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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 JUNE 30, 1994
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-5989
ITEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1658138
- - -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 North Riverside Plaza
Suite 1900
Chicago, Illinois 60606
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (312) 902-1515
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____
At July 31, 1994 there were 31,692,468 shares of Common Stock, $1.00 par value,
of the registrant outstanding.
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PART I. FINANCIAL INFORMATION
ITEL CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, 1994 (UNAUDITED)
CONSOLIDATED SUPPLEMENTAL INFORMATION
------------------------------------ ------------------------------
JUNE 30, DECEMBER 31, ALL
1994 1993 ANIXTER OTHER
-------------- ---------------- ------- -----
(UNAUDITED)
Current assets:
Cash and equivalents $ 61,200 $ 29,900 $ 12,500 $ 48,700
Accounts receivable (net of
allowances for doubtful
accounts of $4,800 for
both periods) 292,500 230,200 291,900 600
Inventories, primarily
finished goods 258,000 240,300 258,000 -
Other assets 6,100 6,300 5,000 1,100
---------- ---------- --------- ---------
Total current assets 617,800 506,700 567,400 50,400
Property, at cost 60,900 54,700 58,700 2,200
Accumulated depreciation (30,600) (27,800) (28,400) (2,200)
---------- ---------- --------- ---------
Net property 30,300 26,900 30,300 -
Goodwill (net of accumulated
amortization of $42,500 and
$39,500, respectively) 190,900 193,900 190,900 -
Discontinued Rail car leasing assets 1,145,400 1,193,600 - 1,145,400
Discontinued and assets held
for sale, net 186,700 191,100 - 186,700
Marketable equity securities
available-for-sale (cost of
$75,600 and $163,000,
respectively) 75,600 126,400 - 75,600
Investment in ANTEC 56,100 84,100 - 56,100
Other assets 11,100 18,200 3,400 7,700
--------- --------- --------- ---------
$2,313,900 $2,340,900 $ 792,000 $1,521,900
========= ========= ======== =========
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter and All other.
Transactions between Anixter and All other have been eliminated from the
consolidated columns.
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ITEL CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, 1994 (UNAUDITED)
CONSOLIDATED SUPPLEMENTAL INFORMATION
------------------------------------ -------------------------------
JUNE 30, DECEMBER 31, ALL
1994 1993 ANIXTER OTHER
-------------- ---------------- ------- -----
(UNAUDITED)
Current liabilities:
Accounts payable $ 187,200 $ 128,800 $160,600 $ 26,600
Accrued expenses 68,000 93,700 54,400 13,600
---------- ---------- -------- ----------
Total current liabilities 255,200 222,500 215,000 40,200
Income taxes, net, primarily deferred 127,000 102,200 (17,400) 144,400
Discontinued Rail car leasing liabilities 1,064,600 1,113,800 - 1,064,600
Other liabilities 20,000 20,300 16,000 4,000
Intercompany payable
(receivable) - - 51,100 (51,100)
Long-term debt - subsidiaries 262,900 188,300 262,900 -
- Corporate 167,500 288,500 - 167,500
---------- ---------- -------- ----------
Total liabilities 1,897,200 1,935,600 527,600 1,369,600
Stockholders' equity:
Common stock 32,200 33,000 300 31,900
Capital surplus 351,200 383,500 331,400 19,800
Retained earnings 40,600 22,400 (61,400) 102,000
Cumulative translation
adjustments (7,300) (9,900) (5,900) (1,400)
---------- ---------- -------- ----------
416,700 429,000 264,400 152,300
Unrealized losses on marketable
equity securities available-for sale
(net of deferred income tax benefit) - (23,700) - -
---------- ---------- -------- ----------
Total stockholders' equity 416,700 405,300 264,400 152,300
---------- ---------- -------- ----------
$2,313,900 $2,340,900 $792,000 $1,521,900
========== ========== ======== ==========
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter and All other.
Transactions between Anixter and All other have been eliminated from the
consolidated columns.
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ITEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE-MONTH PERIODS SIX-MONTH PERIODS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
Revenues $ 422,900 $ 328,200 $ 785,700 $ 626,500
Cost of operations (404,700) (314,700) (752,300) (601,400)
Amortization of goodwill (1,500) (1,400) (3,000) (2,800)
--------- ---------- --------- ---------
Operating income 16,700 12,100 30,400 22,300
Interest expense and other, net (6,300) (16,800) (14,000) (31,700)
Non-recurring item - ANTEC offering 48,200 - 48,200 -
Equity earnings in ANTEC 2,600 2,200 5,400 4,200
Marketable equity securities losses (34,400) - (39,600) -
--------- ---------- --------- ---------
Income (loss) from continuing
operations before income taxes 26,800 (2,500) 30,400 (5,200)
Income tax (expense) benefit (10,000) 800 (10,900) 1,700
--------- ---------- --------- ---------
Income (loss) from continuing
operations 16,800 (1,700) 19,500 (3,500)
Loss from discontinued
operations (net of related taxes) (400) (1,400) (1,300) (4,700)
--------- ---------- --------- ---------
Net income (loss) 16,400 (3,100) 18,200 (8,200)
Preferred stock dividends
and amortization - (1,500) - (3,000)
--------- ---------- --------- ---------
Income (loss) applicable to common stock $ 16,400 $ (4,600) $ 18,200 $ (11,200)
========= ========== ========= =========
Income (loss) per common and common
equivalent share:
Continuing operations $ .51 $ (.11) $ .59 $ (.23)
Net income (loss) $ .50 $ (.16) $ .55 $ (.39)
=========== ========== ========= =========
Weighted average common and
common equivalent shares 33,030 28,667 33,123 28,548
========== ========== ========= =========
See accompanying notes to the condensed consolidated financial statements.
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ITEL CORPORATION
SUPPLEMENTAL CONDENSED STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED JUNE 30,
(UNAUDITED)
(IN THOUSANDS)
ANIXTER ALL OTHER
-------------------------- -----------------------
1994 1993 1994 1993
----- ----- ----- -------
Revenues $422,900 $328,200 $ - $ -
Cost of operations (403,700) (313,000) (1,000) (1,700)
Amortization of goodwill (1,500) (1,400) - -
-------- -------- ---------- ----------
Operating income (loss) 17,700 13,800 (1,000) (1,700)
Interest expense and other, net (4,200) (6,000) (2,100) (10,800)
Non-recurring item - ANTEC offering - - 48,200 -
Equity earnings in ANTEC - - 2,600 2,200
Marketable equity securities loss - - (34,400) -
-------- -------- ---------- ----------
Income (loss) from continuing
operations before income taxes 13,500 7,800 13,300 (10,300)
Income tax (expense) benefit (6,200) (4,300) (3,800) 5,100
-------- -------- ---------- ----------
Income (loss) from continuing operations 7,300 3,500 9,500 (5,200)
Loss from discontinued operations (net
of related taxes) - - (400) (1,400)
-------- -------- ---------- ----------
Net income (loss) $ 7,300 $ 3,500 $ 9,100 $ (6,600)
======== ======== ========== ==========
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter and All other.
Transactions between Anixter and All other have been eliminated from the
consolidated columns.
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ITEL CORPORATION
SUPPLEMENTAL CONDENSED STATEMENTS OF OPERATIONS
SIX-MONTH PERIODS ENDED JUNE 30,
(UNAUDITED)
(IN THOUSANDS)
ANIXTER ALL OTHER
-------------------------- ------------------------
1994 1993 1994 1993
---- ---- ---- ----
Revenues $ 785,700 $ 626,500 $ - $ -
Cost of operations (750,200) (597,900) (2,100) (3,500)
Amortization of goodwill (3,000) (2,800) - -
--------- --------- --------- ---------
Operating income (loss) 32,500 25,800 (2,100) (3,500)
Interest expense and other, net (8,100) (10,900) (5,900) (20,800)
Non-recurring item - ANTEC offering - - 48,200 -
Equity earnings in ANTEC - - 5,400 4,200
Marketable equity securities losses - - (39,600) -
--------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes 24,400 14,900 6,000 (20,100)
Income tax (expense) benefit (10,900) (8,000) - 9,700
--------- --------- --------- ---------
Income (loss) from continuing
operations 13,500 6,900 6,000 (10,400)
Loss from discontinued opera-
tions (net of related taxes) - - (1,300) (4,700)
--------- --------- --------- ---------
Net income (loss) $ 13,500 $ 6,900 $ 4,700 $ (15,100)
========= ========= ========= ==========
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter and All other.
Transactions between Anixter and All other have been eliminated from the
consolidated columns.
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ITEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX-MONTH PERIODS
ENDED JUNE 30,
-----------------------
1994 1993
------ ------
Operating activities:
Income (loss) from continuing operations $ 19,500 $ (3,500)
Adjustments to reconcile income (loss) from continuing operations
to net cash used by continuing operating activities:
Depreciation 4,400 3,900
Amortization of goodwill 3,000 2,800
Deferred income tax expense 10,700 (2,500)
Non-recurring item (48,200) -
Marketable equity securities losses 39,600 -
Other, net 500 6,300
Changes in assets and liabilities, net of effects of
acquisitions and asset purchases (60,400) (26,300)
---------- -----------
Net cash used by continuing operating activities (30,900) (19,300)
Discontinued operations, net 2,100 56,700
---------- -----------
Net cash provided (used) by operating activities (28,800) 37,400
Investing activities:
Sales of marketable equity securities 47,800 -
Purchases of property, net (7,700) (4,400)
Sale of (investment in) ANTEC 82,800 (8,600)
Receipts from and (advances to) Q-TEL 7,600 (19,000)
---------- -----------
Net investing activities 130,500 (32,000)
---------- -----------
Net cash provided before financing activities 101,700 5,400
Financing activities:
Borrowings 725,200 319,400
Reductions in borrowings (784,000) (331,300)
Proceeds from issuance of common stock 5,200 14,200
Purchases of treasury stock (13,200) -
Other, net (3,600) (6,500)
---------- -----------
Net financing activities (70,400) (4,200)
---------- -----------
Cash provided 31,300 1,200
Cash and equivalents at beginning of period 29,900 21,000
---------- -----------
Cash and equivalents at end of period $ 61,200 $ 22,200
========== ===========
Supplemental cash flow information:
Interest paid (including allocations to
discontinued operations) during the period $ 33,100 $ 48,600
========== ===========
Income taxes paid during the period $ 1,600 $ 2,200
========== ===========
See accompanying notes to the condensed consolidated financial statements.
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ITEL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in Itel Corporation's ("Itel") Annual Report on Form 10-K
for the year ended December 31, 1993. The condensed consolidated financial
information furnished herein reflects all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of the condensed consolidated financial statements for the
periods shown.
Principles of consolidation: The condensed consolidated financial statements
include the accounts of Itel and its subsidiaries (collectively "the Company")
after elimination of intercompany transactions.
Reclassifications: The 1993 consolidated financial statements and related
notes have been reclassified to reflect ANTEC Corporation ("ANTEC") as an
equity investment (see Note 4) and to reflect the Company's investment in its
Rail car leasing business as discontinued operations (see Note 2).
NOTE 2. DISCONTINUED AND ASSETS HELD FOR SALE
On July 25, 1994, Itel sold substantially all its remaining interests in its
fleet of railcars for $35 million in cash and $169.5 million in notes
receivable for an aggregate purchase price of $204.5 million. The notes
receivable will not be due until the end of 1998 and interest can be deferred
until that time at the election of the obligors. The net gain from this
transaction is estimated to exceed $200 million.
The finance business of Signal Capital Corporation ("Signal Capital") has been
included as assets held for sale since acquisition in 1988. The finance
business is being liquidated and
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no material amounts of new loans or investments are being made by Signal
Capital. Since the date of acquisition, the portfolio has been reduced from
$1.44 billion to $165 million at June 30, 1994. Proceeds were used to repay
indebtedness.
NOTE 3. MARKETABLE EQUITY SECURITIES LOSSES
In the second quarter of 1994, the Company wrote down the value of its
investment in marketable equity securities by $34.4 million. Also in the first
quarter of 1994, the Company recorded a $5.2 million pre-tax loss on the sale
of its investment in Catellus Development Corporation ("Catellus").
NOTE 4. NON-RECURRING ITEM - ANTEC OFFERING
The non-recurring item reflects a $48 million pre-tax gain on the ANTEC Offering
relating to the May 1994 public offering of shares of common stock of ANTEC
(the "ANTEC Offering"). Itel provided deferred taxes relating to the
recognized pre-tax book gain. Itel sold 4.0 million shares of ANTEC common
stock at $21.75 per share. Net proceeds from the ANTEC Offering were
approximately $83 million. As a result of the ANTEC Offering, Itel's ownership
of ANTEC common stock was reduced from 53% to 33%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
SALE OF RAIL CAR LEASING BUSINESS: On July 25, 1994, Itel sold substantially
all its remaining interests in its fleet of railcars for $35 million in cash
and $169.5 million in notes receivable for an aggregate purchase price of
$204.5 million. The notes receivable will not be due until the end of 1998 and
interest can be deferred until that time at the election of the obligors. The
net gain from this transaction is estimated to exceed $200 million. Results of
operations reflect the Rail car leasing business as discontinued operations.
ANTEC PUBLIC OFFERING: In May 1994, Itel completed a public offering of
shares of common stock of ANTEC. Itel sold 4.0 million shares at $21.75 per
share. Net proceeds from the ANTEC Offering were approximately $83 million.
As a result of the ANTEC Offering, Itel's ownership of ANTEC common stock was
reduced from 53% to 33%.
LIQUIDATION OF SIGNAL CAPITAL: Signal Capital has been classified as assets
held for sale since its acquisition in 1988. The finance business is being
liquidated and no material amounts of new loans or investments are being made
by Signal Capital. Since the date of acquisition the portfolio has been
reduced from $1.44 billion to $165 million at June 30, 1994, including a
reduction of approximately $10 million in 1994.
CASH FLOW: Consolidated net cash used by continuing operating activities was
($30.9) million for the first six months of 1994 compared to ($19.3) million
for the same period in 1993. Cash used by continuing operating activities
increased due primarily to increased working capital investment resulting from
sharply increased sales volume at Anixter Inc. ("Anixter"). Consolidated cash
provided (used) for net investing activities was $130.5 million for the first
six months of 1994 versus ($32.0) million for the same period in 1993.
Consolidated investing activities in 1994 include approximately $82.8 million
of proceeds from the ANTEC Offering and approximately $47.8 million from the
sale of the Company's
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investment in Catellus. The 1993 period reflects a $19.0 million investment in
Q-TEL S.A. de C.V. of Mexico ("Q-TEL"). Consolidated cash used for net
financing activities was ($70.4) million for the first six months of 1994 in
comparison to ($4.2) million for the first six months of 1993. The
consolidated net financing activities in the 1994 period reflect significant
repayment of subordinated and senior debt using proceeds from the ANTEC
Offering and the sale of the Company's investment in Catellus. Cash from
discontinued operations, net was $2.1 million for the first six months of 1994
versus $56.7 million for the same period in 1993. Cash from discontinued
operations in both periods reflects cash received principally from the
reduction of Signal Capital assets which are held for sale.
Based upon discussions with financial analysts and similar disclosures provided
by competitors of Itel's businesses, the Company considers operating income
before amortization of goodwill and operating income plus depreciation and
amortization of goodwill ("cash flow") to be meaningful and readily comparable
measures of Itel's relative performance. Cash flow of Anixter was $39.9
million and $32.5 million for the six months ended June 30, 1994 and 1993,
respectively.
FINANCINGS: In March 1994, the Company increased Anixter's secured revolving
line of credit to $345 million, lowered the interest rate spreads and extended
the expiration to 1997. The revolving line of credit is non-recourse to Itel
and may be extended for two additional one-year periods at the option of the
lenders.
DEBT MATURITIES AND REPAYMENTS: In the first six months of 1994, the Company
retired $100 million of the Corporate Term Loan. This loan is secured by the
Company's investments in the capital stock of Anixter, ANTEC and Signal Capital
and its investment in marketable equity securities.
In the first six months of 1994 and 1993, respectively, the Company retired
approximately $221 million and $75 million of the face value of subordinated
debt at Itel.
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NET OPERATING LOSS CARRYFORWARDS: To the extent of certain taxable income
realized by the Company, liquidity is enhanced by potential tax benefits. As
of December 31, 1993, the Company had cumulative net operating loss ("NOL")
carryforwards for Federal income tax purposes of approximately $345 million
expiring principally in 1995 through 2007, and investment tax-credit ("ITC")
carryforwards of approximately $16 million expiring in 1994 through 2001.
Certain of these carryforwards have not been examined by the Internal Revenue
Service and, therefore, may be subject to adjustment. The availability of NOL
and ITC carryforwards to reduce the Company's future Federal income tax
liability is subject to various limitations under the Internal Revenue Code of
1986, as amended.
The July sale of substantially all its remaining interests in its fleet of
railcars will generate a taxable gain for Federal income tax purposes of
approximately $500 million, which currently is expected to fully
exhaust the aforementioned carryovers (see Note 2 of the Notes to the
Condensed Consolidated Financial Statements).
OTHER LIQUIDITY CONSIDERATIONS: Certain debt agreements entered into by Itel's
subsidiaries contain various restrictions including restrictions on payments to
Itel. Such restrictions have not had nor are expected to have an adverse
impact on Itel's ability to meet its cash obligations.
CAPITAL EXPENDITURES AND ACQUISITIONS
Consolidated capital expenditures were $8.0 million and $5.0 million for the
first six months of 1994 and 1993, respectively.
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RESULTS OF OPERATIONS
On July 25, 1994, Itel sold substantially all its remaining interests in its
fleet of rail cars. Results of operations reflect the Rail car leasing
business as discontinued operations.
In May 1994, Itel sold in a public offering 4.0 million shares of common stock
of ANTEC. As a result of the ANTEC Offering, Itel's ownership of ANTEC common
stock was reduced from 53% to approximately 33%. Itel now reports ANTEC in its
consolidated financial statements as an equity investment.
QUARTER ENDED JUNE 30, 1994: Income from continuing operations for the second
quarter of 1994 was $16.8 million compared with a loss of ($1.7) million in the
second quarter of 1993. Results in 1994 include a $48.2 million pre-tax gain
on the ANTEC Offering and a ($34.4) million pre-tax charge associated with the
write-down of the Company's investment in marketable equity securities. Net
income (loss) was $16.4 million and ($3.1) million in the second quarter of
1994 and 1993, respectively.
Anixter's revenues during the second quarter of 1994 increased 29% to $422.9
million from $328.2 million in 1993 resulting from the continued growth of the
U.S. wiring systems business and continued penetration in the expansion
countries.
The Company's consolidated operating income increased 38% to $16.7 million from
$12.1 million in the second quarter of 1993 and consolidated operating income
before amortization of goodwill increased 35% to $18.2 million from $13.5
million in the second quarter of 1993. Anixter operating income before
amortization of goodwill increased 26% to $19.2 million from $15.2 million due
primarily to significantly improved volume and earnings in the U.S. and Canada.
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Consolidated net interest expense and other for the second quarter declined to
$6.3 million from $16.8 million in 1993 due primarily to the use of proceeds
from the continued monetization of Itel's non-core assets to significantly
reduce high-cost subordinated debt.
SIX MONTHS ENDED JUNE 30, 1994: Income from continuing operations for the
first six months of 1994 was $19.5 million compared with a loss of ($3.5)
million in the first six months of 1993. Results in 1994 include a $48.2
million pre-tax gain on the ANTEC Offering and a ($34.4) million pre-tax charge
associated with the write-down of the Company's investment in marketable equity
securities. Results in 1994 also include a pre-tax loss of ($5.2) million
relating to the sale of the Company's investment in Catellus. Net income
(loss) was $18.2 million and ($8.2) million in the first six months of 1994 and
1993, respectively.
Anixter's revenues during the first six months of 1994 increased 25% to $785.7
million from $626.5 million in 1993 resulting from the continued growth of the
U.S. wiring systems business and continued penetration in the expansion
countries.
The Company's consolidated operating income increased 36% to $30.4 million from
$22.3 million in the first six months of 1993 and consolidated operating income
before amortization of goodwill increased 33% to $33.4 million from $25.1
million in the first six months of 1993. Anixter operating income before
amortization of goodwill increased 24% to $35.5 million from $28.6 million due
primarily to significantly improved volume and earnings in the U.S. and Canada.
Consolidated net interest expense and other for the first six months declined
to $14.0 million from $31.7 million in 1993 due primarily to the use of
proceeds from the continued monetization of Itel's non-core assets to
significantly reduce high-cost subordinated debt.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 (a) (i) Note, dated July 25, 1994, from SCAP
Associates, L.L.C. to Itel Rail Holdings
Corporation.
(ii) Guaranty of that Note, dated July 25, 1994,
in favor of Continental Bank and Itel Rail
Holdings Corporation, by Signal Capital
Holdings Corporation.
(b) (i) Note, dated July 25, 1994, from Signal
Capital Holdings Corporation to Itel Rail
Holdings Corporation.
(ii) Guaranty of that Note, dated July 25, 1994,
in favor of Continental Bank and Itel Rail
Holdings Corporation, by SCAP Associates,
L.L.C.
(c) Pledge and Security Agreement, dated July
25, 1994, by SCAP Associates, L.L.C., in
favor of Continental Bank as Collateral
agent for Continental Bank and Itel Rail
Holdings Corporation.
(b) Reports on Form 8-K
None
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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.
ITEL CORPORATION
Date: August 12, 1994 By: /s/ Rod F. Dammeyer
------------------------------------
Rod F. Dammeyer
President and Chief Executive Officer
Date: August 12, 1994 By: /s/ John P. McNicholas, Jr.
------------------------------------
John P. McNicholas, Jr.
Vice President - Controller and
Chief Accounting Officer