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Letter to the Editor

CCC Information Services Group Reports Low Q3 Net Income, Slightly Higher Revenue

During the quarter the company completed a $210 million self-tender offer to purchase 11.2 million shares, which leaves approximately 15.9 million shares outstanding. Participation by the company's shareholders was high, as over 90 percent of the share base tendered their shares. Due to the high participation rate, the ownership profile of the company remained relatively unchanged. In connection with the self-tender offer, the company recorded a charge of $13.1 million, or $0.34 per share, to reflect non-cash stock compensation expense related to employee options. The ability of employee stock option holders to participate in the self-tender offer through the Company on a net exercise basis resulted in variable stock compensation accounting for the Company's Stock Incentive Plans, which resulted in the non-cash charge. According to stock compensation accounting requirements, the charge had to cover all vested employee stock options including those that were not tendered and those that were unable to be exercised due to the 44 percent pro-ration factor. Employee option holders received $3.5 million, or 1.7 percent, of the $210 million returned to shareholders. All stock option holders received the same terms and conditions for the self-tender as shareholders and warrant holders. There are no further requirements for stock compensation expense in connection with the tender offer. In addition, the variable stock compensation accounting for the Company's Stock Incentive Plans ended on August 30, the date the tender offer closed.

CCC recorded a net benefit for a litigation settlement of $2.6 million, or $0.07 per share, for the third quarter, which was comprised of three parts. During the quarter, CCC received $4.8 million as a result of the settlement of a lawsuit filed by certain insurers that had issued policies to the company involving coverage in connection with the company's vehicle valuation product now known as CCC Valuescope(TM) Claim Services. Of the $4.8 million, $0.3 million was used to pay for legal costs related to the litigation. CCC also recorded a charge of $1.9 million to increase its net reserve for settlement of the litigation relating to CCC Valuescope, from $4.3 million to $6.2 million. The net result of the insurance settlement, after the $1.9 million charge and deduction of $0.3 million for legal costs resulted in the net pre-tax benefit of $2.6 million for the quarter.

Revenue for the third quarter increased 1.0 percent to $49.1 million, compared to $48.6 million for the same quarter in 2003. Operating income for the quarter was $1.4 million, including a net charge of $10.5 million representing the net effect of the charge and benefit mentioned in Table 1 above, compared to operating income of $10.7 million for the same quarter in 2003.

Revenue for the first nine months of 2004 was $148.2 million, an increase of 2.6 percent compared to $144.5 million for the first nine months of 2003. Operating income for the first nine months of the year was $20.1 million, including two charges totaling $1.7 million in the second quarter, and a net charge of $10.5 million representing the net effect of the charge and benefit mentioned in Table 1 above. Operating income for the first nine months of 2003 was $29.4 million, including a charge of $1.1 million in the second quarter of 2003.

The CCC Pathways(TM) portfolio increased 4.9 percent from prior year due to the growth of its estimating solutions in the repair facility and insurance channels, as well as sales of its recycled parts solution to insurance companies. The CCC Valuescope(TM) portfolio grew 1.4 percent sequentially primarily due to the addition of new customers to the portfolio. The Workflow portfolio fell 3.8 percent from prior year as growth in CCC Autoverse was offset by a decrease in EZNet. Other revenue decreased in line with the company's plan to exit the customer hardware business, and a planned phase out by a customer of the CARS Direct service, a product originally introduced in 1997.

Production and customer support expenses declined from prior year due to costs incurred last year to transition to a new customer support model. Selling, general and administrative expenses increased from prior year as a result of an increase to certain incentive compensation costs tied to business performance. The increase in compensation expense was partially offset by savings generated from improved expense controls and the organizational realignment completed in the second quarter. Product development and programming expenses decreased primarily due to the organizational realignment of the company that took place in the second quarter. The company issued the following guidance for the fourth quarter and full year 2004:

Revenue growth for the fourth quarter is expected to be in the 1 to 2 percent range versus the prior year, which would produce full year revenue growth in the 2 to 3 percent range. This is a change from previous guidance of 3 to 4 percent. Operating income for the fourth quarter should be in the $12 to $13 million range, with full year operating income expected to be in the $32 to $33 million range, including the impact of the charges taken in the second quarter of $1.7 million and the impact of the net charge of $10.5 million taken in the third quarter. This is a decrease from previous guidance of $43 to $45 million due to the impact of the net charge taken in the third quarter.

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