<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.....................FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-22003-99
SIGNAL CAPITAL HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 02-0424417
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
------------------------
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The Registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is therefore filing this Form with a reduced disclosure
format.
Signal Capital Holdings Corporation has 1,000 shares of common stock outstanding
which is its only class of stock. All the common stock is held by one holder.
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TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Business of the Company.................................................. 3
Item 2. Properties............................................................... 4
Item 3. Legal Proceedings........................................................ 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.................................................................. 4
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of
Operations............................................................... 4
Item 8. Financial Statements and Supplementary Data.............................. 6
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 6
PART III Not applicable
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 6
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS OF THE COMPANY.
GENERAL
Signal Capital Holdings Corporation ("SCHC" or herein together with its
consolidated affiliates called the "Company") is engaged in (i) rail car leasing
by Itel Rail Corporation and its subsidiaries and affiliates (collectively
"Rail") (see discussion below of the 1992 rail car transaction for the limited
nature of the Company's continuing interest in this business) and (ii) financing
services. In 1993 and 1992, Rail sold substantially all of its other
transportation services assets, except for one short-line railroad which is
currently being held for sale. The financing services business has been held for
sale as discussed below. For further information see Item 7 -- Financial
Liquidity and Capital Resources -- Asset Sales and Note 4 of the Notes to the
Consolidated Financial Statements.
The Company is an indirect wholly-owned subsidiary of Itel Corporation
("Itel"). At December 31, 1993 the Company and its subsidiaries employed
approximately 220 persons.
RAIL CAR LEASING
In June 1992, Itel and Rail completed a transaction with General Electric
Capital Corporation and certain of its affiliates ("GECC") pursuant to which
Rail contributed substantially all of its owned rail cars, subject to
approximately $170 million of debt, to a trust (the "Trust") of which Rail,
following the late 1993 distribution of 30% of its ownership to the parent
company of SCHC, Rail Holdings Corporation ("RHC"), currently is a 69%
beneficiary. The Trust contributed these rail cars, subject to the debt, along
with other rail cars the Trust received as a contribution from its 1%
beneficiary, to a partnership (the "Partnership") of which the Trust is a 99%
partner. The Partnership assumed the Rail debt and leased all of the contributed
rail cars along with the other rail cars it received as a contribution from its
other partners to a subsidiary of GECC ("Lessee"). The leases (the "Leases")
terminate in the year 2004 with fixed rentals of approximately $153 million
annually. The Leases include the grant to the Lessee of an assignable fixed
price purchase option at the end of the term of the Leases for all, but not less
than all, of the rail cars for approximately $500 million. The Leases are net
leases under which the Lessee will be responsible for maintenance and other
expenses of the rail cars and all obligations of the Lessee are unconditionally
guaranteed by GECC. Rail also assigned to GECC, for certain contingent
consideration, substantially all of its contracts to lease rail cars from
others. The Lessee has an annual obligation to make certain contingent payments
to the Partnership in addition to basic rent ("Basic Rent") as defined in the
Leases.
Prior to the rail car transaction, most of Rail's cars other than boxcars
were leased to major railroads and shippers under fixed-rate leases which were
typically one to five years in length. The majority of these leases required
Rail to maintain the cars and provide other administrative services. The
utilization of grain hoppers was affected by, among other things, export demand,
domestic trade policies and weather.
Prior to the rail car transaction, most of Rail's boxcars were leased to
small railroads and used primarily for transportation by the paper and forest
product industries. A majority of these leases were long-term "per diem" leases.
Per diem leases did not require fixed rental payments. Instead, the rental paid
by the lessee was a percentage of the use charges ("car hire") earned by the
lessee railroad for the use of the leased equipment on the tracks of other
railroads.
ASSETS HELD FOR SALE
The principal assets held for sale at December 31, 1993 are the Company's
financing services business ("Finance"). Itel acquired Finance in connection
with the purchase of Pullman Leasing Company ("PLC") in 1988. Finance, which
includes equipment leases, senior and subordinated loans and other related
investments, has been classified as assets held for sale in the Company's
consolidated financial statements since its acquisition. The finance business is
being liquidated and no material amounts of new loans or investments are being
made by Finance. Since the date of acquisition the portfolio has been reduced
from $1.44 billion to $175 million at December 31, 1993, including reductions of
$82 million, $82 million and $157
3
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million in 1993, 1992 and 1991, respectively. All cash proceeds were used to
repay indebtedness (see Note 4 of the Notes to the Consolidated Financial
Statements).
ITEM 2. PROPERTIES.
See Item 1 -- Business of the Company -- Rail Car Leasing and the
Consolidated Financial Statements. The Company's rail cars have been leased to
GECC under the Leases.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, SCHC and its subsidiaries become
involved as plaintiffs or defendants in various legal proceedings. The claims
and counterclaims in such litigation, including those for punitive damages,
individually in certain cases and in the aggregate, involve amounts which may be
material. However, it is the opinion of the Company's management, based upon the
advice of its counsel, that the ultimate disposition of pending litigation will
not be material.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The common stock of SCHC is wholly-owned by an indirect wholly-owned
subsidiary of Itel. Therefore, there is no trading market in SCHC's stock. SCHC
has 1,000 shares of common stock outstanding, which is its only class of stock.
Dividends declared on SCHC common stock were $148 million, $500 million and
none for the years ended 1993, 1992 and 1991, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BASIS OF PRESENTATION
The Company intends to sell Finance, which includes senior, subordinated
lending and specialized loans, and has classified it as assets held for sale in
the Company's consolidated balance sheets since acquisition by Itel in 1988. The
results of Finance have been classified as assets held for sale in the Company's
consolidated statements of operations since acquisition.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Rail Car Transaction: In June 1992, Itel and Rail completed a transaction
with GECC pursuant to which Rail contributed substantially all of its owned rail
cars, subject to approximately $170 million of debt, to a Trust of which Rail,
following the late 1993 distribution of 30% of its ownership to RHC, currently
is a 69% beneficiary. The Trust contributed these rail cars, subject to the
debt, along with other rail cars the Trust received as a contribution from its
1% beneficiary, to a Partnership of which the Trust is a 99% partner. The
Partnership assumed the Rail debt and leased all of the contributed rail cars
along with the other rail cars it received as a contribution from its other
partners to the Lessee. The Leases terminate in the year 2004 with fixed rentals
of approximately $153 million annually. The Leases include the grant to the
Lessee of an assignable fixed price purchase option at the end of the term of
the Leases for all, but not less than all, of the rail cars for approximately
$500 million. The Leases are net leases under which the Lessee will be
responsible for maintenance and other expenses of the rail cars and all
obligations of the Lessee are unconditionally guaranteed by GECC. Rail also
assigned to GECC, for certain contingent consideration, substantially all of its
contracts to lease rail cars from others. The Lessee has an annual obligation to
make certain contingent payments to the Partnership in addition to Basic Rent as
defined in the Leases.
In late 1993 the Company distributed 30% of its ownership in the Trust to
RHC its parent. Since the Company's investment in the Trust is a net deficit,
and because the transaction is between related parties, the Company did not
recognize any gain in operations. The Company reflected directly in
shareholder's equity an increase representing the distribution of the 30%
negative investment offset by a decrease representing the minority interest
receivable created at date of transfer. In addition, RHC has agreed to forgive
or assume any additional income taxes of the Company due to the excess of fair
market value over recorded value of the
4
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distributed investment in the Trust, and to defer the date for payment of
previously recorded intercompany income taxes related to the distribution.
Accordingly, such additional taxes were not charged against shareholder's
equity.
Liquidation of Finance: Finance has been classified as assets held for sale
since acquisition in connection with the purchase of PLC in 1988. The finance
business is being liquidated and no material amounts of new loans or investments
are being made by Finance. Since the date of acquisition the portfolio has been
reduced from $1.44 billion to $175 million at December 31, 1993, including
reductions of $82 million, $82 million and $157 million in 1993, 1992 and 1991,
respectively.
Other Dispositions: In 1993 and 1992, the Company sold substantially all of
its other transportation services assets, except for one of its short-line
railroads which is currently being held for sale. Proceeds from the sales were
used to reduce debt.
Financings: In June 1992, the Trust issued $998 million of 7 3/4% Notes
(the "Trust Notes"). The Trust Notes mature through 2004 and are secured by the
Trust's ownership interest in the Partnership. The net proceeds from the Trust
Notes were used to repay certain senior indebtedness of Rail, affiliated notes
payable and to pay a dividend of $500 million.
Debt Maturities and Repayments: Current maturities of long-term debt of
$67.8 million at December 31, 1993 represent debt related to the Partnership and
the Trust. With the completion of the rail car transaction in June 1992, the
ongoing fixed cash flow of SCHC's rail car leasing business is available only to
service interest and principal on the Trust and Partnership debt.
CAPITAL EXPENDITURES
Capital expenditures were zero, $9.0 million and $64.7 million for 1993,
1992 and 1991, respectively, primarily for rail cars. Due to the rail car
transaction, future rail car leasing capital expenditures, if any, will be
funded from the proceeds of any dispositions of the rail cars involved in that
transaction.
RESULTS OF OPERATIONS
As a result of the rail car transaction with GECC in June 1992, the
revenues and operating income of rail car leasing, though essentially fixed, are
lower than such results prior to the rail car transaction. The ongoing fixed
cash flow of rail car leasing is available only to service interest and
principal on the Trust and Partnership debt.
1993 Compared to 1992. Total revenues for the Company decreased to $153.0
million in 1993 compared to $217.5 million in 1992 due to the effect of the rail
car transaction. Operating income was $89.7 million in 1993 compared to $86.1
million in 1992. Results in 1992 include a $19.9 million non-recurring operating
charge relating to the rail car transaction. Interest expense and other, net
increased to $91.9 million in 1993 compared to $83.9 million in 1992 due
primarily to the significant dividend payments in 1993 and 1992.
Loss from continuing operations was ($18.9) million in 1993 in comparison
to ($.6) million for 1992. In 1993, the Company wrote down miscellaneous
investments and certain non-operating assets incurring a $17.6 million pre-tax
non-recurring charge. Net loss was ($3.8) million and ($6.1) million for the
years ended December 31, 1993 and 1992, respectively. Income (loss) from
discontinued operations was $3.2 million and ($9.5) million in 1993 and 1992,
respectively. Results in 1992 include a ($14.1) million net loss related to the
sale of certain other transportation services assets. Income from assets held
for sale was $12.0 million and $15.2 million in 1993 and 1992, respectively.
The Company retired approximately $119 million of the face value of certain
of its senior secured debt resulting in an extraordinary pre-tax loss of ($17.9)
million in 1992.
IMPACT OF INFLATION
Due to the rail car transaction, inflation is currently not an important
determinant of the Company's results of operations.
5
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted as a separate section of this report
starting on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL STATEMENT DISCLOSURE.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) -- The response to this portion of Item 14 is submitted as a
separate section of this report starting on page F-1.
(3) Listing of Exhibits.
<TABLE>
<CAPTION>
3.01 Certificate of Incorporation of the Company, dated June 30, 1986.+
<S> <C>
3.02 Certificate of Amendment of Certificate of Incorporation of the
Company, dated July 26, 1988.+
3.03 Certificate of Amendment of Certificate of Incorporation of the
Company, dated September 19, 1988.+
3.04 By-laws of the Company, as adopted June 30, 1986.+
4.01 Supplemental Agreement No. 3 to Equipment Trust Agreement (Series 1),
dated January 1, 1990, by and between Itel Rail Corporation and
Continental Bank, National Association, filed as Exhibit 4.07 to
Signal Capital Holdings Corporation's Report on Form 10-Q for the
quarter ended March 31, 1990, and incorporated herein by reference.
4.02 Supplemental Agreement No. 16 to Equipment Trust Agreement (Series 6),
dated January 1, 1990, by and between Itel Rail Corporation and The
First National Bank of Chicago, filed as Exhibit 4.10 to Signal
Capital Holdings Corporation's Report on Form 10-Q for the quarter
ended March 31, 1990, and incorporated herein by reference.
4.03 Indenture dated June 1, 1992 between Railcar Trust No. 1992-1 and
Harris Trust and Savings Bank, as Trustee, providing for 7.75% Trust
Notes due 2004. (Incorporated by reference from the Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1992 of Railcar
Trust No. 1992-1, Exhibit 4.1.)
10.01 Transfer and Assignment Agreement, dated February 2, 1989, between
Itel Corporation and Itel Rail Holdings Corporation.+
10.02 Transfer, Assumption and Subscription Agreement, dated February 2,
1989, between Itel Rail Holdings Corporation and Itel Rail
Corporation.+
10.03 Transfer and Subscription Agreement, dated February 2, 1989, between
Itel Rail Holdings Corporation and Pullman Leasing Company.+
10.04 Transfer and Assignment Agreement, dated February 2, 1989, between
Pullman Leasing Company and Itel Rail Corporation.+
10.05 Asset Purchase Agreement, dated December 6, 1989 between Signal
Capital Corporation and Textron Financial Corporation. (Incorporated
by reference from Signal Capital Holdings Corporation's Annual
Report on Form 10-K, for the fiscal year ended December 31, 1989,
Exhibit 10.6.)
</TABLE>
6
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<TABLE>
<CAPTION>
<S> <C>
10.06 Participation Agreement, dated December 31, 1991, among General
Electric Railcar Services Corporation, GE Railcar Associates, Inc.,
GE Railcar Leasing Associates, Inc., General Electric Capital
Corporation, Itel Rail Funding Corporation, Rex Railways, Inc. and
Railcar Associates, L.P.. (Incorporated by reference from the
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1992 of Railcar Trust No. 1992-1, Exhibit 10.1.)
10.07 Second Amended and Restated Trust Agreement, dated May 1, 1992,
between Itel Rail Corporation and Wilmington Trust Company, as
Trustee. (Incorporated by reference from Amendment No. 4 to Railcar
Trust No. 1992-1's Registration Statement on Form S-1, Registration
Number 33-44946, filed May 18, 1992, Exhibit 10.5.)
10.08(a) Amended and Restated Agreement of Limited Partnership of Railcar
Associates, L.P., dated June 1, 1992, among GE Railcar Associates,
Inc., GE Railcar Leasing Associates, Inc. and Railcar Trust No.
1992-1. (Incorporated by reference from the Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1992 of Railcar Trust No.
1992-1, Exhibit 10.3(a).)
(b) Guaranty, dated June 1, 1992, by General Electric Capital Corporation
of certain obligations under the above Agreement of Limited
Partnership. (Incorporated by reference from the Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1992 of Railcar
Trust No. 1992-1, Exhibit 10.3(b).)
10.9(a) Master Lease Agreement dated June 1, 1992, between Railcar Associates,
L.P. and GE Capital Railcar Associates, Inc.. (Incorporated by
reference from Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1992 of Railcar Trust No. 1992-1, Exhibit 10.4(a).)
(b) Lease Guaranty dated June 1, 1992, by General Electric Capital
Corporation of the obligations of GE Capital Railcar Associates,
Inc. under the above Master Lease Agreement. (Incorporated by
reference from Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1992 of Railcar Trust No. 1992-1, Exhibit 10.4(b).)
99.01(a) Exhibits -- The response to this portion of Item 14 is incorporated by
reference as noted in Item 14(a)(3).
(b) Financial Statement Schedules -- The response to this portion of Item
14 is submitted as a separate section of this report, starting on
page F-1.
</TABLE>
- ---------------
* The Company or consolidated subsidiaries of the Company are also parties to
other instruments defining the rights of holders of long-term debt of the
Company or its consolidated subsidiaries where the total indebtedness
authorized under each such agreement does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, the Company is not filing such instruments.
The Company hereby undertakes to furnish to the Securities and Exchange
Commission upon request copies of any or all such instruments.
+ Incorporated by reference to Signal Capital Holdings Corporation's Annual
Report on Form 10-K, for the fiscal year ended December 31, 1988, as the same
numbered exhibit.
(b) Reports on Form 8-K.
None.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
SIGNAL CAPITAL HOLDINGS CORPORATION
March 25, 1994
By: /s/ ROD F. DAMMEYER
Rod F. Dammeyer
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
President (Chief Executive March 25, 1994
/s/ ROD F. DAMMEYER Officer and Director)
- ---------------------------------------------
Rod F. Dammeyer
Vice President (Chief March 25, 1994
/s/ GARY M. HILL Financial Officer and
- --------------------------------------------- Director)
Gary M. Hill
/s/ JOHN P. MCNICHOLAS, JR. Controller (Chief March 25, 1994
- --------------------------------------------- Accounting Officer)
John P. McNicholas, Jr.
</TABLE>
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ITEM 14(A)(1) AND (2) AND ITEM 14(D)
SIGNAL CAPITAL HOLDINGS CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C>
Report of Independent Auditors.................................................... F-2
Consolidated Balance Sheets -- December 31, 1993 and 1992......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1992
and 1991........................................................................ F-4
Consolidated Statements of Shareholder's Equity for the years ended December 31,
1993, 1992 and 1991............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992
and 1991........................................................................ F-6
Notes to the Consolidated Financial Statements.................................... F-7
Supplementary Financial Data (Unaudited).......................................... F-15
Financial Statement Schedules for the years ended December 31, 1993, 1992 and 1991
II -- Amounts Receivable from Related Parties and Underwriters, Promoters,
and Employees Other Than Related Parties............................. S-1
IV -- Indebtedness of and to Related Parties -- Non Current................ S-2
V -- Property and Equipment............................................... S-3
VI -- Accumulated Depreciation of Property and Equipment................... S-4
VIII -- Valuation and Qualifying Accounts and Reserves....................... S-5
</TABLE>
All other schedules are omitted because they are not required or are not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
F-1
<PAGE> 10
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Signal Capital Holdings Corporation
We have audited the accompanying consolidated balance sheets of Signal
Capital Holdings Corporation as of December 31, 1993 and 1992, and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the three years in the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Signal Capital
Holdings Corporation at December 31, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG
Chicago, Illinois
February 8, 1994
F-2
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SIGNAL CAPITAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Current Assets:
Cash and Equivalents............................................. $ 6,300 $ 5,395
Restricted Cash.................................................. 21,493 22,574
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$2,952 and $6,074, Respectively)................................ 12,929 16,087
Receivable from Affiliates, Net.................................. 139,411 135,491
Other............................................................ 3,971 3,034
---------- ----------
Total Current Assets........................................ 184,104 182,581
Property, at Cost, Principally Rail Cars.............................. 1,392,248 1,394,998
Accumulated Depreciation.............................................. (379,980) (329,730)
---------- ----------
Net Property..................................................... 1,012,268 1,065,268
Goodwill (Net of Accumulated Amortization of $35,161 and $22,456,
Respectively)....................................................... 132,339 145,044
Other Assets.......................................................... 38,044 69,509
Discontinued and Assets Held for Sale, Net............................ 185,424 315,553
---------- ----------
Total Assets................................................ $1,552,179 $1,777,955
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accrued Expenses and Accounts Payable............................ $ 31,270 $ 38,307
Current Maturities of Long-Term Debt............................. 67,766 62,252
---------- ----------
Total Current Liabilities................................... 99,036 100,559
Other, Principally Deferred Income Taxes, Net......................... 263,763 267,963
Long-Term Debt........................................................ 1,018,958 1,086,574
---------- ----------
Total Liabilities........................................... 1,381,757 1,455,096
Minority Interest..................................................... 16,880 17,517
Shareholder's Equity:
Common Stock, Par Value $.10; 1,000 Shares Authorized, Issued
and Outstanding................................................ 1 1
Capital Surplus.................................................. 163,907 311,757
Accumulated Deficit.............................................. (10,366) (6,416)
---------- ----------
Total Shareholder's Equity.................................. 153,542 305,342
---------- ----------
Total Liabilities and Shareholder's Equity.................. $1,552,179 $1,777,955
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-3
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SIGNAL CAPITAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Rail Car Leasing Revenues............................... $ 153,034 $ 217,451 $ 307,083
Expenses:
Operating Costs.................................... (122) (14,819) (37,027)
Maintenance and Repairs............................ -- (27,865) (61,822)
Depreciation....................................... (49,766) (48,175) (44,590)
Administrative and Selling......................... (742) (11,374) (27,433)
Amortization of Goodwill........................... (12,705) (9,156) (4,100)
Rail Non-Recurring Operating Costs................. -- (19,944) --
--------- --------- ---------
Total Expenses................................ (63,335) (131,333) (174,972)
--------- --------- ---------
Operating Income........................................ 89,699 86,118 132,111
Interest Expense and Other, Net......................... (91,876) (83,942) (70,327)
Non-Recurring Items..................................... (17,579) -- --
--------- --------- ---------
Income (Loss) from Continuing Operations before Income
Tax (Expense) Benefit................................. (19,756) 2,176 61,784
Income Tax (Expense) Benefit............................ 807 (2,736) (25,843)
--------- --------- ---------
Income (Loss) from Continuing Operations................ (18,949) (560) 35,941
Income from Discontinued Operations and Assets Held for
Sale (Net of Related Taxes)........................... 15,177 5,688 29,925
--------- --------- ---------
Income (Loss) from Operations before Extraordinary
Items................................................. (3,772) 5,128 65,866
Extraordinary Items (Net of Related Taxes).............. -- (11,223) --
--------- --------- ---------
Net Income (Loss)....................................... $ (3,772) $ (6,095) $ 65,866
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-4
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SIGNAL CAPITAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
RETAINED
COMMON CAPITAL EARNINGS
STOCK SURPLUS (DEFICIT) TOTAL
------ --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at December 31, 1990.................. $ 1 $ 679,473 $ 66,390 $ 745,864
Net Income.................................... -- -- 65,866 65,866
Other......................................... -- -- 28 28
------ --------- --------- ---------
Balance at December 31, 1991.................. 1 679,473 132,284 811,758
Net Loss...................................... -- -- (6,095) (6,095)
Dividends on SCHC Common Stock................ -- (367,716) (132,284) (500,000)
Other......................................... -- -- (321) (321)
------ --------- --------- ---------
Balance at December 31, 1992.................. 1 311,757 (6,416) 305,342
Net Loss...................................... -- -- (3,772) (3,772)
Dividends on SCHC Common Stock................ -- (147,850) -- (147,850)
Distribution of 30% negative investment in
Trust....................................... -- 18,000 -- 18,000
Negative minority interest created by Trust
distribution................................ -- (18,000) -- (18,000)
Other......................................... -- -- (178) (178)
------ --------- --------- ---------
Balance at December 31, 1993.................. $ 1 $ 163,907 $ (10,366) $ 153,542
------ --------- --------- ---------
------ --------- --------- ---------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE> 14
SIGNAL CAPITAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) from Continuing Operations............... $ (18,949) $ (560) $ 35,941
Adjustments to Reconcile Income (Loss) from Continuing
Operations to Net Cash Provided by Continuing
Operating Activities:
Depreciation...................................... 49,766 48,175 44,590
Amortization of Goodwill.......................... 12,705 9,156 4,100
Deferred Income Tax Expense (Benefit)............. (1,289) 2,411 18,311
Non-Recurring Items............................... 17,579 -- --
Non-Cash Interest Expense......................... 2,134 2,280 1,549
Changes in Restricted Cash........................ 1,081 (19,002) 4,451
Changes in Assets and Liabilities, Net............ 768 10,484 4,623
--------- ---------- ---------
Net Cash Provided By Continuing Operating
Activities................................. 63,795 52,944 113,565
Net Cash Provided by Discontinued Operations and Assets
Held for Sale........................................ 122,979 105,072 26,954
--------- ---------- ---------
Net Cash Provided by Operating Activities.... 186,774 158,016 140,519
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Rental Equipment.......................... -- (8,926) (62,559)
Proceeds from Sales of Rental Equipment................ -- 14,368 7,029
Receipts from and (Advances to) Q-TEL.................. 23,729 (15,000) --
Other, Net............................................. -- 1,335 (3,480)
--------- ---------- ---------
Net Investing Activities.......................... 23,729 (8,223) (59,010)
--------- ---------- ---------
Net Cash Provided before Financing
Activities................................. 210,503 149,793 81,509
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Debt......................... -- 1,348,959 622,192
Repayments of Debt..................................... (62,250) (588,206) (573,691)
Common Stock Dividends Paid............................ (147,850) (500,000) --
Net Change in Affiliate Accounts....................... 2,047 (408,616) (140,639)
Other, Net............................................. (1,545) (1,719) --
--------- ---------- ---------
Net Financing Activities.......................... (209,598) (149,582) (92,138)
--------- ---------- ---------
Net Cash Provided (Used).................................... 905 211 (10,629)
Cash and Equivalents at Beginning of Year................... 5,395 5,184 15,813
--------- ---------- ---------
Cash and Equivalents at End of Year......................... $ 6,300 $ 5,395 $ 5,184
--------- ---------- ---------
--------- ---------- ---------
Supplemental Cash Flow Information:
Interest Paid During the Year............................. $ 90,880 $ 80,194 $ 67,959
--------- ---------- ---------
--------- ---------- ---------
Income Taxes Paid During the Year......................... $ -- $ 10,380 $ 12,254
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE> 15
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
A. General
Signal Capital Holdings Corporation ("SCHC" or herein together with its
consolidated affiliates called the "Company") is engaged primarily in the
leasing of railroad freight cars (see discussion below of the rail car
transaction).
The Company intends to sell its financing services business ("Finance").
Finance, which includes senior and subordinated loans, has been classified as
assets held for sale in the Company's consolidated balance sheets since
acquisition by Itel Corporation ("Itel") in 1988. The results of operations of
Finance have been classified as assets held for sale in the Company's
consolidated statements of operations since acquisition.
The Company is an indirect wholly-owned subsidiary of Itel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of SCHC, its
wholly-owned subsidiaries and majority-owned affiliates after elimination of
intercompany accounts and transactions. Minority interest primarily consists of
GECC's ownership of the Partnership (see Note 3) and Railcar Services
Corporation's, a Delaware special purpose corporation (the "SPC"), interest in
the Trust (see Note 3). The SPC is owned by current and former officers and
employees of Itel and Itel Rail Corporation and its subsidiaries (collectively
"Rail").
B. Reclassifications
The 1992 and 1991 consolidated financial statements and related notes have
been reclassified to reflect the 1993 presentation. The Company adopted the
Statements of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" and No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" at December 31, 1993. The effect on the Consolidated
Financial Statements was immaterial.
C. Revenue Recognition
With the completion of the rail car transaction in June 1992, the revenues
and operating income of the rail car leasing business, though essentially fixed,
are lower than such results prior to the rail car transaction. The ongoing fixed
cash flow of the rail car leasing business is available only to service interest
and principal on the debt of the Trust and Partnership (see Note 3).
Prior to the rail car transaction, fixed rate leases in the Company's rail
car leasing business were accounted for either as operating leases or as finance
leases. Rentals from fixed rate leases accounted for as operating leases were
recognized as earned. Variable rate leases were treated as operating leases and
earned revenues primarily from usage fees prescribed by the Interstate Commerce
Commission. These fees consisted of per diem and mileage charges and were
recognized as earned. Some variable rate all-mileage leases were based on tariff
agreements between railroads and shippers.
D. Cash and Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Due to the short
maturity of these instruments the carrying amount approximates fair value.
Restricted cash consists primarily of cash to be used for interest and principal
on the debt related to the Trust and the Partnership (see Note 3).
F-7
<PAGE> 16
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. Depreciation
The Company provides for depreciation of property principally on the
straight-line basis over the term of the Leases (see Note 3) for rental
equipment -- rail cars and the term of the lease for leasehold improvements.
Prior to the rail car transaction, rental equipment was depreciated on the
straight-line basis over 12 to 35 years.
F. Goodwill
Goodwill relates to the purchase of Pullman Leasing Company ("PLC") in
1988. The Company at each balance sheet date evaluates, for recognition of
potential impairment, its recorded goodwill against current and undiscounted
expected future operating income before goodwill amortization expense. Such
goodwill was initially amortized over 40 years using the straight-line method.
Effective June 1, 1992 in connection with the rail car transaction, goodwill is
being amortized over the term of the Leases (see Note 3).
G. Investment in and Advances to Q-TEL S.A. de C.V. of Mexico ("Q-TEL")
Investment in and advances to Q-TEL, formerly Quadrum, include a 19% equity
interest in Q-TEL and at December 31, 1993 a $6 million loan. The 1993
non-recurring items include a write-down of the Company's investment in Q-TEL to
net realizable value.
H. Amounts due to (from) Affiliates
The Company pays or receives interest on accounts with affiliates at market
rates. Intercompany interest expense for continuing operations in 1993, 1992 and
1991 was zero, $6.9 million and $18.9 million, respectively.
Itel charges the Company on a monthly basis for expenses identifiable to
the Company's operations and management. Such charges were approximately $1.6
million, $2.3 million and $3.1 million in 1993, 1992 and 1991, respectively.
I. Income Taxes
The Company joins in the filing of a consolidated Federal income tax return
with Itel. The Company and Itel entered into a tax-sharing agreement ("Tax
Agreement"). Under the terms of the Tax Agreement, the Company, excluding Rail,
and Rail each provide for and pay federal and certain state income taxes to Itel
as though they are stand-alone taxpayers. Other state income and foreign taxes
are expensed as incurred.
Provisions for income taxes include deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
3. RAIL CAR TRANSACTION
On December 31, 1991, Rail and General Electric Capital Corporation and
certain of its affiliates ("GECC"), an indirect wholly-owned subsidiary of
General Electric Company ("GE"), agreed that Rail would transfer certain rail
cars to a trust (the "Trust") subject to approximately $170 million of existing
indebtedness ("Assumed Indebtedness"), together with certain contracts
(including current end-user leases) relating to such rail cars and cash in an
amount necessary to fund payments on such Assumed Indebtedness prior to the
first rental payment date under the leases described below.
On June 1, 1992, the Trust contributed all of the rail cars, subject to all
of the aforementioned Assumed Indebtedness and together with all of the
aforementioned contracts, to a partnership (the "Partnership"). In addition, the
SPC contributed certain rail cars having a value equal to approximately 1% of
the value of the rail cars to be contributed by Rail to the Trust. The SPC is
owned by current and former officers and employees of Itel and Rail. GE Railcar
Associates, Inc. ("Associates") and GE Railcar Leasing Associates,
F-8
<PAGE> 17
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inc. ("GE Leasing"), each an indirect wholly-owned subsidiary of GE, also
contributed certain rail cars, together with certain contracts relating to such
rail cars, to the Partnership.
The Trust is a 64.00% general partner and a 34.99% limited partner in the
Partnership. Associates is a 1.00% general partner and the managing general
partner for the Partnership. GE Leasing is a 0.01% limited partner in the
Partnership.
In connection with the transactions described above, the Partnership
assumed the Assumed Indebtedness, which is secured by certain of the rail cars,
and agreed to pay all amounts owing thereunder as they become due. The Assumed
Indebtedness is being serviced out of rental receipts by the Partnership
pursuant to the leases (the "Leases") between the Partnership and a subsidiary
of GECC (the "Lessee").
The Leases between the Partnership and the Lessee were executed on June 1,
1992. The Leases expire in 2004, with fixed rentals of approximately $153
million annually. The Lessee shall not have the right to terminate the Leases,
except in the limited circumstances specifically provided therein. The Leases
include the grant to the Lessee of an assignable fixed price purchase option at
the end of the term of the Leases for all, but not less than all, of the rail
cars for approximately $500 million. The Leases are net leases under which the
Lessee is responsible for maintenance, taxes, insurance and other expenses of
the rail cars. Payments of basic rent ("Basic Rent") to the Partnership by the
Lessee under the Leases are paid quarterly by the Lessee. The Lessee's
obligations to pay Basic Rent and interest, if any, thereon are absolute and
unconditional in all circumstances and shall generally not be subject to any
reduction or setoff. All payments under the Leases, including Basic Rent, are
unconditionally guaranteed by GECC.
Rail also assigned to GECC, for certain contingent consideration,
substantially all of its contracts to lease rail cars from others. The Lessee
has an annual obligation to make certain contingent payments to the Partnership
in addition to Basic Rent as defined in the Leases. No contingent payments were
received in 1993 and 1992.
In connection with the completion of the rail car transaction, the Trust
issued $998 million of 7 3/4% Trust Notes (the "Trust Notes"). The Trust Notes
mature through 2004 and are secured by the Trust's ownership interest in the
Partnership.
Results in 1992 include $19.9 million of pre-tax non-recurring operating
costs relating to the rail car transaction.
In late 1993 the Company distributed 30% of its ownership in the Trust to
Rail Holdings Corporation ("RHC") its parent. Since the Company's investment in
the Trust is a net deficit, and because the transaction is between related
parties, the Company did not recognize any gain in operations. The Company
reflected directly in shareholder's equity an increase representing the
distribution of the 30% negative investment offset by a decrease representing
the minority interest receivable created at date of transfer. In addition, RHC
has agreed to forgive or assume any additional income taxes of the Company due
to the excess of fair market value over recorded value of the distributed
investment in the Trust, and to defer the date for payment of previously
recorded intercompany income taxes related to the distribution. Accordingly,
such additional taxes were not charged against shareholder's equity.
4. DISCONTINUED AND ASSETS HELD FOR SALE
In 1993 and 1992, the Company sold substantially all of its other
transportation services assets, except for one short-line railroad which is
currently being held for sale, for aggregate net cash proceeds of $54 million.
The Company recorded a $23 million pre-tax loss in 1992 in discontinued
operations to reflect the disposal of this segment.
F-9
<PAGE> 18
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Finance has been included as assets held for sale since acquisition in
connection with the purchase of PLC in 1988. The finance business is being
liquidated and no material amounts of new loans or investments are being made by
Finance. Since the date of acquisition the portfolio has been reduced from $1.44
billion to $175 million at December 31, 1993, including a reduction of $82
million, $82 million and $157 million in 1993, 1992 and 1991, respectively.
Proceeds were used to repay indebtedness.
Summarized financial results of discontinued operations and assets held for
sale were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Other Transportation Services
(Discontinued Operations).............. $49,374 $ 81,315 $ 84,375
Finance (Assets Held for Sale)............ 21,316 29,395 55,020
------- -------- --------
$70,690 $110,710 $139,395
------- -------- --------
------- -------- --------
Operating Income:
Discontinued Operations................ $ 8,496 $ 11,184 $ 12,201
Assets Held for Sale................... 8,036 18,195 45,956
------- -------- --------
$16,532 $ 29,379 $ 58,157
------- -------- --------
------- -------- --------
Income before Loss on Sales
(Net of Related Taxes):
Discontinued Operations................ $ 3,138 $ 4,576 $ 3,932
Assets Held for Sale................... 12,039 15,197 25,993
------- -------- --------
Income from Discontinued Operations and
Assets Held for Sale before Loss on
Sales..................................... 15,177 19,773 29,925
Loss on Sales of Discontinued Operations
(Net of Related Taxes).................... -- (14,085) --
------- -------- --------
Income from Discontinued Operations and
Assets Held for Sale (Net of Related
Taxes).................................... $15,177 $ 5,688 $ 29,925
------- -------- --------
------- -------- --------
</TABLE>
The composition of remaining discontinued and assets held for sale, net
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Discontinued Assets, Net (Principally Receivables
and Property at one Short-Line Railroad at
December 31, 1993)............................... $ 18,922 $ 74,751
Assets Held for Sale, Net:
Finance Receivables, Net......................... 174,869 245,902
Other, Net....................................... (8,367) (5,100)
-------- --------
166,502 240,802
-------- --------
Total......................................... $185,424 $315,553
-------- --------
-------- --------
</TABLE>
5. NON-RECURRING ITEMS
The non-recurring pre-tax loss in 1993 principally relates to the
write-down of miscellaneous investments and certain non-operating assets to net
realizable value.
F-10
<PAGE> 19
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EXTRAORDINARY ITEMS
The Company retired approximately $119 million of the face value of certain
of its senior secured debt resulting in an extraordinary pre-tax loss of ($17.9)
million in 1992.
7. ACCRUED EXPENSES AND ACCOUNTS PAYABLE
Accrued expenses and accounts payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest............................................. $ 9,985 $10,992
Other, Principally Operating Lease Obligations....... 21,285 27,315
------- -------
$31,270 $38,307
------- -------
------- -------
</TABLE>
8. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Trust Notes...................................... $ 952,957 $ 987,992
Equipment Trust Certificates and Other Secured
Indebtedness.................................. 133,767 160,834
---------- ----------
Total Debt............................... 1,086,724 1,148,826
Less: Current Maturities......................... (67,766) (62,252)
---------- ----------
Total Long-Term Debt..................... $1,018,958 $1,086,574
---------- ----------
---------- ----------
</TABLE>
Trust Notes: In connection with the completion of the rail car transaction
(see Note 3), the Trust issued $998 million of 7 3/4% Trust Notes. The Trust
Notes are non-recourse to SCHC, mature through 2004 and are secured by the
Trust's ownership interest in the Partnership, which holds substantially all of
the rail cars formerly operated by Rail. The net proceeds from the Trust Notes
were used to repay certain senior indebtedness of Rail, affiliated notes payable
and to pay a dividend of $500 million.
Equipment Trust Certificates ("ETCs") and Other Secured Indebtedness --
Rail has ETCs and other secured indebtedness outstanding with interest rates
ranging from 9.5% to 11.1% which mature at various times through 2003. This debt
has annual sinking fund requirements.
With the completion of the rail car transaction in June 1992, the ongoing
fixed cash flow of the Company's rail car leasing business is available only to
service interest and principal on the debt of the Trust and Partnership.
The aggregate annual maturities of long-term debt are as follows: 1994 --
$67.8 million; 1995 -- $73.7 million; 1996 -- $79.8 million; 1997 -- $84.8
million and 1998 -- $111.0 million. The Company's debt agreements are secured by
assets with an aggregate net book value of approximately $1.1 billion.
The fair value of the Company's debt is approximately $1.2 billion and is
estimated based on quoted market prices.
F-11
<PAGE> 20
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RECEIVABLES FROM AFFILIATES
The receivables from affiliates at December 31, 1993 and 1992 are $139.4
million and $135.5 million, respectively, accrue interest at an annual rate
equal to the prime rate and are due upon demand.
10. INCOME TAXES
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Deferred income taxes also result from
differences between the fair value of assets acquired in business combinations
accounted for as purchases and their tax bases.
Significant components of the Company's deferred tax liabilities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Tax Over Book Depreciation......................... $298,068 $296,377
Deferred Tax Assets:
Other, Principally Operating Reserves.............. (35,788) (31,809)
Valuation Allowance on Deferred Tax Assets......... -- --
-------- --------
Net Deferred Tax Assets......................... (35,788) (31,809)
-------- --------
Net Deferred Tax Liability...................... $262,280 $264,568
-------- --------
-------- --------
</TABLE>
Income tax (expense) benefit relating to operations was comprised of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations:
Current -- Federal...................... $ (317) $ -- $ (5,941)
-- State........................ (165) (325) (1,591)
------- ------- --------
(482) (325) (7,532)
Deferred -- Federal..................... (3,964) (2,411) (15,521)
-- State....................... 5,253 -- (2,790)
------- ------- --------
1,289 (2,411) (18,311)
------- ------- --------
$ 807 $(2,736) $(25,843)
------- ------- --------
------- ------- --------
Discontinued operations:
Current -- Federal...................... $(3,188) $(6,927) $ 7,297
-- State........................ 884 (349) 232
-- Foreign...................... (112) (100) (174)
------- ------- --------
(2,416) (7,376) 7,355
Deferred -- Federal..................... 1,415 3,672 (22,891)
-- State....................... (416) 403 (4,412)
------- ------- --------
999 4,075 (27,303)
------- ------- --------
$(1,417) $(3,301) $(19,948)
------- ------- --------
------- ------- --------
Extraordinary items:
Deferred -- Federal..................... $ -- $ 5,798 $ --
-- State....................... -- 921 --
------- ------- --------
$ -- $ 6,719 $ --
------- ------- --------
------- ------- --------
</TABLE>
F-12
<PAGE> 21
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of income tax (expense) benefit in continuing operations to
the statutory corporate Federal tax rate, 35% in 1993 and 34% in 1992 and 1991,
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Tax (Expense) Benefit........... $ 6,915 $ (740) $(21,007)
Effects of --
Impact of Revenue Reconciliation Act
of 1993............................ (6,961) -- --
Amortization of Goodwill............. (4,447) (3,113) (1,394)
State Income Taxes, Net of Federal
Benefit............................ 3,307 (215) (2,891)
Other, Net........................... 1,993 1,332 (551)
------- ------- --------
$ 807 $(2,736) $(25,843)
------- ------- --------
------- ------- --------
</TABLE>
The income tax effects of items comprising the deferred income tax
(expense) benefit were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation............................... $(1,691) $7,160 $(20,114)
Reserves Related to Assets Held for Sale... 3,506 265 (25,798)
Other, Net................................. 473 958 298
------- ------ --------
$ 2,288 $8,383 $(45,614)
------- ------ --------
------- ------ --------
</TABLE>
11. CONTINGENCIES AND LITIGATION
In the ordinary course of business, the Company becomes involved as
plaintiffs or defendants in various legal proceedings. The claims and
counterclaims in such litigation, including those for punitive damages,
individually in certain cases and in the aggregate, involve amounts which may be
material. However, it is the opinion of the Company's management, based upon the
advice of its counsel, that the ultimate disposition of pending litigation will
not be material.
12. PENSION PLAN AND POST-RETIREMENT BENEFITS
The Company's employees are covered under Itel's pension plan which is
noncontributory and covers substantially all full-time domestic employees except
for certain employees who are covered by collective bargaining agreements. The
pension plan assets are held in trust for the benefit of its participants.
Itel's policy is to fund the plan as required by ERISA. Contributions, accrued
pension expenses and the costs of 401(k) plans relating to the Company for 1993,
1992 and 1991 were insignificant. The Company's liability for post-retirement
benefits is insignificant.
F-13
<PAGE> 22
SIGNAL CAPITAL HOLDINGS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUMMARIZED FINANCIAL DATA
SCHC has provided full and unconditional guarantees of certain Rail
indebtedness registered with the Securities and Exchange Commission ("SEC"),
which in 1992 was assumed by the Partnership. Pursuant to SEC regulations,
summarized financial information for Rail is as follows:
ITEL RAIL CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Net Property................................................... $1,012,268 $1,065,268
Goodwill....................................................... 132,339 145,044
Discontinued Assets, Net....................................... 3,623 54,189
Other.......................................................... 64,005 71,205
---------- ----------
Total..................................................... $1,212,235 $1,335,706
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity:
Debt........................................................... $1,086,724 $1,148,826
Deferred Taxes................................................. 277,022 272,127
Payables to (Receivables from) Affiliates...................... (43,614) 6,865
Other.......................................................... 48,150 57,605
Shareholders' Deficit.......................................... (156,047) (149,717)
---------- ----------
Total..................................................... $1,212,235 $1,335,706
---------- ----------
---------- ----------
</TABLE>
ITEL RAIL CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................................ $153,034 $217,451 $307,083
-------- -------- --------
-------- -------- --------
Income (Loss) from Continuing Operations................ $(18,949) $(560) $35,941
-------- -------- --------
-------- -------- --------
Income (Loss) before Extraordinary Items................ $(15,811) $(10,069) $39,873
-------- -------- --------
-------- -------- --------
Net Income (Loss)....................................... $(15,811) $(21,292) $39,873
-------- -------- --------
-------- -------- --------
</TABLE>
F-14
<PAGE> 23
SIGNAL CAPITAL HOLDINGS CORPORATION
SUMMARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables summarize the Company's quarterly financial
information.
QUARTERLY INFORMATION:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------------- ----------------- ------------------ ------------------
1993 1992 1993 1992 1993 1992 1993 1992
------- ------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues(a).......................... $38,435 $76,302 $38,444 $64,399 $ 37,898 $38,319 $38,257 $ 38,431
Operating Income (a)(b).............. 22,294 31,977 22,185 9,250 22,782 22,281 22,438 22,610
Income (Loss) from Continuing
Operations(c)...................... (1,959) 9,627 (1,418) (6,675) (14,566) (2,131) (1,006) (1,381)
Income (Loss) from Operations before
Extraordinary Items(d)............. (1,233) 13,812 3,321 3,121 (9,207) 9,513 3,347 (21,318)
Net Income (Loss)(d)(e).............. $(1,233) $13,202 $ 3,321 $(6,093) $ (9,207) $ 9,411 $ 3,347 $(22,615)
------- ------- ------- ------- -------- ------- ------- --------
------- ------- ------- ------- -------- ------- ------- --------
</TABLE>
- ---------------
(a) With the completion of the rail car transaction in June 1992, the revenues
and operating income of the rail car leasing business, though essentially
fixed are lower than such results prior to the rail car transaction. The
ongoing fixed cash flow of the Company's rail car leasing business is
available only to service interest and principal on the debt of the Trust
and Partnership.
(b) Operating income in the second quarter of 1992 includes a $19.9 million
non-recurring operating charge relating to severance and transition costs
due to the rail car transaction.
(c) Continuing operations in 1993 include a $17.6 million non-recurring pre-tax
loss principally relating to the write-down of miscellaneous investments
and certain non-operating assets to net realizable value.
(d) Income from discontinued operations and assets held for sale, net in 1992
include a $22.7 million pre-tax loss related to the sale of certain other
transportation services assets.
(e) The extraordinary items in 1992 reflect a pre-tax loss of $17.9 million on
the retirement of the Company's senior secured debt.
F-15
<PAGE> 24
SIGNAL CAPITAL HOLDINGS CORPORATION
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
END
BALANCE AT OF PERIOD
BEGINNING ----------------------
OF PERIOD ADDITIONS DEDUCTIONS CURRENT NONCURRENT
---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993............... $ 135,491 889,491 (885,571) $139,411 --
Year ended December 31, 1992............... $ -- 135,491 -- $135,491 --
Year ended December 31, 1991............... $ -- -- -- $ -- --
</TABLE>
S-1
<PAGE> 25
SIGNAL CAPITAL HOLDINGS CORPORATION
SCHEDULE IV
INDEBTEDNESS OF AND TO RELATED PARTIES -- NON CURRENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE BALANCE
AT AT
BEGINNING END
OF OF
PERIOD ADDITIONS DEDUCTIONS PERIOD
-------- ------- ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1993................... $ -- -- -- $ --
Year ended December 31, 1992................... $274,379 868,137 (1,142,516) $ --
Year ended December 31, 1991................... $375,300 530,255 (631,176) $274,379
</TABLE>
S-2
<PAGE> 26
SIGNAL CAPITAL HOLDINGS CORPORATION
SCHEDULE V -- PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS OTHER OF PERIOD
- ----------------------------------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Rental Equipment -- Rail
Cars........................ $1,394,958 $ -- $ -- $ (2,710) $1,392,248
Other Property................ 40 -- -- (40) --
---------- --------- --------- --------- ----------
Total....................... $1,394,998 $ -- $ -- $ (2,750) $1,392,248
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Year ended December 31, 1992:
Rental Equipment -- Rail
Cars........................ $1,374,502 $ 8,926 $ (28,680) $ 40,210 $1,394,958
Other Property................ 16,698 48 (2,457) (14,249) 40
---------- --------- --------- --------- ----------
Total....................... $1,391,200 $ 8,974 $ (31,137) $ 25,961 $1,394,998
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Year ended December 31, 1991:
Rental Equipment -- Rail
Cars........................ $1,307,906 $62,559 $ (13,371) $ 17,408 $1,374,502
Other Property................ 13,680 2,133 58 827 16,698
---------- --------- --------- --------- ----------
Total....................... $1,321,586 $64,692 $ (13,313) $ 18,235 $1,391,200
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
</TABLE>
S-3
<PAGE> 27
SIGNAL CAPITAL HOLDINGS CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF COSTS AND END
CLASSIFICATION PERIOD EXPENSES RETIREMENTS OTHER OF PERIOD
- ----------------------------------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Rental Equipment -- Rail
Cars........................ $329,730 $ 49,766 $ -- $ 484 $ 379,980
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Year ended December 31, 1992:
Rental Equipment -- Rail
Cars........................ $289,134 $ 47,131 $ (7,850) $ 1,315 $ 329,730
Other Property................ 9,400 1,044 (285) (10,159) --
-------- ---------- ---------- ---------- ----------
Total....................... $298,534 $ 48,175 $ (8,135) $ (8,844) $ 329,730
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
Year ended December 31, 1991:
Rental Equipment -- Rail
Cars........................ $255,647 $ 41,628 $ (8,104) $ (37) $ 289,134
Other Property................ 6,479 2,962 (137) 96 9,400
-------- ---------- ---------- ---------- ----------
Total....................... $262,126 $ 44,590 $ (8,241) $ 59 $ 298,534
-------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ----------
</TABLE>
S-4
<PAGE> 28
SIGNAL CAPITAL HOLDINGS CORPORATION
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ---------------
AT CHARGED
BEGINNING CHARGED TO BALANCE AT
OF TO OTHER END
DESCRIPTION PERIOD INCOME ACCOUNTS DEDUCTIONS OF PERIOD
- --------------------------------------------- ------- ----- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts............ $ 6,074 -- (800) (2,322) $ 2,952
Year ended December 31, 1992:
Allowance for doubtful accounts............ $ 9,398 2,934 2,346 (8,604) $ 6,074
Year ended December 31, 1991:
Allowance for doubtful accounts............ $11,205 442 369 (2,618) $ 9,398
</TABLE>
S-5
