<PAGE> 1
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, 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 October 31, 1994 there were 30,798,010 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)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 (UNAUDITED)
CONSOLIDATED SUPPLEMENTAL INFORMATION
---------------------------------------------- ------------------------------
SEPTEMBER 30, DECEMBER 31, ALL
1994 1993 ANIXTER OTHER
-------------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 44,600 $ 29,900 $ 5,000 $ 39,600
Accounts receivable
(net of allowances for
doubtful accounts of
$6,300 and $4,800,
respectively) 323,700 230,200 320,100 3,600
Inventories, primarily
finished goods 264,000 240,300 264,000 -
Note receivable 169,500 - - 169,500
Other assets 5,200 6,300 4,400 800
---------- ---------- ----------- ----------
Total current assets 807,000 506,700 593,500 213,500
Property, at cost 65,600 54,700 63,400 2,200
Accumulated depreciation (33,300) (27,800) (31,100) (2,200)
---------- ---------- ----------- ----------
Net property 32,300 26,900 32,300 -
Goodwill (net of accumulated
amortization of $44,000 and
$39,500, respectively) 189,400 193,900 189,400 -
Discontinued Rail car leasing
assets - 1,193,600 - -
Discontinued and assets held
for sale, net 153,300 191,100 - 153,300
Marketable equity securities
available-for-sale (cost of
$75,600 and $163,000,
respectively) 74,600 126,400 - 74,600
Investment in ANTEC 58,000 84,100 - 58,000
Other assets 5,600 18,200 3,000 2,600
---------- ---------- ----------- ----------
$1,320,200 $2,340,900 $ 818,200 $ 502,000
========== ========== =========== ==========
</TABLE>
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.
2
<PAGE> 3
ITEL CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 (UNAUDITED)
CONSOLIDATED SUPPLEMENTAL INFORMATION
---------------------------------------- ------------------------------
SEPTEMBER 30, DECEMBER 31, ALL
1994 1993 ANIXTER OTHER
---------------- ---------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 164,000 $ 128,800 $ 164,000 $ -
Accrued expenses 74,000 93,700 62,000 12,000
Current maturities of long-
term debt - Corporate 150,000 - - 150,000
---------- ---------- ---------- ----------
Total current liabilities 388,000 222,500 226,000 162,000
Income taxes, net,
primarily deferred 31,100 102,200 (17,500) 48,600
Discontinued Rail car
leasing liabilities - 1,113,800 - -
Other liabilities 19,700 20,300 16,200 3,500
Intercompany payable
(receivable) - - 57,300 (57,300)
Long-term debt - subsidiaries 266,000 188,300 266,000 -
- Corporate 17,500 288,500 - 17,500
---------- ---------- ---------- ----------
Total liabilities 722,300 1,935,600 548,000 174,300
Stockholders' equity:
Common stock 31,200 33,000 300 30,900
Capital surplus 317,000 383,500 297,700 19,300
Retained earnings 256,400 22,400 (23,100) 279,500
Cumulative translation
adjustments (6,000) (9,900) (4,700) (1,300)
---------- ---------- ---------- ----------
598,600 429,000 270,200 328,400
Unrealized losses on marketable
equity securities available-
for sale (net of deferred
income tax benefit) (700) (23,700) - (700)
---------- ---------- ---------- ----------
Total stockholders'
equity 597,900 405,300 270,200 327,700
---------- ---------- ---------- ----------
$1,320,200 $2,340,900 $ 818,200 $ 502,000
========== ========== ========== ==========
</TABLE>
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.
3
<PAGE> 4
ITEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 456,300 $ 342,400 $ 1,242,000 $ 968,900
Cost of operations (434,900) (328,000) (1,187,200) (929,400)
Amortization of goodwill (1,500) (1,500) (4,500) (4,300)
----------- ----------- ----------- -----------
Operating income 19,900 12,900 50,300 35,200
Interest expense and other, net (4,700) (10,500) (18,700) (42,200)
Non-recurring items, net - 64,000 48,200 64,000
Equity earnings in ANTEC 1,800 2,500 7,200 6,700
Marketable equity securities losses,
principally writedowns - - (39,600) -
----------- ----------- ----------- -----------
Income from continuing
operations before income taxes 17,000 68,900 47,400 63,700
Income tax expense (6,300) (26,400) (17,200) (24,700)
----------- ----------- ----------- -----------
Income from continuing operations 10,700 42,500 30,200 39,000
Income (loss) from discontinued
operations (net of related taxes) 205,000 (2,000) 203,700 (6,700)
----------- ----------- ----------- -----------
Income before extraordinary items 215,700 40,500 233,900 32,300
Extraordinary items - (10,900) - (10,900)
----------- ----------- ----------- -----------
Net income 215,700 29,600 233,900 21,400
Preferred stock dividends
and amortization - - - (3,000)
----------- ----------- ----------- -----------
Income applicable to common stock $ 215,700 $ 29,600 $ 233,900 $ 18,400
=========== =========== =========== ===========
Income per common and common
equivalent share:
Continuing operations $ .34 $ 1.40 $ .93 $ 1.23
Before extraordinary items $ 6.87 $ 1.33 $ 7.20 $ 1.00
Net income $ 6.87 $ .97 $ 7.20 $ .63
=========== =========== =========== ===========
Weighted average common and
common equivalent shares 31,441 30,407 32,556 29,175
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
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ITEL CORPORATION
SUPPLEMENTAL CONDENSED STATEMENTS OF INCOME
THREE-MONTH PERIODS ENDED SEPTEMBER 30,
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANIXTER ALL OTHER
----------------------- -----------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 456,300 $ 342,400 $ - $ -
Cost of operations (433,800) (326,300) (1,100) (1,700)
Amortization of goodwill (1,500) (1,500) - -
--------- --------- ---------- --------
Operating income (loss) 21,000 14,600 (1,100) (1,700)
Interest expense and other, net (4,600) (5,200) (100) (5,300)
Non-recurring items, net - - - 64,000
Equity earnings in ANTEC - - 1,800 2,500
--------- --------- ---------- --------
Income from continuing
operations before income taxes 16,400 9,400 600 59,500
Income tax (expense) benefit (7,300) (5,200) 1,000 (21,200)
--------- --------- ---------- --------
Income from continuing operations 9,100 4,200 1,600 38,300
Income (loss) from discontinued operations
(net of related taxes) - - 205,000 (2,000)
--------- --------- ---------- --------
Income before extraordinary items 9,100 4,200 206,600 36,300
Extraordinary items - - - (10,900)
--------- --------- ---------- --------
Net income $ 9,100 $ 4,200 $ 206,600 $ 25,400
========= ========= ========== ========
</TABLE>
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.
5
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ITEL CORPORATION
SUPPLEMENTAL CONDENSED STATEMENTS OF OPERATIONS
NINE-MONTH PERIODS ENDED SEPTEMBER 30,
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANIXTER ALL OTHER
----------------------- -----------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,242,000 $ 968,900 $ - $ -
Cost of operations (1,184,000) (924,200) (3,200) (5,200)
Amortization of goodwill (4,500) (4,300) - -
----------- ----------- -------------- ------------
Operating income (loss) 53,500 40,400 (3,200) (5,200)
Interest expense and other, net (12,700) (16,100) (6,000) (26,100)
Non-recurring items - - 48,200 64,000
Equity earnings in ANTEC - - 7,200 6,700
Marketable equity securities losses,
principally writedowns - - (39,600) -
-------------- -------------- ----------- -------------
Income from continuing
operations before income taxes 40,800 24,300 6,600 39,400
Income tax (expense) benefit (18,200) (13,200) 1,000 (11,500)
---------- ---------- ----------- -----------
Income from continuing
operations 22,600 11,100 7,600 27,900
Income (loss) from discontinued operations
(net of related taxes) - - 203,700 (6,700)
------------- ------------- ---------- -----------
Income before extraordinary items 22,600 11,100 211,300 21,200
Extraordinary items - - - (10,900)
------------- ------------- ------------- ------------
Net income (loss) $ 22,600 $ 11,100 $ 211,300 $ (10,300)
============= ============= ============= ============
</TABLE>
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)
<TABLE>
<CAPTION>
NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
----------------------------
1994 1993
------ ------
<S> <C> <C>
Operating activities:
Income from continuing operations $ 30,200 $ 39,000
Adjustments to reconcile income from continuing operations
to net cash used by continuing operating activities:
Depreciation 7,000 6,100
Amortization of goodwill 4,500 4,300
Deferred income tax expense 16,400 27,400
Non-recurring items (48,200) (64,000)
Marketable equity securities losses, principally writedowns 39,600 -
Other, net 900 6,000
Changes in assets and liabilities, net of effects of
acquisitions and asset purchases (84,000) (66,100)
----------- -----------
Net cash used by continuing operating activities (33,600) (47,300)
Discontinued operations, net 48,500 114,200
----------- -----------
Net cash provided by operating activities 14,900 66,900
Investing activities:
Sales of marketable equity securities 47,800 -
Purchases of property, net (12,000) (5,500)
Sale of ANTEC common stock, net 82,800 90,000
Receipts from and (advances to) Q-TEL 12,500 (2,600)
Other, net - 3,400
----------- -----------
Net investing activities 131,100 85,300
----------- -----------
Net cash provided before financing activities 146,000 152,200
Financing activities:
Borrowings 787,800 542,000
Reductions in borrowings (845,500) (701,600)
Proceeds from issuance of common stock 7,700 20,700
Purchases of treasury stock (77,600) (300)
Other, net (3,700) (8,100)
----------- -----------
Net financing activities (131,300) (147,300)
----------- -----------
Cash provided 14,700 4,900
Cash and equivalents at beginning of period 29,900 21,000
----------- -----------
Cash and equivalents at end of period $ 44,600 $ 25,900
=========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
7
<PAGE> 8
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.
Reclassification: The 1993 consolidated financial statements and related notes
have been reclassified to reflect ANTEC Corporation ("ANTEC") as an equity
investment (see Note 5). The restatement of ANTEC is intended to improve the
comparability of the Company's consolidated financial statements due to the
materiality of such decrease in the Company's ownership of ANTEC and had no
effect on income from continuing operations or net income. In addition,
due to the sale of the Company's remaining interests in its railcars (see Note
3), the Company's investment in its Rail car leasing business has been
reclassified in the consolidated financial statements as discontinued
operations for all periods presented.
NOTE 2. SUPPLEMENTAL CASH FLOW INFORMATION
Continuing operations paid interest, including interest allocated to
discontinued operations, of approximately $41.7 million and $83.1 million for
the first nine months of 1994 and 1993, respectively. Continuing operations
paid approximately $2.8 million and $3.0 million principally for foreign and
certain state taxes for the first nine months of 1994 and 1993, respectively.
In a non-cash transaction during the nine months ended September 30, 1994, the
Company received $169.5 million in notes receivable as part of the
consideration for the sale of its fleet of railcars (see Note 3).
8
<PAGE> 9
NOTE 3. DISCONTINUED AND ASSETS HELD FOR SALE
In 1994, Itel continued to make significant strides in a strategy initiated
more than three years ago. That strategy is to focus Itel on realizing the
substantial growth opportunities of its principal operating unit, Anixter Inc.
("Anixter"). Most of Itel's other assets are being monetized in a manner aimed
at maximizing value for Itel's shareholders. In line with this strategy, on
July 25, 1994, Itel sold 99.5% of its remaining interests in its 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 were not due until the
end of 1998; however, the buyer prepaid all the notes and related interest in
October 1994. The Company's remaining interest in the railcars was sold in
October for cash of approximately $1 million. The net gain on the sale of the
Company's entire interest in railcars was approximately $205 million. The
total cash proceeds of approximately $205 million will be used to: (1) repay
the $150 million Corporate senior bank term ("Term Loan"); (2) pay the related
income tax liability of approximately $25 million caused by the sale which
remained after utilization of the Company's NOL and ITC carryforwards; and (3)
other general corporate purposes including the purchase of the Company's common
stock.
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, $80 million in 1993 and $32 million through September 30, 1994. The $143
million net portfolio at September 30, 1994 represents approximately 10% 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. Proceeds were used to repay
indebtedness. 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. The Company continues to reduce the acquired
Signal Capital portfolio in an orderly manner that maximizes its value to Itel
shareholders. Absent such transactions, which the Company continues to pursue,
such orderly liquidation is expected to continue over approximately the next
two years.
NOTE 4. 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").
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<PAGE> 10
NOTE 5. NON-RECURRING ITEMS
The non-recurring item in 1994 reflects a $48.2 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 income 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%.
Non-recurring items in 1993 reflect an $84.5 million pre-tax gain on the
1993 initial public offering of shares of common stock of ANTEC ("ANTEC Initial
Offering"). Itel provided income taxes relating to the recognized pre-tax book
gain. Itel and ANTEC sold approximately 4.0 million and 5.4 million shares of
ANTEC common stock, respectively, at $18 per share. Net proceeds from the
ANTEC Initial Offering to Itel, after considering the redemption by ANTEC of
preferred shares owned by Itel, were approximately $97 million.
The non-recurring pre-tax gain on the ANTEC Initial Offering was offset by a
$20.5 million non-recurring pre-tax loss in 1993 principally relating to the
write-down of miscellaneous investments and certain non-operating assets to net
realizable value. Approximately $19.1 million of this non-recurring pre-tax
loss related to the liquidation of the Company's equity investment in Q-TEL.
The remaining written-down equity investment and loans due from Q-TEL were
liquidated during the later half of 1993 and 1994 without further gain or loss.
NOTE 6. SUMMARIZED FINANCIAL INFORMATION OF ANTEC
The Company has a 33% investment in ANTEC and accounts for ANTEC under the
equity method. The following summarizes the financial information for ANTEC:
10
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ANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
---------------- ----------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets:
Current assets $ 201.5 $ 138.8
Property, net 12.5 5.6
Goodwill 101.8 92.3
Other assets 12.2 7.0
-------- --------
$ 328.0 $ 243.7
======== ========
Liabilities and Shareholders' Equity:
Current liabilities $ 82.9 $ 68.3
Long-term debt 71.7 18.0
Shareholders' equity 173.4 157.4
-------- --------
$ 328.0 $ 243.7
======== ========
</TABLE>
ANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 138.1 $ 112.4 $ 414.9 $ 317.0
======== ======== ======== ========
Operating income $ 9.6 $ 5.9 $ 30.2 $ 16.0
======== ======== ======== ========
Income before income
tax expense $ 8.3 $ 4.9 $ 27.5 $ 13.0
======== ======== ======== ========
Net income $ 4.6 $ 2.5 $ 15.2 $ 6.7
======== ======== ======== ========
Company's share of
net income $ 1.8 $ 2.5 $ 7.2 $ 6.7
======== ======== ======== ========
</TABLE>
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NOTE 7. PRO-FORMA FINANCIAL RESULTS
The following unaudited pro forma condensed consolidated financial information
of the Company reflects the condensed consolidated results of continuing
operations as if the sales of the Rail car leasing business and 20% of Itel's
investment in ANTEC had occurred on December 31, 1992. The unaudited pro-forma
condensed consolidated financial information is not necessarily indicative of
the consolidated results of continuing operations as they might have been had
the sales been consummated on the assumed dates.
PRO-FORMA CONDENSED CONSOLIDATED SUMMARY OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1994 1993
---------------------------- ----------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenue $ 1,242.0 $ 1,328.6
Cost of operations, including
amortization of goodwill (1,191.7) (1,282.8)
--------- ---------
Operating income 50.3 45.8
Interest expense and other, net (6.7) (41.1)
Non-recurring items, net - 64.0
Equity earnings in ANTEC 5.1 6.4
Marketable equity securities losses, principally writedowns (39.6) (25.0)
--------- ---------
Income from continuing operations
before income taxes 9.1 50.1
Income tax expense (3.1) (20.3)
--------- ---------
Income from continuing operations $ 6.0 $ 29.8
======== ========
Preferred stock dividends $ - $ (3.0)
======== ========
Income from continuing operations per
common and common equivalent share $ .18 $ .89
======== ========
Weighted average common and common
equivalent shares 32.5 30.1
======== ========
</TABLE>
12
<PAGE> 13
Pro-forma adjustments in the nine months ended September 30, 1994 reflect: (1)
the interest savings arising from the assumed $260 million payment of debt at
the average historical rate of 6.13% from the proceeds of the sales, (2) the
reversal of the $48.2 million pre-tax gain on the sale of ANTEC, (3) the
reduction of equity earnings in ANTEC from $7.2 million to $5.1 million and (4)
the related net reduction of income tax expense.
Pro-forma adjustments for the year ended December 31, 1993 reflects: (1) the
reclassification of the results of operations of Itel's Railcar leasing
business from continuing operations to discontinued operations, (2) the
reclassification of the results of operations of ANTEC from the consolidated
method to the equity method of accounting, (3) the interest savings arising
from the assumed $260 million payment of debt at the average historical rate of
4.93% from the proceeds of the sales and the related increase in income tax
expense and (4) the reduction of equity earnings in ANTEC from $8.4 million to
$6.4 million.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
SALE OF RAIL CAR LEASING BUSINESS: In 1994, Itel continued to make significant
strides initiated more than three years ago. That strategy is to focus Itel on
realizing the substantial growth opportunities of its principal operating unit,
Anixter. Most of Itel's other assets are being monetized in a manner aimed at
maximizing value for Itel's shareholders. In line with this strategy, on July
25, 1994, Itel sold 99.5% of its remaining interests in its 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 were not due until the
end of 1998; however, the buyer prepaid all the notes and related interest in
October 1994. The Company's remaining interest in the railcars was sold in
October for cash of approximately $1 million. The net gain on the sale of the
Company's entire interest in railcars was approximately $205 million. The
total cash proceeds of approximately $205 million will be used to: (1) repay
the $150 million Term Loan; (2) pay the related income tax liability of
approximately $25 million caused by the sale which remained after utilization
of the Company's NOL and ITC carryforwards; and (3) other general corporate
purposes including the purchase of the Company's common stock.
ANTEC 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. 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, $80 million in
1993 and $32 million through September 30, 1994. The $143 million net
portfolio at September 30, 1994 represents approximately 10% 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. The Company continues to reduce the
acquired Signal Capital portfolio in an
14
<PAGE> 15
orderly manner that maximizes its value to Itel shareholders. Absent such
transactions, which the Company continues to pursue, such orderly liquidation
is expected to continue over approximately the next two years.
CASH FLOW: Consolidated net cash used by continuing operating activities was
($33.6) million for the first nine months of 1994 compared to ($47.3) million
for the same period in 1993. Cash used by continuing operating activities
decreased due primarily to significantly improved earnings, after elimination
of non-recurring items and losses on marketable equity securities, offset
somewhat by increased working capital investment resulting from a 28% increased
sales volume at Anixter. Consolidated cash provided for net investing
activities was $131.1 million for the first nine months of 1994 versus $85.3
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 investment in
Catellus. The 1993 period includes approximately $97.0 million of proceeds
from the ANTEC Initial Offering. Consolidated cash used for net financing
activities was ($131.3) million for the first nine months of 1994 in comparison
to ($147.3) million for the first nine months of 1993. The consolidated net
financing activities in 1994 and 1993 reflect significant repayment of
subordinated and senior debt using proceeds from the ANTEC public offerings and
the 1994 sale of the Company's investment in Catellus. The consolidated net
financing activities in 1994 also include $77.6 million of treasury stock
purchases. Cash from discontinued operations, net was $48.5 million for the
first nine months of 1994 versus $114.2 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
and, in 1994, the receipt of $35 million on the sale of the Company's remaining
interest in its railcar leasing business.
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. On this basis, cash flow of Anixter
was $64.9 million and $50.6 million for the nine months ended September 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.
15
<PAGE> 16
At September 30, 1994, $150 million was available under the bank revolving
lines of credit at Anixter, of which $61 million was available to Itel for
general corporate purposes.
On November 10, 1994, Itel obtained a $115 million senior bank term loan
("Corporate Loan") from a group of banks. The Corporate Loan is secured by the
Company's investments in the capital stock of Anixter and ANTEC. The Corporate
Loan matures annually as follows: 1995 - none; 1996 - $29 million; and 1997 -
$86 million.
DEBT MATURITIES AND REPAYMENTS: In the first nine months of 1994, the Company
retired $100 million of the 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 October 1994, the Company
repaid the remaining $150 million Term Loan with proceeds from the sale of
Itel's Railcar leasing business.
In the first nine months of both 1994 and 1993, the Company retired
approximately $221 million of the face value of subordinated debt at Itel.
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 Itel's 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.
16
<PAGE> 17
CAPITAL EXPENDITURES AND ACQUISITIONS
Consolidated capital expenditures were $12.3 million and $7.3 million for the
first nine months of 1994 and 1993, respectively.
RESULTS OF OPERATIONS
In July 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, for all periods presented, as an equity
investment.
QUARTER ENDED SEPTEMBER 30, 1994: Income from continuing operations for the
third quarter of 1994 was $10.7 million compared with $42.5 million in the
third quarter of 1993. Results in 1993 include an $84.5 million pre-tax gain
on the ANTEC Initial Offering and a ($20.5) million non-recurring pre-tax loss
principally relating to the write-down of the Company's equity investment in
Q-TEL. Net income was $215.7 million and $29.6 million in the third quarter of
1994 and 1993, respectively. Income from discontinued operations in 1994
reflects a $205.0 million after-tax gain from the sale of the Company's Rail
car leasing business. The Company retired or called for redemption a
significant amount of its subordinated and senior debt resulting in an
extraordinary net loss of ($10.9) million in 1993.
Anixter's revenues during the third quarter of 1994 increased 33% to $456.3
million from $342.4 million in 1993 resulting from the continued growth of the
U.S. business and continued penetration in the expansion countries. Revenues
by Anixter's major markets are presented in the following table.
17
<PAGE> 18
<TABLE>
<CAPTION>
QUARTERS ENDED SEPTEMBER 30,
---------------------------------
1994 1993
---------------- ---------------
(IN MILLIONS)
<S> <C> <C>
North America $ 364.8 $ 278.4
Europe 76.0 57.8
Asia and Latin America 15.5 6.2
------- -------
$ 456.3 $ 342.4
======= =======
</TABLE>
The Company's consolidated operating income increased 54% to $19.9 million for
the third quarter of 1994 from $12.9 million for the third quarter of 1993 and
consolidated operating income before amortization of goodwill increased 49% to
$21.4 million for the third quarter of 1994 from $14.4 million for the third
quarter of 1993. Anixter operating income before amortization of goodwill
increased 40% to $22.5 million in 1994 from $16.1 million due primarily to
significantly improved sales volume in North America. Operating income (loss)
before amortization of goodwill by Anixter's major markets is presented in the
following table.
<TABLE>
<CAPTION>
QUARTERS ENDED SEPTEMBER 30,
----------------------------------
1994 1993
---------------- ---------------
(IN MILLIONS)
<S> <C> <C>
North America $ 21.0 $ 17.9
Europe 1.6 -
Asia and Latin America (.1) (1.8)
-------- -------
$ 22.5 $ 16.1
======== =======
</TABLE>
Consolidated net interest expense and other for the third quarter of 1994
declined to $4.7 million from $10.5 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.
NINE MONTHS ENDED SEPTEMBER 30, 1994: Income from continuing operations for
the first nine months of 1994 was $30.2 million compared to $39.0 million in
the first nine 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. Results in 1993 include an $84.5
million pre-tax gain on the ANTEC Initial Offering and a ($20.5) million
non-recurring pre-tax loss principally relating to the write-down of the
Company's equity investment in Q-TEL. Net income was $233.9 million and
18
<PAGE> 19
$21.4 million in the first nine months of 1994 and 1993, respectively. Income
from discontinued operations in 1994 reflects a $205.0 million after-tax gain
from the sale of the Company's Rail car leasing business. The Company retired
or called for redemption a significant amount of its subordinated and senior
debt resulting in an extraordinary net loss of ($10.9) million in 1993.
Anixter's revenues during the first nine months of 1994 increased 28% to
approximately $1.2 billion from $1.0 billion in 1993 resulting from the
continued growth of the U.S. business and continued penetration in the
expansion countries. Revenues by Anixter's major markets are presented in the
following table.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1994 1993
---------------- --------------
(IN MILLIONS)
<S> <C> <C>
North America $ 979.6 $ 780.3
Europe 224.7 172.2
Asia and Latin America 37.7 16.4
--------- --------
$ 1,242.0 $ 968.9
========= ========
</TABLE>
The Company's consolidated operating income increased 43% to $50.3 million for
the first nine months of 1994 from $35.2 million for the first nine months of
1993 and consolidated operating income before amortization of goodwill
increased 39% to $54.8 million for the first nine months of 1994 from $39.5
million for the first nine months of 1993. Anixter operating income before
amortization of goodwill increased 30% to $58.0 million from $44.7 million due
primarily to significantly improved sales volume in North America. Operating
income (loss) before amortization of goodwill by Anixter's major markets is
presented in the following table.
19
<PAGE> 20
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1994 1993
---------------- ---------------
(IN MILLIONS)
<S> <C> <C>
North America $ 55.2 $ 47.7
Europe 4.3 1.3
Asia and Latin America (1.5) (4.3)
------ ------
$ 58.0 $ 44.7
====== ======
</TABLE>
Consolidated net interest expense and other for the first nine months of 1994
declined substantially to $18.7 million from $42.2 million for the first nine
months of 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. The impact of interest rate swaps and caps on interest
expense, net for the nine months ended September 30, 1994 and 1993 was to
increase interest expense by approximately $5.9 million and $8.4 million,
respectively.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
On November 7, 1994, Itel filed a Report on Form 8-K relating
to Item 2, Disposition of Assets, to describe Itel's
agreement to sell 99.5% of Itel's remaining interests in
Itel's fleet of railcars to SCAP Associates, L.L.C. for $35
million in cash and $169.5 million in notes receivable.
21
<PAGE> 22
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: November 14, 1994 By: /s/ Rod F. Dammeyer
-----------------------------------
Rod F. Dammeyer
President and Chief Executive Officer
Date: November 14, 1994 By: /s/ John P. McNicholas, Jr.
------------------------------------
John P. McNicholas, Jr.
Vice President - Controller and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted from Itel's
Condensed Consolidated Financial Statements 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-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 44,600
<SECURITIES> 0
<RECEIVABLES> 323,700
<ALLOWANCES> 6,300
<INVENTORY> 264,000
<CURRENT-ASSETS> 807,000
<PP&E> 65,600
<DEPRECIATION> 33,300
<TOTAL-ASSETS> 1,320,200
<CURRENT-LIABILITIES> 388,000
<BONDS> 17,500
<COMMON> 31,200
0
0
<OTHER-SE> 566,700
<TOTAL-LIABILITY-AND-EQUITY> 1,330,200
<SALES> 1,242,000
<TOTAL-REVENUES> 1,242,000
<CGS> 1,187,200
<TOTAL-COSTS> 1,191,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,700
<INCOME-PRETAX> 47,400
<INCOME-TAX> 17,200
<INCOME-CONTINUING> 30,200
<DISCONTINUED> 203,700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,900
<EPS-PRIMARY> 7.20
<EPS-DILUTED> 7.20
</TABLE>
