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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, 2003
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 30, 2003, the aggregate market value of the registrant's common
stock held by non-affiliates was approximately $140,760,760, 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 February 13, 2004, 26,524,059 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 2004 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, 2003
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Organization 1
Products and Services 2
Sales and Marketing 6
Training and Support 6
Customers 6
ChoiceParts Joint Venture 6
Intellectual Property and Licenses 6
Competition 7
Regulation 8
Research and Development 9
Certain Risks Related to our Business 9
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Auditors on Accounting and
Financial Disclosure 26
Item 9A. Controls and Procedures 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
Item 14. Principal Accounting Fees and Services 27
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
Signatures 64
Directors and Executive Officers 65
Corporate Information 66
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, 2003 ("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 and insurance industries 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 "Item 1.
Business - 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, 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 895 full-time employees at December 31, 2003, compared to 834
at the end of 2002. 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"), formerly known as Total Loss
Valuation Services. Revenues from CCC Pathways represented 61.1%, 60.6% and
58.3% of our consolidated revenues for the years ended December 31, 2003, 2002,
2001, respectively. Revenues from CCC Valuescope represented 21.8%, 23.7% and
25.5% of our consolidated revenues for the years ended December 31, 2003, 2002
and 2001, respectively.
As of December 31, 2003, 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.
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 and Exchange Commission ("SEC").
PRODUCTS AND SERVICES
OVERVIEW
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. CCC has long been a leader and innovator in the automotive claims and
collision repair market. CCC has over 21,000 collision repair-facilities,
located in all 50 states, and over 350 insurance company installations 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 repair 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 Services and CCC Valuescope, 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 CCC
Pathways. CCC Pathways can be used on laptop or desktop computers.
CCC 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 manufacturer 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 that expires in 2021
permits us to publish this guide electronically, which is an integral component
of CCC Pathways. For more information about this license, please see the
description later in this section under "Intellectual Property and Licenses."
Customers also use CCC Pathways to access databases of information gathered
from various vendors. These databases include one database, which compiles data
from over 1,547 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 17,495 tire models from 24
different manufacturers. Customers using CCC Pathways with Recycled Parts
Services also have access to a database that provides local part availability
and price information on over 22.7 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, CCC Pathways integrates that choice into the
estimate workfile.
We sell Recycled Parts Services to our customers on a subscription and/or
per transaction basis under multi-year agreements and bill our customers on a
monthly basis one month in advance.
We update the MOTOR Crash Estimating Guide and the other integrated
databases used by CCC Pathways for our customers monthly via a CD-ROM, except
for the Recycled Parts Services database, which the vendor updates
electronically on a daily basis.
We license CCC 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.
CCC Pathways Digital Imaging. Imaging integration allows automobile
insurance companies, collision repair facilities and independent appraisers to
digitally photograph, attach and transmit images of damaged vehicles to the CCC
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 CCC 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."
CCC Pathways Digital Imaging reduces the need for onsite inspections and
eliminates film, photo processing, travel and overnight delivery costs.
We sell CCC Pathways Digital Imaging to our customers under multi-year
contracts and bill our customers on a monthly subscription basis one month in
advance.
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. We sell Comp-Est Estimating Solution to our customers
generally under multi-year contracts and bill them on a monthly subscription
basis one month in advance.
CCC VALUESCOPE
CCC Valuescope. Our CCC Valuescope services are 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. Our values
are based on local market data that identifies the location and price of
comparable vehicles. To compile this data, CCC representatives survey over 3,965
car dealerships in more than 265 markets at least twice each month to obtain
detailed information about the vehicles on the dealerships' used car lots. We
also subscribe to more than 1,900 local newspapers and other publications and
cull information from the classified advertisements to provide additional
information on vehicle availability and pricing. We believe our CCC Valuescope
database is among the most current and comprehensive vehicle databases in North
America. Each CCC Valuescope 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 CCC Valuescope who are also customers of CCC Pathways may
access the CCC Valuescope program electronically using CCC Pathways software.
Customers may also obtain CCC Valuescope valuations from us by telephone, e-mail
or facsimile. Our TL2000 Solution product allows customers to submit CCC
Valuescope valuation requests and retrieve CCC Valuescope market 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 CCC Valuescope valuations on our EZNet
communications network as part of a claims workfile.
Commercial and Recreational Vehicle Valuation Services ("CRV"). CRV is the
Company's CCC Valuescope 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.
We sell CCC Valuescope and CRV to our customers, including those who are
CCC Pathways customers, on a per-transaction basis under multi-year contracts.
Customers are generally 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 our EZNet communications network in
various ways, including dedicated data lines and/or telephone lines via modems,
as well as over the Internet. 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, 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.
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 CCC
Pathways and store the completed estimate on EZNet. An adjuster's supervisor and
other members of his company's automobile claim team in California can access
the estimate through our EZNet communications network on a confidential basis
using a claim reference number.
We sell EZNet services to our customers under multi-year contracts and bill
them on a per-transaction basis. Customers are billed at the beginning of the
month following the transactions.
CCC Pathways Quality Advisor and Quality Advisor Appraisal Review (QAAR
Plus). 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 Quality Advisor 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.
We sell CCC Pathways Quality Advisor and QAAR Plus 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. 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.
We sell CCC Autoverse products to our customers on a per-transaction basis
under multi-year agreements. Customers are billed at the beginning of the month
following the transactions.
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 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.
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 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.
We sell Pathways Professional Advantage and Pathways Enterprise Solution to
our customers under multi-year contracts and bill them on a monthly subscription
basis one month in advance.
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.
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 184 sales and service professionals to market and
implement our services.
TRAINING AND SUPPORT
Our training and support staff, which consists of approximately 99
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 United States automobile insurance companies and small to medium size
automobile insurance companies serving regional or local markets. CCC has over
21,000 collision repair-facilities, located in all 50 states, and over 350
insurance company installations in the United States. 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.
CHOICEPARTS JOINT VENTURE
On May 4, 2000, we formed an independent company, ChoiceParts, LLC
("ChoiceParts") with Automatic Data Processing, Inc. ("ADP") and The Reynolds
and Reynolds Company ("Reynolds"). We have a 27.5% equity interest in
ChoiceParts. See Note 7, "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 products and 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 names and slogans used in connection with virtually all
of our products and services, which we use in the advertising and marketing of
our products and services. CCC 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 covering the CCC Pathways method for managing insurance claim
processing. Although we do not have a patent concerning the CCC Valuescope
calculation process, the processes involved in this program are our trade
secrets and are essential to our CCC Valuescope 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, diminishing the
competitive advantage that our patents may provide.
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, which 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
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 Services database
and, in 2002, we entered into a data supply agreement, which expires in June of
2005, with a new provider of recycled parts data, Car-Part.com. Any interruption
of our access to the data contained in the Recycled Parts Services database
could have a material adverse effect on our business.
We are not engaged in any material disputes with other parties with respect
to our 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. Moreover, 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. In addition, we cannot assure you that we will
not have to take legal action in the future to enforce our intellectual property
rights, as we have done in the action we filed against Mitchell International
Inc. ("Mitchell") described in Item 3. Legal Proceedings. Any action we may
take to enforce our intellectual property rights may involve significant expense
and management time and the outcome is uncertain.
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 what we believe is superior customer service for these solutions.
Historically, our principal competitors have included the Claims Services Group
of ADP and 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, we face competition from several new companies, many of
which focus on the delivery of services over the Internet. We experience 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 CCC 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 may 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 CCC Valuescope. A large portion of the revenue from CCC Valuescope
during the year ended December 31, 2003 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% of the Company's volume for CCC
Valuescope.
CCC Valuescope has been expressly approved for use by regulators in some
states. In most states, there is no formal approval process for total loss
valuation products, but CCC Valuescope 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 CCC Valuescope. 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 CCC Valuescope valuations in compliance with
a state's claim handling regulations.
The Company is aware that in 2002 and 2003 the California Department of
Insurance advised some of the Company's customers (which management estimates to
be approximately 14% of the total revenue earned in 2003 from the Company's CCC
Valuescope valuation service) that their use of CCC Valuescope 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.
On April 24, 2003, the California Department of Insurance formally adopted
new regulations, which, if implemented, would have required the Company to
change its methodology for computing total loss valuations in California. These
regulations were scheduled to become effective on July 23, 2003, and the Company
was prepared to implement modifications to its methodology on that date so as to
be in compliance with the new regulations. On July 1, 2003, however, the
Personal Insurance Federation of California, the Association of California
Insurance Companies and the Surety Association of America filed a lawsuit in the
Superior Court of the State of California for the County of Los Angeles that,
among other things, seeks a declaration that the new regulations were not valid.
The Plaintiffs in the suit also sought a preliminary and permanent injunction
enjoining the implementation of those regulations. That case is captioned
PERSONAL INSURANCE FEDERATION OF CALIFORNIA, et al. v. JOHN GARAMENDI, INSURANCE
COMMISSIONER OF THE STATE OF CALIFORNIA, Case No. BC298284 (filed July 1, 2003).
CCC is not a party to the suit.
On July 22, 2003, the Court in the above-captioned action entered an order
preliminarily enjoining implementation and enforcement of the new California
regulations, pending a resolution of the case on the merits. Thus, the new
regulations did not go into effect on July 23, 2003. The Company is not able to
predict when the case will be resolved or whether the new regulations will or
will not take effect in whole or in part. In the event that the new California
regulations are eventually implemented, the Company will implement its modified
methodology to be in compliance with those regulations.
RESEARCH AND DEVELOPMENT
For the years 2003, 2002 and 2001 we incurred research and development
costs of $6.3 million, $7.6 million and $13.0 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 certain risks and uncertainties that we believe 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 in 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.
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 the section entitled
"Business - Intellectual Property and Licenses".
In addition, we license data used in the Recycled Parts Services database,
and in 2002, we entered into a data supply agreement, which expires in June of
2005, with a new provider of recycled parts data, Car-Part.com. Any interruption
of our access to the data contained in the Recycled Parts Services database
could have a material adverse effect on our business. There can be no assurance
that we will be able to renew this agreement on economic terms that are
beneficial to us, or at all.
IF WE ARE UNABLE TO PROTECT OUR TRADE SECRETS, INTELLECTUAL PROPERTY AND OTHER
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 CCC Valuescope calculation process is not patented; however, the underlying
methodology and processes are trade secrets and are essential to our CCC
Valuescope 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, implement our proprietary
patented technology or 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 proprietary patent
rights and 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, patent rights, copyrights or
proprietary information will provide competitive advantages or will not be
challenged or circumvented by our competitors. We may be required to litigate to
defend against claims of infringement, to protect our intellectual property
rights, which 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 11 class
action suits regarding CCC Valuescope. 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 27, "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 $36.8
million through December 31, 2003. Additionally, we failed to generate a profit
for the years 2001 and 2000. Losses in those years 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 since 1999 and generated operating income of $40.5 million and $37.3
million in 2003 and 2002, respectively, 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, 2003, we were in compliance with all of
these covenants and had no advances under the Credit Facility. 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.
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 CCC VALUESCOPE BY INSURANCE
COMPANIES.
Changes in the content or interpretation of state laws or regulations in a
way that restricts the use of CCC Valuescope by insurance companies could
restrict our ability to sell CCC Valuescope in certain jurisdictions or require
us to incur significant expenses, modify and maintain the product. In addition,
changes in interpretation of existing laws or regulations could expose the
Company or its customers to lawsuits or regulatory action relating to past usage
of the product. These consequences of changes in content or interpretation of
state laws or regulations may have a material adverse effect on our business,
financial condition and results of operations. See "Regulation" section of Item
1. Business.
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.
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 at the end of February in 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 have subleased the premises through the end of the
term on the existing lease. In addition, we vacated facilities previously
occupied by CCC Consumer Services Inc. and CCC International, both of which were
shut down in 2001, and we are currently subleasing approximately 12,000 square
feet of our Sioux Falls facility. During 2003, we also entered into a lease,
expiring in September 2006, of approximately 12,000 square feet in Itasca,
Illinois for a customer service center. 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 27 of the financial statements contained
in Item 15(a) 1 of this Form 10-K is incorporated herein by reference.
On April 22, 2003, the Company filed a patent infringement lawsuit against
Mitchell International, Inc. in the United States District Court for the
Northern District of Illinois (Eastern Division). In the complaint CCC alleges
that Mitchell is infringing CCC's patent entitled "system and method for
managing insurance claim processing", U.S. Patent No. 5,950,169 (the "'169
Patent"). The '169 Patent includes coverage for the parts comparison feature in
CCC Pathways collision estimating software.
In addition to a judicial determination that Mitchell infringed the '169
Patent, CCC is seeking preliminary and permanent injunctions enjoining Mitchell
from further acts of infringement of the '169 Patent, triple monetary damages
for willful infringement, disgorgement of all profits resulting from the
infringement of the '169 Patent and attorneys fees.
On July 3, 2003, Mitchell filed an answer to the lawsuit, denying that it
is infringing the '169 Patent. Mitchell also seeks a declaration from the Court
that the '169 Patent is invalid.
Discovery in the case is in its early stages and is continuing. A trial
date has not yet been set for the matter by the Court.
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:
2003 2002
-------------- --------------
HIGH LOW HIGH LOW
------ ------ ------ ------
First Quarter $21.60 $15.97 $ 9.42 $ 6.60
Second Quarter $18.19 $13.92 $14.29 $ 9.41
Third Quarter $16.76 $12.37 $13.99 $ 9.79
Fourth Quarter $17.20 $16.55 $20.35 $13.52
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 February 13, 2004, there were 26,524,059 shares of
common stock outstanding. There were 64 stockholders of record on February 13,
2004.
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, 2003.
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,
----------------------------------------------------
2003 2002 2001 2000 1999
----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues . . . . . . . . . . . . . . . . . . . . $193,352 $191,860 $187,941 $184,641 $179,021
Expenses:
Operating expenses . . . . . . . . . . . . . . 151,825 153,688 175,768 181,018 160,751
Restructuring charges. . . . . . . . . . . . . 1,061 869 10,499 6,017 2,242
Litigation settlements . . . . . . . . . . . . - - 4,250 2,375 -
----------------------------------------------------
Operating income (loss). . . . . . . . . . . . . 40,466 37,303 (2,576) (4,769) 16,028
Interest expense . . . . . . . . . . . . . . . . (392) (708) (5,680) (3,135) (1,358)
Other income (expense), net. . . . . . . . . . . 272 455 (248) 5,101 412
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 . (21) (291) (2,486) (2,071) -
----------------------------------------------------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 40,325 32,775 (40,628) 13,563 15,082
Income tax (provision) benefit . . . . . . . . . (14,285) (10,420) 18,329 (3,452) (7,352)
----------------------------------------------------
Income (loss) from continuing operations before
equity losses. . . . . . . . . . . . . . . . . 26,040 22,355 (22,299) 10,111 7,730
Equity in net losses of affiliates . . . . . . . - - (2,354) (15,650) (6,645)
----------------------------------------------------
Income (loss) from continuing operations . . . . 26,040 22,355 (24,653) (5,539) 1,085
Income (loss) from discontinued operations, net
of income taxes. . . . . . . . . . . . . . . . - 354 (5,972) (3,704) (333)
----------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . 26,040 22,709 (30,625) (9,243) 752
Dividends and accretion on mandatorily
redeemable preferred stock . . . . . . . . . . - - - - (2)
----------------------------------------------------
Net income (loss) applicable to common stock . . $ 26,040 $ 22,709 $(30,625) $ (9,243) $ 750
====================================================
INCOME (LOSS) PER COMMON SHARE-BASIC
Income (loss) from continuing operations . . . $ 0.99 $ 0.86 $ (1.12) $ (0.25) $ 0.05
Income (loss) from discontinued operations . . - 0.01 (0.27) (0.17) (0.02)
----------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . $ 0.99 $ 0.87 $ (1.39) $ (0.42) $ 0.03
====================================================
INCOME (LOSS) PER COMMON SHARE-DILUTED
Income (loss) from continuing operations . . . $ 0.94 $ 0.83 $ (1.12) $ (0.25) $ 0.05
Income (loss) from discontinued operations . . - 0.01 (0.27) (0.17) (0.02)
----------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . $ 0.94 $ 0.84 $ (1.39) $ (0.42) $ 0.03
====================================================
Weighted average shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . 26,243 25,850 21,967 21,851 22,856
Diluted. . . . . . . . . . . . . . . . . . . . 27,655 26,904 21,967 21,851 23,162
SELECTED CONSOLIDATED BALANCE SHEET DATA:
Cash and marketable securities. . . . . . . . . $ 27,759 $ 20,200 $ 766 $ 912 $ 1,378
Working capital . . . . . . . . . . . . . . . . 14,287 (4,444) (20,256) (24,886) (3,868)
Total assets. . . . . . . . . . . . . . . . . . 86,735 67,843 62,194 94,688 84,549
Long-term debt, excluding current maturities. . - - 7,145 42,000 24,685
Stockholders' equity (deficit). . . . . . . . . 51,583 21,184 (6,811) 2,118 15,261
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 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, 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.
Income Taxes. Deferred income taxes are recognized for the future tax
effects of temporary differences between financial and income tax reporting
using tax rates in effect for the years in which the differences are expected to
reverse. 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
doubtful.
We have considered future market growth, forecasted earnings, future
taxable income, and 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.
In 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 $2.0 million, which was 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.
During the fourth quarter of 2003, the Company recorded an additional
research tax credit of $0.1 million. The Company also reviewed its tax reserves
in conjunction with the completion of the Internal Revenue Service tax audit for
the years 1999 to 2001 and recorded a favorable adjustment of $1.1 million.
Goodwill and Intangibles. 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 is 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, and 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.
The goodwill balance as of December 31, 2003 was $15.7 million. The balance
from the 1988 acquisition that included the CCC Valuescope service is $4.9
million and the remaining balance of $10.8 million represents the goodwill from
the Comp-Est acquisition completed during February 2003. See Note 4,
"Acquisition". We performed our annual impairment analysis during the second
quarter of 2003.
Intangible assets as of December 31, 2003 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. There have been no
events or changes in circumstances that indicate that the values of such assets
are not recoverable.
Software Development Costs. The Company expenses research and development
costs as they are incurred. The Company evaluates 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 should 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.
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.
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.
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 of 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.
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.
2003 COMPARED WITH 2002
Operating Income. Operating income increased year over year by $3.2
million, to $40.5 million, in 2003, due to an increase in revenues of $1.5
million and a decrease in expenses of $1.7 million. Our operating margins
(operating income as a percentage of revenue), increased to 20.9% for the year
ended 2003 compared to 19.4% in 2002.
Revenues. Revenue by suites is as follows (dollars in thousands):
VARIANCE
2003 2002 INCREASE (DECREASE)
-------------------------------------------------------
CCC Pathways. . . . . . . . . $ 118,190 61.1% $ 116,231 60.6% $ 1,959 1.7%
CCC Valuescope. . . . . . . . 42,187 21.8 45,463 23.7 (3,276) (7.2)
Workflow Products . . . . . . 26,107 13.5 22,602 11.8 3,505 15.5
Information Services Products 1,708 0.9 1,134 0.6 574 50.6
Other Products and Services . 5,160 2.7 6,430 3.3 (1,270) (19.8)
-------------------------------------------------------
Total Revenue . . . . . . . $ 193,352 100.0% $ 191,860 100.0% $ 1,492 0.8%
=======================================================
Revenues from CCC Pathways increased for the year ended 2003 by $2.0
million, or 1.7%, compared to the same period of 2002. The automotive channel
continued to be the key growth driver in this suite as we benefited from our
first quarter 2003 acquisition of Comp-Est Inc. and both CCC Pathways and CCC
Pathways Digital Imaging sales in this channel remained strong. This growth was
partially offset as the insurance channel revenue was down versus the prior year
primarily due to lost volume of one customer. Contract renewal rates remain
strong with our existing customers and we are seeing increased demand in the
mid-market.
Revenues from CCC Valuescope decreased by $3.3 million, or 7.2%, for the
year ended December 31, 2003 compared to the prior year primarily as a result of
lost business, driven by a number of issues, including the decision by one of
our larger customers to transition most of its valuation services to an in-house
solution during late 2002. We have seen customers move to other providers for a
variety of reasons, including workflow issues, where certain customers using a
competitive estimating platform have decided to switch to the competitor's
valuation product. In other cases, regulatory issues have had an impact, as
well as industry consolidation of the customer base. See "Regulation" section of
Item 1. Business.
Revenues from our workflow products increased in 2003 by $3.5 million, or
15.5%, compared to the prior year mainly due to the continued adoption of the
CCC Autoverse products. We continue to focus on the implementation and
acceptance process with our customers to help accelerate this suite's revenue
growth even further.
Revenue from information services increased $0.6 million, or 50.6%, due to
an increased number of subscriptions and at more favorable prices.
Revenues from our other products and services decreased by $1.3 million, or
19.8%, mainly attributable to a continued decrease in hardware revenue, as the
number of computer units leased by our customers has declined.
Operating Expenses. Operating expenses as a percentage of revenues are
summarized as follows (in thousands):
VARIANCE
2003 2002 INCREASE (DECREASE)
----------------------------------------------------
Revenues $193,352 100.0% $191,860 100.0% $ 1,492 0.8%
Production and Customer Support 31,866 16.5 28,376 14.8 3,490 12.3
Commissions, Royalties and Licenses 11,713 6.1 10,411 5.4 1,302 12.5
Selling, General and Administrative 68,089 35.2 77,449 40.4 (9,360) (12.1)
Depreciation and Amortization 7,923 4.1 9,069 4.7 (1,146) (12.6)
Product Development and Programming 32,234 16.7 28,383 14.8 3,851 13.6
Restructuring Charges 1,061 0.5 869 0.5 192 22.1
----------------------------------------------------
Total Operating Expenses $152,886 79.1% $154,557 80.6% $(1,671) (1.1)%
====================================================
Production and Customer Support. Production and customer support
increased by $3.5 million, or 12.3%, due to increased costs associated with the
acquired Comp-Est business and an investment in our technical support area to
move to a universal service representative model, which was completed during the
fourth quarter of 2003.
Commissions, Royalties and Licenses. Commissions, royalties and licenses
increased by $1.3 million, or 12.5%, due to additional license fees, which
resulted from the acquisition of repair facility customers through the Comp-Est
acquisition completed during the first quarter of 2003.
Selling, General and Administrative. Selling, general and
administrative expenses decreased by $9.4 million, or 12.1%, primarily as a
result of lower incentive compensation costs tied to business performance. The
reduced compensation costs reflect anticipated reductions in bonus payments of
approximately $6.6 million for 2003. The reductions represent adjustments made
to align projected payouts with our final financial results. We have also
continued to focus on controlling expenses, specifically in the management
information systems area including the consolidation of our data center
operations. The savings described above were also partially offset by operating
expenses related to the Comp-Est acquisition.
Depreciation and Amortization. Depreciation and amortization decreased
by $1.1 million, or 12.6%, as a result of fewer investments in internal-use
software and customer leased computer equipment as well as using fully amortized
software. This was partially offset by the amortization recorded on the
intangible assets acquired from the Comp-Est acquisition.
Product Development and Programming. Product development and programming
increased by $3.9 million, or 13.6%, due to development projects related to our
existing workflow and information products, as well as work being done under a
new multi-customer contract. In 2003, we expensed $0.6 million of research and
development funding made to a third-party software development company. We are
currently in the process of establishing a formal research and development
agreement.
Restructuring Charges. In 2002, we recorded an additional charge of $0.9
million related to the excess office space in Chicago, formerly occupied by its
DriveLogic business. The charge was incurred as a result of revising the
original expected future sublease income due to weak conditions of the real
estate market. During 2003, we recorded a final charge of $1.1 million to revise
the original expected future sublease income 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.
See Note 9, "Restructuring Charges."
Interest Expense. Interest expense decreased from $0.7 million in 2002
to $0.4 million in 2003 as a result of recording a favorable adjustment upon the
completion of the Internal Revenue Service tax audit. See Note 12, "Income
Taxes."
Minority Interest Expense. We recorded minority interest expense of $4.0
million for the year ended December 31, 2002, which was 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 have not had any interest
expense relating to these securities since November 2002. See Note 17, "CCC
Capital Trust."
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 $21 thousand for 2003. See Note
7, "Investment in ChoiceParts, LLC."
Income Taxes. Income taxes increased from a provision of $10.4 million,
or 31.8% of income from continuing operations before taxes in 2002, to a tax
provision of $14.3 million, or 35.4% of income from continuing operations
before taxes, in 2003. The 2002 provision was offset by research tax credits of
$2.4 million. During the fourth quarter of 2003, the Company recorded an
additional research tax credit of $0.1 million. The Company also reviewed its
tax reserves in conjunction with the completion of the Internal Revenue Service
tax audit and recorded a favorable adjustment of $1.1 million.
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 CCC
Valuescope 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 of 2001. 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 (in thousands):
VARIANCE
2002 2001 INCREASE (DECREASE)
-----------------------------------------------------
CCC Pathways . . . . . . . . . . . . . $116,231 60.6% $109,568 58.3% $ 6,663 6.1%
CCC Valuescope . . . . . . . . . . . . 45,463 23.7 47,977 25.6 (2,514) (5.2)
Workflow Products. . . . . . . . . . . 22,602 11.8 19,706 10.5 2,896 14.7
Information Services Products. . . . . 1,134 0.6 828 0.4 306 37.0
Other Products and Services. . . . . . 6,430 3.3 8,180 4.4 (1,750) (21.4)
-----------------------------------------------------
Total Revenue from U.S. Operations . 191,860 100.0 186,259 99.1 5,601 3.0
Total Revenue from CCC International - - 1,682 0.9 (1,682) (100.0)
-----------------------------------------------------
Total Revenue. . . . . . . . . . . . $191,860 100.0% $187,941 100.0% $ 3,919 2.1%
=====================================================
Revenues from our CCC 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 CCC Pathways Digital Imaging product units used by our
automotive collision repair customers.
Revenues from CCC Valuescope 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 Quality Advisor, QAAR Plus and our CCC Autoverse products,
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 includes the CARS
Direct service 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 the CARS Direct service, a decrease in the number of hardware
units leased and a renegotiated price for a customer leasing hardware.
Operating Expenses. Operating expenses as a percentage of revenues are
summarized as follows (in thousands):
VARIANCE
2002 2001 INCREASE (DECREASE)
-----------------------------------------------------
Revenues $191,860 100.0% $187,941 100.0% 3,919 2.1%
Production and Customer Support 28,376 14.8 32,498 17.3 (4,122) (12.7)
Commissions, Royalties and Licenses 10,411 5.4 10,129 5.4 282 2.8
Selling, General and Administrative 77,449 40.4 90,892 48.4 (13,443) (14.8)
Depreciation and Amortization 9,069 4.7 11,820 6.3 (2,751) (23.3)
Product Development and Programming 28,383 14.8 30,429 16.2 (2,046) (6.7)
Restructuring Charges 869 0.5 10,499 5.6 (9,630) (91.7)
Settlements - - 4,250 2.3 (4,250) (100.0)
-----------------------------------------------------
Total Operating Expenses $154,557 80.6% 190,517 101.4% (35,960) (18.9)%
=====================================================
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. See Note 2,
"Significant Accounting Policies".
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.
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. The lease for this office space expires March 31, 2006. See Note
9, "Restructuring Charges."
Litigation Settlement. 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 a potential settlement that would resolve
potential claims arising out of approximately 30% of the total transaction
volume of CCC Valuescope during the period covered by the lawsuits. 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. As settlement negotiations have progressed, the number
of participants and the cost of the proposed settlement have fluctuated. Based
on the current status of those discussions, CCC anticipates completing an
initial settlement that would eliminate the viability of class claims in 7 of
the 11 class actions, pending in the trial and appellate courts against the
Company and certain of its customers related to CCC Valuescope and would resolve
potential claims arising out of approximately 17% of the Company's total
transaction volume, for valuations involving first party claims, during the time
period covered by the lawsuits. The Company estimates that its contribution
toward such a settlement would be approximately $2.7 million, net of the
expected insurance reimbursement of $2.0 million. As for the remainder of the
original $4.3 million charge, we continue to believe the recorded reserve is
necessary and appropriate. 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. 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 Valuescope
transaction volume could be settled on comparable terms. See discussion in Note
27, "Legal Proceedings."
Interest Expense. Interest expense decreased from $5.7 million in 2001 to
$0.7 million in 2002. A lower level of borrowings and a decrease in interest
rates drove the decrease from 2001 as well as 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 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 5, "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 were
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 of 2001.
The minority interest expense was 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 have not had any interest expense relating to these
securities since November 2002. See Note 17, "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 (in thousands):
TOTAL 2003 2004 2005 2006
------------------------------------
Minority interest expense savings $7,607 $2,107 $2,392 $2,695 $ 413
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 7, "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 and experimentation tax credits of $2.4 million.
Equity in Net Losses of Affiliates. In conjunction with our reduction of
investments in and closing of 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, and net of income taxes increased from a loss of
$6.0 million in 2001 to income of $0.4 million in 2002. See Note 10,
"Discontinued Operations."
QUARTERLY RESULTS OF OPERATIONS/SUPPLEMENTARY FINANCIAL INFORMATION
The following table sets forth unaudited condensed consolidated statements
of operations for the quarters in 2003 and 2002. 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 Months Ended
------------------------------------------------------------------------------------------
MAR.31, JUNE 30, SEPT.30, DEC.31, MAR.31, JUNE 30, SEPT.30, DEC.31,
2002 2002 2002 2002 2003 2003 2003 2003
------------------------------------------------------------------------------------------
Revenues. . . . . . . . . . . . . . . $ 47,500 $ 48,178 $ 47,797 $ 48,385 $ 47,732 $ 48,097 $ 48,621 $ 48,902
Operating expenses. . . . . . . . . . (38,290) (38,978) (38,641) (37,779) (37,953) (38,087) (37,944) (37,841)
Restructuring charges . . . . . . . . - - (869) - - (1,061) - -
------------------------------------------------------------------------------------------
Operating income. . . . . . . . . . . 9,210 9,200 8,287 10,606 9,779 8,949 10,677 11,061
Interest income (expense) . . . . . . (228) (168) (160) (152) (222) (165) (169) 164
Other income (expense). . . . . . . . 217 (7) 76 169 89 67 45 71
CCC Capital Trust minority interest
expense. . . . . . . . . . . . . . (448) (461) (475) (2,600) - - - -
Equity in income (loss) of
ChoiceParts. . . . . . . . . . . . (292) (50) 47 4 (6) 12 (150) 123
------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes . . . . . . . 8,459 8,514 7,775 8,027 9,640 8,863 10,403 11,419
Income tax provision. . . . . . . . . (3,243) (3,218) (754) (3,205) (3,669) (3,369) (4,052) (3,195)
------------------------------------------------------------------------------------------
Income from continuing operations . . 5,216 5,296 7,021 4,822 5,971 5,494 6,351 8,224
Income from discontinued operations,
net of income taxes. . . . . . . . - - 354 - - - - -
------------------------------------------------------------------------------------------
Net income. . . . . . . . . . . . . . $ 5,216 $ 5,296 $ 7,375 $ 4,822 $ 5,971 $ 5,494 $ 6,351 $ 8,224
==========================================================================================
PER SHARE DATA:
Net Income per common share -
basic. . . . . . . . . . . . . $ 0.20 $ 0.21 $ 0.28 $ 0.19 $ 0.23 $ 0.21 $ 0.24 $ 0.31
==========================================================================================
Net Income per common share -
diluted. . . . . . . . . . . . $ 0.20 $ 0.20 $ 0.27 $ 0.17 $ 0.22 $ 0.20 $ 0.23 $ 0.30
==========================================================================================
Weighted average shares outstanding:
Basic. . . . . . . . . . . . . . . . 25,699 25,826 25,873 26,000 26,156 26,224 26,256 26,338
Diluted. . . . . . . . . . . . . . . 26,138 26,767 26,904 27,574 27,741 27,630 27,484 27,752
OUTLOOK FOR 2004
As part of our fourth quarter earnings release, we provided updated
guidance for the first quarter and full year of 2004.
Revenue growth for the first quarter is expected to be in the 3 to 5
percent range with growth rates for the full year at least that of the first
quarter 2004. Operating income for the first quarter should be in the $10
million range, and full year operating income is expected to be in the $45 to
$47 million range. First quarter operating margins are expected to be lower
than reported in the second half of 2003, primarily as a result of increased
compensation costs tied to business performance, increased insurance expenses,
and the timing of certain planned sales expenses. Margins are expected to
increase throughout the year to a full year range of 22 to 23 percent. Earnings
per share for the full year is expected to be in the $1.00 to $1.04 per share
range. Earnings per share for the first quarter is expected to be in $0.21 to
$0.22 per share range. (Using a fully diluted share base of 27.7 million
shares)
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2003, net cash provided by operating
activities was $25.0 million. Proceeds received from the exercise of stock
options were $1.8 million and proceeds received from the repayment of notes due
from the Chief Executive Officer and Chairman of the Board were $1.5 million.
The Company used $13.2 million to complete the acquisition of Comp-Est Inc.
during the first quarter of 2003, $7.5 million for the purchase of equipment and
software and $7.0 million for the purchase of short-term investments.
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.
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 have
a current or future material effect on our financial condition, results of
operations, liquidity, capital expenditures or capital resources. In the normal
course of business, we are party to a variety of agreements pursuant to which we
may be obligated to indemnify the other party with respect to certain matters.
We evaluate estimated losses for such indemnifications on a regular basis. To
date, we have not encountered material costs as a result of such obligations,
and we do not currently believe that we are likely to incur any material costs
relating to such indemnifications. See Note 2, "Significant Accounting
Policies."
EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
In 2000, the Company received a promissory note from the Chief Executive
Officer and Chairman of the Board in the amount of $0.2 million to exercise
options granted to him by the Company. In 2002, the Company received a second
promissory note from the same officer in the amount of $1.2 million, accruing
interest at 6.75%, 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.
During the second quarter of 2003, both notes, along with accrued interest, were
repaid in full. As of December 31, 2003, there were no notes receivable from
officers.
During the third quarter of 2003, the Company issued, as compensation, a
total of 8,000 shares of restricted stock, under the 2000 Stock Incentive Plan,
with a fair market value of $14.93 per share to two members of the Audit
Committee of the Board of Directors, each of whom received 4,000 shares. The
shares vest over a period of four years from issuance, although accelerated
vesting is provided in certain instances. Compensation expense related to
restricted stock awards is based upon market prices at the date of grant and is
charged to earnings on a straight-line basis over the period of restriction. A
third member of the audit committee will receive compensation annually in the
form of cash. The fair value of the restricted stock on the date of grant in
2003 was approximately $0.2 million. Total compensation expense recognized in
relation to the restricted stock issued for the year ended December 31, 2003,
was approximately $16 thousand.
CONTRACTUAL OBLIGATIONS
The following summarizes our significant contractual obligations and
commitments as of December 31, 2003 (in thousands):
LESS THAN 1-3 4-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
--------------------------------------------------
Operating lease obligations $ 35,464 12,430 17,379 5,655 -
Capital lease obligations . $ 158 158 - - -
Long-term debt obligations. $ - - - - -
Purchase obligations. . . . $ - - - - -
Other long-term liabilities $ 3,923 859 2,074 990 -
--------------------------------------------------
Total . . . . . . . . . . . $ 39,545 $ 13,447 $ 19,453 $ 6,645 $ -
==================================================
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 AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included 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, 2003
and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included 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, 2003
and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included 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, 2003
and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included 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, 2003
and such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be included 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, 2003
and such information is incorporated herein by reference.
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 Auditors . . . . . . . . . 29
Consolidated Financial Statements:
Consolidated Statements of Operations . . . . . 30
Consolidated Balance Sheets . . . . . . . . . . 31
Consolidated Statements of Cash Flows . . . . . 32
Consolidated Statements of Stockholders' Equity 34
Notes to Consolidated Financial Statements. . . 35
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts . . 60
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. . . . 61
(b) Reports on Form 8-K
A report on Form 8-K, dated November 18, 2003, was filed on
November 18, 2003, announcing that a notice was sent to Company's
directors and executive officers informing them that the CCC
Information Services Inc. 401(k) Retirement Savings & Investment Plan
was moving to a new service provider and that they were prohibited
from engaging in any transactions in equity securities of the Company
acquired in connection with service to or employment with the Company
during that transition.
REPORT OF INDEPENDENT AUDITORS
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, 2003 and December 31, 2002, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2003 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, 2004
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
------------------------------
2003 2002 2001
------------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $193,352 $191,860 $187,941
Expenses:
Production and customer support . . . . . . . . . . . . . . . . 31,866 28,376 32,498
Commissions, royalties and licenses . . . . . . . . . . . . . . 11,713 10,411 10,129
Selling, general and administrative . . . . . . . . . . . . . . 68,089 77,449 90,892
Depreciation and amortization . . . . . . . . . . . . . . . . . 7,923 9,069 11,820
Product development and programming . . . . . . . . . . . . . . 32,234 28,383 30,429
Restructuring charges . . . . . . . . . . . . . . . . . . . . . 1,061 869 10,499
Litigation settlement . . . . . . . . . . . . . . . . . . . . . - - 4,250
------------------------------
Operating income (loss). . . . . . . . . . . . . . . . . . . . . 40,466 37,303 (2,576)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (392) (708) (5,680)
Other income (expense), net. . . . . . . . . . . . . . . . . . . 272 455 (248)
Loss on investment securities and notes. . . . . . . . . . . . . - - (28,267)
CCC Capital Trust minority interest expense. . . . . . . . . . . - (3,984) (1,371)
Equity in losses of ChoiceParts investment . . . . . . . . . . . (21) (291) (2,486)
------------------------------
Income (loss) from continuing operations before income taxes . . 40,325 32,775 (40,628)
Income tax (provision) benefit . . . . . . . . . . . . . . . . . (14,285) (10,420) 18,329
------------------------------
Income (loss) from continuing operations before equity losses. . 26,040 22,355 (22,299)
Equity in net losses of affiliates . . . . . . . . . . . . . . . - - (2,354)
------------------------------
Income (loss) from continuing operations . . . . . . . . . . . . 26,040 22,355 (24,653)
Income (loss) from discontinued operations, net of income taxes. - 354 (5,972)
------------------------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 26,040 $ 22,709 $(30,625)
==============================
PER SHARE DATA:
Income (loss) per common share - basic from:
Income (loss) from continuing operations. . . . . . . . . . . . $ 0.99 $ 0.86 $ (1.12)
Income (loss) from discontinued operations. . . . . . . . . . . - 0.01 (0.27)
-------------------------------
Income (loss) per common share-basic. . . . . . . . . . . . . . $ 0.99 $ 0.87 $ (1.39)
===============================
Income (loss) per common share - diluted from:
Income (loss) from continuing operations. . . . . . . . . . . . $ 0.94 $ 0.83 $ (1.12)
Income (loss) from discontinued operations. . . . . . . . . . . - 0.01 (0.27)
-------------------------------
Income (loss) per common share-diluted. . . . . . . . . . . . . $ 0.94 $ 0.84 $ (1.39)
===============================
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,243 25,850 21,967
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,655 26,904 21,967
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
-------------------
2003 2002
-------------------
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,755 $ 20,200
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,004 -
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,247 10,281
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,369 8,499
---------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,375 38,980
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 12,776 12,407
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,153 -
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,747 4,896
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,127 10,454
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 479
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 627
-------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,735 $ 67,843
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,937 $ 8,424
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,522 25,441
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,602 2,568
Current portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . 7,930 6,503
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 488
-------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,088 43,424
Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,064 3,222
-------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,152 46,659
-------------------
Commitments and contingencies (Notes 21 and 27)
Preferred Stock ($1.00 par value, 100 shares authorized, issued and outstanding) - -
Common stock ($0.10 par value, 40,000,000 shares authorized, 26,376,839 and
26,074,889 shares outstanding at December 31, 2003 and 2002, respectively). 3,034 3,005
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,590 128,766
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,838) (62,878)
Notes receivable from officer. . . . . . . . . . . . . . . . . . . . . . . . . . - (1,506)
Treasury stock, at cost (4,094,665 common shares in treasury at December 31,
2003 and December 31, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . (46,203) (46,203)
-------------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . 51,583 21,184
-------------------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . . . $ 86,735 $ 67,843
===================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------
2003 2002 2001
-----------------------------
Operating Activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,040 $22,709 $(30,625)
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
Equity in net losses of affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 2,354
Equity in net losses of ChoiceParts . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 291 2,486
Depreciation and amortization of property and equipment . . . . . . . . . . . . . . . . . 7,210 9,069 10,574
Amortization of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 1,247
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 - -
Deferred income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . 1,327 13,456 (17,331)
Loss on investment securities and notes receivable. . . . . . . . . . . . . . . . . . . . - - 28,267
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,061 869 10,499
Compensation expense related to restricted stock. . . . . . . . . . . . . . . . . . . . . 16 - -
CCC Capital Trust minority interest expense . . . . . . . . . . . . . . . . . . . . . . . - - 1,371
Interest on notes receivable from officer . . . . . . . . . . . . . . . . . . . . . . . - (106) -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 191 326
Changes in:
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 928 1,065 5,521
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 (1,649) (1,331)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 400 1,689
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,542) (437) (9,649)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,891) (2,021) 4,518
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (433) 3,459 3,533
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 153 2,198
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,164) (1,543) 112
-----------------------------
Net cash provided by (used for) operating activities:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,012 45,552 21,731
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 (3,485)
-----------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . 25,012 45,582 18,246
-----------------------------
Investing Activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,491) (8,609) (2,889)
Acquisition of Comp-Est Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,205) (193) -
Purchase of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,004) - -
Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (275) (5,163)
Issuance of warrants to Hearst. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 318 475
Settlement of ChannelPoint note receivable. . . . . . . . . . . . . . . . . . . . . . . . - - 460
Proceeds from sale of discontinued businesses . . . . . . . . . . . . . . . . . . . . . . - - 657
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 120
-----------------------------
Net cash used for investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . (27,700) (8,759) (6,340)
-----------------------------
Financing Activities:
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . 1,825 3,112 109
Payment of principal and interest on notes receivable from officer. . . . . . . . . . . . 1,506 - -
Proceeds from employee stock purchase plan. . . . . . . . . . . . . . . . . . . . . . . . 399 377 530
Proceeds from issuance of Trust Preferred Securities and warrants . . . . . . . . . . . - - 15,206
Proceeds from borrowings on long-term debt. . . . . . . . . . . . . . . . . . . . . . . - 22,000 53,375
Principal repayments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . - (28,500) (88,875)
Proceeds from Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 20,000
Book overdraft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (7,477)
Payment of Trust Preferred, Credit Facility and Rights Offering costs . . . . . . . . . - - (4,342)
Purchase of Trust Preferred Securities. . . . . . . . . . . . . . . . . . . . . . . . . - (13,369) -
Principal repayments of capital lease obligations . . . . . . . . . . . . . . . . . . . . (487) (421) (578)
Principal repayments on short term note . . . . . . . . . . . . . . . . . . . . . . . . . - (588) -
-----------------------------
Net cash provided by (used for) financing activities. . . . . . . . . . . . . . . . . . . 3,243 (17,389) (12,052)
-----------------------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . 555 19,434 (146)
Cash and cash equivalents:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,200 766 912
-----------------------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,755 $ 20,200 $ 766
=============================
The accompanying notes are an integral part of these consolidated financial
statements.
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, 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) $ -
--------------------------------------------------------------
Stock options exercised including income tax benefit . . 262,639 28 2,330 - -
Employee stock purchase plan . . . . . . . . . . . . . . 31,311 1 398 - -
Interest on notes receivable from officer . . . . . . . - - - - -
Payment of principal and interest on notes receivable
From officer . . . . . . . . . . . . . . . . . . . . . - - - - -
Compensation expense related to restricted stock . . . . 8,000 - 16 - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - - 80 - -
Net income . . . . . . . . . . . . . . . . . . . . . . . - - - 26,040 -
--------------------------------------------------------------
December 31, 2003. . . . . . . . . . . . . . . . . . . . . 26,376,839 $3,034 $131,590 $ (36,838) $ -
==============================================================
NOTES TREASURY STOCK
RECEIVABLE --------------------- TOTAL
FROM NUMBER OF STOCKHOLDERS'
OFFICER SHARES COST EQUITY (DEFICIT)
---------------------------------------------------
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
---------------------------------------------------
Stock options exercised including income tax benefit . . - - - 2,358
Employee stock purchase plan . . . . . . . . . . . . . . - - - 399
Interest on notes receivable from officer . . . . . . . (47) - - (47)
Payment of principal and interest on notes receivable
From officer . . . . . . . . . . . . . . . . . . . . . 1,553 - - 1,553
Compensation expense related to restricted stock . . . . - - - 16
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - - - 80
Net income . . . . . . . . . . . . . . . . . . . . . . . - - - 26,040
---------------------------------------------------
December 31, 2003. . . . . . . . . . . . . . . . . . . . . $ - 4,094,665 $(46,203) $ 51,583
===================================================
The accompanying notes are an integral part of these
consolidated financial statements.
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"). CCC
and CCCG are collectively referred to as the "Company" or "we". CCC operates as
one business segment. As of December 31, 2003 we employed 895 full-time
employees, compared to 834 at the end of 2002. 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 CCC Pathways collision
estimating software, which provide our customers with access to various
automobile information databases and claims management software and CCC
Valuescope Claim Services ("CCC Valuescope"), formerly known as our Total Loss
Valuation Services.
As of December 31, 2003, 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 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.
Short-term Investments
The Company considers all investments purchased with an original maturity
of greater than three months and less than one year to be short-term
investments. All short-term investments 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.
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
December 31, 2003 and 2002, $2.9 million and $2.3 million, respectively, has
been applied as a reduction of accounts receivable.
Activity in the allowance for doubtful account is as follows (in
thousands):
BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS BALANCE
BEGINNING OF COSTS AND OTHER NET OF AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD
- ---------------------------------------- ----------------------------------------------------------------
2001 Allowance for Doubtful Accounts (a) $ 3,271 1,920 83 (2,986) $ 2,288
2002 Allowance for Doubtful Accounts s . $ 2,288 1,755 26 (1,756) $ 2,313
2003 Allowance for Doubtful Accounts s . $ 2,313 2,093 (68) (1,395) $ 2,943
(a) The allowance for doubtful accounts for 2001 has 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 2003, 2002
and 2001, research and development costs of approximately $6.3 million, $7.6
million and $13.0 million, respectively, are reflected in the accompanying
consolidated statements of operations.
Property and Equipment
Property and equipment are 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.
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 is 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. The goodwill balance as of December 31, 2003 was $15.7 million.
The balance from the 1988 acquisition that included CCC Valuescope is $4.9
million. The remaining balance of $10.8 million represents the goodwill from
the Comp-Est acquisition completed during February 2003.
See Note 9, "Restructuring Charges" for discussion of the write-off of
goodwill in 2001 related to the shut down of CCC International.
The following table presents the impact of SFAS 142 on net loss per share
had the accounting standard been in effect for fiscal 2001 (in thousands, except
per-share amounts):
2003 2002 2001
---------------------------
Net income (loss) - as reported . . . . . . . . . $26,040 $22,709 $(30,625)
Amortization of goodwill. . . . . . . . . . . . . - - 1,247
---------------------------
Net income (loss) - as adjusted . . . . . . . . . $26,040 $22,709 $(29,378)
===========================
Basic net income (loss) per share - as reported . $ 0.99 $ 0.87 $ (1.39)
===========================
Basic net income (loss) per share - as adjusted . $ 0.99 $ 0.87 $ (1.34)
===========================
Diluted net income (loss) per share - as reported $ 0.94 $ 0.84 $ (1.39)
===========================
Diluted net income (loss) per share - as adjusted $ 0.94 $ 0.84 $ (1.34)
===========================
Deferred Financing Costs
Deferred financing costs are capitalized and amortized over the life of the
underlying financing agreement. As of December 31, 2003 and 2002, deferred
financing costs, net of accumulated amortization, of $0.3 million and $0.6
million, respectively, were included in other assets in the Company's
consolidated balance sheet.
Income Taxes
Deferred income taxes are recognized for the future tax effects of
temporary differences between financial and income tax reporting using tax rates
in effect for the years in which the differences are expected to reverse. 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.
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 investments 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 5,
"Investment in InsurQuote/ChannelPoint" and Note 8, "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.
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 (loss) applicable to common stock and related
per share amounts would have been impacted as indicated below (in thousands,
except per share data):
2003 2002 2001
---------------------------
Net income (loss):
As reported . . . . . . . . . . . . . . . . . $26,040 $22,709 $(30,625)
Pro forma . . . . . . . . . . . . . . . . . . $23,570 $20,638 $(32,704)
Per share net income (loss) assuming dilution:
As reported . . . . . . . . . . . . . . . . . $ 0.94 $ 0.84 $ (1.39)
Pro forma . . . . . . . . . . . . . . . . . . $ 0.85 $ 0.77 $ (1.49)
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 2003, 2002 and 2001. 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.
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 23, "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
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN"). 46, "Consolidation of Variable Interest
Entities." This standard clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," and addresses
consolidation by business enterprises of variable interest entities (also known
as Special Purpose Entities or SPE's). FIN 46 requires existing unconsolidated
variable interest entities ("VIEs") to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risk among the parties
involved. FIN 46 also enhances the disclosure requirements related to variable
interest entities.
The provisions of this interpretation were effective immediately for all
VIEs created after January 31, 2003. For VIEs created before February 1, 2003,
the interpretation was initially effective beginning on July 1, 2003 for
calendar-year companies. On October 9, 2003, however, the FASB issued FASB Staff
Position No. FIN 46-6, which deferred the effective date of FIN 46 for VIEs that
existed prior to February 1, 2003 until December 31, 2003 for calendar-year
companies. The FASB continues to deliberate FIN 46, including the impact of
kick-out rights to a decision maker. As of the date of this report, it is
unclear what effect, if any, the modifications will have on CCC's implementation
of FIN 46.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this Statement did not have a
significant effect on our results of operations or our financial position.
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 December
31, 2003, 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 - SHORT-TERM INVESTMENTS
During the year we purchased short-term investments, which are investments
with maturities longer than 90 days but shorter than 12 months. As of the end of
the year, the held-to-maturity securities, recorded at cost, consisted of the
following (in thousands):
DECEMBER 31,
--------------
2003 2002
--------------
Commercial paper. . . . . . . . $4,504 $ -
Certificates of deposit . . . . 2,500 -
--------------
Total . . . . . . . . . . . . . $7,004 $ -
==============
NOTE 4 - 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. Pro forma results of operations have
not been presented because the effects of the transaction were not material to
our results. 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 5 - 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. 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.
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 $ 0.5 million from
ChannelPoint in full settlement of the loan obligations outstanding.
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.
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 6 - 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. The Company invested $2.0 million for a 19.9%
equity interest in Enterstand.
In 2000, 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%. 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. From 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.
The Company's equity in net losses of Enterstand totaled $4.3 million for
the year ended December 31, 2001. 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, CCC charged Enterstand $0.7 million 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 year ended
December 31, 2001, CCC International charged Enterstand $2.4 million, 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 $12.00 per share. The Company recorded a charge of $0.5 million for
these warrants in 2001.
NOTE 7 - INVESTMENT IN CHOICEPARTS, LLC
In 2000, the Company formed an independent company, ChoiceParts, LLC
("ChoiceParts") with ADP and The Reynolds and Reynolds Company. The Company
has a 27.5% equity interest in ChoiceParts, which the Company accounts for by
applying the equity method thereby recording its share of income or loss.
Approximately $1.7 million of the original $5.5 million commitment was still
outstanding as of December 31, 2003 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.
NOTE 8 - 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.
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.
See discussion in Note 9, "Restructuring Charges" concerning the Company's
decision to shut down CCC International in 2001 and Note 10, "Discontinued
Operations" concerning the Company's decision to discontinue the operations of
its CCC Consumer Services segment in 2001.
NOTE 9 - RESTRUCTURING CHARGES
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 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.
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, 2002 $ 1,979
Cash payments. . . . . . . . (1,210)
------------
Additional charges . . . . . 1,061
------------
Balance at December 31, 2003 $ 1,830
============
NOTE 10 - 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.
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 loss from discontinued operations were as follows (in
thousands):
2003 2002 2001
----------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 4,587
======================
Loss before income taxes . . . . . . . . . . . . . . . $ - $ - $(1,920)
Income tax benefit . . . . . . . . . . . . . . . . . . - - 931
----------------------
Loss from operations . . . . . . . . . . . . . . . . . - - (989)
----------------------
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)
======================
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, net of taxes, of $0.4 million.
NOTE 11 - LITIGATION SETTLEMENT
In 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 CCC will
contribute towards potential settlement that would resolve potential claims
arising out of approximately 30% of the transaction volume of CCC Valuescope
during the period covered by the lawsuits. As settlement negotiations have
progressed, the number of participants and the cost of the proposed settlement
have fluctuated. Based on the current status of those discussions, CCC
anticipates completing an initial settlement that would eliminate the viability
of class claims in 7 of the 11 class actions pending in the trial or appellate
courts against the Company and certain of its customers related to CCC
Valuescope and would resolve potential claims arising out of approximately 17%
of the Company's total transaction volume, for valuations involving first party
claims, during the time period covered by the lawsuits. The Company estimates
that its contribution toward such a settlement would be approximately $2.7
million, net of the expected insurance reimbursement of $2.0 million. As for
the remainder of the original $4.3 million charge, we continue to believe the
recorded reserve is necessary and appropriate. 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. 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 Valuescope transaction volume could be settled on comparable terms. See
discussion in Note 27, "Legal Proceedings."
NOTE 12 - INCOME TAXES
Income taxes applicable to income (loss) from continuing operations before
equity losses consisted of the following (in thousands):
YEAR ENDED DECEMBER 31
-----------------------------
2003 2002 2001
-----------------------------
Current (provision) benefit:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(13,527) $ (6,540) $12,005
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (719) (1,037) 1,418
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3 (8)
-----------------------------
Total current (provision) benefit . . . . . . . . . . . . . . . . . . . (14,226) (7,574) 13,415
-----------------------------
Deferred (provision) benefit:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 (3,471) 4,558
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (198) 625 356
-----------------------------
Total deferred (provision) benefit. . . . . . . . . . . . . . . . . . . (59) (2,846) 4,914
-----------------------------
Total income tax (provision) benefit. . . . . . . . . . . . . . . . . . $(14,285) $(10,420) $18,329
=============================
The Company's effective income tax rate applicable to continuing operations
differs from the federal statutory rate as follows (in thousands, except
percentages):
YEAR ENDED DECEMBER 31
-------------------------------------------------------
2003 2002 2001
-------------------------------------------------------
Federal income tax (provision) benefit
at statutory rate. . . . . . . . . . . . . . . . $(14,134) (35.0)% $(11,471) (35.0)% $14,219 35.0%
State and local taxes, net of federal income tax
effect and before valuation allowances . . . . . (1,197) (3.0) (1,073) (3.3) 1,152 2.8
Goodwill amortization. . . . . . . . . . . . . . - - - - (334) (0.6)
Change in valuation allowance. . . . . . . . . . - - (110) (0.4) (8,663) (21.3)
Nondeductible expenses . . . . . . . . . . . . . (131) (0.3) (140) (0.4) (140) (0.4)
Write-off of foreign investments . . . . . . . . - - 132 0.4 12,101 29.7
Research and experimentation credits . . . . . . 91 0.2 2,383 7.3 - -
Reduction of tax reserves upon resolution of tax
uncertainties . . . . . . . . . . . . . . . . . 1,111 2.8 - - - -
Other, net . . . . . . . . . . . . . . . . . . . (25) (0.1) (141) (0.4) (6) (0.1)
-------------------------------------------------------
Income tax (provision) benefit . . . . . . . . . $(14,285) (35.4)% $(10,420) (31.8)% $18,329 45.1%
=======================================================
In 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.
In 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.
In 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 the fourth quarter of 2003, the Company recorded an additional
research tax credit of $0.1 million. The Company also reviewed its tax reserves
in conjunction with the completion of the Internal Revenue Service tax audit and
recorded a favorable adjustment of $1.1 million, disclosed as "other, net" in
the above table.
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
2003, 2002 and 2001, these tax benefits totaled $0.5 million, $0.7 million and
$0.6 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 (in
thousands):
DECEMBER 31,
-------------------
2003 2002
-------------------
Deferred income tax assets (liabilities):
Capital loss carryforward. . . . . . . . $ 7,390 $ 7,390
Foreign net operating losses . . . . . . 4,209 4,209
Litigation settlement. . . . . . . . . . 2,694 2,050
Lease termination. . . . . . . . . . . . 1,563 1,542
Bad debt expense . . . . . . . . . . . . 1,100 865
Intangible amortization. . . . . . . . . 883 973
Depreciation and amortization. . . . . . 836 1,084
Rent . . . . . . . . . . . . . . . . . . 805 840
Accrued compensation . . . . . . . . . . 290 296
State research credits . . . . . . . . . 120 1,584
Deferred revenue . . . . . . . . . . . . (22) 25
Other, net . . . . . . . . . . . . . . . 858 1,195
-------------------
Subtotal. . . . . . . . . . . . . . . . . 20,726 22,053
Valuation allowance . . . . . . . . . . . (11,599) (11,599)
-------------------
Total deferred income tax assets. . . . . $ 9,127 $ 10,454
===================
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.
NOTE 13 - OTHER CURRENT ASSETS
Other current assets consisted of the following (in thousands):
DECEMBER 31,
--------------
2003 2002
--------------
Insurance reimbursement for litigation settlement. . . . . . $2,000 $2,000
Prepaid data royalties . . . . . . . . . . . . . . . . . . . 1,948 1,966
Prepaid equipment maintenance. . . . . . . . . . . . . . . . 1,261 911
Prepaid insurance. . . . . . . . . . . . . . . . . . . . . . 1,080 673
Income tax receivable - research and experimentation credits 750 1,125
Income tax receivable - State. . . . . . . . . . . . . . . . 44 549
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,286 1,275
--------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,369 $8,499
==============
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 27, "Legal Proceedings" for discussion of the charge.
NOTE 14 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
DECEMBER 31,
-------------------
2003 2002
-------------------
Purchased software, licenses and databases $ 20,070 $ 17,164
Computer equipment . . . . . . . . . . . . 14,715 11,660
Leasehold improvements . . . . . . . . . . 7,067 6,581
Furniture and other equipment. . . . . . . 5,339 5,021
Building and land. . . . . . . . . . . . . 1,796 1,796
-------------------
Total gross . . . . . . . . . . . . . . . 48,987 42,222
Less accumulated depreciation. . . . . . . (36,211) (29,815)
-------------------
Total net . . . . . . . . . . . . . . . . $ 12,776 $ 12,407
===================
As a result of a review of the Company's computer equipment and software in
2003 and 2002, the Company wrote-off out-of-service fully depreciated assets
totaling $0.8 million and $4.6 million, respectively.
As of December 31, 2003 and 2002, computer equipment, net of accumulated
depreciation, that is on lease to certain customers under operating leases of
$0.2 million and $0.5million, respectively, is included in computer equipment.
Future minimum rentals under non-cancelable customer leases aggregate
approximately $0.2 million in 2004.
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 in each
of the years 2003 and 2002. Included in the payments made in each of the years
2003 and 2003 was interest of $0.1 million. Future minimum lease payments under
these capital lease obligations aggregate approximately $0.2 million in 2004.
NOTE 15 - ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
DECEMBER 31,
---------------
2003 2002
---------------
Litigation settlements . . . . . . $ 6,475 $ 7,074
Compensation . . . . . . . . . . . 4,468 10,781
Health insurance . . . . . . . . . 1,256 1,041
Sales tax. . . . . . . . . . . . . 933 1,103
Restructuring charges. . . . . . . 860 1,159
Professional fees. . . . . . . . . 843 1,389
Other, net . . . . . . . . . . . . 1,687 2,894
---------------
Total. . . . . . . . . . . . . . . $16,522 $25,441
===============
NOTE 16 - OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
DECEMBER 31,
--------------
2003 2002
--------------
Deferred rent . . . . . . . . . $2,140 $2,230
Other, net. . . . . . . . . . . 924 992
--------------
Total . . . . . . . . . . . . . $3,064 $3,222
==============
NOTE 17 - CCC CAPITAL TRUST
In 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. Each share of the Series F Preferred Stock entitles Capricorn
Investors III, L.P. to 12,000 votes and expires on the earlier of (i) the date
the warrants are exercised in full or (ii) the warrant expiration date, which is
February 23, 2006.
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 18, "Rights Offering"
and Note 19, "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 18 - 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.
NOTE 19 - 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, 2003, we were in compliance with all
covenants and had no advances under the Credit Facility.
During the years ended December 31, 2002 and 2001, the weighted average
interest rates were 4.0% and 7.8 %, respectively. CCC made cash interest
payments of $0.2 million, $0.2 million and $3.5 million, during the years ended
December 31, 2003, 2002 and 2001, respectively. The interest paid in 2003
represents a commitment fee of 0.5% on the unused portion of the Credit
Facility. 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.
NOTE 20 - TREASURY STOCK
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, accruing
interest at 6.75%, 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.
During the second quarter of 2003, the note, along with accrued interest, was
repaid in full. As of December 31, 2003, there were no notes receivable from
officers.
NOTE 21 - 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, 2003, 2002 and 2001 was $0.9 million,
$1.7 million and $1.2 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 230,134 are available for
issuance at December 31, 2003. During 2003, 2002 and 2001, the Company issued
31,311, 44,920 and 93,324 shares pursuant to the employee stock purchase plan at
prices ranging from $9.72 to $16.04, $5.10 to $15.60 and $4.64 to $7.23,
respectively. See Note 22, "Stock Option Plans" for pro forma results had
compensation expense been recognized based on fair value as of the grant dates
as prescribed by SFAS 123.
NOTE 22 - STOCK OPTION PLANS
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 no options were outstanding under
the 1988 Plan.
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, 2003, additional options of 183,779 are available to be
granted under the 2000 Plan.
Option activity during 2003, 2002 and 2001 is summarized below:
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------------------------------------------------------------
Options Outstanding:
Beginning of year . . . . . . . . 2,922,270 $ 9.12 3,005,452 $ 9.31 3,190,013 $10.57
Granted . . . . . . . . . . . . . 561,325 $ 17.29 547,500 $ 9.75 998,524 $ 7.32
Exercised . . . . . . . . . . . . (262,639) $ 6.97 (334,402) $ 9.26 (14,600) $ 7.50
Forfeited and Expired . . . . . (73,850) $ 13.08 (296,280) $11.97 (1,168,485) $11.38
----------------------------------------------------------------
End of year . . . . . . . . . . 3,147,106 $ 10.67 2,922,270 $ 9.12 3,005,452 $ 9.31
================================================================
Options exercisable at year-end. . 1,708,676 $ 9.51 1,316,658 $ 9.08 1,211,629 $ 9.61
================================================================
Weighted average grant date fair
value of options granted during
the year. . . . . . . . . . . . $ 11.12 $ 6.40 $ 3.22
========= ====== ======
The following table summarizes information about fixed stock options
outstanding at December 31, 2003:
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 $1.38. . . . . . 77,360 0.23 $ 1.38 77,360 $ 1.38
5.51 to $6.75. . . . . . 284,432 7.77 $ 6.06 146,281 $ 5.99
6.88 to $6.88. . . . . . 74,042 2.42 $ 6.88 51,250 $ 6.88
7.50 to $8.90. . . . . . 1,182,380 7.44 $ 8.42 619,861 $ 8.42
9.00 to $11.13 . . . . . 498,780 6.22 $ 10.49 410,137 $10.47
12.13 to $16.63. . . . . 490,037 5.79 $ 13.56 395,662 $13.29
17.20 to $18.71. . . . . 540,075 9.19 $ 17.41 8,125 $17.82
--------------------------------------------------
1.38 to $18.71 . . . . . 3,147,106 7.02 $ 10.67 1,708,676 $ 9.51
==================================================
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 72%, 74% and 43% for 2003, 2002 and 2001, respectively;
and a risk-free interest rate of 3.2%, 4.1% and 4.6% for 2003, 2002 and 2001,
respectively. In addition, the Company assumed an expected option life of 5.5
years for 2003, 2002 and 2001. No dividend yield was assumed for all years.
NOTE 23 - EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share for
the years ended December 31, 2003, 2002 and 2001, is presented below (in
thousands, except per share data):
YEAR ENDED DECEMBER 31,
--------------------------
2003 2002 2001
--------------------------
Net income (loss). . . . . . . . . . . . . . . $26,040 $22,709 $(30,625)
==========================
Weighted average common shares . . . . . . . . 26,243 25,850 21,967
Effect of common stock options and warrants. . 1,412 1,054 -
--------------------------
Weighted average diluted shares. . . . . . . . 27,655 26,904 21,967
==========================
Income (loss) per common share -basic:
Income (loss) from continuing operations. . $ 0.99 $ 0.86 $ (1.12)
Income (loss) from discontinued operations. - 0.01 (0.27)
--------------------------
Income (loss) per common share-basic . . . . . $ 0.99 $ 0.87 $ (1.39)
==========================
Income (loss) per common share -diluted:
Income (loss) from continuing operations. . $ 0.94 $ 0.83 $ (1.12)
Income (loss) from discontinued operations. - 0.01 (0.27)
--------------------------
Income (loss) per common share-diluted . . . . $ 0.94 $ 0.84 $ (1.39)
==========================
Options and warrants to purchase a weighted average number of 466,809
shares, 365,602 shares and 4,070,040 shares of common stock for 2003, 2002 and
2001, 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 exercise price of these
options and warrants ranged from $16.63 to $18.71 per share. Since the Company
had net losses for the year ended December 31, 2001 options to purchase a
weighted average of 93,687 were not included in the computation of diluted
earnings per share because the options, if included, would have been
antidilutive.
NOTE 24 - 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, 2003, future minimum cash lease payments
were as follows (in thousands):
TOTAL 2004 2005 2006 2007 2008 THEREAFTER
---------------------------------------------------------
Operating leases $35,464 12,430 10,738 3,437 3,204 3,061 2,594
=========================================================
During 2003, 2002 and 2001, operating lease rental expense was $5.2
million, $6.3 million and $8.1 million, respectively.
NOTE 25 - BUSINESS SEGMENTS
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.
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 insurance claims process. We market our products and services through
one U.S. sales and service organization. Our management team 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.
See discussion in Note 9, "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 10, "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 segment.
Revenue by suites is as follows (dollars in thousands):
YEAR ENDED DECEMBER 31,
----------------------------
2003 2002 2001
----------------------------
CCC Pathways. . . . . . . . . . . . . . . . . . . $118,190 $116,231 $109,568
CCC Valuescope. . . . . . . . . . . . . . . . . . 42,187 45,463 47,977
Workflow Products . . . . . . . . . . . . . . . . 26,107 22,602 19,706
Information Services Products . . . . . . . . . . 1,708 1,134 828
Other . . . . . . . . . . . . . . . . . . . . . . 5,160 6,430 8,180
----------------------------
Total Revenue from U.S.Operations . . . . . . . 193,352 191,860 186,259
Total Revenue from CCC International Operations - - 1,682
----------------------------
Total Revenue . . . . . . . . . . . . . . . . $193,352 $191,860 $187,941
============================
NOTE 26 - RESTRICTED STOCK
During the third quarter of 2003, the Company issued, as compensation, a
total of 8,000 shares of restricted stock, under the 2000 Stock Incentive Plan,
with a fair market value of $14.93 per share to two members of the Audit
Committee of the Board of Directors, each of whom received 4,000 shares. The
shares vest over a period of four years from issuance, although accelerated
vesting is provided in certain instances. Compensation expense related to
restricted stock awards is based upon market prices at the date of grant and is
charged to earnings on a straight-line basis over the period of restriction. A
third member of the audit committee will receive compensation annually in the
form of cash. The fair value of the restricted stock on the date of grant in
2003 was approximately $0.2 million. Total compensation expense recognized for
the year ended December 31, 2003, was approximately $16 thousand.
NOTE 27 - LEGAL PROCEEDINGS
The Company has pending against it a number of 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. The caption and other relevant information concerning each
such case is set forth below.
PENDING CLASS ACTIONS
SUSANNA COOK v. DAIRYLAND INS. CO., SENTRY INS. and CCC INFORMATION
SERVICES INC., No. 2000 L-1 (filed January 31, 2000 in the Circuit Court of
Johnson County, Illinois)). The Plaintiff in COOK seeks certification of a
plaintiff class as well as 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 claims against CCC and
seeks an unspecified amount of compensatory and punitive damages, attorney's
fees and costs.
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); KMUCHA
v. COLONIAL PENN INSURANCE a/k/a GE PROPERTY AND CASUALTY INSURANCE COMPANY and
CCC INFORMATION SERVICES INC., Case No. 03 L 1267 (filed September 18, 2003);
and JACKSON v. ATLANTA CASUALTY COMPANY and INFINITY PROPERTY & CASUALTY
CORPORATION and CCC INFORMATION SERVICES INC., Case No. 03 L 1266 (filed
September 18, 2003). These cases were filed in the Circuit Court of Madison
County, Illinois, by the same group of plaintiffs' lawyers who filed the COOK
lawsuit. The claims asserted and relief sought in these cases is substantially
similar to those in the COOK case. All four cases seek certification of a
plaintiff class. The LANCEY case also seeks certification of a defendant class.
ROGAN v. FARMERS INSURANCE GROUP, FARMERS INSURANCE EXCHANGE, and CCC
INFORMATION SERVICES INC., Case No. SC076462 (filed March 24, 2003 in the
Superior Court of the State of California, County of Los Angeles County).
Plaintiff asserts various common law and statutory claims against his insurance
company and against CCC, including a claim under California Business &
Professions Code Section 17200, et seq. Plaintiff seeks recovery of unspecified
damages, an accounting, restitution and disgorgement, on his own behalf and on
behalf of the general public, punitive damages, and an award of attorneys' fees.
At a hearing on January 29, 2004, the court sustained CCC's demurrer to all
claims against CCC except for the Section 17200 claim, which the court stayed
pending a separate action to which CCC is not a party. The court also granted a
motion to compel an appraisal of Plaintiffs' claims.
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. As
negotiations have progressed, the number of participants and the cost of the
proposed settlement have fluctuated. Based on the current status of those
discussions, the Company anticipates completing an initial settlement that would
eliminate the viability of class claims in 7 of the 11 class actions pending in
the trial or appellate courts against the Company and certain of its customers
and would resolve potential claims arising out of approximately 17% of the
Company's total transaction volume, for valuations involving first party claims,
during the time period covered by the lawsuits. 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. Upon completion of the settlement negotiations, 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.
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 of 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.
CLASS ACTION DISMISSALS PENDING ON APPEAL
MYERS v. TRAVELERS PROPERTY CASUALTY CORP., THE TRAVELERS INDEMNITY COMPANY
OF AMERICA, and CCC INFORMATION SERVICES INC., No. 99 CH 2793 (filed February
22, 2000) and STEPHENS v. PROGRESSIVE CORP., PROGRESSIVE PREFERRED INS. CO. and
CCC INFORMATION SERVICES INC., No. 99 CH 15557 (filed October28, 1999). These
two cases assert claims and seek relief substantially similar to the cases
pending in Madison County, Illinois described above. Each of these cases was
dismissed with prejudice by the trial court and appealed to the Illinois
Appellate Court for the First District.
McGOWAN v. PROGRESSIVE CASUALTY INS. CO., PROGRESSIVE INS. CO., and CCC
INFORMATION SERVICES INC., Case No. 00VS006525 (filed June 16, 2000 in the State
Court of Fulton County, Georgia), DASHER v. ATLANTA CASUALTY CO. and CCC
INFORMATION SERVICES INC., Case No. 00VS006315 (filed June 16, 2000 in the State
Court of Fulton County, Georgia) and WALKER v. STATE FARM MUTUAL AUTOMOBILE INS.
CO. and CCC INFORMATION SERVICES INC., Case No. 00VS007964 (filed August 2, 2000
in the State Court of Fulton County, Georgia). The Plaintiffs in these three
cases, each of whom seeks to represent a nationwide class of insureds against
CCC and the named insurance company defendant, allege that CCC's Valuescope
valuation service provides values that do not comply with applicable state
regulations governing total loss claims settlements. Plaintiffs assert various
common law and statutory claims against CCC and the insurance company
defendants, including claims under the Georgia RICO statute. Plaintiffs seek
unspecified compensatory, treble and punitive damages, attorneys' fees and
expenses. Each Plaintiff's claims were dismissed with prejudice by the trial
court, and each Plaintiff has filed a notice of appeal.
CLASS ACTION DISMISSALS IN 2003-NO APPEALS FILED
In addition, during the last quarter of 2003, one case previously disclosed
by CCC during 2003 was voluntarily dismissed in the wake of a court-ordered
appraisal, and one case previously disclosed by CCC during 2003 was dismissed
with prejudice upon CCC's motion. 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), the
plaintiff filed a notice of voluntary dismissal in the wake of a court-ordered
appraisal proceeding. Plaintiff recently filed a motion to set aside the
voluntary dismissal for the sole purpose of securing the court's approval of the
dismissal of the putative class action case. In SCALES v. GEICO GENERAL
INSURANCE COMPANY and CCC INFORMATION SERVICES INC., No. 01 CH 8198 (filed May
16, 2001), the court dismissed the plaintiff's claims against CCC with prejudice
on December 2, 2003.
INDIVIDUAL CASES AGAINST CCC
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). The plaintiff in Heckler
asserts claims substantially similar to the above-described cases, and also
alleges that CCC's Valuescope valuation service provides values that do not
comply with applicable state regulations governing total loss claims
settlements. Plaintiff seeks an award of unspecified compensatory and punitive
damages, attorneys' fees, interest and costs. The HECKLER cases are pled as an
individual action.
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
in the Circuit Court of Barbour County, Alabama). The plaintiff in WILLIAMS
asserts claims substantially similar to the above-described cases, and also
alleges that CCC's Valuescope valuation service provides values that do not
comply with applicable state regulations governing total loss claims
settlements. Plaintiff 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. The WILLIAMS case is pled as an individual action. CCC has
reached an agreement to resolve the claims asserted against it in this case. The
resolution of this case will not have a material adverse effect on CCC's
business, financial condition or results of operations.
OTHER MATTERS
CCC is aware of two class certification rulings in cases involving CCC's
Valuescope 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.
Four of the CCC's automobile insurance company customers have made
contractual and, in some cases, common law indemnification claims against CCC
for litigation costs, attorneys' fees, settlement payments and other costs
allegedly incurred or to be incurred by them in connection with litigation
relating to their use of CCC Valuescope. The Company has not been advised of
specific facts to support these customers' demands for indemnification in
several instances. CCC has, however, responded to each of these demands and
believes that it has defenses to these claims, including counterclaims for
indemnification as well as a general release in one instance.
CCC intends to vigorously defend its interests in all of the above
described pending matters 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.
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING OF COSTS AND TO OTHER ADDITIONS/ AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- --------------------------------------------- --------------------------------------------------------------
2001 Allowance for Doubtful Accounts (b). . . $ 3,271 1,920 83 (2,986)(a) $ 2,288
2002 Allowance for Doubtful Accounts. . . . . $ 2,288 1,755 26 (1,756)(a) $ 2,313
2003 Allowance for Doubtful Accounts. . . . . $ 2,313 2,093 (68) (1,395)(a) $ 2,943
2001 Deferred Income Tax Valuation Allowance. $ 2,826 - - 8,663(c) $ 11,489
2002 Deferred Income Tax Valuation Allowance. $ 11,489 - - 110(d) $ 11,599
2003 Deferred Income Tax Valuation Allowance. $ 11,599 - - - $ 11,599
(a) Accounts receivable write-offs, net of recoveries.
(b) The allowance for doubtful accounts for 2001 has been restated to exclude
balances related to discontinued operations.
(c) Increase in deferred income tax valuation allowance for foreign net
operating losses and ChannelPoint capital loss carryforward.
(d) Additional valuation allowance for capital loss on sale of CCC Southeast
assets (goodwill).
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)
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)
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)
10.31 Option and Acquisition Agreement dated February 6, 1998 by and among
Hearst Business Publishing, Inc. and Comp-Est, Inc
10.32 First Amendment to Option and Acquisition Agreement dated February 26,
2003 by and among the Motor Information Systems Division of Hearst Business
Publishing, Inc. and Comp-Est, Inc.
10.33 Option Agreement dated February, 1998 between Motor Information Systems
Division of Hearst Business Publishing, Inc. and CCC Information Service
Inc.
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
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
* Filed herewith.
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/ J. Roderick Heller III
----------------------- --------------------------
Name: Reid E. Simpson Name: J. Roderick Heller III
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
DIRECTORS AND EXECUTIVE OFFICERS
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
J. Roderick Heller III
Chairman and Chief Executive Officer
Carnton Capital Associates
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
Mary Jo Prigge
President, Sales and Service
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
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 AUDITORS
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.
Please visit the investor relations section of our website to make inquiries.
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 61-63 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.