<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 MARCH 31, 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 April 30, 1994 there were 32,999,551 shares of Common Stock, $1.00 par
value, of the registrant outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEL CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1994 (UNAUDITED)
CONSOLIDATED SUPPLEMENTAL INFORMATION
-------------------------------------- ---------------------------------------------------
MARCH 31, DECEMBER 31, RAIL CAR ALL
1994 1993 ANIXTER ANTEC LEASING OTHER
------------------ ---------------- ------- ----- --------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 23,200 $ 31,000 $ 15,900 $ 700 $ - $ 6,600
Restricted cash 2,700 21,500 - - 2,700 -
Accounts receivable (net of
allowances for doubtful
accounts of $6,500 and
$6,200, respectively) 345,200 296,700 248,000 84,000 12,700 500
Inventories, primarily
finished goods 333,900 322,200 246,200 87,700 - -
Other assets 9,000 9,300 5,100 600 2,200 1,100
------------ ---------- --------- --------- ----------- ---------
Total current assets 714,000 680,700 515,200 173,000 17,600 8,200
Property, at cost:
Rental equipment 1,388,600 1,388,600 - - 1,388,600 -
Other 72,800 68,500 55,600 15,000 - 2,200
----------- ---------- --------- --------- ------------- ---------
1,461,400 1,457,100 55,600 15,000 1,388,600 2,200
Accumulated depreciation (427,400) (412,500) (27,700) (8,600) (388,900) (2,200)
----------- ---------- --------- --------- ---------- -------
Net property 1,034,000 1,044,600 27,900 6,400 999,700 -
Goodwill (net of accumulated
amortization of $99,200 and
$93,800, respectively) 415,700 418,500 192,400 94,100 129,200 -
Discontinued and assets held
for sale, net 188,100 191,100 - - - 188,100
Marketable equity securities
available-for-sale (cost of
$110,000 and $163,000,
respectively) 68,500 126,400 - - - 68,500
Other assets 34,200 33,100 3,100 4,600 12,000 14,500
---------- ---------- --------- ---------- ----------- ---------
$ 2,454,500 $ 2,494,400 $ 738,600 $ 278,100 $ 1,158,500 $ 279,300
--------- --------- -------- -------- --------- --------
--------- --------- -------- -------- --------- --------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter, ANTEC, Rail car leasing
and All other. Transactions between Anixter, ANTEC, Rail car leasing and All
other have been eliminated from the consolidated columns.
2
<PAGE> 3
ITEL CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1994 (UNAUDITED)
CONSOLIDATED SUPPLEMENTAL INFORMATION
-------------------------------------- ----------------------------------------------------
MARCH 31, DECEMBER 31, RAIL CAR ALL
1994 1993 ANIXTER ANTEC LEASING OTHER
------------------ ---------------- ------- ----- --------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 194,200 $ 173,200 $ 134,300 $ 59,300 $ - $ 600
Accrued expenses 86,000 124,300 42,800 18,800 8,300 16,100
Current maturities of long-term
debt - subsidiaries 68,700 67,800 - - 68,700 -
-------- -------- ---------- ---------- --------- ----------
Total current liabilities 348,900 365,300 177,100 78,100 77,000 16,700
Income taxes, net primarily deferred 102,200 99,600 (17,600) 1,000 278,200 (159,400)
Other liabilities 11,400 12,300 10,600 - - 800
Intercompany payable
(receivable) - - 33,200 500 - (33,700)
Long-term debt - subsidiaries 1,290,500 1,225,200 269,800 36,000 984,700 -
- Corporate 197,500 288,500 - - - 197,500
---------- ---------- --------- -------- ---------- ------------
Total liabilities 1,950,500 1,990,900 473,100 115,600 1,339,900 21,900
Minority interests 102,200 98,200 7,400 - 16,700 78,100
Stockholders' equity:
Common stock 33,200 33,000 300 200 - 32,700
Capital surplus 380,800 383,500 331,400 152,400 - (103,000)
Retained earnings 24,200 22,400 (65,200) 10,100 (198,100) 277,400
Cumulative translation
adjustments (9,500) (9,900) (8,400) (200) - (900)
---------- ---------- --------- --------- ------------ ----------
428,700 429,000 258,100 162,500 (198,100) 206,200
Unrealized losses on marketable
equity securities available-for
sale (net of deferred income
tax benefit) (26,900) (23,700) - - - (26,900)
---------- ---------- ----------- ---------- ------------- ---------
Total stockholders' equity 401,800 405,300 258,100 162,500 (198,100) 179,300
--------- --------- -------- ------- --------- --------
$2,454,500 $ 2,494,400 $738,600 $ 278,100 $1,158,500 $ 279,300
--------- ---------- ------- -------- --------- --------
--------- ---------- ------- -------- --------- --------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter, ANTEC, Rail car leasing
and All other. Transactions between Anixter, ANTEC, Rail car leasing and All
other have been eliminated from the consolidated columns.
3
<PAGE> 4
ITEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED MARCH 31,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues $ 538,800 $ 431,500
Cost of operations (487,500) (389,000)
Amortization of goodwill (5,400) (5,300)
----------- -----------
Operating income 45,900 37,200
Interest expense and other, net (32,500) (39,300)
Loss on marketable equity securities (5,200) -
----------- -----------
Income (loss) from continuing
operations before income taxes 8,200 (2,100)
Income tax expense (6,400) (1,700)
----------- -----------
Income (loss) from continuing
operations 1,800 (3,800)
Loss from discontinued
operations (net of related taxes) - (1,300)
----------- -----------
Net income (loss) 1,800 (5,100)
Preferred stock dividends
and amortization - (1,500)
----------- -----------
Income (loss) applicable to common stock $ 1,800 $ (6,600)
----------- -----------
----------- -----------
Income (loss) per common and common
equivalent share:
Continuing operations $ .05 $ (.19)
Net income (loss) $ .05 $ (.23)
----------- -----------
----------- -----------
Weighted average common and
common equivalent shares 33,217 28,429
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 5
ITEL CORPORATION
SUPPLEMENTAL CONDENSED STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED MARCH 31,
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANIXTER ANTEC RAIL CAR LEASING ALL OTHER
---------------- ------------------- ------------------ ---------------
1994 1993 1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $362,800 $298,300 $ 137,800 $ 94,800 $ 38,200 $ 38,400 $ - $ -
Cost of operations (346,500) (284,900) (127,300) (89,400) (12,600) (12,900) (1,100) (1,800)
Amortization of goodwill (1,500) (1,400) (700) (700) (3,200) (3,200) - -
--------- --------- ---------- --------- ---------- --------- --------- ---------
Operating income (loss) 14,800 12,000 9,800 4,700 22,400 22,300 (1,100) (1,800)
Interest expense and other,
net (3,900) (4,900) (400) (900) (22,000) (23,500) (6,200) (10,000)
Loss on marketable equity
securities - - - - - - (5,200) -
-------- --------- ---------- --------- ---------- --------- --------- ---------
Income (loss) from continuing
operations before income
taxes 10,900 7,100 9,400 3,800 400 (1,200) (12,500) (11,800)
Income tax (expense) benefit (4,700) (3,700) (4,200) (1,800) (1,300) (800) 3,800 4,600
--------- --------- ---------- --------- ---------- --------- --------- ---------
Income (loss) from
continuing operations 6,200 3,400 5,200 2,000 (900) (2,000) (8,700) (7,200)
Loss from discontinued
operations (net of
related taxes) - - - - - - - (1,300)
--------- --------- ---------- --------- ---------- --------- --------- ---------
Net income (loss) $ 6,200 $ 3,400 $ 5,200 $ 2,000 $ (900) $ (2,000) $ (8,700) $ (8,500)
--------- --------- ---------- --------- ---------- --------- --------- ---------
--------- --------- ---------- --------- ---------- --------- --------- ---------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Supplemental consolidating data are shown for Anixter, ANTEC, Rail car leasing
and All other. Transactions between Anixter, ANTEC, Rail car leasing and All
other have been eliminated from the consolidated columns.
5
<PAGE> 6
ITEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED MARCH 31,
------------------------
1994 1993
-------- ---------
<S> <C> <C>
Operating activities:
Income (loss) from continuing operations $ 1,800 $ (3,800)
Adjustments to reconcile income (loss) from continuing operations to
net cash provided (used) by continuing operating activities:
Depreciation 15,200 14,900
Amortization of goodwill 5,400 5,300
Deferred income tax expense 3,400 1,300
Other, net 11,400 5,900
Changes in assets and liabilities, net of effects of
acquisitions and asset purchases (50,100) (18,200)
--------- -----------
Net cash provided (used) by continuing operating activities (12,900) 5,400
Discontinued operations, net 2,900 25,300
--------- -----------
Net cash provided (used) by operating activities (10,000) 30,700
Investing activities:
Sales of marketable equity securities 47,800 -
Purchases of property (4,400) (2,300)
Sales of property - 500
Acquisitions and other investments (6,200) (1,100)
Receipts from and (advances to) Q-TEL 1,700 (17,000)
--------- -----------
Net investing activities 38,900 (19,900)
--------- -----------
Net cash provided before financing activities 28,900 10,800
Financing activities:
Borrowings 647,100 183,900
Reductions in borrowings (680,600) (199,400)
Proceeds from issuance of common stock 5,000 7,900
Purchases of treasury stock (7,000) -
Other, net (1,200) (5,400)
--------- -----------
Net financing activities (36,700) (13,000)
--------- -----------
Cash used (7,800) (2,200)
Cash and equivalents at beginning of period 31,000 22,000
--------- -----------
Cash and equivalents at end of period $ 23,200 $ 19,800
--------- -----------
--------- -----------
Supplemental cash flow information:
Interest paid (including allocations to
discontinued operations) during the period $ 53,300 $ 63,900
--------- -----------
--------- -----------
Income taxes paid during the period $ 600 $ 700
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
6
<PAGE> 7
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 majority owned subsidiaries (collectively
"the Company") after elimination of intercompany transactions. Minority
interests of $102.2 million at March 31, 1994 primarily relate to the 47%
public ownership in ANTEC Corporation ("ANTEC") and the 1% external ownership
interests in Railcar Trust No. 1992-1 (the "Trust").
Reclassifications: The 1993 consolidated financial statements and related
notes have been reclassified to reflect the 1994 presentation.
NOTE 2. DISCONTINUED AND ASSETS HELD FOR SALE
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 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 $170 million at March 31,
1994. Proceeds were used to repay indebtedness.
NOTE 3. LOSS ON MARKETABLE EQUITY SECURITIES
In March 1994, the Company recorded a $5.2 million pre-tax loss on the sale of
its investment in Catellus Development Corporation ("Catellus"). Proceeds were
used to reduce indebtedness.
7
<PAGE> 8
NOTE 4. SUBSEQUENT EVENT
On April 18, 1994, Itel announced its intention to sell in a public offering
(the "Offering") up to 4.0 million shares of common stock of ANTEC. As a
result of the Offering, Itel's ownership of ANTEC common stock would be reduced
from 53% to approximately 33% if the underwriters' overallotment option is
exercised.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
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 $170 million at March 31, 1994, including a
reduction of $5 million in 1994.
CASH FLOW: Consolidated net cash provided (used) by continuing operating
activities was ($12.9) million for the first quarter of 1994 compared to
$5.4 million for the same period in 1993. Cash provided (used) by continuing
operating activities decreased due primarily to increased working capital
investment resulting from increased sales volume at Anixter Inc. ("Anixter")
and ANTEC. Consolidated cash provided (used) for net investing activities was
$38.9 million for the first quarter of 1994 versus ($19.9) million for the same
period in 1993. Consolidated investing activities in 1994 primarily reflect
the sale of the Company's investment in Catellus offset slightly by
acquisitions and investments at ANTEC. The 1993 period reflects a $17 million
investment in Q-TEL S.A. de C.V. of Mexico ("Q-TEL"). Consolidated cash used
for net financing activities was ($36.7) million for the first quarter of 1994
in comparison to ($13.0) million for the first quarter of 1993. The
consolidated net financing activities in the 1994 period reflect significant
repayment of Corporate subordinated debt using proceeds from the sale of the
Company's investment in Catellus and funds from the Corporate Term Loan
obtained in December 1993. Cash from discontinued operations, net was $2.9
million for the first quarter of 1994 versus $25.3 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
9
<PAGE> 10
and operating income plus depreciation and amortization of goodwill ("cash
flow") to be meaningful and readily comparable measures of Itel's relative
performance. However, with the completion of the rail car transaction in 1992,
the ongoing fixed cash flow of Rail car leasing is available only to service
interest and principal on the debt of the Trust and Railcar Associates, L.P.
(the "Partnership"). Cash flow by the Company's major business segments is
presented in the following table.
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
------------------------
1994 1993
-------- --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Anixter $ 18.4 $ 15.2
ANTEC 11.1 6.0
All other (1.1) (1.7)
------- -----
28.4 19.5
Rail car leasing 38.1 37.9
------- -----
$ 66.5 $ 57.4
------- -----
------- -----
</TABLE>
FINANCINGS: On March 11, 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: Current maturities of subsidiary non-recourse
debt of $68.7 million at March 31, 1994 represent senior debt related to the
Rail car leasing business to be serviced from Rail car leasing cash flow. In
the first quarter of 1994 and 1993, Rail retired at maturity approximately $33
million and $32 million of non-recourse debt, respectively.
10
<PAGE> 11
In the first quarter of 1994, the Company retired $70 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 common shares of Santa Fe
Energy Resources, Inc.
In the first quarter of 1994 and 1993, respectively, the Company retired
approximately $221 million and $75 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.
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.
11
<PAGE> 12
At March 31, 1994, the market value of the Company's investment in marketable
equity securities available-for-sale was below cost by $41.5 million. In
accordance with generally accepted accounting principles, the Company's
investment in marketable equity securities available-for-sale has been
reflected at market value in the consolidated balance sheets. The Company
continuously evaluates the market value of its marketable securities held for
investment in relation to its historical cost to determine whether a decline in
market value is "other than temporary". If such decline in market value is
deemed to be other than temporary, the Company records such decline as a charge
against income.
CAPITAL EXPENDITURES AND ACQUISITIONS
Consolidated capital expenditures were $4.4 million and $2.3 million for the
first quarter of 1994 and 1993, respectively. Also in 1994 and 1993, ANTEC's
acquisitions and investments in related businesses aggregated $6.2 million and
$1.1 million, respectively.
RESULTS OF OPERATIONS
On April 18, 1994, Itel announced its intention to sell in a public offering up
to 4.0 million shares of common stock of ANTEC. As a result of the Offering,
Itel's ownership of ANTEC common stock could be reduced from 53% to
approximately 33% if the underwriters' overallotment option is exercised. If
the Offering is completed, Itel will report ANTEC in its consolidated financial
statements as an equity investment.
12
<PAGE> 13
QUARTER ENDED MARCH 31, 1994: Income from continuing operations for the first
quarter of 1994 was $1.8 million compared with a loss of ($3.8) million in the
first quarter of 1993. Results in 1994 include a pre-tax loss of ($5.2)
million relating to the sale of the Company's investment in Catellus. Net
income (loss) was $1.8 million and ($5.1) million in the first quarter of 1994
and 1993, respectively.
The Company's consolidated revenues during the first quarter of 1994,
increased 25% to $538.8 million from $431.5 million in 1993. Anixter revenues
increased 22% to $362.8 million resulting from the continued growth of the U.S.
wiring systems business and continued penetration in the expansion countries.
ANTEC revenues rose 45% to $137.8 million in the first quarter of 1994 compared
to the same three months of 1993 due to increased demand for its fiber optic
and high bandwidth products. Rail car leasing results are essentially fixed.
The Company's consolidated operating income, including Rail car leasing,
increased 23% to $45.9 million from $37.2 million in the first quarter of 1993
and consolidated operating income before amortization of goodwill increased 21%
to $51.3 million from $42.5 million in the first quarter of 1993. Anixter
operating income before amortization of goodwill increased 22% to $16.3 million
from $13.4 million due primarily to significantly improved volume and earnings
at U.S. and Canada Distribution. ANTEC's operating earnings before
amortization of goodwill nearly doubled to $10.5 million from $5.4 million in
the first quarter of 1993 reflecting significant sales increases in its fiber
optic and high bandwidth products.
13
<PAGE> 14
Consolidated net interest expense and other for the first quarter declined to
$32.5 million from $39.3 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.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEL 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held May 5, 1994, the Directors of the
Company were elected as follows:
<TABLE>
<CAPTION>
VOTES
-------------------------------
DIRECTORS FOR WITHHELD
- - --------- --------- --------------
<S> <C> <C>
Bernard F. Brennan 28,131,623 43,867
Rod F. Dammeyer 28,131,092 44,398
F. Philip Handy 28,130,552 44,938
Harold Haynes 28,131,454 44,036
Jerome Jacobson 28,131,515 43,975
Melvyn N. Klein 28,131,429 44,061
John R. Petty 28,130,429 45,061
John A. Pigott 28,131,019 44,471
Sheli Z. Rosenberg 28,131,566 43,924
Samuel Zell 23,130,468 45,022
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
15
<PAGE> 16
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: May 12, 1994 By: /s/ Rod F. Dammeyer
------------------------------------------
Rod F. Dammeyer
Chief Executive Officer and President
Date: May 12, 1994 By: /s/ Gary M. Hill
------------------------------------------
Gary M. Hill
Senior Vice President, Finance
