White River leases approximately 500 square feet of office space as its principal executive office in White Plains, New York, on a month-to-month basis.
CCC leases approximately 150,000 square feet of a multi-tenant facility as its principal office in Chicago, Illinois, under several leases, the last of which expire in 2008. CCC also leases approximately 84,000 square feet in Glendora, California, under a lease expiring in 2000. The Glendora facility consists of a satellite development and distribution center.
Hanover leases approximately 22,700 square feet of space as its principal office and warehouse in Plymouth, Minnesota, under a lease expiring in 2001. Hanover also leases approximately 4,000 square feet of space in two additional locations under separate leases, the last of which expires in 2001.
Management believes that its existing facilities and additional or alternative available space are adequate to meet the Company's requirements for the foreseeable future. Future requirements may be impacted by the growth of the Company.
Selected consolidated statement of operations data for the years ended December 31, 1997, 1996, 1995 and 1994, and for the period from September 24, 1993, through December 31, 1993, follows:
The calculation of book value per common and common equivalent share reflects the potentially dilutive effects of White River's outstanding incentive and directors' compensation awards. In the calculation of book value per common and common equivalent share: (i) the numerator is the sum of stockholders' equity and the tax benefit which would result from the settlement of outstanding performance units, directors' compensation awards and balances within White River's retirement plans with shares of Common Stock, based upon the current market price of the Common Stock and assuming a statutory tax rate of 35%, and (ii) the denominator is the sum of the shares of Common Stock outstanding and shares deemed issued in settlement of outstanding performance units, directors' compensation awards and balances within such retirement plans. See Note 9 of the accompanying financial statements for a discussion of White River's retirement plans and Notes 10 and 11 of the accompanying financial statements for a discussion of the incentive and directors' compensation plans which gives rise to White River's potentially dilutive securities.
The reclassification of White River's investment in NWA Partners from "other investments" to "investment securities-non current" resulted in a $41.4 million increase in total "investment securities", as discussed in Note 2 to the accompanying financial statements.
Capital expenditures were $9.8 million during the year ended December 31, 1997 compared to $5.6 million during the year ended December 31, 1996 primarily due to expansion of CCC's office space as well as expenditures related to CCC's new products.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
For the year ended December 31, 1997, pretax investment income totalled $11.4 million, including $10.2 million of interest income generated from higher cash and cash equivalents balances held during 1997. Pretax investment income totalled $9.0 million for the year ended December 31, 1996, and $8.3 million for the year ended December 31, 1995.
White River's proceeds from dispositions of investments totalled $39.0 million, $21.2 million and $118.9 million during the years ended December 31, 1997, 1996 and 1995, respectively. See Item 1 Business - Investment Operations for a discussion of 1997 and 1996 investment dispositions. The 1995 investment dispositions include the transfer of certain securities with a carrying value of $93 million and a fair value of $104 million to Fund American. In conjunction with the transfer of such securities, White River also received an additional $14 million in cash from Fund American. The assets transferred by White River were in satisfaction of the outstanding borrowings under the Credit Agreement. Accordingly, management accounted for the transaction as a retirement of debt with no corresponding gain or loss, and the remaining $11 million was recognized as realized investment gains.
The Company's investment holdings as of December 31, 1997 consist primarily of its interests in Cross Timbers; U.S. Treasury Bills held by CCC, and NWA Partners which represented 54.6%, 18.5% and 25.2%, respectively, of White River's total investments. White River's management believes that this concentration may make the value of White River's investments more volatile than the value of a more diversified portfolio.
The common stock of Cross Timbers is traded on the New York Stock Exchange under the symbol "XTO", and during the 52-week period ended December 31, 1997, its daily closing market price ranged between a high of $2811/16 and a low of $1411/16 per share. The closing market price of such shares as of December 31, 1997, was $2415/16 per share. Such prices were as listed on the New York Stock Exchange during 1997, and do not reflect the stock split noted below. In recognition of White River's demand registration rights with respect to its shares of Cross Timbers common stock, White River began carrying its interest in Cross Timbers at market value effective September 30, 1995, upon the adoption of SFAS No. 115. Accordingly, White River's interest in Cross Timbers was carried at $89.8 million and $60.8 million under the caption investment securities in the accompanying consolidated statement of financial condition as of December 31, 1997 and 1996, respectively.
On January 30, 1998, Cross Timbers announced a three-for-two stock split, to be effective on February 24, 1998 for stockholders of record on February 12, 1998. As a result of the stock split, White River's holdings of Cross Timbers common stock increased from 3,600,009 shares to 5,400,013 shares.
White River recognized dividend income of $0.8 million for each of the years ended December 31, 1997, 1996 and 1995, from its interest in Cross Timbers. There can be no assurance that Cross Timbers will continue to pay dividends on its common stock at this level, or if dividends will be paid at all.
The energy and natural resources industries, particularly the oil and natural gas industries, are highly competitive, require significant capital expenditures, and are subject to extensive regulation at both the national and local levels. Unpredictable fluctuations in the prices of oil, natural gas and other natural resources, as well as changes in the level of development and production expenditures by the operators of companies in this sector, generally affect the market price of the securities of such companies. For these reasons, among others, management believes that the value of its interest in Cross Timbers may be subject to additional market price
NWA Partners is a limited partnership formed during 1989 under the laws of the - ------------ State of California for the purpose of investing in Northwest Airlines Corporation ("Northwest Airlines") equity securities. During December 1993, NWA Partners entered into a stockholders' agreement (the "NWA Stockholders' Agreement") with the participants in the Northwest Airlines leveraged buyout (the "Northwest LBO"), which, among other things, restricted transfer of most of the shares of Northwest Airlines common stock held by the parties to the Northwest LBO until June 1997. Accordingly, the Company considered such investments as restricted in accordance with SFAS No. 115, and carried such investments at adjusted carring value (see Note 2 to the accompanying financial statements) until such time as the restrictions expired (June 1997). Thereafter, the Company accounted for its investment in NWA Partners as an available for sale security. NWA Partners has an original term of ten years, which is extendable at the discretion of the general partner for up to two additional years.
competition and industry consolidation. A number of airlines have filed for bankruptcy and/or ceased operations. Airlines offer discount fares, a wide range of schedules, frequent flyer mileage programs, and ground and in-flight services as competitive tools to attract passengers and increase market share. Because of the relative ease with which U.S. carriers can enter new markets, each carrier's domestic service is subject to potential increases in competition from other air carriers, the extent and effect of which cannot be predicted. The airline industry is subject to substantial price competition as U.S. carriers are free to determine domestic pricing policies without government regulation. Domestic price competition has accelerated the efforts of airline management to reduce costs and improve productivity. Although the U.S. government retains authority over international fares, such fares are also subject to the jurisdiction of the foreign countries being served. For these reasons, among others, White River's management believes that the value of its interest in NWA Partners may be subject to additional price volatility not applicable to the securities markets in general.
Revenues for the year ended December 31, 1997 of $159.1 million were $28.1 million, or 21.5%, higher than the prior year. The increase in revenues was due primarily to higher revenues from workflow/collision estimating software licensing and valuation services. Workflow/collision estimating software revenue increased due to an increase in the number of units sold in both the autobody and insurance markets. Valuation services revenue increased due to higher transaction volume.
On a stand-alone basis, CCC reported net income before accretion and dividends on preferred stock of $15.8 million, $14.8 million and $1.3 million for the years ended December 31, 1997, 1996 and 1995, respectively. The 1995 results include the $4.5 million pretax provision for loss relating to the MacLean Hunter litigation claim. White River's adjustment for the amortization of goodwill and purchased software related to the CCC acquisition (see Note 2 to the accompanying financial statements), as well as the minority shareholders' interest in the earnings of CCC during these periods, reduced net income by $17.4 million, $14.8 million and $9.0 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Other revenue of $9.6 million for the year ended December 31, 1997 consisted of Hanover sales of $9.0 million, and JKRE sales of $0.5 million. The corresponding sales amount of $5.4 million in 1996 is not comparable since Hanover operations did not commence until April 1996, while JKRE was not established until November 1997.
Hanover generated revenues of $5.4 million for the year ended December 31,1996. Hanover's operations had breakeven operating results for the period April 1996 to December 31, 1996, and the dollar amount of the investment in and advances to this entity totalled $1.6 million at December 31, 1996.
Other operating expenses decreased by 0.8% to $74.8 million for the year ended December 31, 1996, as
compared to $75.4 million for the same period in 1995. The decrease in other operating expenses during the year ended December 31, 1996 is attributable to effective cost containment initiatives and the postponement by CCC of certain operating expenditures that it would have made during the first half of 1996 in the absence of covenants under its previous bank credit facility.
As of December 31, 1995, CCC carried a valuation allowance of $5.0 million against future income tax benefits which were not recognized for book purposes due to the existence of historical operating losses and the resulting uncertainties regarding the availability of future taxable income. CCC reduced valuation allowances by $4.7 million thus reducing its stand-alone income tax expense in 1996 as a result of its successful recapitalization, through the CCC IPO, and its demonstrated pattern of profitability. White River treated its share of the reversal of these CCC tax benefits as a reduction of its goodwill relating to the CCC acquisition. CCC's remaining valuation allowance of $0.3 million as of December 31, 1997 and December 31, 1996, pertains to capital loss carry forwards, the realization of which is not assured.
For the foreseeable future, White River does not expect to receive cash dividends on its holdings of CCC Common Stock, and, based upon the terms of the CCC Preferred Stock, further dividends will not begin to accrue until June 1998. White River has not made any formal or informal commitment to make additional investments in or advances to CCC.
its capital stock, among other restrictions. In addition, the current credit facility also requires CCC to maintain certain levels of operating cash flow and interest expense coverage, and limits CCC's ability to make capital expenditures and investments and declare dividends.
Management believes that cash flows from operations and the current credit facility will be sufficient to meet CCC's liquidity needs over the next 12 months. There can be no assurance, however, that CCC will be able to satisfy its liquidity needs in the future without engaging in financing activities beyond those described above.
Based on risk assessment, CCC is currently modifying or replacing significant portions of its software so that its computer systems will function properly with respect to the year 2000 date recognition. White River is currently in the process of replacing significant portions of its software and expects to have such upgrades completed by December 31, 1998. CCC presently believes that with modifications to existing software and conversions to new software, the year 2000 issue will not pose a significant operational problem. However, if such modifications and conversions are not made, or not completed timely, the year 2000 issue could have a material adverse effect on CCC's business, financial condition and results of operations.
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a safe harbor for forward-looking information made on behalf of the Company. All statements, other than statements of historical facts, which address activities or actions that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the Company's operations and other such matters are forward-looking statements. To take advantage of the safe harbor provided by the Act, the Company is identifying certain factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by the Company.
Any one, or a combination, of these factors could materially affect the results of the Company's operations. These factors include competitive pressures, changes in customer preferences, acceptance of new product introductions and other marketing and sales initiatives, legal and regulatory initiatives and conditions in the