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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
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
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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. __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, 1999
was $137,360,745.
As of March 30, 1999, 23,737,944 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 1999 Annual Meeting of Stockholders and
Proxy Statement.
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CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE(S)
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PART I
Item 1. Business..................................................................................... 1-12
Item 2. Properties................................................................................... 12
Item 3. Legal Proceedings............................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 13
Item 6. Selected Financial Data...................................................................... 14-15
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........ 15-23
Item 8. Financial Statements and Supplementary Data.................................................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 24
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 24
Item 11. Executive Compensation....................................................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 24
Item 13. Certain Relationships and Related Transactions............................................... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 25-50
Signatures............................................................................................... 51
Directors and Executive Officers......................................................................... 52-53
Corporate Information.................................................................................... 54
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, automobile dealers 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, 1998, White River Ventures Inc. ("White River") held
approximately 30.5% of the total outstanding common stock of the Company. As a
result of White River's substantial equity interest and 51% voting power,
including rights established through its ownership interest in the Company's
Mandatory Redeemable Series E Preferred Stock, the Company is a consolidated
subsidiary of White River.
On June 30, 1998, the White River Corporation, the sole shareholder of White
River, was acquired in a merger with Demeter Holdings Corporation, which is
solely controlled by the President and Fellows of Harvard College, a
Massachusetts educational corporation and title-holding company for the
endowment fund of Harvard University. Charlesbank Capital Partners LLC will act
as investment manager with respect to the investment of White River in the
Company.
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 Consumer Processing Services Division provides
claims outsourcing services and products including ACCESS, a vehicle restoration
and management service, CARS, a car rental management service and complete
outsourced auto claims service. The Company offers a communication services
network, EZNET, which connects insurers, appraisers and collision repair
facilities. 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. In 1999, the Company introduced information and software services to
address the needs of auto casualty claims and underwriting. The Company has also
started to service the claims market in Europe by entering the U.K. market. 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.
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The Company's customers include Automobile insurance companies and collision
repair facilities. The Company's core competencies include collection and
processing of claims and automobile valuation and repair data, the collection
and processing of data related to auto insurance pricing and underwriting,
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. Over 60% of the Company's
revenue for 1998 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. Of the Company's ten largest customers in the Insurance
Division with multiyear contracts, five are due for renewal in 1999,
representing 19% of the Insurance Division revenue.
OVERVIEW OF THE U.S. 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 U.S. AUTOMOBILE INSURANCE INDUSTRY
Of the companies offering private passenger automobile insurance in the
United States, the twenty largest providers dominate the market for 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
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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 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 most 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
fastest-growing method for handling automobile claims is through a DRP. The
Company believes that DRPs present significant opportunities to both insurance
companies and collision repair facilities to increase the satisfaction of their
customers. 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 approximately half the
independent adjusters that handle auto claims use automated collision estimating
systems.
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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.
OVERVIEW OF THE EUROPEAN AUTOMOBILE INSURANCE CLAIMS PROCESS
THE EUROPEAN AUTOMOBILE INSURANCE INDUSTRY
The European automobile insurance market continues to consolidate rapidly
with the emergence of a number of pan-European insurance groups with major
operating companies in all European states. Across the market the twin pressures
of price and customer service continue to force major change. There is now a
general acceptance among insurers that they can increase efficiency in many
aspects of claims management and this has led to an increasing focus on the
possibilities of outsourcing claims operations in totality or in part. As a
consequence, there is a rapidly emerging market for claims outsourcing focusing
on utilizing market know how and information technology. The market, in general,
has a very conservative view of technology; the use of effective management
information and decision support tools has historically been very limited and
represents a major opportunity.
The actual size of the market for these providers varies significantly
territory by territory, driven by local market and legal conditions. However, in
1999, there will be over 34 million motor claims across Europe and at today's
level of outsourcing, the Company believes this equates to a $700 million
market. All the Company's forecasts suggest this market will enjoy near double
digit growth per annum over the next five years. The opportunity exists not only
to supply the outsourcing services in totality, but also the individual tool
components of the offer.
THE COLLISION REPAIR INDUSTRY
As in the U.S., the collision repair industry is consolidating rapidly and
moving towards larger more capital intensive units and repairer chains. However,
across Europe there are still over 100,000 repair facilities. The situation in
the United Kingdom market is typical of the major European markets; the number
of repairers has halved in the last 7 years. In the future, the Company believes
the market will be dominated by large, factory repair environments that deliver
consistent customer service at the lowest cost to repair. These repair
facilities will handle increasingly large components of the claims process and
will have direct supply relationships with only one or two insurance companies.
The emergence of these deep relationships will mean that insurance company's
actively deal with fewer and fewer repairers. The Company believes the current
process in which insurance company's are
4
downsizing their direct repair networks reflects this trend. In order to service
insurance company relationships, repair facilities are investing heavily in
computer technology.
THE AUTOMOBILE CLAIMS PROCESS
Within the automobile claim, the vehicle inspection/ repair cost audit is
seen as critical in driving down cost for the insurer. Currently, insurers use a
number of methods to manage this process:
PHYSICAL INSPECTION. The insurance company will physically inspect vehicles
to estimate repair costs. These inspections are carried out by the insurance
company's staff, or Independent inspectors. This process is labor intensive and
costly relative to the overall cost of the claim. Most companies operating in
this area will use collision estimating software and some form of network data
capture. The use of approved repairer networks assists in minimizing the number
of inspection nodes. Insurance companies are constantly reviewing the cost of
internal versus third party inspection. There is a discernible trend towards the
use of third party agencies with a fixed price per inspection.
REMOTE INSPECTION. The use of remote video inspections continues to grow as
a low cost alternative to physical inspection. The falling cost of technology
and the cost benefits available to the insurance companies will see further
growth. In essence there are two types: live moving image inspection and still
image inspection offline. The provision of these services represents a rapidly
emerging outsourcing opportunity.
AUDIT. Analysis of repair costs provided by computerized estimating.
Currently the use of this approach is limited and has had only partial success.
There is a clear need for automation and decision support tools to drive this
option forward.
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, large European insurers will need to use technology
solutions to give them access to pan European data. 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. The development of approved repair networks
are key in this area. 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.
PRODUCTS AND SERVICES
The Company is organized into three divisions, Insurance Services,
Automotive Services and Consumer Processing Services, based on the nature of the
products and services and the methods used to distribute these products and
services. The Insurance Services Division offers products and services to its
customers through the use of a direct selling force. These products and services
generally are used by insurance companies to facilitate the processing of
automobile physical damage claims and improve
5
decision making in the insurance underwriting processes. The Automotive Services
Division offers products and services to its customers through the use of
independent sales representatives. These products and services are tools used by
collision repair facilities to receive and process automobile damage claims
electronically in conjunction with insurance companies. The Consumer Processing
Services Division offers a suite of products and services for the complete
outsourcing of automobile physical damage claims and bodily injury claims.
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 65% of the Company's consolidated revenue for 1998 was from the
sale of products and services to insurance companies with the remainder sold to
collision repair facilities and other customers. The primary products and
services sold by the Insurance Division include: TOTAL LOSS, PATHWAYS COLLISION
ESTIMATING, PATHWAYS DIGITAL IMAGING, GUIDEPOST, EZNET AND CCC RATINGS SERVICES.
The primary products and services sold by the Automotive Services Division
include: EZEST, PATHWAYS COLLISION ESTIMATING, PATHWAYS DIGITAL IMAGING,
PATHWAYS ENTERPRISE SOLUTION, GUIDELINES AND EZNET. The primary products and
services sold by the Consumer Processing Services Division include: ACCESS, CARS
and complete claims outsourcing.
PATHWAYS WORKSTATION SOFTWARE. PATHWAYS is a windows-based workstation
software platform designed to better serve the overall workflow needs of
insurance field staffs and collision repairers. PATHWAYSoffers 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. PATHWAYSincludes 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 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 and collision repairers 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
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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. PATHWAYS Digital Imaging is sold under multi-year
contracts on a monthly subscription basis.
GUIDEPOST AND GUIDELINES DECISION SUPPORT. GUIDEPOST AND GUIDELINES are
executive information and data navigation software packages. GUIDEPOST allows
insurance managers to electronically evaluate results, format reports, drill
down for subject or personnel review and compare performance to industry and
regional indices. GUIDELINES provides similar functions for collision repair
managers. GUIDEPOST updates are distributed monthly. GUIDELINES is an Internet
based product which users access via a web browser.
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.
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. CARS is a
computerized rental car reservations service which is most often used in
conjunction with ACCESS services. During the claims reporting process, a rental
car is reserved for the consumer and the useage of the rental car is monitored
against the vehicle restoration date, thus improving consumer satisfaction aond
reducing car rental expense. CARS is sold on a per transaction basis and under
multi-year agreements. The Company offers third party claims administration
(TPA), 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.
CCC RATINGS SERVICES--Through a relationship with InsurQuote Systems Inc.
("InsurQuote"), the Company offers services to insurance underwriters that
assist in the process of rate filing for new products, as well as services that
help underwriters better analyze the competitive rate environment.
PATHWAYS ENTERPRISE SOLUTION--The Company offers a computerized management
information system for collision repair operations. PATHWAYS ENTERPRISE SOLUTION
is a state of the art product based on the latest
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Microsoft development tools which allows for centralized management of
consolidated collision repair operations.
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 13,000 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 repair facilities business growth.
Over 60% of the Company's revenue for 1998 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. Of the Company's ten largest customers in the Insurance Division with
multiyear contracts five are due for renewal in 1999, representing 19% of the
Insurance Division revenue.
SALES AND MARKETING
Including Collision Repair Representatives, the Company utilizes
approximately 350 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, 1998.
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 insurance companies. NAMs
are experienced sales professionals charged with meeting customers' business
needs with a consultative approach.
TECHNICAL ACCOUNT MANAGEMENT GROUP. The Technical Account Management Group
consists of Technical Account Managers ("TAMs") who identify opportunities to
better integrate CCC products and services with our clients' internal systems,
resulting in the development of custom and standards-based user interfaces. The
TAMs also play a critical role in reviewing customer business practices to
benchmark current operations and to identify opportunities for improvement. TAMs
often work closely 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.
PRODUCT SALES AND DELIVERY ORGANIZATION. The Product Sales and Delivery
Organization ("PSDO") is focused on the quality sale and delivery of the
Company's products and services into the insurance market. A team of product
specialists, who are industry experts in specific client process segments are
responsible
8
for growing the Company's market share. They work closely with 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 has recently converted a portion of its
collision repair independent representative sales force to full time employees
focused on servicing and cross-selling current collision repair customers.
The Company's marketing efforts for the automobile insurance industry are
conducted as follows: development of professional collateral materials used by
the sales force, an annual company sponsored industry conference for senior
claims executives and collision repair industry leaders and publication of
articles 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 450 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. The support stafff also includes individuals that process the bodily
injury and physical damage claims.
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 PRODUCTS AND SERVICES. The Company's proprietary database
of valuation data used in connection with its TOTAL LOSS products and services
is built through the Company's own data collection network. This network
includes detailed used car inventory and sales data from more than 4,500
automobile dealers throughout the United States and Canada, as well as data from
local newspaper advertisements and prior transactions. The database includes
more than 18 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 PRODUCTS AND SERVICES. The Company offers its
collision estimating products and services 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 was extended in 1998 for a term of 20
years, 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."
9
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.
EUROPEAN MARKET PRODUCTS AND SERVICES. The Company entered into a joint
venture agreement with Hearst Communications Inc. for the purpose of assisting
Hearst in the development and implementation of the Company's technology and
tools for the European market. As part of the joint venture, the Company intends
to deliver its collision estimating products and services which include a
European version of the Motors database as well as an enhanced communications
network. The Company will also leverage its Pathways architecture to create the
next generation of appraisal and reinspection workstations for the insurance
industry.
CCC RATINGS SERVICES. The Company, through its investment in InsurQuote,
has an opportunity to market services to insurance underwriters which utilize
proprietary rating data and software developed by InsurQuote.
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 products and services, 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 $25.8 million, $20.2 million and $17.0
million for the years ended December 31, 1998, 1997 and 1996, respectively.
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
10
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 products and services.
These marks are used by the Company in the advertising and marketing of the
Company's products and services. EZEST, PATHWAYS 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 1, 2018. 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 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
11
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, 1998, the Company had approximately 1,500 full-time
employees of whom approximately 350 were employed in sales and marketing
functions (excluding independent collision repair representatives),
approximately 450 were employed in customer support functions, approximately 315
in product development and quality assurance functions, approximately 265 in
operations and approximately 120 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.
ITEM 2. PROPERTIES
The Company's corporate office is located in Chicago, Illinois where the
Company leases approximately 141,000 square feet of a multi-tenant facility
under several leases, the last of which expires in November 2008. The Company
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 also leases 26,000 square feet in Placenta,
California where Professional Claims Services, Inc. provides claims adjusting
and third party administration in the western United States, under a lease
expiring in November 2001. The Company purchased a 50,000 square foot facility
in Sioux Falls, South Dakota in 1998 in connection with relocating certain
customer service and claims processing operations. 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.
12
ITEM 3. LEGAL PROCEEDINGS
In March 1999, the Company completed settlement of a lawsuit filed in late
1998 involving a former independent sales representative. This settlement
resulted in a charge of $1.7 million including, among other things, payment for
past earned commissions, resolution of disputed commissions, and other costs
associated with the resolution of the dispute.
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) is traded on the Nasdaq National Market
("Nasdaq"). Low and high sales prices of the Common Stock were as follows:
1998 1997
-------------------------------------------------- -------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------
Low............................... $ 9.50 $ 11.13 $ 16.31 $ 18.88 $ 17.38 $ 14.70 $ 11.75
High.............................. $ 17.25 $ 17.75 $ 28.13 $ 28.75 $ 23.88 $ 21.00 $ 19.50
FIRST
QUARTER
-----------
Low............................... $ 12.50
High.............................. $ 19.50
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, 1999, there were 23,737,944
shares of Common Stock issued and outstanding. There were 98 stockholders of
record on March 30, 1999, plus an indeterminate number of stockholders that hold
shares of Common Stock in the names of nominees.
13
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994(*)
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $ 188,169 $ 159,106 $ 130,977 $ 115,519 $ 91,917
Expenses:
Operating expenses............................................... 164,813 133,401 110,846 104,697 84,094
Purchased research and development............................... -- -- -- -- 13,791
Litigation settlements........................................... 1,650 -- -- 4,500 1,750
Relocation of claims settlement function......................... 1,707 -- -- -- --
--------- --------- --------- --------- ---------
Operating income (loss)............................................ 19,999 25,705 20,131 6,322 (7,718)
Equity in loss of CCCDC Joint Venture.............................. -- -- -- -- (615)
Interest expense................................................... (258) (139) (2,562) (5,809) (7,830)
Other income, net.................................................. 697 1,505 636 482 316
--------- --------- --------- --------- ---------
Income (loss) from operations before income taxes.................. 20,438 27,071 18,205 995 (15,847)
Income tax (provision) benefit..................................... (8,860) (11,239) (2,683) 291 2,688
--------- --------- --------- --------- ---------
Income (loss) before equity losses, minority interest and
extraordinary item............................................... 11,578 15,832 15,522 1,286 (13,159)
Equity in net losses of affiliates................................. (11,658) -- -- -- --
Minority share in earnings of subsidiaries......................... (1) -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations........................... (81) 15,832 15,522 1,286 (13,159)
Income from discontinued operations, net of income taxes........... -- -- -- -- 1,006
Extraordinary loss on early retirement of debt, net of income
taxes............................................................ -- -- (678) -- --
--------- --------- --------- --------- ---------
Net income (loss).................................................. (81) 15,832 14,844 1,286 (12,153)
Dividends and accretion on mandatorily redeemable preferred
stock............................................................ 43 (365) (6,694) (3,003) (1,518)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stock....................... $ (38) $ 15,467 $ 8,150 $ (1,717) $ (13,671)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA:
INCOME (LOSS) PER COMMON SHARE--BASIC
Income (loss) applicable to common stock from:
Continuing operations............................................ $ - $ 0.65 $ 0.46 $ (0.11) $ (1.12)
Income from discontinued operations, net of tax.................. -- -- -- -- 0.08
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)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCOME (LOSS) PER COMMON SHARE--DILUTED
Income (loss) applicable to common stock from:
Continuing operations............................................ $ - $ 0.62 $ 0.43 $ (0.11) $ (1.12)
Income from discontinued operations, net of tax.................. -- -- -- -- 0.08
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)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding:
Basic............................................................ 24,616 23,807 19,056 16,300 13,090
Diluted.......................................................... 25,188 24,959 20,367 16,300 13,090
- ------------------------
(*) The Company accounted for its interest in the CCC Development Company
("CCCDC") Joint Venture under the equity method of accounting prior to
acquiring the remaining interest in the CCCDC Joint Venture, effective March
30, 1994.
14
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and marketable securities........................ $ 1,526 $ 32,118 $ 18,404 $ 3,895 $ 5,702
Working capital....................................... 3,281 28,735 8,093 (17,953) (15,549)
Total assets.......................................... 79,018 83,494 58,268 44,093 52,232
Current portion of long-term debt..................... -- 111 120 7,660 5,340
Long-term debt, excluding current maturities.......... 11,000 -- 111 27,220 35,753
Mandatorily redeemable preferred stock................ 688 5,054 4,688 34,125 31,122
Stockholders' equity (deficit)........................ 35,303 45,827 24,293 (56,420) (54,729)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company's net income (loss) for the periods indicated, are set forth
below:
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
Revenues.................................................................... $ 188,169 $ 159,106 $ 130,977
Expenses:
Operating Expenses:
Production and customer support........................................... 48,242 35,657 31,828
Commissions, royalties and licenses....................................... 21,495 18,939 14,009
Selling, general and administrative....................................... 60,053 50,914 40,653
Depreciation and amortization............................................. 9,210 7,688 7,330
Product development and programming....................................... 25,813 20,203 17,026
Litigation settlement....................................................... 1,650 -- --
Relocation of claims settlement function 1,707 -- --
---------- ---------- ----------
Operating income............................................................ 19,999 25,705 20,131
Interest expense............................................................ (258) (139) (2,562)
Other income, net........................................................... 697 1,505 636
---------- ---------- ----------
Income from operations before income taxes.................................. 20,438 27,071 18,205
Income tax provision........................................................ (8,860) (11,239) (2,683)
---------- ---------- ----------
Income before equity losses, minority interest and extraordinary items...... 11,578 15,832 15,522
Equity in net losses of affiliates.......................................... (11,658) -- --
Minority share in earnings of subsidiaries.................................. (1) -- --
---------- ---------- ----------
Income (loss) before extraordinary item..................................... (81) 15,832 15,522
Extraordinary loss on early retirement of debt, net of income taxes......... -- -- (678)
---------- ---------- ----------
Net income (loss)........................................................... $ (81) $ 15,832 $ 14,844
---------- ---------- ----------
---------- ---------- ----------
15
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
OVERVIEW
The Company is a supplier of automobile claims information and processing,
claims management software and communication services. The Company's customers
include insurance companies and collision repair facilities. The Company's
products and services are designed to improve efficiency, manage costs and
increase consumer satisfaction in the management of automobile claims and
restoration.
The Company is organized into three divisions, Insurance Services,
Automotive Services and Consumer Processing Services, based on the nature of the
products and services and the methods used to distribute these products and
services. The Insurance Services Division offers products and services to its
customers through the use of a direct selling force. These products and services
generally are used by insurance companies to facilitate the processing of
automobile physical damage claims and improve decision making in the insurance
underwriting processes. The Automotive Services Division offers products and
services to its customers through the use of independent sales representatives.
These products and services are tools used by collision repair facilities to
receive and process automobile damage claims electronically in conjunction with
insurance companies. The Consumer Processing Services Division offers a suite of
products and services for the complete outsourcing of automobile physical damage
claims and bodily injury claims The Company sells its products to two primary
customer groups: insurance companies (approximately 65% of revenue in 1998) 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 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 PATHWAYS collision estimating software,
used to estimate the cost of repairing vehicles. The Company also offers
PATHWAYS DIGITAL IMAGING, GUIDEPOST, EZNET and CCC RATINGS SERVICES. In addition
to claims processing tools, the Company offers insurers ACCESS, an integrated
appraisal and restoration management service, CARS, a car rental management
service and TPA, a complete claims outsourcing service. 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 products for collision
repair facilities is its EZEST, PATHWAYS and PATHWAYS DIGITAL IMAGING.
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. Collision Estimating
software subscriptions are billed monthly in advance. EZNET communication
services are generally priced on a per transaction basis. ACCESS and CARS
services are billed monthly on a per transaction basis. The TPA services are
sold on a per claim and performance sharing basis under multi-year contracts.
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
16
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
borrowings. The Company formed CCCDC to develop the EZEST collision estimating
software. In June 1994, 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 14
and 15 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 White River will vote
with the Management Stockholders regarding defined business combinations and
subsequent offerings of Company common stock. This Stockholders Agreement
expires in June 1999, at which time White River will no longer hold Series E
Preferred Stock which provides WR 51% voting power as a condition of the
Agreement of the votes.
Depreciation/amortization expense through March 1996 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 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
significant.
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, 1998
the Company expended approximately $63.0 million for product development and
programming.
17
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
NET INCOME (LOSS) AS A PERCENTAGE OF REVENUE
The Company's net income (loss), as a percentage of revenue for the periods
indicated, are set forth below:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
Revenues........................................................................... 100.0% 100.0% 100.0%
Expenses:
Operating Expenses:
Production and customer support................................................ 25.7 22.4 24.3
Commissions, royalties and licenses............................................ 11.4 11.9 10.7
Selling, general and administrative............................................ 31.9 32.0 31.0
Depreciation and amortization.................................................. 4.9 4.8 5.6
Product development and programming............................................ 13.7 12.7 13.0
Litigation settlement.......................................................... 0.9 -- --
Relocation of claims settlement function....................................... 0.9 -- --
--------- --------- ---------
Operating income................................................................... 10.6 16.2 15.4
Interest expense................................................................... (0.1) (0.1) (2.0)
Other income, net.................................................................. 0.4 0.9 0.5
--------- --------- ---------
Income from operations before income taxes......................................... 10.9 17.0 13.9
Income tax provision............................................................... (4.7) (7.1) (2.0)
--------- --------- ---------
Income before equity losses, minority interest and extraordinary items............. 6.2 9.9 11.9
Equity in net losses of affiliates................................................. (6.2) -- --
Minority share in earnings of subsidiaries......................................... -- -- --
--------- --------- ---------
Income (loss) before extraordinary item............................................ -- 9.9 11.9
Extraordinary loss on early retirement of debt, net of income taxes................ -- -- 0.5
--------- --------- ---------
Net income (loss).................................................................. --% 9.9% 11.4%
--------- --------- ---------
--------- --------- ---------
1998 COMPARED WITH 1997
For the year ended December 31, 1998, the Company reported a net loss
applicable to common stock of $38 thousand, or $0.00 per share on a diluted
basis, versus net income applicable to common stock of $15.5 million, or $0.62
per share on a diluted basis, for the same period last year. The change in
income per share on a diluted basis was the result of recording the equity in
net losses of affiliates of $11.7 million, or $0.46 per share, a litigation
settlement of $0.04 per share, relocation of claims settlement function of $0.04
per share, as well as other increases in expenses ahead of revenue growth as
described below. Operating income for the year ended December 31, 1998 of $20.0
million was also $5.7 million less than the same period last year reflecting
increased spending on new and enhanced products and customer support activities.
The equity in net losses of affiliates of $11.7 million is principally the
result of the Company's investment in InsurQuote, which resulted in the
recording of an $11.4 million loss for the year.
REVENUES. Revenues for the year ended December 31, 1998 of $188.2 million
were $29.1 million, or 18.3% higher than the same period last year. The increase
in revenues was due primarily to continued growth in the Company's Consumer
Processing Services Division. Revenues for the Consumer Processing Services
Division for the year ended December 31, 1998 of $22.7 million were $13.1
million or 136% higher
18
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
than the same period last year. In addition, revenues for the Automotive
Services Division for the year ended December 31, 1998 of $63.5 million were
$12.4 million or 24.3% higher than the same period last year. The revenues for
the Insurance Services Division for the year ended December 31, 1998 of $101.4
million were $5.0 million or 5.2% higher than the same period last year. The
increase in both the Automotive Services and the Insurance Services Divisions
were due to growth in the digital imaging product and collision estimating
software seats.
PRODUCTION AND CUSTOMER SUPPORT.
Production and customer support increased from $35.7 million or 22.4% of
revenue to $48.2 million or 25.7% of revenue. The year over year variance was
due primarily to additional production and customer support related to Consumer
Processing Services, Pathways workflow/collision estimating seats and the
introduction of Pathways Enterprise Solutions.
COMMISSIONS, ROYALTIES AND LICENSES. Commission, royalties and licenses
increased from $18.9 million or 11.9% of revenues to $21.5 or 11.4% of revenues.
The increase 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 $50.9 million or 32.0% of revenues to $60.0 million or 31.9% of
revenues. Headcount increases as well as higher average wages necessary to
recruit and retain key employees were the principal reasons for the increase,
along with additional bad debt provisions associated with the expansion of the
Automotive Services Division customer base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$7.7 million to $9.2 million. The increase in depreciation year over year was
principally the result of higher internal capital expenditures for the Consumer
Processing Services Division and depreciation and amortization associated with
the acquisitions.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
increased from $20.2 million or 12.7% of revenue to $25.8 million or 13.7% or
revenue. The increase in costs over prior year mainly related to the growth in
the Consumer Processing Services Division, Year 2000 compliance spending and
other new product development.
LITIGATION SETTLEMENT. Litigation settlement costs of $1.7 million related
to a claim filed in the fourth quarter of 1998 by an independent sales
representative settled in early 1999.
RELOCATION OF CLAIMS SETTLEMENT FUNCTION. Relocation of the claims
settlement function of $1.7 million related to relocating certain customer
service and claims processing operations to South Dakota was incurred in 1998.
OTHER INCOME/INTEREST EXPENSE AND INCOME TAXES. Net other income/interest
decreased from $1.4 million to $0.4 million. The effective income tax rate
increased from 41.5% to 43.4%.
EQUITY IN LOSSES OF AFFILIATES: 1998 results include an $11.4 million loss
in InsurQuote and $0.2 million loss from Enterstand Joint Venture.
19
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
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. Revenues for
the Insurance Services Division for the year ended December 31, 1997 of $96.3
million were $13.2 million or 15.8% higher than the same period last year
primarily due to the growth in collision estimatings software seats and increase
in the VEHICLE VALUATION SERVICES due to higher transaction volumes. In
addition, revenues for the Automotive Services Division for the year ended
December 31, 1997 of $51.0 million were $12.6 million or 32.6% higher than the
same period last year also due to growth in collision estimating seats. Revenues
for the Consumer Processing Services Division for the year ended December 31,
1997 of $9.6 million were $2.4 million or 33.7% higher than the same period last
year due to the introduction of the TPA business and incremental transaction
volume in ACCESS and CARS.
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.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$7.3 million to $7.7 million.
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%.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, net cash provided by operating
activities was $15.9 million. The Company applied $11.0 million, to purchase
equipment and software, and $1.8 million to the purchase of land and building in
Sioux Falls, South Dakota associated with the relocation of certain customer
service
20
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
and claims processing operations. The Company invested $20 million in
InsurQuote, which is developing services to manage insurance rating information.
The Company purchased two subsidiaries for $4.5 million to expand its Consumer
Processing Services operations domestically and in Europe and invested $2.0
million in an Enterstand, an international joint venture to develop products for
the European marketplace. The Company also repurchased 1.4 million of the
Company's outstanding shares for $15.7 million.
On October 28, 1998, the credit facility between CCC and the commercial bank
was amended and restated, from the original revolving credit agreement entered
into on August 22, 1996. Under the amended credit facility, CCC increased its
ability to borrow under the revolving line of credit to $50 million. In
addition, the maturity date of the credit facility was extended to October 31,
2003. The interest rate under the amended bank credit facility is the London
Interbank Offering Rate (LIBOR) plus 1.0% or the prime rate in effect from time
to time, as selected by CCC. The Company's principal liquidity requirements
include its operating activities, including product development, and its
investments in internal and customer capital equipment.
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 investments and declare dividends.
During the year ended December 31, 1997, net cash provided by operating
activities was $20.1 million. The Company applied $8.1 million 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.
The Company has over the past three years been able to fund all of its
working capital needs and capital expenditures from cash generated from
operations. Management believes that cash flows from operations and available
credit line facility 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
BACKGROUND. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000 ("Year 2000 Problem"). These problems are widely expected to increase
in frequency and severity as the year 2000 approaches. The Company defines an
application to be Year 2000 compliant if it can accurately process date data
(including calculating, comparing and sequencing) from, into and between 1999
and 2000, including leap year calculations.
ASSESSMENT. The Year 2000 Problem could affect computers, software, and
other equipment used, operated, or maintained by the Company. Accordingly, the
Company is reviewing its internal computer programs and systems to ensure that
the programs and systems will be Year 2000 compliant. The Company presently
believes that its computer systems will be Year 2000 compliant in a timely
manner. However,
21
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
while the estimated cost of these efforts are not expected to be material to the
Company's financial position or any year's results of operations, there can be
no assurance to this effect.
SOFTWARE SOLD TO CUSTOMERS. The Company believes that it has substantially
identified all potential Year 2000 Problems with any of the software products,
which it develops and markets. As a key supplier to insurance companies and
collision repair facilities, the Company has identified a significant exposure
for Year 2000 problems regarding the effect of its legacy collision estimating
software on some customers' ability to complete an estimate. A major undertaking
is currently in process to convert those customers impacted to the Year 2000
compliant version of the software. While lost revenues from such an event are a
concern for the Company, the greater risks are the monetary damages for which
the Company could be liable if it in fact is found responsible for the shutdown
of one of its customer's facilities. Such a finding could have a material
adverse impact on the Company's results of operations.
INTERNAL INFRASTRUCTURE. The Company believes that it has identified
substantially all of the major computers, software applications, and related
equipment, with the exception of desktop hardware and software applications,
used in connection with its internal operations that must be modified, upgraded
or replaced to minimize the possibility of a material disruption to its
business. The Company has commenced the process of modifying, upgrading, and
replacing major systems that have been identified as adversely affected, and
expects to complete this process before the middle of 1999. The Company expects
to complete testing of desktop hardware and software applications by the second
quarter of 1999 and upgrades will be scheduled as needed.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other common devices may be affected by the Year 2000 Problem. The Company has
nearly completed its assessment and expects that most facility and office
equipment will be compliant by June 1999.
The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these internal systems will
not have a material adverse effect on the Company's business or results of
operations. Currently, the Company is expensing approximately $600 thousand per
quarter associated with this effort. It is expected that this cost will continue
through the fourth quarter of 1999. This estimate is being monitored and will be
revised as additional information becomes available.
SUPPLIERS. The Company has initiated communications with third party
suppliers of the major computers, software, and other equipment used, operated,
or maintained by the Company to identify and, to the extent possible, to resolve
issues involving the Year 2000 Problem. However, the Company has limited or no
control over the actions of these third party suppliers. Thus, while the Company
expects that it will be able to resolve any significant Year 2000 Problems with
these systems, there can be no assurance that these suppliers will resolve any
or all Year 2000 Problems with these systems before the occurrence of a material
disruption to the business of the Company or any of its customers. Any failure
of these third parties to resolve Year 2000 Problems with their systems in a
timely manner could have a material adverse effect on the Company's business,
financial condition, and results of operation.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 Problems
affecting the Company have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, one cannot accurately predict how
22
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
many Year 2000 Problem-related failures will occur or the severity, duration, or
financial consequences of these perhaps inevitable failures. As a result,
management expects that the Company could likely suffer the following
consequences:
1. a significant number of operational inconveniences and inefficiencies
for the Company and its customers that may divert management's time and
attention and financial and human resources from its ordinary business
activities; and
2. a lesser number of serious failures that may require significant efforts
by the Company or its customers to prevent or alleviate material business
disruptions.
Although the Company expects its critical systems to be compliant by mid
1999, there is no guarantee that these results will be achieved. Specific
factors that give rise to this uncertainty include a possible loss of technical
resources to perform the work, failure to identify all susceptible systems,
non-compliance by third parties whose systems and operations impact the Company,
and other similar uncertainties. A possible worst case scenario might include
one or more of the Company's software products sold to customers being
non-compliant. Such an event could result in a material disruption to the
Company's or customers operations. For example, the software could experience an
interruption in its ability to properly calculate or access the data required to
complete a collision estimate. Should the worst case scenario occur it could,
depending on its duration, have a material impact on the Company's results of
operations and financial position.
CONTINGENCY PLANS. The Company is currently developing contingency plans to
be implemented as part of its efforts to identify and correct Year 2000 Problems
that may occur. The Company expects to complete its contingency plans by April
1999. Depending on the systems affected, these plans could include accelerated
replacement of affected equipment or software, short to medium use of backup
equipment and software, increased work hours for Company personnel or use of
contract personnel to correct on an accelerated schedule any Year 2000 Problems
that arise or to provide manual workarounds for information systems, and similar
approaches. If the Company is required to implement any of these contingency
plans, it could have a material adverse effect on the Company's financial
condition and results of operations.
Based on the activities described above, Management believes the Company is
devoting the necessary resources to identify and resolve Year 2000 Problems. The
success of this effort and a favorable outcome to the various potential
situations described herein will determine the impact the Year 2000 Problem has
on the Company's business or results of operations
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.
23
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
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
The information required by this item is hereby incorporated by reference to
CCC Information Services Group Inc.'s Notice of 1999 Annual Meeting of
Stockholders and Proxy Statement, which was filed with the Securities and
Exchange Commission and provided to Stockholders on or about March 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to
CCC Information Services Group Inc.'s Notice of 1999 Annual Meeting of
Stockholders and Proxy Statement, which was filed with the Securities and
Exchange Commission and provided to Stockholders on or about March 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to
CCC Information Services Group Inc.'s Notice of 1999 Annual Meeting of
Stockholders and Proxy Statement, which was filed with the Securities and
Exchange Commission and provided to Stockholders on or about March 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to
CCC Information Services Group Inc.'s Notice of 1999 Annual Meeting of
Stockholders and Proxy Statement, which was filed with the Securities and
Exchange Commission and provided to Stockholders on or about March 31, 1999.
24
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............................................... 26
Consolidated Financial Statements:
Consolidated Statement of Operations.......................................... 27
Consolidated Balance Sheet.................................................... 28
Consolidated Statement of Cash Flow........................................... 29
Consolidated Statement of Stockholders' Equity (Deficit)...................... 30
Notes to Consolidated Financial Statements.................................... 31-48
2. Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.................. 49
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............................................... 50
(b) Reports on Form 8-K
No reports on Form 8-K were filed by CCC Information Services Group Inc.
during 1998.
25
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
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, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
March 31, 1999
Chicago, Illinois
26
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Revenues..................................................................... $ 188,169 $ 159,106 $ 130,977
Expenses:
Production and customer support............................................ 48,242 35,657 31,828
Commissions, royalties and licenses........................................ 21,495 18,939 14,009
Selling, general and administrative........................................ 60,053 50,914 40,653
Depreciation and amortization.............................................. 9,210 7,688 7,330
Product development and programming........................................ 25,813 20,203 17,026
Litigation settlement...................................................... 1,650 -- --
Relocation of claims settlement function................................... 1,707 -- --
---------- ---------- ----------
Operating income............................................................. 19,999 25,705 20,131
Interest expense............................................................. (258) (139) (2,562)
Other income, net............................................................ 697 1,505 636
---------- ---------- ----------
Income from operations before income taxes................................... 20,438 27,071 18,205
Income tax provision......................................................... (8,860) (11,239) (2,683)
Income before equity losses, minority interest and extraordinary item........ 11,578 15,832 15,522
Equity in net losses of affiliates........................................... (11,658) -- --
Minority share in earnings of subsidiaries................................... (1) -- --
---------- ---------- ----------
Income (loss) before extraordinary item...................................... (81) 15,832 15,522
Extraordinary loss on early retirement of debt, net of income taxes.......... -- -- (678)
---------- ---------- ----------
Net income (loss)............................................................ (81) 15,832 14,844
Dividends and accretion on mandatorily redeemable preferred stock............ 43 (365) (6,694)
---------- ---------- ----------
Net income (loss) applicable to common stock................................. $ (38) $ 15,467 $ 8,150
---------- ---------- ----------
---------- ---------- ----------
PER SHARE DATA:
INCOME (LOSS) PER COMMON SHARE--BASIC
Income (loss) applicable to common stock before extraordinary item......... $ -- $ 0.65 $ 0.46
Extraordinary loss on early retirement of debt, net of income taxes........ -- -- (0.03)
---------- ---------- ----------
Net income (loss) applicable to common stock............................... $ -- $ 0.65 $ 0.43
---------- ---------- ----------
---------- ---------- ----------
INCOME (LOSS) PER COMMON SHARE--DILUTED
Income (loss) applicable to common stock before extraordinary item......... $ -- $ 0.62 $ 0.43
Extraordinary loss on early retirement of debt, net of income taxes........ -- -- (0.03)
---------- ---------- ----------
Net income (loss) applicable to common stock................................. $ -- $ 0.62 $ 0.40
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding
Basic...................................................................... 24,616 23,807 19,056
Diluted.................................................................... 25,188 24,959 20,367
The accompanying notes are an integral part of these consolidated financial
statements.
27
CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31,
--------------------
1998 1997
--------- ---------
ASSETS
Cash.......................................................................................... $ 1,526 $ 2,064
Investments in marketable securities.......................................................... -- 30,054
Accounts receivable, net...................................................................... 23,212 18,302
Income taxes receivable....................................................................... 272 --
Other current assets.......................................................................... 5,726 5,270
--------- ---------
Total current assets.................................................................... 30,736 55,690
Property and equipment, net of accumulated depreciation of $34,494 and $26,793 at December 31,
1998 and 1997, respectively................................................................. 14,951 9,700
Goodwill, net of accumulated amortization of $11,845 and $10,238 at December 31, 1998 and
1997, respectively.......................................................................... 12,799 9,885
Deferred income taxes......................................................................... 7,371 7,237
Investments in affiliates..................................................................... 9,843 --
Other assets.................................................................................. 3,318 982