments due through December 31, 2002. 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 recorded and included
a charge of $1.4 million in the consolidated statement of operations for the
year ended December 31, 2000.
43
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. The Company made the required
payments of $0.3 million on March 20, 2001 and June 25, 2001.
In December 2001, the Company recorded a charge of $4.3 million, net of an
expected insurance reimbursement of $2.0 million, as an estimate of the amount
we will contribute towards the potential settlement of the largest of the class
action lawsuits related to our Total Loss valuation service. CCC anticipates
that the settlement would eliminate the viability of class claims in 7 of the 12
class action suits pending against the Company related to the Total Loss
service. Upon completion, the anticipated settlement would resolve potential
claims arising out of approximately 30% of the Company's total transaction
volume during the time period covered by the lawsuit. The Company currently
anticipates that the proposed settlement would include a resolution of any
potential claims for indemnification or contribution by its customers relating
to the transactions covered by the settlement. See discussion in Note 23,
"Legal Proceedings."
NOTE 10 - INCOME TAXES
Income taxes applicable to income (loss) from continuing operations before
equity losses consisted of the following:
YEAR ENDED DECEMBER 31,
2002 2001 2000
---------------------------
(IN THOUSANDS)
Current (provision) benefit:
Federal . . . . . . . . . . . . . . . . . . $ (6,540) $12,005 $(4,270)
State . . . . . . . . . . . . . . . . . . . (1,037) 1,418 (434)
Foreign . . . . . . . . . . . . . . . . . . 3 (8) (4)
---------------------------
Total current (provision) benefit . . . . (7,574) 13,415 (4,708)
---------------------------
Deferred (provision) benefit:
Federal . . . . . . . . . . . . . . . . . . (3,471) 4,558 1,132
State . . . . . . . . . . . . . . . . . . . 625 356 186
Foreign . . . . . . . . . . . . . . . . . . - - (62)
---------------------------
Total deferred (provision) benefit. . . . . (2,846) 4,914 1,256
---------------------------
Total income tax (provision) benefit. . . . $(10,420) $18,329 $(3,452)
===========================
44
The Company's effective income tax rate applicable to continuing operations
differs from the federal statutory rate as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2002 2001 2000
--------------------------------------------------------
(In thousands, except percentages)
Federal income tax (provision) benefit
at statutory rate. . . . . . . . . . . . . . . . $(11,471) (35.0)% $14,219 35.0% $(4,747) (35.0)%
State and local taxes, net of federal income tax
effect and before valuation allowances. . . . (1,073) (3.3) 1,152 2.8 ( 161) (1.2)
Foreign taxes. . . . . . . . . . . . . . . . . . - - - - (448) (3.3)
Goodwill amortization. . . . . . . . . . . . . . - - (334) (0.6) (971) (7.2)
Change in valuation allowance. . . . . . . . . . (110) (0.4) (8,663) (21.3) (2,826) (20.8)
Nondeductible expenses . . . . . . . . . . . . . (140) (0.4) (140) (0.4) (255) (1.9)
InsurQuote . . . . . . . . . . . . . . . . . . . - - - - 5,800 42.8
Write-off of foreign investments . . . . . . . . 132 0.4 12,101 29.7 - -
Research and experimentation credits . . . . . . 2,383 7.3 - - - -
Other, net . . . . . . . . . . . . . . . . . . . (141) (0.4) (6) (0.1) 156 1.2
--------------------------------------------------------
Income tax (provision) benefit . . . . . . . . . $(10,420) (31.8)% $18,329 45.1% $(3,452) (25.4)%
========================================================
See Note 3, "Investment in InsurQuote/ChannelPoint" for discussion of
income taxes as it relates to our investment in InsurQuote.
During 2002, the Company received a refund of $13.1 million, of which $7.8
million was attributable to the Job Creation and Workers Assistance Act of 2002,
which increased the available carryback period for net operating losses from two
years to five years. The total amount represented the refund of taxes paid in
1996, 1997, 1998 and 1999 when net operating losses incurred in 2001 were
carried back to those years. The Company also made income tax payments, net of
refunds, of $7.9 million in 2002.
During 2002, the Company filed amended returns to claim research and
experimentation tax credits applicable to the years 1998, 1999 and 2000 and
recorded a credit to income tax expense of $2.0 million. Included in income
taxes receivable is a refund of $1.1 million of the expected credit. Current
income taxes payable as of December 31, 2002, is also net of $0.9 million in
research tax credits being carried forward. The remaining balance of $0.5
million in income taxes receivable, as of December 31, 2002, represents expected
state tax refunds. The Company also recorded research and experimentation
credits of $0.4 million for 2002.
During 2001, the Company received net refunds of $4.5 million, of which
$2.5 million related to the carryback to 1998 of net operating losses incurred
in 2000 and $2.0 million related to refunded tax payments previously made in
2000. During 2000, the Company made income tax payments, net of refunds, of
$1.6 million.
45
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. For the years
2002, 2001 and 2000, these tax benefits totaled $0.7 million, $0.6 million and
$1.4 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,
----------------------
2002 2001
----------------------
(IN THOUSANDS)
Deferred income tax assets:
Capital loss carryforward . . . $ 7,390 $ 7,280
Foreign net operating losses. . 4,209 4,209
Litigation settlement . . . . . 2,050 1,995
State research credits. . . . . 1,584 -
Lease termination . . . . . . . 1,542 1,692
Depreciation and amortization . 1,084 1,948
Intangible amortization . . . . 973 1,055
Bad debt expense. . . . . . . . 865 856
Rent. . . . . . . . . . . . . . 840 846
Accrued compensation. . . . . . 296 467
Deferred revenue. . . . . . . . 25 1,998
Net operating loss. . . . . . . - 11,252
Other, net. . . . . . . . . . . 1,195 1,800
----------------------
Subtotal . . . . . . . . . . . . 22,053 35,398
Valuation allowance. . . . . . . (11,599) (11,489)
----------------------
Total deferred income tax assets $ 10,454 $ 23,909
======================
During 2001 the Company recorded a net loss of $27.1 million on the
write-off of the ChannelPoint investment and note receivable, including accrued
interest. For tax purposes, $20.8 million of this loss was considered a capital
loss, which can only be offset with net capital gains and expire in 2006. The
Company believes that it is more likely than not that the capital loss will not
be realized; therefore, a valuation allowance was established for this item.
The Company also has foreign net operating losses, which have an indefinite
carry-forward period, related to its former CCC International operations. The
Company has established a valuation allowance for the full amount of these
foreign net operating losses because realization of these assets is not more
likely than not.
46
NOTE 11 - OTHER CURRENT ASSETS
Other current assets consisted of the following:
DECEMBER 31,
----------------
2002 2001
----------------
(IN THOUSANDS)
Insurance reimbursement for litigation settlement. . . . . . . $ 2,000 $2,000
Prepaid data royalties . . . . . . . . . . . . . . . . . . . . 1,966 1,854
Income tax receivable - research and experimentation credits . 1,125 -
Prepaid equipment maintenance. . . . . . . . . . . . . . . . . 911 783
Prepaid insurance. . . . . . . . . . . . . . . . . . . . . . . 673 536
Income tax receivable - State. . . . . . . . . . . . . . . . . 549 347
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,275 941
----------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,499 $6,461
================
In 2001, the Company recorded a charge of $4.3 million, net of an expected
insurance reimbursement of $2.0 million, in connection with a litigation
settlement. See Note 23, "Legal Proceedings" for discussion of the charge.
NOTE 12 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31,
------------------
2002 2001
------------------
(IN THOUSANDS)
Computer equipment . . . . . . . . . . . . . $ 11,660 $ 9,163
Purchased software, licenses and databases . 17,164 16,364
Furniture and other equipment. . . . . . . . 5,021 5,027
Leasehold improvements . . . . . . . . . . . 6,581 6,513
Building and land. . . . . . . . . . . . . . 1,796 1,796
------------------
Total gross . . . . . . . . . . . . . . . . 42,222 38,863
Less accumulated depreciation. . . . . . . . (29,815) (25,376)
------------------
Total net . . . . . . . . . . . . . . . . . $ 12,407 $ 13,487
==================
As a result of a review of the Company's computer equipment and software in
2002 and 2001, the Company wrote-off out-of-service fully depreciated assets
totaling $4.6 million and $8.6 million, respectively.
As of December 31, 2002 and 2001, computer equipment, net of accumulated
depreciation, that is on lease to certain customers under operating leases of
$0.5 million and $0.2 million, respectively, is included in computer equipment.
Future minimum rentals under non-cancelable customer leases aggregate
approximately $0.7 million and $0.3 million in 2003 and 2004, respectively.
47
In 2001, the Company recorded a charge of $4.3 million, net of expected
sublease income, to write-off excess office space in Chicago. This charge
included $2.1 million of leasehold improvements.
In 2001, the Company entered into two separate agreements to lease software
licenses. These leases, which are for 36 months expiring in early 2004, are
classified as capital leases. The Company made payments of $0.6 million and
$0.4 million in 2002 and 2001, respectively. Included in the payments for both
years was interest of $0.1 million. Future minimum lease payments under these
capital lease obligations aggregate approximately $0.6 million and $0.2 million
in 2003 and 2004, respectively.
NOTE 13 - ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31,
----------------
2002 2001
----------------
(IN THOUSANDS)
Compensation . . . . . . . . . . $10,781 $10,249
Litigation settlements . . . . . 7,074 7,404
Professional fees. . . . . . . . 1,389 2,806
Restructuring charges. . . . . . 1,159 1,131
Sales tax. . . . . . . . . . . . 1,103 1,434
Health insurance . . . . . . . . 1,041 1,075
Office space expenses. . . . . . 693 1,183
Conferences. . . . . . . . . . . 422 573
Commissions. . . . . . . . . . . 379 132
Web hosting. . . . . . . . . . . - 1,181
Other, net . . . . . . . . . . . 1,400 1,402
----------------
Total. . . . . . . . . . . . . . $25,441 $28,570
================
NOTE 14 - CCC CAPITAL TRUST
On February 23, 2001, CCC Capital Trust ("CCC Trust"), a business trust
controlled by CCCG, issued 15,000 Trust Preferred Securities, which were
presented on the consolidated balance sheet as "Company obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely company
guaranteed debentures", ("Trust Preferred Securities") and CCCG 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 $6.875
per share, revised from the original exercise price of $10.00 per share, to
Capricorn Investors III, L.P., one of our existing stockholders. CCCG and CCC
Trust received an aggregate purchase price of $15.0 million from the sale of
these securities.
48
In connection with the issuance of the Trust Preferred Securities by CCC
Trust and the related purchase by the Company of all of the common securities of
CCC Trust, the Company issued an Increasing Rate Note Due 2006 in the principal
amount of approximately $15.5 million, due February 23, 2006 ("Increasing Rate
Note") to CCC Trust. The sole asset of CCC Trust was the Increasing Rate Note
and any interest accrued thereon. The interest payment dates on the Increasing
Rate Note corresponded to the distribution dates on the Trust Preferred
Securities. The Trust Preferred Securities were to mature simultaneously with
the Increasing Rate Note. The Company had unconditionally guaranteed all of the
Trust Preferred Securities to the extent of the assets of CCC Trust.
The Increasing Rate Note was subordinated to the Company's bank debt.
Cumulative distributions on the Trust Preferred Securities accrued 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 were mandatorily redeemable on
February 23, 2006. In addition, all or any portion of the outstanding Trust
Preferred Securities could have been 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 was equal to the liquidation amount
of the Trust Preferred Securities plus accrued but unpaid distributions. The
Company issued payment-in-kind notes for quarterly interest payments due in 2001
for a total of $1.3 million.
On November 30, 2001, the Indenture relating to the Trust Preferred
Securities was amended to permit the Company to conduct a rights offering and
enter into a new bank credit facility. In addition, the 1,200,000 warrants
issued to Capricorn Investors III, L.P. were amended to change the exercise
price to $6.875, revised from the original exercise price of $10.00, in
consideration for certain waivers and amendments that allowed the Company to
conduct a rights offering and execute a new credit facility. Using the
Black-Scholes pricing model, the fair value of this amended pricing was
estimated to be $0.7 million. See discussion in Note 15, "Rights Offering"
and Note 16, "Long Term Debt."
On October 21, 2002, the Company agreed to purchase the outstanding Trust
Preferred Securities from Capricorn Investors III, L.P. The purchase price of
$16.3 million represented the par value of all Trust Preferred Securities
outstanding plus accrued but unpaid distributions. The Company also recorded a
$2.5 million pre-tax charge, resulting from the difference between the par value
and the accreted value and $0.4 million of accrued but unpaid distributions on
the Trust Preferred Securities on October 21, 2002. Following the closing of
the purchase, CCC Capital Trust was dissolved.
NOTE 15 - RIGHTS OFFERING
On June 29, 2001, the Company filed with the Securities and Exchange
Commission ("SEC") a Form S-3 Registration Statement to register $100 million of
securities. The SEC declared this shelf registration statement effective on
July 27, 2001. On November 7, 2001, the Company announced the approval by the
Board of Directors of a $20 million rights offering ("Rights Offering") to be
effectuated pursuant to the shelf registration statement previously filed with
the SEC on June 29, 2001.
Upon completion of the Rights Offering on December 31, 2001, the total
number of outstanding shares of common stock increased by approximately 3.6
million shares, or approximately 15.8%. The Company utilized net proceeds of
$18.1 million from the Rights Offering to reduce its outstanding debt.
Three of the Company's largest institutional stockholders, White River
Ventures, Inc. and Capricorn Investors II and III L.P., agreed to purchase their
pro-rata share of the Rights Offering, as well as all of the shares not
subscribed for by the Company's other stockholders or warrant holders, up to an
aggregate of $20 million. In consideration for this, the Company issued these
stockholders 293,000 warrants to purchase shares of its common stock at a price
of $5.50 per share.
49
NOTE 16 - LONG-TERM DEBT
On November 30, 2001, in conjunction with the Rights Offering, CCC entered
into a $30 million credit facility agreement (the " Credit Facility") with two
lenders. The Credit Facility contains covenants that, among other things,
restrict CCC's ability to sell or transfer assets, make certain investments and
make capital expenditures. In addition, the Credit Facility has certain
covenants that require CCC to maintain specified levels of quarterly operating
cash flow, debt coverage, fixed-charge coverage and net worth. CCC is also
required to provide the bank group with monthly, quarterly and annual financial
reporting. The Credit Facility matures on November 30, 2004. The Credit
Facility is guaranteed by CCC and is secured by a blanket first priority lien on
substantially all of the assets of CCC and its subsidiaries. All advances under
the Credit Facility bear interest, at CCC's election, at the London Interbank
Offered Rate ("LIBOR") plus a variable spread based on our leverage ratio or the
prime rate in effect from time to time plus a variable spread based on our
leverage ratio. CCC pays a commitment fee of 0.50% on any unused portion of the
Credit Facility. As of December 31, 2002, the Company has no advances under
the Credit Facility.
The closing of the Credit Facility prior to the Rights Offering required
the utilization of an interim loan provided by White River Ventures and
Capricorn Investors II and III L.P. as part of their agreement to purchase all
those shares not subscribed for by the Company's other stockholders or warrant
holders. In consideration for this, the Company issued White River Ventures and
Capricorn Investors II and III L.P. 99,612 warrants to purchase shares of its
common stock at a price of $5.50 per share. This interim loan was repaid upon
the closing of the Rights Offering on December 31, 2001.
During the years ended December 31, 2002, 2001 and 2000, the weighted
average interest rates were 6.5%, 7.8% and 7.6 %, respectively. CCC made cash
interest payments of $0.2 million, $3.5 million and $2.6 million, during the
years ended December 31, 2002, 2001 and 2000, respectively. During 2002, CCC had
net repayments under the line of credit of $6.5 million, resulting from draws
under the credit facility of $22.0 million and repayments of $28.5 million.
During 2001, CCC had net repayments under the line of credit of $35.5 million,
resulting from draws under the credit facility of $53.4 million and repayments
of $88.9 million.
NOTE 17 - TREASURY STOCK
During 1999 and 1998, the Board of Directors authorized the Company to
purchase 4.1 million common shares at a price not to exceed $15 per share. In
2000, the Board of Directors authorized the Company to purchase an additional
2.0 million common shares. The Company repurchased, in 2000, approximately 0.7
million shares with a cash outlay of $8.2 million.
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 2002, the Company received a promissory note from the Chief Executive
Officer and Chairman of the Board in the amount of $1.2 million for the purchase
of 192,000 treasury shares at a price of $6.25 per share, which was the fair
value of the Company's stock at that date. This promissory note accrues
interest, payable on an annual basis beginning March 1, 2003, at 6.75% and
matures in January 2007.
50
NOTE 18 - EMPLOYEE BENEFIT PLANS
Defined Contribution Savings and Investment Plan
The Company sponsors a tax-qualified 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 the years ended December 31, 2002, 2001 and 2000 was $1.7 million,
$1.2 million and $1.1 million, respectively. Included in the 2002 defined
contribution expense is an additional discretionary contribution of $0.6 million
made by the Company in February 2003, into the Savings Plan of all eligible
employees, for the purchase of Company stock.
Employee Stock Purchase Plan
In 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 and 261,445 are available for
issuance at December 31, 2002. During 2002, 2001 and 2000, the Company issued
44,917, 93,324 and 77,736 shares pursuant to the employee stock purchase plan at
prices ranging from $5.10 to $15.60, $4.64 to $7.23 and $5.63 to $14.13,
respectively. See Note 19, "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 19 - STOCK OPTION PLAN
In 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 and
Nominating Committee of the Board of Directors ("Committee"). At December 31,
2001, no additional options can be granted and 154,860 options were outstanding
under the 1988 Plan, which expire in 2004.
During 1997, the Company's Board of Directors adopted a new stock option
plan ("1997 Plan") that provided for the granting of 675,800 options to purchase
the Company's common stock. Options were 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.
In 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, 2002, additional options of 687,254 are available to be
granted under the 2000 Plan.
51
Option activity during 2002, 2001 and 2000 is summarized below:
2002 2001 2000
--------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------------
Options Outstanding:
Beginning of year . . . . . . . . 3,005,452 $ 9.31 3,190,013 $ 10.57 2,210,136 $ 6.48
Granted . . . . . . . . . . . . . 547,500 $ 9.75 998,524 $ 7.32 1,911,671 $ 10.45
Exercised . . . . . . . . . . . . (334,402) $ 9.26 (14,600) $ 7.50 (358,267) $ 6.95
Forfeited and Expired . . . . . (296,280) $ 11.97 (1,168,485) $ 11.38 (573,527) $ 12.83
--------------------------------------------------------------------
End of year . . . . . . . . . . 2,922,270 $ 9.12 3,005,452 $ 9.31 3,190,013 $ 10.57
====================================================================
Options exercisable at year-end. . 1,316,658 $ 9.08 1,211,629 $ 9.61 788,665 $ 10.29
====================================================================
Weighted average grant date fair
value of options granted during
the year. . . . . . . . . . . . $ 6.40 $ 3.22 $ 4.72
========= ========== ==========
The following table summarizes information about fixed stock options
outstanding at December 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
- ------------------------- -------------------------------------- ---------------------
$1.38 to $6.88. . . . . . 546,204 6.48 $ 4.88 284,551 $ 3.60
$7.50 to $8.50. . . . . . 361,975 7.88 $ 7.58 86,312 $ 7.52
$8.69 to $8.69. . . . . . 384,860 7.93 $ 8.69 192,421 $ 8.69
$8.80 to $9.88. . . . . . 658,975 8.64 $ 8.93 177,150 $ 9.16
$10.63 to $11.13. . . . . 439,944 7.31 $ 10.76 234,385 $ 10.80
$12.13 to $18.71. . . . . 530,312 6.83 $ 13.75 341,839 $ 13.03
---------- ---------
$1.38 to $18.71 . . . . . 2,922,270 7.52 $ 9.12 1,316,658 $ 9.08
========== =========
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 74%, 43% and 41% for 2002, 2001 and 2000, respectively;
and a risk-free interest rate of 4.1%, 4.6% and 5.9% for 2002, 2001 and 2000,
respectively. In addition, the Company assumed an expected option life of 5.5
years for 2002, 2001 and 2000. No dividend yield was assumed for all years.
52
The Company applies APB 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:
2002 2001 2000
-----------------------------
(In Thousands, Except Per
Share Data)
Net income (loss):
As reported . . . . . . . . . . . . . . . . . $22,709 $(30,625) $ (9,243)
Pro forma . . . . . . . . . . . . . . . . . . $20,638 $(32,704) $(11,051)
Per share net income (loss) assuming dilution:
As reported . . . . . . . . . . . . . . . . . $ 0.84 $ (1.39) $ (0.42)
Pro forma . . . . . . . . . . . . . . . . . . $ 0.77 $ (1.49) $ (0.51)
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 2002, 2001 and 2000. Additionally, future amounts are likely to be
affected by the number of grants awarded since additional awards are generally
expected to be made at varying amounts.
NOTE 20 - EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share for
the years ended December 31, 2002, 2001 and 2000, is presented below (in
thousands, except per share data):
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001 2000
----------------------------
Net income (loss). . . . . . . . . . . . . . $22,709 $(30,625) $(9,243)
============================
Weighted average common shares . . . . . . . 25,850 21,967 21,851
Effect of common stock options . . . . . . . 1,054 - -
----------------------------
Weighted average diluted shares. . . . . . . 26,904 21,967 21,851
============================
Income (loss) per common share -basic:
Income (loss) from continuing operations. $ 0.86 $ (1.12) $ (0.25)
Loss from discontinued operations . . . . 0.01 (0.27) (0.17)
----------------------------
Income per common share-basic. . . . . . . . $ 0.87 $ (1.39) $ (0.42)
============================
Income (loss) per common share -diluted:
Income (loss) from continuing operations. $ 0.83 $ (1.12) $ (0.25)
Loss from discontinued operations . . . . 0.01 (0.27) (0.17)
----------------------------
Income per common share-diluted. . . . . . . $ 0.84 $ (1.39) $ (0.42)
============================
53
Options and warrants to purchase a weighted average number of 365,602
shares, 4,070,040 shares and 820,178 shares of common stock for 2002, 2001 and
2000, 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 and
warrants ranged from $8.00 to $18.71 per share. Since the Company had net
losses for the years ended December 31, 2001 and December 31, 2000, options to
purchase a weighted average of 93,687 and 228,849 shares, respectively, were
not included in the computation of diluted earnings per share because the
options, if included, would have been antidilutive.
NOTE 21 - COMMITMENTS AND CONTINGENCIES
The Company leases facilities, computers, telecommunications and office
equipment under non-cancelable operating lease agreements that expire at various
dates through 2008. As of December 31, 2002, future minimum cash lease payments
were as follows:
TOTAL 2003 2004 2005 2006 2007 THEREAFTER
-----------------------------------------------------------
Operating leases. . $39,919 11,994 11,020 9,342 2,668 2,529 2,366
===========================================================
During 2002, 2001 and 2000, operating lease rental expense was $6.3
million, $8.1 million and $7.6 million, respectively. The Company also has a
$0.5 million letter of credit available until July 2003 for office space in
Chicago.
NOTE 22 - BUSINESS SEGMENTS
We currently operate our business as one segment. Our products and services
facilitate the processing of automobile physical damage claims and help to
improve decision-making and communication between various parties, such as
automobile insurance companies and collision repair facilities, involved in the
automobile claims process. See discussion in Note 7, "Restructuring Charges"
concerning the Company's decision to shut down CCC International, previously
reported as a segment. DriveLogic, formed in 1999 and previously reported as a
segment, developed products and services that served the automobile claims
industry supply chain through the Internet. As part of a restructuring at the
end of June 2001, the Company consolidated the operations of DriveLogic with the
CCC U.S. segment. In addition, the Company previously reported CCC Consumer
Services as a segment. See discussion in Note 8, "Discontinued Operations"
concerning the Company's decision to shut down the Consumer Services business.
Shared services, tasked with facilitating the performance of the revenue
producing divisions, now supports the one reported segment.
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), establishes
standards for the reporting information about operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
54
We market our products and services through one U.S. sales and service
organization. Our chief operating decision maker evaluates resource allocation
decisions and our performance based on financial information on a total company
profit level and at the product revenue level, accompanied by disaggregated
information about revenues by geographic regions.
2002 2001 2000
----------------------------
Pathways. . . . . . . . . . . . . . . . . . . $116,231 $109,568 $102,585
Total Loss Valuation Services . . . . . . . . 45,463 47,977 49,332
Workflow Products . . . . . . . . . . . . . . 22,602 19,706 14,054
Information Services Products . . . . . . . . 1,134 828 487
Other . . . . . . . . . . . . . . . . . . . . 6,430 8,180 10,431
----------------------------
Total Revenue from U.S.Operations . . . . . 191,860 186,259 176,889
Total Revenue from International Operations - 1,682 7,752
----------------------------
Total Revenue . . . . . . . . . . . . . . $191,860 $187,941 $184,641
============================
NOTE 23 - 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 CCC'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.
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. The plaintiffs in eight (8) of those cases
subsequently dismissed their claims against CCC without prejudice. The remaining
two 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 January 29, 2001); TRAVIS v. KEMPER CASUALTY INS. CO. d/b/a
KEMPER INSURANCE and CCC INFORMATION SERVICES INC., Case No. 01 L 290 (filed
February 16, 2001). The allegations and claims asserted in these cases are
substantially similar to those in the COOK case, as is the relief sought. Each
plaintiff seeks to represent a nationwide class of the customers of the
insurance company that is the defendant in that case 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 LANCEY case seeks certification
of a defendant class, as does the COOK case.
55
CCC and certain of its insurance company customers have been engaged in
settlement discussions with the plaintiffs' attorneys who filed the
above-referenced cases in Johnson County and Madison County, Illinois. Upon
completion, the anticipated settlement would resolve potential claims arising
out of approximately 30 percent of the CCC's total transaction volume during the
time period covered by the lawsuits, and it would also resolve a number of the
putative class action suits currently pending against CCC and certain of its
customers. These settlement negotiations are ongoing, but at this time CCC and
certain of its insurance company customers have reached an agreement in
principle as to CCC's proposed contribution to the potential settlement. During
the fourth quarter of 2001, CCC recorded a pre-tax charge of $4.3 million, net
of an expected insurance reimbursement of $2.0 million, as an estimate of the
amount that CCC will contribute toward the potential settlement. Upon
completion of the anticipated settlement, CCC would agree to enter into the
settlement for the purpose of avoiding the expense and distraction of protracted
litigation, without any express or implied acknowledgment of any fault or
liability to the plaintiff, the putative class or anyone else.
The consummation of the settlement with the plaintiffs and the amount of
CCC's contribution to the proposed settlement remain subject to a number of
significant contingencies, including, among other things, the extent of
participation on the part of CCC's insurance company customers, the negotiation
of settlement terms between the plaintiffs and those of CCC's customers that are
participating in the settlement negotiations, as well as judicial approval of
any proposed settlement agreement. As a result, at this time, there is no
assurance that the settlement will be successfully consummated or, if completed,
that the final settlement will be on the terms or levels of participation set
forth above. There is also no assurance that existing or potential claims
arising out of the remainder of CCC's total loss transaction volume could be
settled on comparable terms.
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 (excluding cases that have since been dismissed and have not
been appealed) are captioned as follows: ALVAREZ-FLORES v. AMERICAN FINANCIAL
GROUP, INC., ATLANTA CASUALTY CO., and CCC INFORMATION SERVICES INC., No. 99 CH
15032 (filed October 19, 1999); GIBSON v. ORIONAUTO, GUARANTY NATIONAL INS. CO.
and CCC INFORMATION SERVICES INC., No. 99 CH 15082 (filed October 20, 1999);
STEPHENS v. THE PROGRESSIVE CORP., PROGRESSIVE PREFERRED INS. CO. and CCC
INFORMATION SERVICES INC., No. 99 CH 15557 (filed October28, 1999). The same
group of plaintiffs' attorneys filed an additional case in the Circuit Court of
Cook County on or about May 16, 2001. That case is captioned SCALES v. GEICO
GENERAL INSURANCE COMPANY AND CCC INFORMATION SERVICES INC., NO. 01 CH 8198
(filed May16, 2001). These cases contain allegations and claims that are
substantially similar to the cases pending in Madison County, Illinois described
above.
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 June 16, 2000), 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 August 2, 2000). 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 service 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.
56
In 2001, one of the plaintiffs' attorneys who filed the McGOWAN, DASHER AND
WALKER cases discussed above filed additional complaints against CCC and certain
of its insurance company customers. Those cases are HECKLER v. PROGRESSIVE
EXPRESS INSURANCE COMPANY, PROGRESSIVE AMERICAN INSURANCE COMPANY and CCC
INFORMATION SERVICES INC., Case No. 00003573 (filed against CCC on November 5,
2001 in the Circuit Court of the Thirteenth Judicial Circuit, in and for
Hillsborough County, Florida); and ROMERO v. VESTA FIRE INSURANCE CORPORATION
and CCC INFORMATION SERVICES INC., Case No. 367282 (filed November 19, 2001 in
the Superior Court of the State of California, County of Riverside). The
plaintiffs in these cases allege that the insurer, using a valuation provided by
CCC, offered them an inadequate amount for their automobile. The plaintiffs also
allege that CCC's Total Loss valuation service provides values that do not
comply with applicable state regulations governing total loss claims
settlements. On that basis, the plaintiffs assert various claims against CCC and
seek an award of unspecified compensatory and punitive damages, attorneys' fees,
interest and costs. The plaintiff in ROMERO also seeks injunctive and
declaratory relief. The HECKLER cases is pled as an individual action, while
the plaintiff in ROMERO seeks to represent a class of certain California
residents insured under a Vesta California policy whose total loss claims were
adjusted using a CCC valuation.
On or about January 18, 2002, a complaint was filed in the State Court of
Fulton County, Georgia against CCC, one of its insurance company customers,
Allstate, and other defendants. The case is captioned HUTCHINSON v. ALLSTATE
INSURANCE COMPANY, BRANCH BANKING & TRUST COMPANY, SADISCO CORPORATION, and CCC
INFORMATION SERVICES INC., Civil Action No. 02V5027697C (filed January 18,
2002). The plaintiffs in the HUTCHINSON case allege that their insurer declared
their vehicle a total loss despite a dispute over the value of the vehicle.
Plaintiffs further allege that, despite their instructions not to dispose of the
vehicle, Allstate had the car towed and subsequently sold. Plaintiffs allege
that CCC provided Allstate with a reduced fair market value for their vehicle.
Plaintiffs assert various common law claims against CCC and the other
defendants, as well as a claim under the Georgia RICO statute. Plaintiffs seek
an award of unspecified compensatory and punitive damages and attorneys' fees.
On or about November 12, 2002, a complaint was filed in the Circuit Court
of Barbour County, Alabama against CCC and one of its insurance company
customers. The case is captioned WILLIAMS v. NATIONWIDE MUTUAL INSURANCE
COMPANY, NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, NATIONWIDE PROPERTY AND
CASUALTY INSURANCE COMPANY, and CCC INFORMATION SERVICES INC., Civil Action No.
CV-2002-094 (filed November 12, 2002). The plaintiff in the WILLIAMS case
alleges that her insurer, using a valuation provided by CCC, offered her an
inadequate amount for their automobile. The plaintiff also alleges that CCC's
Total Loss valuation service provides values that do not comply with applicable
state regulations governing total loss claims settlements. On that basis, the
plaintiff asserts various claims against CCC and seeks an award of unspecified
compensatory and punitive damages, attorneys' fees, interest and costs, although
plaintiff alleges that her compensatory and punitive damages, exclusive of
interest and fees, do not exceed $75,000.
CCC is aware of two class certification rulings in cases involving CCC's
Total Loss valuation service, to which CCC is not a party. In JOSEPH JOHNSON ET
AL. v. FARMERS INSURANCE EXCHANGE, NO. D035649 (SUPERIOR COURT NO. 726452), the
California Court of Appeal reversed an order by the San Diego County Superior
Court denying class certification. The Court of Appeal ordered the Superior
Court to certify a class consisting of all California residents insured under a
Farmers California private party passenger vehicle policy who, from December 10,
1994 through the present, received a first party total loss settlement or
settlement offer that was less than the CCC base value because of a deduction
for one or more condition adjustments, and whose overall vehicle condition was
at least average and up to, but not including, "dealer ready." CCC is not a
party to the JOHNSON case but has become aware of the Court of Appeal's class
certification ruling.
In PAK, ET AL. v FARMERS GROUP, INC. AND FARMERS INSURANCE EXCHANGE, CASE
NO. CV98-04873, the Second Judicial District Court of the State of Nevada in and
for Washoe County has certified a class of Nevada customers insured by Farmers
whose total loss claims were paid on the basis of valuations prepared by CCC.
CCC is not a party to the PAK case but has become aware of the court's class
certification ruling.
57
Four of CCC's automobile insurance company customers have made contractual
and, in some cases, also common law indemnification claims against CCC for
litigation costs, attorneys' fees, settlement payments and other costs allegedly
incurred by them in connection with litigation relating to their use of CCC's
Total Loss valuation product. CCC has asserted various defenses to these
indemnification claims.
CCC intends to vigorously defend its interests in 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 was 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. CCC is unable to estimate the magnitude of its exposure, if any, at
this time. As additional information is gathered and the lawsuits proceed, CCC
will continue to assess its potential impact.
In addition to the foregoing, two cases previously disclosed by CCC during
2002 were resolved during the last quarter of 2002. In BARBER v. STATE AUTO
INSURANCE CO., SONNY J. SMITH, EVERS AND ASSOCIATES, INC., BRIAN SIGMON, CCC
INFORMATION SERVICES INC., and TIM GAINER, Case No. CV-02-B-0531-X (United
States District Court for the Northern District of Alabama) (filed February 28,
2002), the United States Court of Appeals for the Eleventh Circuit issued an
order on January 10, 2003, affirming the district court's order dismissing
plaintiff's claims against CCC with prejudice.
In ANDERSON v. CALIFORNIA STATE AUTOMOBILE ASS'N, CCC INFORMATION SERVICES INC.,
and DOES 1-100, Case Action No. 2002056932 (Superior Court for the State of
California, County of Alameda) (filed July 5, 2002), the plaintiffs dismissed
their claim against CCC without prejudice.
NOTE 24 - SUBSEQUENT EVENT (UNAUDITED)
On February 26, 2003, we acquired substantially all of the assets of
Comp-Est, Inc. ("Comp-Est") from the Motor Information Systems Division of
Hearst Business Publishing, Inc. ("Hearst"), for approximately $13.0 million, in
cash. The purchase price was determined according to a revenue-based formula
included in our Option Agreement, dated July, 1998, with Hearst. We funded the
purchase price of the Comp-Est assets out of working capital. Comp-Est, based
in Columbus, Ohio, provides automotive estimating software applications to
single-location repair facilities. Immediately prior to our acquisition of the
assets of Comp-Est from Hearst, Hearst acquired the assets from Comp-Est
pursuant to an Option and Acquisition Agreement, dated February 6, 1998, by and
among Hearst, Comp-Est and the Comp-Est stockholders named therein.
58
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
- --------------------------------------------- --------------------------------------------------------------------
2000 Allowance for Doubtful Accounts (b). . . $ 3,914 4,172 97 (4,912)(a) $ 3,271
2001 Allowance for Doubtful Accounts (b). . . $ 3,271 1,920 83 (2,986)(a) $ 2,288
2002 Allowance for Doubtful Accounts s. . . . $ 2,288 1,755 26 (1,756)(a) $ 2,313
2000 Deferred Income Tax Valuation Allowance. $ - - - 2,826(c) $ 2,826
2001 Deferred Income Tax Valuation Allowance. $ 2,826 - - 8,663(d) $ 11,489
2002 Deferred Income Tax Valuation Allowance. $ 11,489 - - 110(e) $ 11,599
(a) Accounts receivable write-offs, net of recoveries.
(b) The allowance for doubtful accounts for 2000 and 2001 have been
restated to exclude balances related to discontinued operations.
(c) Increase in deferred income tax valuation allowance for foreign net
operating losses.
(d) Increase in deferred income tax valuation allowance for foreign net
operating losses and ChannelPoint capital loss carryforward.
(e) Additional valuation allowance for capital loss on sale of CCC
Southeast assets (goodwill)
59
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 of the Company's 2000
Annual Report on Form 10-K, as amended, Commission File Number 000-28600
filed on April 17, 2001)
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation for the Company (incorporated herein by reference to Exhibit
3.2 of the Company's 2000 Annual Report on Form 10-K, as amended,
Commission File Number 000-28600 filed on April 17, 2001)
3.3 Second Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 of the Company's 1996 Annual Report on Form 10-K,
as amended, Commission File Number 000-28600 filed on March 14, 1997)
10.1 Purchase Agreement, dated as of November 29, 2001, between CCC Information
Services Group Inc., White River Ventures, Inc., Capricorn Investors II,
L.P. and Capricorn Investors III, L.P. (incorporated herein by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K, as amended,
Commission File Number 000-28600 filed on December 3, 2001)
10.2 Second Amended and Restated Credit Facility, dated as of November 30, 2001,
by and among CCC Information Services Inc., the financial institutions from
time to time parties thereto and LaSalle Bank National Association, as
Administrative Agent (incorporated herein by reference to Exhibit 10.2 of
the Company's Current Report on Form 8-K, as amended, Commission File
Number 000-28600 filed on December 3, 2001)
10.3 First Amendment and Waiver, dated as of November 30, 2001, to the Warrant
dated as of February 23, 2001, issued by CCC Information Services Group
Inc. for the benefit of Capricorn Investors III, L.P. (incorporated herein
by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K,
as amended, Commission File Number 000-28600 filed on December 3, 2001)
10.4 Supplemental Indenture, dated as of November 30, 2001, by and between CCC
Information Services Group Inc. and Wilmington Trust Company (incorporated
herein by reference to Exhibit 10.4 of the Company's Current Report on Form
8-K, as amended, Commission File Number 000-28600 filed on December 3,
2001)
10.5 Agreement, dated as of November 30, 2001, between CCC Information Services
Group Inc. and Capricorn Investors III, L.P. (incorporated herein by
reference to Exhibit 10.5 of the Company's Current Report on Form 8-K, as
amended, Commission File Number 000-28600 filed on December 3, 2001)
10.6 Amended and Restated Security Agreement, dated as of November 30, 2001,
between CCC Information Services Inc. and LaSalle Bank National Association
(incorporated herein by reference to Exhibit 10.6 of the Company's Current
Report on Form 8-K, as amended, Commission File Number 000-28600 filed on
December 4, 2001)
10.7 Amended and Restated Pledge Agreement of Domestic Subsidiaries, dated as of
November 30, 2001, between CCC Information Services Inc.'s Subsidiaries and
LaSalle Bank National Association (incorporated herein by reference to
Exhibit 10.7 of the Company's Current Report on Form 8-K, as amended,
Commission File Number 000-28600 filed on December 4, 2001)
10.8 Amended and Restated Domestic Subsidiary Guaranty, dated as of November 30,
2001, between CCC Information Services Inc.'s Subsidiaries and LaSalle Bank
National Association (incorporated herein by reference to Exhibit 10.8 of
the Company's Current Report on Form 8-K, as amended, Commission File
Number 000-28600 filed on December 4, 2001)
10.9 Amended and Restated Pledge Agreement, dated as of November 30, 2001,
between CCC Information Services Group Inc. and LaSalle Bank National
Association (incorporated herein by reference to Exhibit 10.9 of the
Company's Current Report on Form 8-K, as amended, Commission File Number
000-28600 filed on December 4, 2001)
10.10 Amended and Restated Guaranty, dated as of November 30, 2001,between CCC
Information Services Group Inc. and LaSalle Bank National Association
(incorporated herein by reference to Exhibit 10.10 of the Company's Current
Report on Form 8-K, as amended, Commission File Number 000-28600 filed on
December 4, 2001)
60
10.11 Subordination Agreement, dated as of November 30, 2001, by and among
LaSalle Bank National Association, White River Ventures, Inc., Capricorn
Investors II, L.P. and Capricorn Investors III, L.P. (incorporated herein
by reference to Exhibit 10.11 of the Company's Current Report on Form 8-K,
as amended, Commission File Number 000-28600 filed on December 4, 2001)
10.12 Securities Purchase Agreement dated as of February 23, 2001 Among CCC
Information Services Group Inc., CCC Capital Trust and Capricorn Investors
III, L.P. (incorporated herein by reference to Exhibit 10.14 of Company's
2000 Annual Report on Form 10-K, as amended, Commission File Number
000-28600 filed on April 17, 2001)
10.13 Registration Rights Agreement dated as of February 23, 2001 Between CCC
Information Services Group Inc. and Capricorn Investors III, L.P.
(incorporated herein by reference to Exhibit 10.15 of Company's 2000 Annual
Report on Form 10-K, as amended, Commission File Number 000-28600 filed on
April 17, 2001)
10.14 Warrant dated as of February 23, 2001 issued by CCC Information Services
Group Inc. for the benefit of Capricorn Investors III, L.P. (incorporated
herein by reference to Exhibit 10.16of Company's 2000 Annual Report on Form
10-K, as amended, Commission File Number 000-28600 filed on April 17, 2001)
10.15 Agreement dated as of February 23, 2001 between CCC Information Services
Group Inc. and Capricorn Investors III, L.P. (incorporated herein by
reference to Exhibit 10.17 of Company's 2000 Annual Report on Form 10-K, as
amended, Commission File Number 000-28600 filed on April 17, 2001)
10.16 Amended and Restated MOTOR Crash Estimating Guides Database License
Agreement (incorporated herein by reference to Exhibit 10.16 of Company's
2001 Annual Report on Form 10-K, Commission File Number 000-28600 Filed on
March 26, 2002)
10.17 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 (incorporated herein by reference to Exhibit 10.13 of
Company's 2000 Annual Report on Form 10-K, as amended, Commission File
Number 000-28600 filed on April 17, 2001)
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 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)
10.20 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)
10.21 401(k) Company Retirement Savings & Investment Plan, as amended and
restated effective January 1, 2001, dated February 27, 2002 (incorporated
herein by reference to Exhibit 10.21 of Company's 2001 Annual Report on
Form 10-K, Commission File Number 000-28600 Filed on March 26, 2002)
10.22 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)
10.23 Employment Agreement, effective July 1, 2001, by and between CCC
Information Services Inc. and Githesh Ramamurthy (management contract
required to be filed pursuant to Item 601 of Regulation S-K) (incorporated
herein by reference to Exhibit 10.23 of Company's 2001 Annual Report on
Form 10-K, Commission File Number 000-28600 Filed on March 26, 2002)
10.24 Executive Loan Arrangement by and between CCC Information Services Inc.
and Charlesbank Capital Partners dated July 16, 2001 (incorporated herein
by reference to Exhibit 10.24 of Company's 2001 Annual Report on Form 10-K,
Commission File Number 000-28600 Filed on March 26, 2002)
10.25 Promissory Note from Githesh Ramamurthy to CCC Information Services Group
Inc. (management contract required to be filed pursuant to Item 601 of
Regulation S-K) (incorporated herein by reference to Exhibit 10.25 of
Company's 2001 Annual Report on Form 10-K, Commission File Number 000-28600
Filed on March 26, 2002)
10.26 Promissory Note from Githesh Ramamurthy to CCC Information Services Group
Inc. (management contract required to be filed pursuant to Item 601 of
Regulation S-K) (incorporated herein by reference to Exhibit 10.26 of
Company's 2001 Annual Report on Form 10-K, Commission File Number 000-28600
Filed on March 26, 2002)
61
10.27 * First amendment to the 401(k) Company Retirement Savings and Interest
Plan, dated December 31, 2002
10.28 * First amendment to 2000 Stock Incentive Plan dated February 10, 2003
10.29 * First amendment to 1997 Stock Plan dated February 10, 2003
10.30 Purchase and Waiver Agreement, dated as of October 21, 2002, by and among
the Company, CCC Capital Trust and Capricorn Investors III, L.P.
(incorporated herein by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K, Commission File Number 000-28600 Filed on October 28,
2002)
13.1 ChoiceParts, LLC Audited Financial Statements for the year ended December
31, 2001 (incorporated herein by reference to Exhibit 13.1 of Company's
2001 Annual Report on Form 10-K, Commission File Number 000-28600 Filed on
March 26, 2002)
13.2 Enterstand Limited Audited Financial Statements for the year ended December
31, 2001 (incorporated herein by reference to Exhibit 13.2 of Company's
2001 Annual Report on Form 10-K, Commission File Number 000-28600 Filed on
March 26, 2002)
21 * List of Subsidiaries
23.1 * Consent of PricewaterhouseCoopers LLP
* Filed herewith.
62
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
SIGNATURES
By: /s/ Githesh Ramamurthy By: /s/ Thomas L. Kempner
----------------------- --------------------------
Name: Githesh Ramamurthy Name: Thomas L. Kempner
Title: Chairman 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 Title: Director
Chief Financial Officer
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 Jr.
----------------------- --------------------------
Name: Michael R. Eisenson Name: Herbert S. Winokur Jr.
Title: Director Title: Director
63
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CERTIFICATIONS
I, Githesh Ramamurthy, Chairman and Chief Executive Officer of CCC Information
Services Group Inc., certify that:
1. I have reviewed this annual report on Form 10-K of CCC Information
Services Group Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
64
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 7, 2003 By: /s/Githesh Ramamurthy
----------------------
Name: Githesh Ramamurthy
Title: Chairman and
Chief Executive Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Githesh Ramamurthy, Chairman and Chief Executive Officer of CCC Information
Services Group Inc. (the "COMPANY"), hereby certify that, to my knowledge:
1. The Annual Report on Form 10-K of the Company for the year ended
December 31, 2002 (the "REPORT") fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: March 7, 2003 By: /s/Githesh Ramamurthy
---------------------
Name: Githesh Ramamurthy
Title: Chairman and
Chief Executive Officer
65
CERTIFICATIONS
I, Reid E. Simpson, Executive Vice President and Chief Financial Officer of CCC
Information Services Group Inc., certify that:
1. I have reviewed this annual report on Form 10-K of CCC Information
Services Group Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
66
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 7, 2003 By: /s/ Reid E. Simpson
--------------------
Name: Reid E. Simpson
Title: Executive Vice President
and Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Reid E. Simpson, Executive Vice President and Chief Financial Officer of CCC
Information Services Group Inc. (the "COMPANY"), hereby certify that, to my
knowledge:
1. The Annual Report on Form 10-K of the Company for the year ended
December 31, 2002 (the "REPORT") fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: March 7, 2003 By: /s/ Reid E. Simpson
--------------------
Name: Reid E. Simpson
Title: Executive Vice President
and Chief Financial Officer
67
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
DIRECTORS Morgan W. Davis
Managing Director
One Beacon 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 and Chief Executive Officer
CCC Information Services Group Inc.
Mark A. Rosen
Managing Director
Charlesbank Capital Partners LLC
Herbert S. "Pug" Winokur Jr.
Chairman and Chief Executive Officer
Capricorn Holdings, Inc.
EXECUTIVE OFFICERS Githesh Ramamurthy
Chairman and Chief Executive Officer
J. Laurence Costin Jr.
Vice Chairman
Edward B. Stevens
President and Chief Operating Officer
Reid E. Simpson
Executive Vice President and Chief Financial Officer
James T. Beattie
Executive Vice President and Chief Technology Officer
Robert S. Guttman
Senior Vice President, General Counsel and Secretary
James A. Dickens
Senior Vice President, Product Management and Marketing
Thomas Baird
Senior Vice President, Corporate and Business Development
Oliver G. Prince, Jr.
Senior Vice President, Human Resources
Mary Jo Prigge
President-Sales and Service
68
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CORPORATE INFORMATION
CORPORATE OFFICE
World Trade Center Chicago
444 Merchandise Mart
Chicago, Illinois 60654
(312) 222-4636
www.cccis.com
TRANSFER AGENT REGISTRAR FOR COMMON STOCK
Computershare Investor Services LLC
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
One North Wacker Drive
Chicago, Illinois 60606
STOCKHOLDER AND INVESTMENT COMMUNITY INQUIRIES
Written inquiries should be sent to our corporate office to the attention of
Investor Relations.
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 pages 60-62 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.
69