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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, 1995
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, 1995 there were 26,754,145 shares of Common Stock, $1.00 par value,
of the registrant outstanding.
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PART I. FINANCIAL INFORMATION
ITEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1995 1994
----------- -------------
(UNAUDITED)
Current assets:
Cash and equivalents $ 33,300 $ 14,200
Accounts receivable (net of allowances for doubtful
accounts of $7,000 and $6,000, respectively) 376,200 325,900
Inventories, primarily finished goods 305,500 275,800
Other assets 7,100 4,900
----------- -----------
Total current assets 722,100 620,800
Property, at cost 83,200 68,600
Accumulated depreciation (40,900) (35,200)
----------- -----------
Net property 42,300 33,400
Goodwill (net of accumulated amortization
of $48,500 and $45,500 respectively) 184,900 187,900
Discontinued and assets held for sale, net 101,100 105,400
Marketable equity securities -- 64,500
Investment in ANTEC 71,600 69,500
Other assets 36,700 29,400
----------- -----------
$ 1,158,700 $ 1,110,900
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
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ITEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
Current liabilities:
Accounts payable $ 210,600 $ 186,200
Accrued expenses 93,100 79,100
----------- -----------
Total current liabilities 303,700 265,300
Deferred taxes, net 3,700 1,800
Other liabilities 20,800 19,400
Long-term debt 312,400 280,500
----------- -----------
Total liabilities 640,600 567,000
Stockholders' equity:
Common stock 28,000 29,400
Capital surplus 210,600 262,500
Retained earnings 289,300 269,300
Cumulative translation adjustments (9,800) (10,100)
----------- -----------
518,100 551,100
Unrealized loss on marketable equity securities
(net of deferred income taxes) -- (7,200)
----------- -----------
Total stockholders' equity 518,100 543,900
----------- -----------
$ 1,158,700 $ 1,110,900
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
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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,
---------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Revenues $ 542,000 $ 422,900 $ 1,044,900 $ 785,700
Cost of goods sold (405,900) (316,800) (781,700) (585,200)
----------- ----------- ----------- -----------
Gross profit 136,100 106,100 263,200 200,500
Operating expenses (108,900) (87,900) (210,700) (167,100)
Amortization of goodwill (1,500) (1,500) (3,000) (3,000)
----------- ----------- ----------- -----------
Operating income 25,700 16,700 49,500 30,400
Interest expense and other, net (5,400) (6,300) (10,300) (14,000)
Equity earnings in ANTEC 300 2,600 2,100 5,400
Non-recurring item - ANTEC Offering -- 48,200 -- 48,200
Marketable equity securities losses (3,000) (34,400) (3,000) (39,600)
----------- ----------- ----------- -----------
Income from continuing
operations before income taxes 17,600 26,800 38,300 30,400
Income tax expense (8,700) (10,000) (18,300) (10,900)
----------- ----------- ----------- -----------
Income from continuing
operations 8,900 16,800 20,000 19,500
Loss from discontinued
operations (net of related taxes) -- (400) -- (1,300)
----------- ----------- ----------- -----------
Net income $ 8,900 $ 16,400 $ 20,000 $ 18,200
=========== =========== =========== ===========
Income per common and common equivalent share:
Continuing operations $ .32 $ .51 $ .70 $ .59
Net income $ .32 $ .50 $ .70 $ .55
=========== =========== =========== ===========
Weighted average common and
common equivalent shares 28,400 33,000 28,600 33,000
=========== =========== =========== ===========
See accompanying notes to the condensed consolidated financial statements.
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ITEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX-MONTH PERIODS
ENDED JUNE 30,
------------------------
1995 1994
--------- ---------
Operating activities:
Income from continuing operations $ 20,000 $ 19,500
Adjustments to reconcile income from continuing
operations to net cash provided (used) by continuing
operating activities:
Depreciation 7,300 4,400
Amortization of goodwill 3,000 3,000
Deferred income tax expense 1,800 10,700
Non-recurring item - ANTEC Offering -- (48,200)
Loss on sale of marketable equity securities 3,000 39,600
Equity earnings in ANTEC (2,100) (5,400)
Non-cash financing expense 400 2,400
Other, net 1,300 3,500
Changes in assets and liabilities, net (45,700) (61,500)
--------- ---------
Net cash used by continuing operating
activities (11,600) (32,000)
Discontinued operations and assets held for sale, net 9,700 2,100
--------- ---------
Net cash used by operating activities (1,900) (29,900)
Investing activities:
Sales of marketable equity securities 72,600 47,800
Purchases of property, net (15,900) (7,700)
Sale of ANTEC common stock -- 82,800
Other, net (4,900) 7,600
--------- ---------
Net investing activities 51,800 130,500
--------- ---------
Net cash provided before financing activities 49,900 100,600
Financing activities:
Borrowings 504,000 725,200
Reductions in borrowings (476,300) (784,000)
Purchases of treasury stock (62,900) (13,200)
Proceeds from issuance of common stock 5,200 5,200
Other, net (800) (3,600)
--------- ---------
Net financing activities (30,800) (70,400)
--------- ---------
Cash provided 19,100 30,200
Cash and equivalents at beginning of period 14,200 31,000
--------- ---------
Cash and equivalents at end of period $ 33,300 $ 61,200
========= =========
Supplemental cash flow information:
Interest paid (including allocations to discontinued
operations in 1994) during the period $ 11,400 $ 33,100
========= =========
Income taxes paid during the period $ 8,200 $ 1,600
========= =========
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 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, 1994. 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. All operating
activities of the Company are carried out by its principal subsidiary, Anixter
Inc. ("Anixter"), which is engaged in the sales of networking products for
voice, data, video and electrical power applications.
Principles of consolidation: The condensed consolidated financial statements
include the accounts of Itel and its subsidiaries (collectively "the Company")
after elimination of intercompany transactions.
NOTE 2. MARKETABLE EQUITY SECURITIES LOSSES
In the second quarter of 1995, the Company recorded a $1.8 million after-tax
loss on the sale of its investment in Santa Fe Energy Resources, Inc.
("Energy"). In the second quarter of 1994, the Company wrote down the value of
its investment in SFR equity securities by $21.0 million after-tax. Also, in the
first quarter of 1994, the Company recorded a $3.2 million after-tax loss on the
sale of its investment in Catellus Development Corporation ("Catellus").
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NOTE 3. NON-RECURRING ITEMS
Non-recurring items in 1994 reflect a $29.4 million after-tax gain on the public
offering of shares of common stock of ANTEC Corporation ("ANTEC Offering"). In
the second quarter of 1994 Itel sold 4.0 million shares of ANTEC common stock at
$21.75 per share resulting in net proceeds of approximately $83 million. Itel
provided income taxes relating to the recognized pre-tax book gain.
NOTE 4. SUMMARIZED FINANCIAL INFORMATION OF ANTEC
The Company's ownership interest in ANTEC at June 30, 1995 and 1994 was 30%.
This investment is accounted for under the equity method. The following
summarizes the financial information for ANTEC:
ANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
(UNAUDITED)
(IN MILLIONS)
Assets:
Current assets $270.9 $234.2
Property, net 26.9 22.4
Goodwill 165.2 167.4
Other assets 14.5 14.0
------ ------
$477.5 $438.0
====== ======
Liabilities and Shareholders' Equity:
Current liabilities $ 89.0 $ 83.1
Long-term debt 151.7 125.2
Shareholders' equity 236.8 229.7
------ ------
$477.5 $438.0
====== ======
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ANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE-MONTH PERIODS SIX-MONTH PERIODS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
(IN MILLIONS)
Revenues $ 165.3 $ 143.1 $ 324.2 $280.8
======== ========= ======= ======
Operating income $ 5.8 $ 10.5 $ 19.5 $ 20.5
======== ========= ======= ======
Income before income tax expense $ 3.0 $ 9.8 $ 11.5 $ 19.2
======== ========= ======= ======
Net income $ 1.1 $ 5.4 $ 5.5 $ 10.6
======== ========= ======= ======
NOTE 5. RELATED PARTY TRANSACTION
On June 27, 1995 the Company agreed to purchase up to 1.9 million shares of its
common stock from Sam Zell, the Company's Chairman, and other related
stockholders. The first 1.3 million shares were purchased on July 10, 1995 at
$36 per share. The remaining .6 million shares may be purchased no later than
December 31, 1996 at $36 per share plus an incremental increase of 6.5% per
annum from the date of the agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
LIQUIDATION OF SIGNAL CAPITAL: The finance business of Signal Capital
Corporation ("Signal Capital") has been included as assets held for sale since
acquisition in 1988. Subsequent to the purchase, Itel sold or liquidated
portions of the portfolio including $855 million in 1989, $78 million in 1990,
$157 million in 1991, $82 million in 1992, $82 million in 1993, $60 million in
1994 and $10 million through June 30, 1995. The $101 million portfolio of
discontinued and assets held for sale at June 30, 1995 represents approximately
7.5% of the original acquired Signal Capital portfolio. The acquired Signal
Capital portfolio is being liquidated and no material amounts of new loans or
investments are being made by Signal Capital. The Company has had and continues
to have discussions with third parties for the sale of substantial portions of
the acquired Signal Capital portfolio of loans and leases. Absent such
transactions, orderly liquidation of the remaining portfolio is expected to
continue over approximately the next two years. The Company continues to reduce
the acquired Signal Capital portfolio in an orderly manner that maximizes its
value to Itel shareholders.
CASH FLOW: Consolidated net cash used by continuing operating activities was
$11.6 million for the first six months of 1995 compared to $32.0 million for the
same period in 1994. Consolidated net cash used by continuing operating
activities in 1995 reflects a $45.7 million net working capital investment used
to fund a $259 million increase in revenues compared to a $61.5 million working
capital increase in 1994. Consolidated cash provided by net investing activities
was $51.8 million for the first six months of 1995 versus $130.5 million for the
same period in 1994. Consolidated investing activities in 1995 include proceeds
of $72.6 million from the sale of the Company's investment in Energy and in 1994
includes $82.8 million of proceeds from the ANTEC Offering and $47.8 million
from the sale of the Company's investment in Catellus.
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Consolidated cash used for net financing activities was $30.8 million for the
first six months of 1995 in comparison to $70.4 million for the first six months
of 1994. The consolidated net financing activities in 1994 include the paydown
of $221 million of subordinated debt. The consolidated net financing activities
in 1995 and 1994 include $62.9 million and $13.2 million of treasury stock
purchases, respectively. Net cash from discontinued operations and assets held
for sale, was $9.7 million for the first six months of 1995 versus $2.1 million
for the same period in 1994. Cash from discontinued operations and assets held
for sale, net in both periods reflects cash received principally from the
reduction of Signal Capital assets which are held for sale.
FINANCINGS: On May 19, 1995, the Company converted its $115 million senior bank
term loan to a revolver ("Corporate Revolver"). The Corporate Revolver is
secured by the Company's investments in the capital stock of Anixter and ANTEC.
The Corporate Revolver had no outstanding borrowings at June 30, 1995.
On March 24, 1995, the Company increased Anixter's secured domestic revolving
line of credit to $425 million, lowered the interest rate spreads and extended
the maturity to 2000. The revolving line of credit is non-recourse to Itel.
At June 30, 1995, in addition to the Corporate Revolver, $197 million was
available under the bank revolving lines of credit at Anixter, of which $63
million was available to pay Itel for intercompany liabilities.
INTEREST: Consolidated net interest expense was $10.3 million and $14.0 million
for the six months ended June 30, 1995 and 1994, respectively. The Company has
entered into interest rate agreements which effectively fix or cap, for a period
of time, the interest rate on a portion of its floating rate obligations. As a
result, the interest rate on approximately 70% of debt obligations at June 30,
1995 is fixed or capped. The impact of interest rate swaps and caps on interest
expense, net for the six months ended June 30, 1995 and 1994 was to increase
interest expense by approximately $.4 million and $6.3 million, respectively.
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CAPITAL EXPENDITURES AND ACQUISITIONS
Consolidated capital expenditures were $15.9 million and $7.7 million for the
first six months of 1995 and 1994, respectively. Increase in Capital
Expenditures is in support of international expansion, increase in Service
offerings, enhanced logistical capabilities and infrastructure required by
general volume growth.
RESULTS OF OPERATIONS
The Company has experienced increased revenues due to the continued growth of
the North American communications and electrical wire and cable products and its
continuing worldwide expansion. While the Company continues to believe that its
revenue base will grow and its worldwide expansion will result in both increased
revenues and operating profits, there can be no assurance of future financial
performance. The Company competes with distributors and manufacturers who sell
products directly or through existing distribution channels to end users or
other resellers. In addition, the Company's future performance could be subject
to economic downturns and possibly rapid changes in applicable technologies.
EARNINGS PER SHARE: Weighted average common and common equivalent shares
outstanding decreased from June 30, 1994 to June 30, 1995 primarily as a result
of Itel's treasury stock purchases in 1994 and 1995. An increase in borrowing
costs associated with stock purchases offset the decrease in shares resulting in
no significant effect on earnings per share.
On June 27, 1995 the Company agreed to purchase up to 1.9 million shares of its
common stock from Sam Zell, the Company's Chairman, and other related
stockholders. The first 1.3 million shares were purchased on July 10, 1995 at
$36 per share. The remaining .6 million shares may be purchased no later than
December 31, 1996 at $36 per share plus an incremental increase of 6.5% per
annum from the date of the agreement.
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QUARTER ENDED JUNE 30, 1995: While operating income increased 54% to $25.7
million, income from continuing operations for the second quarter of 1995
decreased to $8.9 million compared with $16.8 million for the second quarter of
1994 due to special items related to asset dispositions and decreased Antec
earnings. Income from continuing operations for the second quarter of 1995
includes a $1.8 million after-tax charge associated with the sale of the
Company's investment in Energy. 1994 results include an $8.4 million after tax
gain consisting of a $29.4 million after-tax gain on the Antec offering offset
by a $21.0 million after-tax charge associated with the write-down of marketable
equities. Net income was $8.9 million and $16.4 million in the first quarter of
1995 and 1994, respectively.
The Company's revenues during the second quarter of 1995 increased 28% to $542.0
million from $422.9 million in 1994 due to (1) the continued strong demand for
its communication products in North America and Europe, (2) focused marketing
efforts on its electrical wiring systems products and (3) further market
penetration in the Asian and Latin American expansion markets. Revenues by major
geographic market are presented in the following table.
QUARTERS ENDED JUNE 30,
---------------------------
1995 1994
---- ----
(IN MILLIONS)
North America $415.5 $333.2
Europe 105.0 77.8
Asia and Latin America 21.5 11.9
------ ------
$542.0 $422.9
====== ======
The Company's gross profit increased to $136.1 million in the second quarter of
1995 from $106.1 million in the second quarter of 1994 which is consistent with
the sales volume increase.
Operating expenses increased 24% to $108.9 million due to increased volume,
increased spending for new service and logistic initiatives, principally in
North America, and geographic expansion in Asia and Latin America. Spending on
new initiatives and international expansion is planned to increase in future
quarters.
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Operating income increased 54% to $25.7 million in 1995 from $16.7 million in
the second quarter of 1994. Operating income by major geographic market is
presented in the following table.
QUARTERS ENDED JUNE 30,
--------------------------
1995 1994
---- ----
(IN MILLIONS)
North America $22.4 $15.5
Europe 5.0 1.7
Asia and Latin America (1.7) (.5)
----- -----
$25.7 $16.7
===== =====
North America operating income increased due to volume related economies of
scale somewhat offset by increased spending for new service and logistic
initiatives. The significant increase in European profitability is due to volume
related economies of scale and positive operating earnings contributions in most
countries in 1995. Changes in currency exchange rates in the second quarter 1995
versus 1994 also contributed about $.7 million to the improvement in European
operating results.
Consolidated net interest expense for the second quarter of 1995 declined to
$5.4 million from $6.3 million in 1994 due to a reduction of high-cost corporate
debt from the monetization of Itel's non-core assets partially offset by higher
short-term interest rates and increased working capital borrowings.
The consolidated tax provision for the second quarter reflects an effective tax
rate of 49.4% based on pre-tax book income adjusted for nondeductible
amortization of goodwill and start up losses of foreign operations, primarily
Asia and Latin America, which are not currently recognizable. The increase in
the effective rate from 1994 is due to the sale of the Company's rail car
leasing business in the second half of 1994 which exhausted virtually all
previously existing NOL and ITC carryforwards.
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SIX MONTHS ENDED JUNE 30, 1995: Increased operating income of $49.5 million, up
63% from the same period in 1994, was somewhat offset by losses on asset
dispositions and decreased Antec earnings resulting in income from continuing
operations for the first six months of 1995 of $20.0 million compared with $19.5
million for the first six months of 1994. Results in 1995 include a $1.8 million
after-tax charge associated with the sale of the Company's investment in Energy
while results in 1994 include a $5.2 million gain consisting of $29.4 million
after-tax gain on the ANTEC Offering and a $24.2 million after-tax charge
associated with the sale and write-down of marketable equity securities. Net
income was $20.0 million and $18.2 million in the first six months of 1995 and
1994, respectively.
The Company's revenues during the first six months of 1995 increased 33% to
$1,044.9 million from $785.7 million in 1994 due to (1) the continued strong
demand for its communication products in North America and Europe, (2) focused
marketing efforts on its electrical wiring systems products and (3) further
market penetration in the Asian and Latin American expansion markets. Revenues
by major geographic market are presented in the following table.
SIX MONTHS ENDED JUNE 30,
-----------------------------
1995 1994
---- ----
(IN MILLIONS)
North America $ 800.2 $614.9
Europe 205.1 148.7
Asia and Latin America 39.6 22.1
-------- ------
$1,044.9 $785.7
======== ======
Gross profit margins decreased to 25.2% from 25.5% in 1994 due to lower margins
on North America Wire and Cable products and expansion markets, especially Asia,
resulting from increased volume and market share.
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Operating expenses increased 26% to $210.7 million due to increased volume,
increased spending for new service and logistic initiatives, principally in
North America, and geographic expansion in Asia and Latin America. Spending on
new initiatives and international expansion is planned to increase in future
quarters.
Operating income increased 63% to $49.5 million in 1995 from $30.4 million in
the first six months of 1994. Operating income by geographic market is presented
in the following table.
SIX MONTHS ENDED JUNE 30,
-----------------------------
1995 1994
---- ----
(IN MILLIONS)
North America $42.4 $29.2
Europe 10.1 2.6
Asia and Latin America (3.0) (1.4)
----- -----
$49.5 $30.4
===== =====
North America operating income increased due to volume related economies of
scale somewhat offset by increased spending for new service and logistic
initiatives. The significant increase in European profitability is due to volume
related economies of scale and positive operating earnings contributions in most
countries in 1995. Changes in currency exchange rates in the first six months of
1995 versus 1994 contributed $1.2 million to improved European operating
results.
Consolidated net interest expense for the first six months of 1995 declined to
$10.3 million from $14.0 million in 1994 due to a reduction of high-cost
corporate debt from the monetization of Itel's non-core assets partially offset
by higher short-term interest rates and increased working capital borrowings.
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The consolidated tax provision for the six months ended June 30, 1995 reflects
an effective tax rate of 47.8% based on pre-tax book income adjusted for
nondeductible amortization of goodwill and start up losses of foreign
operations, primarily Asia and Latin America, which are not currently
recognizable. The increase in the effective tax rate from the prior year period
is due to the sale of the Company's rail car leasing business in the second half
of 1994 which exhausted virtually all previously existing NOL and ITC
carryforwards.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Amended and Restated Credit Agreement, dated
May 19, 1995, among Itel Corporation, The Bank of
New York, as Administrative Agent, and the other
banks named therein.
10.1 Stock purchase agreement dated June 27, 1995 between
Itel Corporation and Riverside Partners, SZRL
Investments and Equity Holdings. (Incorporated by
reference from Riverside Partners' Amendment No. 20
to its Schedule 13D, filed for an event on June 27,
1995, relating to the shares of Itel Corporation,
Exhibit 1.)
27.1 Financial Data Schedule
(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 9, 1995 By:_____________________________________
Rod F. Dammeyer
President and Chief Executive Officer
Date: August 9, 1995 By:_____________________________________
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer
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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 9, 1995 By: /s/ Rod F. Dammeyer
-------------------------------------
Rod F. Dammeyer
President and Chief Executive Officer
Date: August 9, 1995 By: /s/ Dennis J. Letham
-------------------------------------
Dennis J. Letham
Senior Vice President - Finance
and Chief Financial Officer