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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ 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 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $1 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
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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. / /
The aggregate market value of the shares of Registrant's Common Stock, $1 par
value, held by nonaffiliates of Registrant was approximately $670,000,000 as of
March 25, 1994.
At March 25, 1994, 33,257,000 shares of Registrant's Common Stock, $1 par value,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's Proxy Statement for the 1994 Annual Meeting
of Stockholders of Itel Corporation are incorporated by reference into Part III.
This document consists of 122 pages. Exhibit List begins on page 42.
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TABLE OF CONTENTS
PART I.
PAGE
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Item 1. Business of the Company............................................... 3
Item 2. Properties............................................................ 7
Item 3. Legal Proceedings..................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders................... 7
Executive Officers of the Registrant.................................. 8
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters............................................................. 9
Item 6. Selected Financial Data............................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 11
Item 8. Consolidated Financial Statements and Supplementary Data.............. 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 18
PART III.
Item 10. Directors and Executive Officers of the Registrant.................... 41
Item 11. Executive Compensation................................................ 41
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 41
Item 13. Certain Relationships and Related Transactions........................ 41
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 41
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PART I
ITEM 1. BUSINESS OF THE COMPANY.
GENERAL
Itel Corporation (the "Company" or "Itel"), which was incorporated in
Delaware in 1967, is engaged in (i) the distribution of wiring systems products
for voice, data and video networks and electrical power applications by Anixter
Inc. and its subsidiaries (collectively "Anixter"), (ii) the development and
distribution of products used in the cable television industry by ANTEC
Corporation and its subsidiaries (collectively "ANTEC"), and (iii) rail car
leasing by Itel Rail Corporation and its subsidiaries (collectively "Rail") (see
discussion below of the 1992 rail car transaction for the limited nature of the
Company's continuing interest in this business). In 1993, ANTEC was changed from
a division of Anixter to a subsidiary of the Company and the Company's interest
in ANTEC was later reduced to 53% following a public offering of ANTEC common
stock. 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. In 1991, the Company sold the distribution
services business previously conducted by Itel Distribution Systems, Inc. ("Itel
Distribution") and all the stock of Great Lakes International, Inc. which
together with its subsidiaries (collectively "Great Lakes") was engaged in heavy
marine construction, primarily dredging. At the end of 1990, the Company sold
substantially all of its intermodal container leasing assets. For information
about these sales see Item 7 -- Financial Liquidity and Capital Resources --
Asset Sales and Other Dispositions and Note 3 of the Notes to the Consolidated
Financial Statements.
At December 31, 1993, the Company also had investments in securities of
other companies, including approximately 9% of the common stock of Santa Fe
Energy Resources, Inc. ("Energy") and approximately 9% of the common stock of
Catellus Development Corporation ("Real Estate"). In 1991, the Company sold its
15% investment in the common stock of Santa Fe Pacific Corporation ("Santa Fe")
and its 21% investment in the common stock of American President Companies, Ltd.
("APC"). The financing operations of Signal Capital Corporation and its
subsidiaries (collectively "Signal Capital") and certain remaining other
transportation services assets are being held for sale. See Note 3 of the Notes
to the Consolidated Financial Statements.
As of December 31, 1993, the Company had cumulative net operating loss
("NOL") carryforwards for Federal income tax purposes of approximately $345
million expiring primarily in 1995 through 2007, and investment tax credit
("ITC") carryforwards of approximately $16 million that expire between 1994 and
2001. Certain of these carryforwards have not been examined by the Internal
Revenue Service ("IRS") and, therefore, may be subject to adjustment. The
availability of tax benefits 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. These carryforwards are not
applicable to ANTEC's results after September 1993. In addition, at December 31,
1993, various foreign subsidiaries of Itel had aggregate cumulative NOL
carryforwards for foreign income tax purposes of approximately $50 million which
are subject to various tax provisions of each respective country and expire
primarily between 1995 and 2003.
At December 31, 1993, the Company and its subsidiaries employed
approximately 4,600 persons. For information on segment and geographic data see
Note 14 of the Notes to the Consolidated Financial Statements.
ANIXTER
Anixter is a leading supplier of wiring systems, networking and
internetworking products for voice, data and video networks and electrical power
applications in the United States, Canada, Europe and parts of Asia. Anixter
stocks and sells a full line of these products from a network of 87 locations in
the United States, 21 in Canada, 20 in the United Kingdom, 23 in Continental
Europe, 2 in Mexico, 2 in Australia and single locations in Singapore, Hong Kong
and Ireland. Anixter sells approximately 80,000 products to over 60,000 active
customers and works with over 2,000 suppliers. Its customers include
international, national, regional and local companies that are end users of
these products and engage in manufacturing, communications, finance,
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education, health care, transportation, utilities and government. Also, Anixter
sells products to resellers such as contractors, installers, system integrators,
value added resellers, architects, engineers and wholesale distributors. The
average order size is about $1,000.
The products sold by Anixter fall into two broad categories. The first
category is communication (voice, data and video) products used to connect
personal computers, peripheral equipment, mainframe equipment and various
networks to each other. The products include an assortment of transmission media
(copper and fiber optic cable) and components, such as adapters, outlets, cable
assemblies, crossconnect systems, connectors, terminals, tools, test equipment
and power protection devices. Active data components for networking applications
include concentrators, intelligent hubs, multiplexers, transceivers, routers and
servers. Anixter sells products that are incorporated in local area networks
("LANs"), the internetworking of LANs to form wide area networks ("WANs") and
the increased use of fiber optic products in private networks, including factory
environments. It is expected that these markets will continue to grow at double
digit rates, with international growth somewhat outpacing U.S. growth. Anixter
has followed a strategy of regularly expanding its product lines and the
services that it provides to its customers. During 1993, Anixter began selling
and providing technological support for internetworking products, including
routers, as well as video-conferencing and network access products.
The second major product category is electrical wiring systems products
used for the transmission of electrical energy and control/monitoring of
industrial processes. These products include power cables, high temperature or
other critical environment cables, armored and control cable, instrumentation
and thermalcouple cable, portable power cable, shielded electronic process
cables and accessory products. Anixter is not a significant distributor to the
residential or commercial construction industries.
Prior to 1989, Anixter's operations were limited to the United States,
Canada, the United Kingdom and Belgium. In 1989, Anixter made a major commitment
to expand its operations into the international voice, data and video
communications markets. Since then, Anixter has opened businesses in France,
Germany, Italy, Norway, Spain, Sweden, Switzerland, Australia, Mexico, Portugal,
Singapore, The Netherlands, Austria and Hong Kong. Anixter also has resident
salespersons in Greece and Malaysia along with technical representatives in the
Czech Republic, Hungary and Poland. While several of these expansion businesses
achieved an operating profit in 1993 and 1992, the international expansion
program is still considered to be in the startup mode. Since 1988, Anixter has
experienced operating losses relating to the expansion program totalling
approximately $33 million.
An important element of Anixter's business strategy is to develop and
maintain close relationships with its key suppliers, which include the world's
leading manufacturers of networking and electrical wiring systems products. Such
relationships stress joint product planning, inventory management, technical
support, advertising and marketing. In support of this strategy, Anixter does
not compete with its suppliers in product design or manufacturing activities.
Anixter has developed a competitive advantage through its proprietary
computer system which connects all of its warehouses and sales offices
throughout the world. The system is designed for sales support, order entry,
inventory status, order tracking, credit review and material management. This
fully integrated system connects Anixter's 158 worldwide service centers through
more than 2,600 terminals. The computer system enables the sales staff to locate
products at any location and ship them within 24 hours. Anixter provides a high
level of customer service while maintaining a reasonable level of investment in
inventory and facilities.
Anixter competes with distributors and manufacturers who sell products
directly or through existing distribution channels to end users or other
resellers. In addition, Anixter's future performance could be subject to
economic downturns and possibly rapid changes in applicable technologies. To
guard against inventory obsolescence, Anixter has negotiated various return and
price protection agreements with its key suppliers. Although Anixter's
relationships with its suppliers are good, the loss of a major supplier could
have a temporary adverse effect on Anixter's business but would not have a
lasting impact since such products are available from alternate sources.
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ANTEC
ANTEC is a leading developer and supplier of optical transmission,
construction, rebuild and maintenance equipment for the broadband communications
industry. The ANTEC business was originally formed as a division of Anixter in
1969 and, in 1993, ANTEC became a separate subsidiary of Itel.
ANTEC's role in the development of new products is to identify new product
needs in the broadband communications industry and to work with strategic allies
that generally contribute extensive engineering and design services in
conjunction with ANTEC's engineers and then manufacture the product for sale by
ANTEC. These alliances allow ANTEC to develop innovative products while
minimizing its investment in engineering, facilities and equipment.
ANTEC is one of the leading suppliers to the cable market for fiber optic
products. ANTEC also supplies cable system operators with almost all of the
products required in a cable television system, including headend, distribution,
drop and in-home subscriber products. ANTEC serves its customers through an
efficient delivery network consisting of 23 sales and stocking locations in
North America. ANTEC maintains complete inventories and is able to provide
overnight as well as staged delivery of product on an "as needed" basis.
More than 95% of ANTEC's consolidated sales for the year ended December 31,
1993 came from sales to the cable industry. Demand for these products depends
primarily on capital spending by cable operators for constructing, rebuilding,
maintaining or upgrading their systems. The amount of capital spending and,
therefore, ANTEC's sales and profitability, are affected by a variety of
factors, including general economic conditions, access by cable operators to
financing, government regulation of cable operators, demand for cable services
and technological developments in the broadband communications industry.
Technological developments are occurring rapidly in the communications industry
and, while the effects of such developments are uncertain, they may have a
material adverse effect on the demand for ANTEC products and on the cable
industry as a whole. For example, technologies are being implemented that bypass
existing cable systems and permit the transmission of signals directly into
households.
Cable operators are subject to extensive regulation. For example, pursuant
to the Cable Act of 1992, the Federal Communications Commission (the "FCC") has
adopted regulations that govern cable operators. The regulations generally
provide, among other things, for rate rollbacks for basic tier cable service,
further rate reductions under certain circumstances and limitations on future
rate increases. In addition, the Cable Act of 1992 provides that commercial
broadcasting stations may elect (i) to require cable operators to carry their
stations, or (ii) to bar cable operators from carrying their stations unless the
cable operator agrees to pay to the station a "re-transmission consent fee."
Also in 1992, the FCC issued its "video dialtone" ruling which, among other
things, allows local telephone companies to transmit all types of enhanced
services, including interactive voice, video and data delivery in competition
with cable operators. Additionally, in February 1994, the FCC announced that it
intends to impose another rate cut of 7% for basic services. These regulations,
among others, could limit capital expenditures by cable operators and, thus,
could limit or reduce ANTEC's profitability. Moreover, changes in current
regulation are possible and could have a similar effect.
On August 24, 1993, a Federal district court judge in Alexandria, Virginia
declared unconstitutional, on First Amendment grounds, restrictions, as applied
to Bell Atlantic Corporation and six other regional phone companies, under the
1984 Cable Act that prevent local exchange telephone companies from providing
video programming to subscribers in their own telephone service area. It is
uncertain whether this ruling will be upheld on appeal, and it is unclear what
long-term effect, if any, this decision and related developments may have on the
cable industry in general or ANTEC's business prospects. Similar uncertainty is
created by proposed federal legislation to permit competition among cable
operators, telephone companies and other companies.
Almost all of the products supplied by ANTEC are manufactured for it by
domestic and foreign manufacturers. Approximately 23% of ANTEC's aggregate
purchases in 1993 were of products manufactured by AT&T, and many ANTEC
customers have demonstrated loyalty to AT&T products. In addition, approximately
57% of ANTEC's purchases in 1993 were from its ten largest suppliers. The loss
of a significant manufacturing source, such as AT&T, could adversely affect
ANTEC's business, although management
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believes that any such loss is unlikely to have a lasting impact on its
business, since such products are generally available from alternate sources.
There can be no assurance that the technology applications under
development by ANTEC and its strategic partners will be successfully developed
or, if they are successfully developed, that they will be widely used by cable
operators or that ANTEC will otherwise be able to successfully exploit these
technology applications. Furthermore, ANTEC's competitors may develop similar or
alternative new technology applications which, if successful, could have a
material adverse effect on ANTEC. ANTEC relies on strategic alliances with
various manufacturers for the development and production of new technology
applications. These strategic alliances are based on business relationships and
generally are not subject of written agreements expressly providing for the
alliance to continue for a significant period of time. The loss of a strategic
partner could have a material adverse effect on the development of the new
products under development with that partner.
The cable industry is highly concentrated with over 75% of U.S. domestic
subscribers being served by approximately twenty-five major multi-system
operators ("MSO's"). In 1993, approximately 58% of ANTEC's revenues were
obtained from sales to the twenty-five largest MSO's. A significant portion of
ANTEC's revenue is derived from sales to Tele-Communications, Inc. (together
with its affiliates, "TCI") aggregating $146.1 million, $86.7 million and $58.0
million for the years ended December 31, 1993, 1992 and 1991. In October, 1993,
TCI and Bell Atlantic Corporation jointly announced their agreement for the
acquisition of TCI and Bell Atlantic. In February, 1994, TCI and Bell Atlantic
jointly announced the termination of their acquisition agreement. A variety of
factors were identified, including the FCC rate cut, as the reasons for such
termination. In the termination announcement, TCI also indicated that it plans
to suspend its capital expenditure budget for 1994 by one-half pending
clarification of the FCC action. It is not known what effect, if any, the recent
FCC and TCI announcements will have on capital spending increases in general, or
on ANTEC's performance in particular. However, ANTEC believes that while capital
expenditures for some products by some operators may be adversely effected,
capital spending for infrastructure improvements and upgrades will continue and,
therefore, ANTEC does not anticipate a material adverse impact on its
performance as a result of these recent announcements.
All aspects of ANTEC's business are highly competitive. ANTEC competes with
national, regional and local manufacturers, distributors and wholesalers,
including companies larger than ANTEC, such as General Instrument Corporation
and Scientific-Atlanta, Inc. Various manufacturers who are suppliers to ANTEC
sell directly as well as through distributors into the cable marketplace. In
addition, because of the convergence of the cable, telecommunications and
computer industries and rapid technological development, new competitors may
seek to enter the cable market. Many of ANTEC's competitors or potential
competitors are substantially larger and have greater resources than ANTEC. The
principal methods of competition are product differentiation, performance and
quality; price and terms; and service, technical and administrative support.
The future success of ANTEC depends in part on its ability to attract and
retain key executive, marketing and sales personnel. Competition for qualified
personnel in the cable industry is intense, and the loss of certain key
personnel could have a material adverse effect on ANTEC. ANTEC has entered into
employment contracts with its executive officers. ANTEC also has a stock option
program designed to provide substantial incentives for its employees to remain
with ANTEC.
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 is a
99% beneficiary and 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 these
contributed rail cars, along with other rail cars it received as a contribution
from its other partners, to a subsidiary of GECC (the "Lessee"). These leases
(the "Leases") expire in 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
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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 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 consideration,
substantially all of its contracts to lease rail cars from others.
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.
STOCK INVESTMENTS
At December 31, 1993, as the result of September 1988 acquisitions, other
purchases and Santa Fe's 1990 restructuring and related spin-offs of Energy and
Real Estate common stock, the Company owned 8,064,005 shares or approximately 9%
of Energy's common stock and 6,687,575 shares or approximately 9% of Real
Estate's common stock, both of which are listed on the New York Stock Exchange
(the "NYSE"). Energy and Real Estate are subject to the informational filing
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, are required to file reports and other information with the
Securities and Exchange Commission.
In 1993, 1992 and 1991, the Company wrote down the value of its investments
in marketable equity securities by $25 million, $25 million and $50 million,
respectively.
ASSETS HELD FOR SALE
The principal assets held for sale at December 31, 1993 are those of Signal
Capital. The Company acquired Signal Capital in connection with the purchase of
a major rail car fleet in 1988. The finance business of Signal Capital 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 Signal
Capital. 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. All
cash proceeds were used to reduce indebtedness.
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. Most of Anixter and ANTEC's facilities are leased. Certain of the debt
agreements of the Company's subsidiaries are secured by their assets (see Note 9
of the Notes to the Consolidated Financial Statements).
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company and its subsidiaries became
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1993, no matters were submitted to a vote of
the security holders.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age as of March 25, 1994, position,
offices and certain other information with respect to the executive officers of
the Company. The term of office of each executive officer will expire upon the
appointment of his successor by the Board of Directors.
Kirk Brewer, 38.............. Senior Vice President--Corporate & Investor Relations of Itel
since February 1992; Midwest Officer and Managing Director of
Georgeson & Co. from 1989 to February 1992; Officer and Group
Manager of Burson-Marsteller from 1982 to 1989.
Don Civgin, 32............... Vice President--Treasurer of Itel since December 1993;
Treasurer of Itel from March 1991 to December 1993; Assistant
Treasurer of Itel from 1988 to March 1991.
Rod F. Dammeyer, 53.......... Chief Executive Officer, President and Director of Itel since
January 1993; President and Director of Itel from 1985 to 1993.
Gary M. Hill, 46............. Senior Vice President--Finance of Itel since March 1991; Vice
President-- Finance of Itel from 1987 to March 1991.
James E. Knox, 56............ Senior Vice President, General Counsel and Secretary of Itel
since 1986.
John P. McNicholas Jr., 40... Vice President--Controller of Itel since May 1992; Controller
of Itel from March 1991 to May 1992; Corporate Controller of
Itel from 1987 to March 1991.
Philip F. Meno, 35........... Vice President--Taxes of Itel since May 1993; Director of Taxes
from January 1990 to May 1993; Tax Manager from 1986 to January
1990.
Samuel Zell, 52.............. Chairman of the Board of Directors of Itel since January 1993;
Chairman of the Board of Directors and Chief Executive Officer
of Itel from 1985 to 1993.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
A. MARKET INFORMATION
Itel Corporation's Common Stock is traded on the NYSE.
B. STOCK PRICES
The following table sets forth the high and low sales prices for the Common
Stock on the NYSE.
HIGH LOW
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1992
First Quarter.......................................... $19 3/8 $16 5/8
Second Quarter......................................... 18 3/8 16 1/8
Third Quarter.......................................... 19 1/4 16
Fourth Quarter......................................... 24 3/8 17 5/8
1993
First Quarter.......................................... $25 7/8 $20 1/4
Second Quarter......................................... 30 1/4 22 7/8
Third Quarter.......................................... 33 5/8 28
Fourth Quarter......................................... 30 5/8 25 1/8
1994
First Quarter (through March 25, 1994)................. $30 $26 5/8
C. DIVIDENDS ON COMMON STOCK
The Company has not paid dividends on its Common Stock since 1979 and does
not anticipate declaring any such cash dividends in the foreseeable future.
Certain loan agreements and indentures require that the Company maintain a
minimum net worth or otherwise limit the Company's ability to declare dividends
or make any distribution to holders of any shares of capital stock, or redeem or
otherwise acquire such shares of the Company. Approximately $30 million is
available for such distributions under the most restrictive of these covenants.
D. NUMBER OF HOLDERS OF COMMON STOCK
There were approximately 6,000 holders of record of the Common Stock as of
March 25, 1994.
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ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31,
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1993 1992 1991 1990 1989
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(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Results of operations:
Revenues............................. $1,909.2 $1,682.1 $1,591.1 $1,617.4 $1,540.4
Operating income(a).................. 157.9 126.9 165.3 168.2 186.0
Interest expense and other, net...... (151.1) (181.7) (179.7) (174.7) (177.8)
Non-recurring items, net(b)(c)....... 64.0 -- -- -- --
Write-down of marketable equity
securities(d)..................... (25.0) (25.0) (79.4) (31.7) --
Income (loss) from continuing
operations........................ 16.1 (59.8) (57.7) (32.4) 1.8
Income (loss) from discontinued
operations........................ (1.3) (24.1) (6.8) 161.1 32.6
Extraordinary items, net(e).......... (16.0) (20.4) 8.8 -- --
Net income (loss).................... $ (1.2) $ (104.3) $ (55.7) $ 128.7 $ 34.4
Income (loss) per common and common
equivalent share(f):
Continuing operations........... $ .43 $ (2.26) $ (1.85) $ (.82) $ (.09)
Before extraordinary items...... .39 (3.09) (2.05) 2.60 .56
Net income (loss)............... (.14) (3.79) (1.79) 2.60 .56
Financial position at December 31:
Total assets......................... $2,494.4 $2,640.8 $2,829.5 $3,372.9 $3,674.3
Total debt........................... 1,581.5 1,874.4 1,789.6 2,080.4 2,306.2
Senior non-recourse debt --
principally Rail car leasing...... 1,104.7 1,148.8 -- -- --
Stockholders' equity(g)(h)........... 405.3 367.3 563.6 610.1 861.5
Book value per common and common
equivalent share(h)............... $ 12.28 $ 10.10 $ 14.96 $ 13.48 $ 15.64
Weighted average common and common
equivalent shares(f).............. 30,132 29,085 34,440 47,194 50,430
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Notes:
(a) Operating income in 1992 includes $21.8 million of non-recurring operating
costs relating to severance and transition costs due to the rail car
transaction (see Note 7 of the Notes to the Consolidated Financial
Statements).
(b) Non-recurring items include an $84.5 million pre-tax gain on ANTEC Offering
in 1993 relating to the September 1993 initial public offering of shares of
common stock of ANTEC (see Note 4 of the Notes to the Consolidated
Financial Statements).
(c) The non-recurring pre-tax loss of $20.5 million in 1993 principally relates
to the write-down of miscellaneous investments and certain non-operating
assets to net realizable value.
(d) In 1993, 1992 and 1991, the Company wrote down the value of its investments
in marketable equity securities by $25.0 million, $25.0 million and $50.0
million, respectively. The remaining $29.4 million pre-tax charge in 1991
relates to the loss on sale of the Company's investment in Santa Fe. The
$31.7 million pre-tax charge in 1990 primarily relates to the recognized
loss in market value on other marketable equity securities.
(e) Extraordinary items in 1993, 1992 and 1991 represent the gain/(loss) net of
related income taxes on early extinguishment of senior and subordinated
debt at Itel and its subsidiaries.
(f) Weighted average common and common equivalent shares outstanding decreased
substantially from 1989 to 1992 primarily as a result of Itel's large
treasury stock purchases in 1992, 1991 and 1990. Consequently, the loss per
share in 1992 and 1991 was adversely impacted. In 1993, weighted average
common and common equivalent shares increased slightly due primarily to the
conversion of Series C convertible preferred stock into approximately 3.8
million shares of Common Stock in August 1993.
(g) Stockholders' equity reflects treasury stock purchases of $.3 million,
$114.3 million, $147.4 million, $187.6 million and $6.5 million in 1993,
1992, 1991, 1990 and 1989, respectively. No dividends on common stock were
declared or paid during any of the periods shown.
(h) Stockholders' equity includes unrealized losses on marketable equity
securities available-for-sale, net of deferred income tax benefit of $23.7
million, $49.1 million, $47.8 million, $112.9 million and $24.9 million at
December 31, 1993, 1992, 1991, 1990 and 1989, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Asset Sales and Other Dispositions
Recapitalization Program: In 1990, the Company began a program of modifying
its capital structure by reducing certain senior and subordinated debt at Itel
and its subsidiaries and purchasing Common Stock. Over the last several years,
the Company also implemented a program of selling or otherwise monetizing
certain assets to fund the recapitalization program. Since the program began,
the Company has used proceeds to substantially reduce debt at the holding
company and subsidiary level and to repurchase approximately $450 million of
outstanding Common Stock. The financial liquidity and capital resources in 1993
and 1992 reflect the impact of Itel's recapitalization program.
ANTEC Separation: In July 1993, ANTEC, formerly a business division of
Anixter, was established as a separate and independent corporation through
Anixter's contribution of assets and liabilities of its ANTEC business division
to ANTEC and Anixter's distribution of 100% of the outstanding common stock of
ANTEC to Itel. In September 1993, Itel and ANTEC completed a public offering
(the "Offering") of shares of common stock of ANTEC. Net proceeds from the
Offering were approximately $157 million of which Itel, after considering the
redemption by ANTEC of preferred shares owned by Itel, received approximately
$97 million. Proceeds were used to reduce indebtedness. As a result of the
Offering, Itel's ownership of ANTEC common stock was reduced to 53%.
Liquidation of Signal Capital: Signal Capital has been classified as assets
held for sale since acquisition in connection with the purchase of a major rail
car fleet 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 $175
million at December 31, 1993, including reductions of $82 million, $82 million
and $157 million in 1993, 1992 and 1991, respectively.
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 is
a 99% beneficiary and 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 these
contributed rail cars, along with other rail cars it received as a contribution
from its other partners, to a subsidiary of GECC (the "Lessee"). The Leases
expire in 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 is 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 consideration, substantially all of its
contracts to lease rail cars from others.
In June 1992, the Trust issued $998 million of 7 3/4% Notes (the "Trust
Notes") secured by the Trust's ownership interest in the Partnership. The net
proceeds were used to repay certain debt of Rail and Itel. The Trust Notes are
non-recourse to Itel.
Other Dispositions: 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. In 1991, the Company sold its
investments in American President Companies, Ltd. ("APC"), its third party
distribution business, Great Lakes International, Inc. ("Great Lakes") and Santa
Fe for aggregate cash proceeds in excess of $500 million. Proceeds from the
sales were used to reduce debt or to purchase Common Stock.
Cash Flow
Consolidated net cash provided (used) by continuing operating activities
was $21.3 million for the year ended December 31, 1993 compared to ($5.5)
million in 1992. Cash provided (used) by continuing operating activities
increased due to higher operating income and lower interest costs caused by debt
reductions somewhat offset by higher investment in net working capital
attributable to Anixter and ANTEC sales volume
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increases. Consolidated cash provided (used) by net investing activities was
$11.7 million in 1993 versus ($18.7) million in 1992. Consolidated investing
activities in 1993 primarily reflect net receipts from Itel's investment in
Q-TEL (formerly Quadrum) of $23.7 million and proceeds from the sale of
miscellaneous marketable securities and other investments somewhat offset by two
ANTEC acquisitions aggregating $9.9 million and capital expenditures required at
Anixter and ANTEC. Consolidated cash used for net financing activities was
($141.4) million for the year ended 1993 in comparison to ($50.4) million for
the year ended 1992. The 1993 period includes approximately $156.6 million of
proceeds from the Offering and the paydown of a substantial amount of
subordinated debt. Consolidated net financing activities in 1992 reflect the
issuance of $998 million of Trust Notes and subsequent paydown of substantial
amounts of other debt. Cash from discontinued operations, net was $117.4 million
in 1993 versus $68.0 million in 1992. Discontinued operations in 1993 and 1992
include net proceeds from the sale of most of the Company's other transportation
services assets of $46 million and $8 million, respectively, and cash received
from the reduction of assets at Signal Capital of $82 million in both years.
Consolidated net cash provided (used) by continuing operating activities
was ($5.5) million for the year ended December 31, 1992 compared to $34.4
million in 1991. This decrease was due primarily to higher investment in net
working capital attributable to Anixter and ANTEC sales volume increases and
severance and transition payments due to the rail car transaction. Consolidated
cash provided (used) by net investing activities was ($18.7) million in 1992
versus $209.4 million in 1991. Consolidated cash provided from net investing
activities in 1991 reflects significant proceeds from marketable securities
sales, primarily Santa Fe. Consolidated investing activities in 1992 reflect
significantly lower purchases of rail equipment due to the rail car transaction.
Consolidated cash used for net financing activities was ($50.4) million for the
year ended 1992 in comparison to ($442.0) million for the year ended 1991.
Consolidated net financing activities in 1992 reflect the issuance of $998
million of Trust Notes and subsequent paydown of substantial amounts of other
debt. Cash used for net financing activities in 1991 reflects the use of
proceeds from significant asset sales to repay debt. The consolidated cash used
for net financing activities in both years reflects large purchases of treasury
stock, principally from Henley. Cash from discontinued operations, net was $68.0
million in 1992 versus $170.7 million in 1991. Discontinued operations in 1992
includes net proceeds from the sale of certain of the Company's other
transportation services assets and cash received from the reduction of assets at
Signal Capital. Discontinued operations in 1991 include net proceeds from the
sales of the Company's investments in Great Lakes, APC and the third party
distribution business aggregating $183 million and cash received from the
reduction of assets at Signal Capital of $157 million.
Based upon discussions with financial analysts and similar disclosures
provided by competitors of Itel's businesses, the Company considers operating
income before amortization of goodwill and operating income plus depreciation
and amortization of goodwill ("cash flow") to be meaningful and readily
comparable measures of Itel's relative performance. However, with the completion
of the rail car transaction in June 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 the Partnership. Cash flow by the Company's major business
segments is presented in the following table. The decline in 1992 is due to the
rail car transaction.
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
------ ------ ------
(IN MILLIONS)
Anixter........................................................ $ 69.5 $ 53.0 $ 50.3
ANTEC.......................................................... 27.2 16.4 11.6
All other...................................................... (8.9) (8.3) (10.2)
------ ------ ------
87.8 61.1 51.7
Rail car leasing............................................... 152.1 141.7 181.1
------ ------ ------
$239.9 $202.8 $232.8
------ ------ ------
------ ------ ------
Consolidated net interest expense was $151.1 million, $181.7 million and
$179.7 million for the years ended December 31, 1993, 1992 and 1991,
respectively. The Company has entered into interest rate agreements which
effectively fix or cap, for a period of time, the interest rate on a portion of
its floating rate
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obligations. As a result, the interest rate on substantially all debt
obligations at December 31, 1993 is fixed or capped.
Financings
On December 13, 1993, the Company obtained a $250 million senior bank term
loan ("Term Loan") from a group of banks. The Term Loan is secured by the
Company's investments in the capital stock of Anixter, ANTEC and Signal Capital
and its common shares of Energy and Real Estate aggregating $730 million at net
book value at December 31, 1993. The Term Loan matures in 1996. The net proceeds
from the Term Loan were used exclusively to repay other debt of Itel.
In August 1993, Itel's Series C convertible preferred stock was converted
into approximately 3.8 million shares of Common Stock.
In July 1993, ANTEC executed an agreement with a group of banks for a new
$100 million revolving credit facility. The revolving line of credit, which
matures in 1997 and is extendible at the banks' option for one additional year,
was reduced to $50 million upon completion of the Offering. Part of the proceeds
from the new ANTEC revolving credit facility were used to repay a portion of a
secured revolving line of credit of Anixter. The ANTEC revolving credit facility
is non-recourse to Itel.
In May 1993, the Anixter secured revolving line of credit was extended to
1996 and was increased to $300 million. The revolving line of credit may be
extended for two additional one-year periods at the option of the lenders. Upon
completion of the new ANTEC revolving credit facility in July, Anixter's secured
revolving line of credit was reduced to $210 million. In November, the Company
increased the revolving line of credit to $220 million.
At December 31, 1993, $88.6 million was available under the bank revolving
lines of credit at Anixter, most of which was available to Itel for general
corporate purposes.
Debt Maturities and Repayments
Current maturities of non-recourse debt of $67.8 million at December 31,
1993 represent senior debt related to the Rail car leasing business to be
serviced from Rail car leasing cash flow. In 1993 and 1992, Rail car leasing
retired at maturity approximately $62.2 million and $17.9 million of
non-recourse debt, respectively.
In 1993, the Company retired or called for redemption approximately $558
million of the face value of subordinated debt at Itel (including $180 million
of 13% Senior Subordinated Notes ("13% Notes") called on December 17, 1993 for
January 18, 1994 redemption and $41 million of 13% Notes called on January 27,
1994 for February 28, 1994 redemption). In 1992 and 1991, respectively, the
Company retired $688 million and $79 million of the face value of senior and
subordinated debt at Itel and its subsidiaries.
NOL 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 NOL carryforwards for Federal income tax purposes of approximately
$345 million expiring principally in 1995 through 2007, and ITC carryforwards of
approximately $16 million expiring in 1994 through 2001. Certain of these
carryforwards have not been examined by the IRS and, therefore, may be subject
to adjustment. The availability of tax benefits of NOL and ITC carryforwards to
reduce the Company's future Federal income tax liability is subject to various
limitations under the Internal Revenue Code of 1986, as amended (the "Code"),
which may limit their use in the event of substantial ownership changes of
Itel's stock as defined in the Code. Such ownership changes may not be within
the control of the Company. In addition, at December 31, 1993, various foreign
subsidiaries of Itel had aggregate cumulative NOL carryforwards for foreign
income tax purposes of approximately $50 million which are subject to various
provisions of each respective country and expire between 1995 and 2003.
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The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"). Among other things,
SFAS No. 109 requires recognition of deferred tax liability on the temporary
differences between financial statement and income tax bases of assets and
liabilities, measured at enacted tax rates, and the reduction of the liability
for deferred taxes for NOL and ITC carryforwards, to the extent that realization
of such carryforwards are more likely than not. Accordingly, the Company has
reduced its deferred tax liability for its Federal and state NOL and ITC
carryforwards in its consolidated financial statements. The Company's partial
recognition of Federal and state future tax benefits is due to the expected
utilization of those benefits based upon future receipt of substantial taxable
income, specifically resulting from (a) over $546 million of existing temporary
differences at December 31, 1993, primarily rail car depreciation, which will
reverse prior to 2005 and (b) projected consolidated taxable income including
the guaranteed minimum future rentals from the Leases of $153 million annually
through 2004 and the discontinuance of the substantial capital expenditure
program that gave rise to a significant portion of the NOL. Management
anticipates that increases in taxable income during the carryforward period will
arise primarily as a result of the factors mentioned above.
The following table presents the Company's, exclusive of ANTEC, scheduled
reversal of existing temporary differences and the expiration dates and amounts
of the Company's, exclusive of ANTEC, domestic NOL and ITC carryforwards at
December 31, 1993.
NET REVERSING EXPIRING
TEMPORARY DIFFERENCES EXPIRING NOL ITC
--------------------- ------------ --------
(IN MILLIONS)
1994................................................. $ (83.9) $ -- $ 7.1
1995-1999............................................ 63.7 106.4 7.3
2000-2004............................................ 567.1 35.4 1.7
2005-2007............................................ -- 203.2 --
------- ------------ --------
$ 546.9 $345.0 $ 16.1
------- ------------ --------
------- ------------ --------
At December 31, 1993, 1992 and 1991, consolidated valuation allowances for
its tax carryforwards are $55.4 million, $58.4 million and $62.1 million,
respectively, including valuation allowances on its foreign NOLs at December 31,
1993, 1992, 1991. The effect of the Revenue Reconciliation Act of 1993 enacted
in August 1993 was not significant to the Company's consolidated results of
operations.
Liquidity Considerations and Other
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.
At December 31, 1993, the market value of the Company's investment in
marketable equity securities was below cost by $36.5 million. In accordance with
generally accepted accounting principles, the Company's investment in marketable
equity securities has been reflected at market value in the consolidated balance
sheet. 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". When such decline
in market value is deemed to be other than temporary, the Company records such
decline as a charge against income. In 1993, 1992 and 1991, the Company wrote
down the value of its investments in marketable equity securities by $25.0
million, $25.0 million and $50.0 million, respectively.
CAPITAL EXPENDITURES
Consolidated capital expenditures were $13.4 million, $17.0 million and
$75.1 million for 1993, 1992 and 1991, respectively. Anixter capital
expenditures were $11.4 million, $6.3 million and $8.4 million for 1993, 1992
and 1991, respectively. ANTEC capital expenditures were $2.0 million, $1.7
million and $2.0 million for 1993, 1992 and 1991, respectively. Rail car leasing
capital expenditures were zero, $9.0 million and $64.7 million for 1993, 1992
and 1991, respectively. Due to the rail car transaction, future rail car leasing
capital
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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. Further, the ongoing
fixed cash flow of Rail car leasing is available only to service interest and
principal on the Trust Notes and the debt of the Partnership.
Earnings Per Share: Weighted average common and common equivalent shares
outstanding decreased substantially from 1989 to 1992 primarily as a result of
Itel's large treasury stock purchases in 1992, 1991 and 1990. Consequently, the
loss per share in 1992 and 1991 was adversely impacted. In 1993, weighted
average common and common equivalent shares increased slightly due primarily to
the conversion of Series C convertible preferred stock into approximately 3.8
million shares of Common Stock in August 1993.
Quarter ended December 31, 1993: Loss from continuing operations for the
fourth quarter of 1993 was ($17.5) million compared with ($29.2) million in the
fourth quarter of 1992. The fourth quarter of 1993 and 1992 each include pre-tax
charges associated with the write-down of marketable equity securities of $25.0
million. Net loss was ($22.6) million and ($53.6) million in the fourth quarter
of 1993 and 1992, respectively. The Company retired or called for redemption
approximately $206.0 million and $65.3 million of its subordinated and senior
debt resulting in an extraordinary net loss of ($5.1) million and ($2.4) million
in the fourth quarters of 1993 and 1992, respectively. The loss from
discontinued operations in the fourth quarter of 1992 includes a ($16.1) million
net loss from the discontinuance of the other transportation services segment.
Consolidated revenues during the period, which includes revenues of Rail
car leasing, increased 24% to $508.5 million, primarily reflecting increased
volume at Anixter and ANTEC. Anixter revenues increased 21% to $359.7 million
from $296.7 million reflecting increased volume in its U.S. wiring systems
business and significantly higher volume in its European operations. ANTEC
revenues increased 48% to $110.6 million in the fourth quarter of 1993 compared
to $74.7 million in 1992 due to the upswing in spending by cable system
operators and the acceptance of products developed by ANTEC.
Consolidated operating income, including Rail car leasing, increased 27% to
$39.4 million from $31.1 million in the fourth quarter of 1992 and consolidated
operating income before amortization of goodwill increased 23% to $45.0 million
from $36.5 million in the fourth quarter of 1992. Anixter's operating income
before amortization of goodwill increased 78% to $16.4 million from $9.2 million
in the fourth quarter of 1992 due to stronger European and U.S. Distribution
earnings. The 1992 period also contained special charges related to a terminated
equity participation plan. ANTEC's operating income before amortization of
goodwill more than doubled to $7.1 million from $3.3 million in 1992 reflecting
significantly increased volume.
Consolidated net interest expense and other for the fourth quarter declined
to $36.5 million from $48.8 million in 1992 due to the use of proceeds from the
continued monetization of Itel's non-core assets to significantly reduce
high-cost debt.
Year ended December 31, 1993: Income (loss) from continuing operations was
$16.1 million in 1993 compared with ($59.8) million in 1992. Results of
continuing operations in 1993 include an $84.5 million pre-tax gain on the
Offering and a ($20.5) million non-recurring pre-tax loss principally relating
to the write-down of miscellaneous investments and certain non-operating assets
to net realizable value. Operating income in 1992 includes a $21.8 million
non-recurring operating charge related to the rail car transaction. Results of
continuing operations in both 1993 and 1992 include pre-tax charges associated
with the write-down of marketable equity securities of $25.0 million. Net loss
was ($1.2) million and ($104.3) million for the years ended December 31, 1993
and 1992, respectively. The loss from discontinued operations in 1992 includes a
($16.1) million net loss on the discontinuance of the other transportation
services segment. The Company retired or called for redemption a significant
amount of its subordinated and senior debt resulting in an extraordinary net
loss of ($16.0) million and ($20.4) million in 1993 and 1992, respectively.
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Consolidated revenues for the year ended December 31, 1993, which includes
Rail car leasing, increased 14% to approximately $1.9 billion from $1.7 billion
in 1992 primarily reflecting increased volume at Anixter and ANTEC. Anixter
revenues rose 14% to $1.3 billion resulting from the continued growth of the
U.S. wiring systems business and the continuing worldwide expansion. ANTEC
revenues increased 42% to $427.6 million in 1993 compared to 1992 due to the
upswing in spending by cable system operators and the acceptance of products
developed by ANTEC. More than 95% of ANTEC's consolidated sales for the year
ended December 31, 1993 came from sales to the cable industry. Demand for these
products depends primarily on capital spending by cable operators for
constructing, rebuilding, maintaining or upgrading their systems. In February
1994, the FCC announced its intention to impose a 7% rate reduction for basic
cable services and ANTEC's largest customers announced it may reduce its capital
expenditure budget for 1994. However, the Company believes that while capital
expenditures for some products by some operators may be adversely affected,
capital spending for infrastructure improvements and upgrades will continue and,
therefore, the Company does not anticipate a material adverse impact on its
performance as a result of these recent announcements. Rail car leasing revenue
in 1993 decreased to $153.0 million from $217.5 million due to the effect of the
rail car transaction in June 1992.
Consolidated operating income, including Rail car leasing, was $157.9
million compared with $148.7 million (before the $21.8 million non-recurring
operating charge) in 1992. Consolidated operating income before amortization of
goodwill and the non-recurring operating charge increased to $179.4 million from
$166.3 million in 1992. Anixter operating income before amortization of goodwill
for 1993 increased 36% to $61.1 million due to improved margins and volume at
U.S. distribution offset slightly by increased spending in international
markets. Net start-up losses from recently established foreign operations were
($4.4) million in 1993 compared to ($2.5) million in 1992. The 1992 period also
contained special charges related to a terminated equity participation plan.
ANTEC's operating income before amortization of goodwill increased 70% to $25.2
million in 1993 from $14.8 million in 1992 reflecting significantly increased
volume. Rail car leasing operating income before amortization of goodwill
increased to $102.4 million from $93.5 million in 1992. Rail car leasing results
in 1992 include a $21.8 million non-recurring operating charge relating to the
rail car transaction.
Consolidated net interest expense and other for 1993 declined to $151.1
million from $181.7 million in 1992 due to the use of proceeds from the 1992
rail car transaction and the continued monetization of Itel's non-core assets to
significantly reduce high-cost debt.
Year ended December 31, 1992: Loss from continuing operations was ($59.8)
million in 1992 compared with ($57.7) million in 1991. Operating income in 1992
includes a $21.8 million non-recurring operating charge related to the rail car
transaction. Results of continuing operations in 1992 and 1991 include pre-tax
charges associated with the sale and write-down of marketable equity securities
of $25.0 million and $79.4 million, respectively. Net loss was ($104.3) million
and ($55.7) million for the years ended December 31, 1992 and 1991,
respectively. The loss from discontinued operations in 1992 includes a ($16.1)
million net loss on the disposition of certain other transportation services
assets. The loss from discontinued operations in 1991 includes a ($14.6) million
net loss on the sale of APC and Great Lakes. The Company retired a significant
amount of its subordinated and senior debt resulting in an extraordinary net
gain (loss) of ($20.4) million and $8.8 million in 1992 and 1991, respectively.
Consolidated revenues for the year ended December 31, 1992, which includes
revenues of Rail car leasing, increased 6% to approximately $1.7 billion from
$1.6 billion in 1991 primarily reflecting increased volume at Anixter and ANTEC.
Anixter revenues increased 13% to $1.2 billion reflecting strong U.S. data
markets and significantly higher European volume. ANTEC revenues increased 17%
to $301.0 million due to stronger fiber optics sales. Rail car leasing revenues
decreased to $217.5 million from $307.0 million primarily due to the effect of
the June 1992 rail car transaction.
Consolidated operating income before the $21.8 million non-recurring
operating charge was $148.7 million compared with $165.3 million in 1991.
Consolidated operating income before the non-recurring operating charge and
amortization of goodwill decreased to $166.3 million from $177.8 million in
1991. Anixter operating income before amortization of goodwill for 1992
increased 7% to $44.8 million due to lower European losses and stronger U.K.
results partially offset by lower Canadian earnings. Net start-up losses from
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recently established foreign operations decreased to ($2.5) million in 1992 from
($9.6) million in 1991. ANTEC's operating income before amortization of goodwill
increased 48% to $14.8 million in 1992 from $10.0 million in 1991 reflecting
significantly increased volume. Rail car leasing operating income before
amortization of goodwill decreased to $93.5 million in 1992 from $136.4 million
in 1991 reflecting the rail car transaction.
Consolidated net interest expense and other for 1992 was $181.7 million
compared to $179.7 million in 1991. Results in 1992 reflect the effects of debt
reduction and lower interest costs following the 1991 sales of the Company's
investments in APC, Santa Fe and Great Lakes, and the 1992 rail car transaction
offset by the effect of the Company's treasury stock purchases and lower
investment income. Net interest expense includes the carrying costs on the
remaining marketable equity securities of approximately $25 million for the year
ended December 31, 1992.
Year ended December 31, 1991: Loss from continuing operations was ($57.7)
million compared with ($32.4) million in 1990. Results in both years include
pre-tax charges associated with the sale and write-down of marketable equity
securities of $79.4 million and $31.7 million in 1991 and 1990, respectively.
Net income (loss) was ($55.7) million and $128.7 million for the years ended
December 31, 1991 and 1990, respectively. The loss from discontinued operations
in 1991 includes a ($14.6) million net loss on the sales of APC and Great Lakes.
Income from discontinued operations in 1990 primarily reflects a $154.9 million
net gain on the sale of the Company's container leasing assets. In 1991, the
Company retired approximately $78.9 million of the face value of its
subordinated debt resulting in an extraordinary net gain of $8.8 million.
Consolidated revenues for the year ended December 31, 1991 decreased
slightly to approximately $1.6 billion. Anixter revenues, which included the
start-up operations in Europe, increased 5% over 1990. ANTEC revenues declined
21% from 1990 due to significantly lower cable industry spending. Rail car
leasing revenue was $307.0 million, slightly lower than 1990 primarily due to
continued softness in the grain car leasing market.
Consolidated operating income was $165.3 million compared with $168.2
million in 1990. Consolidated operating income before amortization of goodwill
was $177.8 million compared with $180.8 million in 1990. Anixter operating
income before amortization of goodwill for 1991 increased 14% to $42.0 million.
Net start-up losses from recently established foreign operations were ($9.6)
million and ($10.1) million in 1991 and 1990, respectively. ANTEC's operating
income before amortization of goodwill decreased to $10.0 million in 1991 from
$22.0 million in 1990 due to the poor cable television market. Rail car leasing
operating income before amortization of goodwill was $136.4 million, up slightly
from 1990 due to lower maintenance costs, partially offset by lower rental
revenues.
Net interest expense and other for the year was $179.7 million compared to
$174.7 million in 1990 as the effect of the Company's treasury stock purchases
was partially offset by the effects of debt reduction following the 1991 sales
of the Company's investments in APC, Santa Fe and Great Lakes and excess
proceeds from the sale of the Company's container leasing assets at the end of
1990. Net interest expense includes the carrying costs on marketable equity
securities of approximately $60 million and $70 million for the years ended
December 31, 1991 and 1990, respectively.
Impact of Inflation: Inflation has slowed in recent years and is currently
not an important determinant of Anixter and ANTEC's results of operations due,
in part, to rapid inventory turnover. Due to the rail car transaction, inflation
is currently not a determinant of the Company's rail car leasing business
results of operations.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
----
Report of Independent Auditors...................................... 20
Consolidated Balance Sheets......................................... 21
Consolidated Statements of Operations............................... 23
Consolidated Statements of Cash Flows............................... 25
Consolidated Statements of Stockholders' Equity..................... 27
Notes to the Consolidated Financial Statements...................... 28
Supplementary Financial Data (Unaudited)............................ 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Itel Corporation
We have audited the accompanying consolidated balance sheets of Itel
Corporation as of December 31, 1993 and 1992, and the related consolidated
statements of operations, stockholders' 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 Itel
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.
Our audits were conducted for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The accompanying
supplemental balance sheets at December 31, 1993 (page 22) and supplemental
statements of operations for the years ended December 31, 1993 and 1992 (page
24) and supplemental statements of cash flows for the year ended December 31,
1993 (page 26) are presented for purposes of additional analysis and are not a
required part of the consolidated financial statements. Such information has
been subjected to the auditing procedures applied in our audits of the
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the consolidated financial statements taken as
a whole.
ERNST & YOUNG
Chicago, Illinois
February 8, 1994
20
21
ITEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
------------------------
1993 1992
---------- ----------
ASSETS
Current assets:
Cash and equivalents.................................................................... $ 31,000 $ 22,000
Restricted cash......................................................................... 21,500 24,500
Accounts receivable (net of allowances for doubtful accounts of $6,200 and $10,700,
respectively)......................................................................... 296,700 246,500
Inventories, primarily finished goods................................................... 322,200 261,600
Other assets............................................................................ 9,300 11,500
---------- ----------
Total current assets............................................................. 680,700 566,100
Property, at cost:
Rental equipment--rail cars............................................................. 1,388,600 1,395,000
Other................................................................................... 68,500 58,300
---------- ----------
1,457,100 1,453,300
Accumulated depreciation................................................................ (412,500) (357,400)
---------- ----------
Net property..................................................................... 1,044,600 1,095,900
Goodwill (net of accumulated amortization of $93,800 and $72,300, respectively)........... 418,500 437,600
Discontinued and assets held for sale, net................................................ 191,100 337,700
Marketable equity securities available-for-sale (cost of $163,000 and $191,300,
respectively)........................................................................... 126,400 116,900
Other assets.............................................................................. 33,100 86,600
---------- ----------
$2,494,400 $2,640,800
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 173,200 $ 136,500
Accrued expenses........................................................................ 124,300 138,500
Current maturities of long-term debt--subordinated...................................... -- 74,300
--senior, non-recourse to Itel....................... 67,800 62,200
---------- ----------
Total current liabilities........................................................ 365,300 411,500
Deferred income taxes, net................................................................ 99,600 84,800
Other liabilities......................................................................... 12,300 13,900
Long-term debt--subordinated.............................................................. 238,500 496,600
--senior.................................................................... 238,300 154,700
--senior, non-recourse to Itel.............................................. 1,036,900 1,086,600
---------- ----------
Total liabilities................................................................ 1,990,900 2,248,100
Minority interests........................................................................ 98,200 25,400
Stockholders' equity:
Series C convertible preferred stock--zero and 1,702,525 shares issued and outstanding,
respectively.......................................................................... -- 83,600
Common stock--100,000,000 shares authorized, 33,010,000 and 28,080,000 shares issued and
outstanding, respectively............................................................. 33,000 28,100
Capital surplus......................................................................... 383,500 281,200
Retained earnings....................................................................... 22,400 26,700
Cumulative translation adjustments...................................................... (9,900) (3,200)
---------- ----------
429,000 416,400
Unrealized losses on marketable equity securities available-for-sale (net of deferred
income tax benefit)................................................................... (23,700) (49,100)
---------- ----------
Total stockholders' equity....................................................... 405,300 367,300
---------- ----------
$2,494,400 $2,640,800
---------- ----------
---------- ----------
See accompanying notes to the consolidated financial statements.
21
22
ITEL CORPORATION
SUPPLEMENTAL BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, 1993
-----------------------------------------------------------
RAIL CAR
CONSOLIDATED ANIXTER ANTEC LEASING ALL OTHER
------------ -------- -------- ---------- ---------
ASSETS
Current assets:
Cash and equivalents...................................... $ 31,000 $ 22,600 $ 1,100 $ -- $ 7,300
Restricted cash........................................... 21,500 -- -- 21,500 --
Accounts receivable, net.................................. 296,700 228,500 55,200 12,700 300
Inventories, primarily finished goods..................... 322,200 240,300 81,900 -- --
Other assets.............................................. 9,300 4,100 700 2,300 2,200
------------ -------- -------- ---------- ---------
Total current assets............................... 680,700 495,500 138,900 36,500 9,800
Property, at cost:
Rental equipment--rail cars............................... 1,388,600 -- -- 1,388,600 --
Other..................................................... 68,500 52,500 13,800 -- 2,200
------------ -------- -------- ---------- ---------
1,457,100 52,500 13,800 1,388,600 2,200
Accumulated depreciation.................................. (412,500) (25,700) (8,300) (376,400) (2,100)
------------ -------- -------- ---------- ---------
Net property....................................... 1,044,600 26,800 5,500 1,012,200 100
Goodwill, net............................................... 418,500 193,900 92,300 132,300 --
Discontinued and assets held for sale, net.................. 191,100 -- -- -- 191,100
Marketable equity securities available-for-sale, net........ 126,400 -- -- -- 126,400
Other assets................................................ 33,100 2,100 2,300 12,600 16,100
------------ -------- -------- ---------- ---------
$2,494,400 $718,300 $239,000 $1,193,600 $ 343,500
------------ -------- -------- ---------- ---------
------------ -------- -------- ---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 173,200 $128,800 $ 44,400 $ -- $ --
Accrued expenses.......................................... 124,300 56,400 20,400 10,200 37,300
Current maturities of long-term debt--subordinated........ -- -- -- -- --
--senior, non-recourse
to Itel............... 67,800 -- -- 67,800 --
------------ -------- -------- ---------- ---------
Total current liabilities.......................... 365,300 185,200 64,800 78,000 37,300
Deferred income taxes, net.................................. 99,600 (18,300) (2,600) 277,000 (156,500)
Other liabilities........................................... 12,300 11,300 -- -- 1,000
Intercompany payable (receivable)........................... -- 91,700 1,400 -- (93,100)
Long-term debt--subordinated................................ 238,500 -- -- -- 238,500
--senior...................................... 238,300 188,300 -- -- 50,000
--senior, non-recourse to Itel................ 1,036,900 -- 18,000 1,018,900 --
------------ -------- -------- ---------- ---------
Total liabilities.................................. 1,990,900 458,200 81,600 1,373,900 77,200
Minority interests.......................................... 98,200 8,000 -- 16,900 73,300
Stockholders' equity:
Common stock.............................................. 33,000 300 200 -- 32,500
Capital surplus........................................... 383,500 329,000 152,400 -- (97,900)
Retained earnings......................................... 22,400 (68,300) 4,900 (197,200) 283,000
Cumulative translation adjustments........................ (9,900) (8,900) (100) -- (900)
------------ -------- -------- ---------- ---------
429,000 252,100 157,400 (197,200) 216,700
Unrealized losses on marketable equity securities
available-for-sale, net................................. (23,700) -- -- -- (23,700)
------------ -------- -------- ---------- ---------
Total stockholders' equity......................... 405,300 252,100 157,400 (197,200) 193,000
------------ -------- -------- ---------- ---------
$2,494,400 $718,300 $239,000 $1,193,600 $ 343,500
------------ -------- -------- ---------- ---------
------------ -------- -------- ---------- ---------
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 column.
22
23
ITEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
CONSOLIDATED
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
Revenues -- Anixter................................... $ 1,328,600 $ 1,163,600 $ 1,025,800
-- ANTEC..................................... 427,600 301,000 258,300
-- Rail car leasing.......................... 153,000 217,500 307,000
----------- ----------- -----------
1,909,200 1,682,100 1,591,100
Cost of operations:
Cost of sales....................................... (1,319,700) (1,092,800) (948,200)
Operating expense................................... (49,900) (63,000) (81,300)
Marketing and administration........................ (355,400) (328,300) (318,000)
Maintenance expense................................. (4,800) (31,700) (65,800)
Rail car leasing non-recurring operating expense.... -- (21,800) --
Amortization of goodwill............................ (21,500) (17,600) (12,500)
----------- ----------- -----------
(1,751,300) (1,555,200) (1,425,800)
----------- ----------- -----------
Operating income...................................... 157,900 126,900 165,300
Other (expenses) income:
Interest expense and other.......................... (164,600) (189,500) (199,200)
Interest income and other........................... 13,500 7,800 19,500
Non-recurring items, net (including an $84.5 million
gain on ANTEC offering).......................... 64,000 -- --
Write-down of marketable equity securities.......... (25,000) (25,000) (79,400)
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes................................. 45,800 (79,800) (93,800)
Income tax (expense) benefit.......................... (29,700) 20,000 36,100
----------- ----------- -----------
Income (loss) from continuing operations.............. 16,100 (59,800) (57,700)
Loss from discontinued operations
(net of related taxes).............................. (1,300) (24,100) (6,800)
----------- ----------- -----------
Income (loss) before extraordinary items.............. 14,800 (83,900) (64,500)
Extraordinary items (net of related taxes)............ (16,000) (20,400) 8,800
----------- ----------- -----------
Net loss.............................................. (1,200) (104,300) (55,700)
Preferred stock dividends and amortization............ (3,100) (6,100) (6,100)
----------- ----------- -----------
Loss applicable to common stock....................... $ (4,300) $ (110,400) $ (61,800)
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common and common equivalent share:
Continuing operations............................... $ .43 $(2.26) $(1.85)
Before extraordinary items.......................... $ .39 $(3.09) $(2.05)
Net loss............................................ $(.14) $(3.79) $(1.79)
------ ------ ------
------ ------ ------
See accompanying notes to the consolidated financial statements.
23
24
ITEL CORPORATION
SUPPLEMENTAL STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
ANIXTER ANTEC RAIL CAR LEASING ALL OTHER
------------------------- --------------------- -------------------- --------------------
1993 1992 1993 1992 1993 1992 1993 1992
----------- ----------- --------- --------- -------- --------- -------- ---------
Revenues $ 1,328,600 $ 1,163,600 $ 427,600 $ 301,000 $153,000 $ 217,500 $ -- $ --
Cost of operations:
Cost of sales.............. (975,300) (850,800) (344,400) (242,000) -- -- -- --
Operating expense.......... -- -- -- -- (49,900) (63,000) -- --
Marketing and
administration........... (287,600) (264,400) (57,800) (43,900) (700) (11,400) (9,300) (8,600)
Maintenance expense........ (4,600) (3,600) (200) (300) -- (27,800) -- --
Rail car leasing
non-recurring operating
expense.................. -- -- -- -- -- (21,800) -- --
Amortization of goodwill... (6,000) (5,700) (2,800) (2,700) (12,700) (9,200) -- --
----------- ----------- --------- --------- -------- --------- -------- ---------
(1,273,500) (1,124,500) (405,200) (288,900) (63,300) (133,200) (9,300) (8,600)
----------- ----------- --------- --------- -------- --------- -------- ---------
Operating income (loss)...... 55,100 39,100 22,400 12,100 89,700 84,300 (9,300) (8,600)
Other (expenses) income:
Interest expense and
other.................... (31,000) (24,100) (3,500) (3,500) (92,400) (84,700) (37,700) (77,200)
Interest income and
other.................... 1,100 1,400 100 -- 200 800 12,100 5,600
Non-recurring items, net... -- -- -- -- -- -- 64,000 --
Write-down of marketable
equity securities........ -- -- -- -- -- -- (25,000) (25,000)
----------- ----------- --------- --------- -------- --------- -------- ---------
Income (loss) from continuing
operations before income
taxes...................... 25,200 16,400 19,000 8,600 (2,500) 400 4,100 (105,200)
Income tax (expense)
benefit.................... (17,500) (12,500) (9,000) (4,600) (5,400) (2,100) 2,200 39,200
----------- ----------- --------- --------- -------- --------- -------- ---------
Income (loss) from continuing
operations................. 7,700 3,900 10,000 4,000 (7,900) (1,700) 6,300 (66,000)
Loss from
discontinued operations
(net of related taxes)..... -- -- -- -- -- -- (1,300) (24,100)
----------- ----------- --------- --------- -------- --------- -------- ---------
Income (loss) before
extraordinary items........ 7,700 3,900 10,000 4,000 (7,900) (1,700) 5,000 (90,100)
Extraordinary items (net of
related taxes)............. -- -- -- -- -- (9,800) (16,000) (10,600)
----------- ----------- --------- --------- -------- --------- -------- ---------
Net income (loss)............ $ 7,700 $ 3,900 $ 10,000 $ 4,000 $ (7,900) $ (11,500) $(11,000) $(100,700)
----------- ----------- --------- --------- -------- --------- -------- ---------
----------- ----------- --------- --------- -------- --------- -------- ---------
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.
24
25
ITEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
--------- ----------- ---------
Operating activities:
Income (loss) from continuing operations....................... $ 16,100 $ (59,800) $ (57,700)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided (used) by continuing
operating activities:
Depreciation............................................... 60,500 58,300 55,000
Amortization of goodwill................................... 21,500 17,600 12,500
Deferred income tax expense (benefit)...................... 22,900 (22,100) (32,500)
Non-recurring items, net................................... (64,000) -- --
Write-down of marketable equity securities................. 25,000 25,000 79,400
Non-cash financing expense................................. 10,200 10,600 9,600
Other, net................................................. 8,200 13,400 (2,600)
Changes in assets and liabilities, net of effects of
acquisitions and asset purchases:
Restricted cash......................................... 3,000 (3,900) (12,600)
Accounts receivable..................................... (50,100) 4,500 (9,400)
Inventories............................................. (55,700) (16,800) 33,100
Accounts payable and accrued expenses................... 34,000 (43,500) (21,900)
Other, net.............................................. (10,300) 11,200 (18,500)
--------- ----------- ---------
Net cash provided (used) by continuing operating
activities.......................................... 21,300 (5,500) 34,400
Discontinued operations, net................................... 117,400 68,000 170,700
--------- ----------- ---------
Net cash provided by operating activities............. 138,700 62,500 205,100
Investing activities:
Sales of securities............................................ -- -- 260,400
Purchases of property.......................................... (13,400) (17,000) (75,100)
Sales of property.............................................. 2,800 15,000 7,900
Acquisitions................................................... (9,900) -- --
Receipts from and (advances to) Q-TEL.......................... 23,700 (15,000) 20,000
Other, net..................................................... 8,500 (1,700) (3,800)
--------- ----------- ---------
Net investing activities.............................. 11,700 (18,700) 209,400
--------- ----------- ---------
Net cash provided before financing activities.................... 150,400 43,800 414,500
Financing activities:
Borrowings..................................................... 915,500 1,888,700 684,600
Reductions in subordinated indebtedness........................ (344,500) (484,200) (65,800)
Reductions in borrowings....................................... (879,600) (1,351,400) (897,700)
Proceeds from issuance of common stock......................... 21,100 21,300 4,800
Proceeds from ANTEC Offering................................... 156,600 -- --
Purchases of treasury stock.................................... (300) (114,300) (147,400)
Other, net..................................................... (10,200) (10,500) (20,500)
--------- ----------- ---------
Net financing activities.............................. (141,400) (50,400) (442,000)
--------- ----------- ---------
Cash provided (used)............................................. 9,000 (6,600) (27,500)
Cash and equivalents at beginning of year........................ 22,000 28,600 56,100
--------- ----------- ---------
Cash and equivalents at end of year.............................. $ 31,000 $ 22,000 $ 28,600
--------- ----------- ---------
--------- ----------- ---------
See accompanying notes to the consolidated financial statements.
25
26
ITEL CORPORATION
SUPPLEMENTAL STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------
RAIL CAR
CONSOLIDATED ANIXTER ANTEC LEASING ALL OTHER
------------ --------- --------- -------- ---------
Operating activities:
Income (loss) from continuing operations........ $ 16,100 $ 7,700 $ 10,000 $ (7,900) $ 6,300
Adjustments to reconcile income (loss) from
continuing operations to net cash provided
(used) by continuing operating activities:
Depreciation................................ 60,500 8,400 2,000 49,700 400
Amortization of goodwill.................... 21,500 6,000 2,800 12,700 --
Deferred income tax expense (benefit)....... 22,900 (6,200) (2,000) 5,200 25,900
Non-recurring items, net.................... (64,000) -- -- -- (64,000)
Write-down of marketable equity
securities............................... 25,000 -- -- -- 25,000
Non-cash financing expense.................. 10,200 3,800 100 2,100 4,200
Other, net.................................. 8,200 7,400 600 900 (700)
Changes in assets and liabilities, net of
effects of acquisitions and asset
purchases:
Restricted cash.......................... 3,000 -- -- 1,100 1,900
Accounts receivable...................... (50,100) (41,800) (6,500) -- (1,800)
Inventories.............................. (55,700) (37,600) (18,100) -- --
Accounts payable and accrued expenses.... 34,000 39,700 6,400 (800) (11,300)
Other, net............................... (10,300) (11,700) 1,200 700 (500)
------------ --------- --------- -------- ---------
Net cash provided (used) by continuing
operating activities................. 21,300 (24,300) (3,500) 63,700 (14,600)
Discontinued operations, net...................... 117,400 -- -- -- 117,400
------------ --------- --------- -------- ---------
Net cash provided (used) by operating
activities........................... 138,700 (24,300) (3,500) 63,700 102,800
Investing activities:
Purchases of property........................... (13,400) (11,400) (2,000) -- --
Sales of property............................... 2,800 2,600 200 -- --
Acquisitions.................................... (9,900) -- (9,900) -- --
Receipts from Q-TEL............................. 23,700 -- -- -- 23,700
Other, net...................................... 8,500 -- 900 -- 7,600
------------ --------- --------- -------- ---------
Net investing activities............... 11,700 (8,800) (10,800) -- 31,300
------------ --------- --------- -------- ---------
Net cash provided (used) before financing
activities...................................... 150,400 (33,100) (14,300) 63,700 134,100
Financing activities:
Borrowings...................................... 915,500 672,500 149,600 -- 93,400
Reductions in subordinated indebtedness......... (344,500) -- -- -- (344,500)
Reductions in borrowings........................ (879,600) (567,400) (203,100) (62,200) (46,900)
Proceeds from issuance of common stock.......... 21,100 -- -- -- 21,100
Proceeds from ANTEC Offering.................... 156,600 -- 89,600 -- 67,000
Redemption of ANTEC preferred stock............. -- -- (30,000) -- 30,000
Intercompany activity, net...................... -- (57,100) 8,300 -- 48,800
Purchases of treasury stock..................... (300) -- -- -- (300)
Other, net...................................... (10,200) (4,000) -- (1,500) (4,700)
------------ --------- --------- -------- ---------
Net financing activities............... (141,400) 44,000 14,400 (63,700) (136,100)
------------ --------- --------- -------- ---------
Cash provided (used).............................. 9,000 10,900 100 -- (2,000)
Cash and equivalents at beginning of year......... 22,000 11,700 1,000 -- 9,300
------------ --------- --------- -------- ---------
Cash and equivalents at end of year............... $ 31,000 $ 22,600 $ 1,100 $ -- $ 7,300
------------ --------- --------- -------- ---------
------------ --------- --------- -------- ---------
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 column.
26
27
ITEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
UNREALIZED LOSSES
ON MARKETABLE
CUMULATIVE WARRANT EQUITY SECURITIES
PREFERRED COMMON CAPITAL RETAINED TRANSLATION NOTE AVAILABLE-FOR-
STOCK STOCK SURPLUS EARNINGS ADJUSTMENTS RECEIVABLE SALE, NET TOTAL
--------- ------ --------- -------- ----------- ---------- ----------------- ------
Balance at
December 31, 1990.......... $82,900 $39,100 $ 409,500 $ 199,100 $ 7,400 $(15,000) $(112,900) $610,100
Net loss..................... -- -- -- (55,700) -- -- -- (55,700)
Issuance of common
stock and other............. -- 500 (1,000) (200) -- -- -- (700)
Foreign currency
translation adjustments..... -- -- -- -- (2,200) -- -- (2,200)
Transfer from
temporary equity............ -- -- 100,100 -- -- -- -- 100,100
Purchases and retirement of
treasury stock.............. -- (7,500) (139,900) -- -- -- -- (147,400)
Preferred stock
dividends and other......... 400 -- -- (6,100) -- -- -- (5,700)
Net change in unrealized
losses on marketable
equity securities
available-for-sale.......... -- -- -- -- -- -- 65,100 65,100
------- ------- ------- --------- ------- -------- ----------- -----------
Balance at
December 31, 1991........... 83,300 32,100 368,700 137,100 5,200 (15,000) (47,800) 563,600
Net loss...................... -- -- -- (104,300) -- -- -- (104,300)
Issuance of common
stock and other............. (100) 1,500 21,300 -- -- 15,000 -- 37,700
Foreign currency
translation adjustments..... -- -- -- -- (8,400) -- -- (8,400)
Purchases and retirement of
treasury stock............... -- (5,500) (108,800) -- -- -- -- (114,300)
Preferred stock dividends
and other..................... 400 -- -- (6,100) -- -- -- (5,700)
Net change in unrealized
losses on marketable
equity securities
available-for-sale........... -- -- -- -- -- -- (1,300) (1,300)
------- ------- --------- --------- ------- -------- ------------- ---------
Balance at
December 31, 1992........... 83,600 28,100 281,200 26,700 (3,200) -- (49,100) 367,300
Net loss...................... -- -- -- (1,200) -- -- -- (1,200)
Issuance of common
stock and other............. -- 1,100 23,400 -- -- -- -- 24,500
Foreign currency
translation adjustments..... -- -- -- -- (6,700) -- -- (6,700)
Preferred stock
dividends and other......... 200 -- -- (3,100) -- -- -- (2,900)
Conversion of
preferred stock............. (83,800) 3,800 78,900 -- -- -- -- (1,100)
Net change in unrealized
losses on marketable
equity securities
available-for-sale.......... -- -- -- -- -- -- 25,400 25,400
------- ------- --------- --------- ------- -------- ------------- ----------
Balance at
December 31, 1993........... $ -- $33,000 $ 383,500 $ 22,400 $(9,900) $ -- $ (23,700) $405,300
------- ------- --------- --------- ------- -------- ------------- --------
------- ------- --------- --------- ------- -------- ------------- --------
See accompanying notes to the consolidated financial statements.
27
28
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of Itel Corporation ("Itel") and its majority-owned subsidiaries (collectively
"the Company") after elimination of intercompany transactions. Minority
interests of $98.2 million at December 31, 1993 primarily relate to the 47%
public ownership in ANTEC (see Note 4) and the 1% external ownership interests
in the Trust and Partnership, respectively (see Note 7).
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.
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. The carrying amount of cash and equivalents approximates fair value
because of the short maturity of those instruments. Restricted cash consists
primarily of cash to be used for interest and principal on the debt related to
Rail car leasing (see Note 9).
Inventories: Inventories are valued principally at the lower of average,
approximating first-in, first-out, cost or market.
Depreciation: The Company provides for depreciation of property principally
on the straight-line basis over various useful lives including the term of the
Leases (see Note 7) for rental equipment--rail cars, 25 to 40 years for
buildings and improvements, 3 to 10 years for machinery and equipment and the
term of the lease for leasehold improvements.
Goodwill: Goodwill relates to the excess of cost over net tangible assets
of businesses acquired. The Company at each balance sheet date evaluates, for
recognition of potential impairment, its recorded goodwill against the current
and undiscounted expected future operating income before goodwill amortization
expense of the entities to which goodwill relates. In the opinion of management,
goodwill at Anixter Inc. and its subsidiaries (collectively "Anixter") and ANTEC
Corporation and its subsidiaries (collectively "ANTEC") has not diminished in
value since their date of acquisition, and, having an indefinite life, is not
subject to amortization. However, in accordance with Opinion 17 of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, goodwill is being amortized over a period of 40 years using the
straight-line method. The remaining goodwill relates to the purchase of Pullman
Leasing Company in 1988 and is being amortized over the term of the Leases (see
Note 7).
Marketable equity securities available-for-sale: Marketable equity
securities available-for-sale are reflected in the balance sheet at the quoted
market price as of the balance sheet date. The difference between cost and
market is reflected in stockholders' equity net of deferred tax benefit.
Realized gains on dispositions of securities are determined using the average
cost method. Realized pre-tax gains, before related interest carrying costs,
were $.3 million, zero and $5.5 million in 1993, 1992 and 1991, respectively.
Aggregate unrealized pre-tax loss on marketable equity securities
available-for-sale amounted to $36.6 million at December 31, 1993 (see Note 5).
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 $6.6 million loan.
Interest rate agreements: The Company has entered into interest rate
agreements which effectively fix or cap, for a period of time, the interest rate
on a portion of its floating rate obligations. As a result, the interest rate on
substantially all debt obligations at December 31, 1993 is fixed or capped. The
net effects of such
28
29
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreements are included in interest expense.
Revenue recognition: Sales and related cost of sales are recognized
primarily upon shipment of products.
Advertising and sales promotion: Advertising and sales promotion costs are
expensed as incurred.
Income taxes: Provisions for income taxes include deferred taxes resulting
from temporary differences in determining 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.
Income (loss) per common share: Income (loss) per share amounts are based
upon results from operations after deducting preferred dividends earned and the
amortization of preferred stock discounts. Weighted average common and common
equivalent shares were 30,132,000, 29,085,000 and 34,440,000 for 1993, 1992 and
1991, respectively.
NOTE 2. SUPPLEMENTAL CASH FLOW INFORMATION
Continuing operations of the Company paid interest, including interest
allocated to discontinued operations, of approximately $187.9 million, $232.5
million and $248.6 million for the years ended December 31, 1993, 1992 and 1991,
respectively. Approximately $7.0 million, $1.5 million and $3.3 million was paid
principally for foreign and certain state income taxes for the years ended
December 31, 1993, 1992 and 1991, respectively.
In a non-cash transaction Itel's Series C convertible preferred stock
("Preferred Stock") was converted into approximately 3.8 million shares of
common stock in August 1993.
NOTE 3. 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 connection with the
purchase of a major railcar fleet 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 $175 million at December 31, 1993, including reductions of
$82 million, $82 million and $157 million in 1993, 1992 and 1991 respectively.
Proceeds were used to repay indebtedness.
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 $26 million pre-tax loss in 1992 in discontinued
operations to reflect the disposal of this segment.
In 1991, the Company sold its investments in various other businesses for
aggregate cash proceeds in excess of $250 million. These 1991 sales resulted in
pre-tax losses totaling $65 million which was reflected in discontinued
operations.
29
30
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The results of operations of the other transportation services segment,
other previously sold businesses and Signal Capital have been included in
discontinued operations net of allocated corporate interest expense. Allocated
corporate interest expense amounted to $19.0 million, $38.1 million and $53.6
million for the years ended December 31, 1993, 1992 and 1991, respectively.
Summarized financial results of discontinued operations were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
----- ------ ------
(IN MILLIONS)
Revenues:
Signal Capital............................................. $21.3 $ 29.4 $ 55.0
Other discontinued operations.............................. 49.4 95.6 291.0
----- ------ ------
$70.7 $125.0 $346.0
----- ------ ------
----- ------ ------
Operating income:
Signal Capital............................................. $ 8.0 $ 18.2 $ 46.0
Other discontinued operations.............................. 4.9 12.9 21.1
----- ------ ------
$12.9 $ 31.1 $ 67.1
----- ------ ------
----- ------ ------
Income (loss) from discontinued operations before loss on
sales (net of related taxes and allocated interest)........ $(1.3) $ (8.0) $ 7.8
Loss on sales (net of related taxes)......................... -- (16.1) (14.6)
----- ------ ------
Loss from discontinued operations (net of related taxes)..... $(1.3) $(24.1) $ (6.8)
----- ------ ------
----- ------ ------
The composition of remaining discontinued and assets held for sale, net
consisted of the following:
DECEMBER 31,
-----------------
1993 1992
------ ------
(IN MILLIONS)
Discontinued assets, net (principally receivables and property for one
short-line railroad at December 31, 1993)........................... $ 24.6 $ 96.9
Assets held for sale, net:
Finance receivables, net............................................ 174.9 245.9
Other, net.......................................................... (8.4) (5.1)
------ ------
166.5 240.8
------ ------
$191.1 $337.7
------ ------
------ ------
NOTE 4. GAIN ON ANTEC OFFERING AND NON-RECURRING ITEMS
The pre-tax gain on ANTEC Offering relates to the September 1993 initial
public offering of shares of common stock of ANTEC (the "Offering"). Itel
provided deferred taxes relating to the recognized pre-tax book gain. Itel and
ANTEC sold approximately 4.0 million and 5.4 million shares of ANTEC common
stock, respectively, at $18 per share. Net proceeds from the Offering were
approximately $157 million of which Itel, after considering the redemption by
ANTEC of preferred shares owned by Itel, received approximately $97 million. As
a result of the Offering, Itel's ownership of ANTEC common stock was reduced to
53%.
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.
30
31
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. MARKETABLE EQUITY SECURITIES AVAILABLE-FOR-SALE
In 1993, 1992 and 1991, the Company wrote down the value of its investments
in marketable equity securities by $25.0 million, $25.0 million and $50.0
million, respectively. Also in 1991, the Company recorded a pre-tax loss of
$29.4 million on the sale of its investment in Santa Fe Pacific Corporation
("Santa Fe"). The Company has reduced the pre-tax unrealized losses on
marketable equity securities available-for-sale included in stockholders' equity
by $12.9 million at December 31, 1993 to reflect a deferred tax benefit due to
the Company's current ability to either (a) carryback all December 31, 1993
unrealized capital losses to previously generated capital gains or (b) generate
capital gains by the future sale of capital assets to offset December 31, 1993
unrealized capital losses.
NOTE 6. EXTRAORDINARY ITEMS
In 1993, 1992 and 1991, the Company retired or called for redemption senior
and subordinated debt resulting in a pre-tax extraordinary gain (loss) of
($26.2) million, ($32.9) million and $13.3 million, respectively.
NOTE 7. RAIL CAR TRANSACTION
In 1992, a 98% owned affiliate of Itel leased all of the rail cars owned by
the Company to an affiliate of General Electric Capital Corporation ("GECC") for
twelve years with fixed annual rentals of approximately $153 million. The leases
(the "Leases") include an option for GECC to purchase all, but not less than
all, of the rail cars for approximately $500 million at the end of the term of
the Leases. GECC is responsible for the maintenance and other expenses of the
rail cars and has unconditionally guaranteed all obligations of its affiliate.
Operating income in 1992 includes $21.8 million of non-recurring operating
expense relating to severance and transition costs due to the rail car
transaction.
NOTE 8. ACCRUED EXPENSES
Accrued expenses consists of the following:
DECEMBER 31,
-----------------
1993 1992
------ ------
(IN MILLIONS)
Interest............................................................... $ 27.8 $ 42.3
Wages, salaries and related............................................ 42.4 33.2
Taxes other than income................................................ 8.6 8.2
Other.................................................................. 45.5 54.8
------ ------
$124.3 $138.5
------ ------
------ ------
31
32
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. DEBT
Debt is summarized below. Subsequent to December 31, 1993, the Company
retired $221.0 million of the 13% Senior Subordinated Notes ("13% Notes")
primarily using a $250 million senior bank term loan ("Term Loan") at Itel (see
discussion below). The pro forma column reflects such redemption of 13% Notes as
if it occurred on December 31, 1993.
DECEMBER 31,
-----------------------------------------
PRO FORMA 1993 1992
1993 ----------- -----------
-----------
(UNAUDITED) (IN MILLIONS)
Recourse debt:
Itel:
13% Senior Subordinated Notes....................... $ -- $ 221.0 $ 246.0
12 5/8% Senior Subordinated Notes due 1998.......... -- -- 161.0
12 5/8% Senior Subordinated Notes due 1993.......... -- -- 74.3
11% Senior Subordinated Notes....................... -- -- 72.1
10.2% Senior Subordinated Extendible Notes.......... 17.5 17.5 17.5
Term loan........................................... 250.0 50.0 --
----------- ----------- -----------
Total Itel debt................................ $ 267.5 $ 288.5 $ 570.9
----------- ----------- -----------
----------- ----------- -----------
Anixter:
Bank revolving lines of credit...................... $ 205.7 $ 184.7 $ 152.5
Other............................................... 3.6 3.6 2.2
----------- ----------- -----------
Total Anixter debt................................ $ 209.3 $ 188.3 $ 154.7
----------- ----------- -----------
----------- ----------- -----------
Non-recourse debt:
ANTEC:
Bank revolving line of credit....................... $ 18.0 $ 18.0 $ --
----------- ----------- -----------
----------- ----------- -----------
Rail car leasing:
Trust Notes......................................... $ 952.9 $ 952.9 $ 988.0
Equipment Trust Certificates and other secured
indebtedness...................................... 133.8 133.8 160.8
----------- ----------- -----------
Total Rail car leasing debt....................... $ 1,086.7 $ 1,086.7 $ 1,148.8
----------- ----------- -----------
----------- ----------- -----------
Total debt............................................... $ 1,581.5 $ 1,581.5 $ 1,874.4
Less: Current maturities................................. (67.8) (67.8) (136.5)
----------- ----------- -----------
Long-term debt........................................... $ 1,513.7 $ 1,513.7 $ 1,737.9
----------- ----------- -----------
----------- ----------- -----------
Itel--
13% Notes: On December 17, 1993, Itel called $180 million of the 13% Notes
for redemption on January 18, 1994. Itel called the remaining $41 million of 13%
Notes on January 27, 1994 for redemption on February 28, 1994.
10.2% Senior Subordinated Extendible Notes ("Extendible Notes"): The
Extendible Notes are callable in January 1995 and may be extended for periods of
one to five years after January 1995 at an interest rate and period established
by Itel. Unless repurchased by Itel at the option of the holder at the end of
any interest period, the Extendible Notes mature in 2001.
32
33
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Term Loan: On December 13, 1993, the Company obtained a $250 million Term
Loan from a group of banks. The Term 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. ("Energy") and Catellus
Development Corporation ("Real Estate") aggregating $730 million at net book
value at December 31, 1993. The Term Loan matures in 1996. Various interest rate
options are available. The interest rate at December 31, 1993 was 4 3/4%. The
net proceeds from the Term Loan were used exclusively to repay other debt of
Itel.
Anixter--
Bank revolving lines of credit: Anixter has various secured revolving bank
lines of credit worldwide which provide for up to $281 million of borrowings
contingent on the level of certain assets. At December 31, 1993, $184.7 million
was borrowed and $88.6 million was available under the bank revolving lines of
credit at Anixter, most of which was available for general corporate purposes.
These lines of credit reduce or mature at various dates from 1994 through 1996.
The $220.0 million domestic revolving line of credit, which matures in 1996, may
be extended for two additional one-year periods at the option of the lender.
Various interest rate options are available under these facilities and the
average interest rate at December 31, 1993 was 6.0%. Commitment fees of 1/2% are
payable on the unused portion of these revolving lines of credit. The 1993
commitment fees paid were insignificant.
ANTEC--
Bank revolving line of credit: ANTEC has a revolving line of credit which
provides for up to $50.0 million in borrowings. The line of credit is
non-recourse to Itel, matures in 1997 and is extendible at the banks' option for
one additional year. Various interest rate options are available. The interest
rate at December 31, 1993 was 4.5%. Commitment fees of 1/2% are payable on the
unused portion of the revolving line of credit. The 1993 commitment fees paid
were insignificant.
Rail car leasing--
In connection with the completion of the rail car transaction (see Note 7),
a trust (the "Trust") issued $998 million of 7 3/4% Notes (the "Trust Notes").
The Trust Notes are non-recourse to Itel, mature through 2004 and are secured by
the Trust's ownership interest in a partnership, which holds substantially all
of the rail cars formerly operated by Itel Rail Corporation and its subsidiaries
(collectively "Rail"). The net proceeds from the Trust Notes were used to repay
certain senior indebtedness of Rail and other debt of Itel. Equipment Trust
Certificates ("ETCs") and other secured indebtedness of the Partnership are
non-recourse to Itel, have interest rates ranging from 9.5% to 11.1% and mature
through 2003. The ETCs have 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 Rail car leasing business.
Other--
Certain debt agreements entered into by Itel's subsidiaries contain various
restrictions including restrictions on payments to Itel. These debt agreements
are secured by certain assets of the subsidiaries aggregating approximately $1.6
billion at December 31, 1993. Itel has guaranteed certain debt and other
obligations of Anixter. Restricted net assets of subsidiaries were approximately
$600 million at December 31, 1993.
Certain of Itel's loan agreements or indentures require that Itel maintain
a minimum net worth and interest coverage, use the proceeds of certain asset
sales to repay debt, and limit Itel's ability to make capital investments, incur
debt, declare dividends or make distributions to holders of any shares of
capital stock, or
33
34
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
redeem or otherwise acquire such shares of the Company. Approximately $30
million is available for such distributions under the most restrictive of these
covenants.
At December 31, 1993, the Company had four outstanding interest swap
agreements having a total notional principal amount of $193.0 million and an
average fixed rate of approximately 8.4%. The swap agreements expire in 1994.
The Company also had five future interest swap agreements having a total
notional principal amount of $150.0 million and an average fixed rate of 6.8%.
These swap agreements begin in the latter half of 1994 and expire in 1995 and
1996.
Aggregate annual maturities of debt, after consideration of early 1994
retirements of the 13% Notes, are as follows:
SENIOR DEBT
----------------------------------------------------
RECOURSE NON-RECOURSE
---------------------- -------------------------
SUBORDINATED RAIL CAR
DEBT ANIXTER CORPORATE ANTEC LEASING TOTAL
----- -------- --------- --------- --------- ---------
(IN MILLIONS)
1994........... $ -- $ -- $ -- $ -- $ 67.8 $ 67.8
1995........... 17.5 47.8 -- -- 73.7 139.0
1996........... -- 119.5 250.0 -- 79.8 449.3
1997........... -- -- -- 18.0 84.8 102.8
1998........... -- -- -- -- 111.0 111.0
The fair value of the Company's debt and interest rate swaps is presented
below. The fair value of the Company's debt is estimated based on the quoted
market prices. The fair value of interest rate swaps is the estimated amount
that the Company would be required to pay to terminate the swap agreements at
the reporting date, taking into account current interest rates.
DECEMBER 31, 1993
--------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN MILLIONS)
Subordinated debt..................................... $ 238.5 $ 246.9
Senior debt, including interest rate swaps............ $ 240.6 $ 250.0
Senior non-recourse debt--principally Rail car
leasing............................................. $1,104.7 $1,234.6
NOTE 10. INCOME TAXES
Itel and its U.S. subsidiaries (other than ANTEC for periods after
September 1993) file their Federal income tax return on a consolidated basis. As
of December 31, 1993, the Company had cumulative net operating loss ("NOL")
carryforwards for Federal income tax purposes of approximately $345 million
expiring principally in 1995 through 2007, and investment tax credit ("ITC")
carryforwards of approximately $16 million expiring in 1994 through 2001.
Certain of these carryforwards have not been examined by the Internal Revenue
Service and, therefore, may be subject to adjustment. The availability of NOL
and ITC carryforwards to reduce the Company's future Federal income tax
liability is subject to various limitations under the Internal Revenue Code of
1986, as amended (the "Code"), which may limit their use in the event of
substantial ownership changes of Itel's stock as defined in the Code. Such
ownership changes may not be within the control of the Company. In addition, at
December 31, 1993, various foreign subsidiaries of Itel had aggregate cumulative
NOL carryforwards for foreign income tax purposes of approximately $50 million
which are subject to various provisions of each respective country and expire
primarily between 1995 and 2003.
34
35
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with generally accepted accounting principles, the Company
has reduced its deferred tax liability to reflect its Federal and state NOL and
ITC carryforwards. The Company's partial recognition of Federal and state future
tax benefits is based on the expected utilization of those benefits based upon
future receipt of substantial taxable income, specifically resulting from (a)
over $546 million of existing temporary differences at December 31, 1993,
primarily rail car depreciation, which will reverse prior to 2005 and (b)
projected consolidated taxable income including the receipt of guaranteed
minimum future rentals from the Leases of $153 million annually through 2004 and
the discontinuance of the substantial capital expenditure programs that gave
rise to a significant portion of the NOL. Management anticipates that increases
in taxable income during the carryforward period will arise primarily as a
result of the factors mentioned above.
Domestic income (loss) from continuing operations before income taxes was
$58.6 million, ($68.5) million and ($79.9) million for the years ended December
31, 1993, 1992 and 1991, respectively. Foreign loss from continuing operations
before income taxes was ($12.8) million, ($11.3) million and ($13.9) million for
the years ended December 31, 1993, 1992 and 1991, respectively.
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 and assets
were as follows:
DECEMBER 31,
----------------
1993 1992
------ ------
(IN MILLIONS)
Deferred tax liabilities:
Tax over book depreciation................................................ $296.4 $295.0
Deferred tax assets:
Domestic NOL carryforwards................................................ 133.6 133.5
ITC carryforwards......................................................... 16.1 22.8
Foreign NOL carryforwards................................................. 19.7 16.8
Unrealized losses on securities available-for-sale........................ 47.4 53.8
Other, principally operating reserves..................................... 35.4 41.7
------ ------
Total deferred tax assets.............................................. 252.2 268.6
Valuation allowance on deferred tax assets................................ (55.4) (58.4)
------ ------
Net deferred tax assets................................................ 196.8 210.2
------ ------
Net deferred tax liability............................................. $ 99.6 $ 84.8
------ ------
------ ------
At December 31, 1993, 1992 and 1991, consolidated valuation allowances for
its tax carryforwards were $55.4 million, $58.4 million and $62.1 million,
respectively, including valuation allowances on its foreign NOLs at December 31,
1993, 1992 and 1991.
35
36
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax (expense) benefit relating to operations was comprised of:
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------ ----- ------
(IN MILLIONS)
Continuing operations:
Current--Foreign.................................. $ .4 $ 1.0 $ (1.0)
State.................................... (4.1) (3.1) 4.8
Federal--principally ANTEC in 1993....... (3.1) -- (.2)
------ ----- ------
(6.8) (2.1) 3.6
Deferred--State................................... .9 5.4 (5.5)
Federal................................. (23.8) 16.7 38.0
------ ----- ------
(22.9) 22.1 32.5
------ ----- ------
$(29.7) $20.0 $ 36.1
------ ----- ------
------ ----- ------
Discontinued operations:
Current--Foreign.................................. $ (.1) $ (.1) $ --
State.................................... 1.1 .2 (10.0)
Federal.................................. -- -- (6.6)
------ ----- ------
1.0 .1 (16.6)
Deferred--State................................... .7 .3 20.8
Federal................................. 6.6 13.0 52.6
------ ----- ------
7.3 13.3 73.4
------ ----- ------
$ 8.3 $13.4 $ 56.8
------ ----- ------
------ ----- ------
Extraordinary items:
Deferred--State................................... $ 1.6 $ 2.0 $ --
Federal................................. 8.6 10.5 (4.5)
------ ----- ------
$ 10.2 $12.5 $ (4.5)
------ ----- ------
------ ----- ------
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:
YEARS ENDED DECEMBER 31,
--------------------------
1993 1992 1991
------ ----- -----
(IN MILLIONS)
Statutory tax (expense) benefit...................... $(16.0) $27.1 $31.9
Effects of--
Amortization of goodwill........................... (7.5) (6.0) (4.3)
Losses on foreign operations....................... (3.6) (2.9) (5.7)
State income taxes, net of Federal benefit......... (2.1) 1.5 (.5)
Change in valuation allowance...................... -- -- 3.1
Impact of Revenue Reconciliation Act of 1993....... (2.7) -- --
Adjustment to prior year tax accruals.............. 2.4 -- 10.0
Other, net......................................... (.2) .3 1.6
------ ----- -----
$(29.7) $20.0 $36.1
------ ----- -----
------ ----- -----
36
37
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax effects of items comprising the deferred income tax
(expense) benefit were as follows:
YEARS ENDED DECEMBER 31,
-------------------------
1993 1992 1991
----- ----- ------
(IN MILLIONS)
Depreciation........................................ $(1.4) $ 8.1 $ (3.8)
NOL and ITC carryforwards........................... (7.4) 28.7 (77.0)
Changes in the valuation allowance.................. 3.0 3.7 (3.1)
Securities available-for-sale....................... 6.0 9.5 25.4
Sales of assets..................................... -- -- 163.9
Other, net.......................................... (5.6) (2.1) (4.0)
----- ----- ------
$(5.4) $47.9 $101.4
----- ----- ------
----- ----- ------
NOTE 11. CONTINGENCIES AND LITIGATION
In the ordinary course of business, Itel 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.
NOTE 12. PENSION PLANS, POST-RETIREMENT BENEFITS AND OTHER BENEFITS
The Company's various pension plans are non-contributory and cover
substantially all full-time domestic employees. Retirement benefits are provided
based on compensation as defined in the plans. The Company's policy is to fund
these plans as required by ERISA and the Code.
Assets of the Company's plans at fair value were $44.0 million and $40.1
million at December 31, 1993 and 1992, respectively. Projected benefit
obligations of the Company's plans were $57.2 million and $48.3 million at
December 31, 1993 and 1992, respectively. The accumulated benefit obligations of
the Company's plans were $44.5 million and $33.5 million at December 31, 1993
and 1992, respectively. The weighted-average assumed discount rate used to
measure the projected benefit obligation was 6.8% and 7.3% at December 31, 1993
and 1992, respectively. Pension expense, including the cost of 401(k) plans, for
1993, 1992 and 1991 was insignificant. The Company's liability for
post-retirement benefits other than pensions is insignificant.
NOTE 13. PREFERRED STOCK AND COMMON STOCK
Itel has authorized 15 million shares of Preferred Stock, par value $1.00
per share. In August 1993, the Preferred Stock was converted into approximately
3.8 million shares of Common Stock. At December 31, 1993, 1992 and 1991,
33,010,000, 28,080,000 and 32,140,000 shares of Common Stock, respectively, were
issued and outstanding. In connection with all Itel employee stock plans
described below, 2,998,485 shares were reserved for issuance at December 31,
1993.
Stock options and stock grants--
Itel has Employee Stock Incentive Plans ("ESIP") authorizing an aggregate
of 5.7 million stock options or restricted grants. In addition, Itel has a
Director Stock Option Plan ("DSOP") authorizing an aggregate of .2 million stock
options. Substantially all options and grants under these plans have been at
fair market value or higher. The exercise price of certain options increase at a
specified fixed rate. One-third of the options granted become exercisable each
year after the year of grant (except in the case of director options which vest
fully in six months) and the options expire seven to ten years after the date of
grant.
37
38
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additionally, Itel has an Employee Stock Purchase Plan ("ESPP") covering
most employees, excluding ANTEC after September 1993. Participants can request
that up to 10% of their base compensation be applied toward the purchase of
Common Stock under Itel's ESPP. The exercise price is the lower of 85% of the
fair market value of the Common Stock at the date of grant or at the later
exercise date (currently one year).
Under the ESIP, DSOP and ESPP, total options currently exercisable at
December 31, 1993 and 1992 were 763,336 and 1,374,030, respectively.
The following table summarizes the 1993 activity under the ESIP, DSOP and
ESPP.
ESIP DSOP ESPP EXERCISE
OPTIONS OPTIONS OPTIONS PRICE
---------- ------- ------- ---------------
Balance at December 31, 1992................... 2,453,202 70,000 105,502 $ 9.50 - $26.75
Grants during 1993............................. 2,500 35,000 90,563 $23.90 - $30.00
Exercised...................................... (1,033,663) (5,000) (95,415) $10.38 - $26.64
Expirations and terminations................... (93,000) -- (10,087) $10.38 - $26.81
---------- ------- ------- ---------------
Balance at December 31, 1993................... 1,329,039 100,000 90,563 $ 9.50 - $30.00
---------- ------- ------- ---------------
---------- ------- ------- ---------------
Total stock options exercised for the years ended December 31, 1992 and
1991 were 1,438,316 and 353,103, respectively. The purchase price per share for
all stock options exercised ranged from $4.44 to $21.88 in 1992 and $3.38 to
$16.50 in 1991.
Stock option plans of subsidiaries--
In 1993, Anixter adopted the Anixter Employee Stock Incentive Plan and
options to purchase approximately 2.1 million shares of Anixter common stock
were granted with an exercise price of $9.00 per share to key employees of
Anixter. Substantially, all options and grants under these plans have been at
fair market value. These options vest immediately to three years and terminate
one to seven years from the date of grant. At December 31, 1993, Itel owned all
of the 29.0 million shares of outstanding Anixter common stock.
In 1993, ANTEC adopted the ANTEC Employee Stock Incentive Plan and options
to purchase approximately 1.5 million shares of ANTEC common stock were granted
with exercise prices of $10.00 to $18.00 per share to key employees of ANTEC.
All options and grants under these plans have been at fair market value or
higher. These options vest over four years beginning in January 1995 and
terminate seven years from the date of grant. At December 31, 1993, Itel owned
53% of the 20.1 million shares of outstanding ANTEC common stock.
In 1993, ANTEC also adopted the ANTEC Employee Stock Purchase Plan, with
terms identical to Itel's ESPP described above, and the ANTEC Director Stock
Option Plan. Options to purchase 56,000 shares of ANTEC common stock were
granted under the ANTEC Employee Stock Purchase Plan at $15.30 per share. At
December 31, 1993, no options were outstanding under the ANTEC Director Stock
Option Plan. In connection with all ANTEC option plans, 2.3 million ANTEC shares
were reserved for issuance at December 31, 1993.
Warrants--
The Company has issued warrants to directors, which are currently
exercisable, to purchase 130,000 shares of Common Stock at prices ranging from
$10.13 to $24.25 per share expiring between 1995 and the year 2000.
In 1992, Itel acquired warrants to purchase 4.675 million shares of Common
Stock held by an affiliate of Samuel Zell, the chairman of the board of
directors of Itel. In connection with the warrant purchase, a $15.0 million note
receivable was cancelled.
38
39
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock--
In a series of transactions in 1992, 1991 and 1990, the Company purchased
from the Henley Group, Inc. ("Henley") 18.7 million shares of the Company's
Common Stock for an aggregate price of $377 million. In addition to the Common
Stock purchased from Henley, in 1992 and 1991, Itel purchased 2,046,000 and
1,605,300 shares of Common Stock, respectively. All treasury stock was retired.
There are restrictions in several of Itel's debt agreements which limit the
payment of dividends and the repurchases or redemption of Common Stock (see Note
9).
NOTE 14. BUSINESS SEGMENTS
The Company is engaged in three principal areas of business: distribution
of wiring systems products for voice, data and video networks and electrical
power applications (Anixter), the development and distribution of products used
in the cable television industry (ANTEC) and rail car leasing operations through
the Leases. Itel Corporate obtains and coordinates financing, legal and other
related services, certain of which are rebilled to these segments.
Information for the years ended December 31, 1993, 1992 and 1991 regarding
the Company's major business segments is presented in the following table. The
business segments of Itel have been reclassified to reflect ANTEC as a separate
segment.
RAIL CAR
ANIXTER ANTEC LEASING CORPORATE(A) TOTAL
-------- ------ -------- ------------ --------
(IN MILLIONS)
Revenues:
1993................................... $1,328.6 $427.6 $ 153.0 $ -- $1,909.2
1992................................... 1,163.6 301.0 217.5 -- 1,682.1
1991................................... 1,025.8 258.3 307.0 -- 1,591.1
Operating income:
1993................................... 55.1 22.4 89.7 (9.3) 157.9
1992................................... 39.1(b) 12.1 84.3(c) (8.6) 126.9
1991................................... 36.3 7.3 132.3 (10.6) 165.3
Operating income before amortization of
goodwill:
1993................................... 61.1 25.2 102.4 (9.3) 179.4
1992................................... 44.8(b) 14.8 93.5(c) (8.6) 144.5
1991................................... 42.0 10.0 136.4 (10.6) 177.8
Identifiable assets:
1993................................... 718.3 239.0 1,193.6 343.5 2,494.4
1992................................... 636.1 202.9 1,279.9 521.9 2,640.8
1991................................... 623.5 186.0 1,345.4 674.6 2,829.5
Depreciation expense:
1993................................... 8.4 2.0 49.7 .4 60.5
1992................................... 8.2 1.6 48.2 .3 58.3
1991................................... 8.3 1.6 44.7 .4 55.0
Capital expenditures:
1993................................... 11.4 2.0 -- -- 13.4
1992................................... 6.3 1.7 9.0 -- 17.0
1991................................... 8.4 2.0 64.7 -- 75.1
- ---------------
(a) Identifiable assets are principally comprised of marketable equity
securities (including Energy and Real Estate) and discontinued and assets
held for sale.
(b) Reflects $9.0 million of expenses relating to a terminated equity
participation plan.
(c) Includes $21.8 million of non-recurring operating costs relating to
severance and transition costs due to the rail car transaction.
39
40
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The classification of the Company's 1993, 1992 and 1991 foreign operations
in the following table includes all revenues and related items of the Company's
non-U.S. operations. Export sales are insignificant.
WORLDWIDE (NON-U.S.)
OPERATIONS
----------------------------
1993 1992 1991
------ ------ ------
(IN MILLIONS)
Revenues...................................... $386.6 $344.5 $308.0
Operating income (loss)....................... $ (.5) $ 1.7 $ (2.5)
Identifiable assets........................... $209.7 $185.0 $181.6
Tangible identifiable assets.................. $186.5 $163.4 $164.1
SUMMARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables summarize the Company's quarterly financial
information.
QUARTERLY INFORMATION:
QUARTERS ENDED
-----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------------- ---------------- ----------------- ----------------
1993 1992 1993 1992 1993(A) 1992 1993 1992
------ ------ ------ ------ ------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues...................................... $431.5 $422.8 $476.5 $424.9 $492.7 $424.5 $508.5 $409.9
Operating income(b)........................... 37.2 42.5 39.6 18.8 41.7 34.5 39.4 31.1
Income (loss) from continuing operations
before income taxes(c)...................... (2.1) (6.6) (.8) (23.7) 70.8 (6.8) (22.1) (42.7)
Income (loss) from continuing operations...... (3.8) (6.3) (3.1) (17.0) 40.5 (7.3) (17.5) (29.2)
Income (loss) before extraordinary items(d)... (5.1) (8.7) (3.1) (15.9) 40.5 (8.1) (17.5) (51.2)
Net income (loss)(e).......................... $ (5.1) $(11.4) $ (3.1) $(30.8) $ 29.6 $ (8.5) $(22.6) $(53.6)
------ ------ ------ ------ ------- ------ ------ ------
------ ------ ------ ------ ------- ------ ------ ------
Income (loss) per common and common equivalent
share:
Continuing operations....................... $ (.19) $ (.25) $ (.16) $ (.62) $ 1.24 $ (.33) $ (.53) $(1.12)
Before extraordinary items.................. $ (.23) $ (.32) $ (.16) $ (.58) $ 1.24 $ (.36) $ (.53) $(1.92)
Net income (loss)........................... $ (.23) $ (.41) $ (.16) $(1.08) $ .97 $ (.37) $ (.69) $(2.00)
------ ------ ------ ------ ------- ------ ------ ------
------ ------ ------ ------ ------- ------ ------ ------
Income (loss) per common and common equivalent
share--assuming full dilution:
Continuing operations....................... $ (.19) $ (.25) $ (.16) $ (.62) $ 1.12 $ (.33) $ (.53) $(1.12)
Before extraordinary items.................. $ (.23) $ (.32) $ (.16) $ (.58) $ 1.12 $ (.36) $ (.53) $(1.92)
Net income (loss)........................... $ (.23) $ (.41) $ (.16) $(1.08) $ .88 $ (.37) $ (.69) $(2.00)
------ ------ ------ ------ ------- ------ ------ ------
------ ------ ------ ------ ------- ------ ------ ------
- ---------------
(a) The third quarter of 1993 has been restated from amounts previously reported
to reflect a $4.6 million reclassification from non-recurring items to
extraordinary items relating to the write-off of deferred financing fees on
early extinguishment of debt.
(b) The second quarter of 1992 includes a $21.8 million non-recurring operating
charge relating to severance and transition costs due to the rail car
transaction.
(c) Continuing operations in the third quarter of 1993 include an $84.5 million
pre-tax gain on the Offering and a ($20.5) million non-recurring pre-tax
loss principally relating to the write-down of miscellaneous investments and
certain non-operating assets to net realizable value. Continuing operations
in the fourth quarter of 1993 and 1992 include pre-tax charges of $25.0
million associated with the write-down of the Company's marketable equity
securities.
(d) Discontinued operations in the fourth quarter of 1992 include a $26.0
million pre-tax loss on the discontinuance of the other transportation
services segment.
(e) The extraordinary items in 1993 and 1992 reflect a pre-tax loss of ($26.2)
million and ($32.9) million, respectively, on the early extinguishment of
the Company's subordinated and senior debt.
40
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
See Registrant's Proxy Statement for the 1994 Annual Meeting of
Stockholders -- "Election of Directors" and "Timeliness of Certain Filings."
ITEM 11. EXECUTIVE COMPENSATION.
See Registrant's Proxy Statement for the 1994 Annual Meeting of
Stockholders -- "Summary Compensation Table," "Option Grants in Last Fiscal
Year," "Aggregated Option Exercised in Last Fiscal Year and FY-End Option
Value," "Pension Plan Table," "Compensation of Directors," "Employment Contracts
and Termination of Employment and Changes in Control Arrangements," and
"Compensation Committee Interlocks and Insider Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See Registrant's Proxy Statement for the 1994 Annual Meeting of
Stockholders -- "Security Ownership of Management" and "Security Ownership of
Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Registrant's Proxy Statement for the 1994 Annual Meeting of
Stockholders -- "Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits.
The exhibits listed below in Item 14(a)1, 2 and 3 are filed as part of
this annual report. Each management contract or compensatory plan
required to be filed as an exhibit is identified by an asterisk(*).
(b) Reports on Form 8-K.
None.
ITEM 14(A)1 AND 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES.
Financial Statements.
The following Consolidated Financial Statements of Itel Corporation and
Report of Independent Auditors are filed as part of this report.
PAGE
---
Report of Independent Auditors.................................................. 20
Consolidated Balance Sheets at December 31, 1993 and 1992....................... 21
Consolidated Statements of Operations for the years ended December 31, 1993,
1992 and 1991................................................................. 23
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1992 and 1991................................................................. 25
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1992 and 1991........................................................... 27
Notes to the Consolidated Financial Statements.................................. 28
41
42
Financial Statement Schedules.
The following financial statement schedules of Itel Corporation are filed
as part of this Report and should be read in conjunction with the Consolidated
Financial Statements of Itel Corporation.
Consolidated Schedules for the years ended December 31, 1993, 1992 and
1991, except as noted:
PAGE
----
I. Marketable securities--other investments (at December 31, 1993).......... 48
II. Amounts receivable from related parties and underwriters, promoters, and
employees other than related parties..................................... 49
III. Condensed financial information of Registrant............................ 50
V. Property and equipment................................................... 53
VI. Accumulated depreciation................................................. 54
VIII. Valuation and qualifying accounts and reserves........................... 55
All other schedules are omitted because they are not required or are not
applicable, or the required information is shown in the consolidated financial
statements or notes thereto.
ITEM 14(A)3. EXHIBIT LIST. Each management contract or compensation plan
required to be filed as an exhibit is identified by an asterisk(*).
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- ----------------------------------------------------------------------------
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession.+
2.1 (a) Stock Purchase Agreement, dated August 14, 1990, between Itel
Corporation and The Henley Group, Inc. (Incorporated by reference from
Itel Corporation's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1990, Exhibit 10.24.)..........................
(b) First Amendment to Stock Purchase Agreement, dated March 15, 1991,
between Itel Corporation and The Henley Group, Inc. (Incorporated by
reference from Itel Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, Exhibit 2.3(b).).................
(c) Second Amendment to Stock Purchase Agreement, dated July 19, 1991,
between Itel Corporation and The Henley Group, Inc. (Incorporated by
reference from Itel Corporation's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1991, Exhibit 2.3(c).)..............
(d) Third Amendment to Stock Purchase Agreement, dated January 31,
1992, between Itel Corporation and The Henley Group, Inc.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, Exhibit
2.2(d).)..............................................................
(e) Fourth Amendment to Stock Purchase Agreement, dated February 28,
1992, between Itel Corporation and The Henley Group, Inc.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, Exhibit
2.2(e).)..............................................................
(f) Fifth Amendment to Stock Purchase Agreement, dated March 31, 1992,
between Itel Corporation and The Henley Group, Inc. (Incorporated by
reference from Itel Corporation's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1992, Exhibit 2.2(f).).............
(g) Sixth Amendment to Stock Purchase Agreement, dated April 30, 1992,
between Itel Corporation and The Henley Group, Inc. (Incorporated by
reference from Itel Corporation's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1992, Exhibit 2.2(g).).............
42
43
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- -----------------------------------------------------------------------------
(3) Articles of Incorporation and by-laws.
3.1 Restated Certificate of Incorporation of Itel Corporation and
Certificates of Designations of Class B Preferred Stock, Series C,
filed with Secretary of State of Delaware on September 29, 1987.
(Incorporated by reference from Itel Corporation's Registration
Statement on Form S-3, Registration Number 33-18008, filed October 26,
1987, Exhibit 3.1.)...................................................
3.2 By-laws of Itel Corporation as amended through January 1, 1993.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, Exhibit
3.2.).................................................................
(4) Instruments defining the rights of security holders, including indentures.+
4.1 Indenture, dated January 15, 1988, and First Supplemental Indenture,
dated January 15, 1989, between Itel Corporation and First Fidelity
Bank, National Association, New Jersey, as Trustee, providing for
10.2% Senior Subordinated Extendible Notes due 2001 and 13% Senior
Subordinated Notes due 1999. (Incorporated by reference from Amendment
No. 1 to Itel Corporation's Registration Statement on Form S-3,
Registration Number 33-18008, filed January 8, 1988, Exhibit 4.1, Itel
Corporation's Current Report on Form 8-K, January 19, 1989, Exhibit 4,
and Itel Corporation's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1991, Exhibit 4.4.)............................
4.2 Amended and Restated Credit Agreement, dated March 11, 1994, among
Anixter Inc., Chemical Bank, as Agent, and the other banks named
therein. .............................................................
4.3 Indenture, dated June 1, 1992, between Rail Car 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) Material contracts (also see plan of acquisition etc.).+
10.1 Form of Itel Corporation Tax Allocation Agreement, dated January 1,
1987. (Incorporated by reference from Itel Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987, Exhibit
10.1.)................................................................
10.2* Itel Corporation Incentive Plan, dated January 26, 1989. (Incorporated
by reference from Itel Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, Exhibit 10.2.)...............
10.3* Itel Corporation 1983 Stock Incentive Plan as amended and restated
July 16, 1992. (Incorporated by reference from Itel Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, Exhibit 10.3.)..................................................
10.4* Warrant Agreement, dated December 5, 1985, between Itel Corporation
and Harold Haynes, Jerome Jacobson, Melvyn N. Klein and James D.
Woods, individually. (Incorporated by reference from Itel
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985, Exhibit 10.14.)....................................
10.5* Warrant Agreement, dated June 24, 1986, between Itel Corporation and
William A. Buzick, Jr., F. Philip Handy, Harold Haynes, Jerome
Jacobson, Melvyn N. Klein and James D. Woods, individually.
(Incorporated by reference from Itel Corporation's Registration
Statement on Form S-1, Registration Number 33-7000, filed July 3,
1986, Exhibit 10.17.).................................................
43
44
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- ----------------------------------------------------------------------------
10.6* Supplemental Pension Agreement, dated November 17, 1986, between Itel
Corporation and Rod F. Dammeyer. (Incorporated by reference from Itel
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1986, Exhibit 10.14.)....................................
10.7* (a) Itel Corporation Supplemental Retirement Benefits Plan, dated
January 1, 1987. (Incorporated by reference from Itel Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1987, Exhibit 10.16.).................................................
(b) Amendment No. 1, dated May 17, 1989 and effective as of January 1,
1989, to Itel Corporation Supplemental Retirement Benefits Plan.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, Exhibit
10.9(b).).............................................................
(c) Amendment No. 2, dated October 15, 1992, to Itel Corporation
Supplemental Retirement Benefits Plan (Incorporated by reference from
Itel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, Exhibit 10.7(c).)............................
(d) Amendment No. 3, dated February 25, 1993, to Itel Corporation
Supplemental Retirement Benefits Plan. (Incorporated by reference from
Itel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, Exhibit 10.7(d).)............................
10.8* Itel Corporation Key Executive Equity Plan, as amended and restated
July 16, 1992. (Incorporated by reference from Itel Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, Exhibit 10.8.)..................................................
10.9* Warrant Agreement, dated September 10, 1987, between Itel Corporation
and William A. Buzick, Jr., F. Philip Handy, Harold Haynes, Jerome
Jacobson, Melvyn N. Klein and James D. Woods, individually.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988, Exhibit
10.15.)...............................................................
10.10 Registration Rights Agreement, dated December 29, 1989, among Bay Area
Real Estate Investment Associates, L.P., Olympia & York SF Holdings
Corporation and Itel Corporation. (Incorporated by reference from Itel
Corporation's Schedule 13D, filed November 19, 1990, relating to the
shares of Catellus Development Corporation, Exhibit 2.)...............
10.11* Warrant Agreement, dated July 14, 1988, between Itel Corporation and
William A. Buzick, Jr., F. Philip Handy, Harold Haynes, Jerome
Jacobson, Melvyn N. Klein, Robert H. Lurie, John R. Petty and James D.
Woods, individually. (Incorporated by reference from Itel
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, Exhibit 10.19.)....................................
10.12* Executive Supplemental Life Plan, dated June 15, 1989, for Itel
Corporation and participating subsidiaries. (Incorporated by reference
from Itel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, Exhibit 10.20.)..............................
10.13* (a) Itel Corporation Supplemental Executive Retirement Plan, dated
January 18, 1990. (Incorporated by reference from Itel Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989, Exhibit 10.23.).................................................
(b) Amendment No. 1 dated February 25, 1993, to Itel Corporation
Supplemental Executive Retirement Plan. (Incorporated by reference
from Itel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, Exhibit 10.13(b).)...........................
44
45
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- -----------------------------------------------------------------------------
10.14* Warrant Agreement, dated July 13, 1989, between Itel Corporation and
Bernard F. Brennan, William A. Buzick, Jr., F. Philip Handy, Harold
Haynes, Jerome Jacobson, Melvyn N. Klein, Robert H. Lurie, John R.
Petty and James D. Woods, individually. (Incorporated by reference
from Itel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, Exhibit 10.21.)..............................
10.15* Plan for Alternative Payment of Incentive Compensation, dated December
10, 1990. (Incorporated by reference from Itel Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990,
Exhibit 10.22.).......................................................
10.16* Itel Corporation Severance/Retention Plan. (Incorporated by reference
from Itel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, Exhibit 10.23.)..............................
10.17* Itel Corporation Director Stock Option Plan. (Incorporated by
reference from Itel Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, Exhibit 10.24.)..................
10.18* Warrant Agreement, dated August 22, 1990, between Itel Corporation and
Bernard F. Brennan, William A. Buzick, Jr., F. Philip Handy, Harold
Haynes, Jerome Jacobson, Melvyn Klein, John R. Petty and James D.
Woods, individually. (Incorporated by reference from Itel
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, Exhibit 10.25.)....................................
10.19* Letter Agreement, dated December 2, 1991, with John Pigott.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, Exhibit
10.26.)...............................................................
10.20* (a) Agreement, dated January 1, 1992, with Rod F. Dammeyer.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, Exhibit
10.22.)...............................................................
* (b) Amendment to Agreement, dated January 1, 1992, with Rod F.
Dammeyer. ............................................................
* (c) Agreement, dated January 27, 1994, with Rod F. Dammeyer. .........
10.21* Agreement, dated November 1, 1992, with James E. Knox. (Incorporated
by reference from Itel Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, Exhibit 10.23.)..............
10.22* Form of Stock Option Agreement. (Incorporated by reference from Itel
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Exhibit 10.24.)....................................
10.23 Participation Agreement, dated December 31, 1991, among General
Electric Rail Car Services Corporation, GE Rail Car Associates, Inc.,
GE Rail Car Leasing Associates, Inc., General Electric Capital
Corporation, Itel Rail Funding Corporation, Rex Railways, Inc., and
Railcar Associates, LP.. (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.)..............................
10.24 Second Amendment 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.)...................
45
46
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- -----------------------------------------------------------------------------
10.25 (a) Amended and Restated Agreement of Limited Partnership of Railcar
Associates, LP., 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).)...........................
10.26 (a) Master Lease Agreement, dated June 1, 1992, between Railcar
Associates, LP. 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).)...............
10.27 Tax Allocation Agreement with ANTEC Corporation. (Incorporated by
reference from Amendment No. 2 to ANTEC Corporation's Registration
Statement on Form S-1, Registration Number 33-65488, filed August 20,
1993, Exhibit 10.5.)..................................................
10.28 Registration Rights Agreement with ANTEC Corporation. (Incorporated by
reference from Amendment No. 3 to ANTEC Corporation's Registration
Statement on Form S-1, Registration Number 33-65488, filed September
13, 1993, Exhibit 10.9.)..............................................
10.29 Directors & Officers Insurance Agreement with ANTEC Corporation.
(Incorporated by reference to ANTEC Corporation's Registration
Statement on Form S-1, Registration Number 33-65488, filed July 2,
1993, Exhibit 10.8.)..................................................
(21) Subsidiaries of the Registrant.
21.1 List of Subsidiaries of the Registrant................................
(23) Consents of experts and counsel.
23.1 Consent of Ernst & Young..............................................
(24) Power of attorney.
24.1 Power of Attorney executed by Bernard F. Brennan, F. Philip Handy,
Harold Haynes, Jerome Jacobson, Melvyn N. Klein, John R. Petty, John
A. Pigott, Sheli Rosenberg and Samuel Zell............................
46
47
(28) Additional exhibits.
This Annual Report on Form 10-K includes the following Financial Statement
Schedules:
ITEL CORPORATION AND SUBSIDIARIES--
FINANCIAL SCHEDULES
PAGE
----
Schedule I -- Marketable securities--other investments............................. 48
Schedule II -- Amounts receivable from related parties and underwriters, promoters,
and employees other than related parties............................. 49
Schedule III -- Condensed financial information of Registrant........................ 50
Schedule V -- Property and equipment............................................... 53
Schedule VI -- Accumulated depreciation............................................. 54
Schedule VIII -- Valuation and qualifying accounts and reserves....................... 55
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.
- ---------------
+ Copies of other instruments defining the rights of holders of long-term debt
of Itel Corporation and its subsidiaries not filed pursuant to Item
601(b)(4)(iii) of Regulation S-K and omitted copies of attachments to plans
and material contracts will be furnished to the Securities and Exchange
Commission upon request.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended,
the Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into the Registrant's Registration Statement on Form
S-8 Nos. 2-93173 (filed September 30, 1987), 33-13486 (filed April 15, 1987),
33-21656 (filed May 3, 1988) and 33-60676 (filed April 5, 1993):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provision, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
47
48
ITEL CORPORATION
SCHEDULE I--MARKETABLE SECURITIES--OTHER INVESTMENTS
DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARKET AMOUNT
VALUE AT
OF EACH WHICH
ISSUE AT CARRIED
COST OF DECEMBER IN THE
NAME OF ISSUER AND NUMBER OF EACH 31, BALANCE
TITLE OF EACH ISSUE SHARES ISSUE(A) 1993 SHEET
- ------------------------------------------- --------- -------- -------- --------
Common stock:
Santa Fe Energy Resources, Inc. ......... 8,064,005 $110,000 $ 74,600 $ 74,600
Catellus Development Corporation......... 6,687,575 53,000 51,800 51,800
-------- -------- --------
Total....................... $163,000 $126,400 $126,400
-------- -------- --------
-------- -------- --------
- ---------------
(a) At December 31, 1993, the Company wrote down its investment in marketable
equity securities by $25 million.
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ITEL 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)
DEDUCTIONS BALANCE AT
BALANCE AT ---------------------- END OF PERIOD
BEGINNING AMOUNTS AMOUNTS -------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NONCURRENT
-------------- --------- --------- --------- ----------- ------- ----------
Year ended December 31, 1993:
John M. Egan.................. $ 123 -- (3) -- -- $ 120
Steve Necessary............... -- 200 -- -- -- $ 200
Jerry Fernandez............... -- 184 -- -- -- $ 184
Year ended December 31, 1992:
SZRL Investments(a)........... $15,000 -- (15,000) -- -- --
John M. Egan.................. $ 125 -- (2) -- -- $ 123
Year ended December 31, 1991:
SZRL Investments.............. $15,000 -- -- -- -- $15,000
John M. Egan.................. $ 128 -- (3) -- -- $ 125
Cross Harbor RR............... $ 243 -- (243) -- -- $ --
- ---------------
(a) In 1992, Itel acquired warrants to purchase 4.675 million shares of Common
Stock held by an affiliate of Samuel Zell, a director of Itel. In
connection with the warrant purchase, a $15.0 million note receivable was
cancelled.
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50
ITEL CORPORATION
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ITEL CORPORATION (PARENT COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
---------------------
1993 1992
-------- --------
ASSETS
Current assets:
Cash and equivalents................................................ $ 800 $ 3,600
Accounts receivable................................................. 300 700
Amounts currently due from affiliates............................... 101,700 489,200
Other assets........................................................ 1,500 2,100
-------- --------
Total current assets................................... 104,300 495,600
Property (net)........................................................ 100 400
Deferred tax asset, net............................................... 136,900 164,000
Investment in and advances to subsidiaries............................ 360,200 192,200
Marketable equity securities available-for-sale....................... 126,400 116,900
Other assets.......................................................... 4,100 12,200
-------- --------
$732,000 $981,300
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses, due currently.................. $ 37,300 $ 41,600
Current maturities of Senior Subordinated Notes....................... -- 74,300
-------- --------
Total current liabilities.............................. 37,300 115,900
Long-term debt........................................................ 288,500 496,600
Other liabilities..................................................... 900 1,500
-------- --------
Total liabilities...................................... 326,700 614,000
Stockholders' equity:
Series C convertible preferred stock................................ -- 83,600
Common stock........................................................ 33,000 28,100
Capital surplus..................................................... 383,500 281,200
Retained earnings................................................... 22,400 26,700
Cumulative translation adjustments.................................. (9,900) (3,200)
-------- --------
429,000 416,400
Unrealized losses on marketable equity securities available for sale
(net of related deferred income tax benefit)..................... (23,700) (49,100)
-------- --------
Total stockholders' equity............................. 405,300 367,300
-------- --------
$732,000 $981,300
-------- --------
-------- --------
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51
ITEL CORPORATION
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ITEL CORPORATION (PARENT COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- --------- ---------
Revenues:
Interest and investment income, including intercompany.... $ 15,600 $ -- $ 90,200
Other (expenses) income:
Corporate interest........................................ (65,200) (127,900) (167,700)
General and administrative................................ (9,300) (8,600) (10,500)
Gain on ANTEC Offering.................................... 84,500 -- --
Write-down of marketable equity securities................ (25,000) (25,000) (9,200)
-------- --------- ---------
(15,000) (161,500) (187,400)
-------- --------- ---------
Income (loss) from operations before income taxes and equity
in earnings (losses) of subsidiaries...................... 600 (161,500) (97,200)
Income tax benefit.......................................... 3,300 57,100 144,100
Equity in earnings (losses) of subsidiaries................. 10,900 9,400 (111,400)
-------- --------- ---------
Income (loss) before extraordinary items.................... 14,800 (95,000) (64,500)
Extraordinary items (net of related income taxes)........... (16,000) (9,300) 8,800
-------- --------- ---------
Net loss.................................................... $ (1,200) $(104,300) $ (55,700)
-------- --------- ---------
-------- --------- ---------
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ITEL CORPORATION
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ITEL CORPORATION (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- --------- ---------
Operating activities:
Income (loss) before extraordinary items................. $ 14,800 $ (95,000) $ (64,500)
Adjustments to reconcile income (loss) before
extraordinary items to net cash used by operating
activities:
Depreciation.......................................... 400 300 400
Income tax benefit.................................... (3,300) (57,100) (144,100)
Gain on ANTEC Offering................................ (84,500) -- --
Write-down of marketable equity securities............ 25,000 25,000 9,200
Equity in (earnings) losses of subsidiaries........... (10,900) (9,400) 111,400
Non-cash financing expense............................ 4,200 6,900 6,800
Change in other operating items....................... (27,000) 12,800 (95,700)
--------- --------- ---------
Net cash used by operating activities............ (81,300) (116,500) (176,500)
Investing activities:
Sales of securities...................................... 3,700 800 19,500
Net dividends from (capital contributions to)
subsidiaries.......................................... 150,300 (37,500) 481,100
Loans from subsidiaries, net............................. 95,200 808,000 169,200
Other, net............................................... 13,700 (4,500) (39,800)
--------- --------- ---------
Net investing activities......................... 262,900 766,800 630,000
--------- --------- ---------
Net cash provided before financing activities.............. 181,600 650,300 453,500
Financing activities:
Borrowings............................................... 93,400 -- 24,700
Reductions in borrowings................................. (391,300) (548,300) (327,400)
Purchases of treasury stock.............................. (300) (114,300) (147,400)
Preferred stock dividend payments........................ (2,900) (5,700) (5,700)
Proceeds from issuance of common stock................... 21,100 21,300 4,800
Proceeds from ANTEC Offering............................. 67,000 -- --
Redemption of ANTEC preferred stock...................... 30,000 -- --
Other, net............................................... (1,400) -- (10,100)
--------- --------- ---------
Net financing activities......................... (184,400) (647,000) (461,100)
--------- --------- ---------
Cash provided (used)....................................... (2,800) 3,300 (7,600)
Cash and equivalents at beginning of year.................. 3,600 300 7,900
--------- --------- ---------
Cash and equivalents at end of year........................ $ 800 $ 3,600 $ 300
--------- --------- ---------
--------- --------- ---------
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53
ITEL CORPORATION
SCHEDULE V--PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
OTHER
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT
BEGINNING OF ADDITIONS AND OR SALES END OF
CLASSIFICATION THE PERIOD AT COST DEDUCTIONS AT COST THE PERIOD
-------------- ------------ --------- ---------- ----------- ----------
Year ended December 31, 1993:
Rental equipment--rail cars..... $1,395,000 $ -- $ (6,400) $ -- $1,388,600
Other........................... 58,300 13,400 -- (3,200) 68,500
---------- ------- -------- -------- ----------
$1,453,300 $13,400 $ (6,400) $ (3,200) $1,457,100
---------- ------- -------- -------- ----------
---------- ------- -------- -------- ----------
Year ended December 31, 1992:
Rental equipment--rail cars..... $1,380,500 $ 9,000 $ 34,200 $(28,700) $1,395,000
Other........................... 74,000 8,000 (15,600) (8,100) 58,300
---------- ------- -------- -------- ----------
$1,454,500 $17,000 $ 18,600 $(36,800) $1,453,300
---------- ------- -------- -------- ----------
---------- ------- -------- -------- ----------
Year ended December 31, 1991:
Rental equipment--rail cars..... $1,317,900 $62,500 $ 17,400 $(17,300) $1,380,500
Other........................... 64,200 12,600 200 (3,000) 74,000
---------- ------- -------- -------- ----------
$1,382,100 $75,100 $ 17,600 $(20,300) $1,454,500
---------- ------- -------- -------- ----------
---------- ------- -------- -------- ----------
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54
ITEL CORPORATION
SCHEDULE VI--ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
OTHER RETIREMENTS,
BALANCE AT ADDITIONS ADDITIONS RENEWALS BALANCE AT
BEGINNING OF CHARGED TO AND AND END OF
CLASSIFICATION THE PERIOD EXPENSES DEDUCTIONS REPLACEMENTS THE PERIOD
-------------- ------------ ---------- ---------- ------------ ----------
Year ended December 31, 1993:
Rental equipment--rail cars........ $329,700 $49,700 $ (3,000) $ -- $376,400
Other.............................. 27,700 10,800 (700) (1,700) 36,100
-------- ------- -------- -------- --------
$357,400 $60,500 $ (3,700) $ (1,700) $412,500
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
Year ended December 31, 1992:
Rental equipment--rail cars........ $294,600 $47,200 $ (4,200) $ (7,900) $329,700
Other.............................. 32,700 11,100 (11,000) (5,100) 27,700
-------- ------- -------- -------- --------
$327,300 $58,300 $(15,200) $(13,000) $357,400
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
Year ended December 31, 1991:
Rental equipment--rail cars........ $264,500 $41,700 $ -- $(11,600) $294,600
Other.............................. 22,400 13,300 (400) (2,600) 32,700
-------- ------- -------- -------- --------
$286,900 $55,000 $ (400) $(14,200) $327,300
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
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55
ITEL CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
ADDITIONS
---------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF CHARGED TO OTHER END OF
DESCRIPTION THE PERIOD INCOME ACCOUNTS DEDUCTIONS THE PERIOD
----------- ------------ ---------- --------- ---------- -----------
Year ended December 31, 1993:
Allowance for doubtful accounts......... $ 10,700 $ 5,500 $ 2,300 $(12,300) $ 6,200
Unrealized losses on marketable equity
securities available-for-sale(a)..... $ 74,400 -- (12,800) (25,000) $36,600
Allowance for deferred tax asset........ $ 58,400 -- -- (3,000) $55,400
Year ended December 31, 1992:
Allowance for doubtful accounts......... $ 13,200 7,600 2,900 (13,000) $10,700
Unrealized losses on marketable equity
securities available-for-sale(a)..... $ 72,500 -- 26,900 (25,000) $74,400
Allowance for deferred tax asset........ $ 62,100 -- -- (3,700) $58,400
Year ended December 31, 1991:
Allowance for doubtful accounts......... $ 15,100 3,500 600 (6,000) $13,200
Unrealized losses on marketable equity
securities available-for-sale(a)..... $171,100 -- (19,200) (79,400) $72,500
Allowance for deferred tax asset........ $ 59,000 3,100 -- -- $62,100
- ---------------
(a) At December 31, 1993, 1992 and 1991, the Company wrote down its investment
in marketable equity securities by $25.0 million, $25.0 million and $50.0
million, respectively. The remaining deduction of $29.4 million in 1991
relates to the loss on sale of the Company's investment in Santa Fe.
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56
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, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON THE 25TH DAY OF MARCH, 1994.
ITEL CORPORATION
JAMES E. KNOX
----------------------------------------
James E. Knox
Senior Vice President, General Counsel
and Secretary
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 DATES INDICATED.
Chief Executive Officer
and President
ROD F. DAMMEYER (Principal Executive Officer) March 25, 1994
- ---------------------------------------------
Rod F. Dammeyer
Senior Vice President--Finance
GARY M. HILL (Chief Financial Officer) March 25, 1994
- ---------------------------------------------
Gary M. Hill
Vice President--Controller
JOHN P. MCNICHOLAS, JR. (Chief Accounting Officer) March 25, 1994
- ---------------------------------------------
John P. McNicholas, Jr.
BERNARD F. BRENNAN* Director March 25, 1994
- ---------------------------------------------
Bernard F. Brennan
ROD F. DAMMEYER Director March 25, 1994
- ---------------------------------------------
Rod F. Dammeyer
F. PHILIP HANDY* Director March 25, 1994
- ---------------------------------------------
F. Philip Handy
HAROLD HAYNES* Director March 25, 1994
- ---------------------------------------------
Harold Haynes
JEROME JACOBSON* Director March 25, 1994
- ---------------------------------------------
Jerome Jacobson
MELVYN N. KLEIN* Director March 25, 1994
- ---------------------------------------------
Melvyn N. Klein
JOHN R. PETTY* Director March 25, 1994
- ---------------------------------------------
John R. Petty
JOHN A. PIGOTT* Director March 25, 1994
- ---------------------------------------------
John A. Pigott
SHELI ROSENBERG* Director March 25, 1994
- ---------------------------------------------
Sheli Rosenberg
SAMUEL ZELL* Director March 25, 1994
- ---------------------------------------------
Samuel Zell
*BY JAMES E. KNOX
- ---------------------------------------------
James E. Knox (Attorney in fact)
James E. Knox, as attorney in fact for each person indicated.
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57
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-93173) pertaining to the Itel Corporation 1983 Stock Incentive
Plan, the Registration Statement (Form S-8 No. 33-13486) pertaining to the Itel
Corporation Key Executive Equity Plan, the Registration Statement (Form S-8 No.
33-21656) pertaining to the Itel Corporation 1988 Employee Stock Purchase Plan,
the Registration Statement (Form S-8 No. 33-38364) pertaining to the Itel
Corporation 1989 Employee Stock Incentive Plan and the Registration Statement
(Form S-8 No. 33-60676) pertaining to the Itel Corporation 1993 Director Stock
Option Plan and in the related Prospectuses of our report dated February 8, 1994
with respect to the consolidated financial statements and schedules of Itel
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 1993.
ERNST & YOUNG
Chicago, Illinois
March 25, 1994
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