-----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, IvAsJ9QH4Uqobjfav0xSUDaYkksTa/KnUzchWN2q7C3rWppLCXDyyF29QnAmvEXV L/xYZ3k+cd/KcIEXG3VzLQ== 0001047469-98-012904.txt : 19980401 0001047469-98-012904.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-012904 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE 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-K SEC ACT: SEC FILE NUMBER: 000-28600 FILM NUMBER: 98582018 BUSINESS ADDRESS: STREET 1: WORLD TRADE CENTER CHICAGO STREET 2: 444 MERCHANDISE MART CITY: CHICAGO STATE: IL ZIP: 60654 BUSINESS PHONE: 3122224636 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission File Number: 0-28600 CCC INFORMATION SERVICES GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 54-1242469 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
WORLD TRADE CENTER CHICAGO 444 MERCHANDISE MART CHICAGO, ILLINOIS 60654 (Address of principal executive offices, including zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 222-4636 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - --------------------- --------------------- None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.10 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of voting shares (based on the closing price of those shares listed on the Nasdaq National Market and the consideration received for those shares not listed on a national or regional exchange) held by non-affiliates (as defined in Rule 405) of the registrant as of March 30, 1998 was $317,640,712. As of March 30, 1998, 24,764,583 shares of CCC Information Services Group Inc. common stock, par value $0.10 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K incorporates by reference portions of the registrant's Notice of 1998 Annual Meeting of Stockholders and Proxy Statement. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE(S) --------- PART I Item 1. Business..................................................................................... 1-11 Item 2. Properties................................................................................... 12 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...................................................................... 13-14 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........ 14-20 Item 8. Financial Statements and Supplementary Data.................................................. 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 20 PART III Item 10. Directors and Executive Officers of the Registrant........................................... 20-24 Item 11. Executive Compensation....................................................................... 24-29 Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 29-31 Item 13. Certain Relationships and Related Transactions............................................... 31 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 32-53 Signatures............................................................................................... 54 Directors and Executive Officers......................................................................... 55 Corporate Information.................................................................................... 56
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES This Annual Report on Form 10-K contains forward-looking statements within the definition of Federal Securities laws. The section entitled "Forward Looking Statements" contains additional disclosures concerning forward-looking statements. PART I ITEM 1. BUSINESS ORGANIZATION CCC Information Services Group Inc. ("Company") (formerly known as InfoVest Corporation), through its wholly owned subsidiary CCC Information Services Inc. ("CCC"), is a supplier of automobile claims information and processing services, claims management software and communication services. The Company's services and products enable automobile insurance company and collision repair facility customers to improve efficiency, manage costs and increase consumer satisfaction in the management of automobile claims and restoration. As of December 31, 1997, White River Ventures Inc. ("White River") held approximately 35% of the total outstanding common stock of the Company and had 51% of the voting power associated with the Company's total outstanding voting stock. White River is a wholly owned subsidiary of White River Corporation. BUSINESS SUMMARY The principal services and products offered by the Company automate the process of evaluating and settling both total loss and repairable automobile claims. When a vehicle cannot be repaired, the Company's vehicle valuation services and products, primarily TOTAL LOSS, provide insurance companies with the ability to effect total loss settlements on the basis of market-specific vehicle values. When a vehicle is repairable, the Company's collision estimating services and products, principally EZEST and PATHWAYS, provide insurance appraisers and collision repair facilities with up-to-date pricing, interactive decision support and computer-assisted logic to produce accurate collision repair estimates. The Company's claims outsourcing services and products includes ACCESS, a vehicle restoration and management service. Communication services offered by the Company connect insurers, appraisers and collision repair facilities, providing the information required for decision making. The Company also provides a wide variety of related services and products intended to facilitate the overall management of the automobile claims process. The Company's PATHWAYS workflow management software is designed to integrate each of the Company's product offerings on a common platform with a common graphical user interface, facilitating the learning of new applications while providing the Company's customers with a broader tool set for claims completion. The Company's services and products represent an integrated solution, combining information, claims management software and secure communication systems to improve the efficiency of the automobile claims process. The Company's customers include the largest U.S. automobile insurance companies and most of the small to medium size automobile insurance companies in the country. In addition, the Company's products are used by approximately 12,000 collision repair facilities. The Company's core competencies include collection and processing of claims and automobile valuation and repair data, development of client-server, object-oriented claims and collision repair software products, communications network management, customer service and the workflow processes of automobile insurance claims. The Company sells its services and products to insurance companies through a direct sales force. The Company contracts with independent sales representatives to sell its products to collision repair facilities. 1 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES Over 60% of the Company's revenue for 1997 was for services and products sold pursuant to contracts, which generally have multi-year terms. A substantial portion of the Company's remaining revenue represented sales to customers that have been doing business with the Company for many years. The Company's services and products are generally sold under multi-year contracts either on a monthly subscription or a per transaction basis. OVERVIEW OF THE AUTOMOBILE INSURANCE CLAIMS PROCESS Automobile claims generally involve three types of participants: automobile insurance companies, consumers and service providers, such as collision repair facilities and attorneys. The interaction among these parties in the processing of a claim can be referred to as the "automobile claims industry." The Company believes that the claims process has historically been inefficient and contentious for the participating parties due, in part, to the lack of independently verifiable claims data and inefficient communications networks. THE AUTOMOBILE INSURANCE INDUSTRY Of the companies offering private passenger automobile insurance in the United States, the twenty largest providers account for more than 65% of all automobile insurance premiums. Insurance companies compete principally on the basis of price, marketing, consumer satisfaction and claims paying ability. State agencies closely regulate the product offerings, claims processes and the premium structure of insurance companies. In addition, the laws of many states require motorists to carry liability insurance at specified minimum levels. The automobile insurance industry is changing rapidly. The automobile insurance marketplace is experiencing price constraints as a result of increasing competition and regulatory activity. At the same time, policy holders are demanding higher levels of customer service. The growing complexity and sophistication of automobile design and engineering is increasing the actual repair cost (referred to in the automobile claims industry as "severity") of collision claims. In addition, the personal injury component of automobile insurance claims is rising, in part, as a result of the increasing frequency of, and magnitude of, claims involving alleged bodily injury, including soft-tissue claims. Competitive pressures and resistance by policy holders and regulators to premium increases are causing insurance companies to focus on managing costs. The Company believes that the insurance industry's focus on cost management has been accompanied by an increasing recognition that it is easier and more cost-effective to retain an existing policy holder than to lure a new customer away from a competitor. Dissatisfaction with the claims handling process is a frequently cited cause of policy non-renewal. THE COLLISION REPAIR INDUSTRY The collision repair industry, which has historically been extremely fragmented, is consolidating. Most collision repair facilities are owner-operated, single-location businesses which focus on a local market. The Company estimates that 20 to 25 thousand collision repair facilities have annual revenues in excess of $300 thousand. These facilities tend to be larger, better capitalized and increasingly reliant on professional and sophisticated management who are adopting new technology and wholesale marketing techniques to compete. The costs to operate a collision repair facility have risen substantially over the past decade. Modern automobile designs coupled with extensive environmental regulations are forcing repair facilities to make 2 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES significant capital investments in increasingly sophisticated equipment and better training. At the same time, insurance companies are looking to collision repair facilities to assist in cost containment. Because a substantial portion of collision repair facility revenue is sourced from insurance companies, collision repair facility owners are increasingly shifting their marketing efforts from consumer-oriented advertising to wholesale marketing and insurance company referrals. For example, many collision repair facilities are seeking to capitalize on insurance industry-driven trends such as the growth in direct repair programs. A direct repair program, or DRP, allows an insured whose automobile is involved in a collision to have the repair performed within a network of approved repair facilities. To participate in DRPs with major insurance companies, collision repair facilities must meet minimum standards for equipment, training and facilities. To ensure continued satisfaction at both the referring insurance company and consumer level, collision repair facilities must seek ways to improve productivity and optimize the workflow of the automobile repair process. To achieve these goals, collision repair facilities are making substantial investments in capital equipment and computer technology. THE AUTOMOBILE CLAIMS PROCESS Insurance companies generally handle automobile physical damage claims in one of three ways: in-house staff appraisals, direct repair programs and independent adjustments. STAFF APPRAISAL. The insurance industry employs staff appraisers and claims representatives who, the Company estimates, handle 70% to 75% of all automobile claims. This estimate is based on the Company's claims experience, and interviews with its large insurance company customers. Staff appraisers handle a broad range of claims tasks, including appraisal, claims supplements, police reporting, total loss files, salvage processing and settlement payments. Based on the Company's internal estimates, staff appraisers typically handle twelve or more claims per day when in a drive-in facility and three to five claims per day when in the field. The Company believes that most insurance company staff appraisers use collision estimating software to prepare collision repair estimates. DIRECT REPAIR PROGRAMS. Seventeen of the top twenty automobile insurers, including each of the five largest, offer some form of direct repair program. Based on the Company's interviews with its insurance company customers, the Company estimates that 15% of all automobile claims are handled through a DRP, the fastest-growing method for handling automobile claims. The Company believes that DRPs present significant opportunities to both insurance companies and collision repair facilities to increase the satisfaction of their customers. Surveys demonstrate that DRPs result in higher consumer satisfaction than either of the other claims handling methods. In addition, by eliminating several days from the claims process, insurers utilizing DRPs reduce replacement rental car expense and eliminate the costs associated with dispatching an adjuster to appraise each vehicle. An automated DRP ensures accurate estimates, facilitates the use of alternate replacement parts and increases the productivity of auditors and reinspectors. The Company estimates that adjusters who formerly completed only three to five estimates per day under a staff appraisal program can review 20 to 25 claims per day under a DRP. Participating collision repair facilities gain volume and efficiency and reduce disputes with consumers and insurance companies. INDEPENDENT ADJUSTMENT. Based on the Company's interviews with its insurance customers, the Company estimates that independent claims adjusters handle 15% to 22% of all automobile claims. Independent adjusters offer their appraisal skills to a variety of insurance companies in a specific geographic location. Insurers typically outsource claims to independent adjusters where their market coverage does not justify hiring local staff or when the volume of work exceeds local capacity. The Company estimates that most independent adjusters do not use automated collision estimating systems. 3 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NEEDS AND OPPORTUNITIES IN THE AUTOMOBILE CLAIMS PROCESS The Company believes trends in the automobile insurance industry create several identifiable needs. First, automobile insurers need to increase consumer satisfaction through faster, more efficient claims handling procedures. Second, insurance companies need to improve working relationships with their primary service providers through the exchange of auditable data and improved communication. Third, insurers need to integrate emerging technologies into their legacy mainframe hardware and software systems. Finally, smaller insurance companies need to become cost competitive with the major insurers by adopting solutions which provide economies of scale benefits. Trends in the collision repair industry also present collision repair facilities with several needs and opportunities. First, repair facilities need to secure a steady supply of customers through efficient marketing and greater connectivity to insurance companies. Second, repair facilities need to improve their operating efficiency, business management and repair processing through affordable information and decision making tools. The Company believes that improvements in the automobile claims process will require that participants have ready access to data, decision making tools and efficient communications. As a result, there is a need for integrated, efficient solutions in the appraisal, repair and settlement processes which will speed repairs, assure consumer satisfaction and save money. SERVICES AND PRODUCTS The Company's services and products are integrated for use with one another across multiple platforms and are designed for ease of use by the large number of people involved in the automobile claims process on a daily basis. Approximately 66% of the Company's consolidated revenue for 1997 was from the sale of services and products to insurance companies with the remainder sold to collision repair facilities and other customers. Revenues from TOTAL LOSS valuation services and EZEST and PATHWAYS Collision Estimating software licensing accounted for 32% and 47%, respectively, of the Company's consolidated 1997 revenue. PATHWAYS WORKSTATION SOFTWARE. PATHWAYS is a windows-based workstation software platform designed to better serve the overall workflow needs of insurance field staffs. PATHWAYS offers a common, graphical user interface across all applications which organizes claims in tabbed, electronic workfiles and reduces the time required to learn or develop new software functions or applications. PATHWAYS includes a workflow manager which assists users in managing all aspects of their day-to-day activities, including receipt of new assignments, communication of completed activity, electronic file notes and reports as well as the automatic logging of key events in the claims process. The Company intends to integrate all of its existing field applications into this platform and develop all future field applications on PATHWAYS. PATHWAYS is fully integrated with the Company's communications network, allowing adjusters to operate in the field, and thereby reduce office and other expenses. The first PATHWAYS application was PATHWAYS Collision Estimating, which provides improved functionality when compared to the predecessor DOS based EZEST product. VEHICLE VALUATION SERVICES AND PRODUCTS. The Company's TOTAL LOSS service provides insurance companies the ability to effect total loss settlements on the basis of market-specific values based upon physically inspected used car inventories. The Company believes that its vehicle database, which contains detailed information about millions of vehicles either physically inventoried from one of more than 4,500 dealer lots or taken from recent advertisements, is the most comprehensive in North America. The Company uses its proprietary database and valuation software to provide insurance companies with independent, current, local, market-values and vehicle identification data. The Company's TOTAL LOSS product complies with the regulatory requirements of all 50 states. Each total loss valuation includes a 4 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES vehicle identification search under VINGUARD, the Company's vehicle identification number fraud protection program which matches current claims against the Company's database of previously totaled or stolen vehicles. COLLISION ESTIMATING SERVICES AND PRODUCTS. EZEST was the first stand-alone, PC-based collision estimating system utilizing intelligent logic to automate the process of eliminating repair activity overlaps and automating all included operations and ancillary repair work in preparing an estimate. Intelligent logic represents automation of procedure pages from crash estimating guides that detail the steps involved in repairing various parts of a damaged vehicle depending on the extent of the damage. The Company now also offers its next generation collision estimating product, Pathways Collision Estimating. Pathways provides automobile insurers with fast and reliable estimates at a low cost. Pathways runs on any IBM-compatible laptop or desktop computer and contains all nine volumes of the Motor Crash Estimating Guide and other data necessary to build an estimate. The Company licenses the Motor Crash Estimating Guide data from a subsidiary of The Hearst Corporation. A unique feature of Pathways is its recycled part valuation upgrade which will display and automatically insert into the estimate a predicted price of those recycled or salvage automotive parts statistically known to be available in the local market in which the estimate is written. The Pathways software, Motor Crash Estimating Guide database and other associated databases are updated via a monthly CD-ROM. Pathways is sold under multi-year contracts on a monthly subscription basis to both insurers and collision repair facilities. PATHWAYS DIGITAL IMAGING. PATHWAYS Digital Imaging, a Pathways workstation application, allows shops to capture and instantly transmit damage images, thereby reducing the need for a physical vehicle inspection. The computerized digital photo imaging system allows automobile insurers and collision repairers to visually document vehicle damage and electronically communicate the image. This reduces claims cycle time while eliminating film cost and saving travel and overnight delivery expense. In September 1997, the Company began delivery of its next generation system, PATHWAYS Digital Imaging, a software application that captures, stores and transmits images of vehicle damage. PATHWAYS Digital Imaging is sold under multi-year contracts on a monthly subscription basis. GUIDEPOST DECISION SUPPORT. GUIDEPOST is an executive information and data navigation software package. GUIDEPOST allows managers to electronically evaluate results, format reports, drill down for subject or personnel review and compare performance to industry and regional indices. GUIDEPOST updates are distributed monthly on diskettes and development for network delivery is underway. While introduced as an element of the Company's suite of electronic DRP and collision estimating tools, GUIDEPOST will be made available for all the Company's products, extending the integration of a multi-channel claims process. EZNET COMMUNICATIONS NETWORK. EZNET connects insurers with their appraisers and repair network partners. EZNET'S process management capabilities provide the information required to make appropriate and timely decisions, regardless of location or settlement process. EZNET is used principally for the complete electronic communication of work files and estimates to staff appraisers or DRP partners and for the receipt of auditable estimate data. EZNET is the only communications network tailored to provide automated communication service to participants in the automobile physical damage claim process, including: mailboxing, messaging, routing, imaging, assignment tracking, record library and third-party gateways. A unique feature of EZNET is the electronic appraisal review feature that provides real-time exception reporting to target re-inspections and improves management control of DRP networks and appraisers. EZNET also facilitates the management of car rental and salvage disposition. EZNET is sold both on a per transaction basis and on a monthly subscription basis. 5 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CLAIMS OUTSOURCING SERVICES AND PRODUCTS. ACCESS is an outsourced vehicle appraisal and restoration management service. Insurance companies use ACCESS to appraise and settle claims without hiring either additional staff or independent appraisers. ACCESS uses a network of Company certified, fully equipped repair facilities and the Company's claims management tools to provide fast, low cost claims settlement with high customer satisfaction. In addition, the Company provides reinspection and restoration management staff for quality assurance. ACCESS is sold on a per claim basis under multi-year agreements. The Company has begun to offer a complete claims outsourcing service that manages all aspects of the claim process. Using a proprietary, state-of-the-art, paperless claims management system, the outsourcing service takes the initial loss notification and manages the file through settlement. EZWORKS PRODUCTIVITY TOOLS. EZWORKS is a set of modular applications that assist collision repair businesses with a variety of management functions such as job costing, operations analysis, and accounting interfaces. EZWORKS provides an important interface between EZEST and a leading commercial accounting product. CUSTOMERS The Company's business is based on relationships with the two primary users of the Company's services: automobile insurance companies and collision repair facilities. The Company's customers include the largest U.S. automobile insurance companies and most of the small to medium size automobile insurance companies in the country. The Company's products are used by approximately 12,000 collision repair facilities. The Company has collision repair customers in all 50 states, including most major metropolitan markets. In addition to assisting collision repair facilities in managing their businesses, many of these customers use the Company's services and products as a means to participate in insurance DRP programs, thereby making the use of the Company's services and products important to the customer's business growth. Over 60% of the Company's revenue for 1997 was for services and products sold pursuant to contracts, which generally have multi-year terms. A substantial portion of the Company's remaining revenue represented sales to customers that have been doing business with the Company for many years. The Company's services and products are sold either on a monthly subscription or a per transaction basis. SALES AND MARKETING Including Collision Repair Representatives, the Company utilizes approximately 300 sales and service professionals across five different sales organizations and certain other sales and marketing functions to market and sell its services and products. Employee counts below for each of the five sales organization are as of December 31, 1997. NATIONAL SALES ORGANIZATION. The National Sales Organization comprises national account managers ("NAMs") who focus on the Company's overall relationships with the home and regional offices of seventy six leading insurance companies. NAMs are experienced sales professionals charged with meeting customers' business needs with a consultative approach. NAMs are responsible for home office relationships through which most major and all company-wide contracts are signed and renewed. BUSINESS SOLUTIONS GROUP. The Business Solutions Group (BSG) consists of business solutions managers and consultants that identify, develop and perform qualified consulting projects and development of custom user interfaces. The BSG plays a critical role in reviewing customer business practices to benchmark current operations and to identify opportunities for improvement. BSG often works closely 6 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES with customer system staffs to assure smooth implementation of more technically complicated and customized service offerings. FIELD SALES & SERVICE GROUP. Claims office territory managers are deployed geographically with responsibility for individual claims offices of all of the Company's insurance company clients. These employees are charged with on-going field training and support for the Company's transaction-based businesses. The Company's territory managers assist claim managers with the training of high turnover personnel, program result analysis and problem resolution. Increasingly, territory managers are functioning as claim settlement consultants. NEW BUSINESS ACQUISITION TEAM. The NBA team focuses on selling specific products into the insurance market. Their role is to increase the Company's market share in each product category in which the Company competes. They work closely with the other sales organizations to bring specific product expertise to our customers. COLLISION REPAIR REPRESENTATIVES. The Company contracts independent sales representatives to sell the Company's products to collision repair facilities across the country. The primary representatives are assigned geographic territories and often employ secondary representatives to increase presence in particular areas. The representatives are highly experienced within the collision repair industry and typically assist customers in dealing with a variety of business issues. The Company's marketing efforts for the automobile insurance market are conducted through three principal means. The Company believes that most claims executives and managers learn about new technologies and solutions through sales personnel, so the majority of the Company's insurance marketing dollars is devoted to developing professional collateral materials for use by the sales force. The Company sponsors an annual industry conference for senior claims executives and collision repair industry leaders. The Company's senior managers are frequent speakers at industry gatherings and are frequent authors of articles published in industry and national print media. The Company's marketing efforts for the automobile repair market are conducted through participation in national and regional trade shows, lead generating direct marketing programs, collateral materials and trade advertising. TRAINING AND SUPPORT Field appraisers, claim representatives and collision repair facility owners use the Company's tools and information for decision making. The Company addresses its customer service needs through a field and telephone training and support staff that consists of approximately 180 employees. The support staff consists of individuals with technical knowledge and experience relating not only to application software, operating systems and network communications, but also to new and used car automobile markets and collision repair. The Company routinely analyzes customer call types to modify products or training and, whenever necessary, will dispatch a field representative to provide process assistance. In addition, Company field trainers implement every new sale. TECHNOLOGY Underlying each of the Company's principal services and products are databases which customers access through software and the Company's communications network. VEHICLE VALUATION SERVICES AND PRODUCTS. The Company's proprietary database of valuation data used in connection with its TOTAL LOSS services and products is built through the Company's own data collection 7 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES network. This network includes detailed used car inventory and sales data from more than 4,500 automobile dealers in 228 metropolitan areas throughout the United States and Canada, as well as data from local newspaper advertisements and prior transactions. The database includes more than 15 million prior valuations, including theft data. The Company maintains its TOTAL LOSS database on a mainframe computer which customers directly access using the Company's proprietary communications network or by telephone or facsimile. COLLISION ESTIMATING SERVICES AND PRODUCTS. The Company offers its collision estimating services and products through a personal computer-based, open systems approach using its object-oriented design. The Company's principal database for its collision estimating products is the Motor Crash Estimating Guide published by a subsidiary of The Hearst Corporation. The Company licenses this database under a contract which expires in 2002, that grants to the Company a license to publish the database electronically. This contract includes the exclusive license for intelligent logic to the insurance industry, the integral component of collision estimating software. See further discussion of this contract under "Intellectual Property." EZNET COMMUNICATIONS NETWORK. The Company's communications network, EZNET, transmits and processes both staff and direct repair claims data. EZNET'S Transport Layer provides reliable, secure data transmission. EZNET'S Workflow Layer routes claims information and status updates to multiple recipients according to insurance company preference and provides storage through network mailboxes maintained by the Company. EZNET supports all major communications protocols, including X25, SNA, ISDN and TCP/IP, as well as industry standards such as the Collision Industry Electronic Commerce Association. PATHWAYS ENVIRONMENT. The Company has built and completed class libraries consisting of approximately 1,000 business and system objects that serve as the foundation of its PATHWAYS product line. These objects were designed with a work flow orientation and are used in a framework to manage databases, maintain model persistence, create electronic workfiles, and facilitate communications. These elements are used in conjunction with a common graphical user interface for all applications. This approach is intended to offer many advantages to the Company's customers, including ease of training and integration of complementary systems and legacy applications. In addition, the graphical user interface and object-oriented foundation of these services and products is designed to enable faster introduction of additional application modules with greater product quality assurance as well as easy integration with customer-developed software applications. It is the Company's intent to build all new products within this framework and to migrate existing products to it. PRODUCT DEVELOPMENT AND PROGRAMMING The Company's ability to maintain and grow its position in the claims industry is dependent upon expansion of its products and services. Investments in development are therefore critical to obtaining new customers and renewals from existing customers. The Company's product development and programming efforts principally consist of software development, development of enhanced communication protocols and applications, and database design and enhancement. Product engineering activities focus on improving speed to market of new products, services, and enhancements, adding new business functions without affecting existing services and products, and reducing development costs. The Company uses its class library of objects, knowledge of its clients' workflows and its automated testing tools to deliver quality workflow-oriented solutions to the marketplace quickly. The Company develops products in close collaboration with its clients based on specific needs. The Company's total product development and programming expense was $20.2 million, $17.0 million and $14.9 million for the years ended December 31, 1997, 1996 and 1995, respectively. 8 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES INTELLECTUAL PROPERTY The Company relies primarily on a combination of contracts, intellectual property laws, confidentiality agreements and software security measures to protect its proprietary technology. The Company distributes its products under written license agreements, which grant end-users a license to use the Company's services and products and which contain various provisions intended to protect the Company's ownership and confidentiality of the underlying technology. The Company also requires all of its employees and other parties with access to its confidential information to execute agreements prohibiting the unauthorized use or disclosure of the Company's technology. The Company has trademarked virtually all of its services and products. These marks are used by the Company in the advertising and marketing of the Company's services and products. EZEST and CCC are well-known marks within the automobile insurance and collision repair industries. The Company has patents for its collision estimation product pertaining to the comparison and analysis of the "repair or replace" and the "new or used" parts decisions. While the TOTAL LOSS calculation process is not patented, the methodology and processes are trade secrets of the Company and are essential to the Company's TOTAL LOSS business. Despite these precautions, the Company believes that existing laws provide only limited protection for the Company's technology and that it may be possible for a third party to misappropriate the Company's technology or to independently develop similar technology. Certain data used in the Company's services and products is licensed from third parties for which they receive royalties. The Company does not believe that the Company's services and products are significantly dependent upon licensed data, other than the Motor Crash Estimating Guide data, because the Company believes it can find alternative sources for such data. The Company does not believe that it has access to an alternative database that would provide comparable information to the Motor Crash Estimating Guide. The Motor Crash Estimating Guide is licensed from the Hearst Corporation through a scheduled expiration of April 30, 2002. Absent notification of cancellation by either the Company or the Hearst Corporation two years before the license's scheduled expiration, the license agreement is automatically extended for one year on a rolling annual basis. Any interruption of the Company's access to the Motor Crash Estimating Guide data could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is not engaged in any material disputes with other parties with respect to the ownership or use of the Company's proprietary technology. The Company has been previously involved, however, in intellectual property litigation concerning certain data ownership rights, the resolution of which resulted in substantial payments by the Company. There can be no assurance that other parties will not assert technology infringement claims against the Company in the future. The litigation of such a claim may involve significant expense and management time. In addition, if any such claim were successful, the Company could be required to pay monetary damages and may also be required to either refrain from distributing the infringing product or obtain a license from the party asserting the claim (which license may not be available on commercially reasonable terms). COMPETITION The market for the Company's products is highly competitive. The Company competes primarily on product differentiation, customer service and price. The Company's principal competitors are small divisions of two well capitalized, multinational firms, Automatic Data Processing ("ADP") and Thomson Publishing Corporation ("Thomson"). ADP offers both a PC-based collision estimating system and a total loss product to the insurance industry. It offers a different collision estimating system and a digital imaging system to the collision repair industry. Thomson publishes crash guides for both the insurance and 9 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES automobile collision repair industries and markets collision estimating, shop management and imaging products. In addition, there are several very small, collision estimating programs sold into the market which do not use intelligent logic. In addition, the claims outsourcing business competes with various outsourcing service providers and third party administration (TPA) entities. The Company has experienced steady competitive price pressure, particularly in the collision estimating market, over the past few years and expects that trend to continue. The strength of this trend may cause the Company to alter its mix of services, features and prices. The Company intends to address competitive price pressures by providing high quality, feature enhanced products and services to its clients. The Company intends to continue to develop user-friendly claims products and services incorporating its comprehensive proprietary inventory of data. The Company expects that the PATHWAYS workflow manager will provide the necessary position with its insurance and collision repair customers to effectively compete against competitive price pressures. At times, insurance companies have entered into agreements with service providers (including ADP, Thomson and CCC) wherein the agreement provides, in part, that the insurance company will either use the product or service of that vendor on an exclusive basis or designate the vendor as a preferred provider of that product or service. If it is an exclusive agreement, the insurance company mandates that collision repair facilities, independent appraisers and regional offices use the particular product or service. If the vendor is a preferred provider, the collision repair facilities, appraisers and regional offices, are encouraged to use the preferred product, but may still choose another vendor's product or service. Additionally, some insurance companies mandate that all products be tested and approved at the companies' national level before regional levels can purchase such products. The benefits of being an endorsed product or on the approved list of an insurance company include immediate customer availability and a head start over competitors who may not be so approved. With respect to those insurance companies that have endorsed ADP or Thomson, but not CCC, the Company will be at a competitive disadvantage. In connection with the Company's strategy to provide outsourced claims processing services, the Company will compete with other third-party service providers, some of whom may have more capital and greater resources than the Company. The Company currently processes the majority of insurer-to-collision repair facility repair assignment and estimate retrieval for DRPs through its EZNET communications network. The Company believes there is a wide range of prospective competitors in this service area, many of which have greater resources than the Company. EMPLOYEES As of December 31, 1997, the Company had approximately 1,100 full-time employees of whom approximately 300 were employed in sales and marketing functions (excluding independent collision repair representatives), approximately 180 were employed in customer support functions, approximately 260 in product development and quality assurance functions, approximately 215 in operations and approximately 130 in finance and administration. The Company regularly seeks to identify skilled software engineers and other potential employee candidates, and has found that competition for personnel in the software industry is intense. The Company believes its ability to recruit and retain highly skilled technical and other management personnel will be critical to execute its business plans. The Company's employees are not represented by any collective bargaining agreement or organization. The Company believes that its relationships with its employees are good. 10 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES FORWARD-LOOKING STATEMENTS This Item 1 contains forward-looking statements that involve risks and uncertainties. When used, the words "anticipate", "believe", "estimate", and "expect" and similar expressions as they relate to the Company and its management are intended to identify such forward-looking statements. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, such forward-looking statements. Factors that could affect such results, performance or achievements include, but are not limited to, reliance on major customers, technological change and new product development, competition, use of licensed information and dependence on proprietary rights. 11 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ITEM 2. PROPERTIES The Company's corporate office is located in Chicago, Illinois where the Company leases approximately 150,000 square feet of a multi-tenant facility under several leases, the last of which expires in November 2008. The Company also leases approximately 84,000 square feet in Glendora, California where a satellite development center and distribution center are housed, under a lease expiring in August 2000. The Company believes that its existing facilities and additional or alternative space available to it are adequate to meet its requirements for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various claims and routine litigation arising in the normal course of business. Such claims and litigation are not expected to have a material adverse effect on the financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock (symbol: CCCG) began trading on the Nasdaq National Market ("Nasdaq") on August 16, 1996. Low and high sales prices of the Common Stock were as follows:
1997 1996 -------------------------------------------------- ------------------------ FOURTH THIRD SECOND FIRST FOURTH THIRD QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER(*) ----------- ----------- ----------- ----------- ----------- ----------- Low............................. $ 17.38 $ 14.70 $ 11.75 $ 12.50 $ 12.50 $ 14.00 High............................ $ 23.88 $ 21.00 $ 19.50 $ 19.50 $ 23.00 $ 24.00
- ------------------------ (*) Represents trading activity for the period from August 16, 1996 through September 30, 1996. Since the public offering, no dividends have been declared on shares of the Company's Common Stock and the Company's Board of Directors currently has no intention to declare such dividends. As of March 30, 1998, there were 24,764,583 shares of Common Stock issued and outstanding. There were 105 stockholders of record on March 30, 1998, plus an indeterminate number of stockholders that hold shares of Common Stock in the names of nominees. 12 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1996 1995 1994(*) 1993 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues.............................................. $ 159,106 $ 130,977 $ 115,519 $ 91,917 $ 51,264 Expenses: Operating expenses.................................. 133,401 110,846 104,697 84,094 44,233 Purchased research and development.................. -- -- -- 13,791 -- Loss on lease termination........................... -- -- -- -- 3,802 Litigation settlements.............................. -- -- 4,500 1,750 -- ---------- ---------- ---------- ---------- ---------- Operating income (loss)............................... 25,705 20,131 6,322 (7,718) 3,229 Equity in loss of Joint Venture....................... -- -- -- (615) (3,564) Interest expense...................................... (139) (2,562) (5,809) (7,830) (6,945) Other income (expense), net........................... 1,505 636 482 316 (311) ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes................................. 27,071 18,205 995 (15,847) (7,591) Income tax (provision) benefit........................ (11,239) (2,683) 291 2,688 1,817 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations.............. 15,832 15,522 1,286 (13,159) (5,774) Income from discontinued operations, net of income taxes................................................. -- -- -- 1,006 (4,357) Extraordinary loss on early retirement of debt, net of income taxes.......................................... -- (678) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)....................................... 15,832 14,844 1,286 (12,153) (10,131) Dividends and accretion on mandatorily redeemable preferred stock....................................... (365) (6,694) (3,003) (1,518) -- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stock............ $ 15,467 $ 8,150 $ (1,717) $ (13,671) $ (10,131) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA: INCOME PER COMMON SHARE--BASIC Income (loss) applicable to common stock from: Continuing operations................................. $ 0.65 $ 0.46 $ (0.11) $ (1.12) $ (0.63) Discontinued operations............................... -- -- -- 0.08 (0.47) Extraordinary loss on early retirement of debt, net of income taxes........................................ -- (0.03) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stock............ $ 0.65 $ 0.43 $ (0.11) $ (1.04) $ (1.10) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- INCOME PER COMMON SHARE--DILUTED Income (loss) applicable to common stock from: Continuing operations................................. $ 0.62 $ 0.43 $ (0.11) $ (1.12) $ (0.63) Discontinued operations............................... -- -- -- 0.08 (0.47) Extraordinary loss on early retirement of debt, net of income taxes........................................ -- (0.03) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stock............ $ 0.62 $ 0.40 $ (0.11) $ (1.04) $ (1.10) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding: Basic................................................. 23,807 19,056 16,300 13,090 9,245 Diluted............................................... 24,959 20,367 16,300 13,090 9,245
- ------------------------ (*) The Company accounted for its interest in the Joint Venture under the equity method of accounting prior to acquiring the remaining interest in the Joint Venture, effective March 30, 1994. 13 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
DECEMBER 31, ---------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and marketable securities........................ $ 32,118 $ 18,404 $ 3,895 $ 5,702 $ 375 Working capital....................................... 28,735 8,093 (17,953) (15,549) (11,004) Total assets.......................................... 83,494 58,268 44,093 52,232 40,058 Current portion of long-term debt..................... 111 120 7,660 5,340 7,857 Long-term debt, excluding current maturities.......... -- 111 27,220 35,753 56,624 Mandatorily redeemable preferred stock................ 5,054 4,688 34,125 31,122 -- Stockholders' equity (deficit)........................ 45,827 24,293 (56,420) (54,729) (53,416)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The Company's results from operations, for the periods indicated, are set forth below:
YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Revenues..................................................................... $ 159,106 $ 130,977 $ 115,519 Expenses: Operating Expenses: Production and customer support........................................... 35,657 31,828 32,261 Commissions, royalties and licenses....................................... 18,939 14,009 11,720 Selling, general and administrative....................................... 50,914 40,653 36,279 Depreciation and amortization............................................. 7,688 7,330 9,572 Product development and programming....................................... 20,203 17,026 14,865 Litigation settlement....................................................... -- -- 4,500 ---------- ---------- ---------- Operating income............................................................ 25,705 20,131 6,322 Interest expense............................................................ (139) (2,562) (5,809) Other income, net........................................................... 1,505 636 482 ---------- ---------- ---------- Income from operations before income taxes.................................. 27,071 18,205 995 Income tax (provision) benefit.............................................. (11,239) (2,683) 291 ---------- ---------- ---------- Income from operations...................................................... $ 15,832 $ 15,522 $ 1,286 ---------- ---------- ---------- ---------- ---------- ----------
OVERVIEW The Company is a supplier of automobile claims information and processing, claims management software and communication services. The Company's customers include the largest U.S. automobile insurance companies and most of the small to medium size automobile insurance companies in the country. In addition, the companies products and services are used by approximately 12,000 collision repair facilities. The Company's services and products are designed to improve efficiency, manage costs and increase consumer satisfaction in the management of automobile claims and restoration. The Company sells its products to two primary customer groups: insurance companies (approximately 66% of revenue in 1997) and collision repair facilities. In addition, certain Company products and services are aimed at improving the efficiency of both markets by enabling the two groups to communicate 14 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES electronically. The Company's principal products for insurance companies are its TOTAL LOSS vehicle valuation service, used to estimate the value of unrepairable vehicles, and its EZEST collision estimating software, used to estimate the cost of repairing vehicles. The Company also offers insurers its claims outsourcing service, ACCESS, an integrated appraisal and restoration management service and access to EZNET, its communications network. The Company also offers its PATHWAYS workflow management software, which integrates the Company's information and software products into a total workflow management solution for insurance field appraisal staffs. The Company's principal product for collision repair facilities is its EZEST collision estimating software. TOTAL LOSS vehicle valuation services are generally obtained through direct dial-up access to the Company's host-based valuation system and billed to insurance companies on a per valuation basis or under contract terms that specify fixed fees for a prescribed number of transactions. Volume discounts affect pricing. Collision Estimating software subscriptions are billed monthly in advance. ACCESS services are billed monthly to insurance companies and collision repair facilities on a per transaction basis. EZNET communication services are generally priced on a per transaction basis. Monthly subscription and transaction rates for all products and services are established under negotiated contracts or pricing agreements. In general, customer account balances are settled monthly. Under the terms of certain contracts involving quarterly or annual prepayments, deferred revenues are recorded and subsequently recognized over the periods in which related revenues are earned. Customer contracts generally have multi-year terms. A substantial portion of the Company's revenues were earned under contracts with customers that provide for exclusivity or specify minimum purchase requirements; most remaining revenue represented sales to customers that have been doing business with the Company for many years. Use of multi-year contracts is common practice within the industry, making it difficult to take customers from competitors during the contract term. As a result of debt incurred in connection with the Company's 1988 acquisition of CCC, the Company became highly leveraged. The Company's ability to invest in new product development and conduct its business in accordance with its business plan was constrained by limitations imposed by its acquisition borrowings. The Company formed CCCDC to develop the EZEST collision estimating software. To finance EZEST development and marketing efforts, the Company relied on the sale of revenue streams from certain end-user collision estimating contracts. These contract funding transactions provided essential liquidity until June 1994, when the Company completed a recapitalization. In connection with this recapitalization, White River acquired $39 million of Mandatorily Redeemable Preferred Stock ("Preferred Stock"), and 7,050,840 shares of the Company's common stock (the "White River Transaction"), and CCC entered into the 1994 bank credit facility. White River immediately sold $1,462,000 of the Preferred Stock (3.7% of the then-outstanding Preferred Stock) and 264,407 shares of the Common Stock (1.6% of the then-outstanding Common Stock) to two investment partnerships affiliated with Hambrecht & Quist LLC. In 1994, the Company acquired the 50% of CCCDC that it did not previously own. In 1995, the Company consolidated this investment with its other operations. The Preferred Stock includes certain rights set forth in detail in Notes 10 and 11 to the consolidated financial statements, Mandatorily Redeemable Preferred Stock and Initial Public Offering of Common Stock, respectively. In particular, the Series E Preferred Stock permits White River and its affiliates to cast 51% of the votes to be cast on any matter to be voted on by the holders of the Company's common stock, subject to reductions in the event that either the Company redeems part of the outstanding Series E Preferred Stock or White River and its affiliates no longer hold all of such stock. In addition, under the terms of a Stockholders Agreement among White River and certain stockholders, including the Company's Chairman (the "Management Stockholders"), the parties have agreed, subject to fiduciary duties, that 15 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES White River will vote with the Management Stockholders regarding defined business combinations and subsequent offerings of Company common stock. Depreciation expense includes depreciation attributable to certain software acquired through the Company's acquisition of UCOP's interest in CCCDC. In the purchase price allocation for the CCCDC acquisition, $5.2 million was assigned to purchased software, $13.8 million was assigned to in-process research and development software projects, $6.6 million was assigned to acquired tangible assets and the balance of $3.7 million was assigned to goodwill. The amount assigned to in-process research and development was charged against operating results at the time of the acquisition. The Company expenses research and development costs as incurred. The Company has evaluated the establishment of technological feasibility of its product in accordance with Statement of Financial Accounting Standard No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The Company sells its products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, the Company has concluded that technological feasibility is not established until the development stage of the product is nearly complete. The Company defines technological feasibility as the completion of a working model. The time period during which costs could be capitalized, from the point of reaching technological feasibility until the time of general product release, is very short and, consequently, the amounts that could be capitalized are not material to the Company's financial position or results of operations. Therefore, the Company has charged all such costs to research and development in the period incurred. The Company believes that its future success depends on its ability to enhance its current services and products and to develop new services and products that address the needs of its customers. As a result, the Company has in the past and intends to continue to commit substantial resources to product development and programming. Over the past three years ended December 31, 1997 the Company expended approximately $52.1 million for product development and programming. Prior to 1996, the Company had offset the income tax benefit attributable to a portion of the Company's future income tax deductions with tax valuation allowances because of the Company's history of operating losses and an inability to project future taxable income with certainty. This treatment increased the Company's overall effective income tax rate in the years the deferred income tax valuation allowances were provided. As a result of the Company's successful public offering and recently improved operating results, valuation allowances totaling $4.7 million were released to income in 1996. Despite its pre-offering accumulated deficit, the Company's net operating loss carryforwards totaled only $0.3 million. This disparity is attributable to the lack of tax basis for certain past operating charges. Since inception, the Company has charged against earnings: (i) goodwill amortization related to acquired businesses in the amount of approximately $38.8 million, (ii) purchased in-process research and development software projects of approximately $13.8 million and (iii) purchased software amortization of approximately $4.8 million. The Offering did not result in a change in control for income tax purposes that would limit the use of the net operating loss carryforwards. In addition, as of December 31, 1997, the Company had no research or investment tax credit carryforwards. 16 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUE The Company's results from operations, as a percentage of revenue for the periods indicated, are set forth below:
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Revenues.......................................................................... 100.0% 100.0% 100.0% ----- ----- ----- Expenses: Operating Expenses: Production and customer support............................................... 22.4 24.3 27.9 Commissions, royalties and licenses........................................... 11.9 10.7 10.1 Selling, general and administrative........................................... 32.0 31.0 31.4 Depreciation and amortization................................................. 4.8 5.6 8.3 Product development and programming........................................... 12.7 13.0 12.9 Litigation settlement........................................................... -- -- 3.9 ----- ----- ----- Operating income.................................................................. 16.2 15.4 5.5 Interest expense.................................................................. (0.1) (2.0) (5.0) Other income, net................................................................. 0.9 0.5 0.4 ----- ----- ----- Income from operations before income taxes........................................ 17.0 13.9 0.9 Income tax (provision) benefit.................................................... (7.1) (2.0) 0.2 ----- ----- ----- Income from operations............................................................ 9.9% 11.9% 1.1% ----- ----- ----- ----- ----- -----
1997 COMPARED WITH 1996 For the year ended December 31, 1997, the Company reported net income applicable to common stock of $15.5 million, or $0.62 per share on a diluted basis, versus net income applicable to common stock of $8.2 million, or $0.40 per share on a diluted basis, for the same period last year. Operating income for the year ended December 31, 1997 of $25.7 million was $5.6 million higher than the same period last year. REVENUES. Revenues for the year ended December 31, 1997 of $159.1 million were $28.1 million, or 21.5% higher than the same period last year. The increase in revenues was due primarily to higher revenues from workflow/collision estimating software licensing and valuation services. Workflow/collision estimating software revenue increased due to an increase in the number of units in both the autobody and insurance markets. Valuation services revenue increased due to higher transaction volume. PRODUCTION AND CUSTOMER SUPPORT. Production and customer support increased from $31.8 million to $35.7 million. Due to leverage on a higher revenue base and continued efforts to reduce production costs, production and customer support decreased on a percent of revenue basis from 24.3% to 22.4%. COMMISSIONS, ROYALTIES AND LICENSES. Commission, royalties and licenses increased from $14.0 million or 10.7% of revenues to $18.9 or 11.9% of revenues. The increase as a percent of revenues was due primarily to higher revenues from autobody collision estimating licensing which generates both a commission and a data royalty. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative increased from $40.7 million or 31% of revenues to $50.9 million or 32% of revenues. Headcount increases as well as higher average wages necessary to recruit and retain key employees were the principal reasons for the increase. 17 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $7.3 million to $7.7 million. On a percentage of revenue base, depreciation and amortization decreased from 5.6% of revenues to 4.8%. Leverage on a higher revenue base created the decrease in percentage terms. PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming increased from $17.0 million to $20.2 million. Due to leverage on a higher revenue base, product development and programming costs declined from 13.0% of revenues to 12.7%. OTHER INCOME/INTEREST EXPENSE AND INCOME TAXES. Net other income/interest expense changed from a net expense of $1.9 million last year to net other income of $1.4 million. The change in net other income was a combination of the full year impact of a change in the capital structure subsequent to the public offering of common stock in 1996, as well as a significant increase in invested cash in 1997 generated from operations. The effective income tax rate increased from 14.7% to 41.5% due primarily to the release of deferred income tax valuation allowances in 1996. Adjusting the 1996 tax rate for the release of valuation allowances would have resulted in an effective tax rate of 40.4%. 1996 COMPARED WITH 1995 For the year ended December 31, 1996, the Company reported net income applicable to common stock of $8.2 million, or $0.40 per share on a diluted basis, versus a net loss applicable to common stock of $1.7 million, or $0.10 per share on a diluted basis, for the same period last year. Operating income for the year ended December 31, 1996 of $20.1 million was $13.8 million higher than the same period last year. A litigation settlement charge of $4.5 million was recorded in the comparable 1995 period. REVENUES. Revenues for the year ended December 31, 1996 of $131.0 million were $15.5 million, or 13.4%, higher than the same period last year. The increase in revenues was due primarily to higher revenues from collision estimating software licensing, from ACCESS claims services and from TOTAL LOSS vehicle valuation services. Collision estimating software licensing revenues increased primarily because of an increase in the number of software licenses, particularly at collision repair facilities. ACCESS claims services revenues increased primarily as a result of higher transaction volume. TOTAL LOSS revenues increased as a result of both higher volume and a slightly higher rate per transaction. PRODUCTION AND CUSTOMER SUPPORT. Production and customer support decreased from $32.3 million, or 27.9% of revenues, to $31.8 million or 24.3% of revenues, due primarily to the Company's efforts to reduce selected production costs. COMMISSIONS, ROYALTIES AND LICENSES. Commission, royalties and licenses increased from $11.7 million, or 10.1% of revenues, to $14.0 million, or 10.7% of revenues. The increase as a percent of revenues was due primarily to higher revenues from autobody collision estimating licensing which generates both a commission and a data royalty. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative increased from $36.3 million, or 31.4% of revenues, to $40.7 million, but declined to 31.0% of revenues. The decline as a percentage of revenue primarily represents the increase in revenues but also reflects the results of the Company's cost containment programs. DEPRECIATION AND AMORTIZATION. Depreciation and amortization declined from $9.6 million, or 8.3% of revenues, to $7.3 million, or 5.6% of revenues. The decline relates primarily to expiration, as of March 31, 1996, of purchased software amortization associated with the Company's acquisition of its former partner's interest in CCCDC. 18 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming increased from $14.9 million, or 12.9% of revenues to $17.0 million, or 13.0% of revenues. The increase was due primarily to an increasing allocation of Company resources to product development and wage pressure associated with retaining software engineers. INTEREST EXPENSE AND INCOME TAXES. Interest expense declined from $5.8 million to $2.6 million due to repayments of long-term debt, including the substantial debt repayments following the Company's initial public offering of common stock. The effective income tax rate for the year of 14.7% reflects the release of deferred income tax valuation allowances totaling $4.7 million. The decision to release these deferred income tax valuation allowances was based upon the successful recapitalization of the Company through its initial public offering and management's increased confidence in predicting the timing and amount of future taxable income. LIQUIDITY AND CAPITAL RESOURCES During the year ended December 31, 1997, net cash provided by operating activities was $20.1 million. The Company applied $8.1 million, excluding noncash capital expenditures, to purchase equipment and software and invested the rest of the excess cash in marketable securities. On August 21, 1996, the Company completed its initial public offering of common stock, generating proceeds of $72.1 million, net of underwriters' discounts and related equity issue costs. Proceeds from the offering of $36.1 million were used to redeem approximately 87% of the Company's mandatorily redeemable preferred stock at stated value plus accrued dividends. In addition, proceeds from the offering of $28.0 million were used to make principal repayments on long-term debt. On August 22, 1996, the Company secured a $20.0 million revolving credit facility through a new commercial bank. There have been no borrowings under the new facility. Indebtedness under the new facility would bear interest at either of two rates as selected by the Company: the London Inter-Bank Offering Rate ("LIBOR") plus 1.5% or the prime rate. Following the offering, the Company's principal liquidity requirements include its operating activities, including product development, and its investments in internal and customer capital equipment. Under the new bank facility, CCC is, with certain exceptions, prohibited from making certain sales or transfers of assets, incurring nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its capital stock, among other restrictions. In addition, the new bank credit facility also requires CCC to maintain certain levels of operating cash flow and debt coverage, and limits CCC's ability to make capital expenditures and investments and declare dividends. Management believes that cash flows from operations and available credit line facilities will be sufficient to meet the Company's liquidity needs over the next 12 months. There can be no assurance, however, that the Company will be able to satisfy its liquidity needs in the future without engaging in financing activities beyond those described above. YEAR 2000 ISSUE The year 2000 issue relates to computer system programs which may not properly recognize the change in date years from 1999 to 2000. As a result of this time sensitivity of existing software, any business entity is at risk for possible system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. In addition, entities that provide software solutions to their customers must monitor the year 2000 concerns in the applications their software supports. 19 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES Based on a risk assessment, the Company has been modifying or replacing significant portions of its software so that its computer systems will function properly with respect to the year 2000 date recognition. The Company believes that when completed, the modifications to existing software and conversions to new software, the year 2000 issue will not pose a significant operational problem. However, if such modifications and conversions are not made, or not completed timely, the year 2000 issue could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has utilized both internal and external resources to reprogram, or replace, and test software for year 2000 modifications. The Company anticipates completing the year 2000 project in early 1999. The anticipated total cost of the year 2000 project is not material. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. In that context, the discussion in this Item 7 contains forward-looking statements which involve certain degrees of risk and uncertainties, including statements relating to liquidity and capital resources. Except for the historical information, the matters discussed in this Item 7 are such forward-looking statements that involve risks and uncertainties, including, without limitation, the effect of competitive pricing within the industry, the presence of competitors with greater financial resources than the Company, the intense competition for top software engineering talent and the volatile nature of technological change within the automobile claims industry. Additional factors that could affect the Company's financial condition and results of operations are included in the Company's Final Prospectus in connection with the Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission on August 16, 1996, Commission File Number 333-07287. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required with respect to this Item 8 are listed in Item 14(a)(1) and 14(a)(2) included elsewhere in this filing ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT BOARD OF DIRECTORS WHITE RIVER CORPORATION, THE COMPANY'S LARGEST SHAREHOLDER, IS CURRENTLY EVALUATING A PROPOSED MERGER WITH AN AFFILIATE OF HARVARD PRIVATE CAPITAL GROUP, INC., AS WELL AS A PROPOSED OFFER, BY FUND AMERICAN, TO ACQUIRE ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF WHITE RIVER, NOT CURRENTLY OWNED BY WHITE RIVER. IF EITHER OF THESE PROPOSED TRANSACTIONS IS CONSUMMATED, THE CURRENT CONSTITUTION OF THE BOARD OF DIRECTORS WILL CHANGE. THE CHANGES WILL BE CONTAINED IN THE COMPANY'S PROXY STATEMENT. The following information with respect to the principal occupation, business experience and other affiliations of the directors of the Company has been furnished to the Company by the respective directors. JOHN J. BYRNE; AGE 65; CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FUND AMERICAN ENTERPRISES HOLDINGS, INC. Mr. Byrne has served as a Director of the Company since 1994. Mr. Byrne has been Chairman of the Board of Directors and Chief Executive Officer of Fund American Enterprises Holdings, Inc. 20 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ("Fund American") since 1985 and President of Fund American since 1990. Mr. Byrne has also been Chairman of the Board of Directors and a director of Financial Security Assurance Holdings Ltd. since May 1994. From 1989 through 1990, Mr. Byrne was Chairman of the Board of Directors of Fireman's Fund Insurance Company. Prior to joining Fireman's Fund Insurance Company, Mr. Byrne was Chairman and Chief Executive Officer of GEICO Corporation from 1976 to 1985. Mr. Byrne is an advisory director of Lehman Brothers Holdings, Inc., Terra Nova (Bermuda) Holdings, Ltd., Travelers/Aetna Property Casualty Corp., White Mountains Insurance Holdings, Southern Heritage Insurance Company and Merastar Insurance Company. Mr. Byrne is also an advisory director of Mid-America Apartment Communities, Inc. Mr. Byrne is a member of the Audit and Compensation Committees. MORGAN W. DAVIS; AGE 47; PRESIDENT AND CHIEF EXECUTIVE OFFICER, WHITE MOUNTAIN INSURANCE CO. Mr. Davis has served as a Director of the Company since 1995. He has also served since 1995 as the President and Chief Executive Officer of White Mountains Insurance Company, a wholly-owned subsidiary of Fund American. From 1992 to 1994, Mr. Davis was self-employed as a private investor in a number of entrepreneurial enterprises. From 1987 to 1992, he served as President of Fireman's Fund Commercial Insurance. Mr. Davis is currently a Director of White Mountain Holdings and Valley Insurance Group. Mr. Davis is a member of the Audit and Compensation Committees. THOMAS L. KEMPNER; AGE 70; CHAIRMAN AND CHIEF EXECUTIVE OFFICER, LOEB PARTNERS CORPORATION. Mr. Kempner has served as a Director of the Company since 1983. Since 1979 he has served as Chairman and Chief Executive Officer of Loeb Holding Corporation, an investment banking, registered broker/ dealer and registered investment advisory firm. He also serves as a director of the following companies: Alcide Corporation; Energy Research Corporation; IGENE BioTechnology, Inc.; Intermagnetics General Corporation; and Northwest Airlines, Inc. Roper, Starch Worldwide, Inc. Mr. Kempner is Chairman of the Compensation Committee and a member of the Audit Committee. GORDON S. MACKLIN; AGE 69; CHAIRMAN, PRESIDENT AND CEO OF WHITE RIVER CORPORATION. MR. MACKLIN HAS SERVED AS A DIRECTOR OF THE COMPANY SINCE 1994. Mr. Macklin has been Chairman of White River Corporation since 1993 and President and CEO since January 1998. From 1987 to 1992, he was Chairman of Hambrecht & Quist, LLC. Mr. Macklin served as President of The National Association of Securities Dealers, Inc. from 1970 to 1987, and was formerly a partner and Member of the Executive Committee of McDonald & Company, an investment banking firm, from 1950 to 1970. Mr. Macklin is a director, trustee, or managing general partner, as the case may be, of 52 of the investment companies in the Franklin/ Templeton Group, and a Director of Fund American Enterprises Holdings, Inc., MCI Communications Corporation, MedImmune, Inc., Source One Mortgage Services Corp. (a subsidiary of Fund American), Shoppers Express, Inc. and Spacehab, Inc. Mr. Macklin is a member of the Audit and Compensation Committees. ROBERT T. MARTO; AGE 52; DIRECTOR, WHITE RIVER CORPORATION. Mr. Marto has served as a Director of the Company since 1994. He served as President and Chief Executive Officer of White River Corporation from 1993 through December 22, 1997. His resignation was required under the terms of the proposed Harvard transaction. From 1990 to 1993, he was President of Fund American Enterprises, Inc. (a subsidiary of Fund American), and an Executive Vice President and Chief Financial Officer of Fund American. From 1977 to 1989, he held executive officer positions with Fireman's Fund Corporation and Fireman's Fund Life Insurance Company. Mr. Marto is also a director of Vicorp Restaurants, Inc., White River Corporation and Zurich Reinsurance Centre, Inc. Mr. Marto is Chairman of the Audit Committee and a member of the Compensation Committee. DAVID M. PHILLIPS; AGE 59; CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CCC INFORMATION SERVICES GROUP INC. Mr. Phillips has served as Chairman and Chief Executive Officer since founding the Company in 1983. 21 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES Prior to joining the Company, Mr. Phillips served in a number of capacities at Citicorp including Senior Vice President from 1975 to 1982. During his tenure he was controller of an operating group, and he was responsible for the Latin American Consumer Businesses that included banks, life insurance companies, finance companies and credit cards. Mr. Phillips previously served as Director of Special Markets and Division Controller at Polaroid Corporation. MICHAEL R. STANFIELD; AGE 47; MANAGING DIRECTOR, LOEB PARTNERS CORPORATION. Mr. Stanfield has served as a Director of the Company since 1995. He has been Managing Director of Loeb Partners Corporation since 1993. From 1990 to 1993, Mr. Stanfield was self-employed as an independent consultant. Mr. Stanfield is also a Director of BWIA International Airways Limited, and is a Director and CEO of CreditCom Services LLC. Mr. Stanfield is a member of the Audit and Compensation Committees. BOARD COMMITTEES: The Board of Directors has standing Audit and Compensation Committees. The Audit Committee is comprised entirely of non-employee directors ("Eligible Directors"), specifically Messrs. Byrne, Davis, Kempner, Macklin, Marto and Stanfield. The committee approves the appointment of the independent auditors and reviews and approves the scope of the audit, the financial statements, the independent auditors' letter of comments, if any, and management's responses thereto, and the fees charged for audit and tax services and any special assignments. The Committee appointed Price Waterhouse LLP as the Company's independent accountants for the year ending December 31, 1997. Mr. Marto is Chairman of the Audit Committee COMPENSATION COMMITTEE: The Compensation Committee is comprised entirely of "Eligible Directors", specifically Messrs. Byrne, Davis, Kempner, Macklin, Marto and Stanfield. The committee establishes the compensation programs for officers of the Company and reviews overall compensation and benefit programs of the Company. The committee also administers and selects participants for the Employee Stock Option Plan. Mr. Kempner is Chairman of the Compensation Committee. EXECUTIVE OFFICERS Information concerning the executive officers of the Company follows: DAVID M. PHILLIPS CHAIRMAN AND CHIEF EXECUTIVE OFFICER. Mr. Phillips founded the Company in 1983. Please refer to the biographical information contained in the Section entitled Board of Directors. J. LAURENCE COSTIN, JR. VICE CHAIRMAN. Mr. Costin joined the Company in February 1983 as Executive Vice President responsible for the Company's sales and client field service organization. He currently serves as Vice Chairman, a position he has held since May 1983. Prior to joining the Company, Mr. Costin was Senior Vice President and General Manager for the Midwest region of Seligman & Latz, Inc., a Fortune 500 company which managed department store concessions. GITHESH RAMAMURTHY PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF TECHNOLOGY OFFICER. Mr. Ramamurthy joined the Company in July 1992 as Executive Vice President-Product Engineering and Chief Technology Officer. In January 1996, he assumed the position of President-Insurance Division while retaining the position of Chief Technology Officer and in July 1997, he became President and Chief Operating Officer. Prior to joining the Company, Mr. Ramamurthy was a founding member of Sales Technologies, Inc., a field sales automation software company where he directed product development activities. Sales Technologies customers included a long list of Fortune 100 clients in the United States and Europe before it was acquired by Dun & Bradstreet in 1989. JOHN BUCKNER PRESIDENT, AUTOMOTIVE SERVICES. Mr. Buckner joined the Company in January 1994 as Senior Vice President-AutoBody Division. Mr. Buckner was promoted to Executive Vice President-Sales 22 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES and Services Division in 1995 and currently serves as President-Automotive Services Division. Prior to joining the Company, Mr. Buckner was Vice President and General Manager of U.S. Automotive Operations at Sun Electric Corporation. Previously, Mr. Buckner held a variety of senior sales and new market development positions at Reynolds & Reynolds. BLAINE R. ORNBURG PRESIDENT, OUTSOURCING DIVISION. Mr. Ornburg joined the Company in May 1995 as Executive Vice President-New Market Development. In January 1996, he assumed the additional responsibilities of Acting Chief Financial Officer, a position he held until June, 1996. In July 1997, he assumed the position of President of the Company's Outsourcing Division. Prior to joining the Company, Mr. Ornburg served as Senior Vice President of First Data Corporation. Mr. Ornburg joined First Data Corporation upon its purchase of Anasazi, Inc., a software and networking company Mr. Ornburg founded in 1987. Previously, Mr. Ornburg was Vice President-Point of Transaction Systems for Visa International. RICHARD J. RADI EXECUTIVE VICE PRESIDENT, INSURANCE DIVISION. Mr. Radi joined the Company in December 1997 as Executive Vice President, Insurance Division. Prior to joining the Company, from 1993 through 1997, he was Vice President, Worldwide Sales for D-Vision Systems, Inc., a multi-media software developer. From 1981 to 1993 he held various sales and sales management positions with IBM Corporation. LEONARD L. CIARROCCHI EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER. Mr. Ciarrocchi joined the Company in June 1996 as Executive Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Ciarrocchi was Vice President and Treasurer of White River Corporation from 1993 to 1996 and Manager of Finance of Fund American Enterprises, Inc. from 1991 to 1993. Mr. Ciarrocchi was Manager of Finance for Fireman's Fund Corporation from 1989 to 1991. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and holders of more than 10% of the Company's Common Stock to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. The Company believes that during the fiscal year ended December 31, 1997, its officers, directors and holders of more than 10% of the Company's Common Stock complied with all Section 16(a) filing requirements. In making these statements, the Company has relied upon the written representations of its directors and officers. PROCEDURES FOR NOMINATING DIRECTORS Seven directors are to be elected at the Company's Annual Meeting to serve until the earlier of the next Annual Meeting of Stockholders or until their respective successors have been elected and qualified. David M. Phillips (Chairman and Chief Executive Officer of the Company), Loeb Investors Co. XV, Loeb Investors Co. XIII and Loeb Investors Co. 108, of which Thomas L. Kempner (a director of the Company) is an affiliate (collectively, the "Management Stockholders"), White River Ventures and the Company have entered into a Stockholders Agreement dated June 16, 1994, pursuant to which the Management Stockholders and White River Ventures have agreed to certain provisions regarding the corporate governance of the Company, including the nomination and election of directors. The Stockholder Agreement sets forth the following condition regarding the nomination and election of directors: The Management Stockholders and White River Ventures shall take all actions necessary to cause the nomination and election to the board of directors of (i) a number of persons (which shall not be less than two) designated by White River Ventures which the board of directors determines to be appropriate taking into account the aggregate voting power and economic interest of White River Ventures and its affiliates in 23 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES the Company, and (ii) three persons designated by a majority of shares of Common Stock held by the Management Stockholders. The number of directors shall be seven while the Stockholders Agreement is in effect. The Stockholders Agreement terminates upon the first to occur of (i) the written agreement of the parties, (ii) the liquidation of dissolution of the Company, (iii) the first day on which there are no shares of Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock"), Series D Cumulative Redeemable Preferred Stock (the "Series D Preferred Stock"), or Series E Preferred Stock issued and outstanding, or (iv) June 16, 1999. Directors are elected by a plurality of the votes of the shares of Voting Stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Consequently, any shares not voted (whether by abstention, broker non-vote or votes withheld) will have no effect on the election of directors. If any nominee for election as director is unable to serve, the persons designated by Management Stockholders and Whiter River may vote for another person in accordance with their judgment. White River Ventures has designated Messrs. Byrne, Davis, Macklin and Marto as nominees for positions on the Board of Directors. The Management Stockholders have designated Messrs. Kempner, Phillips and Stanfield as nominees for positions on the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Directors not employed by the Company, its parent (White River Ventures), subsidiaries or affiliates were paid a fee of $5,450 for each Board meeting attended during fiscal 1997. COMPENSATION OF EXECUTIVE OFFICERS The following table summarizes the compensation of the Chief Executive Officer and the four other most highly compensated executive officers of the Company for the fiscal year ended December 31, 1997, and for the Company's previous two fiscal years. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------------------------- ANNUAL COMPENSATION ---------------------- (E) (F) RESTRICTED SECURITIES (G) (A) (B) (C) (D) STOCK UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) OPTIONS (#)(1) COMPENSATION - ------------------------------------- --------- ---------- ---------- --------------- -------------- ------------- David M. Phillips ................... 1997 $ 525,000 $ 162,475 -- 70,000 -- Chairman, and Chief 1996 $ 448,008 $ 100,000 -- -- -- Executive Officer 1995 $ 448,008 -- -- -- -- J. Laurence Costin, Jr. ............. Vice Chairman 1997 $ 289,284 $ 46,690 -- -- -- 1996 $ 272,016 $ 80,000 -- -- -- 1995 $ 259,031 $ 75,000 -- -- -- Githesh Ramamurthy .................. President, Chief Operating 1997 $ 302,515 $ 86,083 -- -- -- Officer and Chief Technology 1996 $ 260,751 $ 52,219 -- 120,000 -- Officer 1995 $ 208,340 -- -- 133,600 --
24 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
LONG TERM COMPENSATION AWARDS ------------------------------- ANNUAL COMPENSATION ---------------------- (E) (F) RESTRICTED SECURITIES (G) (A) (B) (C) (D) STOCK UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) OPTIONS (#)(1) COMPENSATION - ------------------------------------- --------- ---------- ---------- --------------- -------------- ------------- John Buckner ........................ 1997 $ 253,754 $ 83,415 -- -- -- President-- Automotive 1996 $ 213,132 $ 39,791 -- 50,000 -- Service Division 1995 $ 188,340 $ 51,625 -- 104,000 -- Blaine R. Ornburg ................... 1997 $ 210,009 $ 67,093 -- -- -- President-- Outsourcing 1996 $ 192,508 $ 40,700 -- 50,000 -- Division 1995 $ 131,046 -- -- 80,000 $ 50,000(2)
- ------------------------ (1) Represents the number of shares of Common Stock issuable upon exercise of options granted pursuant to the Stock Option Plan. (2) Compensation relating to relocation expenses. 25 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES 1997 STOCK OPTION GRANTS TO EXECUTIVES The following table shows information with respect to grants of options to the Chief Executive Officer and the other named executives in 1997. As required by the Securities and Exchange Commission (the "SEC"), the calculation of potential realizable values shown for such awards is based on assumed annualized rates of stock price appreciation of 5% and 10% over the full ten-year term of the options.
INDIVIDUAL GRANTS ------------------------------------------------------------ POTENTIAL REALIZABLE VALUE NUMBER OF % OF AT ASSUMED ANNUAL RATES OF SECURITIES TOTAL OPTIONS EXERCISE STOCK PRICE APPRECIATION UNDERLYING GRANTED TO PRICE FOR OPTION TERM (4) OPTIONS GRANTED EMPLOYEES IN ($/SHARE) EXPIRATION -------------------------- NAME (#) (1) FISCAL YEAR (2) (3) DATE 5%($) 10%($) - ----------------------------------- --------------- ----------------- ----------- ----------- ------------ ------------ David M. Phillips.................. 70,000 27% $ 18.50 04/15/02 $ 1,652,785 $ 2,085,610 J. Laurence Costin, Jr. -- -- -- -- -- -- Githesh Ramamurthy................. -- -- -- -- -- -- John Buckner....................... -- -- -- -- -- -- Blaine R. Ornburg.................. -- -- -- -- -- --
- ------------------------ (1) The options granted in 1997 are exercisable 25% on the first anniversary from the date of grant and 25% on each anniversary date of the grant for years two, three and four. (2) The Company granted options representing 337,500 shares to employees in 1997. The Company also has outstanding 120,000 shares granted in 1997 to non employee consultants and business partners. (3) Option exercise price is determined as the close price on the date of grant. (4) The potential realizable value is calculated based on the term of the option at its time of grant (5 years) and is calculated by assuming that the price on the date of grant as determined by the Board of Directors appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated price. The 5% and 10% assumed rates of appreciation are derived from the rules of the Securities and Exchange Commission and do not represent the Company's estimate of projection of the future Common Stock price. AGGREGATED OPTION EXERCISES IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997 This table sets forth information regarding exercise of options during 1997 by the Chief Executive Officer and the other named executives. The "value realized" is based on the market price on the date of 26 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES exercise, while the "value of unexercised in-the-money options at December 31, 1997" is based on the market price on that date.
AGGREGATED OPTION EXERCISES IN 1997 AND DECEMBER 31, 1997 OPTION VALUES ---------------------------------------------------------------------------------- VALUE OF UNEXERCISED, NUMBER OF SECURITIES IN-THE-MONEY SHARES UNDERLYING UNEXERCISED OPTIONS AT ACQUIRED ON OPTIONS AT 12/31/97(#) 12/31/97($) (1) EXERCISE VALUE -------------------------- --------------------------- NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - -------------------------------- ----------- ------------ ----------- ------------- ------------ ------------- David M. Phillips............... -- -- -- 70,000 -- $ 87,500 J. Laurence Costin, Jr.......... 15,600 $ 259,272 136,160 -- $ 2,501,259 -- Githesh Ramamurthy.............. 173,600 $ 2,723,749 128,160 125,440 $ 1,758,600 $ 1,514,400 John Buckner.................... -- -- 95,200 74,800 $ 1,429,184 $ 997,316 Blaine R. Ornburg............... -- -- 68,000 62,000 $ 1,035,000 $ 832,500
- ------------------------ (1) Value of unexercised, in-the-money options based on a fair market value of Company Common Stock of $19.75 per share as of December 31, 1997. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of Mr. Buckner, Mr. Ramamurthy, Mr. Ornburg, Mr. Ciarrocchi and Mr. Costin. Mr. Buckner's employment agreement provides for an initial annual salary of $250,000 plus bonus, and terminates April 30, 2001. Mr. Ramamurthy's employment agreement provides for an initial annual salary of $275,000 plus bonus, and terminates June 30, 2001. Mr. Ornburg's employment agreement provides for an initial annual salary of $200,000 plus bonus, and terminates June 30, 2001. Mr. Ciarrocchi's employment agreement provides for an initial annual salary of $200,000 plus bonus, and terminates June 30, 2001. Mr. Costin's employment agreement provides for an initial annual salary of $230,000 plus bonus, and terminates April 30, 1999. Messrs. Buckner's, Ramamurthy's, Ciarrocchi's and Ornburg's employment agreements each contain a non-compete and a change of control provision. REPORT OF THE COMPENSATION COMMITTEE In compliance with the terms of the Stockholder Agreement described above (See "Procedures for Nominating Directors") the Management Stockholders and White River Ventures have agreed to the creation of a Compensation Committee, which shall be responsible (i) for establishing guidelines with respect to all compensation matters involving the Company and its Subsidiaries and (ii) authorizing all compensation arrangements between the Company and its Subsidiaries and their respective directors, officers, employees and consultants involving the payment by the Company or any of its Subsidiaries to any of such individuals of Base Salary equal to or greater than $125,000. The Compensation Committee shall consist of members of the Board of Directors who are not officers or employees of the Company or any of its Subsidiaries. The Compensation Committee of the Board of Directors ("Committee") establishes the general compensation policies of the Company and establishes the specific compensation plans, performance goals and compensation levels for executive officers. The Committee also administers and selects participants for the current Employee Stock Option Plan. The Committee is composed of six independent, non-employee directors who have no interlocking relationships. 27 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES COMPENSATION POLICIES The principal objective of the Committee's approach to executive compensation is to align such compensation with stockholder value. The Committee seeks to accomplish this objective by setting base salaries below the median for similar positions at comparable companies, while linking the two remaining variable components of cash compensation (annual bonus and long term performance cash award) to aggressive performance factors which enhance stockholder value. Stock options are used as a vehicle to further align long-term executive performance with stockholder value. In this way, above-average total compensation is achieved only for outstanding Company performance. COMPENSATION COMPONENTS BASE SALARY. Base salary levels for the named Executive Officers are determined by the Committee on the basis of what, in its discretion, it deems to be appropriate pay for the responsibilities consistent with the policies stated above. ANNUAL BONUS. The CEO's annual cash bonus is discussed below under "1997 Chief Executive Officer Compensation Actions." The annual cash bonus for executives other than the CEO is determined based on several factors (i) the most significant factor is actual earnings per share (EPS); (ii) company wide revenue goals; and (iii) achievement of specified, measurable objectives related to the executive's area of responsibilities. EMPLOYEE STOCK OPTIONS. Employee stock options are an important component of the compensation package for executives because they directly focus management's attention on the interests of stockholders. The Committee makes periodic grants of stock options to executive officers and other key employees to foster a commitment to increasing long-term stockholder value. During 1997, the Committee granted a total of 337,500 options to selected employees of which 70,000 options were granted to Company executives. The Company's grants of options are always at no less than fair market value on the date of grant. 1997 CHIEF EXECUTIVE OFFICER COMPENSATION ACTIONS The CEO's annual base salary for fiscal year 1997 was $525,000 an increase from his previous salary of $448,008 which had been his annual base salary since 1989. The CEO's annual bonus is principally based on company performance targets established annually by the Committee. Specifically, the factors considered include actual earnings per share, company wide revenue goals and to a lesser extent, the achievement of specified, measurable objectives. The Company achieved its targeted earnings per share and a significant portion of its targeted revenue goal. To date, the Committee has not determined the resulting bonus for this 1997 performance. This amount will be included in the proxy when filed. 28 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES DEDUCTIBILITY OF EXECUTIVE COMPENSATION The Committee believes that its compensation programs have been structured in a manner to preserve full deductibility to the Company of executive compensation for Federal Income Tax purposes. Thomas L. Kempner, Chairman Compensation Committee Committee Members John J. Byrne Morgan W. Davis Gordon S. Macklin Robert T. Marto Michael R. Stanfield PERFORMANCE GRAPH The information required by this item is hereby incorporated by reference to the Company's Notice of 1998 Meeting of Stockholders and Proxy Statement, which will be filed with the Securities and Exchange Commission and provided to shareholders on or about April 15, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding persons known to the Company (based on information filed with the Securities and Exchange Commission) to be the beneficial owners of more than five percent of any class of the Company's voting securities as of March 6, 1998:
AMOUNT AND NATURE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF TITLE AND CLASS BENEFICIAL OWNER OWNERSHIP CLASS (1) - ----------------------------------------------- -------------------------------- ----------- ----------------- Common Stock................................... Loeb Entities (2)(4) 3,457,315 14.0 Common Stock................................... White River Ventures (3)(4) 8,584,564 34.7 Preferred Stock-Series E....................... White River Ventures (3)(4) 500 100
- ------------------------ (1) Beneficial ownership is determined in accordance with the rules of the Securities Exchange Commission and generally includes voting or investment power with respect to the securities. (2) Includes Loeb Investors Co. XIII, Loeb Investors Co. XV and Loeb Investors Co. 108. The address of the Loeb Entities is 61 Broadway, 24th Floor, New York, New York 10006. (3) The address of White River Ventures is Two Gannett Drive, Suite 200, White Plains, New York 10604. Loeb Entities, White River Ventures and David M. Phillips have entered into a Stockholders Agreement which provides for certain voting rights. Please refer to the section above entitled "Voting" for a description of certain of these rights. 29 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) The following table sets forth information regarding ownership of the Company's Common Stock as of March 6, 1998 by Directors, by each of the named Executive Officers and by all Executive Officers and Directors as a group:
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF TITLE AND CLASS NAME OF BENEFICIAL OWNER OWNERSHIP CLASS (1) - ---------------------------------------- --------------------------------------- ------------------- ------------- Common Stock............................ David M. Phillips(2) 927,760 3.7 Common Stock............................ J. Laurence Costin(3) 209,865 * Common Stock............................ Githesh Ramamurthy(4) 361,760 1.5 Common Stock............................ John Buckner(5) 110,320 * Common Stock............................ Blaine R. Ornburg(6) 112,000 * Common Stock............................ John J. Byrne -- -- Common Stock............................ Morgan W. Davis 3,000 * Common Stock............................ Thomas L. Kempner(7) 3,724,674 15.0 Common Stock............................ Gordon S. Macklin (8)(10) 8,584,564 34.7 Common Stock............................ Robert T. Marto (9)(10) 8,584,564 34.7 Common Stock............................ Michael R. Stanfield -- -- Common Stock............................ All directors and executive officers as 14,033,943 56.7 a group (11 persons)
- ------------------------ * Less than one percent of the outstanding Common Stock (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. (2) Includes 400,000 shares of Common Stock held by Ruth Ann Phillips, Mr. Phillips' wife. Mr. Phillips disclaims beneficial ownership of the shares held by Ruth Ann Phillips, except to the extent of his pecuniary interests therein. (3) Includes 136,160 shares of Common Stock issuable upon exercise of outstanding options which are exercisable within 60 days of March 6, 1998. (4) Includes 128,160 shares of Common Stock issuable upon exercise of outstanding options which are exercisable within 60 days of March 6, 1998. (5) Includes 97,600 shares of Common Stock issuable upon exercise of outstanding options which are exercisable within 60 days of March 6, 1998. (6) Includes 84,000 shares of Common Stock issuable upon exercise of outstanding options which are exercisable within 60 days of March 6, 1998. Includes 24,000 shares of Common Stock issuable upon exercise of outstanding options which are exercisable within 60 days of March 6, 1998. (7) Includes 3,457,315 shares of Common Stock held by the Loeb Entities. Mr. Kempner is the managing general partner or the general partner of the general partner of each of the Loeb Entities. Mr. Kempner disclaims beneficial ownership of the shares held by the Loeb Entities, except to the extent of his pecuniary interests therein. Also includes 200,000 shares of Common Stock and 67,360 30 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) shares of common stock issuable upon exercise of outstanding options which are exercisable within 60 days of March 6, 1998. (8) Includes 8,584,564 shares of Common Stock held by White River, Mr. Macklin is Chairman of the Board of Directors of White River and disclaims beneficial ownership of the shares held by White River, except to the extent of his pecuniary interests therein. (9) Includes 8,584,564 shares of Common Stock held by White River. Mr. Marto is President and Chief Executive Officer of White River and disclaims beneficial ownership of the shares held by White River, except to the extent of his pecuniary interests therein. (10) White River Ventures also owns 630 shares of Series C Preferred Stock, which is 100% of the outstanding shares of such class, 3,601 shares of Series D Preferred Stock, which is 95% of the outstanding shares of such class, and 500 shares of Series E Preferred Stock, which is 100% of the outstanding shares of such class. Mr. Macklin and Mr. Marto disclaim beneficial ownership of the shares held by White River Ventures, except to the extent of their pecuniary interests therein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is hereby incorporated by reference to Company's Notice of 1998 Meeting of Stockholders and Proxy Statement, which will be filed with the Securities and Exchange Commission and provided to shareholders on or about April 15, 1998. 31 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Index to Consolidated Financial Statements and Schedules 1. Consolidated Financial Statements
PAGE(S) --------- Report of Independent Accountants............................................... 33 Consolidated Financial Statements: Consolidated Statement of Operations.......................................... 34 Consolidated Balance Sheet.................................................... 35 Consolidated Statement of Cash Flow........................................... 36 Consolidated Statement of Stockholders' Equity (Deficit)...................... 37 Notes to Consolidated Financial Statements.................................... 38-51
2. Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts.................. 52
All other schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required. 3. Exhibits Index to Exhibits............................................... 53
(b) Reports on Form 8-K No reports on Form 8-K were filed by CCC Information Services Group Inc. during 1997. 32 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of CCC Information Services Group Inc. In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 14(a)1 and (a)2 present fairly, in all material respects, the financial position of CCC Information Services Group Inc. (a subsidiary of White River Ventures, Inc.) and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP January 21, 1998 except as to Note 15, which is as of February 10, 1998 Chicago, Illinois 33 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- Revenues..................................................................... $ 159,106 $ 130,977 $ 115,519 Expenses: Production and customer support............................................ 35,657 31,828 32,261 Commissions, royalties and licenses........................................ 18,939 14,009 11,720 Selling, general and administrative........................................ 50,914 40,653 36,279 Depreciation and amortization.............................................. 7,688 7,330 9,572 Product development and programming........................................ 20,203 17,026 14,865 Litigation settlement...................................................... -- -- 4,500 ---------- ---------- ---------- Operating income............................................................. 25,705 20,131 6,322 Interest expense............................................................. (139) (2,562) (5,809) Other income, net............................................................ 1,505 636 482 ---------- ---------- ---------- Income from operations before income taxes................................... 27,071 18,205 995 Income tax (provision) benefit............................................... (11,239) (2,683) 291 ---------- ---------- ---------- Income from operations before extraordinary item............................. 15,832 15,522 1,286 Extraordinary loss on early retirement of debt, net of income taxes.......... -- (678) -- ---------- ---------- ---------- Net income................................................................... 15,832 14,844 1,286 Dividends and accretion on mandatorily redeemable preferred stock............ (365) (6,694) (3,003) ---------- ---------- ---------- Net income (loss) applicable to common stock................................. $ 15,467 $ 8,150 $ (1,717) ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA: INCOME PER COMMON SHARE--BASIC Income (loss) applicable to common stock before extraordinary item......... $ 0.65 $ 0.46 $ (0.11) Extraordinary loss on early retirement of debt, net of income taxes........ -- (0.03) -- ---------- ---------- ---------- Net income (loss) applicable to common stock............................... $ 0.65 $ 0.43 $ (0.11) ---------- ---------- ---------- ---------- ---------- ---------- INCOME PER COMMON SHARE--DILUTED Income (loss) applicable to common stock before extraordinary item......... $ 0.62 $ 0.43 $ (0.11) Extraordinary loss on early retirement of debt, net of income taxes........ -- (0.03) -- ---------- ---------- ---------- Net income (loss) applicable to common stock................................. $ 0.62 $ 0.40 $ (0.11) ---------- ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding Basic...................................................................... 23,807 19,056 16,300 Diluted.................................................................... 24,959 20,367 16,300
The accompanying notes are an integral part of these consolidated financial statements. 34 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS) ASSETS
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- Cash...................................................................................... $ 2,064 $ 9,403 Investments in marketable securities...................................................... 30,054 9,001 Accounts receivable, net.................................................................. 18,302 9,772 Other current assets...................................................................... 5,270 3,207 ---------- ---------- Total current assets.................................................................... 55,690 31,383 Equipment and purchased software, net of accumulated depreciation of $26,793 and $20,361 at December 31, 1997 and 1996, respectively...................... 9,700 8,088 Goodwill, net of accumulated amortization of $10,238 and $8,893 at December 31, 1997 and 1996, respectively............................................. 9,885 11,230 Deferred income taxes..................................................................... 7,237 6,410 Other assets.............................................................................. 982 1,157 ---------- ---------- Total Assets............................................................................ $ 83,494 $ 58,268 ---------- ---------- ---------- ---------- LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses..................................................... $ 18,383 $ 15,821 Income taxes payable...................................................................... 2,637 1,517 Current portion of long-term debt......................................................... 111 120 Deferred revenues......................................................................... 5,824 5,709 Current portion of contract funding....................................................... -- 123 ---------- ---------- Total current liabilities............................................................... 26,955 23,290 Long-term debt............................................................................ -- 111 Deferred revenues......................................................................... 1,728 1,997 Other liabilities......................................................................... 3,930 3,889 Commitments and contingencies (Note 15) ---------- ---------- Total liabilities....................................................................... 32,613 29,287 ---------- ---------- Mandatorily redeemable preferred stock ($1.00 par value, 100,000 shares authorized, 4,915 shares designated and outstanding)........................................................................ 5,054 4,688 ---------- ---------- Common stock ($0.10 par value, 30,000,000 shares authorized, 24,577,910 and 23,472,355 shares issued and outstanding at December 31, 1997 and 1996, respectively)............................................... 2,458 2,347 Additional paid-in capital................................................................ 90,273 84,223 Accumulated deficit....................................................................... (46,431) (61,898) Treasury stock, at cost ($0.10 par value, 117,618 and 112,505 shares in treasury at December 31, 1997 and 1996, respectively)................................ (473) (379) ---------- ---------- Total stockholders' equity.............................................................. 45,827 24,293 ---------- ---------- Total Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders' Equity............................................................ $ 83,494 $ 58,268 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 35 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Operating Activities: Net income..................................................................... $ 15,832 $ 14,844 $ 1,286 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Extraordinary loss on early retirement of debt, net of income taxes.......... -- 678 -- Depreciation and amortization of equipment and purchased software............ 6,307 5,948 8,154 Amortization of goodwill..................................................... 1,345 1,345 1,346 Deferred income tax provision (benefit)...................................... (827) (2,600) 1,659 Contract funding proceeds.................................................... -- -- 149 Contract funding revenue amortization........................................ (123) (3,340) (10,249) Other, net................................................................... 111 451 559 Changes in: Accounts receivable, net................................................... (8,530) 127 (1,272) Other current assets....................................................... (2,063) (330) 339 Other assets............................................................... 175 (58) (149) Accounts payable and accrued expenses...................................... 2,562 (3,831) 5,194 Current income taxes....................................................... 5,394 3,371 (961) Deferred revenues.......................................................... (154) 2,046 1,312 Other liabilities.......................................................... 41 1,604 356 --------- --------- --------- Net cash provided by operating activities................................ 20,070 20,255 7,723 --------- --------- --------- Investing Activities: Purchases of equipment and software............................................ (8,051) (5,568) (3,003) Purchase of investment securities.............................................. (75,164) (9,001) -- Proceeds from sales of investment securities................................... 54,111 -- -- Proceeds from sale of discontinued operations, net of expenses................. -- -- 500 Other, net..................................................................... 21 25 48 --------- --------- --------- Net cash used for investing activities................................... (29,083) (14,544) (2,455) --------- --------- --------- Financing Activities: Principal payments on long-term debt........................................... (120) (46,740) (11,101) Proceeds from issuance of long-term debt....................................... -- 10,750 4,000 Public offering of common stock, net of underwriters' discounts................ -- 73,795 -- Redemption of preferred stock, including accrued dividends..................... -- (36,131) -- Payment of equity and debt issue costs......................................... -- (2,053) -- Proceeds from exercise of stock options........................................ 1,794 -- -- Other, net..................................................................... -- 176 26 --------- --------- --------- Net cash provided by (used for) financing activities..................... 1,674 (203) (7,075) --------- --------- --------- Net increase (decrease) in cash.................................................. (7,339) 5,508 (1,807) Cash: Beginning of period............................................................ 9,403 3,895 5,702 --------- --------- --------- End of period.................................................................. $ 2,064 $ 9,403 $ 3,895 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 36 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
OUTSTANDING COMMON STOCK TREASURY STOCK TOTAL ---------------------- ADDITIONAL ---------------------- STOCKHOLDERS' NUMBER OF PAID-IN ACCUMULATED NUMBER OF EQUITY SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST (DEFICIT) ----------- --------- ----------- ------------ ----------- --------- ------------ December 31, 1994................... 16,297,200 $ 1,630 $ 11,655 $ (67,802) 111,920 $ (212) $ (54,729) Preferred stock accretion......... -- -- -- (1,931) -- -- (1,931) Preferred stock dividends accrued............... -- -- -- (1,072) -- -- (1,072) Stock options exercised........... 19,200 2 24 -- -- -- 26 Net income........................ -- -- -- 1,286 -- -- 1,286 ----------- --------- ----------- ------------ ----------- --------- ------------ December 31, 1995................... 16,316,400 1,632 11,679 (69,519) 111,920 (212) (56,420) Initial public offering of common stock, net of underwriters' discounts and equity issue costs.......... 6,900,000 690 71,434 -- -- -- 72,124 Preferred stock accretion......... -- -- -- (6,006) -- -- (6,006) Preferred stock dividends accrued............... -- -- -- (688) -- -- (688) Stock options exercised, including income tax benefit (*).......... 242,355 24 678 -- 14,185 (193) 509 Treasury stock issuance........... 13,600 1 21 -- (13,600) 26 48 Investment security distribution.. -- -- -- (530) -- -- (530) Other............................. -- -- 411 1 -- -- 412 Net income........................ -- -- -- 14,844 -- -- 14,844 ----------- --------- ----------- ------------ ----------- --------- ------------ December 31, 1996................... 23,472,355 2,347 84,223 (61,898) 112,505 (379) 24,293 Preferred stock accretion........... -- -- -- (365) -- -- (365) Stock options exercised including income tax benefit.............. 1,105,555 111 6,050 -- -- -- 6,161 Other............................. -- -- -- -- 5,113 (94) (94) Net income........................ -- -- -- 15,832 -- -- 15,832 ----------- --------- ----------- ------------ ----------- --------- ------------ December 31, 1997 24,577,910 $ 2,458 $ 90,273 $ (46,431) 117,618 $ (473) $ 45,827 ----------- --------- ----------- ------------ ----------- --------- ------------ ----------- --------- ----------- ------------ ----------- --------- ------------
- -------------------------- (*) Note 14--Stock Option Plan contains a table of stock option activity that reflects 256,540 stock options exercised in 1996. The difference between the table in Note 14 and the Statement above represents the payment of a portion of the exercise price and/or income tax obligation arising from the stock option exercise with mature shares of the Company's common stock. These shares totaled 14,185 in 1996 and are held in treasury. The accompanying notes are an integral part of these consolidated financial statements. 37 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--DESCRIPTION OF BUSINESSES AND ORGANIZATION CCC Information Services Group Inc. ("Company") (formerly known as InfoVest Corporation), through its wholly owned subsidiary CCC Information Services Inc. ("CCC"), is a supplier of automobile claims information and processing, claims management software and communication services. (CCC operates a wholly owned subsidiary in Canada, Certified Collateral Corporation of Canada, Ltd.) The Company's services and products enable automobile insurance company customers and collision repair facility customers to improve efficiency, manage costs and increase consumer satisfaction in the management of automobile claims and restoration. As of December 31, 1997, White River Ventures, Inc. ("White River") held approximately 35% of the total outstanding common stock of the Company. White River is a wholly owned subsidiary of White River Corporation. As a result of White River's substantial equity interest and 51% voting power, including voting rights established through its ownership interest in the Company's Series E Preferred Stock, the Company is a consolidated subsidiary of White River. See Note 10--Mandatorily Redeemable Preferred Stock and Note 11--Initial Public Offering of Common Stock. NOTE 2--SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are currently wholly owned. REVENUE RECOGNITION Revenues are recognized as services are provided. Of total Company revenues in the years 1997, 1996 and 1995, 66%, 69% and 70%, respectively, were attributable to revenues from insurance companies. ACCOUNTS RECEIVABLE Accounts receivable as presented in the accompanying consolidated balance sheet are net of reserves for customer credits and doubtful accounts. As of December 31, 1997 and 1996, $2.7 million, and $1.9 million, respectively, have been applied as a reduction of accounts receivable. Of total accounts receivable, net of reserves, at December 31, 1997 and 1996, $14.3 million and $8.7 million, respectively, were due from insurance companies. INTERNAL SOFTWARE DEVELOPMENT COSTS The Company expenses research and development costs as incurred. The Company has evaluated the establishment of technological feasibility of its product in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The Company sells its products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, the Company has concluded that technological feasibility is not established until the development stage of the product is nearly complete. The Company defines technological feasibility as the completion of a working model. The time period during which costs could be capitalized, from the point of reaching technological feasibility until the time of general product release, is very short and, consequently, the amounts that could be capitalized are not material to the Company's financial position or results of operations. Therefore, the Company has charged all such costs to research and 38 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) development in the period incurred. For the years 1997, 1996 and 1995, research and development costs of approximately $5.5 million, $4.3 million and $3.5 million, respectively, are reflected in the accompanying consolidated statement of operations. EQUIPMENT AND PURCHASED SOFTWARE Equipment is stated at cost, net of accumulated depreciation. Depreciation of equipment is provided on a straight-line basis over estimated useful lives ranging from 2 to 15 years. Purchased software to be marketed is stated at cost and amortized in proportion to anticipated future revenues or on a straight-line basis over the estimated economic life of the purchased software, whichever provides the greater rate of amortization. In 1997, 1996 and 1995, amortization of purchased software to be marketed was $0.2 million, $0.7 million and $2.6 million, respectively. GOODWILL The excess of purchase price paid over the estimated fair value of identifiable tangible and intangible net assets of acquired businesses is capitalized and amortized on a straight-line basis over periods of 7 or 20 years. Goodwill is periodically reviewed to determine recoverability by comparing its carrying value to expected undiscounted future cash flows. DEBT ISSUE COSTS As of December 31, 1997 and 1996, deferred debt issue costs, net of accumulated amortization, of $0.3 million and $0.4 million, respectively, were included in other assets. CONTRACT FUNDING Future revenue streams under certain end-user collision estimating contracts (Contracts) were discounted and sold to various investors. Cash proceeds from a sold Contract equals the Contract's future revenue stream, discounted at an annual rate of approximately 14%, less, for certain Contracts, investor reserves for customer nonperformance under the Contracts. Sales proceeds, which are remitted directly to the investors in these Contracts, and related interest expense are recognized in the accompanying consolidated statement of operations as revenue and interest expense, respectively, over the life of the Contract. The Company no longer utilizes Contract funding as a financing vehicle. PER SHARE INFORMATION Earnings per share are based on the weighted average number of shares of common stock outstanding and common stock equivalents using the treasury stock method. See Note 13--Earnings Per Share. FAIR VALUE OF FINANCIAL INSTRUMENTS As of December 31, 1997, the carrying amount of the Company's financial instruments approximates their estimated fair value based upon market prices for the same or similar type of financial instruments. 39 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PERVASIVENESS OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 1996, the Company adopted the "disclosure method" provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which became effective January 1, 1996. As permitted by SFAS No. 123, the Company continues to recognize stock-based compensation costs under the intrinsic value-based method of accounting as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." The FASB has also issued SFAS No. 130, "Reporting Comprehensive Income," in June 1997. In addition to net income, comprehensive income includes items recorded directly to stockholders' equity, such as preferred stock accretion, preferred stock dividends and the income tax benefit related to the exercise of certain stock options. This statement establishes new standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. Adoption of this standard will only require an additional financial statement disclosure detailing the Company's comprehensive income. In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes new standards for reporting information about operating segments in interim and annual financial statements. This statement is also effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating the impact this statement will have on the consolidated financial statements. NOTE 3--NONCASH INVESTING AND FINANCING ACTIVITIES The Company directly charges accumulated deficit for preferred stock accretion and preferred stock dividends accrued. During 1997, 1996 and 1995, these amounts totaled $0.4 million, $6.7 million and $3.0 million, respectively. In conjunction with the exercise of certain stock options, the Company has reduced current income taxes payable with an offsetting credit to paid-in-capital for the tax benefit of stock options exercised. During 1997 and 1996, these amounts totaled $4.3 million and $0.3 million, respectively. In addition to amounts reported as purchases of equipment in the consolidated statement of cash flows, the Company has directly financed certain noncash capital expenditures. During 1996 and 1995, these noncash capital expenditures totaled $1.3 million and $0.9 million, respectively. These were no noncash capital expenditures in 1997. 40 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--INCOME TAXES Income taxes applicable to continuing operations consisted of the following (provision) benefit:
1997 1996 1995 ---------- --------- --------- (IN THOUSANDS) Current: Federal.................................................... $ (10,008) $ (4,225) $ 1,792 State...................................................... (2,089) (1,057) 134 International.............................................. 31 (1) 24 ---------- --------- --------- Total current............................................ (12,066) (5,283) 1,950 ---------- --------- --------- Deferred: Federal.................................................... 706 2,098 (1,668) State...................................................... 121 502 9 ---------- --------- --------- Total deferred........................................... 827 2,600 (1,659) ---------- --------- --------- Total income tax (provision) benefit..................... $ (11,239) $ (2,683) $ 291 ---------- --------- --------- ---------- --------- ---------
The Company's effective income tax rate applicable to continuing operations differs from the federal statutory rate as follows:
1997 1996 1995 ------------------------ ----------------------- ----------------------- (IN THOUSANDS, EXCEPT %'S) Federal income tax (provision) benefit at statutory rate............................... $ (9,475) (35.0)% $ (6,190) (34.0)% $ (338) (34.0)% State and local taxes, net of federal income tax effect and before valuation allowances... (1,279) (4.8) (924) (5.1) 60 6.0 International taxes............................ (5) -- (21) (0.1) 12 1.2 Goodwill amortization.......................... (471) (1.7) (471) (2.6) (494) (49.6) Change in valuation allowance.................. (9) -- 4,679 25.7 1,260 126.6 Nondeductible expenses......................... (218) (0.8) (186) (1.0) (242) (24.3) Other, net..................................... 218 0.8 430 2.4 33 3.3 ---------- ----- --------- ----- --------- ----- Income tax (provision) benefit............... $ (11,239) (41.5)% $ (2,683) (14.7)% $ 291 29.2 % ---------- ----- --------- ----- --------- ----- ---------- ----- --------- ----- --------- -----
During 1997 and 1996, the Company made income tax payments, net of refunds, of $6.7 million and $1.9 million, respectively. During 1995, the Company received income tax refunds, net of payments, of $1.0 million. 41 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--INCOME TAXES (CONTINUED) The approximate income tax effect of each type of temporary difference giving rise to deferred income tax assets was as follows:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Deferred income tax assets: Deferred revenue......................................................... $ 1,993 $ 1,893 Rent..................................................................... 1,474 1,363 Depreciation and amortization............................................ 1,330 997 Bad debt expense......................................................... 1,064 759 Capital loss carryforward................................................ 293 284 Accrued compensation..................................................... 281 247 Long-term receivable..................................................... 143 145 Lease termination........................................................ -- 48 Net operating loss carryforward.......................................... -- 18 Other, net............................................................... 952 940 --------- --------- Subtotal................................................................. 7,530 6,694 Valuation allowance...................................................... (293) (284) --------- --------- Total deferred income tax asset............................................ $ 7,237 $ 6,410 --------- --------- --------- ---------
The Company had previously established deferred income tax asset valuation allowances because of its history of operating losses and an inability to project future taxable income with certainty. Valuation allowances totaling $4.7 million were released to income in 1996 as a result of the Company's successful recapitalization, through its public offering of common stock, and its demonstrated pattern of profitability. The remaining valuation allowance as of December 31, 1997 pertains to the capital loss carryforward. Net operating loss carryforwards totaled $52 thousand as of December 31, 1996. These net operating loss carryforwards expire in 2005. Prior to calendar year 1995, the Company's fiscal year-end was April 30. The Internal Revenue Service (IRS) has examined the Company's income tax returns for fiscal years 1992 through 1995. The findings were reported to and accepted by the Joint Committee on Taxation. All Company income tax returns for fiscal years through 1995 are closed to further examination by the IRS. The Company has been notified that the IRS intends to examine the return for the period May 1, 1995 through December 31, 1995. 42 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--OTHER CURRENT ASSETS Other current assets consisted of the following:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Prepaid data royalties..................................................... $ 2,578 $ 1,195 Prepaid equipment maintenance.............................................. 638 614 Prepaid commissions........................................................ 730 614 Computer inventory......................................................... 412 210 Prepaid insurance.......................................................... 122 170 Other...................................................................... 790 404 --------- --------- Total.................................................................... $ 5,270 $ 3,207 --------- --------- --------- ---------
NOTE 6--EQUIPMENT AND PURCHASED SOFTWARE Equipment and purchased software consisted of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- (IN THOUSANDS) Computer equipment.................................................... $ 27,321 $ 22,614 Purchased software, licenses and databases............................ 4,334 2,858 Furniture and other equipment......................................... 4,255 2,804 Leasehold improvements................................................ 583 173 ---------- ---------- Total, gross........................................................ 36,493 28,449 Less accumulated depreciation......................................... (26,793) (20,361) ---------- ---------- Total, net.......................................................... $ 9,700 $ 8,088 ---------- ---------- ---------- ----------
Purchased software, licenses and databases includes software of $5.2 million acquired through the acquisition of its former partner's interest in the Joint Venture. As of December 31, 1996, this acquired software had been fully amortized. As of December 31, 1997 and 1996, computer equipment, net of accumulated depreciation, that is on lease to certain customers under operating leases of $2.4 million and $3.6 million, respectively, is included in computer equipment. Future minimum rentals under noncancelable customer leases aggregate approximately $1.0 million in 1998. Furniture and other equipment includes equipment under capital leases as follows:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Capital leases............................................................... $ 574 $ 574 Less accumulated depreciation................................................ (474) (357) --------- --------- Total, net................................................................. $ 100 $ 217 --------- --------- --------- ---------
43 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7--GOODWILL Goodwill consisted of the following:
DECEMBER 31, -------------------- LIFE 1997 1996 --------- --------- --------- (IN THOUSANDS) CCC acquisition (1988)...................................... 20years $ 16,458 $ 16,458 UCOP acquisition (1994)..................................... 7years 3,665 3,665 --------- --------- Total, gross.............................................. 20,123 20,123 Less accumulated amortization............................... (10,238) (8,893) --------- --------- Total, net................................................ $ 9,885 $ 11,230 --------- --------- --------- ---------
NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Accounts payable........................................................ $ 6,138 $ 5,783 Compensation............................................................ 6,492 4,652 Professional fees....................................................... 1,983 1,484 Sales tax............................................................... 1,237 1,283 Commissions............................................................. 1,521 1,162 Health insurance........................................................ 323 406 Lease termination....................................................... -- 121 Other, net.............................................................. 689 930 --------- --------- Total................................................................. $ 18,383 $ 15,821 --------- --------- --------- ---------
NOTE 9--LONG-TERM DEBT In August 1996, CCC negotiated a credit facility with a commercial bank to replace its prior bank credit facility. The credit facility provides CCC with the ability to borrow up to $20 million under a revolving line of credit for general corporate purposes. The Company guarantees CCC's obligations under the credit facility, which is secured by a lien on the Company's common stock interest in CCC and CCC's assets. The interest rate under the bank credit facility is the London Interbank Offering Rate (LIBOR) plus 1.5% or the prime rate in effect from time to time, as selected by CCC. When borrowings are outstanding, interest payments are made monthly. There were no borrowings under the revolving credit facility during 1997. CCC pays a commitment fee of 0.25% on any unused portion of the revolving credit facility. The revolving credit facility terminates on October 1, 2001. Under the bank facility, CCC is, with certain exceptions, prohibited from making certain sales or transfers of assets, incurring nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its capital stock, among other restrictions. In addition, the bank credit facility requires CCC to maintain certain levels of operating cash flow and debt coverage, and limits CCC's ability to make capital expenditures and investments and declare dividends. CCC's prior bank credit facility consisted of a term loan and revolving credit facility. The average interest rate in effect during the year ended December 31, 1996 for the term loan and revolving credit 44 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--LONG-TERM DEBT (CONTINUED) facility was 8.7% and 8.7%. The Company made cash interest payments of $0.1 million, $2.6 million and $4.1 million during the year ended December 31, 1997, 1996 and 1995, respectively. Long-term debt consisted of the following:
DECEMBER 31, -------------------- 1997 1996 --------- --------- (IN THOUSANDS) Capital lease obligations.................................................... $ 111 $ 231 --------- --------- Total debt................................................................. 111 231 Due within one year.......................................................... (111) (120) --------- --------- Due after one year........................................................... $ -- $ 111 --------- --------- --------- ---------
NOTE 10--MANDATORILY REDEEMABLE PREFERRED STOCK On June 16, 1994, pursuant to a reorganization and recapitalization, the Company issued: (a) 5,000 shares of its preferred stock, par value $1.00, designated as Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"), (b) 34,000 shares of its preferred stock, par value $1.00, designated as Series D Cumulative Redeemable Preferred Stock ("Series D Preferred Stock") and (c) 7,050,840 shares of the Company's Common Stock, par value $0.10, to White River in exchange for the Company's subordinated debt and Series A, B and C warrants acquired from the original subordinated debtholders by White River on April 15, 1994. At the date of exchange, the subordinated debt consisted of a principal balance of $41.7 million and accrued interest of $2.7 million. In recording the exchange, $3.9 million and $25.7 million were assigned to the Series C and Series D Preferred Stock, respectively. The balance of $14.8 million, less certain transaction costs of $2.4 million, was assigned to common stock and credited to paid-in capital. As part of the reorganization and recapitalization, the Company and White River entered into an agreement under which the Company, following receipt of written notification from White River that the number of shares of the Company's common stock owned by White River represents less than a majority of the issued and outstanding shares of common stock of the Company, must issue to White River 500 shares of the Company's preferred stock, par value $1.00, designated as Series E Cumulative Redeemable Preferred Stock ("Series E Preferred Stock") in exchange for 500 shares of the Series D Preferred Stock. (Collectively, the Series C, D and E Preferred Stock are hereinafter referred to as "Preferred Stock.") The terms of the Series E Preferred Stock and the Series C and D Preferred Stock are generally the same, except that outstanding shares of the Series E Preferred Stock carry certain voting rights if they are beneficially owned by White River or any of its affiliates. In such circumstances, White River and/or its affiliates that own any shares of Series E Preferred Stock would be entitled to vote on all matters voted on by holders of the Company's common stock. Subject to the pro-ration provisions described below, the number of votes that each share of Series E Preferred Stock may cast is determined according to a formula, the effect of which is to cause White River and/or it affiliates to have 51% of the votes to be cast on any matter to be voted upon by holders of the Company's common stock, for so long as all of the shares of Series E Preferred Stock are issued, outstanding and held by White River and/or its affiliates. To the extent White River also owns shares of the Company's common stock, such Series E Preferred Stock will only provide an additional voting percentage that, when added together with the vote from White River's shares of Company common stock, will provide White River with a maximum of 51% of the votes. Under the terms of a Stockholders Agreement 45 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED) among White River and certain stockholders, including the Company's Chairman (the "Management Stockholders"), the parties have agreed, subject to fiduciary duties, that White River will vote with the Management Stockholders regarding defined business combinations and subsequent offerings of Company common stock. The terms of the Series E Preferred Stock provide for the pro-rata reduction of Series E Preferred Stock voting power from the voting power established as of its original issuance, to the extent that outstanding shares of Series E Preferred Stock are either redeemed by the Company or no longer owned by White River and/or its affiliates. Outstanding shares of Series E Preferred Stock are redeemable pro rata with the outstanding shares of Series C and Series D Preferred Stock. Through the date of redemption, Preferred Stock dividends have accrued at a rate of 2.75% per annum. Because the Company completed the required redemption of Preferred Stock through the use of proceeds from the company's initial public offering of common stock, Preferred Stock dividends from the date of redemption through June 16, 1998 have been eliminated. See Note 11--Initial Public Offering of Common Stock. Beginning June 17, 1998, Preferred Stock dividends, payable quarterly, accrue at an annual rate of 8%. The Preferred Stock is mandatorily redeemable, at stated value plus accrued dividends, on June 16, 1999. Prior to the mandatory redemption date, under the terms of the Preferred Stock, White River is only required to accept an offer to redeem that is funded through a public offering of the Company's common stock. If White River should decline a good faith offer to redeem all or a portion of the Preferred Stock, the dividend rate on the Preferred Stock subject to the redemption offer shall be reduced from 8% to 1%. During the years ended December 31, 1997, 1996 and 1995, the original discount on the Preferred Stock accreted $0.4 million, $6.0 million and $1.9 million, respectively. Dividends of $0.7 million and $1.1 million were accrued during 1996 and 1995. NOTE 11--INITIAL PUBLIC OFFERING OF COMMON STOCK On June 27, 1996, the Company's Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission for an initial public offering (IPO) of the Company's common stock. In addition, on August 13, 1996 the Company's Board of Directors authorized a 40 for 1 split of the common stock of the Company, which was effective August 13, 1996. All reported share information has been restated to reflect the split. On August 21, 1996, the Company completed its IPO by issuing 6,900,000 shares of common stock, par value $0.10, at $11.50 per share. Gross proceeds from the IPO of $79.4 million were reduced by Underwriters' discounts of $5.6 million and equity issue costs of $1.7 million. Proceeds from the IPO were used to repay certain bank debt and, as required by the terms of the Company's Series C and Series D Preferred Stock, the Company used 50% of the net proceeds from the IPO to redeem 34,085 shares of outstanding Preferred Stock at its stated value of $34.1 million plus accrued dividends of $2.0 million. As a result of the redemption and in accordance with the terms of the Preferred Stock, Preferred Stock dividends from the IPO date through June 16, 1998 have been eliminated. As a result of the IPO, White River's common equity ownership percentage was reduced from approximately 52% to approximately 37%. On August 23, 1996, White River informed the Company of its intention to exchange 500 shares of Series D Preferred Stock for 500 shares of the Company's Series E Preferred Stock. Pursuant to the request from White River, the Company issued 500 Shares of Series E Preferred Stock in exchange for 500 Shares of Series D Preferred Stock. 46 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11--INITIAL PUBLIC OFFERING OF COMMON STOCK (CONTINUED) At December 31, 1997, 630 Shares of Series C Preferred Stock, 3,785 Shares of Series D Preferred Stock and 500 Shares of Series E Preferred Stock are issued and outstanding. NOTE 12--STOCK OPTION PLAN In May 1988, the Company's Board of Directors adopted a nonqualified stock option plan (the "1988 Plan"). Under the 1988 Plan, as amended in 1992, options may be granted at a per share price of not less than the greater of $1.375 or the fair market value as of the date of grant, as determined by the Compensation Committee of the Board of Directors (Committee). Options are generally exercisable within 5 years from the date of grant, subject to vesting schedules determined at the discretion of the Committee. In general, however, option grants vest over 4 years. As a result of the Company's June 1994 reorganization and recapitalization, under an agreement with White River, the number of incremental options that may be granted under the 1988 Plan subsequent to June 16, 1994 was limited to 3% of outstanding stock on June 16, 1994 or 488,880 shares. Including these incremental options, 2,956,040 total options were available under the plan to be granted. No additional options can be granted under the 1988 Plan. During 1997, the Company's Board of Directors adopted a new stock option plan that provides for the granting of 675,800 new options to purchase Company common stock. As under the 1988 Plan, options are generally exercisable within five years from the date of grant. Option activity during 1997, 1996 and 1995 is summarized below:
1997 1996 1995 ------------------------ ----------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES PRICE SHARES PRICE SHARES PRICE ----------- ----------- ---------- ----------- ---------- ----------- Options Outstanding: Beginning of year....................... 2,679,939 $ 3.29 2,956,040 $ 1.93 2,193,079 $ 1.40 Granted................................. 337,500 16.61 409,280 11.20 1,247,521 2.64 Exercised (a)........................... (1,105,555) 1.59 (256,540) 1.43 (19,200) 1.38 Surrendered or terminated............... (96,281) 5.12 (428,841) 2.47 (465,360) 1.39 ----------- ----------- ---------- ----- ---------- ----- End of year........................... 1,815,603 $ 6.62 2,679,939 $ 3.29 2,956,040 $ 1.93 ----------- ----------- ---------- ----- ---------- ----- ----------- ----------- ---------- ----- ---------- ----- Options exercisable at year-end........... 959,605 $ 3.51 1,764,774 $ 2.11 1,694,999 $ 1.60 ----------- ----------- ---------- ----- ---------- ----- ----------- ----------- ---------- ----- ---------- ----- Weighted-average fair value of options granted during the year (b)............. $ 15.31 $ 11.20 $ 2.64 ----------- ---------- ---------- ----------- ---------- ----------
- ------------------------ (a) In 1996, the number of options exercised in the accompanying consolidated statement of stockholders' equity (deficit) is net of shares tendered by employees as payment of the stock exercise price and related income taxes. Shares tendered to the Company, which are held in treasury, totaled 112,505 in 1996. (b) In 1997, there was an option grant on 70,000 shares for which the stock exercise price exceeded the fair market value of the stock at the grant date. 47 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12--STOCK OPTION PLAN (CONTINUED) The next table summarizes information about fixed stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER REMAINING EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE - ------------------------------------------------ ----------- ------------------- ----------- ---------- ----------- $ 1.38 to $ 1.38................................ 371,540 2.98 $ 1.38 366,740 $ 1.38 $ 1.75 to $ 2.88................................ 501,549 2.05 $ 1.89 300,035 $ 1.95 $ 4.38 to $ 4.38................................ 252,699 2.95 $ 4.38 146,667 $ 4.38 $11.20 to $11.20................................ 378,315 3.50 $ 11.20 144,163 $ 11.20 $12.75 to $21.00................................ 424,000 4.53 $ 16.03 -- -- $21.25 to $21.25................................ 7,500 4.75 $ 21.25 -- -- ----------- ---------- $ 1.38 to $21.25................................ 1,935,603 3.18 $ 7.11 959,605 $ 3.51 ----------- ---------- ----------- ----------
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The principal determinants of option pricing are: fair market value of the Company's common stock at the date of grant, expected volatility, risk-free interest rate, expected option lives and dividend yields. Weighted average assumptions employed by the Company were: expected volatility of 31% for 1997 and 30% for 1996; and a risk-free interest rate of 6.4% for 1997 and 6.5% for 1996. In addition, the Company assumed an expected option life of 4.5 years and no dividend yield in both years. The Company applies APB Opinion 25 in accounting for its fixed stock option plan and, accordingly, has not recognized compensation cost in the accompanying consolidated statement of operations. Had compensation cost been recognized based on fair value as of the grant dates as defined in SFAS No. 123, the Company's net income applicable to common stock and related per share amounts would have been reduced as indicated below:
1997 1996 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income applicable to common stock: As reported......................................................... $ 15,467 $ 8,150 Pro forma........................................................... $ 15,026 $ 7,864 Per share net income applicable to common stock assuming dilution: As reported......................................................... $ 0.62 $ 0.40 Pro forma........................................................... $ 0.60 $ 0.39
The effects of applying SFAS No. 123 in the above pro forma disclosures are not indicative of future amounts as they do not include the effects of awards granted prior to 1995, some of which would have had income statement effects in 1997, 1996 and 1995 due to the four-year vesting period associated with the fixed stock option awards. Additionally, future amounts are likely to be affected by the number of grants awarded since additional awards are generally expected to be made at varying amounts. NOTE 13--EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" in the fourth quarter of 1997. SFAS No. 128 requires the presentation of basic and diluted earnings per share, including the restatement of prior periods. A summary of the calculation of basic and diluted 48 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--EARNINGS PER SHARE (CONTINUED) earnings per share for the years ended December 31, 1997, 1996 and 1995, is presented below (in thousands, except per share data):
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Income before extraordinary item................................................. $ 15,832 $ 15,522 $ 1,286 Less: Dividends and accretion on mandatorily redeemable preferred stock................................................................. (365) (6,694) (3,003) --------- --------- --------- Income (loss) applicable to common stock......................................... $ 15,467 $ 8,828 $ (1,717) --------- --------- --------- --------- --------- --------- Weighted average common shares................................................... 23,807 19,056 16,300 --------- --------- --------- Basic earnings per common share.................................................. $ 0.65 $ 0.46 $ (0.11) Effect of common stock options................................................... 1,152 1,311 -- --------- --------- --------- Weighted average diluted shares.................................................. 24,959 20,367 16,300 --------- --------- --------- Diluted earnings per common share................................................ $ 0.62 $ 0.43 $ (0.11) --------- --------- --------- --------- --------- ---------
Options to purchase 70,528 shares of common stock at prices ranging from $18.25 to $21.25 per share were outstanding during 1997, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. The options, which expire in 2002, were still outstanding at the end of 1997. NOTE 14--COMMITMENTS AND CONTINGENCIES The Company leases facilities, computers, telecommunications and office equipment under the terms of noncancelable operating lease agreements which expire at various dates through 2008. As of December 31, 1997, future minimum cash lease payments were as follows:
(IN THOUSANDS) 1998.......................................................................... $ 3,928 1999.......................................................................... 4,339 2000.......................................................................... 2,955 2001.......................................................................... 2,042 2002.......................................................................... 2,085 Thereafter.................................................................... 14,405 ------- Total....................................................................... $ 29,754 ------- -------
During 1997, 1996 and 1995, operating lease expense was $3.5 million, $3.2 million and $2.9 million, respectively. 49 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15--SUBSEQUENT EVENTS On February 10, 1998, the Company signed an agreement with InsurQuote Systems, Inc. ("InsurQuote") and invested $20 million to acquire 19.9% of the InsurQuote common stock, an $8.9 million subordinated note, warrants, and shares of Series C redeemable convertible preferred stock, and Series D convertible preferred stock. The warrants provide the right to acquire additional shares of common stock and are exercisable by the Company through February 10, 2008, subject to potential early termination provisions. The Series C stock is redeemable in full at the end of five years, or earlier under certain conditions, if not converted prior to that time. Each share of Series C and D preferred stock is initially convertible into one share of common stock at the option of the Company. InsurQuote is a provider of insurance rating information and the software tools used to manage that information. Its range of products is primarily focused towards insurance companies, insurance agents, and the related consumer market. Under the terms of the investment agreement, the Company, subject to certain conditions, can increase its investment through additional purchases of common and preferred shares. NOTE 16--LEGAL PROCEEDINGS In April 1995, the Company recorded a litigation settlement charge of $4.5 million in connection with the litigation involving an independent corporate publisher of used car valuation books. In December 1995, substantive settlement discussions were held. As a result of those discussions, the parties conditionally agreed to a settlement structure that would resolve all outstanding disputes. All conditions precedent to the settlement agreement were satisfied in 1996. As a result, all issues arising out of the litigation between the parties have been fully and completely settled and each civil action had been dismissed with prejudice. The settlement amount approximated the settlement charge previously recorded. In conjunction with the settlement agreement, the Company received a three year license to the publisher's used car valuation book data at market rates. The Company is a party to various other legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of these other matters will not have a material effect on the Company's financial position. NOTE 17--SUMMARIZED QUARTERLY OPERATING RESULTS (UNAUDITED) The following table sets forth unaudited consolidated statements of operations for the quarters in the years ended December 31, 1997 and 1996. These quarterly statements of operations have been prepared on a basis consistent with the audited financial statements. They include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the quarterly results of operations, when such results are read in conjunction with the audited consolidated financial statements and the notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period. 50 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17--SUMMARIZED QUARTERLY OPERATING RESULTS (UNAUDITED) (CONTINUED)
1997 1996 ------------------------------------------ ------------------------------------------ FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH --------- --------- --------- --------- --------- --------- --------- --------- Revenues.............................. $ 36,777 $ 38,289 $ 40,457 $ 43,583 $ 31,369 $ 31,956 $ 32,602 $ 35,050 Expenses: Operating expenses.................. 31,090 31,913 33,938 36,460 27,031 26,241 27,235 30,339 Operating income...................... 5,687 6,376 6,519 7,123 4,338 5,715 5,367 4,711 Interest expense...................... (37) (35) (34) (33) (1,032) (950) (526) (54) Other income, net..................... 279 350 431 445 53 240 169 174 --------- --------- --------- --------- --------- --------- --------- --------- Income from operations before income taxes............................... 5,929 6,691 6,916 7,535 3,359 5,005 5,010 4,831 Income tax provision.................. (2,510) (2,804) (2,908) (3,017) (775) (898) (292) (718) --------- --------- --------- --------- --------- --------- --------- --------- Income from operations before extraordinary item.................. 3,419 3,887 4,008 4,518 2,584 4,107 4,718 4,113 Extraordinary loss on early retirement of debt, net of income taxes........ -- -- -- -- -- -- (678) -- --------- --------- --------- --------- --------- --------- --------- --------- Net income............................ 3,419 3,887 4,008 4,518 2,584 4,107 4,040 4,113 Dividends and accretions on mandatorily redeemable preferred stock............................... (88) (90) (93) (94) (793) (811) (5,003) (87) --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) applicable to common stock............................... $ 3,331 $ 3,797 $ 3,915 $ 4,424 $ 1,791 $ 3,296 $ (963) $ 4,026 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- PER SHARE DATA: INCOME PER COMMON SHARE--BASIC Income (loss) applicable to common stock before extraordinary item... $ 0.14 $ 0.16 $ 0.16 $ 0.18 $ 0.11 $ 0.20 $ (0.02) $ 0.17 Extraordinary loss on early retirement of debt, net of income taxes............................. -- -- -- -- -- -- (0.03) -- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) applicable to common stock............................... $ 0.14 $ 0.16 $ 0.16 $ 0.18 $ 0.11 $ 0.20 $ (0.05) $ 0.17 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- INCOME PER COMMON SHARE--DILUTED Income (loss) applicable to common stock before extraordinary item... $ 0.13 $ 0.15 $ 0.16 $ 0.18 $ 0.10 $ 0.19 $ (0.02) $ 0.16 Extraordinary loss on early retirement of debt, net of income taxes............................. -- -- -- -- -- -- (0.03) -- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) applicable to common stock...................... $ 0.13 $ 0.15 $ 0.16 $ 0.18 $ 0.10 $ 0.19 $ (0.05) $ 0.16 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding: Basic............................... 23,511 23,661 23,853 24,194 16,322 16,450 19,963 23,428 Diluted............................. 24,802 24,848 24,997 25,182 17,618 17,757 19,963 24,765
51 CCC INFORMATION SERVICES GROUP, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ADDITIONS/ END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - -------------------------------------------------- ----------- ----------- ------------- ------------ ----------- 1995 Allowance for Doubtful Accounts.............. 943 2,257 -- (1,735)(a) 1,465 1996 Allowance for Doubtful Accounts.............. 1,465 3,781 -- (3,300)(a) 1,946 1997 Allowance for Doubtful Accounts.............. 1,946 3,472 -- (2,755)(a) 2,663 1995 Deferred Income Tax Valuation Allowance...... 6,223 -- -- (1,260)(b) 4,963 1996 Deferred Income Tax Valuation Allowance...... 4,963 -- -- (4,679)(b) 284 1997 Deferred Income Tax Valuation Allowance...... 284 9 293
- ------------------------ (a) Accounts receivable write-offs, net of recoveries. (b) Reversal of deferred tax valuation allowances. 52 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES EXHIBIT INDEX 3.1 Amended and Restated Certificate of Incorporation of the Company filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K (filed with the Commission (file No. 000-28600) on March 14, 1997, (the "Annual Report"), and hereby incorporated by reference) 3.2 Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Annual Report and hereby incorporated by reference) 4.2 Stockholders' Agreement (incorporated herein by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-1, Commission File Number 333-07287) 10.1 Credit Facility Agreement between CCC Information Services Inc., Signet Bank and the other financial institutions party thereto (incorporated herein by reference to Exhibit 10.1 to the Annual Report) 10.2 Motor Crash Estimating Guide Data License (incorporated herein by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-1, Commission File Number 333-07287) 10.3 Stock Option Plan (incorporated herein by reference to Exhibit 4.03 of the Company's Registration Agreement on Form S-8, Commission File Number 333-15207 filed October 31, 1996) 10.4 1997 Stock Option Plan (incorporated herein by reference to Exhibit 4.4 of the Company's Registration Agreement on Form S-8, Commission File Number 333-26001 filed April 27, 1997) 10.5 401(K) Company Retirement Saving & Investment Savings Plan (incorporated herein by reference to Exhibit 4.4 of the Company's Registration Agreement on Form S-8, Commission Number 333-32139 filed July 25, 1997) 11 Statement Re: Computation of Per Share Earnings 21 List of Subsidiaries 23 Consent of Price Waterhouse LLP 27.1 Financial Data Schedule for year end 12/31/97 27.2 Financial Data Schedule Restated for 9 months ended 9/30/97 27.3 Financial Data Schedule Restated for 6 months ended 6/30/97 27.4 Financial Data Schedule Restated for 3 months ended 3/31/97 27.5 Financial Data Schedule Restated for year end 12/31/96 27.6 Financial Data Schedule Restated for 9 months ended 9/30/96
53 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES 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: March 30, 1998 CCC Information Services Group Inc. By: /s/ DAVID M. PHILLIPS ------------------------------------ Name: David M. Phillips Title: Chairman and Chief Executive Officer By: /s/ LEONARD L. CIARROCCHI ------------------------------------ Name: Leonard L. Ciarrocchi Title: Executive Vice President and Chief Financial Officer By: /s/ MICHAEL P. DEVEREUX ------------------------------------ Name: Michael P. Devereux Title: Vice President, Controller and Chief Accounting Officer By: /s/ JOHN J. BYRNE ------------------------------------ Name: John J. Byrne Title: Director By: /s/ MORGAN W. DAVIS ------------------------------------ Name: Morgan W. Davis Title: Director By: /s/ THOMAS L. KEMPNER ------------------------------------ Name: Thomas L. Kempner Title: Director By: /s/ GORDON S. MACKLIN ------------------------------------ Name: Gordon S. Macklin Title: Director By: /s/ ROBERT T. MARTO ------------------------------------ Name: Robert T. Marto Title: Director By: /s/ MICHAEL R. STANFIELD ------------------------------------ Name: Michael R. Stanfield Title: Director
54 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES DIRECTORS John J. Byrne Chairman, President and Chief Executive Officer Fund American Enterprise Holdings, Inc. Morgan W. Davis President and Chief Executive Officer White Mountain Insurance Company Thomas L. Kempner Chairman and Chief Executive Officer Loeb Partners Corporation Gordon S. Macklin Chairman, President and Chief Executive Officer White River Corporation Robert T. Marto Director White River Corporation David M. Phillips Chairman, President and Chief Executive Officer Michael R. Stanfield Managing Director Loeb Partners Corporation EXECUTIVE OFFICERS David M. Phillips Chairman and Chief Executive Officer J. Laurence Costin Jr. Vice Chairman Githesh Ramamurthy President, Chief Operating Officer and Chief Technology Officer John Buckner President -- Automotive Services Division Richard J. Radi Executive Vice-President -- Insurance Division Blaine R. Ornburg President -- Outsourcing Division Leonard L. Ciarrocchi Executive Vice President -- Chief Financial Officer Michael P. Devereux Vice President, Controller -- Chief Accounting Officer
55 CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES CORPORATE INFORMATION CORPORATE OFFICE ANNUAL MEETING World Trade Center Chicago The 1998 Annual Meeting of Stockholders is 444 Merchandise Mart pending the proposed merger or acquisition of Chicago, Illinois 60654 White River Corporation. (312) 222-4636 INDEPENDENT ACCOUNTANTS TRANSFER AGENT REGISTRAR FOR COMMON STOCK Price Waterhouse LLP Harris Trust and Savings Bank 200 East Randolph Drive Shareholder Communications Chicago, Illinois 60601 P.O. Box A3504 STOCKHOLDER AND INVESTMENT Chicago, Illinois 60690-3504 COMMUNITY INQUIRIES (312)-360-5213 Written inquiries should be sent to the Chief (312)-461-5633 (TDD) Financial Officer at the Company's corporate STOCKHOLDER SERVICES office. You should deal with the Transfer Agent for ADDITIONAL INFORMATION the stockholder services listed below: This Annual Report on Form 10-K provides all Change of Mailing Address annual information filed with the Securities Consolidation of Multiple Accounts and Exchange Commission, except for exhibits. Elimination of Duplicate Report Mailings A listing of exhibits appears on page 43 of Lost or Stolen Certificates this Form 10-K. Copies of exhibits will be Transfer Requirements provided upon request for a nominal charge. Duplicate 1099 Forms Written requests should be directed to the Please be prepared to provide your tax Investor Relations Department at the identification or social security number, Company's corporate office. description of securities and address of record. STOCK LISTING AND TRADING SYMBOL The Company's common stock is listed on the Nasdaq National Market System. The trading symbol is CCCG.
56 EX-11 2 EXHIBIT 11 EXHIBIT 11 CCC INFORMATION SERVICES GROUP INC. STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER SHARE (In Thousands) ACTUAL YEAR ENDED ---------------------------------------------------- 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 -------- -------- -------- -------- -------- Income (loss) per share from continuing operations: Income (loss) from continuing operations 15,832 15,522 1,286 (13,159) (5,774) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common shares outstanding: Shares attributable to common stock outstanding 23,807 19,056 16,300 13,090 9,245 Shares attributable to common stock equivalents outstanding 1,152 1,311 -- -- -- -------- -------- -------- -------- -------- 24,959 20,367 16,300 13,090 9,245 -------- -------- -------- -------- -------- Income (loss) per share from continuing operations $ 0.63 $ 0.76 $ 0.07 $ (1.00) $ (0.63) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) per share from discontinued operations: Income (loss) from discontinued operations -- -- -- 1,006 (4,357) -------- -------- -------- -------- -------- Weighted average common shares outstanding: Shares attributable to common stock outstanding 23,807 19,056 16,300 13,090 9,245 Shares attributable to common stock equivalents outstanding 1,152 1,311 -- -- -- -------- -------- -------- -------- -------- 24,959 20,367 16,300 13,090 9,245 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) per share from discontinued operations $ -- $ -- $ -- $ 0.08 $ (0.47) -------- -------- -------- -------- -------- Extraordinary loss on early retirement of debt, net of taxes per share: Extraordinary loss on early retirement of debt, net of taxes: -- (678) -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common shares outstanding: Shares attributable to common stock outstanding 23,807 19,056 16,300 13,090 9,245 Shares attributable to common stock equivalents outstanding 1,152 1,311 -- -- -- -------- -------- -------- -------- -------- 24,959 20,367 16,300 13,090 9,245 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Extraordinary loss on early retirement of debt, net of taxes per share $ -- $ (0.03) $ -- $ -- $ -- -------- -------- -------- -------- -------- Dividends and accretion on mandatorily redeemable preferred stock per share: Dividends and accretion on mandatorily redeemable preferred stock (365) (6,694) (3,003) (1,518) -- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common shares outstanding: Shares attributable to common stock outstanding 23,807 19,056 16,300 13,090 9,245 Shares attributable to common stock equivalents outstanding 1,152 1,311 -- -- -- -------- -------- -------- -------- -------- 24,959 20,367 16,300 13,090 9,245 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Dividends and accretion on mandatorily redeemable preferred stock per share $ (0.01) $ (0.33) $ (0.18) $ (0.12) $ -- -------- -------- -------- -------- -------- Net income (loss) per share applicable to common stock: Net income (loss) applicable to common stock $ 15,467 8,150 (1,717) (13,671) (10,131) -------- -------- -------- -------- -------- Weighted average common shares outstanding: Shares attributable to common stock outstanding 23,807 19,056 16,300 13,090 9,245 Shares attributable to common stock equivalents outstanding 1,152 1,311 -- -- -- -------- -------- -------- -------- -------- 24,959 20,367 16,300 13,090 9,245 -------- -------- -------- -------- -------- Net income (loss) per share applicable to common stock $ 0.62 $ 0.40 $ (0.11) $ (1.04) $ (1.10) -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
EX-21 3 EXHIBIT 21 EXHIBIT 21 Subsidiaries of CCC Information Services Group Inc. CCC Information Services Inc. Certified Collateral Corporation of Canada Ltd. EX-23 4 EXHIBIT 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-15207, 333-32129 and 333-47205) of CCC Information Services Group Inc. of our report dated January 21, 1998, except as to Note 15 which is as of February 10, 1998, appearing on page 33 of this Form 10-K. Price Waterhouse LLP March 30, 1998 Chicago, Illinois EX-27.1 5 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 2,064 30,054 20,963 2,661 0 55,690 36,493 26,793 83,494 26,955 0 5,054 0 92,258 (46,431) 83,494 159,106 0 133,401 0 1,505 1,130 139 27,071 11,239 15,832 0 0 0 15,832 $0.65 $0.62
EX-27.2 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED INTERIM FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 999 30,125 17,484 2,568 0 50,387 34,493 25,143 78,033 28,331 20 4,959 0 89,753 (50,855) 78,033 0 115,523 0 96,941 1,060 756 106 19,536 8,222 11,314 0 0 0 11,314 .46 .44 Accumulated deficit. Other income, net of expenses. Includes dividends and accretion on mandatorily redeemable preferred stock.
EX-27.3 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED INTERIM FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 11,298 14,987 13,625 2,283 0 41,763 32,236 23,430 68,940 24,639 50 4,866 0 88,326 (54,770) 68,940 0 75,066 0 63,003 629 554 72 12,620 (5,314) 7,306 0 0 0 7,306 .30 .28 Accumulated deficit Other income, net of expenses Includes dividends and accretion on mandatorily redeemable preferred stock
EX-27.4 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED INTERIM FINANCIALS STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 14,806 9,951 12,789 1,967 0 40,490 30,254 21,843 67,442 28,322 80 4,776 0 86,977 (58,567) 67,442 0 36,777 0 31,090 279 277 (37) 5,929 (2,510) 3,419 0 0 0 3,419 .14 .13 (OTHER-SE) - ACCUMULATED DEFICIT (OTHER-EXPENSES) - OTHER INCOME, NET OF EXPENSES (EPS-PRIMARY) - INCLUDES DIVIDENDS AND ACCRETION ON MANDATORILY REDEEMABLE PREFERRED STOCK
EX-27.5 9 FINACIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 9,403 9,001 11,714 1,942 0 31,383 28,449 20,361 58,268 23,290 111 4,688 0 86,191 (61,898) 58,268 0 130,977 0 110,846 636 1,005 2,562 18,205 2,683 15,522 0 (678) 0 14,844 .43 .40 Accumulated deficit Other income, net of expenses Loss on early retirement of debt, net of income taxes Includes dividends and accretion on mandatorily redeemable preferred stock
EX-27.6 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF AND FOR THE THREE QUARTERS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED INTERIM FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 17,615 0 13,190 1,948 0 32,215 28,815 21,592 57,753 27,603 141 4,600 0 85,962 (65,923) 57,753 0 95,927 0 80,507 462 670 2,508 13,374 1,965 11,409 0 (678) 0 10,731 .29 .27 ACCUMULATED DEFICIT OTHER INCOME, NET OF EXPENSES LOSS ON EARLY RETIREMENT OF DEBT, NET OF INCOME TAXES INCLUDES DIVIDENDS AND ACCRETION ON MANDATORILY REDEEMABLE PREFERRED STOCK
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