-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eywv0FQj2w4oKIg0zWvmmyDGPU3W8hHsU54v5IAk6UKRB495H0F7snkKNfVGp3HG gTde1UUCoEOkPZreAZBRlw== 0000912057-02-031790.txt : 20020814 0000912057-02-031790.hdr.sgml : 20020814 20020814103018 ACCESSION NUMBER: 0000912057-02-031790 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CCC INFORMATION SERVICES GROUP INC CENTRAL INDEX KEY: 0001017917 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 541242469 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28600 FILM NUMBER: 02732151 BUSINESS ADDRESS: STREET 1: WORLD TRADE CENTER CHICAGO STREET 2: 444 MERCHANDISE MART CITY: CHICAGO STATE: IL ZIP: 60654 BUSINESS PHONE: 3122224636 10-Q 1 a2085132z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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 August 14, 2002, 25,871,792 shares of CCC Information Services Group Inc. common stock, par value $0.10 per share, were outstanding. CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page(s) Item 1. Financial Statements Consolidated Interim Statement of Operations (Unaudited), 3 Three Months and Six Months Ended June 30, 2002 and 2001 Consolidated Interim Balance Sheet (Unaudited), 4 June 30, 2002 and December 31, 2001 Consolidated Interim Statement of Cash Flows (Unaudited), 5 Six Months Ended June 30, 2002 and 2001 Notes to Consolidated Interim Financial Statements (Unaudited) 6-12 Item 2. Management's Discussion and Analysis 13-19 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 EXHIBIT INDEX 24
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 Ended Six Months Ended June 30, June 30, -------- -------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenues $ 48,178 $ 46,128 $ 95,678 $ 93,518 Expenses: Production and customer support 7,564 8,639 14,710 17,948 Commissions, royalties and licenses 2,528 2,512 4,991 5,008 Selling, general and administrative 19,558 23,279 38,735 46,261 Depreciation and amortization 2,434 3,136 4,852 6,238 Product development and programming 6,894 9,319 13,980 17,062 Restructuring charges - 6,199 - 6,199 -------- -------- -------- -------- Total operating expenses 38,978 53,084 77,268 98,716 -------- -------- -------- -------- Operating income (loss) 9,200 (6,956) 18,410 (5,198) Interest expense (168) (1,188) (396) (2,439) Other income (expense), net (7) 401 210 687 Loss on investment securities and note - (27,595) - (27,595) CCC Capital Trust minority interest expense (461) (384) (909) (534) Equity in losses of ChoiceParts investment (50) (795) (342) (1,671) -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 8,514 (36,517) 16,973 (36,750) Income tax (provision) benefit (3,218) 17,957 (6,461) 18,062 -------- -------- -------- -------- Income (loss) from continuing operations before equity losses 5,296 (18,560) 10,512 (18,688) Equity in net income (losses) of affiliate - 79 - (2,613) -------- -------- -------- -------- Income (loss) from continuing operations 5,296 (18,481) 10,512 (21,301) Loss from discontinued operations, net of income taxes - - - (6,982) -------- -------- -------- -------- Net income (loss) $ 5,296 $(18,481) $ 10,512 $(28,283) ======== ======== ======== ======== Per Share Data - -------------- Income (loss) per common share - basic from: Continuing operations $ 0.21 $ (0.85) $ 0.41 $ (0.98) Discontinued operations - - - (0.32) -------- -------- -------- -------- Income (loss) per common share - basic $ 0.21 $ (0.85) $ 0.41 $ (1.30) ======== ======== ======== ======== Income (loss) per common share - diluted from: Continuing operations $ 0.20 $ (0.85) $ 0.40 $ (0.98) Discontinued operations - - - (0.32) -------- -------- -------- -------- Income (loss) per common share - diluted $ 0.20 $ (0.85) $ 0.40 $ (1.30) ======== ======== ======== ======== Weighted average shares outstanding: Basic 25,826 21,794 25,763 21,781 Diluted 26,767 21,794 26,468 21,781
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 SHARE AMOUNTS) (UNAUDITED)
June 30, December 31, 2002 2001 -------- -------- ASSETS Cash $ 768 $ 766 Accounts receivable (net of reserves of $2,497 and $2,288 at June 30, 2002 and December 31, 2001, respectively) 12,652 11,346 Income tax receivable 13,103 - Current portion deferred income taxes - 5,322 Other current assets 6,788 6,461 -------- -------- Total current assets 33,311 23,895 Property and equipment (net of accumulated depreciation of $30,254 and $25,376 at June 30, 2002 and December 31, 2001, respectively) 12,307 13,487 Goodwill 4,896 4,896 Deferred income taxes (net of valuation allowance of $11,489 at June 30, 2002 and December 31, 2001) 11,164 18,587 Investments 235 302 Other assets 1,546 1,027 -------- -------- Total Assets $ 63,459 $ 62,194 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Book overdraft $ 1,432 $ 1,205 Accounts payable and accrued expenses 30,002 36,228 Income taxes payable 2,095 - Current portion of long-term debt 807 421 Deferred revenues 5,193 6,297 -------- -------- Total current liabilities 39,529 44,151 Long-term debt 411 7,145 Deferred revenues 34 66 Other liabilities 3,559 3,737 Net liabilities of discontinued operations 475 536 -------- -------- Total Liabilities 44,008 55,635 -------- -------- Company obligated manditorily redeemable preferred securities of subsidiary trust holding solely company-guaranteed debentures 13,551 13,370 -------- -------- Common stock ($0.10 par value, 40,000,000 shares authorized, 25,860,637 and 25,503,567 shares outstanding at June 30, 2002 and December 31, 2001, respectively) 2,984 2,967 Additional paid-in capital 125,404 124,188 Accumulated deficit (75,075) (85,587) Accumulated other comprehensive loss (10) (10) Notes receivable from officer (1,200) - Treasury stock, at cost ($0.10 par value, 4,094,665 and 4,286,665 shares in treasury at June 30, 2002 and December 31, 2001, respectively) (46,203) (48,369) -------- -------- Total stockholders' equity (deficit) 5,900 (6,811) -------- -------- Total Liabilities and Stockholders' Equity (Deficit) $ 63,459 $ 62,194 ======== ========
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)
Six Months Ended June 30, -------- 2002 2001 -------- -------- Operating activities: Net income (loss) $ 10,512 $ (28,283) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Loss from discontinued operations, net of income taxes - 6,982 Loss on investment securities and note - 27,595 Restructuring charges - 6,199 Equity in losses of ChoiceParts 342 1,671 Equity in losses of Enterstand - 2,613 Depreciation and amortization of property and equipment 4,852 5,459 Amortization of goodwill - 751 CCC Capital Trust minority interest expense 909 534 Deferred income tax provision (benefit) 12,745 (17,228) Other, net 344 (247) Changes in: Accounts receivable, net (1,306) 3,468 Income tax receivable (13,103) (3,975) Other current assets 260 275 Other assets (519) 256 Accounts payable and accrued expenses (5,251) (14,939) Current income taxes 2,220 3,096 Deferred revenues (1,136) 983 Other liabilities (178) 113 -------- -------- Net cash provided by (used for) operating activities: Continuing operations 10,691 (4,677) Discontinued operations (61) (2,714) -------- -------- Net cash provided by (used for) operating actvities 10,630 (7,391) -------- -------- Investing activities: Capital expenditures (4,334) (2,253) Investment in affiliates (275) (5,422) Proceeds from sale of discontinued businesses - 631 Decrease in long-term notes receivable - 18 Other, net - 45 -------- -------- Net cash used for investing activities (4,609) (6,981) -------- -------- Financing activities: Principal repayments on long-term debt (28,500) (25,540) Proceeds from borrowings on long-term debt 22,000 26,540 Proceeds from exercise of stock options 1,089 38 Proceeds from employee stock purchase plan 194 303 Trust preferred and equity issuance costs - (1,990) Issuance of trust preferred securities and warrants - 15,000 CCC Capital Trust note interest payment (365) - Principal repayments of short-term note (234) - Principal repayments of capital lease obligations (203) (88) -------- -------- Net cash provided by (used for) financing activities (6,019) 14,263 -------- -------- Net increase (decrease) in cash 2 (109) Cash: Beginning of period 766 912 -------- -------- End of period $ 768 $ 803 ======== ======== Supplemental Disclosures: - ------------------------ Cash paid: Interest (199) (2,189) Income taxes, net of refunds (4,600) (185)
The accompanying notes are an integral part of these consolidated interim financial statements. 5 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS AND ORGANIZATION CCC Information Services Group Inc. ("CCCG"), incorporated in Delaware in 1983 and headquartered in Chicago, Illinois, is a holding company that operates through its wholly-owned subsidiary, CCC Information Services Inc. ("CCC") (collectively referred to as the "Company" or "we"), which now operates as one business segment, employing 840 full-time employees. 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 other related information into organized electronic workfiles. We develop, market and supply a variety of automobile claims services which enable customers in the automobile claims industry, including automobile insurance companies, collision repair facilities, independent appraisers, automobile dealers and consumers, to manage the automobile claims and vehicle restoration process. NOTE 2 - CONSOLIDATED INTERIM FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying consolidated interim financial statements as of and for the three and six months ended June 30, 2002 and 2001 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 Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission ("SEC"). 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 and six months ended June 30, 2002, options and warrants to purchase a weighted average number of 803,339 and 1,265,954 shares of common stock, respectively, were not included in the computations of diluted earnings per share because the options' and warrants' exercise prices were greater than the average market price of the common shares during the period. In addition, if the Company has net losses, options and warrants to purchase shares are not included in the computation of diluted earnings per share because the options and warrants, if included, would be antidilutive. CONTINGENCIES In the normal course of business, the Company is subject to various proceedings, lawsuits, claims and other matters. The Company believes the amounts provided in its consolidated financial statements, as prescribed by generally accepted accounting principles, are adequate in light of the probable and reasonably estimable liabilities. However, there can be no assurances that the actual amounts required to discharge alleged liabilities from various lawsuits, claims, legal proceedings and other matters will not exceed the amounts reflected in the Company's consolidated financial statements or will not have a material adverse effect on its consolidated results of operations, financial condition or cash flows. Any amounts of costs that may be incurred in excess of those amounts provided as of June 30, 2002 cannot currently be reasonably determined. 6 NOTE 3 - GOODWILL In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 became effective for the Company January 1, 2002. Under SFAS 142, goodwill is no longer amortized to earnings, but instead reviewed for impairment on at least an annual basis. The Company adopted SFAS 142 on January 1, 2002 and ceased the amortization of goodwill against earnings. In accordance with the implementation provisions of SFAS 142, the Company has completed the required transitional impairment analysis and has determined that there is no impairment in the value of goodwill. The adoption of SFAS 142 reduced amortization expense for the three and six months ended June 30, 2002, by $0.2 million and $0.4 million, respectively. On an annual basis through 2007, the Company expects the impact of SFAS 142 to reduce amortization expense by $0.8 million. Net income and earnings per share for the three months ended March 31, 2001 and June 30, 2001 and the six months ended June 30, 2001, adjusted to eliminate the historical amortization of goodwill, is as follows (in thousands except per share data):
THREE MONTHS THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED JUNE 30, ENDED JUNE 30, -------------- --------------- --------------- Net loss: As reported $ (9,802) $ (18,481) $ (28,283) Goodwill amortization 440 311 751 ---------- ---------- ---------- Adjusted net loss $ (9,362) $ (18,170) $ (27,532) ========== ========== ========== Per share loss - basic: As reported $ (0.45) $ (0.85) $ (1.30) Goodwill amortization 0.02 0.02 0.04 ---------- ---------- ---------- Adjusted per share loss - basic $ (0.43) $ (0.83) $ (1.26) ========== ========== ========== Per share loss - diluted: As reported $ (0.45) $ (0.85) $ (1.30) Goodwill amortization 0.02 0.02 0.04 ---------- ---------- ---------- Adjusted per share loss - diluted $ (0.43) $ (0.83) $ (1.26) ========== ========== ==========
7 NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS On August 15, 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is required for adoption for fiscal years beginning after June 14, 2002. The Company anticipates that the adoption of SFAS 143 will not have a significant effect on the Company's results of operations or its financial position. On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS is effective for fiscal years beginning after December 15, 2001. The objectives of SFAS 144 are to address the significant issues relating to the implementation of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), and to develop a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale, whether previously held or used or newly acquired. The Company's adoption of SFAS 144 on January 1, 2002 did not have a significant effect on the Company's results of operations or its financial position. On July 30, 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). The standard requires companies to recognize costs associated with exit or disposal activities at fair value, when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company anticipates that the adoption of SFAS 146 will not have a significant effect on the Company's results of operations or its financial position. NOTE 5 - 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 SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ ------------------ 2002 2001 2002 2001 ------ -------- ------- -------- (IN THOUSANDS) Net income (loss) $5,296 $(18,481) $10,512 $(28,283) Foreign currency translation adjustments -- (66) -- (158) ------ -------- ------- -------- Comprehensive income (loss) $5,296 $(18,547) $10,512 $(28,441) ====== ======== ======= ========
NOTE 6 - INVESTMENT IN CHANNELPOINT ChannelPoint, Inc. is an e-commerce exchange services and technology platform provider for insurance and benefits companies. As of June 30, 2002, the Company owned 5,036,634 shares, representing approximately 5.7%, on a fully diluted basis, of ChannelPoint's common stock. 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 7 - INVESTMENT IN CHOICEPARTS On May 4, 2000, the Company formed a new independent company, ChoiceParts, LLC ("ChoiceParts") with Automatic Data Processing, Inc. and The Reynolds and Reynolds Company. ChoiceParts develops and operates an electronic parts exchange for the auto parts marketplace for franchised auto retailers, collision repair facilities and other parts suppliers. The Company has a 27.5% equity interest in ChoiceParts. In February 2002, the Company funded an additional $0.3 million to ChoiceParts. Approximately $1.7 million of the commitment was still outstanding as of June 30, 2002 and while there are no specific plans to fund at this time, all or some of this commitment may be funded in 2002. The Company applies the equity method of accounting for its investment in ChoiceParts and recorded a charge of $0.1 million and $0.4 million related to the Company's share of the losses in ChoiceParts for the three months and six months ended June 30, 2002, respectively. Based on the nature of the Company's investment, the Company has 8 recorded a related income tax benefit on its share of the losses. Summary financial information for ChoiceParts for the three and six month periods ended June 30, 2002 was as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2002 2002 -------------- -------------- (IN THOUSANDS) Revenues $3,680 $ 7,268 ============== ============== Loss from operations $ (267) $(1,298) ============== ============== Net loss $ (266) $(1,286) ============== ==============
NOTE 8 - INFO4CARS In the fourth quarter of 2001, the Company recorded a loss of approximately $1.1 million in connection with the write-off of its investment in Info4cars.com Inc. ("Info4cars"), including a $0.8 million bad debt provision related to the notes receivable plus accrued interest. In March 2002, the Company received $0.5 million from Info4cars in full settlement of the loan obligations outstanding, which is included in "other income, net" in the consolidated interim statement of operations. In addition, the Company converted its 174 shares of Series A Convertible Preferred Stock to 43 shares of common stock representing 8% of the common stock outstanding. The carrying value of these shares of common stock on the Company's balance sheet is zero. NOTE 9 - RESTRUCTURING CHARGES In June 2001, the Company announced a set of strategic decisions as part of a company-wide effort to improve profitability. During the three and six months ended June 30, 2002, the Company paid $0.2 and $0.4 million, respectively, in severance and outplacement payments. As of June 30, 2002, $0.1 million of additional payments remain unpaid. The Company expects to pay the remaining amounts in 2002. During the fourth quarter of 2001, the Company recorded a charge of $4.3 million, net of expected future sublease income, to write-off excess office space in Chicago. The charge recorded is adequate as of June 30, 2002. NOTE 10 - DISCONTINUED OPERATIONS On April 19, 2001, the Company announced its decision to discontinue the operations of its CCC Consumer Services segment and completed the wind down of the operations of this segment in December 2001. During the first quarter of 2002, the remaining severance costs of $0.1 million were paid. In addition, the Company paid $0.1 million in other contractual commitments in the second quarter of 2002. As of June 30, 2002, $0.5 million of additional payments remain unpaid, which the Company expects to pay in 2002. Revenues and loss from discontinued operations were as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2002 2001 2002 2001 ------- ------- ------- ------- (In thousands) (In thousands) Revenues $-- $-- $-- $ 4,587 ======= ======= ======= ======= Loss before income taxes $-- $-- $-- $(1,920) Income tax benefit -- -- -- 931 Loss from operations -- -- -- (989) ------- ------- ------- ------- Loss on disposal -- -- -- (7,700) Income tax benefit -- -- -- 1,707 ------- ------- ------- ------- Net loss on disposal -- -- -- (5,993) ------- ------- ------- ------- Loss from discontinued operations, net of tax $-- $-- $-- $(6,982) ======= ======= ======= =======
9 The net liabilities of discontinued operations as of June 30, 2002 and December 31, 2001 consisted of the following:
JUNE 30, DECEMBER 31, 2002 2001 ---------- ---------- (IN THOUSANDS) Accounts receivable $ -- $ 114 Accounts payable and accruals (475) (650) ---------- ---------- Net liabilities of discontinued operations $(475) $(536) ========== ==========
NOTE 11 - LONG TERM DEBT On November 30, 2001, CCC entered into a $30 million credit facility agreement (the "Credit Facility") with two lenders from the previous credit facility. The Credit Facility matures on November 30, 2004. 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. During 2001, the Company entered into two separate agreements to lease software licenses. These leases, which are for 36 months and expire in early 2004, are classified as capital leases. In the first quarter of 2002, the Company entered into an insurance premium financing agreement. The term of the insurance policy covered by this agreement is 14 months and expires in April 2003. The Company financed $0.6 million at a annual rate of 4.19%. The agreement requires the Company to make ten equal installments beginning in March 2002 and ending in December 2002. Long-term debt consisted of the following:
JUNE 30, DECEMBER 31, 2002 2001 ------------- ------------- (IN THOUSANDS) Credit Facility $ -- $6,500 Financing agreement 354 -- Capital lease obligations 864 1,066 ------------- ------------- Total debt 1,218 7,566 Due within one year (capital lease) 453 421 Due within one year (financing agreement) 354 -- ------------- ------------- Due after one year $ 411 $7,145 ============= =============
NOTE 12 - CCC CAPITAL TRUST On February 23, 2001, CCC Capital Trust ("CCC Trust"), a business trust controlled by CCCG, issued 15,000 Trust Preferred Securities, which are presented on the consolidated interim balance sheet as "Company obligated manditorily 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 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. 10 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 is the Increasing Rate Note and any interest accrued thereon. The interest payment dates on the Increasing Rate Note correspond to the distribution dates on the Trust Preferred Securities. The Trust Preferred Securities mature simultaneously with the Increasing Rate Note. The Company has unconditionally guaranteed all of the Trust Preferred Securities to the extent of the assets of CCC Trust. The Increasing Rate Note is subordinated to the Company's bank debt. Cumulative distributions on the Trust Preferred Securities accrue at a rate of (i) 9% per annum, payable in cash or in kind at the Company's option, for the first three years from February 23, 2001 and (ii) 11% per annum, payable in cash, thereafter. The Trust Preferred Securities are mandatorily redeemable on February 23, 2006. In addition, all or any portion of the outstanding Trust Preferred Securities may be called for redemption at the option of the Company at any time on or after February 23, 2004. The redemption price for both the mandatory and the optional redemptions is equal to the liquidation amount of the Trust Preferred Securities plus accrued but unpaid distributions. On April 1 and July 1, 2002 the Company paid $0.4 million each, for the first and second quarterly interest payments. NOTE 13 - INCOME TAXES
JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- (IN THOUSANDS) Income tax receivable $ 13,103 $ -- Current portion of deferred income taxes -- 5,322 ---------- ----------- Total current income tax assets $ 13,103 $ 5,322 Deferred income tax assets $ 22,653 $ 30,076 Valuation allowance (11,489) (11,489) ---------- ----------- Total deferred income tax asset 11,164 18,587 ---------- ----------- Total income tax assets current and non-current $ 24,267 $ 23,909 ========== =========== Total current income taxes payable $ 2,095 $ -- ========== ===========
The increase in current income tax assets at June 30, 2002 is 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. As of June 30, 2002, the income tax receivable represents the expected refund of taxes paid in 1996, 1997, 1998 and 1999 when the operating losses incurred during 2001 were carried back to those prior years. During July 2002, the Company received this refund. For the three and six months ended June 30, 2002, the Company recorded an income tax provision based on income earned. NOTE 14 - LEGAL PROCEEDINGS The Company has pending against it a variety of putative class action suits and individual actions raising issues regarding the use of the Company's TOTAL LOSS valuation product by its insurance company customers. Many of these suits are brought by the same group or groups of plaintiffs' lawyers. Set forth below is a discussion of developments with respect to this litigation since the discussion in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and the Quarterly Report on Form 10-Q for the period ended March 31, 2002. On July 5, a complaint was filed against CCC and one of its insurance company customers in the Superior Court for the State of California, County of Alameda. ANDERSON v. CALIFORNIA STATE AUTOMOBILE ASS'N, CCC INFORMATION SERVICES INC., and DOES 1-100, Case Action No. 2002056932 (Superior Court for the State of California, County of Alameda) (filed July 5, 2002). The plaintiffs in the ANDERSON case allege that their insurer, using a valuation prepared by CCC, offered them an inadequate amount for their vehicle, which had been declared a total loss. On that basis, the plaintiffs assert claims against CCC for conspiracy to commit statutory consumer fraud and conspiracy to commit common law fraud. The plaintiffs seek to represent a class consisting of all persons who were insured under an automobile policy written by CSAA whose vehicle was declared a total loss for which CSAA's total loss valuation was based on a valuation report prepared by CCC. The plaintiff's seek restitution and/or disgorgement of revenues or profits, pre-judgment interest, unspecified damages, and an award of attorneys' fees and costs. In ALVAREZ-FLORES v. AMERICAN FINANCIAL GROUP, INC., ATLANTA CASUALTY CO., and CCC INFORMATION SERVICES INC., No. 99 CH 15032 (Circuit Court of Cook County, 11 Illinois) (filed October 19, 1999), on June 28, 2002, the plaintiff's claims against all defendants, including CCC, were dismissed without prejudice for failure to state a claim for relief. The plaintiff has until September 4, 2002, in order to file a second amended complaint. In STEPHENS v. THE PROGRESSIVE CORP., PROGRESSIVE PREFERRED INS. CO. and CCC INFORMATION SERVICES INC., No. 99 CH 15557 (Circuit Court of Cook County, Illinois) (filed October 28, 1999), on June 28, 2002, the plaintiff's claims against all defendants, including CCC, were dismissed with prejudice. In STOUDEMIRE v. METROPOLITAN GENERAL INSURANCE COMPANY, MET LIFE AUTO & HOME INSURANCE AND CCC INFORMATION SERVICES INC., Civil Action No. CV 01-3135-TSM (Circuit Court of Montgomery County, Alabama) (filed October 16, 2000), the case has been resolved and the plaintiffs' claims against CCC and its co-defendant shall be dismissed with prejudice. The resolution of this case will not have a material adverse impact on the Company's results of operations or financial condition. In WASHINGTON v CALIFORNIA STATE AUTOMOBILE ASSOCIATION, CCC INFORMATION SERVICES INC., and DOES 1-100, Case No. CGC-02-406786 (Superior Court for the State of California, City and County of San Francisco) (filed April 16, 2002), the plaintiffs filed an amended complaint on June 17, 2002 in which CCC was no longer named as a defendant. The plaintiffs' claims against CCC were dismissed without prejudice in or around March 2002 in each of the following cases pending in the Circuit Court of Madison County, Illinois: SCHOENLEBER v. PRUDENTIAL PROPERTY AND CASUALTY INC. CO. and CCC INFORMATION SERVICES INC., Case No. 01 L 99 (filed January 18, 2001); EDWARDS v. MID-CENTURY INS. CO. d/b/a FARMERS INS. AND CCC INFORMATION SERVICES INC., Case No. 01 L 151 (filed February 6, 2001); BORDONI v. CGU INS. GROUP d/b/a CGU INS. CO. OF ILLINOIS and CCC INFORMATION SERVICES INC., Case No. 01 L 157 (filed February 6, 2001); RICHARDSON v. PROGRESSIVE PREMIER INS. CO. OF ILLINOIS d/b/a PROGRESSIVE and CCC INFORMATION SERVICES INC., Case No. 01 L 149 (filed February 6, 2001); HUFF v. HARTFORD INS. CO. OF ILLINOIS d/b/a THE HARTFORD AND CCC INFORMATION SERVICES INC., Case No. 01 L 158 (filed February 6, 2001); KNACKSTEDT v. ST. PAUL FIRE AND MARINE INS. CO. and CCC INFORMATION SERVICES INC., Case No. 01 L 153 (filed February 6, 2001); MOORE v. SHELTER INS. COS. and CCC INFORMATION SERVICES INC., Case No. 01 L 160 (filed February 6, 2001). CCC intends to vigorously defend its interests in the lawsuits and claims to which it is a party and support its customers in other actions. Due to the numerous legal and factual issues that must be resolved during the course of litigation, CCC is unable to predict the ultimate outcome of any of these actions. If CCC were held liable in any of the actions (or otherwise concludes that it is in CCC's best interest to settle any of them), CCC could be required to pay monetary damages (or settlement payments). Depending upon the theory of recovery or the resolution of the plaintiff's claims for compensatory and punitive damages, or potential claims for indemnification or contribution by CCC's customers in any of the actions, these monetary damages (or settlement payments) could be substantial and could have a material adverse effect on CCC's business, financial condition or results of operations. During the fourth quarter of 2001, the Company recorded a pre-tax charge of $4.3 million, net of an expected insurance reimbursement of $2.0 million, as an estimate of the amount that CCC will contribute toward an anticipated settlement of certain of the claims relating to CCC's TOTAL LOSS valuation service. The charge recorded is adequate as of June 30, 2002, for the settlement of the claims covered thereby. Beyond that amount, the Company is unable to estimate the magnitude of its exposure, if any, at this time. As additional information is gathered and the litigations proceed, CCC will continue to assess its potential impact. 12 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our products and services include PATHWAYS collision estimating and appraisal solution products, TOTAL LOSS valuation services, information services products and workflow products. PATHWAYS COLLISION ESTIMATING AND APPRAISAL SOLUTION PRODUCTS PATHWAYS APPRAISAL SOLUTION AND PATHWAYS ESTIMATING SOLUTION. We developed PATHWAYS collision estimating software in 1995 to help automobile insurance companies, collision repair facilities and independent appraisers manage aspects of their day-to-day automobile claim activities, including receipt of new assignments, preparation of estimates, communication of status and completed activity and maintenance of notes and reports. The PATHWAYS platform allows customers to integrate our other services, including our DIGITAL IMAGING product, RECYCLED PARTS SERVICES and TOTAL LOSS valuation services, in order to organize individual claim information in electronic workfiles, which can be stored on our EZNET communications network, described in greater detail later in this section under "Workflow Products." Customers also use PATHWAYS collision estimating software to access databases of information gathered from various vendors. These databases include a database that provides local part availability and price information on aftermarket and reconditioned parts. Customers using PATHWAYS collision estimating software with RECYCLED PARTS SERVICES also have access to a database that provides local part availability and price information on recycled or salvage parts. We sell PATHWAYS Collision estimating software to automobile insurance companies, collision repair facilities and independent appraisers under multi-year contracts on a monthly subscription basis, which are billed to our customers one month in advance. PATHWAYS DIGITAL IMAGING. PATHWAYS DIGITAL IMAGING allows automobile insurance companies, collision repair facilities and independent appraisers to digitally photograph and transmit images of damaged vehicles to the PATHWAYS estimate workfile. These electronic images can be accessed by an authorized participant in the automobile claim process at any time and from any location that is web enabled. PATHWAYS DIGITAL IMAGING reduces the need for onsite inspections and eliminates film, photo processing, travel and overnight delivery costs. We sell PATHWAYS DIGITAL IMAGING to our customers as an integrated function within PATHWAYS Appraisal Solution or PATHWAYS Estimating Solution under multi-year contracts on a monthly subscription basis, which are billed to customers one month in advance. PATHWAYS ENTERPRISE SOLUTION AND PATHWAYS PROFESSIONAL ADVANTAGE. PATHWAYS ENTERPRISE SOLUTION is an automotive repair shop management software system for multiple location collision repair organizations that allows them to manage accounts, prepare employee schedules and perform various other management functions. PATHWAYS PROFESSIONAL ADVANTAGE, similar to PATHWAYS ENTERPRISE SOLUTION, is a shop management software system for a single store location. We sell PATHWAYS PROFESSIONAL ADVANTAGE and PATHWAYS ENTERPRISE SOLUTION to our customers under multi-year contracts on a monthly subscription basis, which are billed to customers one month in advance. 13 TOTAL LOSS VALUATION SERVICES TOTAL LOSS. Our TOTAL LOSS service is used primarily by automobile insurance companies in processing claims involving vehicles that have been heavily damaged or stolen. Typically, when the cost to repair a vehicle exceeds 70% to 90% of the vehicle's value, the automobile insurance company will declare that vehicle to be a "total loss." In such cases, we provide the insurer with the local market value of the vehicle to assist the insurer in processing the claim. We sell TOTAL LOSS to our customers, including those who are PATHWAYS collision estimating customers, on a per transaction basis. Customers are billed in the month following the transaction. INFORMATION SERVICES PRODUCTS CLAIMSCOPE NAVIGATOR is our next generation, on-line, Web-based information service that provides a comprehensive method to create management reports comparing industry and company performance using PATHWAYS collision estimating and TOTAL LOSS data. CLAIMSCOPE NAVIGATOR permits our customers to conduct in-depth analyses of claim information by parts and labor usage, cycle time measurements and vehicle type and condition. WORKFLOW PRODUCTS EZNET COMMUNICATIONS NETWORK. Our EZNET communications network is a central communications hub and repository for automobile insurance companies. The network allows customers to electronically communicate claim information, including assignments, work files, estimates, images and auditable estimate data, internally and among appraisers, collision repair facilities, reinspectors and other parties involved in the automobile claims process. EZNET allows customers to share information and review claims, regardless of the location. EZNET provides customers with an electronic library to catalog, organize and store completed claims files. We sell EZNET services to our customers under multi-year contracts and bill customers on both a per transaction basis and a monthly subscription basis. PATHWAYS APPRAISAL QUALITY SOLUTION is the first computerized solution that allows for electronic audits (QAAR PLUS) 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. We sell PATHWAYS APPRAISAL QUALITY SOLUTION to our customers on a subscription and/or per transaction basis under multi-year agreements. OTHER PRODUCTS AND SERVICES OTHER. Some of our other principal products and services include our Computerized Automobile Rental System and the leasing and selling of computer hardware. 14 RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001 The Company reported net income of $5.3 million, or $0.20 per share on a diluted basis, for the three months ended June 30, 2002, versus a net loss of $(18.5) million, or $(0.85) per share on a diluted basis, for the same quarter last year. Included in the prior year quarter was the loss from the write-off of the investment in ChannelPoint of $(27.6) million and the restructuring charge of $(6.2) million. OPERATING INCOME. Operating income increased quarter over quarter by $16.2 million due to a decrease in expenses of $14.1 million and an increase in revenues of $2.1 million. Our operating margin, (operating income (loss) as a percentage of revenue), increased to 19.1% for the quarter ended June 30, 2002 compared to (15.1%) in 2001. The increase in operating income and margin for the second quarter of 2002 was due primarily to a continued improvement in profitability resulting from our restructuring charge, which occurred in June 2001. As a result of the restructuring, the number of full-time employees has decreased by approximately 29% in 2002 over the prior year. Operating income for the second quarter last year also included an operating loss of $(2.9) million for CCC International, which was shut down in June 2001. REVENUES. Revenues for the second quarter 2002 were $48.2 million versus $46.1 million for the same quarter last year. Excluding revenues of $0.4 million from CCC International for the quarter ended June 30, 2001, revenues from our U.S. business in the second quarter 2002 increased $2.4 million, or 5.3%, compared to the same quarter last year. Revenues by major product groups in the U.S. include:
THREE MONTHS ENDED JUNE 30, --------------------- 2002 2001 ------- ------- Pathways Collision Estimating Products............................ $29,191 $27,217 Total Loss Valuation Services..................................... 11,398 11,876 Information Services.............................................. 273 130 Workflow Products................................................. 5,617 4,623 Other............................................................. 1,699 1,915 ------- ------- Total............................................................. $48,178 $45,761 ======= =======
Revenues from our PATHWAYS collision estimating products increased in the second quarter of 2002 by $2.0 million or 7.3% compared to the same quarter last year. This was led by an increase in the number of units due to new automotive collision repair customers and increased units from existing insurance company customers and to an increase in the number of PATHWAYS DIGITAL IMAGING product units used by our automotive collision repair customers. Revenues from our TOTAL LOSS valuation services decreased by $0.5 million or 4% from the second quarter of 2001 to the second quarter of 2002 due to lower transaction volumes. Revenues from our workflow products, which includes our EZNET communications network and our PATHWAYS APPRAISAL QUALITY SOLUTION, increased in the second quarter of 2002 by $1.0 million or 21.5% compared to the second quarter 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. The decrease in revenues from our other products and services, including our Computerized Automobile Rental System and the leasing of computer hardware, was due to a decrease in 15 transaction volume, a decrease in the number of units leased and a reduced price negotiated for a customer leasing hardware. PRODUCTION AND CUSTOMER SUPPORT. Production and customer support expenses decreased by 12.4% from $8.6 million for the three months ended June 30, 2001, or 18.7% of revenues, to $7.6 million, or 15.7% of revenues. These expenses decreased by $0.3 million as a result of our shut down of CCC International, $0.3 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 $0.4 million from the DriveLogic support department eliminated in June 2001 as part of restructuring. COMMISSION, ROYALTIES AND LICENSES. Commission, royalties and licenses were $2.5 million for both the three months ended June 30, 2002 and June 30, 2001. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses decreased by 16.0% from $23.3 million, or 50.5% of revenues, for the three months ended June 30, 2001, to $19.5 million, or 40.6% of revenues, for the three months ended June 30, 2002. These expenses decreased primarily as a result of investments made in the second quarter of 2001 in DriveLogic, when DriveLogic was operated as a separate business unit. Another contributing factor was lower communication expenses of $0.6 million due to renegotiated rates and reduced usage. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses decreased by 22.4% from $3.1 million, or 6.8% of revenues, for the three months ended June 30, 2001, to $2.5 million, or 5.1% of revenues, for the three months ended June 30, 2002. Depreciation and amortization decreased as a result of fewer investments in computer equipment and our adoption in January 2002 of SFAS 142, which ceased the amortization of goodwill against earnings. PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming expenses decreased by 26.0% from $9.4 million, or 20.2% of revenues, for the three months ended June 30, 2001, to $6.9 million, or 14.3% of revenues, for the three months ended June 30, 2002. The decrease was due to lower development expenses, resulting from the consolidation of our DriveLogic business unit and the associated reduction-in-force. 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. INTEREST EXPENSE. Interest expense decreased from $1.1 million for the three months ended June 30, 2001 to $0.2 million for the three months ended June 30, 2002 driven by a lower level of borrowings, a decrease in interest rates charged and lower amortization of deferred financing fees related to our Credit Facility. The lower level of borrowings was due primarily to the utilization of net proceeds of $18.1 million from a rights offering in December 2001 to reduce our outstanding debt, in addition to the cash generated from operations associated with increased profitability. In April 2002, we repaid the remaining balance on our Credit Facility and had no borrowings during May and June of 2002. MINORITY INTEREST EXPENSE. We recorded minority interest expense of $0.5 million for the three months ended June 30, 2002 versus $0.3 million for the same quarter last year. The interest is associated with the issuance on February 23, 2001 of the Trust Preferred Securities to Capricorn Investors III, L.P. The minority interest expense represents Capricorn Investors III, L.P.'s share of CCC Trust's income. LOSS ON INVESTMENT SECURITIES AND NOTE. We recorded a loss in the second quarter of 2001 of approximately $27.6 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 16 evaluation of the collectibility of the note and the review of our carrying value of the ChannelPoint common stock. Subsequently, in the fourth quarter of 2001, we received $0.5 million from ChannelPoint in full settlement of the loan obligations outstanding. EQUITY IN LOSSES OF CHOICEPARTS. We recorded a charge of $0.1 million for the three months ended June 30, 2002 related to our 27.5% share of the losses in ChoiceParts compared to a charge of $0.8 million for the same period last year. INCOME TAXES. Income taxes increased from a benefit of $18.0 million, or 49.2% of the loss from continuing operations before taxes for the three months ended June 30, 2001, to an income tax provision of $3.3 million, or 37.8% of income before taxes for the same period this year. The dollar increase was mainly attributable to higher pretax income. EQUITY IN NET INCOME (LOSSES) OF AFFILIATE. In conjunction with our decision to shut down CCC International, in May 2001, we ceased funding the operating losses of Enterstand Limited ("Enterstand"), a joint venture established in 1998 between Hearst Communications and CCC International. As a result, the operations of Enterstand ceased and we stopped recording the losses of Enterstand. SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 The Company reported net income of $10.5 million, or $0.40 per share on a diluted basis, for the six months ended June 30, 2002, versus a net loss of $(28.3) million, or $(1.30) per share on a diluted basis, for the same period last year. Included in the prior year net loss was the loss from discontinued operations from the former CCC Consumer Services segment of $(7.0) million, net of income taxes, or $(0.32) per share, the loss from the write-off of the investment in ChannelPoint of $(27.6) million and the restructuring charge of $(6.2) million. OPERATING INCOME. Operating income increased period over period by $23.6 million due to a decrease in expenses of $21.4 million and an increase in revenues of $2.2 million. Our operating margin, (operating income (loss) as a percentage of revenue), increased to 19.2% for the period ended June 30, 2002 compared to (5.6%) in 2001. The increase in operating income and margin for the six months ended 2002 was due primarily to a continued improvement in profitability resulting from our restructuring charge, which occurred in June 2001. As a result of the restructuring, the number of full-time employees has decreased by approximately 29% in 2002 over the prior year. Operating income for the six months ended June 30, 2001 included an operating loss of $(3.4) million for CCC International, which was shut down in June 2001. REVENUES. Revenues for the six months ended 2002 were $95.7 million versus $93.5 million for the same period last year. Excluding revenues of $1.4 million from CCC International for the period ended June 30, 2001, revenues from our U.S. business in the six months ended June 30, 2002 increased $3.6 million, or 3.9%, compared to the same period last year. Revenue by major product groups in the U.S. include:
SIX MONTHS ENDED JUNE 30, ------------------------- 2002 2001 ----------- ----------- Pathways Collision Estimating Products............................ $57,712 $53,948 Total Loss Valuation Services..................................... 22,837 24,334 Information Services.............................................. 570 247 Workflow Products................................................. 11,008 9,337 Other............................................................. 3,551 4,289 ----------- ----------- Total............................................................. $95,678 $92,155 =========== ===========
17 Revenues from our PATHWAYS collision estimating products increased in the six months ended June 30, 2002 by $3.8 million or 7.0% compared to the same period of 2001. This was led by an increase in the number of units due to new automotive collision repair customers and increased units from existing insurance company customers and due to an increase in the number of PATHWAYS DIGITAL IMAGING product units used by our automotive collision repair customers. Revenues from our TOTAL LOSS valuation services decreased by $1.5 million or 6.2% from the six months ended June 30, 2001 compared to the same period of 2002 due to lower transaction volumes. Revenues from our workflow products, which includes our EZNET communications network and our PATHWAYS APPRAISAL QUALITY SOLUTION, increased in the six months ended June 30, 2002 by $1.7 million or 17.9% 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. The decrease in revenues from our other products, including the Computerized Automobile Rental System and the leasing of computer hardware, was due to a decrease in transactions volume, a decrease in the number of units leased and a reduced price negotiated for a customer leasing hardware. PRODUCTION AND CUSTOMER SUPPORT. Production and customer support expenses decreased by 18.0% from $17.9 million for the six months ended June 30, 2001, or 19.2% of revenues, to $14.7 million, or 15.4% of revenues. These expenses decreased by $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 $0.4 million from the DriveLogic support department eliminated in June 2001 as part of restructuring. COMMISSION, ROYALTIES AND LICENSES. Commission, royalties and licenses were $5.0 million for both the six months ended June 30, 2002 and June 30, 2001. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses decreased by 16.3% from $46.3 million, or 49.5% of revenues, for the six months ended June 30, 2001, to $38.7 million, or 40.5%, of revenues for the six months ended June 30, 2002. These expenses decreased primarily as a result of investments made in the first half of 2001 in DriveLogic, when DriveLogic was operated as a separate business unit. Another contributing factor was lower communication expenses of $0.9 million due to renegotiated rates and reduced usage. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses decreased by 22.2% from $6.2 million, or 6.7% of revenues, for the six months ended June 30, 2001, to $4.9 million, or 5.1% of revenues, for the six months ended June 30, 2002. Depreciation and amortization decreased as a result of fewer investments in computer equipment and our adoption in January 2002 of SFAS 142, which ceased the amortization of goodwill against earnings. PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming expenses decreased by 18.1% from $17.1 million, or 18.2% of revenues, for the six months ended June 30, 2001, to $14.0 million, or 14.6% of revenues, for the six months ended June 30, 2002. The decrease was due to lower development expenses, resulting from the consolidation of our DriveLogic business unit and the associated reduction-in-force. 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. 18 INTEREST EXPENSE. Interest expense decreased from $2.4 million for the six months ended June 30, 2001 to $0.4 million for the six months ended June 30, 2002 driven by a lower level of borrowings, a decrease in interest rates charged and lower amortization of deferred financing fees related to our Credit Facility. The lower level of borrowings was due primarily to the utilization of net proceeds of $18.1 million from a rights offering in December 2001 to reduce our outstanding debt, in addition to the cash generated from operations associated with increased profitability. In April 2002, we repaid the remaining balance on our Credit Facility and had no borrowings during May and June of 2002. MINORITY INTEREST EXPENSE. We recorded minority interest expense of $0.9 million for the six months ended June 30, 2002 versus $0.5 million for the same period last year. The interest is associated with the issuance on February 23, 2001 of the Trust Preferred Securities to Capricorn Investors III, L.P. The minority interest expense represents Capricorn Investors III, L.P.'s share of CCC Trust's income. LOSS ON INVESTMENT SECURITIES AND NOTE. We recorded a loss in the second quarter of 2001 of approximately $27.6 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. Subsequently, in the fourth quarter of 2001, we received $0.5 million from ChannelPoint in full settlement of the loan obligations outstanding. EQUITY IN LOSSES OF CHOICEPARTS. We recorded a charge of $0.4 million for the six months ended June 30, 2002 related to our 27.5% share of the losses in ChoiceParts compared to a charge of $1.7 million for the same period last year. INCOME TAXES. Income taxes increased from a benefit of $18.1 million, or 49.1% of the loss from continuing operations before taxes for the six months ended June 30, 2001, to an income tax provision of $6.5 million, or 38.1% of income before taxes for the same period this year. The dollar increase was mainly attributable to higher pretax income. EQUITY IN NET INCOME (LOSSES) OF AFFILIATE. In conjunction with our decision to shut down CCC International, in May 2001, we ceased funding the operating losses of Enterstand Limited ("Enterstand"), a joint venture established in 1998 between Hearst Communications and CCC International. As a result, the operations of Enterstand ceased and we stopped recording the losses of Enterstand. LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 2002, net cash provided by operating activities was $9.7 million, proceeds received from the exercise of stock options was $1.1 million and proceeds from the employee stock purchase plan was $0.2 million. The Company used $6.5 million, net, for repayment of CCC's Credit Facility, $4.3 million for the purchase of equipment and software, and $0.3 million for an investment in ChoiceParts. As of June 30, 2002, the Company is committed to fund an additional $1.7 million to ChoiceParts, and while there are no specific plans to fund at this time, all or some of this commitment may be funded in 2002. Our principal liquidity requirements consist of our operating activities, including product development, our investments in internal and customer capital equipment and funding requirements for our ChoiceParts investment. CCC has 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. CCC invoices each customer one month in advance for the following month's PATHWAYS collision estimating software services. As such, CCC typically receives cash from its customers prior to recognizing the revenue and incurring the expense for the services provided. These amounts are reflected as deferred revenue in the consolidated balance sheet until these amounts are earned and recognized as revenues. Management believes that cash flows from operations and borrowings available under the Credit Facility will be sufficient to meet our liquidity needs for the year ending December 31, 2002. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Our contractual obligations under capital leases, operating leases and a financing agreement are summarized below:
Total 2002 2003 2004 2005 2006 Thereafter ------- ------ ------ ------ ----- ------ ---------- Capital lease obligations..... $ 864 $ 218 $ 487 $ 159 $ -- $ -- $ -- Financing agreement........... $ 354 $ 354 $ -- $ -- $ -- $ -- $ -- Operating leases.............. $30,003 $4,385 $8,606 $6,108 $3,342 $2,668 $4,894
19 FORWARD-LOOKING STATEMENTS In addition to historical facts or statements of current condition, this report contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. These may include statements regarding market prospects for our products, sales and earnings projections, and other statements regarding matters that are not historical facts. Some of these forward-looking statements may be identified by the use of words in the statements such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," or other words and terms of similar meaning. Our performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the technology industry as well as more specific risks and uncertainties such as those set forth above and in this report. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such forward-looking statements. Furthermore, we do not intend, nor are we obligated, to update publicly any forward-looking statements. This discussion is permitted by the Private Securities Litigation Reform Act of 1995. 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-1 filed with the SEC on August 16, 1996 and the Company's 2001 Annual Report on Form 10-K filed on March 26, 2002. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Due to the shut down of our operations in the United Kingdom, 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information provided in Note 14 to the financial statements contained in Part I of this form 10-Q is incorporated herein by reference. 20 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of the stockholders of the Registrant was held on May 16, 2002. (b) The directors listed in the Registrant's Proxy Statement dated April 17, 2002, were elected to serve until the earlier of the next Annual Meeting of Stockholders or until their respective successors have been elected and qualified, as follows:
DIRECTOR FOR WITHHELD -------- --- -------- Morgan W. Davis 23,260,746 1,319,122 Michael R. Eisenson 23,492,102 1,087,766 Thomas L. Kempner 24,349,092 230,776 Dudley C. Mecum 23,444,933 1,134,935 Githesh Ramamurthy 23,431,790 1,148,078 Mark A. Rosen 23,496,514 1,083,354 Herbert S. Winokur 23,428,630 1,151,238
(c) Appointment of PricewaterhouseCoopers LLP as the Company's independent auditors was approved. Voting by stockholders on the proposal was 24,345,582 for, 228,983 against and 5,303 withheld. 21 ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Statement Re: Computation of Per Share Earnings (b) Reports on Form 8-K None. 22 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: August 14, 2002 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 23 EXHIBIT INDEX 11 Statement Re: Computation of Per Share Earnings 24
EX-11 3 a2085132zex-11.txt COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 -------- -------- -------- -------- Per share income (loss) from continuing operations: Income (loss) from continuing operations $ 5,296 $(18,481) $ 10,512 $(21,301) ======== ======== ======== ======== Weighted average common shares outstanding: Shares attributable to common stock outstanding 25,826 21,794 25,763 21,781 Shares attributable to common stock equivalents outstanding 941 - 705 - -------- -------- -------- -------- 26,767 21,794 26,468 21,781 ======== ======== ======== ======== Per share income (loss) from continuing operations--basic $ 0.21 $ (0.85) $ 0.41 $ (0.98) ======== ======== ======== ======== Per share income (loss) from continuing operations--diluted $ 0.20 $ (0.85) $ 0.40 $ (0.98) ======== ======== ======== ======== Per share loss from discontinued operations: Loss from discontinued operations $ - $ - $ - $ (6,982) ======== ======== ======== ======== Weighted average common shares outstanding: Shares attributable to common stock outstanding 25,826 21,794 25,763 21,781 Shares attributable to common stock equivalents outstanding 941 - 705 - -------- -------- -------- -------- 26,767 21,794 26,468 21,781 ======== ======== ======== ======== Per share loss from discontinued operations--basic $ - $ - $ - $ (0.32) ======== ======== ======== ======== Per share loss from discontinued operations--diluted $ - $ - $ - $ (0.32) ======== ======== ======== ======== Net income (loss) $ 5,296 $(18,481) $ 10,512 $(28,283) ======== ======== ======== ======== Weighted average common shares outstanding: Shares attributable to common stock outstanding 25,826 21,794 25,763 21,781 Shares attributable to common stock equivalents outstanding 941 - 705 - -------- -------- -------- -------- 26,767 21,794 26,468 21,781 ======== ======== ======== ======== Per share net income (loss)--basic $ 0.21 $ (0.85) $ 0.41 $ (1.30) ======== ======== ======== ======== Per share net income (loss)--diluted $ 0.20 $ (0.85) $ 0.40 $ (1.30) ======== ======== ======== ========
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