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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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)
(312) 222-4636
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No __
As of April 21, 2004, 26,576,241 shares of CCC Information Services Group
Inc. common stock, par value $0.10 per share, were outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Interim Statements of Operations. . . . . . . . . . . 1
Consolidated Interim Balance Sheets. . . . . . . . . . . . . . . . 2
Consolidated Interim Statements of Cash Flows. . . . . . . . . . . 3
Notes to Consolidated Interim Financial Statements . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . 19
Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . 20
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
------------------
Revenues. . . . . . . . . . . . . . . . . . . . . . $49,603 $47,732
Expenses:
Production and customer support. . . . . . . . . . 8,349 7,344
Commissions, royalties and licenses. . . . . . . . 3,174 2,417
Selling, general and administrative. . . . . . . . 17,930 18,566
Depreciation and amortization. . . . . . . . . . . 2,103 1,930
Product development and programming. . . . . . . . 8,037 7,696
------------------
Total operating expenses. . . . . . . . . . . . . . 39,593 37,953
Operating income. . . . . . . . . . . . . . . . . . 10,010 9,779
Interest expense. . . . . . . . . . . . . . . . . . (146) (222)
Other income, net . . . . . . . . . . . . . . . . . 87 89
Equity in income (losses) of ChoiceParts investment 109 (6)
------------------
Income before income taxes. . . . . . . . . . . . . 10,060 9,640
Income tax provision. . . . . . . . . . . . . . . . (3,853) (3,669)
------------------
Net income. . . . . . . . . . . . . . . . . . . . . $ 6,207 $ 5,971
==================
PER SHARE DATA:
Income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.23
==================
Diluted. . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.22
==================
Weighted average shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . 26,472 26,156
Diluted. . . . . . . . . . . . . . . . . . . . . . 27,927 27,741
The accompanying notes are an integral part of these consolidated financial
statements.
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2004 2003
---------------------------
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,616 $ 20,755
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,004
Accounts receivable (net of allowances of $2,621 and $2,943 at March 31, 2004
and December 31, 2003, respectively). . . . . . . . . . . . . . . . . . . . 12,348 10,247
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,030 8,369
---------------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,994 46,375
Property and equipment (net of accumulated depreciation and amortization of
$35,366 and $36,211 at March 31, 2004 and December 31, 2003, respectively). 13,205 12,776
Intangible assets (net of accumulated amortization of $927 and $713 at
March 31, 2004 and December 31, 2003, respectively) . . . . . . . . . . . . 1,939 2,153
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,747 15,747
Deferred income taxes (net of valuation allowance of $11,599 at
March 31, 2004 and December 31, 2003) . . . . . . . . . . . . . . . . . . . 9,014 9,127
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 265
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 292
---------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,480 $ 86,735
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,154 $ 5,937
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,098 16,522
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,385 1,602
Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,519 7,930
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 97
---------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 33,433 32,088
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,512 3,064
---------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,945 35,152
---------------------------
Commitments and contingencies
Preferred stock ($1.00 par value, 100 shares authorized, issued and outstanding) - -
Common stock ($0.10 par value, 40,000,000 shares authorized, 26,576,241 and
26,376,839 shares outstanding at March 31, 2004 and December 31, 2003,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,055 3,034
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,314 131,590
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,631) (36,838)
Treasury stock, at cost (4,094,665 common shares in treasury at
March 31, 2004 and December 31, 2003) . . . . . . . . . . . . . . . . . . . . (46,203) (46,203)
---------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,535 51,583
---------------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $ 95,480 $ 86,735
===========================
The accompanying notes are an integral part of these consolidated financial
statements.
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
------------------
Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,207 $ 5,971
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net (income) losses of ChoiceParts. . . . . . . . . . . . . . . . . . . (109) 6
Depreciation and amortization of property and equipment . . . . . . . . . . . . . 1,889 1,859
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 214 71
Deferred income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . 112 303
Compensation expense related to issuance of restricted stock. . . . . . . . . . . 11 -
Interest on notes receivable from officer . . . . . . . . . . . . . . . . . . . . - (23)
Payment of interest on notes receivable from officer. . . . . . . . . . . . . . . - 122
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 18
Changes in:
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,100) 777
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (661) 704
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 84
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,217 (798)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,408) (6,871)
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,205 3,263
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 -
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590 (180)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (552) (105)
------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 7,051 5,201
------------------
Investing Activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,339) (653)
Maturity of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . 7,004 -
Acquisition of Comp-Est, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . - (13,230)
------------------
Net cash provided by (used for) investing activities. . . . . . . . . . . . . . . 4,665 (13,883)
------------------
Financing Activities:
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . 1,173 538
Proceeds from employee stock purchase plan. . . . . . . . . . . . . . . . . . . . 106 92
Principal repayments of capital lease obligations . . . . . . . . . . . . . . . . (134) (115)
------------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 1,145 515
-------------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . 12,861 (8,167)
Cash and cash equivalents:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,755 20,200
-------------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,616 $ 12,033
===================
Supplemental Disclosure:
Cash paid:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 64
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,536 90
The accompanying notes are an integral part of these consolidated financial
statements.
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- DESCRIPTION OF BUSINESS AND ORGANIZATION
CCC Information Services Group Inc. ("CCCG"), incorporated in Delaware in
1983 and headquartered in Chicago, Illinois, is a holding company, which
operates through its wholly owned subsidiary, CCC Information Services Inc.
("CCC"). CCC and CCCG are collectively referred to herein as the "Company" or
"we." We employed 835 full-time employees at March 31, 2004, compared to 869 at
this time in 2003. 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 CCC Pathways collision estimating software ("CCC Pathways"), which
provides our customers with access to various automobile information databases
and claims management software, and CCC Valuescope Claim Services ("CCC
Valuescope"), which is used by automobile insurance companies and independent
appraisers in processing claims involving private passenger vehicles that have
been heavily damaged or stolen.
As of March 31, 2004, 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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated interim financial statements as of and for
the three months ended March 31, 2004 and 2003 are unaudited. We are of the
opinion that all material adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of our interim results of
operations and financial condition have been included. The results of operations
for any interim period should not be regarded as necessarily indicative of
results of operations for any future period. The consolidated interim financial
statements should be read in conjunction with our Annual Report on Form 10-K for
the year ended December 31, 2003 filed with the Securities and Exchange
Commission ("SEC").
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). These accounting principles require that we make certain estimates,
judgments and assumptions. We believe that our estimates, judgments and
assumptions are reasonable based on information available at the time that these
estimates, judgments and assumptions are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities as of the
date of the consolidated financial statements as well as the reported amounts of
revenue and expenses during the periods presented. To the extent that there are
material differences between these estimates and actual results, our
consolidated financial statements may be affected.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less 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.
Goodwill
Under the provisions of SFAS No. 141 "Business Combinations" the purchase
method of accounting is used for all business combinations. The purchase method
of accounting requires that the excess of purchase price paid over the estimated
fair value of identifiable tangible and intangible net assets of acquired
businesses be recorded as goodwill.
Under the provisions of SFAS No. 142 "Goodwill and Intangible Assets" (SFAS
142), goodwill is no longer amortized. Under SFAS 142, goodwill is reviewed for
impairment on at least an annual basis, when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable.
Recoverability of goodwill is evaluated using a two-step process. The first
step involves a comparison of the fair value of a reporting unit with its
carrying value. If the carrying value of the reporting unit exceeds its fair
value, the second step of the process involves a comparison of the implied fair
value and carrying value of the goodwill of that reporting unit. If the
carrying value of the goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to the excess. In
accordance with SFAS 142, we completed our annual impairment analysis during the
first quarter of 2004 and determined that, as of March 31, 2004, no impairment
existed.
The aggregate goodwill balance as of March 31, 2004 was $15.7 million. The
balance from the 1988 acquisition that included CCC Valuescope was $4.9 million
and the remaining balance of $10.8 million represents the goodwill from the
Comp-Est acquisition completed during February 2003.
Earnings Per Share Information
Basic earnings per share ("EPS") excludes the dilutive effect of common
stock equivalents and is computed by dividing net income by the weighted-average
number of shares outstanding during the period. Diluted EPS includes the
dilutive effect of common share equivalents and is computed using the
weighted-average number of common and common stock equivalent shares outstanding
during the period. Common stock equivalents consist of stock options and certain
other equity instruments. Using the treasury method, for the three month period
ended March 31, 2004, options to purchase a weighted average number of 6,318
shares of common stock, were not included in the computations of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares during the period.
THREE MONTHS ENDED
MARCH 31,
-----------------
2004 2003
-----------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,207 $ 5,971
=================
Weighted average common shares outstanding:
Shares attributable to common stock outstanding . . . . . . 26,472 26,156
Shares attributable to common stock equivalents outstanding 1,455 1,585
------------------
27,927 27,741
=================
Per share net income:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.23
=================
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.22
=================
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.
The Company applies APB No. 25 in accounting for its 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 applicable to common stock and related per
share amounts would have been impacted as indicated below (in thousands, except
per share data):
THREE MONTHS ENDED
MARCH 31,
---------------------
2004 2003
---------------------
Net income:
As reported. . . . . . . . . . $ 6,207 $ 5,971
Pro forma. . . . . . . . . . . $ 5,604 $ 5,513
Per share net income - basic:
As reported. . . . . . . . . . $ 0.23 $ 0.23
Pro forma. . . . . . . . . . . $ 0.21 $ 0.21
Per share net income - diluted:
As reported. . . . . . . . . . $ 0.22 $ 0.22
Pro forma. . . . . . . . . . . $ 0.20 $ 0.20
Assumptions used:
Volatility . . . . . . . . . . 71.0 % 74.2 %
Risk free rate . . . . . . . . 2.8 % 3.0 %
Expected option life . . . . . 5.5 yrs 5.5 yrs
Dividend yield . . . . . . . . - -
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 2004 and 2003. 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.
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.
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.
Indemnification Disclosure
In the normal course of business, we are a party to a variety of agreements
pursuant to which we may be obligated to indemnify the other party with respect
to certain matters. Generally, these obligations arise in the context of
agreements entered into by us, under which we customarily agree to hold the
other party harmless against losses arising from a breach of representations and
covenants related to such matters as title to assets sold, certain intellectual
property rights and, in certain circumstances, specified environmental matters.
These terms are common in the industry in which we conduct business. In each of
these circumstances, payment by us is subject to certain monetary and other
limitations and is conditioned on the other party making an adverse claim
pursuant to the procedures specified in the particular agreement, which
typically allow us to challenge the other party's claims.
We evaluate estimated losses for such indemnifications under SFAS No. 5,
"Accounting for Contingencies" as interpreted by FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). We consider such
factors as the degree of probability of an unfavorable outcome and the ability
to make a reasonable estimate of the amount of loss. To date, we have not
encountered material costs as a result of such obligations and as of March 31,
2004, have not recorded any liabilities related to such indemnifications in our
financial statements, as we do not believe the likelihood of a material
obligation is probable.
NOTE 3 - ACQUISITION
On February 26, 2003, we acquired Comp-Est, Inc. ("Comp-Est") from the
Motor Information Systems Division of Hearst Business Publishing, Inc.
("Hearst"). Immediately prior to our acquisition of Comp-Est from Hearst, Hearst
acquired the selected net 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. Comp-Est provides automotive
estimating software applications to primarily single-location repair facilities.
With the acquisition, we added over 5,000 additional customers and believe this
is one of the fastest growing segments of the marketplace and can provide us
with a broader suite of electronic estimating and other tools to all types of
collision-repair businesses.
The results of Comp-Est have been included in the consolidated financial
statements from the date of acquisition. The purchase price, including
capitalized acquisition costs, of approximately $13.4 million was paid in cash
and was allocated to identifiable assets and liabilities and to intangible
assets at their estimated fair values at the date of acquisition. The fair
values of the intangible assets acquired were based on independent appraisals.
The excess of the purchase price of $13.4 million paid over the estimated fair
value of the assets acquired and the liabilities assumed of $2.5 million
represent goodwill of $10.9 million.
The following table summarizes the estimated fair value of the assets
acquired and the liabilities assumed at the acquisition date (in thousands):
FEBRUARY 26,
2003
-------------
Current assets. . . . . $ 44
Property and equipment. 86
Intangible assets . . . 2,867
-------------
Total assets acquired 2,997
Current liabilities . . 450
-------------
Net . . . . . . . . . $ 2,547
=============
Intangible assets include $1.9 million for customer relationships and $0.7
million for acquired software, both of which are being amortized on a
straight-line basis over a period of 3 years. Also included in intangible
assets, is a trademark valued at $0.3 million that is not being amortized.
NOTE 4 - INVESTMENT IN CHOICEPARTS
In 2000, we formed a new independent company, ChoiceParts, LLC
("ChoiceParts"), with ADP and The Reynolds and Reynolds Company. We have a 27.5%
equity interest in ChoiceParts, which we account for by applying the equity
method thereby recording our share of income or loss. Approximately $1.7
million of our original $5.5 million funding commitment was still outstanding as
of March 31, 2004, and there are no specific plans to fund this commitment at
this time. Based on the nature of our investment, we have recorded a deferred
income tax benefit on our share of the losses.
Summary financial information for ChoiceParts for the three months ended
March 31, 2004 and 2003 is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
------------------
Revenues. . . . . . . . . . . . . $2,290 $3,215
==================
Operating income (loss) . . . . . $ 509 $ (20)
==================
NOTE 5 - OTHER CURRENT ASSETS
Other current assets consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2004 2003
-------------------------
Insurance reimbursement for litigation settlement. . . . . . $ 2,000 $ 2,000
Prepaid data royalties . . . . . . . . . . . . . . . . . . . 1,907 1,948
Prepaid equipment maintenance. . . . . . . . . . . . . . . . 1,873 1,261
Income tax receivable - research and experimentation credits 750 750
Prepaid insurance. . . . . . . . . . . . . . . . . . . . . . 595 1,080
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,905 1,330
-------------------------
Total Total . . . . . . . . . . . . . . . . . . . . . . . $ 9,030 $ 8,369
=========================
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2004 2003
-------------------------
Litigation settlements $ 6,529 $ 6,475
Compensation . . . . . 2,083 4,468
Health insurance . . . 1,635 1,256
Sales tax. . . . . . . 964 933
Restructuring charges. 876 860
Professional fees. . . 687 843
Other, net . . . . . . 1,324 1,687
-------------------------
Total. . . . . . . . . $ 14,098 $ 16,522
=========================
NOTE 7 - OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2004 2003
------------------------
Deferred rent . . . . . $ 1,769 $ 2,140
Other, net. . . . . . . 743 924
------------------------
Total . . . . . . . . . $ 2,512 $ 3,064
========================
NOTE 8 - RESTRUCTURING CHARGES
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.
In 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.
During 2003, the Company recorded a final charge of $1.1 million to revise
the original expected future sublease income from $2.3 million to $1.2 million
as a result of entering into a sublease agreement with a third party. The
sublease is for the duration of the existing term remaining on the current
lease, which is through March 31, 2006.
The following summarizes the activity in the restructuring accrual (in
thousands):
EXCESS
FACILITIES
------------
Balance at December 31, 2003 $ 1,830
Cash payments. . . . . . . . (172)
------------
Balance at March 31, 2004. . $ 1,658
============
NOTE 9 - LEGAL PROCEEDINGS
As disclosed in our Annual Report on Form 10-K for the year ended December
31, 2003, the Company has pending against it certain putative class actions and
individual actions in which the plaintiffs allege that their insurers, using
valuation reports prepared by CCC, offered them an inadequate amount for their
total loss vehicles. Set forth below is a discussion of developments with
respect to these cases since the discussion in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
On or about March 9, 2004, CCC was served for the first time with a
complaint that had been filed on October 31, 2001, in the Superior Court of the
State of California for the County of Los Angeles. The case is encaptioned
RIVERA v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and CCC INFORMATION
SERVICES INC., Case No. BC200881. The complaint in RIVERA is pled as a putative
California statewide class action, asserting various common law claims against
CCC and its co-defendant. The plaintiff in RIVERA seeks declaratory and
injunctive relief, as well as recovery of unspecified compensatory and punitive
damages, penalties, attorneys' fees, interest and costs.
In 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), on February 26, 2004, the court
approved the plaintiff's voluntary dismissal of this putative class action case.
CCC intends to vigorously defend its interests in all of the above
described litigation 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.
During 2001, CCC recorded a pre-tax charge of $4.3 million, net of the
expected insurance reimbursement of $2.0 million, as an estimate of the amount
that CCC will contribute toward a potential settlement that would resolve
potential claims arising out of approximately 30% of CCC's total transaction
volume during the time period covered by the lawsuits. Based on the current
status of the settlement discussions, the Company anticipates contributing
approximately $2.7 million, net of the expected insurance reimbursement of $2.0
million, toward an initial settlement that would resolve potential claims
arising out of approximately 17% of the Company's transaction volume, for
valuations involving first party claims, during the period covered by the
lawsuits. As for the remainder of the original $4.3 million charge, we continue
to believe the recorded reserve is necessary and appropriate. However, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
This report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and are subject to the safe
harbor provisions of those sections and the Private Securities Litigation Reform
Act of 1995. 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. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those described in our annual report on Form 10-K for the year ended December
31, 2003 and our other filings with the Securities and Exchange Commission, and
that actual results or developments may differ materially from those in the
forward-looking statements. Specific factors that might cause actual results to
differ from our expectations include, but are not limited to, competition in the
automotive claims and collision repair industries, the ability to develop new
products and services, the ability to protect trade secrets and proprietary
information, the ability to generate the cash flow necessary to meet our
obligations, the outcome of certain legal proceedings, and other factors.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. We have based these forward-looking statements on
information currently available and disclaim any intention or obligation to
update or revise any forward-looking statement.
GENERAL
Our products and services fall into five categories or "suites": CCC
Pathways, CCC Valuescope, Workflow Products, Information Services and Other
Products and Services. Each of these products and services suites is described
below. For additional information regarding these suites and the various
products and services in each suite, please refer to the "Business" section of
our annual report on Form 10-K for the year ended December 31, 2003.
CCC has long been a leader and innovator in the automotive claims and
collision repair market. CCC has over 21,000 collision repair-facilities
installations, located in all 50 states, and over 350 insurance company
customers in the United States. We have also pioneered value-added network
communications between industries involved in claims settlement, and today our
EZNet communications network handles an average of over 1 million
claims-related transactions each business day. CCC Valuescope is also an
established market leader. We continue to seek products and services to
anticipate and respond to changing demands in the auto-claims industry.
CCC PATHWAYS
This suite consists of our collision estimating products:
- CCC Pathways Appraisal Solution (for insurance customers);
- CCC Pathways Estimating Solution (for collision repair facility
customers);
- CCC Pathways Independent Appraiser Solution (for independent
appraisers);
- CCC Pathways Digital Imaging;
- Recycled Parts Service; and
- Comp-Est Estimating Solution
CCC Pathways 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 CCC Pathways platform allows customers to integrate our
other services, including CCC Pathways Digital Imaging, Recycled Parts Service
and CCC Valuescope, in order to organize individual claim information in
electronic workfiles, which can be stored on our EZNet communications network,
described later in this section under "Workflow Products."
Pathways Digital Imaging allows our customers to transmit digital images
of damaged vehicles to the Pathways estimate workfile. Customers using Pathways
with our Recycled Parts Service also have access to a database that provides
local part availability and price information on over 22.7 million available
recycled or salvage parts.
Comp-Est Estimating Solution is our collision estimating software that
targets smaller repair facilities that do not communicate electronically with
insurance companies. This product also allows our customers to access the MOTOR
Crash Estimating Guide and provides them with the ability to generate estimates
and supplements.
CCC VALUESCOPE
CCC Valuescope is used primarily by automobile insurance companies and
independent appraisers in processing claims involving private passenger 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 or independent appraiser with the local market value of the
vehicle to assist in processing the claim. The valuation service can be obtained
for both commercial and recreational vehicles as well as for specialty vehicles,
such as, trucks, semi-trailers, marine craft, motorcycles, and pre-fabricated
housing.
WORKFLOW PRODUCTS
This suite includes of the following products and services:
- EZNet Communications Network ("EZNet");
- CCC Pathways Appraisal Quality Advisor and Quality Advisor Appraisal
Review (QAAR Plus )
- CCC Autoverse
EZNet is a secure network that allows clients to communicate estimates and
claim information electronically. The network allows customers to electronically
communicate claim information, including assignments, workfiles, estimates,
images and auditable estimate data, internally and among insurance company
appraisers, collision repair facilities, independent appraisers, insurance
company reinspectors and other parties involved in the automobile claims
process. EZNet communications network allows customers to share information and
review claims, regardless of the location and provides them with an electronic
library to catalog, organize and store completed claims files.
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, CCC
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, CCC
Pathways Quality Advisor allows an insurance company to establish certain
criteria for reviewing the preparation of estimates, which in turn allows the
insurance company to determine if an appraiser prepared an accurate estimate.
CCC Autoverse. Our CCC Autoverse product consists of CCC Autoverse Claim
Management (for insurance customers), which was launched during the third
quarter of 2002, CCC Autoverse Repair Management (for multiple-location repair
facilities) and CCC Autoverse Appraiser Management (for independent appraiser
customers), both of which were launched during the first quarter of 2003. CCC
Autoverse is a web-based open workflow solution that allows for the exchange of
claims information derived from using CCC Pathways products as well as
established collision estimating systems that meet the Collision Industry
Electronic Commerce Association Estimating Management System standard. CCC
Autoverse products permit the free flow of information between those who write
damage estimates and insurers who process claims.
CCC Autoverse Claim Management allows the insurance adjuster to review
estimates as well as digital images, supplements, claim summary reports and
other documents associated with the claim. In addition, CCC Autoverse Claim
Management allows the insurance adjuster to review events, enter new assignments
and request and record payment information. CCC Autoverse Claim Management also
provides reporting for assignment status.
CCC Autoverse Repair Management allows the CCC Pathways user and non-user
repair facility operator to receive assignments into a central location from
multiple insurance carriers. Through the CCC Autoverse dispatch feature,
multi-location repair facilities are provided the ability to load balanced work
across their different locations. This permits the multi-location operator to
reduce their cycle time and improve their shop utilization.
INFORMATION SERVICES
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 CCC Pathways and CCC
Valuescope 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.
OTHER PRODUCTS AND SERVICES
Pathways Enterprise Solution and Pathways Professional Advantage .
Pathways Enterprise Solution is an automotive repair facility 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 repair facility management software system for a
single store location.
CARS Direct is a multi-vendor, on-line car rental reservation and
management system, which allows insurers control over car class selection, rates
and extensions. We sell the CARS Direct service on a per-transaction basis and
bill at the beginning of the month following the transactions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 the Notes to the Consolidated Financial Statements, 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, income taxes, goodwill, intangibles, software development, 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 of our Board of
Directors and Disclosure Committee. See "Preparation of Financial Information"
in this section for further discussion of the Disclosure Committee.
We believe that the following critical accounting policies can have a
significant impact on our results of operations, financial position and
financial statement disclosures and require the most difficult, subjective and
complex estimates and judgments.
- - Accounts Receivable
- - Income Taxes
- - Goodwill and Intangibles
- - Software Development Costs
- - Fair Value of Financial Instruments
- - Commitments and Contingencies
For a detailed discussion on the application of these accounting policies,
see "Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2003.
During the first quarter of 2004 we implemented new performance
compensation plans, as such, the methodology for recognizing annual performance
compensation expenses changed from the prior year. Our objective was to directly
correlate our quarterly bonus achievement and accrual more closely with the
performance against our growth targets and corporate objectives that drive our
variable compensation plans. Under this new method, we will be more closely
linking achievement against our annual growth targets by funding the bonus pool
based on certain year-to-date growth metrics over the prior year. Under the
historic method, a proportionate amount of the projected annual payout was
recorded each quarter and was adjusted when full year annual projections were
revised. As a result, we expect to see more stability in the selling, general
and administrative expense line on a quarter-to-quarter basis when measured as a
percentage of revenue.
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. We believe that our accounting policies are prudent
and provide a clear view of our financial performance. In 2002, we formed a
Disclosure Committee, composed of senior management, including senior financial
and legal personnel, to help ensure the completeness and accuracy of our
financial results and disclosures. In addition, prior to the release of our
financial results, key management reviews the our annual and quarterly results,
along with key accounting policies and estimates, with the Audit Committee of
our Board of Directors.
RESULTS OF OPERATIONS
In the following comparative analysis, all percentages are calculated based
on dollars in thousands.
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
Operating Income. Operating income increased quarter-over-quarter from 2003
to 2004 by $0.2 million, to $10.0 million, due to an increase in revenues of
$1.9 million, or 3.9%, which was partially offset by an increase in operating
expenses of $1.6 million, or 4.3%. Our operating margin (operating income as a
percentage of revenue) decreased to 20.2% for the quarter ended March 31, 2004
compared to 20.5% for the same quarter in 2003.
Revenues. Revenues for each of our product and service suites are
summarized as follows (in thousands):
THREE MONTHS ENDED MARCH 31, VARIANCE
2004 2003 INCREASE (DECREASE)
-------------------------------------------------------
CCC Pathways. . . . . . . . $31,174 62.8% $29,021 60.8% $2,153 7.4%
CCC Valuescope. . . . . . . 10,139 20.5 10,696 22.5 (557) (5.2)
Workflow Products . . . . . 6,258 12.6 6,362 13.3 (104) (1.6)
Information Services. . . . 502 1.0 307 0.6 195 63.5
Other Products and Services 1,530 3.1 1,346 2.8 184 13.7
-------------------------------------------------------
Total Revenue . . . . . . $49,603 100.0% $47,732 100.0% $1,871 3.9%
=======================================================
Revenues from our CCC Pathways products increased in the first quarter of
2004 by $2.2 million, or 7.4%, compared to the first quarter of last year
primarily due to the acquisition of Comp-Est being completed part way through
the quarter ended March 31, 2003. Only one month's revenue was included for
Comp-Est for the three months ended March 31, 2003 versus a full quarter of
revenue being included for the three months ended March 31, 2004. Also
contributing to the growth in this suite was increased sales of our Recycled
Parts Service to insurance companies. As we talk to more insurance customers
about implementing a broader set of tools to help solve their business issues,
products like our Recycled Parts Service are benefiting.
Revenues from CCC Valuescope decreased as a result of pricing declines due
to recent contract renewals, which were not offset by transaction volumes. We
had expected transaction volumes to increase enough to offset the pricing
declines, but this did not occur, as many of our insurance customers experienced
a decrease in claim volumes.
Revenues from our workflow product suite decreased slightly from the prior
year. The gains we made with Autoverse during the quarter were offset by a
decline in revenue from EZNet. The decreased revenue from EZNet was attributable
to continued softness in industry claim volumes, as well as the impact of
pricing declines due to, recent customer renewal activity.
Revenue from our information services product suite increased over 60% due
to increased sales of our management information tools to both insurance
companies and repair facilities.
Operating Expenses. Operating expenses as a percentage of revenues are
summarized as follows (in thousands):
THREE MONTHS ENDED MARCH 31, VARIANCE
2004 2003 INCREASE (DECREASE)
--------------------------------------------------------
Revenues $49,603 100.0% $47,732 100.0% $1,871 3.9%
Production and customer support 8,349 16.8 7,344 15.4 1,005 13.7
Commissions, royalties and licenses 3,174 6.4 2,417 5.1 757 31.3
Selling, general and administrative 17,930 36.1 18,566 38.9 (636) (3.4)
Depreciation and amortization 2,103 4.3 1,930 4.0 173 9.0
Product development and programming 8,037 16.2 7,696 16.1 341 4.4
--------------------------------------------------------
Total operating expenses $39,593 79.8% $37,953 79.5% $1,640 4.3%
========================================================
Production and Customer Support. Production and customer support expenses
increased 13.7% versus the first quarter last year due mainly to higher than
anticipated training and transition costs needed to complete the implementation
of the new customer support model, that is, moving to a universal service
representative model. While we finished the migration to the new model during
the fourth quarter of 2003, we continued to incur additional training and
transition expense related to this project during the first quarter of 2004.
Commissions, Royalties and Licenses. Commissions, royalties and licenses
expenses increased in 2004 compared to the first quarter of 2003 due primarily
to the inclusion of a full quarter of data license fees for the CompEst product
versus only one month of expenses being included last year.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by $0.6 million, or 3.4%, from the first quarter of fiscal
2003 to the first quarter of fiscal 2004 mainly as a result of a favorable
impact of approximately $2.0 million, due to a change in methodology for annual
performance compensation expenses, as well as actual performance against our
plan targets during the quarter. During the first quarter of 2004 we implemented
new performance compensation plans, as such, the methodology for recognizing
annual performance compensation expenses changed from the prior year. In
addition, we also benefited from the timing of industry conference, which we
held in the first quarter of 2003 and are expecting to have during the second
quarter this year. These favorable variances were offset by $1.6 million of
increased costs associated with our sales force, our insurance premiums and
expense incurred to consolidate and make improvements to our main office in
Chicago.
With regard to the bonus methodology change, as we move through the year,
our objective was to directly correlate our quarterly bonus achievement and
accrual more closely with the performance against our growth targets and
corporate objectives that drive our variable compensation plans. Under this new
method, we will be more closely linking achievement against our annual growth
targets by funding the bonus pool based on certain year-to-date growth metrics
over the prior year. Under the historic method, a proportionate amount of the
projected annual payout was recorded each quarter and was adjusted when full
year annual projections were revised. As a result, we expect to see more
stability in the selling, general and administrative expense line on a
quarter-to-quarter basis when measured as a percentage of revenue.
Depreciation and Amortization. Depreciation and amortization expenses
increased 9.0% compared to the first quarter of last year due to a full quarter
of intangible amortization related to the CompEst acquisition being recorded in
2004 versus only one month's of amortization being recorded in 2003.
Product Development and Programming. Product development and programming
expenses increased by 4.4%, from the first quarter of fiscal 2003 to the first
quarter of fiscal 2004 as a result of the timing of our continued investment in
development of a new shop management product, as well as expenses incurred to
continue development of our new subrogation, salvage and reinspection products
to be released later this year.
OUTLOOK
As part of our first quarter earnings release, we provided updated guidance
for the second quarter and the remainder of 2004.
Revenue growth for the second quarter is expected to be in the 3 to 4
percent range. We expect full year revenue growth of 3 to 5 percent, unchanged
from the guidance discussed last quarter. Operating income for the second
quarter should be approximately $10 million, as expenses will be impacted by our
industry conference and annual salary increases. The forecast for full year
operating income continues to be in the $45 to $47 million range. We continue
to expect our operating margins to increase throughout the year to a full year
range of 22 to 23 percent. EPS for the second quarter is expected to be in the
$0.22 to $0.23 range. EPS guidance for the full year continues to be in the
$1.00 to $1.04 range. We are now using 27.9 million shares for our EPS
calculation, up from the 27.7 million shares that we were using previously, due
to option exercises.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2004, net cash provided by
operating activities was $7.1 million, proceeds received from the sale of
short-term investments were $7.0 million and proceeds received from the exercise
of stock options were $1.2 million. We used $2.3 million for the purchase of
equipment, software, and for costs related to consolidate and make improvements
to our main office in Chicago.
Our principal liquidity requirements consist of our operating activities,
including product development, our investments in capital equipment and other
business development activities. Although not currently in a working capital
deficit position, 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 CCC 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 foreseeable future. Our current credit facility expires during the fourth
quarter of 2004 and there can be no assurance that we will be able to renew the
credit facility on economic terms that are beneficial to us, or at all. There
can also be no assurance, that we will be able to satisfy our liquidity needs in
the future without engaging in financing activities beyond those described
above.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following summarizes our significant contractual obligations and
commitments as of March 31, 2004 (in thousands):
LESS THAN 1-3 4-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
----------------------------------------------
Operating lease obligations $32,196 9,163 17,374 3,776 1,883
Capital lease obligations . $ 25 25 - - -
Long-term debt obligations. $ - - - - -
Purchase obligations. . . . $ - - - - -
Other long-term liabilities $ 1,688 715 973 - -
----------------------------------------------
Total . . . . . . . . . . . $33,909 $9,903 $ 18,347 $ 3,776 $1,883
==============================================
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe our financial results are affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in the
foreign markets.
ITEM 4. 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 an investment in an
unconsolidated entity. As the Company does not control or manage this entity,
its disclosure controls and procedures with respect to such entity are
necessarily substantially more limited than those it maintains with respect to
its consolidated subsidiaries.
As of March 31, 2004, the end of the quarter covered by 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 at the reasonable assurance level.
Changes in internal controls
There has been no change in the Company's internal controls over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information provided in Note 9 to the financial statements contained in
Part I of this Form 10-Q are incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certifications of Chief Executive and Financial
Officers
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K on January 6, 2004 to report the
extension of the blackout period imposed in connection with the transition
to a new service provider for the Company's Retirement Savings and
Investment Plan from December 29, 2003 to January 5, 2004.
We filed a Current Report on Form 8-K on February 4, 2004 to report
the issuance of a press release announcing the Company's financial results
for the period ended December 31, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 21, 2004 CCC Information Services Group Inc.
By: /s/Githesh Ramamurthy
--------------------------
Name: Githesh Ramamurthy
Title: Chairman and Chief Executive Officer
By: /s/Reid E. Simpson
--------------------
Name: Reid E. Simpson
Title: Executive Vice President
and Chief Financial Officer