10-Q/A 1 a2037521z10-qa.txt 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-Q/A (AMENDMENT NO.1) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number: 000-28600 CCC INFORMATION SERVICES GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 54-1242469 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) WORLD TRADE CENTER CHICAGO 444 MERCHANDISE MART CHICAGO, ILLINOIS 60654 (Address of principal executive offices, including zip code) (312) 222-4636 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ As of November 13, 2000, CCC Information Services Group Inc. common stock, par value $0.10 per share, outstanding was 21,695,268 shares. TEXT OF AMENDMENTS The purpose of this amendment is to amend the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2000 ("Original Filing"). Specifically, this amendment makes certain changes to the Notes to the Consolidated Financial Statements (included in Item 1) and the Quantitative and Qualitative Disclosures about Market Risk (Item 3). This filing incorporates the unchanged portions from the Original Filing in addition to the changes identified above. The Company is filing this amended Quarterly Report on Form 10-Q/A in response to comments received from the Securities and Exchange Commission ("SEC"). As requested by the SEC, the Company has provided additional disclosure in the notes to the financial statements and the Quantitative and Qualitative Disclosures about Market Risk. This report continues to speak as of the date of the Original Filing and we have not updated the disclosures in this report to speak to any later date. While this report primarily relates to the historical period covered, events may have taken place since the date of the Original Filing that might have been reflected in this report if they had taken place prior to the Original Filing. All information contained in this amendment is subject to updating and supplementing as provided in the Company's periodic reports filed with the SEC subsequent to the date of such reports. CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES TABLE OF CONTENTS
Page(s) PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Interim Statement of Operations (Unaudited), Three Months and Nine Months Ended September 30, 2000 and 1999 3 Consolidated Interim Balance Sheet, September 30, 2000 (Unaudited) and December 31, 1999 4 Consolidated Interim Statement of Cash Flows (Unaudited), Nine Months Ended September 30, 2000 and 1999 5 Notes to Consolidated Interim Financial Statements (Unaudited) 6-13 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 14-17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17-18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19
2 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED INTERIM STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- --------------------- 2000 1999 2000 1999 ------- ------- -------- -------- Revenues $51,461 $51,649 $158,150 $152,526 Expenses: Production and customer support 15,490 16,577 48,299 45,726 Commissions, royalties and licenses 2,620 3,858 9,196 12,708 Selling, general and administrative 24,078 19,421 66,599 58,453 Depreciation and amortization 3,261 2,589 9,204 7,515 Product development and programming 7,775 5,487 19,881 17,457 Write-off of marketing license agreement 2,701 -- 2,701 -- Litigation settlement 1,425 -- 1,425 -- ------- ------- -------- -------- Total operating expenses 57,350 47,932 157,305 141,859 ------- ------- -------- -------- Operating income (loss) (5,889) 3,717 845 10,667 Interest expense (881) (412) (2,303) (793) Other income, net 148 175 4,750 403 Gain on exchange of investment securities -- -- 18,437 -- Equity in losses of ChoiceParts (476) -- (788) -- ------- ------- -------- -------- Income (loss) before income taxes (7,098) 3,480 20,941 10,277 Income tax benefit (provision) 3,153 (2,099) 1,215 (4,836) ------- ------- -------- -------- Income (loss) before equity losses and minority interest (3,945) 1,381 22,156 5,441 Equity in net losses of affiliates (3,657) (814) (7,966) (5,810) Minority share in net losses of subsidiaries -- 1 -- 1 ------- ------- -------- -------- Net income (loss) (7,602) 568 14,190 (368) Dividends and accretion on mandatorily redeemable preferred stock -- -- -- (2) ------- ------- -------- -------- Net income (loss) applicable to common stock $(7,602) $ 568 $ 14,190 $ (370) ======= ======= ======== ======== PER SHARE DATA Income (loss) per common share - basic $ (0.35) $ 0.03 $ 0.65 $ (0.02) ======= ======= ======== ======== Income (loss) per commmon share - diluted $ (0.35) $ 0.03 $ 0.64 $ (0.02) ======= ======= ======== ======== Weighted average shares outstanding: Basic 21,613 22,429 21,906 23,172 Diluted 21,613 22,670 22,221 23,478
The accompanying notes are an integral part of these consolidated interim financial statements 3 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED INTERIM BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, December 31, 2000 1999 ------------- ------------ (Unaudited) ASSETS Cash $ 1,978 $ 1,378 Accounts receivable (net of reserves of $2,787 (unaudited) and $3,975 at September 30, 2000 and December 31, 1999, respectively) 25,751 24,377 Income taxes receivable 4,428 -- Other current assets 8,678 11,546 -------- -------- Total current assets 40,835 37,301 Property and equipment (net of accumulated depreciation of $46,481 (unaudited) and $40,278 at September 30, 2000 and December 31, 1999, respectively) 22,556 17,807 Goodwill (net of accumulated amortization of $16,039 (unaudited) and $14,040 at September 30, 2000 and December 31, 1999, respectively) 14,593 16,358 Deferred income taxes 5,044 6,719 Notes receivable 5,263 -- Investment in affiliates 1,411 -- Investments 23,007 3,402 Other assets 1,166 2,962 -------- -------- Total Assets $113,875 $ 84,549 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 42,899 $ 35,548 Income taxes payable -- 1,188 Current portion of long-term debt 354 440 Deferred revenues 4,981 3,993 -------- -------- Total current liabilities 48,234 41,169 Long-term debt 37,405 24,685 Deferred revenues 175 368 Other liabilities 3,325 3,061 Minority interest in consolidated companies 5 5 -------- -------- Total liabilities 89,144 69,288 -------- -------- Common stock ($0.10 par value, 40,000,000 shares authorized, 21,626,344 (unaudited) and 21,991,826 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively) 2,580 2,549 Additional paid-in capital 102,660 98,799 Accumulated deficit (31,529) (45,719) Accumulated other comprehensive loss (442) (65) Treasury stock, at cost ($0.10 par value, 4,301,665 and 3,618,115 shares in treasury at September 30, 2000 and December 31, 1999, respectively) (48,538) (40,303) -------- -------- Total stockholders' equity 24,731 15,261 -------- -------- Total Liabilities and Stockholders' Equity $113,875 $ 84,549 ======== ========
The accompanying notes are an integral part of these consolidated interim financial statements 4 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, --------------------- 2000 1999 -------- -------- Operating activities: Net income (loss) $ 14,190 $ (368) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on exchange of investment securities (18,437) -- Gain on settlement of marketing agreement (3,644) -- Equity in net losses of affiliates 8,754 5,810 Depreciation and amortization of property and equipment 7,048 5,695 Amortization of goodwill 1,999 1,741 Deferred income taxes 1,675 1,154 Other, net (342) 298 Changes in: Accounts receivable, net (2,273) (903) Other current assets (2,051) (2,253) Other assets 1,209 327 Accounts payable and accrued expenses 6,343 10,411 Current income taxes (4,302) (580) Deferred revenues 795 15 Other liabilities 30 (564) -------- -------- Net cash provided by operating activities 10,994 20,783 -------- -------- Investing activities: Capital expenditures (11,832) (7,430) Purchase of investment securities -- (1,484) Proceeds from the sale of investment securities -- 1,484 Increase in long-term notes receivable (3,592) -- Investment in ChoiceParts (1,420) -- Purchase of InsurQuote securities (527) -- Investments -- (6,255) -------- -------- Net cash used for investing activities (17,371) (13,685) -------- -------- Financing activities: Principal repayments on long-term debt (20,366) (27,000) Proceeds from borrowings on long-term debt 33,000 42,000 Proceeds from exercise of stock options 2,104 1,398 Proceeds from employee stock purchase plan 474 588 Payments to acquire treasury stock (8,235) (24,035) Issuance of treasury stock -- 152 Redemption of preferred stock, including accrued dividends -- (690) Other, net -- 8 -------- -------- Net cash provided by (used for) financing activities 6,977 (7,579) -------- -------- Net increase (decrease) in cash 600 (481) Cash: Beginning of period 1,378 1,526 -------- -------- End of period $ 1,978 $ 1,045 ======== ======== Supplemental Disclosures: Cash paid: Interest $ 1,879 $ 643 ======== ======== Income taxes, net of refunds $ 1,418 $ 4,259 ======== ========
The accompanying notes are an integral part of these consolidated interim financial statements 5 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - DESCRIPTION OF BUSINESS AND ORGANIZATION CCC Information Services Group Inc., through its wholly owned subsidiary CCC Information Services Inc. ("CCC") (collectively referred to as the "Company"), is a supplier of automobile claims information and processing services, claims management software and communication services. The Company's services and products enable automobile insurance company customers and collision repair facility customers to improve efficiency, manage costs and increase consumer satisfaction in the management of automobile claims and restoration. As of September 30, 2000, White River Ventures Inc. ("White River") held approximately 33.5% of the total outstanding common stock of the Company. On June 30, 1998, White River Corporation, the sole shareholder of White River, was acquired in a merger with Demeter Holdings Corporation, which is solely controlled by the President and Fellows of Harvard College, a Massachusetts educational corporation and title-holding company for the endowment fund of Harvard University. Charlesbank Capital Partners LLC is acting as investment manager with respect to the investment of White River in the Company. NOTE 2 - CONSOLIDATED INTERIM FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying consolidated interim financial statements as of and for the three and nine months ended September 30, 2000 and 1999 are unaudited. The Company is of the opinion that all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's interim results of operations and financial condition have been included. The results of operations for any interim period should not be regarded as necessarily indicative of results of operations for any future period. These consolidated interim financial statements should be read in conjunction with the Company's 1999 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission ("SEC"). CHANGE IN ESTIMATE Effective January 1, 2000, the Company has modified its methodology for determining allowances for accounts receivable. The previous method applied primarily a predetermined percentage to the accounts receivable aging balances, while considering the specific identification of customer accounts requiring allowances. The modified method incorporates a higher degree of specific identification of customer accounts requiring allowances in conjunction with the general percentage application on remaining accounts receivable balances. As a result of the change, the Company reduced reserves by approximately $1.2 million in the first quarter of 2000. This amount is reflected in the consolidated interim statement of operations for the nine month period ended September 30, 2000. Management believes that the new methodology provides for a more accurate valuation of the Company's accounts receivable balances. 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 method. For the three months ended September 30, 2000, 2.6 million common stock equivalents were not included in the diluted computation because the common stock equivalents would have been antidilutive for the period. NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which provides the SEC's views in applying generally accepted accounting principles to selected revenue recognition issues. In June 2000, the SEC issued SAB 101B, the second amendment to SAB 101, which has delayed the implementation of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not expect SAB 101 to have a material impact on the Company's consolidated results of operations or financial position. 6 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - OTHER COMPREHENSIVE INCOME (LOSS) The Company's other comprehensive income (loss) includes foreign currency translation adjustments. The Company's comprehensive income (loss) was as follows:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 2000 1999 2000 1999 ------- ---- -------- ----- (IN THOUSANDS) Net income (loss) $(7,602) $568 $ 14,190 $(368) Foreign currency translation adjustments (59) 67 (377) 9 ------- ---- -------- ----- Comprehensive income (loss) $(7,661) $635 $ 13,813 $(359) ======= ==== ======== =====
NOTE 5 - NONCASH FINANCING ACTIVITIES 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 stock options exercised. During the nine months ended September 30, 2000 and 1999, these amounts totaled $1.3 million and $0.5 million, respectively. NOTE 6 - INVESTMENT IN INSURQUOTE On February 10, 1998, the Company invested $20.0 million in InsurQuote Systems, Inc. ("InsurQuote"). InsurQuote, formed in 1989, was a provider of insurance rating information and software tools used to manage that information. The Company's $20.0 million investment included 19.9% of InsurQuote common stock, an $8.9 million subordinated note, warrants, shares of Series C redeemable convertible preferred stock and Series D convertible preferred stock. The warrants provided the Company with the right to acquire additional shares of InsurQuote common stock and were exercisable by the Company through February 10, 2008, subject to potential early termination provisions. The Series C preferred stock was redeemable in full at the end of five years from issuance, or earlier under certain conditions, if not converted prior to that time. Each share of Series C and D preferred stock was initially convertible into one share of common stock at the option of the Company. Under the terms of the investment agreement, the Company, subject to certain conditions, could increase its investment through additional purchases of common and preferred shares. In February 1998 and subsequently amended in March of 1999, the Company and InsurQuote entered into a sales and marketing agreement that gave the Company certain rights to market and sell InsurQuote products to the automobile insurance carrier market. In March 2000, the Company and InsurQuote entered into an agreement to terminate the marketing and sales agreement. As part of the termination agreement, the Company received an unsecured, subordinated promissory note in the amount of $4.5 million that matures in September 2002 and bears interest at 7.5% and received cash of $0.5 million in April 2000. As a result of the termination agreement, the Company recorded a gain on the settlement of this marketing agreement of approximately $4.1 million in the first quarter 2000 and was included in other income in the consolidated interim statement of operations for the nine month period ended September 30, 2000. The Company accounted for its investment in InsurQuote on the equity method. Notwithstanding the Company's original 19.9% common stock equity share, the Company recorded 100% of InsurQuote's net losses for the period from the Company's initial investment, February 10, 1998 to March 31, 1999. The recording of 100% of InsurQuote's losses was the result of the Company's $20.0 million investment being the primary source of funding for InsurQuote's operating losses during that period. On March 31, 1999, InsurQuote received a $20.0 million investment from a new investor for convertible preferred stock with a 19.0% voting interest. As a result of this new investment, the Company's ownership percentage decreased to 14.7% and the Company ceased recording losses on its investment, unless its was determined that its remaining investment was impaired. The Company has not recorded any income tax benefit on the equity in InsurQuote losses 7 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) recorded in 1999 and 1998. On April 7, 2000, ChannelPoint, Inc., an e-commerce exchange services and technology platform provider for insurance and benefits companies, acquired InsurQuote. Under the terms of the transaction, the Company exercised its warrant for InsurQuote common stock in exchange for surrendering its $8.9 million subordinated note from InsurQuote. In addition, the Company invested $0.5 million in cash and converted $0.3 million in interest receivables associated with the $8.9 million subordinated note for additional common stock. 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 6.0%, on a fully diluted basis, of ChannelPoint's common stock. In connection with the Company exchanging its equity investment in InsurQuote securities for ChannelPoint's common stock, the Company's investment was recorded at its fair market value, and as a result, a gain was reflected in the consolidated interim statement of operations for the nine months ended September 30, 2000. The Company accounts for its investment in ChannelPoint as a cost based investment. Prior to the end of the second quarter of 2000, the Company reviewed its carrying value of the ChannelPoint common stock. Based on this review, the Company determined that there had been another than temporary decline in market value of these securities. This determination was based on market conditions for like companies, restrictions on the stock holding, delay in the initial public offering of ChannelPoint's common stock and the limited liquidity of a private security. The resulting charge related to this change in carrying value has been included in the net gain on the exchange of securities of $18.4 million reflected in the consolidated interim statement of operations for the nine months ended September 30, 2000. The impact on the Company's tax provision resulting from this gain on exchange of investment securities was minimal, since for tax purposes it largely represented a reversal of prior equity losses for which no tax benefit was recorded. As such, the tax impact of $0.7 million related to the increase from the original cost of the investment of $20.8 million to the current carrying value of $22.7 million as of September 30, 2000. NOTE 7 - ENTERSTAND JOINT VENTURE On December 30, 1998, the Company and Hearst Communications, Inc. ("Hearst") established a joint venture, Enterstand Limited ("Enterstand"), in Europe to develop and market claims processing tools to insurers and collision repair facilities. Under the provision of the Subscription and Stockholders Agreement ("Subscription Agreement"), the Company invested $2.0 million for a 19.9% equity interest. The Subscription Agreement provides the Company with an option to purchase 85.0% of Hearst's shares of Enterstand at an agreed upon purchase price. The option is exercisable by the Company after one year from the date of the Subscription Agreement. On March 17, 2000, the Company and Hearst agreed to terms for an amendment to the Subscription Agreement. Under the terms of the amendment, both parties contributed additional funds to Enterstand to provide additional working capital. On March 20, 2000, the Company funded $0.5 million and Hearst funded $5.0 million to Enterstand. After these investments, the Company's ownership percentage decreased to 14.2%. The Company's option under the Subscription Agreement was adjusted to include a right to purchase 78.0% of the shares issued to Hearst in connection with this transaction and would give the Company an 84.5% ownership in Enterstand, if exercised. In addition, on March 31, 2000, the Company and Hearst loaned Enterstand $8.5 million and $1.5 million, respectively, which were evidenced by promissory notes. Of the $8.5 million loaned to Enterstand by the Company, $3.5 million was funded in cash and $5.0 million of receivables from Enterstand were converted into the note receivable. These promissory notes mature in March 2005 and bear interest at 9.0%. The Company applies the equity method of accounting for its investment in Enterstand. Since the inception date through March 31, 2000, the Company recorded 19.9% of Enterstand's losses. Notwithstanding the Company's current ownership percentage of 14.2%, for the period April 1, 2000 through September 30, 2000, the Company has recorded 85.0% of Enterstand losses based on the 8 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company's proportionate share of the total funding to Enterstand which occurred on March 31, 2000. The Company recorded a charge of $8.0 million and $1.6 million for its share of Enterstand's losses for the nine months ended September 30, 2000 and 1999, respectively. The Company has not recorded any income tax benefit on the equity in Enterstand losses recorded since inception. Summary financial information for Enterstand for the three and nine months ended September 30, 2000 was as follows:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2000 2000 ------------------- ------------------- (IN THOUSANDS) Revenues $ -- $ -- ======= ======== Loss from operations $(4,053) $(12,147) ======= ======== Net loss $(4,303) $(12,498) ======= ========
NOTE 8 - INVESTMENT IN CHOICEPARTS On May 4, 2000, the Company formed a new independent company, ChoiceParts, LLC ("ChoiceParts") with The Reynolds and Reynolds Company and Automatic Data Processing, Inc. ChoiceParts will serve as an online auto parts marketplace for franchised auto retailers, collision repair facilities and other parts suppliers. On May 4, 2000, the Company invested approximately $1.4 million in ChoiceParts for a 27.5% equity interest. In addition, the Company has a commitment to fund an additional $5.5 million to ChoiceParts based on its pro-rata ownership percentage through April 2001. The Company applies the equity method of accounting for its investment in ChoiceParts and recorded a charge of $0.5 million and $0.8 million for the three month period ended September 30, 2000 and for the period May 4, 2000 through September 30, 2000, respectively. Based on the nature of the Company's investment, the Company has recorded a related income tax benefit on its share of the losses. Summary financial information for ChoiceParts for the three month period ended September 30, 2000 and from inception date May 4, 2000 through September 30, 2000 was as follows:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2000 2000 ------------------- ------------------- (IN THOUSANDS) Revenues $ 3,643 $ 5,993 ======= ======= Loss from operations $(1,857) $(2,970) ======= ======= Net loss $(1,730) $(2,865) ======= =======
NOTE 9 - INVESTMENT IN INFO4CARS On December 23, 1999, the Company sold certain net assets related to its Dealer Services products to Info4cars.com Inc., a provider of used car buying information to consumers and auto dealers ("Info4cars") in exchange for a note receivable of $0.6 million and common stock representing a 9.0% interest in Info4cars. During 2000, Info4cars failed to make interest payments due and payable to the Company under the terms of the note on February 1, May 1, and August 1. In September 2000, the Company and Info4cars agreed to amend the principal amount and terms of repayment of the note receivable (the "Amended Note"). The Amended Note includes the past due interest payments owed to the Company on the original note, matures in May 2003 and bears interest at the Prime Rate. In addition, the 9 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company converted its common stock into shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"). As holders of the Series A Preferred Stock, the Company is entitled to receive, when and as declared by the board of directors of Info4cars, cash dividends at the rate of 8.0% of the original issue price per annum on each outstanding share of Series A Preferred Stock. NOTE 10 - MARKETING LICENSE AGREEMENT In September 2000, the Company determined that certain prepaid marketing license fees paid to a third party related to the Company's shop management products were impaired based on an analysis of future revenue and profitability streams. The Company recorded a charge of $1.9 million in connection with the write-off of this asset. In addition, certain contractual committed consulting fees and development expenses of $0.8 million related to this third party have also been recorded and included in the consolidated statement of operations for the three and nine months ended September 30, 2000. NOTE 11- LITIGATION SETTLEMENT CCC was a defendant in an arbitration proceeding before the American Arbitration Association captioned Autobody Software Solutions, Inc. v. CCC Information Services Inc., as reported in the Quarterly Reports on form 10-Q for the quarterly periods ended March 31, 2000 and June 30, 2000. The plaintiff had demanded damages in excess of $23.0 million in that proceeding. The parties have settled this action by execution of a Release and Settlement Agreement ("Settlement Agreement") as of October 12, 2000, pursuant to which CCC has paid the Plaintiff $0.3 million and conveyed 15,000 shares of the Company's common stock. The Company will also make a total of four additional annual payments in the amount of $0.2 million each, commencing six months after the date of the Settlement Agreement. The plaintiff has released CCC from all claims and has stipulated to the dismissal of its action with prejudice. In connection with this settlement, the Company has recorded and included a charge of $1.4 million in the consolidated statement of operations for the three and nine months ended September 30, 2000. NOTE 12 - BUSINESS SEGMENTS Statement of Financial Accounting Standard No. 131, "Disclosures About Segments for Enterprise and Related Information," requires companies to provide certain information about their operating segments. The Company has four reportable segments: CCC U.S., Consumer Services, CCC International and DriveLogic, which was formerly known as the Company's "Internet Business-to-Business" division until the Company changed the name of the division to DriveLogic in the second quarter of 2000. CCC U.S. sells products and services that assist its customers in managing total loss and repairable auto claims. Consumer Services sells products and outsourcing services to the private passenger automobile industry, including policy underwriting, fulfillment services and claims processing. International offers products to help manage the claims process and settlement of repairable automobile claims in Europe. DriveLogic, formed in 1999 as an outgrowth of the CCC U.S. Division, is focused on providing Internet and wireless-enabled technology solutions to the auto claims and collision repair industries. The Company's reportable segments are based upon the nature of the products and services within the Company and the methods used to distribute these products and services. The Company is organized into revenue producing divisions and shared services organizations (e.g. product development, management information systems, finance and administration) tasked with facilitating the performance of the revenue producing divisions. Divisional expenses represent principally salaries and related employee expenses directly related to the Division's activities. Each revenue division and support organization is led by a president or executive vice president that reports to the Chief Executive Officer. Management evaluates performance at the total company profit level, divisional profit level and at the product revenue level. The shared services costs are not currently allocated to the revenue producing divisions and include product development, management information systems and finance and administration costs. 10 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Financial information relating to each reportable segment was as follows (in thousands):
CCC CONSUMER CCC SHARED U.S. SERVICES INTERNATIONAL DRIVELOGIC SERVICES TOTAL --------- -------- ------------- ---------- -------- --------- THREE MONTHS ENDED SEPTEMBER 30, 2000 Net revenue $ 43,887 $ 5,679 $ 1,895 $ -- $ -- $ 51,461 Expenses: Operating expenses (17,212) (6,582) (2,841) (5,197) (21,392) (53,224) Write-off of marketing license agreement (2,701) -- -- -- -- (2,701) Litigation settlement (1,425) -- -- -- -- (1,425) --------- -------- ------------- ---------- -------- --------- Operating income (loss) 22,549 (903) (946) (5,197) (21,392) (5,889) Equity in losses of affiliates -- -- (3,657) (476) -- (4,133) --------- -------- ------------- ---------- -------- --------- Division operating margin $ 22,549 $ (903) $(4,603) $ (5,673) $(21,392) $ (10,022) --------- -------- ------------- ---------- -------- --------- THREE MONTHS ENDED SEPTEMBER 30, 1999 Net revenue $ 42,954 $ 7,031 $ 1,664 $ -- $ -- $ 51,649 Expenses (21,951) (7,584) (1,830) -- (16,567) (47,932) --------- -------- ------------- ---------- -------- --------- Operating income (loss) 21,003 (553) (166) -- (16,567) 3,717 Equity in losses of affiliates -- -- (814) -- -- (814) --------- -------- ------------- ---------- -------- --------- Division operating margin $ 21,003 $ (553) $ (980) $ -- $(16,567) $ 2,903 ========= ======== ============= ========== ======== ========= NINE MONTHS ENDED SEPTEMBER 30, 2000 Net revenue $ 131,688 $ 20,209 $ 6,253 $ -- $ -- $ 158,150 Expenses: Operating expenses (51,508) (21,296) (9,149) (11,212) (60,014) (153,179) Write-off of marketing license agreement (2,701) -- -- -- -- (2,701) Litigation settlement (1,425) -- -- -- -- (1,425) --------- -------- ------------- ---------- -------- --------- Operating income (loss) 76,054 (1,087) (2,896) (11,212) (60,014) 845 Gain on settlement of marketing agreement 4,144 -- -- -- -- 4,144 Gain on exchange of investment securities 18,437 -- -- -- -- 18,437 Equity in losses of affiliates -- -- (7,966) (788) -- (8,754) --------- -------- ------------- ---------- -------- --------- Division operating margin $ 98,635 $(1,087) $(10,862) $(12,000) $(60,014) $ 14,672 ========= ======== ============= ========== ======== ========= BALANCE AT SEPTEMBER 30, 2000 Accounts receivable, net $ 15,654 $ 7,056 $ 3,041 $ -- $ -- $ 25,751 ========= ======== ============= ========== ======== ========= NINE MONTHS ENDED SEPTEMBER 30, 1999 Net revenue $ 129,159 $ 20,729 $ 2,638 $ -- $ -- $ 152,526 Expenses (66,311) (20,841) (3,024) -- (51,683) (141,859) --------- -------- ------------- ---------- -------- --------- Operating income (loss) 62,848 (112) (386) -- (51,683) 10,667 Equity in losses of affiliates (4,167) -- (1,643) -- -- (5,810) --------- -------- ------------- ---------- -------- --------- Division operating margin $ 58,681 $ (112) $(2,029) $ -- $(51,683) $ 4,857 ========= ======== ============= ========== ======== ========= BALANCE AT SEPTEMBER 30, 1999 Accounts receivable, net $ 14,196 $ 8,587 $ 5,042 $ -- $ -- $ 27,825 ========= ======== ============= ========== ======== =========
During the nine months ended September 30, 2000 and 1999, substantially all revenues recognized in the CCC U.S. and Consumer Services Divisions were derived from customers located in the United States. During those same periods, substantially all revenues recognized in the CCC International segment were derived from customers located in Europe. 11 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13 - LEGAL PROCEEDINGS On or about August 2, 2000, a putative statewide class action was filed in the State Court of Fulton County, Georgia, against CCC and State Farm Mutual Automobile Insurance Company. The case is captioned Mary A. Walker v. State Farm Mutual Automobile Insurance Company and CCC Information Services, Inc., Civil Action File No. 00VS007964-C ("Walker"). The Walker lawsuit was filed by a group of plaintiffs' attorneys who previously filed two putative class actions against CCC and various of its customers in Fulton County State Court, as reported in the Quarterly Report on form 10-Q for the fiscal period ended June 30, 2000. The plaintiff asserts substantially the same claims and seeks substantially the same relief as in those previously filed Fulton County actions. CCC has filed an answer denying the substance of the plaintiffs' claims. No other action has been taken in the cases. On or about August 2, 2000, a putative class action purportedly on behalf of certain residents of fourteen states was filed in the Franklin County Court of Common Pleas, State of Ohio, against Nationwide Mutual Insurance Company and CCC. The case is captioned Roy Whitworth et al. v. Nationwide Mutual Insurance Company and CCC Information Services, Inc., Case No. 00CV H08 6980 ("Whitworth"). The Whitworth lawsuit was filed by a group of plaintiffs' attorneys that includes certain attorneys who previously filed three putative class actions against CCC and various of its customers in Fulton County State Court, as reported in the Quarterly Report on form 10-Q for the fiscal period ended June 30, 2000 and above. The plaintiffs assert substantially the same claims and seek substantially the same relief as in those previously filed Fulton County actions. The plaintiffs further allege that CCC's Total Loss valuation product provides values that do not comply with applicable regulations in Ohio and thirteen other states. CCC has filed a motion to dismiss the plaintiffs' claims. No other action has been taken in the case. On or about October 23, 2000, an amended complaint was filed by the plaintiff in the State Court of Fulton County, Georgia, in the matter of McGowan v. Progressive Casualty Insurance Co., Progressive Insurance Co., CCC Information Services Inc., and David Parham, Civil Action File No. 00VS006525-J, which matter was reported in the Quarterly Report on form 10-Q for the fiscal period ended June 30, 2000. The allegations of the amended complaint are substantially identical to the original complaint, except that the plaintiff now seeks to represent a nationwide class rather than a statewide class. Plaintiff also seeks to represent a similar statewide sub-class under the Georgia RICO statute. On or about August 23, 2000, a putative statewide class action was filed in the Circuit Court for Hillsborough County, Florida, against CCC and USAA Casualty Insurance Company. The lawsuit is captioned Peter Sintes et al. v. USAA Casualty Insurance Company and CCC Information Services, Inc., Case No. 00-006308 ("Sintes"). Plaintiffs allege that USAA contracted with CCC to provide valuations of "total loss" vehicles and that CCC supplied valuations that were intentionally below the actual fair market value of the insured vehicle. The plaintiffs assert various common law claims against USAA seeking unspecified damages. The plaintiffs also assert a single claim for injunctive relief against USAA and CCC. Plaintiffs also request an award of pre- and post-judgment interest and an award of attorneys' fees, litigation expenses and costs. The group of plaintiffs' attorneys who filed the Sintes case includes several attorneys who have previously filed similar cases against CCC and various of its customers in the Circuit Court of Cook County, Illinois. CCC was only recently served with the complaint. No other action has been taken in the case. CCC intends to vigorously defend all of the above-described lawsuits. Due to the numerous legal and factual issues that must be resolved during the course of the litigation, CCC is unable to predict the ultimate outcome of any of these actions. If CCC were held liable in any of these actions (or otherwise concludes that it is in CCC's best interests to settle any of them), CCC could be required to pay monetary damages (or settlement payments). Depending upon the theory of recovery or the resolution of the plaintiff's claims for compensatory and punitive damages, or potential claims for indemnification or contribution by CCC's customers in any of the actions, these monetary damages (or settlement payments) could be substantial and could have a material adverse effect on CCC's business, financial condition, or results of operations. The Company is unable to estimate the magnitude of its exposure, if any, at this time. 12 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As additional information is gathered and the litigations proceed, CCC will continue to assess their potential impact. CCC was a defendant in an arbitration proceeding before the American Arbitration Association captioned Autobody Software Solutions, Inc. v. CCC Information Services Inc., as reported in the Quarterly Reports on form 10-Q for the quarterly periods ended March 31, 2000 and June 30, 2000. The plaintiff had demanded damages in excess of $23.0 million in that proceeding. The parties have settled this action by execution of a Release and Settlement Agreement ("Settlement Agreement") as of October 12, 2000, pursuant to which CCC has paid the Plaintiff $0.3 million and conveyed 15,000 shares of the Company's common stock. The Company will also make a total of four additional annual payments in the amount of $0.2 million each, commencing six months after the date of the Settlement Agreement. The plaintiff has released CCC from all claims and has stipulated to the dismissal of its action with prejudice. 13 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1999 The Company reported a net loss applicable to common stock of $7.6 million, or $(0.35) per share on a diluted basis, for the three months ended September 30, 2000, versus net income of $0.6 million, or $0.03 per share on a diluted basis, for the same quarter last year. REVENUES. Third quarter 2000 revenues of $51.5 million were $0.2 million lower than the same quarter last year. Revenues for CCC U.S. Division increased $1.0 million, or 2.2%, from 1999. Additionally, CCC International revenues increased $0.2 million, or 13.9%, principally due to revenues from the acquisition of D.W. Norris in the third quarter of 1999. These increases were offset, in part, by a decrease of $1.4 million in Consumer Services revenues. PRODUCTION AND CUSTOMER SUPPORT. Production and customer support decreased from $16.6 million, or 32.1% of revenues, to $15.5 million, or 30.1% of revenues. The year over year decrease was due primarily to customer support costs related to Consumer Services and a reduction related to the sale of the Dealer Services business. This decrease was offset, in part, by the addition of D.W. Norris to the International Division in the fourth quarter of 1999. COMMISSION, ROYALTIES AND LICENSES. Commission, royalties and licenses decreased from $3.9 million, or 7.5% of revenues, to $2.6 million, or 5.1% of revenues. The commission decrease was a result of the CCC U.S. Division's conversion of its independent sales representatives for collision repair facilities to salaried employees and the Company's elimination of its highly commissioned Dealer Services products. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative increased from $19.4 million, or 37.6% of revenues, to $24.1 million, or 46.8% of revenues. The increase was a result of $3.0 million in costs associated with DriveLogic (formerly described as the Company's Internet Business-to-Business division). In addition, legal fees incurred in connection with various legal matters increased $1.0 million. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $2.6 million, or 5.0% of revenues, to $3.3 million, or 6.3% of revenues. The increase was mainly the result of an increase in goodwill amortization resulting from the acquisition of D.W. Norris in the third quarter of 1999 and an increase in amortization of internal use software costs. PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming increased from $5.5 million, or 10.6% of revenues, to $7.8 million, or 15.1% of revenues. The increase in dollars was due to higher development costs of $2.1 million associated with DriveLogic. WRITE-OFF OF MARKETING LICENSE AGREEMENT. The Company determined that certain prepaid marketing fees paid to a third party related to the Company's shop management products were impaired based on an analysis of future revenue and profitability streams. The Company recorded a charge of $1.9 million in connection with the write-off of this asset. In addition, certain contractual committed consulting fees and development expenses of $0.8 million related to this third party have also been recorded in the third quarter of 2000. LITIGATION SETTLEMENT. The Company recorded a charge of $1.4 million in the third quarter of 2000 related to settlement costs of an arbitration proceeding before the American Arbitration Association captioned Autobody Software Solutions, Inc. v. CCC Information Services Inc. INTEREST EXPENSE. Interest expense increased from $0.4 million in 1999 to $0.9 million in 2000. The increase from 1999 was due to a higher level of borrowings in late 1999 and 2000 under the Company's bank credit facility. The increase in borrowings was mainly the result of the Company's stock repurchase program, acquisitions, funding to Enterstand and startup costs for DriveLogic. EQUITY IN LOSSES OF CHOICEPARTS. The Company recorded a charge of $0.5 million for the three months ended September 30, 2000 related to its share of the losses in ChoiceParts. 14 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES INCOME TAXES. Income taxes decreased from a provision of $2.1 million, or 60.3% of income before taxes, to a benefit of $3.2 million, or 44.4% of income before losses. The provision for 1999 included a third quarter increase to the provision reflecting a year-to-date change to the effective rate as a result of lowering the amount of expected pre-tax income for the full year 1999. The provision for 2000 included an adjustment for the first two quarters of the year to reflect an increase in the amount of forecasted pre-tax income and a change in the sourcing of income between domestic and international operations. The adjustment resulted in an additional benefit recorded in the third quarter of 2000. EQUITY IN NET LOSSES OF AFFILIATES. Equity in net losses of affiliates were related to Enterstand and increased from $0.8 million in 1999 to $3.7 million in 2000. The increase in the losses was primarily the result of the change in the percentage of losses recognized from 19.9% to 85.0%. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1999 The Company reported net income applicable to common stock of $14.2 million, or $0.64 per share on a diluted basis, for the nine months ended September 30, 2000, versus a net loss of $0.4 million, or $(0.02) per share on a diluted basis, for the same period last year. REVENUES. Revenues of $158.2 million were $5.6 million, or 3.7%, higher than the same period last year. The increase in revenues was primarily due to growth in the Company's International and Consumer Services divisions. The acquisition of D.W. Norris in the third quarter of 1999 accounted for $3.3 million of the increase in revenues in the International division from the prior year. In addition, in the first quarter of 2000 the Company reduced accounts receivable allowance reserves by approximately $1.2 million based on a detailed analysis of exposures and required reserves on an individual account basis. PRODUCTION AND CUSTOMER SUPPORT. Production and customer support increased from $45.7 million, or 30.0% of revenues, to $48.3 million, or 30.5% of revenues. The year over year increase was due primarily to customer support costs related to the Consumer Services Division and the addition of D.W. Norris to the International Division, offset, in part, by a reduction related to the sale of the Dealer Services business. COMMISSION, ROYALTIES AND LICENSES. Commission, royalties and licenses decreased from $12.7 million, or 8.3% of revenues, to $9.2 million, or 5.8% of revenues. The commission decrease was a result of the CCC U.S. Division's conversion of its independent sales representatives for collision repair facilities to salaried employees and the Company's elimination of its highly commissioned Dealer Services products. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative increased from $58.5 million, or 38.3% of revenues, to $66.6 million of revenues, or 42.1%. Of this increase, approximately $7.8 million was due to costs associated with DriveLogic. This increase was offset by the impact of a prior year one-time compensation charge of $1.2 million as a result of a stock repurchase and $0.8 in reorganization costs of CCC U.S.'s automotive services group incurred in the second quarter of 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $7.5 million, or 4.9% of revenues, to $9.2 million, or 5.8% of revenues. The increase was mainly the result of an increase in goodwill amortization resulting from the acquisition of D.W. Norris in the third quarter of 1999 and an increase in amortization of internal use software costs, primarily those relating to a new customer relationship management system installed in the third quarter of 1999. PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming increased from $17.5 million, or 11.4% of revenues, to $19.9 million, or 12.6% of revenues. The increase in dollars was due to additional development costs of $3.1 million associated with DriveLogic, offset, in part, by lower development costs related to CCC U.S. Division products. WRITE-OFF OF MARKETING LICENSE AGREEMENT. The Company determined that certain prepaid marketing fees paid to a third party related to the Company's shop management products were impaired based on an analysis of future revenue and profitability streams. The Company recorded a charge of $1.9 million in connection with the write-off of this asset. In addition, certain contractual committed consulting fees and development expenses of $0.8 million related to this third party have also been recorded in the third quarter of 2000. 15 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES LITIGATION SETTLEMENT. The Company recorded a charge of $1.4 million in the third quarter of 2000 related to settlement costs of an arbitration proceeding before the American Arbitration Association captioned Autobody Software Solutions, Inc. v. CCC Information Services Inc. INTEREST EXPENSE. Interest expense increased from $0.8 million in 1999 to $2.3 million in 2000. The increase from 1999 was due to a higher level of borrowings in late 1999 and 2000 under the Company's bank credit facility. The increase in borrowings was mainly the result of the Company's stock repurchase program, acquisitions, funding to Enterstand and startup costs for DriveLogic. OTHER INCOME, NET. Other income, net increased from $0.4 million in 1999 to $4.8 million in 2000. The increase from prior year was principally due to a $4.1 million gain recorded in the first quarter of 2000 on the termination of the sales and marketing agreement between the Company and InsurQuote. GAIN ON EXCHANGE OF INVESTMENT SECURITIES. The Company recorded a gain of approximately $18.4 million in connection with the exchange of its equity investment in InsurQuote securities for ChannelPoint common stock. Net of income taxes, the gain was approximately $17.7 million. EQUITY IN LOSSES OF CHOICEPARTS. The Company recorded a charge of $0.8 million for the period May 4, 2000 through September 30, 2000 related to its share of the losses in ChoiceParts. INCOME TAXES. Income taxes decreased from a provision of $4.8 million, or 47.1% of income before taxes, to a tax benefit of $1.2 million, or -5.8% of income before taxes. The decrease reflected minimal tax expense associated with the gain on exchange of investment securities. EQUITY IN NET LOSSES OF AFFILIATES. Equity in net losses of affiliates increased from $5.8 million in 1999 to $8.0 million in 2000. The results included $4.2 million in losses relating to InsurQuote for 1999, and $8.0 million and $1.6 million in losses relating to Enterstand for 2000 and 1999, respectively. The increase in Enterstand losses reflects the change in percentage of losses recognized from 19.9% to 85%. The Company ceased recording the net losses of InsurQuote in the second quarter of 1999 as a result of a new investor funding InsurQuote's net losses subsequent to March 31, 1999. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 2000, net cash provided by operating activities was $11.0 million and net borrowings on the Company's credit facility were approximately $13.0 million. During that same period, the Company had capital expenditures of $11.8 million. In addition, the Company loaned Enterstand $8.5 million, of which $3.5 million was funded in cash, and invested approximately $1.4 million in ChoiceParts for a 27.5% equity interest. The Company also purchased 683,550 of its outstanding shares at a cost of $8.2 million. CCC has the ability to operate with a working capital deficit, as it receives substantial payments from customers for its services in advance of recognizing the revenues and the costs incurred to provide such services. CCC invoices each customer a month in advance for the following month's Pathways Collision Estimating software services. As such, CCC typically receives cash from its customers prior to recognizing the revenue and incurring the expense for the services provided. These amounts are reflected in the deferred revenue line in the consolidated balance sheet until these amounts are earned and recognized as revenues. The Company is currently considering raising additional capital to increase working capital, which will help fund new initiatives, such as DriveLogic and reduce or eliminate the current working capital deficit. Management believes that cash flows from operations, the Company's existing credit facility and other financing alternatives available to the Company will be sufficient to meet the Company's liquidity needs over the next 12 months. There can be no assurance, however, that the Company will be able to satisfy its liquidity needs in the future without engaging in financing activities beyond that described above. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. In that context, certain sections of this Form 10-Q contain forward-looking statements that involve certain degrees of risks and uncertainties, including statements relating to liquidity and capital resources. Except for the historical information, the risks and uncertainties, include, without limitation, the effect of competitive pricing within the industry, the inherent uncertainty of the ultimate resolution of pending litigation, the presence of competitors with greater financial resources than the Company, the intense competition for top software engineering talent and the volatile nature of technological change within the software development and information services industries (including Internet-related businesses). In addition, discussions concerning new business ventures, such as DriveLogic, are inherently uncertain. Additional factors that could affect the Company's financial condition and results of operations are included in the Company's Initial Public Offering Prospectus and Registration on Form S- 16 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES 1 filed with the Securities and Exchange Commission ("Commission") on August 16, 1996, the Company's 1999 Annual Report on Form 10-K filed on March 30, 2000, and Amendment No. 1 on Form 10-K/A, filed with the Commission on April 28, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a result of the 1998 acquisition of CCC International and the 1999 acquisition of D.W. Norris Limited, the Company has operations in the U.K. All foreign operations are measured in the British Pound Sterling. As a result, the Company's financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company has operations. As the International Division growth expands and the potential exposure to foreign currency fluctuations increases, the Company will monitor such exposure and may engage in hedging against foreign currency fluctuations as management deems appropriate. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On or about August 2, 2000, a putative statewide class action was filed in the State Court of Fulton County, Georgia, against CCC and State Farm Mutual Automobile Insurance Company. The case is captioned Mary A. Walker v. State Farm Mutual Automobile Insurance Company and CCC Information Services, Inc., Civil Action File No. 00VS007964-C. The Walker lawsuit was filed by a group of plaintiffs' attorneys who previously filed two putative class actions against CCC and various of its customers in Fulton County State Court, as reported in the Quarterly Report on form 10-Q for the fiscal period ended June 30, 2000. The plaintiff asserts substantially the same claims and seeks substantially the same relief as in those previously filed Fulton County actions. CCC has filed an answer denying the substance of the plaintiffs' claims. No other action has been taken in the cases. On or about August 2, 2000, a putative class action purportedly on behalf of certain residents of fourteen states was filed in the Franklin County Court of Common Pleas, State of Ohio, against Nationwide Mutual Insurance Company and CCC. The case is captioned Roy Whitworth et al. v. Nationwide Mutual Insurance Company and CCC Information Services, Inc., Case No. 00CV H08 6980. The Whitworth lawsuit was filed by a group of plaintiffs' attorneys that includes certain attorneys who previously filed three putative class actions against CCC and various of its customers in Fulton County State Court, as reported in the Quarterly Report on form 10-Q for the fiscal period ended June 30, 2000 and above. The plaintiffs assert substantially the same claims and seek substantially the same relief as in those previously filed Fulton County actions. The plaintiffs further allege that CCC's Total Loss valuation product provides values that do not comply with applicable regulations in Ohio and thirteen other states. CCC has filed a motion to dismiss the plaintiffs' claims. No other action has been taken in the case. On or about October 23, 2000, an amended complaint was filed by the plaintiff in the State Court of Fulton County, Georgia, in the matter of McGowan v. Progressive Casualty Insurance Co., Progressive Insurance Co., CCC Information Services Inc., and David Parham, Civil Action File No. 00VS006525-J, which matter was reported in the Quarterly Report on form 10-Q for the fiscal period ended June 30, 2000. The allegations of the amended complaint are substantially identical to the original complaint, except that the plaintiff now seeks to represent a nationwide class rather than a statewide class. Plaintiff also seeks to represent a similar statewide sub-class under the Georgia RICO statute. On or about August 23, 2000, a putative statewide class action was filed in the Circuit Court for Hillsborough County, Florida, against CCC and USAA Casualty Insurance Company. The lawsuit is captioned Peter Sintes et al. v. USAA Casualty Insurance Company and CCC Information Services, Inc., Case No. 00-006308. Plaintiffs allege that USAA contracted with CCC to provide valuations of "total loss" vehicles and that CCC supplied valuations that were intentionally below the actual fair market value of the insured vehicle. The plaintiffs assert various common law claims against USAA seeking unspecified damages. The plaintiffs also assert a single claim for injunctive relief against USAA and CCC. Plaintiffs also request an award of pre- and post-judgment interest and an award of attorneys' fees, litigation expenses, and costs. The group of plaintiffs' attorneys who filed the Sintes case includes several attorneys who have previously filed similar cases against CCC and various of its customers in the Circuit Court of Cook County, Illinois. CCC was only recently served with the complaint. No other action has been taken in the case. CCC intends to vigorously defend all of the above-described lawsuits. Due to the numerous legal and factual issues that must be resolved during the course of the litigation, CCC is unable to predict the 17 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ultimate outcome of any of these actions. If CCC were held liable in any of these actions (or otherwise concludes that it is in CCC's best interests to settle any of them), CCC could be required to pay monetary damages (or settlement payments). Depending upon the theory of recovery or the resolution of the plaintiff's claims for compensatory and punitive damages, or potential claims for indemnification or contribution by CCC's customers in any of the actions, these monetary damages (or settlement payments) could be substantial and could have a material adverse effect on CCC's business, financial condition, or results of operations. The Company is unable to estimate the magnitude of its exposure, if any, at this time. As additional information is gathered and the litigations proceed, CCC will continue to assess their potential impact. CCC was a defendant in an arbitration proceeding before the American Arbitration Association captioned Autobody Software Solutions, Inc. v. CCC Information Services Inc., as reported in the Quarterly Reports on form 10-Q for the quarterly periods ended March 31, 2000 and June 30, 2000. The plaintiff had demanded damages in excess of $23.0 million in that proceeding. The parties have settled this action by execution of a Release and Settlement Agreement ("Settlement Agreement") as of October 12, 2000, pursuant to which CCC has paid the Plaintiff $0.3 million and conveyed 15,000 shares of the Company's common stock. The Company will also make a total of four additional annual payments in the amount of $0.2 million each, commencing six months after the date of the Settlement Agreement. The plaintiff has released CCC from all claims and has stipulated to the dismissal of its action with prejudice. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Statement Re: Computation of Per Share Earnings 27 Financial Data Schedule (b) Reports on Form 8-K None 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 9, 2001 CCC Information Services Group Inc. By: /s/ Githesh Ramamurthy --------------------------------------- Name: Githesh Ramamurthy Title: Chairman and Chief Executive Officer By: /s/ REID E. SIMPSON --------------------------------------- Name: Reid E. Simpson Title: Executive Vice President and Chief Financial Officer 19