JKRE leases approximately 12,000 square feet of space as its office and warehouse in Edgewood, New York under a single lease expiring in 2003.
SELECTED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DATA AS OF DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993 FOLLOWS:
Book value per common equivalent share, as defined below, increased $9.90, or 19.0%, to $61.88 at December 31, 1997, from $51.98 at December 31, 1996. Such change reflects an increase of $7.33 per share relative to the after tax increase in net unrealized investment gains (including $3.51 per share related to the increase in value of White River's interest in NWA Partners, as discussed in Note 2 to the accompanying financial statements), which were recorded directly to stockholders equity, and realized gains on the distribution received from NWA Partners of $2.55 per share after tax.
As of December 31, 1997, the Company had consolidated cash and cash equivalents of $190.5 million, (which included $2.9 million related to the operations of CCC, Hanover, and JKRE), as compared to $188.4 million as of December 31, 1996. Substantially all of the cash and cash equivalent balances of $187.3 million held by White River as of December 31, 1997, other than those of CCC, Hanover and JKRE, were deposited with several major banking institutions in interest- bearing accounts with maturities of six days or less. As of December 31, 1997, such deposits earned a weighted average interest rate of 5.5% per annum.
Working capital (current assets less current liabilities) increased by $53.9 million to $302.8 million at December 31, 1997 from December 31, 1996 primarily due to a net increase in the Company's investments of $50.0 million. Additionally, accounts receivable and other current assets increased by $11.5 million during the same period. The inclusion of the current portion of redeemable preferred stock at December 31, 1997 reduced working capital by $7.0 million.
Consolidated net income applicable to common stock totalled $6.7 million for the year ended December 31, 1997, or $1.31 per diluted common share, as compared to $3.7 million, or $0.73 per diluted common share, for the year ended December 31, 1996, and $15.4 million, or $2.84 per diluted common share, for the year ended December 31, 1995. The 1997 results reflect pretax net investment gains of $27.5 million, as compared to $16.2 million reported for 1996 and $36.3 million for 1995.
Based upon the composition of its assets at the time of the Capitalization, White River met the definition of an Investment Company under the Investment Company Act. As such, White River's accounting policies regarding the carrying value of investments as well as the treatment of changes in unrealized gains and losses relating to such investments conformed to generally accepted accounting principles ("GAAP") for Investment Companies until such time as White River ceased to meet the definition of an Investment Company. White River ceased to meet the definition of an Investment Company effective September 30, 1995, and, accordingly, as discussed further in Note 2 to the accompanying financial statements, adopted the provisions of SFAS No. 115, as of such date. Under SFAS No. 115, changes in net unrealized investment gains and losses relating to White River's marketable equity securities and debt which are classified as available for sale are reported net of tax as a separate component of stockholders' equity and, except for declines in value which are deemed to be other than temporary in nature, changes in net unrealized investment gains and losses relating to White River's other investments are not recognized until realized. Pretax net unrealized gains of $55.5 million and $17.0 million were recorded directly to stockholders' equity during 1997 and 1996, respectively.
Cross Timbers was organized in 1990 and is engaged in the acquisition and - ------------- development of producing oil and gas properties and the marketing and transportation of oil and natural gas. Cross Timbers' oil and gas properties are concentrated in major producing basins in Oklahoma, East Texas and the Permian Basin of West Texas and New Mexico. Based upon information available to the Company, White River's holdings represented 13.6% of the total outstanding Cross Timbers common stock as of December 31, 1997. The Cross Timbers common stock held by White River generally is not registered for sale in the open market; however, White River does have limited demand registration rights with regard to such shares. In addition, White River can sell its holdings of Cross Timbers common stock in accordance with the volume restrictions under Rule 144 of the U.S. Securities Act of 1933, as amended. During 1997, such sales totalled 20,000 shares resulting in gross proceeds of $0.6 million.
As discussed in Note 1 of the accompanying financial statements, prior to September 30, 1995, investments classified by White River as "other investments" included its partnership interest in NWA Partners, which had no established market value at the time. White River carried its interest in NWA Partners at internally appraised values, giving due consideration to the current market value of the unrestricted Northwest Common Stock and the estimated value of the Northwest Preferred Stock. To arrive at fair value, White River applied a significant discount to such values due to liquidity restrictions caused in part by restrictions on transfer imposed by the NWA Stockholders' Agreement, as well as the partnership terms of NWA Partners. Upon White River ceasing to meet the definition of an Investment Company, White River adopted SFAS No. 115, and the Company recorded its limited partnership interest investment in NWA Partners at its then carrying value (due to the restrictions on the investments held by the NWA Partnership). Since the lapse of the restrictions on such investment in June 1997, the Company recorded its investment in NWA Partners as an available for sale security. Accordingly, the carrying value of NWA Partners at December 31, 1997 was $41.4 million, as compared to a carrying value of $21.8 million at December 31, 1996, which reflected the adjusted cost basis at that time.
Since the passage of the Airline Deregulation Act of 1978, the airline industry has been characterized by strong
Revenues for the year ended December 31, 1996 of $131.0 million were $15.5 million, or 13.4%, higher than the prior year. The increase in revenues was due primarily to higher revenues from collision estimating software licensing, from ACCESS claims services and from Total Loss vehicle valuation services. Collision estimating software licensing revenues increased primarily because of an increase in the number of software licenses, particularly at collision repair facilities. ACCESS claims services revenues increased primarily as a result of higher transaction volume. Total Loss revenues increased as a result of both higher volume and a slightly higher rate per transaction.
During August 1996, CCC completed the initial public offering of 6.9 million newly issued shares of Common Stock, resulting in net proceeds to CCC of $72.1 million. As a result of the IPO, CCC's $49.6 million deficiency in stockholders equity was eliminated resulting in stockholders' equity of $22.5 million immediately after the IPO. Prior to CCC's IPO, the minority interest in CCC was not reflected in the consolidated statements of financial condition because the minority interest did not guarantee the obligations of CCC nor was it otherwise committed to provide further financial support. However, as a result of eliminating CCC's deficiency in stockholders' equity, a minority interest liability was included in the Company's statement of financial condition. Such minority interest liability was $33.7 million and $19.0 million for the years ended December 31, 1997 and 1996, respectively.
Hanover, which began operations in April 1996, generated $9.0 million in revenue from the sale of fashion accessories for the year ended December 31, 1997, with a net loss of $0.5 million. As of December 31, 1997, White River's investment in and advances to Hanover totalled $3.8 million.
For the year ended December 31, 1997, compensation and benefits expense totalled $82.0 million, as compared to $63.7 million for 1996. The 1997 year results include a $7.3 million increase in White River's provision for stock based incentive awards, a $1.7 million increase related to Hanover which began operations in April 1996, and a $8.8 million increase in CCC's compensation and benefits to recruit and retain key employees.
For the year ended December 31, 1997, other operating expenses totalled $92.3 million, as compared to $74.8 million for the 1996 period, representing an increase of 23.4%. Such increase was due to an increase in CCC's operating expenses of $13.7 million in 1997 which was primarily attributable to an increase in product development and customer support capacity necessary to support increased revenues, as well as to efforts to build and upgrade internal systems. Furthermore, during 1996, CCC had constraints imposed on operating expenditures due to principal payment obligations and restrictive covenants attributable to its previous commercial bank credit facility. Additionally, Hanover's other operating expenses increased by $2.5 million in 1997 primarily because 1997 included a full year of expenses.
Compensation and benefits expense increased by 23.1% to $63.7 million for the year ended December 31, 1996, as compared to $51.8 million for the year ended December 31, 1995. The 1996 increase reflects a $5.2 million increase in White River's provision for stock-based incentive awards, which was due to increases in the market value of Common Stock during such period as well as to accelerated vesting of certain awards due in part to the effects of the CCC IPO upon White River's book value per common and common equivalent share. In addition, CCC's compensation and benefits increased by $5.5 million for the year ended December 31, 1996 when compared to the prior year, as a result of increased staffing required to support revenue growth and product development activities.
The Company's effective tax rate is higher than the statutory rate of 35% due to the fact that the Company provides for deferred taxes on its equity interest in the net income of CCC, as well as due to the effect of the amortization of goodwill.
As of December 31, 1997, the Company had consolidated cash and cash equivalents of $190.5 million, of which $187.3 million relates to balances held by White River, with the remaining $2.9 million related to the operations of CCC, Hanover and JKRE. White River's primary sources of additional cash include sales of investments, interest earned on cash equivalents and dividends earned on investments. During the years ended December 31, 1997, 1996 and 1995, White River generated cash proceeds from the sale of investments aggregating $39.0 million, $21.1 million and $28.9 million, respectively.
During the year ended December 31, 1997, the Company did not repurchase any shares of Common Stock. Cumulative share repurchases since the formation of White River through December 31, 1997, totalled approximately 1,495,000 shares of Common Stock at an aggregate cost of $48.9 million. As of December 31, 1997, White River may repurchase an additional 523,000 shares of Common Stock under its existing share repurchase authorization.
As part of the Capitalization, White River issued to Fund American 7,000 shares of White River Series A NonParticipating Cumulative Preferred Stock, par value $1.00 per share (the "Redeemable Preferred Stock"), which are entitled to aggregate annual dividends of $0.5 million and must be redeemed during September 1998, at a redemption price of $1,000 per share. Fund American sold the Redeemable Preferred Stock to two unaffiliated institutional investors at the time of the Distribution.
Management believes that available cash and funds generated from sales of investments will be sufficient for White River to satisfy its working capital requirements for the foreseeable future.
CCC's primary source of cash includes receipts of customer billings, which are generally invoiced monthly in advance for EZEst units and Pathways subscriptions and monthly in arrears for Total Loss and EZNet transactions. During the years ended December 31, 1997 and 1996, CCC generated net cash from operating activities of $20.1 million and $20.3 million, respectively. CCC used $8.1 million and $5.6 million, respectively excluding noncash capital expenditures, to purchase equipment and software and invested the remaining cash in marketable securities.
On August 21, 1996, CCC 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 CCC 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 balance of CCC's principal repayments during the year ended December 31, 1996, was generated from operations.
On August 22, 1996, CCC secured a $20.0 million revolving credit facility through a commercial bank. As a result, the balance of deferred financing fees associated with CCC's previous credit facility was written off in 1996 as an extraordinary loss, net of income taxes. There have been no borrowings under the current bank credit facility. Indebtedness under the current bank credit facility would bear interest at either of two rates as selected by CCC: the London Inter-Bank Offering Rate plus 1.5% per annum, or the prime rate. Following the offering, CCC's principal liquidity requirements include its operating activities, including product development, and its investments in internal and customer capital equipment.
The year 2000 issue relates to computer system programs which may not properly recognize the change in date years from 1999 to 2000. As a result of this time sensitivity of existing software, any business entity is at risk for possible system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. In addition, entities that provide software solutions to their customers must monitor the year 2000 concerns in the applications their software supports.
CCC is utilizing both internal and external resources to reprogram, or replace, and test software for the year 2000 modifications. CCC anticipates completing the year 2000 project in early 1999. The total cost of the year 2000 project for the Company is not material.
capital markets. Forward -looking statements made by the Company are based on knowledge of its business and the environment in which it operates, but because of the factors listed above, as well as other factors- beyond the control of the Company, actual results may differ from those in the forward-looking statements.