<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-22604
WHITE RIVER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 93-1011071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Westchester Avenue, Suite 201, 10604
White Plains, New York (Zip Code)
(Address of principal executive offices)
(914) 251-0237
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of November 7, 1997, 4,874,756 shares of White River Corporation common
stock, par value $0.01 per share, were outstanding.
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WHITE RIVER CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Interim Statements of Financial Condition,
September 30, 1997 (Unaudited), and December 31, 1996 3
Consolidated Interim Statements of Operations (Unaudited),
Quarters and Nine Months Ended September 30, 1997, and 1996 4
Consolidated Interim Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 1997, and 1996 5
Notes to Consolidated Interim Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
<CAPTION>
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
</TABLE>
2
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WHITE RIVER CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------------------------
Dollars in thousands, except per share amounts Sept. 30, 1997 Dec. 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Cash and cash equivalents $ 193,296 $ 188,365
Investment securities, at market value (adjusted cost: $63,895 and $42,892) 120,658 72,699
Accounts receivable, less allowances of $2,694 and $1,946 16,539 10,661
Other current assets 6,418 4,545
---------- ----------
Total current assets 336,911 276,270
Other investments, at adjusted cost (fair value: $44,579 and $39,813) 22,124 26,420
Goodwill, less accumulated amortization of $18,674 and $14,675 19,977 23,730
Purchased software and equipment, less accumulated
amortization and depreciation of $43,841 and $35,081 18,072 20,478
Deferred Income tax asset 7,017 6,410
Other assets 1,195 1,204
---------- ----------
Total assets $ 405,296 $ 354,512
===================================================================================================================
Liabilities
Accounts payable and accrued expenses $ 25,878 $ 21,334
Deferred revenues 7,290 5,709
Current portion of contract funding -- 123
Current portion of notes payable and other debt 122 120
---------- ----------
Total current liabilities 33,290 27,286
Deferred income tax liability 30,967 21,867
Notes payable and other debt 20 111
Other liabilities 27,778 22,591
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Total liabilities 92,055 71,855
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Redeemable preferred stock 7,185 7,175
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Minority interest 28,643 18,950
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Stockholders' equity
Series B, Participating Cumulative Preferred Stock - par value $1.00
per share; 50,000 shares designated; none issued -- --
Common stock - par value $0.01 per share;
62,500,000 shares authorized; 6,370,000 shares issued 64 64
Common paid-in surplus 250,503 249,546
Retained earnings 38,839 36,438
Net unrealized investment gains, net of tax 36,881 19,358
Common stock in treasury, at cost (1,495,244 shares) (48,874) (48,874)
---------- ----------
Total stockholders' equity 277,413 256,532
---------- ----------
Total liabilities, redeemable preferred stock, minority interest
and stockholders' equity $ 405,296 $ 354,512
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
3
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WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
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Quarter Ended Nine Months Ended
September 30, September 30,
In thousands, --------------------- ----------------------
except per share amounts 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Insurance-related services $ 40,457 $ 32,602 $ 115,523 $ 95,927
Investment income 2,870 2,429 8,168 6,334
Other revenues 2,525 3,084 5,858 3,084
--------- --------- ---------- ----------
Total revenues 45,852 38,115 129,549 105,345
--------- --------- ---------- ----------
Operating expenses
Compensation and benefits 16,295 20,047 53,049 50,331
Other operating expenses 22,223 20,290 64,913 54,841
--------- --------- ---------- ----------
Total operating expenses 38,518 40,337 117,962 105,172
--------- --------- ---------- ----------
Operating income (loss) 7,334 (2,222) 11,587 173
--------- --------- ---------- ----------
Other income (expense)
Net investment gains 6,966 15,148 8,140 16,144
Minority interest (2,532) 335 (7,086) 335
Interest expense (34) (526) (106) (2,508)
--------- --------- ---------- ----------
Total other income 4,400 14,957 948 13,971
--------- --------- ---------- ----------
Pretax income 11,734 12,735 12,535 14,144
Income tax expense 6,179 7,866 9,780 13,479
--------- --------- ---------- ----------
Net income before extraordinary item and dividends
and accretion on redeemable preferred stock 5,555 4,869 2,755 665
Extraordinary loss on early retirement of debt, net of tax -- 678 -- 678
--------- --------- ---------- ----------
Net income (loss) 5,555 4,191 2,755 (13)
Dividends and accretion on redeemable preferred stock 118 309 354 605
--------- --------- ---------- ----------
Net income (loss) applicable to common stock $ 5,437 $ 3,882 $ 2,401 $ (618)
========= ========= ========== ==========
Income before extraordinary item and dividends and
accretion on preferred stock per common share:
Primary $ 1.14 $ 1.00 $ 0.57 $ 0.14
Fully-diluted $ 1.07 $ 0.94 $ 0.53 $ 0.13
Income (loss) applicable to common stock
per common share:
Primary $ 1.12 $ 0.80 $ 0.49 $ (0.13)
Fully-diluted $ 1.05 $ 0.75 $ 0.46 $ (0.13)
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
4
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WHITE RIVER CORPORATION AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
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Nine Months Ended
September 30,
------------------------------
In thousands 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ 2,755 $ (13)
Adjustments to reconcile net income (loss) to net cash and cash equivalents
provided from operations:
Net investment gains (8,140) (16,144)
Amortization and depreciation of purchased software and equipment 8,767 9,534
Amortization of goodwill 3,958 4,248
Minority interest 7,086 (335)
Contract funding revenue amortization (123) (2,935)
Deferred income tax expense (benefit) (352) (671)
Changes in:
Other current assets and accounts receivable (7,751) (2,519)
Other liabilities 5,187 10,897
Deferred revenues 1,581 4,515
Accounts payable and accrued expenses 4,544 1,794
Other, net (907) 630
--------- ----------
Net cash and cash equivalents provided from operations 16,605 9,001
--------- ----------
Cash flows provided from (used for) investing activities:
Purchases of investment securities (45,111) (2,031)
Proceeds from sales of investment securities and other investments 36,678 21,052
Purchases of software and equipment (6,362) (3,193)
Other, net -- (231)
--------- ----------
Net cash and cash equivalents provided from (used for) investment activities (14,795) 15,597
--------- ----------
Cash flows provided from (used for) financing activities:
Net proceeds from issuance of subsidiary stock 3,564 72,124
Principal payments on notes payable and other debt (89) (46,711)
Proceeds from notes payable and other debt -- 10,750
Purchases of treasury stock -- (1,188)
Dividends paid on redeemable preferred stock (354) (354)
Redemption of subsidiary redeemable preferred stock,
including accrued dividends -- (1,354)
Other, net -- (389)
--------- ----------
Net cash and cash equivalents provided from financing activities 3,121 32,878
--------- ----------
Net increase in cash and cash equivalents during period 4,931 57,476
Cash and cash equivalents balance at beginning of period 188,365 139,245
--------- ----------
Cash and cash equivalents balance at end of period $ 193,296 $ 196,721
===================================================================================================================
Supplemental information:
Income taxes paid $ 8,690 $ 8,264
Interest paid $ 95 $ 2,560
Non-cash equipment financing $ -- $ 1,341
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated interim
financial statements.
5
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WHITE RIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION
White River Corporation (together with its wholly-owned subsidiaries, unless the
context requires otherwise, "White River" or, together with all of its
subsidiaries, the "Company") commenced operations in its present form on
September 24, 1993, concurrent with the purchase and other transfer of selected
assets and the assumption of certain liabilities (collectively, the
"Capitalization") from its former parent company, Fund American Enterprises
Holdings, Inc., and certain of its subsidiaries (together, "Fund American"). On
December 22, 1993, Fund American distributed (the "Distribution") approximately
75% of the outstanding shares of White River common stock, par value $0.01 per
share (the "Common Stock"), to all holders of Fund American common stock.
Based upon the composition of its assets at the time of the Capitalization,
White River met the definition of an investment company (an "Investment
Company") under the Investment Company Act of 1940 (the "Investment Company
Act"). In anticipation of the Distribution, White River submitted an application
to the Securities and Exchange Commission (the "Commission") seeking exemptive
relief from various provisions of the Investment Company Act. During December
1993, White River received from the Commission a temporary exemption from
registering as an Investment Company for a period of up to two years. During
October 1995, White River filed a report with the Commission which concluded
that, based upon the composition of its assets, White River no longer met the
definition of an Investment Company. Since the filing of such report, White
River has conducted and intends to continue to conduct its business operations
so as to avoid having to register as an Investment Company under the Investment
Company Act.
During June 1994, White River completed its acquisition (the "CCC Acquisition")
of a majority of the total outstanding common stock, par value $0.10 per share
(the "CCC Common Stock"), of CCC Information Services Group Inc. (together with
its subsidiaries, unless the context requires otherwise, "CCC", formerly
InfoVest Corporation). In addition, at the time of the CCC Acquisition, White
River acquired redeemable preferred stock issued by CCC with a face value of
$37.5 million. CCC is a supplier of automobile claims information and
processing, claims management software and communications services. During
August 1996, CCC completed an initial public offering (the "CCC IPO") which
raised net proceeds of $72.1 million in exchange for 6.9 million newly issued
shares of CCC Common Stock. CCC used the proceeds from the CCC IPO to redeem a
substantial portion of the outstanding CCC Preferred Stock and to retire certain
of its outstanding commercial bank debt. As a result of the CCC IPO, White River
received $34.8 million, including accrued but unpaid dividends, as a partial
redemption of the CCC Preferred Stock which White River held. As of September
30, 1997, White River held approximately 36% of the total outstanding shares of
CCC Common Stock, as well as CCC Preferred Stock with an aggregate stated value
of $4.7 million. Certain of the shares of the CCC Preferred Stock held by White
River provide White River with 51% of the voting power associated with CCC's
total outstanding voting stock, when combined with the shares of CCC Common
Stock held by White River.
During April 1996, White River, through its wholly-owned subsidiary Hanover
Accessories, Inc. ("Hanover"), became engaged in the design, distribution, sale
and retail servicing of popular-priced fashion accessories,
6
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WHITE RIVER CORPORATION AND SUBSIDIARIES
primarily for the children's market. Hanover currently markets over 3,500
different styles of products, many of which are exclusive designs available only
to Hanover. All of Hanover's products are supplied through contract
manufacturers.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements include the accounts
of White River and its subsidiaries, including those of CCC. The consolidated
interim financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). All significant intercompany balances
have been eliminated in consolidation. The consolidated interim financial
statements include all adjustments (consisting solely of normal recurring
adjustments) considered necessary by management to fairly present the financial
condition, results of operations and cash flows of the Company. Notwithstanding
the foregoing, these consolidated interim financial statements may not be
indicative of financial results for the full year or for any other future
period. Such consolidated interim financial statements should be read in
conjunction with White River's 1996 Annual Report to Stockholders on Form 10-K
as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities as well as the disclosure of contingent assets and
liabilities as of the date of the financial statements. Such estimates also have
a pervasive effect upon the reported amounts of revenues and expenses reflected
in the consolidated interim statements of operations. Actual results could
differ from these estimates.
Certain accounts in prior year financial statements have been reclassified for
comparative purposes to conform with the presentation in the current year
financial statements.
NOTE 3. INCOME (LOSS) PER COMMON SHARE
The calculation of primary income (loss) per common share is computed by
dividing net income (loss) applicable to common stock for the quarters and nine
month periods ended September 30, 1997, and 1996, by the weighted average number
of outstanding shares of Common Stock for such periods, which was 4.9 million
for both the 1997 and 1996 periods. The calculation of fully-diluted income
(loss) per common share is computed by dividing net income (loss) applicable to
common stock for the quarters and nine month periods ended September 30, 1997,
and 1996, by the sum of the weighted average number of outstanding shares of
Common Stock and potentially dilutive securities, which was 5.2 million for both
the 1997 and 1996 periods. No dividends were declared on shares of Common Stock
during such periods.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," in February 1997.
This statement establishes standards for computing and presenting earnings per
share ("EPS"). This statement is effective for financial statements issued for
periods ending after December 15,1997; earlier adoption is not permitted. The
adoption of the SFAS No. 128 would not have had a material effect on the EPS
information presented for the quarters and nine month
7
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WHITE RIVER CORPORATION AND SUBSIDIARIES
period ended September 30, 1997 and 1996.
The FASB has also issued SFAS No. 130, "Reporting Comprehensive Income," in June
1997. In addition to net income, comprehensive income includes items recorded
directly to stockholders' equity, such as unrealized gains and losses on certain
investments in equity, preferred stock accretion, preferred stock dividends and
the income tax benefit related to the exercise of certain stock options. This
statement establishes new standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements.
This statement is effective for fiscal years beginning after December 15, 1997.
Adoption of this standard will require an additional financial statement
disclosure detailing the Company's comprehensive income.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes new standards
for reporting information about operating segments in interim and annual
financial statements. This statement is also effective for fiscal years
beginning after December 15, 1997. The Company is currently evaluating the
impact this statement will have on the consolidated financial statements.
NOTE 5. INCOME TAXES
Income tax expense is based on income recognized for financial statement
purposes and includes the effects of temporary differences between such income
and that recognized for tax return purposes. For the nine month period ended
September 30,1997, the Company recorded income tax expense of $9.8 million on
pretax income of $12.5 million. For the nine month period ended September
30,1996, the Company recorded income tax expense of $13.5 million on pretax
income of $14.1 million. The major components that caused the Company's
effective tax rate to exceed the Federal statutory rate of 35% in both years are
the effects of amortization of goodwill and the undistributed earnings of CCC.
NOTE 6. LEGAL PROCEEDINGS
The Company is a party to various claims and routine litigation arising in the
normal course of business. Such claims and litigation are not expected to have a
material adverse effect on the financial condition or results of operations of
the Company.
NOTE 7. ISSUANCE OF CCC COMMON STOCK
During August 1996, CCC completed the CCC IPO, which raised net proceeds of
$72.1 million in exchange for 6.9 million newly issued shares of CCC Common
Stock. CCC used the proceeds from the CCC IPO to redeem a substantial portion of
the outstanding CCC Preferred Stock and to retire certain of its outstanding
commercial bank debt. After the closing of the CCC IPO, White River held 36.6%
of the total outstanding shares of CCC Common Stock. As a result of the CCC IPO,
White River recorded approximately $44 million as a direct increase to
consolidated paid-in-surplus representing the increase in equity that White
River recognized upon the CCC IPO.
8
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WHITE RIVER CORPORATION AND SUBSIDIARIES
As a result of the CCC IPO, White River received $34.8 million, including
accrued but unpaid dividends, as a partial redemption of the CCC Preferred Stock
that White River held. As of September 30, 1997, White River continues to hold
CCC Preferred Stock with a redemption value of $5.1 million, including accrued
but unpaid dividends. In accordance with the terms of the CCC Preferred Stock,
the dividend accrual rate on the remaining shares of CCC Preferred Stock has
been eliminated from the day following the CCC IPO through June 16, 1998.
Certain of the shares of the CCC Preferred Stock held by White River provides
White River with 51% of the total voting power associated with CCC's total
outstanding voting stock when combined with the shares of CCC Common Stock held
by White River.
NOTE 8. SALE OF INVESTMENT SECURITIES - MCFARLAND ENERGY CORPORATION
On July 25, 1997, White River sold its entire common stock investment in
McFarland Energy Corporation ("McFarland") in connection with the purchase of
McFarland by Monterey Acquisition Corporation. As a result of this transaction,
the Company realized an after tax gain on the sale of $4.5 million which is
included in the accompanying Statement of Operations for the quarter and nine
months ended September 30, 1997.
NOTE 9. EXTRAORDINARY ITEM
Primarily with a portion of the proceeds from the CCC IPO, CCC repaid all
outstanding balances under an existing term loan and revolving credit facility.
During August 1996, CCC executed a new revolving line of credit with a new
commercial bank and terminated a former credit facility. As a result, the
balance of deferred financing fees associated with this former credit facility
have been written-off as an extraordinary loss, net of income taxes, in the
accompanying consolidated interim statements of operations for the quarter and
nine months ended September 30, 1996.
NOTE 10. SUBSEQUENT EVENT
On October 14, 1997, White River received a $26.3 million distribution on its
investment in the Richard C. Blum & Associates - NWA Partners LP ("NWA
Partners"), which holds equity securities in Northwest Airlines Corporation
("NWA Corp."). The distribution represented White River's share of proceeds
arising primarily from the redemption of NWA Partners' investment in preferred
stock of NWA Corp., but also in part due to the sale of 0.7 million shares of
NWA Corp. common stock subject to a call option.
White River owns a 21.3% interest in NWA Partners, which in turn continues to
own approximately 4.7 million shares of NWA Corp. common stock.
9
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WHITE RIVER CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition - As of September 30, 1997 and December 31, 1996
Book value per common and common equivalent share increased 10.5% to $57.46 per
share at September 30, 1997, as compared to $51.98 at December 31, 1996. The
increase was primarily due to unrealized gains from White River's investment in
Cross Timbers Oil Company common stock, a realized gain from the sale of
McFarland Energy common stock, and income from interest bearing accounts related
to its cash and investment securities.
Cash and cash equivalents as of September 30, 1997, totalled $193.3 million, as
compared to $188.4 million as of December 31, 1996. Substantially all of the
cash and cash equivalent balances were deposited with several major banking
institutions in interest-bearing accounts with maturities of six days or less.
At September 30, 1997, such deposits earned a weighted average interest rate of
5.5% per annum, as compared to 5.4% per annum at December 31, 1996.
The White River Board of Directors (the "White River Board") continues to
consider the level of capital available to White River in light of its current
operating needs and the prospects for the acquisition of additional operating
businesses. If, as a 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 its 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 current and projected capital needs of White
River.
Results of Operations - Quarters and Nine Months Ended September 30, 1997,
and 1996
The Company reported net income applicable to common stock of $5.4 million, or
$1.05 per fully-diluted common share, for the quarter ended September 30, 1997,
as compared to net income applicable to common stock of $3.9 million, or $0.75
per fully-diluted common share, for the quarter ended September 30, 1996. The
1997 third quarter results reflect pretax operating income of $7.3 million, as
compared to a pretax operating loss of $2.2 million for the same period in 1996.
For the nine months ended September 30, 1997, White River reported income
applicable to common stock of $2.4 million, or $0.46 per fully-diluted common
share, as compared to a net loss of $0.6 million, or $0.13 per fully-diluted
common share for the same period in 1996. The 1997 year-to-date results reflect
a pretax operating income of $11.6 million, as compared to pretax operating
income of $0.2 million for the same period in 1996.
Investment Operations
White River's pretax investment income totalled $2.9 million for the quarter
ended September 30, 1997, and $8.2 million for the nine months then ended, as
compared to $2.4 million and $6.3 million for the quarter and nine months ended
September 30, 1996, respectively. These increases reflect the increased balances
in cash and cash equivalents during the first nine months of 1997, as compared
to the same period in 1996.
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WHITE RIVER CORPORATION AND SUBSIDIARIES
Pretax net realized investment gains totalled $7.0 million for the quarter ended
September 30, 1997, and $8.1 million for the nine months then ended, as compared
to $15.1 million for the quarter and $16.1 million for the nine months ended
September 30, 1996. The 1997 results include pretax realized gains of $7.7
million related to White River's sale of its investment in McFarland Energy
Corporation. The 1996 results include pretax realized gains of $13.0 million
relating to the redemption of White River's investment in NEWFLO Corporation.
Insurance-Related Services
CCC's revenues from insurance-related services increased $7.9 million, or 24.1%,
to $40.5 million for the quarter ended September 30, 1997, from $32.6 million
for the same period in 1996. For the nine months ended September 30, 1997, CCC's
revenues from insurance-related services increased 20.4%, to $115.5 million,
from $95.9 million for the same period in 1996. The increase in revenues was
primarily due to higher revenues from workflow/collision estimating software and
from CCC's outsourced claims and vehicle valuation services. Workflow/collision
estimating software revenues increased due to higher transaction volume in both
the autobody and insurance markets. The increase in revenues for vehicle
valuation services was due to higher transaction volume that resulted from
product enhancements.
On a stand-alone basis, CCC reported net income before accretion and dividends
on preferred stock of $4.0 million and $11.3 million for the quarter and nine
months ended September 30, 1997, respectively, as compared to $4.0 million and
$10.7 million for the same periods in 1996. Such stand-alone results exclude the
effects of White River's amortization and adjustment of goodwill and purchased
software associated with the CCC acquisition, which reduced CCC's net income as
reported by White River by $1.8 million and $5.5 million for the quarter and
nine months ended September 30, 1997, as compared to $3.9 million and $11.7
million for the respective periods in 1996; these adjustments are included in
the accompanying Consolidated Interim Statements of Operations as Other
operating expenses for the quarters and nine months ended September 30, 1997 and
1996. In addition, White River recorded expenses of $2.5 million and $7.1
million, respectively, for the quarter and nine month period ended September 30,
1997, which represents the equity in earnings of the minority interest in CCC.
The comparable amount recognized for both the quarter and nine month periods
ended September 30, 1996 was revenue of $0.3 million. The 1996 adjustment to
CCC's stand-alone results includes income tax benefits of $2.1 million and $5.2
million for the quarter and nine months ended September 30, 1996 which was
recorded by CCC but which was reflected in consolidation by White River as a
reduction of goodwill.
Fashion Accessories
Hanover, which began operations in April 1996, generated $2.5 million in revenue
from the sale of fashion accessories during the third quarter 1997, with a net
loss of $0.1 million. For the nine months year-to-date, revenues were $5.9
million, with a year-to-date net loss of $0.4 million. Sales of Hanover are
reported as Other Revenues in the accompanying consolidated interim statements
of operations. As of September 30, 1997, White River's investment in and
advances to Hanover totalled $3.1 million.
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WHITE RIVER CORPORATION AND SUBSIDIARIES
Operating Expenses
Compensation and benefits expense decreased 18.7%, to $16.3 million for the
quarter ended September 30, 1997, as compared to $20.0 million for the same
period in 1996. Expenses related to stock-based incentive awards decreased by
$6.3 million in the third quarter of 1997 when compared with the third quarter
of 1996 due to accelerated vesting of certain awards during the third quarter of
1996. Additionally, CCC's compensation and benefits increased by $2.9 million
for the quarter ended September 30, 1997 when compared with the 1996 quarter as
a result of increased staffing required to support revenue growth and product
development activities. For the nine months ended September 30, 1997,
compensation and benefits expense totalled $53.0 million, as compared to $50.3
million for the corresponding period in 1996. The 1997 nine month results
include a $4.4 million decrease in White River's provision for stock based
incentive awards, a $1.5 million increase related to Hanover (which began
operations in April 1996), and a $6.0 million increase in CCC's compensation and
benefits.
Other operating expenses increased 9.5%, to $22.2 million, for the quarter ended
September 30, 1997, as compared to $20.3 million for the corresponding quarter
in 1996. Such increase was due to an increase in CCC's operating expenses of
$3.8 million, or 25.9%, 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.
Additionally, expenses related to stock based incentive awards for directors
decreased by $1.8 million in the third quarter when compared to the third
quarter of 1996 due to accelerated vesting of these awards during the third
quarter of 1996. For the nine months ended September 30, 1997, other operating
expenses totalled $64.9 million, as compared to $54.8 million for the 1996
period, representing an increase of 18.4%. Such increase was due to an increase
in CCC's operating expenses of $10.4 million, or 24.6%, 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.
Interest Expense
Interest expense totalled thirty-four thousand and one hundred six thousand for
the quarter and nine months ended September 30, 1997, respectively, as compared
to $0.5 million and $2.5 million for the corresponding periods in 1996. The
decrease is due primarily to the repayment of CCC's long-term debt and contract
funding amortization following its initial public offering in August 1996.
New Accounting Pronouncements
The FASB issued SFAS No. 128, "Earnings Per Share," in February 1997. This
statement establishes standards for computing and presenting EPS. This statement
is effective for financial statements issued for periods ending after December
15,1997; earlier adoption is not permitted. The adoption of the SFAS No. 128
would not have had a material effect on the EPS information presented for the
quarters and nine month periods ended September 30, 1997 and 1996.
12
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WHITE RIVER CORPORATION AND SUBSIDIARIES
The FASB has also issued SFAS No. 130, "Reporting Comprehensive Income," in June
1997. In addition to net income, comprehensive income includes items recorded
directly to stockholders' equity, such as unrealized gains and losses on certain
investments in equity, preferred stock accretion, preferred stock dividends and
the income tax benefit related to the exercise of certain stock options. This
statement establishes new standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements.
This statement is effective for fiscal years beginning after December 15, 1997.
Adoption of this standard will require an additional financial statement
disclosure detailing the Company's comprehensive income.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes new standards
for reporting information about operating segments in interim and annual
financial statements. This statement is also effective for fiscal years
beginning after December 15, 1997. The Company is currently evaluating the
impact this statement will have on the consolidated financial statements.
Liquidity and Capital Resources
White River
As of September 30, 1997, the Company had consolidated cash and cash equivalents
of $193.3 million, of which $191.2 million relate to balances held by White
River primarily in accounts with banks with maturities of six days or less.
White River's primary sources of additional cash include sales of investments as
well as interest earned on cash equivalents and dividends earned from the
investment portfolio. For the foreseeable future, White River does not expect to
receive cash dividends on its holdings of CCC Common Stock. As of September 30,
1997, White River continues to hold CCC Preferred Stock with a redemption value
of $5.1 million, including accrued but unpaid dividends. The remaining CCC
Preferred Stock held by White River must be redeemed by June 16, 1999, and may
be redeemed sooner under certain circumstances including the occurrence of
subsequent offerings of CCC Common Stock. White River has not made any formal or
informal commitment to make additional investments in or advances to CCC and is
not a direct or indirect guarantor of any CCC indebtedness.
Cumulative repurchases of shares of Common Stock during the period from the
Distribution through September 30, 1997, totalled approximately 1.5 million
shares at an aggregate cost of $48.9 million. As of September 30, 1997, White
River may repurchase approximately 0.5 million additional shares of Common Stock
under its existing share repurchase authorization.
Although no assurances can be given, management believes that available cash
will be sufficient for White River to satisfy its working capital requirements
for the foreseeable future. The White River Board continues to consider the
level of capital available to White River in light of its current operating
needs and prospects for the acquisition of additional operating businesses. 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 current and projected capital needs of White River.
13
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WHITE RIVER CORPORATION AND SUBSIDIARIES
CCC
Since the retirement of its former credit facility, CCC's principal liquidity
requirements are to provide for operating activities, including product
development, and to fund purchases of equipment for internal and customer
purposes. For the nine months ended September 30, 1997, net cash provided by
CCC's operating activities was $18.0 million. CCC applied $6.1 million of cash
to purchase equipment and software and invested $21.1 million in marketable
securities, net of proceeds from the sale of such securities.
Management believes that cash flows from CCC's operations and an available $20.0
million under its revolving 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.
14
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various claims and routine litigation arising
in the normal course of their businesses. Such claims and litigation
are not expected to have a material adverse effect upon the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
15
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1* Purchase Agreement, dated as of April 15, 1994, among White
River Ventures, Inc. and Teachers Insurance and Annuity
Association of America, The Mutual Life Insurance Company of
New York, TCW Special Placements Fund II, TCW Capital and
BankAmerica Capital Investments (Current Report on Form 8-K
dated April 15, 1994, File No. 0-22604 -- Exhibit 2.1).
2.1(a) Index of Omitted Schedules; Agreement to Furnish Upon Request
(Current Report on Form 8-K dated April 15, 1994, File No. 0-
22604 -- Exhibit 2.1(a)).
2.2* Reorganization Agreement, dated as of June 16, 1994, between
InfoVest Corporation and White River Ventures, Inc. (Current
Report on Form 8-K dated June 16, 1994, File No. 0- 22604 --
Exhibit 2.1).
2.2*(a) Index of Omitted Schedules; Agreement to Furnish Upon Request
(Current Report on Form 8-K dated June 16, 1994, File No. 0-
22604 -- Exhibit 2.1(a)).
2.3* Stock and Asset Purchase Agreement, dated as of August 25,
1994, by and among InfoVest Corporation and Credit Card
Service Corporation and Faneuil, Inc., New Service, Inc. and
Faneuil ISG, Inc. (Current Report on Form 8-K dated August 25,
1994, File No. 0-22604 -- Exhibit 2.1).
2.3*(a) Index of Omitted Exhibits and Schedules; Agreement to Furnish
Upon Request (Current Report on Form 8-K dated August 25,
1994, File No. 0-22604 -- Exhibit 2.1(a)).
3.1* Restated Certificate of Incorporation of the Registrant as
filed with the Secretary of State of the State of Delaware
(Form 10, File No. 0-22604 -- Exhibit 3.1).
3.2* By-Laws of the Registrant (Form 10, File No. 0-22604 --
Exhibit 3.2).
4.1* Rights Agreement between the Registrant and First Chicago
Trust Company of New York, as Rights Agent (Form 8-A, File No.
0-22604 -- Exhibit 1).
4.2* Certificate of Designations of Series A, Non-Participating
Cumulative Preferred Stock (Form 10, File No. 0-22604 --
Exhibit 4.2).
4.3* Certificate of Designations of Series B, Participating
Cumulative Preferred Stock (Form 10- K for the year ended
December 31, 1993, File No. 0-22604 -- Exhibit 4.3).
4.4* White River Common Stock Certificate (Form 10-K for the year
ended December 31, 1993, File No. 0-22604 -- Exhibit 4.4).
10.1* 1993 Incentive Compensation Plan of the Registrant adopted on
September 24, 1993 (Form 10, File No. 0-22604 -- Exhibit
10.1).
10.2* Voluntary Deferred Compensation Plan of the Registrant adopted
on September 24, 1993 (Form 10, File No. 0-22604 -- Exhibit
10.2).
10.3* Deferred Benefit Plan of the Registrant adopted on September
24, 1993 (Form 10, File No. 0-22604 -- Exhibit 10.3).
16
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
10.4* Letter Agreement Evidencing Award of Performance Units
between the Registrant and Andrew Delaney (Form 10-K for
the year ended December 31, 1993, File No. 0-22604 --
Exhibit 10.4).
10.5* Letter Agreement Evidencing Award of Performance Units between
the Registrant and Gordon S. Macklin (Form 10-K for the year
ended December 31, 1993, File No. 0-22604 -- Exhibit 10.5).
10.6* Credit Agreement dated as of December 13, 1993, between the
Registrant and Fund American Enterprises Holdings, Inc. (Form
10-K for the year ended December 31, 1993, File No. 0-22604 --
Exhibit 10.6).
10.7* Intercompany Services and Expense Sharing Agreement dated as
of September 24, 1993, between the Registrant and Fund
American Enterprises Holdings, Inc. (Form 10, File No.
0-22604 -- Exhibit 10.8).
10.8* First Amendment to the Deferred Benefit Plan of the Registrant
dated as of December 17, 1993 (Form 10-K for the year ended
December 31, 1993, File No. 0-22604 -- Exhibit 10.10).
10.9* Stockholders' Agreement, dated as of June 16, 1994, by and
among CCC, White River Ventures, Inc. and the Inside
Stockholders of CCC identified on Exhibit A thereto (Current
Report on Form 8-K dated June 16, 1994, File No. 0-22604 --
Exhibit 10.1).
10.10* Regulatory Contingency Agreement, dated as of June 16, 1994,
between CCC and White River Ventures, Inc. (Current Report on
Form 8-K dated June 16, 1994, File No. 0-22604 -- Exhibit
10.2).
10.11* Registration Rights Agreement, dated as of May 23, 1995,
between the Registrant and the Selling Stockholders referred
to therein (incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-3 (File No. 33-
93544).
11* Statement re Computation of Per Share Earnings (incorporated
herein by reference to Exhibit 11 of the Company's Annual
Report on Form 10-K, dated December 31, 1996, Commission File
No. 0-22604 -- Exhibit 11).
27 Financial Data Schedule
* Previously filed as indicated and incorporated herein by
reference.
(b) Reports on Form 8-K
None.
17
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 1997 White River Corporation
By: /s/ Robert T. Marto
------------------------
Name: Robert T. Marto
Title: President and
Chief Executive Officer
By: /s/ Michael E.B. Spicer
------------------------
Name: Michael E.B. Spicer
Title: Chief Financial Officer and
Treasurer
18
<PAGE>
WHITE RIVER CORPORATION AND SUBSIDIARIES
Exhibit Sequential
Number Exhibit Index Page Number
--------- ------------------------------------------ -------------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1997 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 193,296
<SECURITIES> 120,658
<RECEIVABLES> 19,233
<ALLOWANCES> 2,694
<INVENTORY> 0
<CURRENT-ASSETS> 336,911
<PP&E> 61,913
<DEPRECIATION> 43,841
<TOTAL-ASSETS> 405,296
<CURRENT-LIABILITIES> 33,290
<BONDS> 20
7,185
0
<COMMON> 64
<OTHER-SE> 277,349
<TOTAL-LIABILITY-AND-EQUITY> 405,296
<SALES> 121,381
<TOTAL-REVENUES> 129,549
<CGS> 0
<TOTAL-COSTS> 117,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 756
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 12,535
<INCOME-TAX> 9,780
<INCOME-CONTINUING> 2,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,755
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.46
</TABLE>
