CCC INFORMATION SERVICES GROUP INC - 10-K Annual Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

As of June 30, 2004, the aggregate market value of the registrant's common stock held by non-affiliates was approximately $156,215,860, based upon the closing sales price of the registrant's common stock reported for such date on the NASDAQ National Market. For purposes of this calculation, all directors, executive officers and holders of more than 5% of the registrant's outstanding common stock as of such date were deemed to be "affiliates" of the registrant.


		Page
	PART I
Item 1.	Business	1
	Organization	1
	Public Filings	1
	Employees	1
	Products and Services	2
	Sales and Marketing	6
	Training and Support	6
	Customers	6
	ChoiceParts Joint Venture	6
	Intellectual Property and Licenses	7
	Competition	8
	Regulation	8
	Research and Development	9
	Certain Risks Related to Our Business	9
Item 2.	Properties	11
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
	PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	12
Item 6.	Selected Financial Data	13
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	26
Item 8.	Financial Statements and Supplementary Data	26
Item 9.	Changes in and Disagreements with Auditors on Accounting and Financial Disclosure	26
Item 9A.	Controls and Procedures	27
Item 9B.	Other Information	27
	PART III
Item 10.	Directors and Executive Officers of the Registrant	28
Item 11.	Executive Compensation	28
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	28
Item 13.	Certain Relationships and Related Transactions	28
Item 14.	Principal Accounting Fees and Services	28
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	29

Signatures		65
Directors and Executive Officers		66
Corporate Information		67

In addition to historical facts or statements of current conditions, this Annual Report on Form 10-K for the year ended December 31, 2004 ("Form 10-K") contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. These may include statements regarding market prospects of our products, sales and earnings projections, and other statements regarding matters that are not historical facts. Some of these forward-looking statements may be identified by the use of words in the statements such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," or other words and terms of similar meaning. Our performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the technology and insurance industries as well as more specific risks and uncertainties such as those set forth elsewhere in the Form 10-K. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such forward-looking statements. Furthermore, we do not intend, nor are we obligated, to update publicly any forward-looking statements. Risks that we anticipate are discussed in more detail in the section entitled Item 1. “Business - Certain Risks Related to Our Business." This discussion is permitted by the Private Securities Litigation Reform Act of 1995.

CCC Information Services Group Inc. ("CCCG"), incorporated in Delaware in 1983 and headquartered in Chicago, Illinois, is a holding company, which operates through its wholly owned subsidiary, CCC Information Services Inc. ("CCC"). CCC and CCCG are collectively referred to herein as the "Company" or "we.." We automate the process of evaluating and settling automobile claims, which allows our customers to integrate estimate information, labor time and cost, recycled parts and various other calculations derived from our extensive databases, electronic images, documents and related information into organized electronic workfiles. We develop, market and supply a variety of automobile claim products and services which enable customers in the automobile claims industry, including automobile insurance companies, collision repair facilities, independent appraisers and automobile dealers, to manage the automobile claim and vehicle restoration process.

Our principal executive office is located at World Trade Center Chicago, 444 Merchandise Mart, Chicago, Illinois 60654. Our telephone number is (312) 222-4636 and our Internet home page is located at www.cccis.com; however, the information in, or that can be accessed through, our home page is not part of this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, if any, are available free of charge on our Internet home page as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC").

Our products and services fall into five categories or “suites”: CCC Pathways® Products and Services, CCC Valuescope® Products and Services, Workflow Products, Information Services and Other Products and Services. Each of these product and service suites is described below. Our principal products and services are CCC Pathways collision estimating software, CCC Valuescope Claim Services and Workflow Products. Revenues from CCC Pathways represented 62.8%, 61.1% and 60.6% of our consolidated revenues for the years ended December 31, 2004, 2003, and 2002, respectively. Revenues from CCC Valuescope represented 21.0%, 21.8% and 23.7% of our consolidated revenues for the years ended December 31, 2004, 2003 and 2002, respectively. Revenues from Workflow Products represented 13.0%, 13.5% and 11.8% of our consolidated revenues for the years ended December 31, 2004, 2003 and 2002, respectively.

CCC has long been a leader and innovator in the automotive claims and collision repair market. CCC customers include approximately 21,000 collision repair-facilities, located in all 50 states, and over 350 insurance company installations in the United States. We have also pioneered value-added network communications between industries involved in claims settlement, and today our EZNet® communications network handles an average of over 1 million claims-related transactions each business day. CCC Valuescope is also an established market leader. We continue to seek products and services to anticipate and respond to changing demands in the auto-claims industry.

CCC Pathways Solutions 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 CCC Pathways platform allows customers to integrate our other services, including CCC Pathways Digital Imaging, Recycled Parts Services and CCC Valuescope, in order to organize individual claim information in electronic workfiles, which can be stored either via our EZNet communications network or our CCC Autoverse® workflow solution, both of which are described later in this section under "Workflow Products."

CCC Pathways gives customers access to the MOTOR Crash Estimating Guides prepared by Motor Information Systems, a unit of Hearst Business Publishing, Inc. ("Hearst"). These guides provide pricing, labor and refinishing information for original equipment manufacturer parts and recycled assemblies and we use it to create a database of parts, price and labor time for various repairs. An exclusive license from Hearst that expires in 2021 permits us to publish these guides electronically, which is an integral component of CCC Pathways. For more information about this license, please see the description later in this section under Item 1. “Business - Intellectual Property and Licenses."

Customers also use CCC Pathways to access databases of information gathered from various vendors. These databases include a compilation of data from over 1,693 sources on local part availability and price information on aftermarket and reconditioned parts, as well as information on pricing and availability of over 17,495 tire models from 24 different manufacturers. Customers using CCC Pathways with Recycled Parts Services also have access to a database that provides local part availability and price information on over 32.2 million available recycled or salvaged parts. For example, a customer may access the database of recycled or salvaged parts to determine if a specific recycled part is available from an identified vendor in his region and to ascertain the price of that part. If the customer selects that part for use in the repair process, CCC Pathways integrates that choice into the estimate workfile.

CCC Pathways Digital Imaging. Imaging integration allows automobile insurance companies, collision repair facilities and independent appraisers to attach digital images of damaged vehicles to the CCC Pathways estimate workfile and transmit images with the workfile. These electronic images can be accessed by any authorized participant in the automobile claim process at any time and from any web enabled location. CCC Pathways Digital Imaging reduces the need for onsite inspections and eliminates film, photo processing, travel and overnight delivery costs.

Comp-Est Estimating Solution is our collision estimating software that targets smaller repair facilities that do not communicate electronically with insurance companies. This product also allows our customers to access the MOTOR Crash Estimating Guides and provides them with the ability to generate estimates and supplements. We sell Comp-Est Estimating Solution to our customers generally under annual contracts and bill them on a monthly subscription basis one month in advance.

CCC Valuescope. Our CCC Valuescope services are used primarily by automobile insurance companies and independent appraisers in processing claims involving private passenger vehicles that have been heavily damaged or stolen. Typically, when the cost to repair a vehicle exceeds 70% to 90% of the vehicle's value, the automobile insurance company will declare that vehicle to be a "total loss." In such cases, we provide the insurer or independent appraiser with the local market value of the vehicle to assist in processing the claim. Our values are based on local market data that identifies the location and price of comparable vehicles. To compile this data, CCC representatives survey over 4,400 car dealerships in more than 350 markets at least twice each month to obtain detailed information about the vehicles on the dealerships' used car lots. We also subscribe to more than 1,800 local newspapers and other publications and use information from the classified advertisements to provide additional information on vehicle availability and pricing. We believe our CCC Valuescope database is among the most current and comprehensive vehicle databases in North America. Each CCC Valuescope market report also includes a vehicle identification search under VINguard, which matches a current vehicle claim against our database of previously totaled or stolen vehicles to identify potential duplication or possible fraud.

Customers of CCC Valuescope who are also customers of CCC Pathways may access the CCC Valuescope program electronically using CCC Pathways software. Customers may also obtain CCC Valuescope valuations from us by telephone, e-mail or facsimile. Our TL2000 Solution® product allows customers to submit CCC Valuescope valuation requests and retrieve CCC Valuescope market valuation reports through the Internet via secured access. In addition, our customers' insureds and claimants can access their own vehicle valuation reports via the Internet. Customers may store CCC Valuescope valuations on our EZNet communications network as part of a claims workfile.

Commercial and Recreational Vehicle Valuation Services ("CRV"). CRV is the Company's CCC Valuescope valuation service for commercial and recreational vehicles. CRV provides valuations for specialty vehicles including trucks, semi-trailers, marine craft, motorcycles, recreational vehicles and pre-fabricated housing.

CCC Autoverse. Our CCC Autoverse® products include CCC Autoverse® Claim Management (for insurance customers), CCC Autoverse Repair Management (for multiple-location repair facilities) and CCC Autoverse® Appraiser Management (for independent appraiser customers). CCC Autoverse is a web-based open workflow solution that allows for the exchange of claims information derived from using CCC Pathways products as well as other established collision estimating systems that meet the Collision Industry Electronic Commerce Association Estimating Management System standard. CCC Autoverse products facilitate the secure flow of information between those who write damage estimates and insurers who process claims.

CCC Autoverse Claim Management enables an insurance adjuster to review estimates as well as digital images, supplements, claim summary reports and other documents associated with the claim. In addition, CCC Autoverse Claim Management allows the insurance adjuster to review events, enter new assignments and request and record payment information. CCC Autoverse Claim Management also provides reporting for assignment status.

CCC Autoverse Repair Management enables a CCC Pathways user or non-user repair facility operator to receive assignments into a central location from multiple insurance carriers. Through the CCC Autoverse dispatch feature, multi-location repair facilities are able to balance workloads among numerous locations. This permits a multi-location operator to reduce its cycle time and improve shop utilization.

EZNet Communications Network. Our EZNet communications network is a secure network that allows clients to communicate estimates and claim information electronically. Our customers can access our EZNet communications network in various ways, including dedicated data lines and/or telephone lines via modems, as well as over the Internet. We also use our EZNet communications network to offer to our customers various electronic direct repair services such as dispatch of assignment information, estimate and supplement retrieval and electronic review of automobile appraisals. The network allows customers to electronically communicate claim information, including assignments, workfiles, estimates, images and auditable estimate data, internally and among insurance company appraisers, collision repair facilities, independent appraisers, insurance company reinspectors and other parties involved in the automobile claims process. The EZNet communications network allows customers to share information and review claims, regardless of their location and provides them with an electronic library to catalog, organize and store completed claims files.

After completing an estimate, the customer may store the estimate information on our EZNet communications network in the electronic library. For example, a remote claims adjuster in New York may prepare an estimate using CCC Pathways and store the completed estimate on EZNet. The adjuster's supervisor and other members of the claim team in California can access the estimate through our EZNet communications network on a confidential basis using a claim reference number.

CCC Accumark™ Reinspection. CCC Accumark Reinspection allows for online access to automobile repair estimates and other claim folder contents to perform reinspections. CCC Accumark Reinspection enables insurance companies to establish sophisticated filters, customized to their business, to prioritize claim files for review and assist the reinspector in monitoring compliance with the insurance company’s reinspection objectives. Additionally, the reinspector can redline the estimate and communicate with the estimate writer to facilitate corrections to the estimate.

CCC Pathways Quality Advisor and Quality Advisor Appraisal Review (QAAR Plus™). QAAR Plus allows for electronic audits of automobile repair estimates prepared by direct repair facilities, independent appraisers and internal insurance staff for quality control and for identification and correction of errors or discrepancies prior to the completion of repairs. In addition, CCC Pathways Quality Advisor allows automobile insurance companies to use available historical data to track the performance of appraisers and provides a mechanism to establish and monitor compliance with certain reinspection objectives developed by the automobile insurance company. For example, CCC Pathways Quality Advisor allows an insurance company to establish certain criteria for reviewing the preparation of estimates, which in turn allows the insurance company to determine if an appraiser prepared an estimate that meets insurance company's guidelines.

CCC Intellisphere™. CCC Intellisphere is our next generation, online web-based information service that provides access to create and distribute industry and company claims data. CCC Intellisphere provides our customers with flexible methods to access claims data and analyze certain key performance metrics, including parts and labor usage, adherence to company established estimating guidelines, valuation results and vehicle disposition.

ClaimScope® Navigator. ClaimScope Navigator is our online, web-based information service that provides a comprehensive method to create management reports comparing industry and company performance using CCC Pathways and CCC Valuescope data. ClaimScope Navigator permits our customers to conduct in-depth analyses of claim information by parts and labor usage, cycle time measurements and vehicle type and condition.

Pathways Enterprise Solution® and Pathways Professional Advantage®. Pathways Enterprise Solution is an automotive repair facility management software system that allows multiple location collision repair facilities to manage accounts, prepare employee schedules and perform various other management functions. Pathways Professional Advantage, similar to Pathways Enterprise Solution, is a repair facility management software system for a single store location.

All of our services are currently sold throughout the United States. Our sales and marketing strategy is to strengthen our relationships with existing customers and to expand our current customer base by providing efficient, integrated and value-added services in the automobile claims industry. We utilize approximately 150 sales and service professionals to market and implement our services.

Our training and support staff, which consists of approximately 100 employees, provides basic training in the field, advanced training courses, telephonic technical support and implementation services. Our training and support staff consists of individuals with technical knowledge relating not only to CCC software and services, operating systems and network communications, but also to new and used automobile markets and collision repair. We routinely analyze customer calls to modify services or training and, whenever necessary, will dispatch a field representative to a customer's location.

We provide our products and services primarily to automobile insurance companies and collision repair facilities. Our insurance company customers include most of the largest United States automobile insurance companies and small to medium size automobile insurance companies serving regional or local markets. CCC services approximately 21,000 collision repair-facilities, located in all 50 states, and over 350 insurance company installations in the United States. We bill our customers for our products and services based on either a monthly subscription or a per-transaction basis. No single customer accounted for more than 5.0% of our total revenues in any of the last three fiscal years.

On May 4, 2000, we formed an independent company, ChoiceParts, LLC ("ChoiceParts") with Automatic Data Processing Inc. ("ADP") and The Reynolds and Reynolds Company ("Reynolds") to provide electronic parts location and procurement services to collision repair facilities. We have a 27.5% equity interest in ChoiceParts. See Note 6, "Investment in ChoiceParts, LLC" in our consolidated financial statements.

Our competitive advantage primarily depends on our proprietary technology. We rely on a combination of patents, contracts, intellectual property laws, confidentiality agreements and software security measures to protect our proprietary rights. We distribute our services under written license agreements, which grant our customers a license to use our products and services and contain provisions to protect our ownership and the confidentiality of the underlying technology. We also require all of our employees and other parties with access to our confidential information to sign agreements prohibiting the unauthorized use or disclosure of our technology.

We have registered names, trademarks and slogans used in connection with virtually all of our products and services, which we use in the advertising and marketing of our products and services. CCC Pathways and CCC are well-known marks within the automobile insurance and collision repair industries. We have patents for our collision estimating service pertaining to the comparison and analysis of the "repair or replace" and the "new or used" parts decisions. In 1999, we received a patent covering the CCC Pathways method for managing insurance claim processing. Although we do not have a patent concerning the CCC Valuescope calculation process, the processes involved in this program are our trade secrets and are essential to our CCC Valuescope business. Despite these precautions, we believe that existing laws provide only limited protection for our technology. A third party may misappropriate our technology or independently develop similar technology. Additionally, it is possible other companies could successfully challenge the validity or scope of our patents, diminishing the competitive advantage that our patents may provide.

We license certain data used in our services from third parties to whom we pay royalties. With the exception of the MOTOR Crash Estimating Guides, which we license from a unit of Hearst, we do not believe that our services are significantly dependent upon licensed data that cannot be obtained from other vendors. Although we have licensed the estimating guides from Hearst through 2021, we do not have access to an alternative database that would provide comparable information in the event the license is terminated. Hearst may terminate the license if any of the following events occur: (1) we fail to make payment of license fees, royalties and other charges due under the agreement; (2) we do not comply with the material terms and conditions of the agreement; (3) we become bankrupt or insolvent and we are unable to perform our obligations under the agreement; or (4) upon two years' notice, if Hearst discontinues or abandons publication of the estimating guides.

In addition, we license data used in the Recycled Parts Services database. We have a data supply agreement with a provider of recycled parts data, Car-Part.com, which expires in June 2005. We are currently negotiating a renewal of the existing data supply agreement and considering alternative sources of obtaining this data, if necessary. Any interruption of our access to the data contained in the Recycled Parts Services database could have a material adverse effect on our business.

We are not engaged in any material disputes with other parties that challenge our ownership or use of our proprietary technology. We cannot assure you that other parties will not assert technology infringement claims against us in the future. Defending any such claim may involve significant expense and management time. Moreover, if any such claim were successful, we could be required to pay monetary damages, refrain from distributing the infringing product or obtain a license from the party asserting the claim, which may not be available on commercially reasonable terms. In addition, we cannot assure you that we will not have to take legal action in the future to enforce our intellectual property rights, as we have done in the action we filed against Mitchell International Inc. ("Mitchell") described in Item 3, "Legal Proceedings." Any action we may take to enforce our intellectual property rights may involve significant expense and management time and the outcome is uncertain.

The industry in which we participate is highly competitive. We compete by offering value-added products and services that we believe are unique and by providing what we believe is superior customer service for these solutions. Historically, our principal competitors have included the Claims Services Group of ADP and Mitchell. The Claims Services Group of ADP offers a collision estimating and digital imaging system and a vehicle valuation service to the automobile insurance industry and a collision estimating and digital imaging system and a shop management system to the collision repair industry. Mitchell publishes crash guides for both the automobile insurance and collision repair industries and markets collision estimating, shop management and imaging products. In addition, we face competition from several new companies, many of which focus on the delivery of services over the Internet. We experience steady competitive price pressure.

We intend to address competitive price pressures by providing higher quality value-added products and services that offer more advanced features to our customers. We also intend to continue to develop unified, user-friendly claim services that incorporate our comprehensive proprietary inventory of data. We expect that CCC Pathways will continue to provide a unique service for our insurance and collision repair facility customers and allow us to effectively address competitive price pressures.

Some insurance companies have entered into agreements with CCC or our competitors that provide that the insurance companies will use either CCC’s or the competitor’s product or service exclusively or designate CCC or a competitor as its preferred provider of that product or service. If the agreement is exclusive, the insurance company requires that collision repair facilities, independent appraisers and regional offices use the particular product or service. If the company is simply a preferred provider, the collision repair facilities, independent appraisers and regional offices are encouraged to use one of the approved products, but may choose any other vendor's product or service. Being included on the approved list of an insurance company or having a product that is endorsed by the insurance company provides certain benefits, including immediate customer availability and an advantage over competitors who may not have such approval. To the extent an insurance company has endorsed ADP, Mitchell or another competitor, but not us, we may experience a competitive disadvantage.

Additionally, the Company sometimes pays a new customer for the remaining commitment of its previous contract with third parties as an incentive. The amount paid by the Company is deferred and amortized over the term of the contract negotiated with the Company. See Note 11, "Other Current Assets" to our consolidated financial statements.

The Company’s insurance company customers are subject to laws of and regulation by individual state insurance regulatory agencies. In many states, those agencies have promulgated regulations governing the settlement of total loss insurance claims, and the Company monitors these regulations and their impact on CCC Valuescope. A large portion of the revenue from CCC Valuescope during the year ended December 31, 2004 came from those states with the largest number of registered vehicles, such as California, Florida, Illinois, New York, Pennsylvania, Ohio, New Jersey, Georgia and Texas, with no specific state accounting for more than approximately 17% of the Company’s volume for CCC Valuescope.

CCC Valuescope has been expressly approved for use by regulators in some states. In most states, however, there is no formal approval process for total loss valuation products, but CCC Valuescope is indirectly affected by the actions of insurance regulators because the Company’s customers are subject to regulation.

Periodically, the Company or its customers receive inquiries from state insurance regulators regarding various aspects of CCC Valuescope. Most such inquiries are of a routine nature and are addressed in the ordinary course of business. From time to time, however, individual state departments of insurance have taken positions as to whether the use of CCC Valuescope valuations is in compliance with a state’s claim handling regulations.

The Company is aware that since 2002 the California Department of Insurance has advised some of the Company's customers (which management estimates to be approximately 14% of the total revenue earned in 2004 from the Company's CCC Valuescope valuation product and service) that the Department believed that their use of CCC Valuescope had not been in compliance with the California insurance regulations in effect prior to October 4, 2004, with respect to certain components of the product’s methodology. The Company believes the product was in compliance with the applicable California regulations.

On April 24, 2003, the California Department of Insurance formally adopted new regulations that required the Company to change its methodology for computing total loss valuations in California. Before those regulations were implemented, however, the Superior Court of the State of California for the County of Los Angeles enjoined their implementation and enforcement in a case captioned PERSONAL INSURANCE FEDERATION OF CALIFORNIA, et al. v. JOHN GARAMENDI, INSURANCE COMMISSIONER OF THE STATE OF CALIFORNIA, Case No. BC298284 (filed July 1, 2003). CCC is not a party to that suit. A partial settlement was subsequently reached in that litigation among the parties thereto, and the Department of Insurance was allowed to implement and enforce certain provisions of the proposed amendments to the Fair Claims Settlement Practices Regulations as of October 4, 2004. CCC implemented the necessary changes to comply with the new requirements prior to that effective date, and the Company believes the product is in compliance with applicable California regulations. The Department of Insurance may implement further amendments, and to the extent any such amendments require the Company to change its methodology, such modifications will be made prior to the effective date of any amendments.

The markets in which we compete are increasingly characterized by technological change. The introduction of competing products and services incorporating new technologies could render some or all of our products and services unmarketable. We believe that our future success depends on our ability to enhance current products and services and to develop new products and services that address the increasingly sophisticated needs of our customers. As a result, we have committed in the past and intend to continue to commit substantial resources to product development and programming. The development of new products and services may result in unanticipated expenditures and capital costs, which may not be recovered in the event one or more of our products is unsuccessful. Our failure to develop and introduce new or enhanced products and services in a timely and cost-effective manner in response to changing technologies or customer requirements would have a material adverse effect on our business, financial condition and results of operations.

A substantial portion of the data utilized in our collision estimating products is derived from the MOTOR Crash Estimating Guides, which are published by a unit of Hearst. We have an exclusive license to use the MOTOR Crash Estimating Guides' data under an agreement with Hearst, which expires in 2021. Hearst may terminate the license if any of the following events occur: (1) we fail to make payment of license fees, royalties and other charges due under the agreement; (2) we do not comply with the material terms and conditions of the agreement; (3) we become bankrupt or insolvent and we are unable to perform our o