White River leases approximately 11,000 square feet of office space as its principal executive office in White Plains, New York, under a lease expiring in 1998 and has the option to extend this lease for an additional five-year period.
Selected consolidated statement of operations data for the years ended December 31, 1996, 1995 and 1994, and for the period from September 24, 1993, through December 31, 1993, follows:
(b) See Note 3 to the consolidated financial statements for a discussion of the acquisition of CCC by White River.
Book value per common and common equivalent share increased $12.97, or 33.2%, to $51.98 at December 31, 1996, from $39.01 at December 31, 1995. Such change reflects an increase of approximately $9.38 per share relating to the effects of the CCC IPO, as well as approximately $2.09 per share relating to the after tax increase in net unrealized investment gains. Both of these items were recorded directly to stockholders equity.
Total notes payable and other debt decreased 99.3% to $0.2 million as of December 31, 1996, as compared to $34.9 million as of December 31, 1995. Such reduction was due primarily to the repayment of debt outstanding under CCC's former credit facility with proceeds from the CCC IPO.
Results of Operations -- Years Ended December 31, 1996, 1995 and 1994
Consolidated net income applicable to common stock totalled $3.7 million for the year ended December 31, 1996, or $0.72 per fully-diluted common share, as compared to $15.4 million, or $2.84 per share for the year ended December 31, 1995, and $26.5 million, or $4.38 per fully-diluted common share, for the year ended December 31, 1994. The 1996 results reflect pretax net investment gains of $16.2 million, as compared to $36.3 million reported for 1995 and $49.7 million for 1994.
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
White River's remaining investment holdings consist primarily of its interests in Cross Timbers and NWA Partners which represented 61.3% and 22.0%, respectively, of White River's total investment portfolio. 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.
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 14.9% of the total outstanding Cross Timbers common stock as of December 31, 1996. 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 1996, such sales totalled 262,000 shares resulting in gross proceeds of $6.5 million.
White River recognized dividend income of $0.8 million for each of the years ended December 31, 1996, 1995 and 1994, 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 volatility not applicable to the securities markets in general.
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. 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.
$14.8 million, $9.0 million and $4.4 million for the years ended December 31, 1996 and 1995, and for the period from the date of the acquisition of CCC by White River through December 31, 1994, respectively.
The Company provides for deferred income taxes which reflect the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Furthermore, deferred tax assets are recorded net of a valuation allowance if management believes that it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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
As of December 31, 1996, the Company had consolidated cash and cash equivalents of $188.4 million, of which $179.0 million relates to balances held by White River. White River's primary sources of additional cash include sales of investments, interest earned on cash equivalents and dividends earned on investments. 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.
During the year ended December 31, 1996, the Company repurchased approximately 28,000 shares of Common Stock for an aggregate cost of $1.1 million. Cumulative share repurchases during the period from the Distribution through December 31, 1996, totalled approximately 1,495,000 shares of Common Stock at an aggregate cost of $48.9 million. As of December 31, 1996, White River may repurchase an additional 523,000 shares of Common Stock under its existing share repurchase authorization. The White River Board intends to consider the level of capital available to White River in light of prospects for the acquisition of operating interests. If, as the result of such analysis, it is determined that stockholder value would best be enhanced through the return of capital to stockholders, White River may distribute to stockholders, through share repurchases or other means approved by the White River Board, funds which the White River Board concludes are in excess of the capital needs of White River's operations.
During December 1993, White River and Fund American entered into the Credit Agreement, which provided for a term loan and revolving credit facility. During 1995, White River repaid the entire $90.0 million balance due to Fund American under the Credit Agreement by transferring to Fund American certain investments.
Under the New CCC Facility, CCC is, with certain exceptions, prohibited from making certain sales or transfers of assets, incurring nonpermitted indebtedness or encumbrances, and redeeming or repurchasing its capital stock, among other restrictions. In addition, the New CCC 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 New CCC 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.
The information required by this item is contained under "WHITE RIVER CORPORATION AND SUBSIDIARIES -- CONSOLIDATED FINANCIAL STATEMENTS" attached hereto as ANNEX I.