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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, 1994
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
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
94-1658138
(I.R.S. EMPLOYER
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 $775,000,000 as of
March 17, 1995.
At March 17, 1995, 28,558,000 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 1995 Annual Meeting
of Stockholders of Itel Corporation are incorporated by reference into Part III.
This document consists of 59 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.................................. 7
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters............................................................. 8
Item 6. Selected Financial Data............................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 10
Item 8. Consolidated Financial Statements and Supplementary Data.............. 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 17
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 the distribution of networking products for
voice, data and video and electrical power applications by Anixter Inc. and its
subsidiaries (collectively "Anixter"). In 1994, the Company's interest in ANTEC
Corporation and its subsidiaries (collectively "ANTEC"), a developer and
distributor of products used in the cable television industry, was reduced from
53% to 33% by a public offering of ANTEC common stock by the Company and
subsequently reduced to approximately 30% by the issuance by ANTEC of additional
common stock in connection with an acquisition. The Company views ANTEC as a
long-term investment, subject to change should future circumstances warrant. At
December 31, 1994, the Company also had an investment in approximately 9% of the
common stock of Santa Fe Energy Resources, Inc. ("Energy").
In 1994, the Company sold its remaining interests in its rail car leasing
business conducted by Itel Rail Corporation ("Rail"). In 1994, 1993 and 1992,
the Company sold all of its other transportation services assets. 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 the 1994, 1993 and 1992 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.
In 1994, the Company sold its 9% investment in the common stock of Catellus
Development Corporation ("Catellus"). 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") are being held for sale. See Note 3
of the Notes to the Consolidated Financial Statements.
As of December 31, 1994, the Company had no net operating loss ("NOL") or
investment tax credit ("ITC") carryforwards for Federal income tax purposes due
to the sale of the Company's rail car leasing business which exhausted virtually
all carryforwards existing at December 31, 1993. As of December 31, 1993, the
Company had cumulative NOL carryforwards of approximately $345 million that were
set to expire primarily in 1995 through 2007, and ITC carryforwards of
approximately $16 million that were set to expire between 1994 and 2001. Certain
of these carryforwards have not been examined by the Internal Revenue Service
("IRS") and, therefore, may still be subject to adjustment. The availability of
tax benefits of NOL and ITC carryforwards to reduce the Company's Federal income
tax liability is subject to various limitations under the Internal Revenue Code
of 1986, as amended (the "Code"). In addition, at December 31, 1994, various
foreign subsidiaries of Itel had aggregate cumulative NOL carryforwards for
foreign income tax purposes of approximately $44 million which are subject to
various tax provisions of each respective country and expire primarily between
1995 and 2003.
At December 31, 1994, the Company and its subsidiaries employed
approximately 4,200 persons. For information on segment and geographic data see
Note 16 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 North America, Europe, Asia and Latin America. Anixter stocks
and sells a full line of these products from a network of 83 locations in the
United States, 16 in Canada, 13 in England, 30 in Continental Europe, 3 in
Mexico, 6 in Australia, 4 in Scotland, 2 in Malaysia and single locations in
Singapore, Venezuela, 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
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international, national, regional and local companies that are end users of
these products and engage in manufacturing, communications, finance, 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 $1,200.
The products sold by Anixter include 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. During 1993 and 1994,
Anixter began selling and providing technological support for internetworking
products, including routers, as well as video-conferencing and network access
products.
Anixter's products also include 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, Greece, Italy, Norway, Spain, Sweden, Switzerland, Australia, Mexico,
Venezuela, Portugal, Singapore, The Netherlands, Austria, Hong Kong, Taiwan and
Malaysia. Anixter also has representative offices in the People's Republic of
China, Indonesia and Taiwan along with technical representatives in the Czech
Republic, Hungary, Turkey and Poland. While several of these expansion
businesses achieved an operating profit in 1994 and 1993, the Asian and Latin
American expansion program is considered to be in the start-up mode. Since 1988,
Anixter has experienced cumulative losses relating to the expansion program
totalling approximately $44 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.
Approximately 17% and 13% of Anixter's aggregate purchases in 1994 were of
products manufactured by AT&T and Bay Networks, respectively. In addition,
approximately 49% of the Company's purchases in 1994 were from its five largest
suppliers.
Anixter's ability to cost effectively serve its customers' needs is
possible 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 161
worldwide service centers through more than 3,000 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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INVESTMENT IN ANTEC
In 1993, due to strategic and other business considerations, ANTEC was
changed from a division of Anixter to a subsidiary of the Company and the
Company's interest in ANTEC was reduced to 53% following an initial public
offering of ANTEC common stock.
In May 1994, in light of different business considerations, some of which
are mentioned below, Itel completed a public offering of shares of common stock
of ANTEC (the "ANTEC Offering"). Itel sold 4.0 million shares at $21.75 per
share. Net proceeds from the ANTEC Offering were approximately $83 million. As a
result of the ANTEC Offering, Itel's ownership of ANTEC common stock was reduced
from 53% to 33%. This ownership was further reduced in November 1994 to
approximately 30% when ANTEC issued additional shares of its common stock in
connection with an acquisition. Effective January 1, 1994, the Company reflects
ANTEC as an equity investment in the consolidated financial statements. As of
December 31, 1994, the market value of Itel's 6,727,500 shares of ANTEC was
$123.6 million. The Company views ANTEC as a long-term investment, subject to
change should future circumstances warrant.
ANTEC is a leading developer and supplier of optical transmission,
construction, rebuild and maintenance equipment for the broadband communications
industry.
More than 90% of ANTEC's consolidated sales for the year ended December 31,
1994 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.
Almost all of the products supplied by ANTEC are manufactured for it by
domestic and foreign manufacturers. Approximately 19% of ANTEC's aggregate
purchases in 1994 were of products manufactured by AT&T, and many ANTEC
customers have demonstrated loyalty to AT&T products. In addition, approximately
46% of ANTEC's purchases in 1994 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 believes that any such loss is unlikely to
have a lasting impact on its business, since such products are generally
available from alternate sources.
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 1994, over 50% 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 $151.6 million, $146.1 million and $86.7 million
for the years ended December 31, 1994, 1993 and 1992, respectively.
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
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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
On July 25, 1994, Itel sold 99.5% of its remaining interests in its rail
cars (which was in the Trust described below) for $35.0 million in cash and
$169.5 million in notes receivable for an aggregate purchase price of $204.5
million. The buyer prepaid all the notes and related interest in October 1994.
The Company's remaining interest in the Trust was sold in October for cash of
approximately $1.0 million. The net gain on the sale of the Company's entire
interest in the Trust was approximately $202.0 million.
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 was 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 on the leases for all, but not less
than all, of the rail cars for approximately $500 million.
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, 1994, the Company owned 8,064,005 shares or approximately
9% of Energy's common stock, which is listed on the New York Stock Exchange (the
"NYSE"). Energy is subject to the informational filing requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, is required to
file reports and other information with the Securities and Exchange Commission.
In 1994, 1993, 1992 and 1991, the Company wrote down the value of its
investments in marketable equity securities, including investments in Catellus
which was sold in 1994 and Energy, by $34 million, $25 million, $25 million and
$50 million, respectively.
ASSETS HELD FOR SALE
The principal assets held for sale at December 31, 1994 are those of Signal
Capital. The Company acquired Signal Capital 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. Subsequent to the
purchase, Itel sold or liquidated portions of the portfolio including $855
million in 1989, $78 million in 1990, $157 million in 1991, $82 million in 1992,
$82 million in 1993 and $60 million in 1994. The $113.8 million net portfolio at
December 31, 1994 represents approximately 8% of the original acquired Signal
Capital portfolio. The acquired Signal Capital portfolio is being liquidated and
no material amounts of new loans or investments are being made by Signal
Capital. Proceeds were used to repay indebtedness. The Company has had and
continues to have discussions with third parties for the sale of substantial
portions of the acquired Signal Capital portfolio of loans and leases. Absent
such transactions, which the Company continues to pursue, such orderly
liquidation is expected to continue over approximately the next two years. The
Company continues to
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reduce the acquired Signal Capital portfolio in an orderly manner that maximizes
its value to Itel shareholders.
ITEM 2. PROPERTIES.
Most of Anixter's facilities are leased.
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 1994, no matters were submitted to a vote of
the security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age as of March 20, 1995, 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, 39............. Senior Vice President--Corporate & Investor Relations of Itel
since February 1992; Midwest Officer and Managing Director of
Georgeson & Co. from 1989 to February 1992.
Don Civgin, 33.............. 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, 54......... Chief Executive Officer, President and Director of Itel since
January 1993; President and Director of Itel from 1985 to 1993.
James E. Knox, 57........... Senior Vice President, General Counsel and Secretary of Itel
since 1986.
Dennis J. Letham, 43........ Chief Financial Officer, Senior Vice President--Finance of Itel
since January 1995; Chief Financial Officer, Executive Vice
President of Anixter since July 1993; Chief Financial Officer,
Vice President of National Intergroup, Inc. from March 1991 to
July 1993; Chief Financial Officer, Senior Vice President of
FoxMeyer, Inc from September 1990 to July 1993; Vice
President--Controller of National Intergroup, Inc. from 1989 to
March 1991.
John P. McNicholas Jr.,
41........................ 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, 36.......... 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, 53............. 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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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.......................................... $30 $24 3/4
Second Quarter......................................... 31 1/2 23
Third Quarter.......................................... 35 3/8 31 1/4
Fourth Quarter......................................... 36 1/4 31 7/8
1995
First Quarter (through March 17, 1995)................. $37 $33 1/2
C. DIVIDENDS ON COMMON STOCK
The Company has not paid dividends on its Common Stock since 1979. Certain
loan agreements 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 $393.9 million is available
for such distributions under the most restrictive of these covenants.
D. NUMBER OF HOLDERS OF COMMON STOCK
There were approximately 5,700 holders of record of the Common Stock as of
March 17, 1995.
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ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31,
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1994 1993 1992 1991 1990
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(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Results of operations(a):
Revenues --Anixter..................................... $1,732.6 $1,328.6 $1,163.6 $1,025.8 $ 980.0
--ANTEC...................................... N/A 427.6 301.0 258.3 328.2
-------- -------- -------- -------- --------
Consolidated revenues.................................. $1,732.6 $1,756.2 $1,464.6 $1,284.1 $1,308.2
======== ======== ======== ======== ========
Operating income (loss)--Anixter....................... $ 74.6 $ 55.1 $ 39.1 $ 36.3 $ 30.9
--ANTEC......................... N/A 22.4 12.1 7.3 19.2
--All other..................... (4.8) (9.3) (8.6) (10.6) (12.2)
-------- -------- -------- -------- --------
Consolidated operating income.......................... $ 69.8 $ 68.2 $ 42.6 $ 33.0 $ 37.9
======== ======== ======== ======== ========
Interest expense and other, net........................ $ (27.1) $ (58.9) $ (77.9) $ (67.5) $ (79.9)
Equity earnings in ANTEC............................... 7.9 -- -- -- --
Non-recurring items, net(b)............................ 59.0 71.8 -- -- --
Marketable equity securities losses, principally
write-downs(c)....................................... (39.6) (25.0) (25.0) (79.4) (31.7)
Income (loss) from continuing operations............... 46.2 28.8 (45.8) (67.5) (51.0)
Income (loss) from discontinued operations............. 200.7 (14.0) (38.1) 3.0 179.7
Extraordinary items, net(d)............................ -- (16.0) (20.4) 8.8 --
Net income (loss)...................................... $ 246.9 $ (1.2) $ (104.3) $ (55.7) $ 128.7
Income (loss) per common and common equivalent share:
Continuing operations.............................. $ 1.44 $ .85 $ (1.78) $ (2.14) $ (1.21)
Before extraordinary items......................... 7.71 .39 (3.09) (2.05) 2.60
Net income (loss).................................. 7.71 (.14) (3.79) (1.79) 2.60
Financial position at December 31(a):
Total assets........................................... $1,110.9 $1,380.6 $1,436.2 $2,395.8 $2,977.7
Total debt............................................. 280.5 494.8 725.6 1,426.9 1,767.5
Stockholders' equity(e)(f)............................. 543.9 405.3 367.3 563.6 610.1
Book value per common and common equivalent share(f)... $ 18.50 $ 12.28 $ 10.10 $ 14.96 $ 13.48
Weighted average common and common equivalent shares... 32.045 30.132 29.085 34.440 47.194
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Notes:
(a) Due to the 1994 sale of 4.0 million shares of ANTEC (see Note 1 of the Notes
to the Consolidated Financial Statements), all 1994 financial information
reflects ANTEC as an equity investment. All prior financial information
reflects ANTEC as a consolidated subsidiary of Itel. In addition, due to the
1994 sale of the Company's remaining interests in its rail cars (see Note 3
of the Notes to the Consolidated Financial Statements), the Company's
investment in its rail car leasing business has been reclassified in the
consolidated financial statements as discontinued operations for all periods
presented.
(b) The non-recurring items in 1994 include a $48.2 million pre-tax gain on the
May 1994 public offering of shares of common stock of ANTEC and a $10.8
million pre-tax gain relating to ANTEC's issuance of common stock in
connection with an acquisition in November 1994. Non-recurring items in 1993
principally include an $84.5 million pre-tax gain on the 1993 initial public
offering of shares of common stock of ANTEC and a $6.4 million pre-tax gain
on other investments offset by a pre-tax loss of approximately $19.1 million
relating to the liquidation of the Company's equity investment in Q-TEL (see
Note 4 of the Notes to the Consolidated Financial Statements).
(c) In 1994, 1993, 1992 and 1991, the Company wrote down the value of its
investments in marketable equity securities by $34.4 million, $25.0 million,
$25.0 million and $50.0 million, respectively. The remaining $5.2 million
pre-tax charge in 1994 relates to the loss on sale of the Company's
investment in Catellus. 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.
(d) 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.
(e) Stockholders' equity reflects treasury stock purchases of $138.9 million,
$.3 million, $114.3 million, $147.4 million and $187.6 million in 1994,
1993, 1992, 1991 and 1990, respectively. No dividends on common stock were
declared or paid during any of the periods shown.
(f) Stockholders' equity includes unrealized losses on marketable equity
securities available-for-sale, net of deferred income tax benefit of $3.9
million, $23.7 million, $49.1 million, $47.8 million and $112.9 million at
December 31, 1994, 1993, 1992, 1991 and 1990, respectively. Stockholders'
equity at December 31, 1992, 1991 and 1990 included approximately $83
million of Series C convertible preferred stock which was converted into 3.8
million shares of Common Stock in 1993.
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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 $590 million of
outstanding Common Stock. The financial liquidity and capital resources in 1994
and 1993 reflect the impact of Itel's recapitalization program.
Sale of Rail Car Leasing Business: On July 25, 1994, Itel sold 99.5% of its
remaining interests in its rail cars for $35.0 million in cash and $169.5
million in notes receivable for an aggregate purchase price of $204.5 million.
The buyer prepaid all the notes and related interest in October 1994. The
Company's remaining interest in the rail cars was sold in October for cash of
approximately $1.0 million. The net gain on the sale of the Company's entire
interest in rail cars was approximately $202.0 million. The total cash proceeds
of $205.5 million was used to: (1) repay the $150 million Corporate senior bank
term loan ("Term Loan"); (2) pay the related income tax liability of
approximately $25 million caused by the sale which resulted after utilization of
the Company's NOL and ITC carryforwards; and (3) other general corporate
purposes including the purchase of the Company's Common Stock.
ANTEC Public Offerings: In May 1994, due in large part to a perceived
change in market conditions, Itel completed a public offering of shares of
common stock of ANTEC. Itel sold 4.0 million shares at $21.75 per share. Net
proceeds from the ANTEC Offering were approximately $83 million. As a result of
the ANTEC Offering, Itel's ownership of ANTEC common stock was reduced from 53%
to 33%. In addition, in November 1994, ANTEC issued approximately 2.0 million
shares of ANTEC common stock in connection with an acquisition which lowered
Itel's ownership to approximately 30%.
In 1993, ANTEC, formerly a business division of Anixter, was established,
for strategic and other business reasons, 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 an initial public offering of shares of common stock of ANTEC (the
"Initial Offering"). Net proceeds from the Initial 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 Initial 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 its acquisition in 1988. Subsequent to the purchase, Itel
sold or liquidated portions of the portfolio including $855 million in 1989, $78
million in 1990, $157 million in 1991, $82 million in 1992, $82 million in 1993
and $60 million in 1994. The $113.8 million net portfolio at December 31, 1994
represents approximately 8% of the original acquired Signal Capital portfolio.
The acquired Signal Capital portfolio is being liquidated and no material
amounts of new loans or investments are being made by Signal Capital. Proceeds
were used to repay indebtedness. The Company has had and continues to have
discussions with third parties for the sale of substantial portions of the
acquired Signal Capital portfolio of loans and leases. Absent such transactions,
which the Company continues to pursue, such orderly liquidation is expected to
continue over approximately the next two years. The Company continues to reduce
the acquired Signal Capital portfolio in an orderly manner that maximizes its
value to Itel shareholders.
Other Dispositions: In 1994, Itel sold its investment in the marketable
equity securities of Catellus for approximately $47.8 million. In 1994, 1993 and
1992, the Company sold all of its other transportation services assets. Proceeds
from the sales were used to reduce debt or to purchase Common Stock.
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Cash Flow
Year ended December 31, 1994: Consolidated net cash used by continuing
operating activities was ($35.4) million for the year ended December 31, 1994
compared to ($42.4) million in 1993. Cash used by continuing operating
activities decreased due primarily to significantly improved earnings, after
elimination of non-recurring items and losses on marketable equity securities,
offset somewhat by increased working capital investment resulting from a 30%
increased sales volume at Anixter. Consolidated net cash used by continuing
operations in 1994 reflects an $64.5 million net working capital investment by
Anixter used to fund a $400 million increase in revenues. Consolidated cash
provided by net investing activities was $119.3 million in 1994 versus $168.3
million in 1993. Consolidated investing activities in 1994 include approximately
$82.8 million of proceeds from the ANTEC Offering, approximately $47.8 million
from the sale of the Company's investment in Catellus and approximately $12.5
million in net receipts from the liquidation of the Company's equity investment
in Q-TEL and loans due from Q-TEL. Consolidated investing activities in 1993
reflect $156.6 million of proceeds from the Initial Offering, net receipts from
the liquidation of the Company's equity investment in Q-TEL of $23.7 million and
proceeds from the sale of miscellaneous marketable securities and other
investments. Consolidated cash used for net financing activities was ($363.2)
million for the year ended 1994 in comparison to ($234.3) million for the year
ended 1993. Both periods include the paydown of a substantial amount of
subordinated debt. The consolidated net financing activities in 1994 also
include $138.9 million of treasury stock purchases. Cash from discontinued
operations, net was $262.5 million in 1994 versus $117.4 million in 1993.
Discontinued operations in 1994 include net proceeds of $205.5 million from the
sale of the Company's remaining interest in its rail car leasing business.
Discontinued operations in 1994 and 1993 include net proceeds from the sale of
the Company's other transportation services assets of $10 million and $46
million, respectively, and cash received from the reduction of assets at Signal
Capital of $60 million and $82 million, respectively.
Year ended December 31, 1993: Consolidated net cash used by continuing
operating activities was ($42.4) million for the year ended December 31, 1993
compared to ($40.3) million in 1992. Cash used by continuing operating
activities increased slightly 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 increases.
Consolidated net cash used by continuing operations in 1993 reflects a $57.9
million net working capital investment by Anixter and ANTEC used to fund a $300
million increase in revenues. Consolidated cash provided (used) by net investing
activities was $168.3 million in 1993 versus ($25.4) million in 1992.
Consolidated investing activities in 1993 reflect $156.6 million of proceeds
from the ANTEC Initial Offering, net receipts from the liquidation of the
Company's equity investment in Q-TEL of $23.7 million and proceeds from the sale
of miscellaneous marketable securities and other investments. Consolidated cash
used for net financing activities was ($234.3) million for the year ended 1993
in comparison to ($809.4) million for the year ended 1992. The 1993 and 1992
periods include the paydown of a substantial amount of senior and subordinated
debt. Cash from discontinued operations, net was $117.4 million in 1993 versus
$865.5 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. Discontinued
operations in 1992 reflect (1) the cash flow of the rail car leasing operations;
(2) $1.33 billion of borrowings, including the issuance of $998 million of
7 3/4% Notes (the "Trust Notes"), by Rail and (3) subsequent paydown of $588
million of other rail car leasing debt.
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 to be meaningful and readily comparable
measures of Itel's relative performance. Consolidated results in 1993 and 1992
included ANTEC, while 1994 consolidated results present ANTEC as an equity
investment. Itel reduced its interest in ANTEC to approximately 30% of ANTEC's
outstanding shares in 1994, with a substantial impact on the
11
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comparability of consolidated results. Operating income before amortization of
goodwill by the Company's major business segments is presented in the following
table.
YEARS ENDED DECEMBER
31,
-----------------------
1994 1993 1992
----- ----- -----
(IN MILLIONS)
Anixter.................................................. $80.6 $61.1 $44.8
All other................................................ (4.8) (9.3) (8.6)
----- ----- -----
75.8 51.8 36.2
ANTEC.................................................... N/A 25.2 14.8
----- ----- -----
$75.8 $77.0 $51.0
===== ===== =====
Consolidated net interest expense and other was $27.1 million, $58.9
million and $77.9 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The years ended December 31, 1993 and 1992 include $5.0 million
and $3.5 million, respectively, of net interest expense and other relating to
ANTEC. The Company has entered into interest rate agreements which effectively
fix or cap, for a period of time, the interest rate on a portion of its floating
rate obligations. As a result, the interest rate on approximately 45% of debt
obligations at December 31, 1994 is fixed or capped. The impact of interest rate
swaps and caps on interest expense, net for the years ended December 31, 1994,
1993 and 1992 was to increase interest expense by approximately $6.0 million,
$10.8 million and $15.2 million, respectively.
Financings
In November 1994, Itel obtained a $115 million senior bank term loan
facility ("Corporate Loan") from a group of banks. The Corporate Loan is secured
by the Company's investments in the capital stock of Anixter and ANTEC. To the
extent amounts are borrowed, the Corporate Loan matures annually as follows:
1995 - none; 1996 - $29 million; and 1997 - $86 million. The Corporate Loan had
no outstanding borrowings at December 31, 1994.
In March 1994, the Company increased Anixter's secured domestic revolving
line of credit to $345 million, lowered the interest rate spreads and extended
the expiration to 1997. The revolving line of credit is non-recourse to Itel and
may be extended for two additional one-year periods at the option of the
lenders.
At December 31, 1994, in addition to the Corporate Loan, $144.8 million was
available under the bank revolving lines of credit at Anixter, of which $56.4
million was available to Itel for general corporate purposes.
Debt Maturities and Repayments
In 1994, the Company repaid the entire $250 million Term Loan with proceeds
from the sale of Itel's rail car leasing business and the ANTEC Offering. The
Term Loan was originally obtained in December 1993 and was secured by the
Company's investments in the capital stock of Anixter, ANTEC and Signal Capital
and its investment in marketable securities.
In 1994, 1993 and 1992, respectively, the Company retired $221 million,
$337 million and $460 million of the face value of subordinated debt at Itel.
NOL Carryforwards
As of December 31, 1994, the Company had no NOL or ITC carryforwards for
Federal income tax purposes due to the sale of the Company's rail car leasing
business which exhausted virtually all carryforwards existing at December 31,
1993. As of December 31, 1993, the Company had cumulative NOL carryforwards of
approximately $345 million that were set to expire primarily in 1995 through
2007, and ITC carryforwards of approximately $16 million that were set to expire
between 1994 and 2001. Certain of these carryforwards have not been examined by
the IRS and, therefore, may still be subject to adjustment. The availability of
tax benefits of NOL and ITC carryforwards to reduce the Company's Federal income
tax liability is subject to various limitations under the Code. In addition, at
December 31, 1994, various foreign subsidiaries of Itel had
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aggregate cumulative NOL carryforwards for foreign income tax purposes of
approximately $44 million which are subject to various tax provisions of each
respective country and expire primarily between 1995 and 2003.
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, 1994, the market value of the Company's investment in
marketable equity securities was below adjusted cost by $11.1 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 1994,
1993 and 1992, the Company wrote down the value of its investments in marketable
equity securities by $34.4 million, $25.0 million and $25.0 million,
respectively.
CAPITAL EXPENDITURES
Consolidated capital expenditures were $17.2 million, $13.4 million and
$8.0 million for 1994, 1993 and 1992, respectively.
RESULTS OF OPERATIONS
The Company has experienced increased revenues due to the continued growth
of the U.S. wiring systems and its continuing worldwide expansion. While the
Company continues to believe that its revenue base will grow and its worldwide
expansion will result in both increased revenues and operating profits, there
can be no assurance of future financial performance. 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.
In July 1994, Itel sold substantially all its remaining interest in its
fleet of rail cars. Results of operations reflect the rail car leasing business
as discontinued operations.
In May 1994, Itel sold in a public offering 4.0 million shares of common
stock of ANTEC. As a result of the ANTEC Offering, Itel's ownership of ANTEC
common stock was reduced from 53% to approximately 33%. In addition, in November
1994, ANTEC issued approximately 2.0 million shares of ANTEC common stock in
connection with an acquisition which lowered Itel's ownership to approximately
30%. The Company views ANTEC as a long-term investment, subject to change should
future circumstances warrant. Due to the above sale and issuance of ANTEC common
stock, all 1994 financial information reflects ANTEC as an equity investment.
All prior financial information reflects ANTEC as a consolidated subsidiary of
Itel.
Quarter ended December 31, 1994: Income (loss) from continuing operations
for the fourth quarter of 1994 was $16.0 million compared with ($15.0) million
in the fourth quarter of 1993. Results in the fourth quarter of 1994 include a
$10.8 million pre-tax gain relating to ANTEC's issuance of common stock in
connection with an acquisition in November 1994. The fourth quarter of 1993
includes pre-tax charges associated with the write-down of marketable equity
securities of $25.0 million. Net income (loss) was $13.0 million and ($22.6)
million in the fourth quarter of 1994 and 1993, respectively. The Company
retired or called for redemption approximately $206.0 million of its
subordinated and senior debt resulting in an extraordinary net loss of ($5.1)
million in the fourth quarter of 1993.
Anixter revenues during the fourth quarter of 1994 increased 36% to $490.6
million from $359.7 million for the fourth quarter of 1993 resulting from the
continued growth of the North America business and continued penetration in the
expansion countries. North America revenues in the fourth quarter of 1994
increased 37% to $380.7 million due to strong demand for its communications
products and focused marketing
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efforts on its electrical wiring systems products. Europe revenues in the fourth
quarter of 1994 increased to $92.1 million from $72.4 million due primarily to
increased market penetration, particularly in networking products and structured
wiring systems, across all geographic territories. Asia and Latin America
revenues more than doubled to $17.8 million in the fourth quarter of 1994 due to
increased market penetration, strong product demand and expansion into new
territories. Revenues by Anixter's major markets are presented in the following
table.
QUARTERS ENDED
DECEMBER 31,
-----------------
1994 1993
------ ------
(IN MILLIONS)
North America..................................................... $380.7 $278.8
Europe............................................................ 92.1 72.4
Asia and Latin America............................................ 17.8 8.5
------ ------
$490.6 $359.7
====== ======
ANTEC revenues, which were reflected in the consolidated results in 1993
but not in 1994, increased 22% to $134.6 million in the fourth quarter of 1994
from $110.6 million in the fourth quarter of 1993 due to 1994 acquisitions and
international growth somewhat offset by TCI capital spending reductions.
Anixter operating income before amortization of goodwill increased 38% to
$22.6 million in 1994 from $16.4 million due primarily to significantly improved
volume and earnings in North America. North America operating income before
goodwill increased 38% to $21.1 million in the fourth quarter of 1994 due to
volume related economies of scale somewhat offset by increased spending for new
service and logistics initiatives. Europe operating income before goodwill in
the fourth quarter of 1994 increased to $2.6 million from $2.2 million due
primarily to continued expansion and volume related economies of scale. Asia and
Latin America operating loss was ($1.1) million in the fourth quarter of 1994
and 1993 due to Latin America reaching breakeven volume levels and continued
expansion into new Asian markets. Aggregate gross start-up losses in expansion
markets, which have yet to achieve profitable operations in their respective
quarters, were ($2.9) million and ($1.5) million in the fourth quarter of 1994
and 1993, respectively. Operating income (loss) before amortization of goodwill
by Anixter's major markets is presented in the following table.
QUARTERS ENDED
DECEMBER 31,
---------------
1994 1993
----- -----
(IN MILLIONS)
North America....................................................... $21.1 $15.3
Europe.............................................................. 2.6 2.2
Asia and Latin America.............................................. (1.1) (1.1)
----- -----
$22.6 $16.4
===== =====
ANTEC operating income before amortization of goodwill, which was reflected
in the consolidated results in 1993 but not in 1994, increased 38% to $9.8
million from $7.1 million in the fourth quarter of 1993 due to increased volume.
Consolidated net interest expense and other for the fourth quarter declined
to $8.4 million from $13.7 million in 1993 due primarily to the use of proceeds
from the continued monetization of Itel's non-core assets to significantly
reduce high-cost debt.
Year ended December 31, 1994: Income from continuing operations was $46.2
million in 1994 compared with $28.8 million in 1993. Results in 1994 include a
$48.2 million pre-tax gain on the ANTEC Offering and a $10.8 million pre-tax
gain relating to ANTEC's issuance of common stock in connection with an
acquisition in November 1994. Results of continuing operations in 1993
principally include an $84.5 million pre-tax gain on the ANTEC Initial Offering
and a $6.4 million pre-tax gain on other investments offset by a pre-tax loss of
approximately $19.1 million relating to the liquidation of the Company's equity
investment in Q-TEL. Results of continuing operations in 1994 and 1993 include
pre-tax charges associated with the sale and write-down of marketable equity
securities of $39.6 million and $25.0 million, respectively. Net income (loss)
was $246.9 million and ($1.2) million for the years ended December 31, 1994 and
1993, respectively. Income from
14
15
discontinued operations in 1994 reflects a $202.0 million after-tax gain from
the sale of the Company's rail car leasing business. The Company retired or
called for redemption a significant amount of its subordinated and senior debt
resulting in an extraordinary net loss of ($16.0) million in 1993.
Anixter revenues in 1994 rose 30% to $1.7 billion resulting from the
continued growth of the North American business and the continuing penetration
in Europe, Asia, and Latin America. North America revenues in 1994 increased 28%
to $1.4 billion due to strong demand for its communications business, focused
marketing efforts in its electrical wiring systems business and increased
Canadian wire and cable revenues. Europe revenues in 1994 increased to $316.8
million from $244.6 million due primarily to continued expansion and increased
market penetration, particularly in networking products, across all geographic
territories. Asia and Latin America revenues more than doubled to $55.3 million
in 1994 due to increased market penetration, strong product demand and expansion
into new territories. Revenues by Anixter's major markets are presented in the
following table.
YEARS ENDED DECEMBER 31,
------------------------
1994 1993
-------- --------
(IN MILLIONS)
North America................................................. $1,360.5 $1,059.6
Europe........................................................ 316.8 244.6
Asia and Latin America........................................ 55.3 24.4
-------- --------
$1,732.6 $1,328.6
======== ========
ANTEC revenues, which were reflected in the consolidated results in 1993
but not in 1994, increased 29% to $553.5 million in 1994 from $427.6 million in
1993 due to 1994 acquisitions and international growth.
Anixter operating income before amortization of goodwill for 1994 increased
32% to $80.6 million due primarily to significantly improved volume and earnings
in North America. North America operating income before goodwill increased 25%
to $76.3 million in 1994 due to volume related economies of scale and
termination of the equity participation plan and catalog business in 1993
somewhat offset by increased spending for new service and logistics initiatives.
Europe operating income before goodwill in 1994 nearly doubled to $6.9 million
from $3.5 million due primarily to continued expansion and volume related
economies of scale and a positive earnings contribution from Continental Europe.
Asia and Latin America operating loss decreased to ($2.6) million from ($4.1)
million in 1993 due to reduced start-up losses in Asia and Latin America
reaching breakeven volume levels. Aggregate gross start-up losses in expansion
markets, which have yet to achieve profitable operations in their respective
years, were ($6.7) million in 1994 compared to ($8.6) million in 1993. Operating
income (loss) before amortization of goodwill by Anixter's major markets is
presented in the following table.
YEARS ENDED
DECEMBER 31,
---------------
1994 1993
----- -----
(IN MILLIONS)
North America........................................................ $76.3 $61.7
Europe............................................................... 6.9 3.5
Asia and Latin America............................................... (2.6) (4.1)
----- -----
$80.6 $61.1
===== =====
ANTEC operating income before amortization of goodwill, which was reflected
in the consolidated results in 1993 but not in 1994, increased 67% to $42.2
million from $25.2 million in 1993 due to increased volume.
Consolidated net interest expense and other for 1994 declined to $27.1
million from $58.9 million in 1993 due to the use of proceeds from the continued
monetization of Itel's non-core assets to significantly reduce high-cost
subordinated debt.
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Year ended December 31, 1993: Income (loss) from continuing operations was
$28.8 million in 1993 compared with ($45.8) million in 1992. Results of
continuing operations in 1993 principally include an $84.5 million pre-tax gain
on the ANTEC Initial Offering and a $6.4 million pre-tax gain on other
investments offset by a pre-tax loss of approximately $19.1 million relating to
the liquidation of the Company's equity investment in Q-TEL. 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.
Anixter revenues rose 14% to $1.3 billion resulting from the continued
growth of the North America electrical wiring systems and networking businesses
and the continuing worldwide expansion. North America revenues in 1993 increased
13% to $1.1 billion due to strong demand for communications products and more
modest growth in its electrical wiring systems. Europe revenues in the 1993
increased to $244.6 million from $217.9 million due primarily to continued
expansion and increased market penetration and the impact of an acquired company
partially offset by currency fluctuations which caused dollar converted sales to
grow at a lesser rate than local currency sales. Asia and Latin America revenues
more than doubled to $24.4 million in 1993 due to increased market penetration
and expansion into new territories. Revenues by Anixter's major markets are
presented in the following table.
YEARS ENDED
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN MILLIONS)
North America................................................... $1,059.6 $ 933.3
Europe.......................................................... 244.6 217.9
Asia and Latin America.......................................... 24.4 12.4
-------- --------
$1,328.6 $1,163.6
======= =======
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.
Consolidated operating income was $68.2 million compared with $42.6 million
in 1992. Consolidated operating income before amortization of goodwill increased
to $77.0 million from $51.0 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 North America distribution offset slightly by increased
spending in other markets. North America operating income before goodwill
increased 46% to $61.7 million in 1993 due to increased volume, improved
operating efficiencies and a significant reduction in charges for the equity
participation plan in 1993. Europe operating income before goodwill in 1993
increased slightly to $3.5 million from $3.3 million due primarily to
continental Europe reaching breakeven volumes partially offset by decreased U.K.
profitability resulting from reorganization activities. Asia and Latin America
operating loss increased to ($4.1) million in 1993 from ($.9) million in 1992
due to increased start-up losses due to establishing new operations in Hong
Kong, Malaysia, Australia and Mexico. Aggregate gross start-up losses in
expansion markets, which have yet to achieve profitable operations in their
respective years, were ($8.6) million in 1993 compared to ($4.1) million in
1992. The 1992 period also contained special charges related to
16
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a terminated equity participation plan. Operating income (loss) before
amortization of goodwill by Anixter's major markets is presented in the
following table.
YEARS ENDED
DECEMBER 31,
---------------
1993 1992
----- -----
(IN MILLIONS)
North America........................................................ $61.7 $42.4
Europe............................................................... 3.5 3.3
Asia and Latin America............................................... (4.1) (.9)
----- -----
$61.1 $44.8
===== =====
ANTEC operating income before amortization of goodwill increased 70% to
$25.2 million in 1993 from $14.8 million in 1992 reflecting significantly
increased volume.
Consolidated net interest expense and other for 1993 declined to $58.9
million from $77.9 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.
Impact of Inflation: Inflation has slowed in recent years and is currently
not an important determinant of Anixter's results of operations due, in part, to
rapid inventory turnover.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
------------------------------------------------------------------------
Report of Independent Auditors...................................... 18
Consolidated Balance Sheets......................................... 19
Consolidated Statements of Operations............................... 21
Consolidated Statements of Cash Flows............................... 23
Consolidated Statements of Stockholders' Equity..................... 25
Notes to the Consolidated Financial Statements...................... 26
Summary Quarterly Financial Information (Unaudited)................. 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
17
18
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, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. 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, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, 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, 1994 (page 20) and supplemental
statements of operations for the years ended December 31, 1994 and 1993 (page
22) and supplemental statements of cash flows for the year ended December 31,
1994 (page 24) 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 LLP
Chicago, Illinois
February 6, 1995
18
19
ITEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
------------------------
1994 1993
---------- ----------
ASSETS
Current assets:
Cash and equivalents................................................ $ 14,200 $ 31,000
Accounts receivable (net of allowances for doubtful accounts of
$6,000 and $6,200, respectively)................................. 325,900 284,000
Inventories, primarily finished goods............................... 275,800 322,200
Other assets........................................................ 4,900 7,000
---------- ----------
Total current assets........................................ 620,800 644,200
Property, primarily equipment, at cost................................ 68,600 68,500
Accumulated depreciation.............................................. (35,200) (36,100)
---------- ----------
Net property................................................ 33,400 32,400
Goodwill (net of accumulated amortization of $45,500 and $58,400,
respectively)....................................................... 187,900 286,200
Discontinued and assets held for sale, net............................ 105,400 270,900
Marketable equity securities available-for-sale (cost of $75,600 and
$163,000, respectively)............................................. 64,500 126,400
Investment in ANTEC................................................... 69,500 --
Other assets.......................................................... 29,400 20,500
---------- ----------
$1,110,900 $1,380,600
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 186,200 $ 173,200
Accrued expenses.................................................... 80,300 114,100
---------- ----------
Total current liabilities................................... 266,500 287,300
Income taxes, net, primarily deferred................................. 600 99,600
Other liabilities..................................................... 11,200 12,300
Long-term debt--subsidiaries.......................................... 280,500 206,300
--corporate........................................... -- 288,500
---------- ----------
Total liabilities........................................... 558,800 894,000
Minority interests.................................................... 8,200 81,300
Stockholders' equity:
Common stock--100,000,000 shares authorized, 29,426,000 and
33,010,000 shares issued and outstanding, respectively........... 29,400 33,000
Capital surplus..................................................... 262,500 383,500
Retained earnings................................................... 269,300 22,400
Cumulative translation adjustments.................................. (10,100) (9,900)
---------- ----------
551,100 429,000
Unrealized losses on marketable equity securities available-for-sale
(net of deferred income tax benefit)............................. (7,200) (23,700)
---------- ----------
Total stockholders' equity.................................. 543,900 405,300
---------- ----------
$1,110,900 $1,380,600
========= =========
See accompanying notes to the consolidated financial statements.
19
20
ITEL CORPORATION
SUPPLEMENTAL BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, 1994
-----------------------------------
CONSOLIDATED ANIXTER ALL OTHER
------------ -------- ---------
ASSETS
Current assets:
Cash and equivalents........................................ $ 14,200 $ 10,000 $ 4,200
Accounts receivable, net.................................... 325,900 325,200 700
Inventories, primarily finished goods....................... 275,800 275,800 --
Other assets................................................ 4,900 4,700 200
------------ -------- ---------
Total current assets................................ 620,800 615,700 5,100
Property, primarily equipment, at cost........................ 68,600 66,400 2,200
Accumulated depreciation...................................... (35,200) (33,000) (2,200)
------------ -------- ---------
Net property........................................ 33,400 33,400 --
Goodwill, net................................................. 187,900 187,900 --
Discontinued and assets held for sale, net.................... 105,400 -- 105,400
Marketable equity securities available-for-sale, net.......... 64,500 -- 64,500
Investment in ANTEC........................................... 69,500 -- 69,500
Other assets.................................................. 29,400 2,600 26,800
------------ -------- ---------
$ 1,110,900 $839,600 $ 271,300
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 186,200 $183,300 $ 2,900
Accrued expenses............................................ 80,300 68,300 12,000
------------ -------- ---------
Total current liabilities........................... 266,500 251,600 14,900
Income taxes, net, primarily deferred......................... 600 (18,000) 18,600
Other liabilities............................................. 11,200 10,000 1,200
Intercompany payable (receivable)............................. -- 56,400 (56,400)
Long-term debt................................................ 280,500 263,500 17,000
------------ -------- ---------
Total liabilities................................... 558,800 563,500 (4,700)
Minority interests............................................ 8,200 6,000 2,200
Stockholders' equity:
Common stock................................................ 29,400 300 29,100
Capital surplus............................................. 262,500 296,200 (33,700)
Retained earnings........................................... 269,300 (16,100) 285,400
Cumulative translation adjustments.......................... (10,100) (10,300) 200
------------ -------- ---------
551,100 270,100 281,000
Unrealized losses on marketable equity securities
available-for-sale, net.................................. (7,200) -- (7,200)
------------ -------- ---------
Total stockholders' equity.......................... 543,900 270,100 273,800
------------ -------- ---------
$ 1,110,900 $839,600 $ 271,300
========= ======== ========
Supplemental consolidating data are shown for Anixter and All Other.
Transactions between Anixter and All Other have been eliminated from the
consolidated column.
20
21
ITEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
CONSOLIDATED
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Revenues--Anixter..................................... $ 1,732,600 $ 1,328,600 $ 1,163,600
--ANTEC..................................... -- 427,600 301,000
----------- ----------- -----------
1,732,600 1,756,200 1,464,600
Cost of operations:
Cost of sales....................................... (1,298,300) (1,324,500) (1,096,700)
Operating expenses.................................. (358,500) (354,700) (316,900)
Amortization of goodwill............................ (6,000) (8,800) (8,400)
----------- ----------- -----------
(1,662,800) (1,688,000) (1,422,000)
----------- ----------- -----------
Operating income...................................... 69,800 68,200 42,600
Other (expenses) income:
Interest expense and other.......................... (33,000) (72,200) (84,900)
Interest income and other........................... 5,900 13,300 7,000
Equity earnings in ANTEC............................ 7,900 -- --
Non-recurring items, net (including $59.0 million
and $84.5 million aggregate gains on ANTEC common
stock issuances in 1994 and 1993,
respectively).................................... 59,000 71,800 --
Marketable equity securities losses, principally
write-downs...................................... (39,600) (25,000) (25,000)
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes................................. 70,000 56,100 (60,300)
Income tax (expense) benefit.......................... (23,800) (27,300) 14,500
----------- ----------- -----------
Income (loss) from continuing operations.............. 46,200 28,800 (45,800)
Income (loss) from discontinued operations
(net of related taxes).............................. 200,700 (14,000) (38,100)
----------- ----------- -----------
Income (loss) before extraordinary items.............. 246,900 14,800 (83,900)
Extraordinary items (net of related taxes)............ -- (16,000) (20,400)
----------- ----------- -----------
Net income (loss)..................................... 246,900 (1,200) (104,300)
Preferred stock dividends and amortization............ -- (3,100) (6,100)
----------- ----------- -----------
Income (loss) applicable to common stock.............. $ 246,900 $ (4,300) $ (110,400)
=========== =========== ===========
Income (loss) per common and common equivalent share:
Continuing operations............................... $1.44 $ .85 $(1.78)
Before extraordinary items.......................... $7.71 $ .39 $(3.09)
Net income (loss)................................... $7.71 $(.14) $(3.79)
===== ===== ======
See accompanying notes to the consolidated financial statements.
21
22
ITEL CORPORATION
SUPPLEMENTAL STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
ANIXTER ANTEC ALL OTHER
------------------------- ----------------------- -------------------
1994 1993 1994 1993 1994 1993
----------- ----------- ----------- --------- -------- --------
Revenues................................. $ 1,732,600 $ 1,328,600 N/A $ 427,600 $ -- $ --
Cost of operations:
Cost of sales.......................... (1,298,300) (979,900) (344,600) -- --
Operating expenses..................... (353,700) (287,600) (57,800) (4,800) (9,300)
Amortization of goodwill............... (6,000) (6,000) (2,800) -- --
----------- ----------- --------- -------- --------
(1,658,000) (1,273,500) (405,200) (4,800) (9,300)
----------- ----------- --------- -------- --------
Operating income (loss).................. 74,600 55,100 22,400 (4,800) (9,300)
Other (expenses) income:
Interest expense and other............. (20,400) (31,000) (3,500) (12,600) (37,700)
Interest income and other.............. 1,200 1,100 100 4,700 12,100
Equity earnings in ANTEC............... -- -- -- 7,900 --
Non-recurring items, net............... -- -- -- 59,000 71,800
Marketable equity securities losses,
principally write-downs.............. -- -- -- (39,600) (25,000)
----------- ----------- --------- -------- --------
Income from continuing operations before
income taxes........................... 55,400 25,200 19,000 14,600 11,900
Income tax (expense) benefit............. (25,600) (17,500) (9,000) 1,800 (800)
----------- ----------- --------- -------- --------
Income from continuing operations........ 29,800 7,700 10,000 16,400 11,100
Income (loss) from discontinued
operations (net of related taxes)...... -- -- -- 200,700 (14,000)
----------- ----------- --------- -------- --------
Income (loss) before extraordinary
items.................................. 29,800 7,700 10,000 217,100 (2,900)
Extraordinary items (net of related
taxes)................................. -- -- -- -- (16,000)
----------- ----------- --------- -------- --------
Net income (loss)........................ $ 29,800 $ 7,700 $ 10,000 $217,100 $(18,900)
============ ============ ========== ========= =========
Supplemental consolidating data are shown for Anixter, ANTEC and All Other.
Transactions between Anixter, ANTEC and All Other have been eliminated from the
consolidated columns.
22
23
ITEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
Operating activities:
Income (loss) from continuing operations.............. $ 46,200 $ 28,800 $ (45,800)
Adjustments to reconcile income (loss) from continuing
operations to net cash used by continuing operating
activities:
Depreciation..................................... 10,000 10,800 10,100
Amortization of goodwill......................... 6,000 8,800 8,400
Deferred income tax expense (benefit)............ 20,400 20,500 (16,600)
Non-recurring items, net......................... (59,000) (71,800) --
Marketable equity securities losses, principally
write-downs................................... 39,600 25,000 25,000
Non-cash financing expense....................... 3,900 8,100 8,300
Other, net....................................... (800) 7,300 12,600
Changes in assets and liabilities, net of effects
of acquisitions and asset purchases:
Accounts receivable........................... (99,100) (50,100) (25,100)
Inventories................................... (35,400) (55,700) (17,500)
Accounts payable and accrued expenses......... 51,800 34,800 (24,100)
Other, net.................................... (19,000) (8,900) 24,400
--------- --------- ---------
Net cash used by continuing operating
activities............................... (35,400) (42,400) (40,300)
Discontinued operations, net.......................... 262,500 117,400 868,500
--------- --------- ---------
Net cash provided by operating activities... 227,100 75,000 828,200
Investing activities:
Sales of securities................................... 47,800 3,700 --
Purchases of property................................. (17,200) (13,400) (8,000)
Sale of and net receipts from ANTEC................... 82,800 156,600 --
Receipts from and (advances to) Q-TEL................. 12,500 23,700 (15,000)
Other, net............................................ (6,600) (2,300) (2,400)
--------- --------- ---------
Net investing activities.................... 119,300 168,300 (25,400)
--------- --------- ---------
Net cash provided before financing activities........... 346,400 243,300 802,800
Financing activities:
Borrowings............................................ 858,600 915,500 539,800
Reductions in subordinated indebtedness............... (246,600) (344,500) (484,200)
Reductions in borrowings.............................. (840,700) (817,400) (763,200)
Proceeds from issuance of common stock................ 8,600 21,100 21,300
Purchases of treasury stock........................... (138,900) (300) (114,300)
Other, net............................................ (4,200) (8,700) (8,800)
--------- --------- ---------
Net financing activities.................... (363,200) (234,300) (809,400)
--------- --------- ---------
Cash provided (used).................................... (16,800) 9,000 (6,600)
Cash and equivalents at beginning of year............... 31,000 22,000 28,600
--------- --------- ---------
Cash and equivalents at end of year..................... $ 14,200 $ 31,000 $ 22,000
========= ========= =========
See accompanying notes to the consolidated financial statements.
23
24
ITEL CORPORATION
SUPPLEMENTAL STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1994
--------------------------------------
CONSOLIDATED ANIXTER ALL OTHER
------------ --------- ---------
Operating activities:
Income from continuing operations......................... $ 46,200 $ 29,800 $ 16,400
Adjustments to reconcile income from continuing operations
to net cash used by continuing operating activities:
Depreciation......................................... 10,000 10,000 --
Amortization of goodwill............................. 6,000 6,000 --
Deferred income tax expense (benefit)................ 20,400 (1,700) 22,100
Non-recurring items, net............................. (59,000) -- (59,000)
Marketable equity securities losses, principally
write-downs....................................... 39,600 -- 39,600
Non-cash financing expense........................... 3,900 900 3,000
Other, net........................................... (800) 7,100 (7,900)
Changes in assets and liabilities, net of effects of
acquisitions and asset purchases:
Accounts receivable............................... (99,100) (99,500) 400
Inventories....................................... (35,400) (35,400) --
Accounts payable and accrued expenses............. 51,800 70,400 (18,600)
Other, net........................................ (19,000) (300) (18,700)
------------ --------- ---------
Net cash (used) by continuing operating
activities................................... (35,400) (12,700) (22,700)
Discontinued operations, net................................ 262,500 -- 262,500
------------ --------- ---------
Net cash provided (used) by operating
activities................................... 227,100 (12,700) 239,800
Investing activities:
Sales of securities....................................... 47,800 -- 47,800
Purchases of property..................................... (17,200) (17,200) --
Sale of ANTEC common stock................................ 82,800 -- 82,800
Receipts from Q-TEL....................................... 12,500 -- 12,500
Other, net................................................ (6,600) 500 (7,100)
------------ --------- ---------
Net investing activities........................ 119,300 (16,700) 136,000
------------ --------- ---------
Net cash provided (used) before financing activities........ 346,400 (29,400) 375,800
Financing activities:
Borrowings................................................ 858,600 659,500 199,100
Reductions in subordinated indebtedness................... (246,600) -- (246,600)
Reductions in borrowings.................................. (840,700) (590,700) (250,000)
Proceeds from issuance of common stock.................... 8,600 -- 8,600
Intercompany activity, net................................ -- (47,800) 47,800
Purchases of treasury stock............................... (138,900) -- (138,900)
Other, net................................................ (4,200) (4,200) --
------------ --------- ---------
Net financing activities........................ (363,200) 16,800 (380,000)
------------ --------- ---------
Cash (used)................................................. (16,800) (12,600) (4,200)
Cash and equivalents at beginning of year................... 31,000 22,600 8,400
------------ --------- ---------
Cash and equivalents at end of year......................... $ 14,200 $ 10,000 $ 4,200
========== ========= =========
Supplemental consolidating data are shown for Anixter and All Other.
Transactions between Anixter and All Other have been eliminated from the
consolidated column.
24
25
ITEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
CUMULATIVE WARRANT UNREALIZED LOSSES
PREFERRED COMMON CAPITAL RETAINED TRANSLATION NOTE ON MARKETABLE
STOCK STOCK SURPLUS EARNINGS ADJUSTMENTS RECEIVABLE EQUITY SECURITIES TOTAL
-------- ------- --------- --------- -------- -------- ----------------- -----------------
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,
net............. (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
valuation
allowance....... -- -- -- -- -- -- (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,
net............. -- 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
Net income........ -- -- -- 246,900 -- -- -- 246,900
Issuance of common
stock and
other, net...... -- 500 13,800 -- -- -- -- 14,300
Foreign currency
translation
adjustments..... -- -- -- -- (200) -- -- (200)
Purchases and
retirement of
treasury
stock........... -- (4,100) (134,800) -- -- -- -- (138,900)
Net change in
unrealized
losses on
marketable
equity
securities
available-for-sale... -- -- -- -- -- -- 16,500 16,500
-------- ------- --------- --------- -------- -------- -------- -----------------
Balance at
December 31,
1994............ $ -- $29,400 $ 262,500 $ 269,300 $(10,100) $ -- $ (7,200) $ 543,900
======== ======= ========= ========= ======== ======== =============== =========
See accompanying notes to the consolidated financial statements.
25
26
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.
Reclassifications: Due to the May 1994 sale of ANTEC Corporation and its
subsidiaries (collectively "ANTEC") common stock (see Note 5), the 1994
consolidated financial statements and related notes reflect ANTEC as an equity
investment. All prior consolidated financial statements and related notes
reflect ANTEC as a consolidated subsidiary of Itel. In addition, due to the 1994
sale of the Company's remaining interests in its rail cars (see Note 3), the
Company's investment in its rail car leasing business has been reclassified in
the consolidated financial statements as discontinued operations for all periods
presented. Certain 1993 and prior information has been reclassified to conform
to the 1994 presentation.
Cash and equivalents: 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.
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 25 to 40 years
for buildings and improvements, 3 to 10 years for 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") 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.
Marketable equity securities available-for-sale: Marketable equity
securities available-for-sale are reflected in the balance sheet at fair value
as of the balance sheet date. The difference between cost and market is
reflected in stockholders' equity net of deferred tax benefit. Realized gains
(losses) on dispositions of securities are determined using the average cost
method. Realized pre-tax gains (losses), before related interest carrying costs,
were ($5.2) million, $.3 million and zero in 1994, 1993 and 1992, respectively.
Aggregate unrealized pre-tax loss on marketable equity securities
available-for-sale amounted to $11.1 million at December 31, 1994 (see Note 6).
Investment in ANTEC: Dilution of the Company's ownership position in ANTEC
which results from the issuance of shares of common stock by ANTEC is treated as
if an equivalent percentage of ownership had been disposed of by the Company. To
the extent ANTEC issues shares of common stock at amounts per share in excess of
or less than the Company's average per share carrying value, gains or losses
from such changes in ownership are recorded in income when such issuances occur.
In May 1994, Itel sold 4.0 million shares of ANTEC common stock in a public
offering (the "ANTEC Offering"). As a result of the ANTEC Offering, Itel's
ownership of ANTEC common stock was reduced from 53% to 33%. In addition, in
November 1994, ANTEC issued approximately 2.0 million shares of ANTEC common
stock in connection with an acquisition which lowered Itel's ownership to
approximately 30%. The Company reflects ANTEC as an equity investment in the
1994 consolidated financial statements. As of December 31, 1994, the market
value of Itel's investment in ANTEC was $123.6 million.
26
27
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
approximately 45% of debt obligations at December 31, 1994 is fixed or capped.
At December 31, 1994, the Company had five interest rate cap agreements
outstanding with a notional amount aggregating $125 million. These interest rate
cap agreements effectively entitle the Company to receive from the banks the
amount by which the Corporation's interest payments on $125 million of its
floating rate debt exceed 6 3/4%. The $1.6 million premium paid for these
interest rate cap agreements are included in other assets and are being
amortized to interest expense over the life of the respective interest rate cap
agreements which expire in 1996 and 1997. Payments received as a result of the
interest rate cap agreements are recognized as a reduction of interest expense
on its floating rate debt. The carrying value and the fair value of these
interest rate cap agreements are $1.1 million and $3.6 million, respectively, at
December 31, 1994. The fair value of interest rate cap agreements is the
estimated amount that the Company would pay to enter into the interest rate
agreements at the reporting date, taking into account current interest rates. At
December 31, 1994, no interest rate swap agreements were outstanding. The impact
of interest rate agreements on interest expense, net for the years ended
December 31, 1994, 1993 and 1992 was to increase interest expense by
approximately $6.0 million, $10.8 million and $15.2 million, respectively.
Foreign currency forward contracts: The Company has purchased short-term
foreign currency forward contracts to minimize the effect of fluctuating foreign
currencies on its reported income. The impact of these foreign currency forward
contracts on the income statement was insignificant in 1994, 1993 and 1992. The
forward contracts are revalued at current foreign exchange rates, with the
changes in valuation reflected directly in income. At December 31, 1994, the
Company had approximately $16.0 million in foreign currency forward contracts
outstanding.
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, and in 1993 and 1992, after deducting preferred
dividends earned and the amortization of preferred stock discounts. Weighted
average common and common equivalent shares were 32,045,000, 30,132,000 and
29,085,000 for 1994, 1993 and 1992, respectively.
NOTE 2. SUPPLEMENTAL CASH FLOW INFORMATION
Continuing operations of the Company paid interest, including that portion
allocated to discontinued operations, of approximately $52.4 million, $96.7
million and $152.4 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Approximately $27.8 million, $7.0 million and $1.2 million was
paid for income taxes for the years ended December 31, 1994, 1993 and 1992,
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 1993.
NOTE 3. DISCONTINUED AND ASSETS HELD FOR SALE
On July 25, 1994, Itel sold 99.5% of its remaining interests in its rail
cars for $35.0 million in cash and $169.5 million in notes receivable for an
aggregate purchase price of $204.5 million. The buyer prepaid all the notes and
related interest in October 1994. The Company's remaining interest in the rail
cars was sold in
27
28
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
October for cash of approximately $1.0 million. The net gain on the sale of the
Company's entire interest in rail cars was approximately $202.0 million. The
total cash proceeds of $205.5 million were used to: (1) repay the $150 million
Corporate senior bank term ("Term Loan"); (2) pay the related income tax
liability of approximately $25 million caused by the sale which resulted after
utilization of the Company's net operating loss ("NOL") and investment tax
credit ("ITC") carryforwards; and (3) other general corporate purposes including
the purchase of the Company's common stock.
The finance business of Signal Capital Corporation ("Signal Capital") has
been included as assets held for sale since acquisition in 1988. Subsequent to
the purchase, Itel sold or liquidated portions of the portfolio including $855
million in 1989, $78 million in 1990, $157 million in 1991, $82 million in 1992,
$82 million in 1993 and $60 million in 1994. The $113.8 million net portfolio at
December 31, 1994 represents approximately 8% of the original acquired Signal
Capital portfolio. The acquired Signal Capital portfolio is being liquidated and
no material amounts of new loans or investments are being made by Signal
Capital. Proceeds were used to repay indebtedness. The Company has had and
continues to have discussions with third parties for the sale of substantial
portions of the acquired Signal Capital portfolio of loans and leases. Absent
such transactions, which the Company continues to pursue, such orderly
liquidation is expected to continue over approximately the next two years. The
Company continues to reduce the acquired Signal Capital portfolio in an orderly
manner that maximizes its value to Itel shareholders.
In 1994, 1993 and 1992, the Company sold substantially all of its other
transportation services assets for aggregate net cash proceeds of $64 million.
The Company recorded a $26 million pre-tax loss in 1992 in discontinued
operations to reflect the disposal of this segment.
The results of operations of rail car leasing business, the other
transportation services segment, other previously sold businesses and the
results of the acquired Signal Capital portfolio have been included in
discontinued operations net of allocated corporate interest expense. Allocated
corporate interest expense amounted to $6.3 million, $19.0 million and $58.0
million for the years ended December 31, 1994, 1993 and 1992, respectively.
Summarized financial results of discontinued operations were as follows:
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
Revenues:
Signal Capital............................................ $ 2.0 $ 21.3 $ 29.4
Rail car leasing.......................................... 89.3 153.0 217.5
Other discontinued operations, principally transportation
services............................................... .6 49.4 95.6
------ ------ ------
$ 91.9 $223.7 $342.5
====== ====== ======
Operating income:
Signal Capital............................................ $ 4.2 $ 8.0 $ 18.2
Rail car leasing.......................................... 52.3 89.7 84.3
Other discontinued operations, principally transportation
services............................................... .5 4.9 12.9
------ ------ ------
$ 57.0 $102.6 $115.4
====== ====== ======
Loss from discontinued operations before gain (loss) on
sales (net of related taxes).............................. $ (1.3) $(14.0) $(22.0)
Gain (loss) on sales (net of related taxes)................. 202.0 -- (16.1)
------ ------ ------
Income (loss) from discontinued operations (net of related
tax benefits of $101.1 million, $5.9 million and $18.9
million in 1994, 1993 and 1992, respectively.)............ $200.7 $(14.0) $(38.1)
====== ====== ======
28
29
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The composition of remaining discontinued and assets held for sale, net
consisted of the following:
DECEMBER 31,
--------------------
1994 1993
------ ---------
(IN MILLIONS)
Discontinued rail car leasing:
Assets (principally property, net)............................... $ -- $ 1,193.6
Liabilities (principally long-term debt)......................... -- (1,113.8)
------ ---------
-- 79.8
Assets held for sale and other discontinued assets, net:
Finance receivables, net......................................... 113.8 174.9
Other, net....................................................... (8.4) 16.2
------ ---------
105.4 191.1
------ ---------
$105.4 $ 270.9
====== ========
NOTE 4. NON-RECURRING ITEMS
Non-recurring items in 1994 reflect a $48.2 million pre-tax gain on the
ANTEC Offering relating to the May 1994 public offering of shares of common
stock of ANTEC. Itel sold 4.0 million shares of ANTEC common stock at $21.75 per
share. Net proceeds from the ANTEC Offering were approximately $83 million.
Non-recurring items in 1994 also reflect a $10.8 million pre-tax gain relating
to ANTEC's issuance of approximately 2.0 million shares of ANTEC common stock in
connection with an acquisition in November 1994. Itel provided income taxes
relating to the recognized pre-tax book gains.
Non-recurring items in 1993 reflect an $84.5 million pre-tax gain on the
1993 initial public offering of shares of common stock of ANTEC (the "Initial
Offering"). Itel provided income taxes relating to the recognized pre-tax book
gain. Itel and ANTEC sold approximately 4.0 million and 5.4 million shares of
ANTEC common stock, respectively, at $18 per share. Net proceeds from the
Initial Offering to Itel, after considering the redemption by ANTEC of preferred
shares owned by Itel, were approximately $97 million. Non-recurring items in
1993 also reflect a $6.4 million pre-tax gain on other investments.
The non-recurring pre-tax gains in 1993 were offset by a pre-tax loss of
approximately $19.1 million relating to the liquidation of the Company's equity
investment in Q-TEL. The remaining written-down equity investment and loans due
from Q-TEL were liquidated during the latter half of 1993 and early 1994.
29
30
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. SUMMARIZED FINANCIAL INFORMATION OF ANTEC
The Company has an approximately 30% ownership interest in ANTEC and
accounts for ANTEC under the equity method in 1994. The following summarizes the
financial information for ANTEC:
ANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31,
-----------------------------
1994 1993
----------- -----------
(IN MILLIONS)
Assets:
Current assets.......................................... $ 234.2 $ 138.8
Property, net........................................... 22.4 5.6
Goodwill................................................ 167.4 92.3
Other assets............................................ 14.0 7.0
------- -------
$ 438.0 $ 243.7
======= =======
Liabilities and Shareholders' Equity:
Current liabilities..................................... $ 83.1 $ 68.3
Long-term debt.......................................... 125.2 18.0
Shareholders' equity.................................... 229.7 157.4
------- -------
$ 438.0 $ 243.7
======= =======
ANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993
----------- -----------
(IN MILLIONS)
Revenues.................................................. $ 553.5 $ 427.6
======= =======
Operating income.......................................... $ 39.0 $ 22.4
======= =======
Income before income tax expense.......................... $ 34.5 $ 19.0
======= =======
Net income................................................ $ 18.9 $ 10.0
======= =======
Company's share of net income............................. $ 7.9 $ 8.4
======= =======
NOTE 6. MARKETABLE EQUITY SECURITIES AVAILABLE-FOR-SALE
In 1994, 1993 and 1992, the Company wrote down the value of its investments
in marketable equity securities, including Catellus which was sold in 1994, by
$34.4 million, $25.0 million and $25.0 million, respectively. The Company has
reduced the pre-tax unrealized losses on marketable equity securities
available-for-sale included in stockholders' equity by $3.9 million at December
31, 1994 to reflect a deferred tax benefit due to the Company's current ability
to either (a) carryback all December 31, 1994 unrealized capital losses to
previously generated capital gains or (b) generate capital gains by the future
sale of capital assets to offset December 31, 1994 unrealized capital losses.
30
31
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. EXTRAORDINARY ITEMS
In 1993 and 1992, the Company retired or called for redemption senior and
subordinated debt resulting in pre-tax extraordinary losses of ($26.2) million
and ($32.9) million, respectively.
NOTE 8. ACCRUED EXPENSES
Accrued expenses consists of the following:
DECEMBER 31,
----------------
1994 1993
----- ------
(IN MILLIONS)
Interest.......................................................... $ .7 $ 17.8
Wages, salaries and related....................................... 39.8 42.4
Taxes other than income........................................... 9.2 8.6
Other............................................................. 30.6 45.3
----- ------
$80.3 $114.1
===== ======
NOTE 9. DEBT
Debt is summarized below.
DECEMBER 31,
-----------------
1994 1993
------ ------
(IN MILLIONS)
Itel:
13% Senior Subordinated Notes.................................. $ -- $221.0
10.2% Senior Subordinated Extendible Notes..................... -- 17.5
Corporate Loan................................................. -- --
Term Loan...................................................... -- 50.0
------ ------
Total Itel debt............................................. $ -- $288.5
====== ======
Subsidiaries:
Bank revolving lines of credit................................. $260.5 $184.7
ANTEC.......................................................... -- 18.0
Other.......................................................... 20.0 3.6
------ ------
Total subsidiaries debt..................................... $280.5 $206.3
====== ======
Total debt....................................................... $280.5 $494.8
====== ======
Itel--
Corporate Loan: On November 10, 1994, Itel obtained a $115.0 million senior
bank term loan facility ("Corporate Loan") from a group of banks. The Corporate
Loan is secured by the Company's investments in the capital stock of Anixter and
ANTEC aggregating $337 million at net book value at December 31, 1994. To the
extent amounts are borrowed, the Corporate Loan matures annually as follows:
1995--none; 1996--$29.0 million; and 1997--$86.0 million. Floating and fixed
interest rate options are available based on the prime or LIBOR rates. At
December 31, 1994, all $115.0 million was available.
31
32
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsidiaries--
Bank revolving lines of credit: Anixter has various secured revolving bank
lines of credit worldwide which provide for up to $409.3 million of borrowings
contingent on the level of certain assets. At December 31, 1994, $260.5 million
was borrowed and $144.8 million was available under the bank revolving lines of
credit at Anixter, of which $56.4 million was available for general corporate
purposes. These lines of credit reduce or mature at various dates from 1996
through 1997. The $345.0 million domestic revolving line of credit, which
matures in 1997, may be extended for two additional one-year periods at the
option of the lender. Floating and fixed interest rate options, based on the
prime or LIBOR rate, are available under these facilities and the average
interest rate at December 31, 1994 was 6.8%. Commitment fees of 1/8% to 1/2%
are payable on the unused portion of these revolving lines of credit. The 1994
commitment fees paid were insignificant.
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 $600
million at December 31, 1994. Itel has guaranteed certain debt and other
obligations of Anixter. Restricted net assets of subsidiaries were approximately
$300 million at December 31, 1994.
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 redeem or otherwise acquire such shares of the Company.
Approximately $393.9 million is available for such distributions under the most
restrictive of these covenants.
Aggregate annual maturities of debt are as follows: 1995--none; 1996--$43.4
million; 1997--$220.1 million; 1998--none; 1999--none; $17.0 million thereafter.
The fair value of the Company's debt was $280.5 million at December 31,
1994. The carrying amount of the Company's debt approximates fair value because
the underlying instruments are at variable rates which reprice frequently.
NOTE 10. INCOME TAXES
Itel and its U.S. subsidiaries file their Federal income tax return on a
consolidated basis. As of December 31, 1994, the Company had no NOL or ITC
carryforwards for Federal income tax purposes due to the sale of the Company's
rail car leasing business which exhausted virtually all carryforwards existing
at December 31, 1993. As of December 31, 1993, the Company had cumulative NOL
carryforwards of approximately $345 million that were set to expire primarily in
1995 through 2007, and ITC carryforwards of approximately $16 million that were
set to expire between 1994 and 2001. Certain of these carryforwards have not
been examined by the Internal Revenue Service ("IRS") and, therefore, may still
be subject to adjustment. The availability of tax benefits of NOL and ITC
carryforwards to reduce the Company's Federal income tax liability is subject to
various limitations under the Internal Revenue Code of 1986, as amended (the
"Code"). In addition, at December 31, 1994, various foreign subsidiaries of Itel
had aggregate cumulative NOL carryforwards for foreign income tax purposes of
approximately $44 million which are subject to various provisions of each
respective country and expire primarily between 1995 and 2003.
Domestic income (loss) from continuing operations before income taxes was
$70.6 million, $68.9 million and ($49.0) million for the years ended December
31, 1994, 1993 and 1992, respectively. Foreign loss from continuing operations
before income taxes was ($.6) million, ($12.8) million and ($11.3) million for
the years ended December 31, 1994, 1993 and 1992, respectively.
32
33
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
----------------
1994 1993
------ ------
(IN MILLIONS)
Deferred tax liabilities:
Tax over book depreciation........................................ $ 9.4 $273.1
Other deferred tax liabilities.................................... 74.7 69.9
------ ------
Total deferred tax liabilities................................. 84.1 343.0
Deferred tax assets:
Domestic NOL carryforwards........................................ -- 133.6
ITC carryforwards................................................. -- 16.1
Foreign NOL carryforwards......................................... 15.5 19.7
Unrealized losses on investments.................................. 30.0 47.4
Other deferred tax assets......................................... 49.3 56.7
------ ------
Total deferred tax assets...................................... 94.8 273.5
Valuation allowance on deferred tax assets........................ (12.5) (30.1)
------ ------
Net deferred tax assets........................................ 82.3 243.4
------ ------
Net deferred tax liability..................................... $ 1.8 $ 99.6
====== ======
At December 31, 1994, 1993 and 1992, consolidated valuation allowances for
deferred tax assets were $12.5 million, $30.1 million and $33.1 million,
respectively, including valuation allowances on foreign NOLs.
33
34
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax (expense) benefit relating to continuing operations was
comprised of:
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ------ -----
(IN MILLIONS)
Current--Foreign.................................. $ (.1) $ .4 $ 1.0
State................................... (3.3) (4.1) (3.1)
Federal................................. -- (3.1) --
------ ------ -----
(3.4) (6.8) (2.1)
Deferred--State................................... (.9) .9 4.1
Federal................................ (19.5) (21.4) 12.5
------ ------ -----
(20.4) (20.5) 16.6
------ ------ -----
$(23.8) $(27.3) $14.5
====== ====== =====
Reconciliations of income tax (expense) benefit in continuing operations to
the statutory corporate Federal tax rate, 35% in 1994 and 1993 and 34% in 1992,
were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ------ -----
(IN MILLIONS)
Statutory tax (expense) benefit..................... $(24.5) $(19.6) $20.5
Effects of--
Amortization of goodwill.......................... (2.1) (3.1) (2.9)
Losses on foreign operations...................... 3.0 (3.6) (2.9)
State income taxes, net of Federal benefit........ (2.7) (2.1) (.5)
Impact of Revenue Reconciliation Act of 1993...... -- (2.7) --
Adjustment to prior years tax accruals............ -- 2.4 --
Equity accounting, net............................ 4.5 -- --
Other, net........................................ (2.0) 1.4 .3
------ ------ -----
$(23.8) $(27.3) $14.5
====== ====== =====
The income tax effects of items comprising the deferred income tax
(expense) benefit for continuing operations were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------ ------ -----
(IN MILLIONS)
Other deferred tax liabilities................... $(14.7) $(22.1) $ --
NOL and ITC carryforwards........................ (6.3) (13.2) (6.7)
Securities available-for-sale.................... (2.9) 5.3 9.5
Other deferred tax assets........................ 1.8 (.5) 7.1
Changes in the valuation allowance............... 1.7 10.0 6.7
------ ------ -----
$(20.4) $(20.5) $16.6
====== ====== =====
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,
34
35
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. LEASE COMMITMENTS
The majority of the Company's office and warehouse facilities and equipment
are leased under operating leases. Certain of these leases are long-term
operating leases and expire at various dates through 2014. Minimum lease
commitments under operating leases at December 31, 1994 are as follows: 1995 -
$22.0 million; 1996 - $19.2 million; 1997 - $13.0 million; 1998 - $7.6 million;
1999 - $4.6 million; beyond 1999 - $15.5 million. Total rental expense was $23.3
million, $21.5 million and $18.9 million in 1994, 1993 and 1992, respectively.
NOTE 13. 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 $36.7 million and $44.0
million at December 31, 1994 and 1993, respectively. Projected benefit
obligations of the Company's plans were $35.7 million and $57.2 million at
December 31, 1994 and 1993, respectively. The accumulated benefit obligations of
the Company's plans were $46.1 million and $44.5 million at December 31, 1994
and 1993, respectively. The weighted-average assumed discount rate used to
measure the projected benefit obligation was 7.8% and 6.8% at December 31, 1994
and 1993, respectively. Pension expense, including the cost of 401(k) plans, for
1994, 1993 and 1992 was insignificant. The Company's liability for
post-retirement benefits other than pensions is insignificant.
NOTE 14. PREFERRED STOCK AND COMMON STOCK
Itel has authority to issue 15 million shares of Preferred Stock, par value
$1.00 per share. In 1993, the outstanding Preferred Stock was converted into
approximately 3.8 million shares of Common Stock. At December 31, 1994, 1993 and
1992, 29,430,000, 33,010,000 and 28,080,000 shares of Common Stock,
respectively, were issued and outstanding. In connection with all Itel employee
stock plans described below, 2,052,266 shares were reserved for issuance at
December 31, 1994.
Stock options and stock grants--
Itel has Employee Stock Incentive Plans ("ESIP") which at their inception
authorized 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. 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 ten years after the date of grant.
Additionally, Itel has an Employee Stock Purchase Plan ("ESPP") covering
most employees. 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, 1994 and 1993 were 414,627 and 763,336, respectively.
35
36
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the 1994 activity under the ESIP, DSOP and
ESPP.
ESIP DSOP ESPP EXERCISE
OPTIONS OPTIONS OPTIONS PRICE
--------- ------- ------- ---------------
Balance at December 31, 1993.................... 1,329,039 100,000 90,563 $ 9.50 - $30.00
Grants during 1994.............................. 182,500 35,000 75,622 $26.67 - $33.29
Exercised....................................... (879,078) (10,000) (60,839) $10.38 - $24.65
Expirations and terminations.................... (6,000) -- (29,724) $21.88 - $24.65
--------- ------- ------- ---------------
Balance at December 31, 1994.................... 626,461 125,000 75,622 $ 9.50 - $33.29
========= ======= ======= ===============
Total stock options exercised for the years ended December 31, 1993 and
1992 were 1,134,078 and 1,438,316, respectively. The purchase price per share
for all stock options exercised ranged from $10.38 to $26.64 in 1993 and $4.44
to $21.88 in 1992.
Stock option plans of Anixter--
In 1993 and 1994, Anixter granted to key employees of Anixter options to
purchase stock of Anixter. Substantially, all options have been at fair market
value. These options vest immediately to four years and terminate one to ten
years from the date of grant. At December 31, 1994, 600,186 options were
exercisable. At December 31, 1994, Itel owned 99% of the approximately 29.3
million shares of outstanding Anixter common stock. The following table
summarizes the 1994 activity:
ANIXTER EXERCISE
OPTIONS PRICE
--------- -------------
Balance at December 31, 1993...................................... 2,067,629 $ 9.00
Grants during 1994................................................ 714,150 $11.40
Exercised......................................................... (409,576) $ 9.00
Expirations and terminations...................................... (504,576) $ 9.00-$11.40
--------- -------------
Balance at December 31, 1994...................................... 1,867,627 $ 9.00-$11.40
========= =============
Warrants--
The Company has issued warrants to directors, which are currently
exercisable, to purchase 125,000 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.
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 1994, 1993 and 1992, Itel purchased 4,089,000,
10,000 and 2,046,000 shares of Common Stock, respectively. All treasury stock
was retired.
There are restrictions in Itel's Corporate Loan which limit the payment of
dividends and the repurchases or redemption of Common Stock (see Note 9).
36
37
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. PRO-FORMA FINANCIAL RESULTS
The following unaudited pro-forma condensed consolidated financial
information of the Company reflects the condensed consolidated results of
continuing operations as if the sale of the rail car leasing business, the 1994
sale of Itel's investment in ANTEC and the issuance of ANTEC common stock had
occurred on December 31, 1992. The unaudited pro-forma condensed consolidated
financial information is not necessarily indicative of the consolidated results
of continuing operations as they might have been had the sales been consummated
on the assumed date.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993
----------- -----------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
Revenue..................................................... $ 1,732.6 $ 1,328.6
Cost of operations, including amortization of goodwill...... (1,662.8) (1,282.8)
----------- -----------
Operating income............................................ 69.8 45.8
Interest expense and other, net............................. (10.5) (41.1)
Non-recurring items, net.................................... -- 71.8
Equity earnings in ANTEC.................................... 5.7 3.0
Marketable equity securities losses, principally
write-downs............................................... (39.6) (25.0)
----------- -----------
Income from continuing operations before income taxes....... 25.4 54.5
Income tax expense.......................................... (6.4) (21.4)
----------- -----------
Income from continuing operations........................... $ 19.0 $ 33.1
========= =========
Preferred stock dividends................................... $ -- $ (3.1)
========= =========
Income from continuing operations per common and common
equivalent share.......................................... $ .59 $ 1.00
========= =========
Weighted average common and common equivalent shares........ 32.0 30.1
========= =========
Pro-forma adjustments for the year ended December 31, 1994 reflect: (1) the
interest savings arising from the assumed $260 million payment of debt at the
average historical rate of 6.38% from the proceeds of the sales, (2) the
reversal of the $59.0 million pre-tax gain on the sale and issuance of ANTEC
common stock, (3) the reduction of equity earnings in ANTEC from $7.9 million to
$5.7 million and (4) the related net reduction of income tax expense.
Pro-forma adjustments for the year ended December 31, 1993 reflect: (1) the
reclassification of the results of operations of ANTEC from the consolidated
method to the equity method of accounting, (2) the interest savings arising from
the assumed $260 million payment of debt at the average historical rate of 4.93%
from the proceeds of the sales and the related increase in income tax expense
and (3) the reduction of equity earnings in ANTEC from $8.4 million to $3.0
million.
37
38
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. BUSINESS SEGMENTS
The Company in 1994 is engaged in one principal area of business:
distribution of wiring systems products for voice, data and video networks and
electrical power applications (Anixter). Prior to the 1994 and 1993 ANTEC
Offerings, the Company was also engaged in the development and distribution of
products used in the cable television industry (ANTEC). Itel Corporate obtains
and coordinates financing, legal and other related services, certain of which
are rebilled to subsidiaries.
Information for the years ended December 31, 1994, 1993 and 1992 regarding
the Company's major business segments is presented in the following table. The
business segments of Itel have been reclassified to reflect the Company's
investment in its rail car leasing business as a discontinued operation (see
Note 3). ANTEC is reflected as an equity investment in 1994.
ANIXTER ANTEC CORPORATE(A) TOTAL
-------- ------ ------------ --------
(IN MILLIONS)
Revenues:
1994................................................ $1,732.6 $ -- $ -- $1,732.6
1993................................................ 1,328.6 427.6 -- 1,756.2
1992................................................ 1,163.6 301.0 -- 1,464.6
Operating income (loss):
1994................................................ 74.6 -- (4.8) 69.8
1993................................................ 55.1 22.4 (9.3) 68.2
1992................................................ 39.1 12.1 (8.6) 42.6
Operating income before amortization of goodwill:
1994................................................ 80.6 -- (4.8) 75.8
1993................................................ 61.1 25.2 (9.3) 77.0
1992................................................ 44.8 14.8 (8.6) 51.0
Identifiable assets:
1994................................................ 839.6 -- 271.3 1,110.9
1993................................................ 718.3 239.0 423.3 1,380.6
1992................................................ 636.1 202.9 597.2 1,436.2
Depreciation expense:
1994................................................ 9.9 -- .1 10.0
1993................................................ 8.4 2.0 .4 10.8
1992................................................ 8.2 1.6 .3 10.1
Capital expenditures:
1994................................................ 17.2 -- -- 17.2
1993................................................ 11.4 2.0 -- 13.4
1992................................................ 6.3 1.7 -- 8.0
- ---------------
(a) Identifiable assets are principally comprised of marketable equity
securities, discontinued rail car leasing assets, other discontinued and
assets held for sale, and in 1994 the Company's investment in ANTEC.
38
39
ITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The classification of the Company's 1994, 1993 and 1992 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
----------------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
Revenues:
Europe...................................... $316.8 $244.6 $217.9
Other....................................... 190.8 142.0 126.6
------ ------ ------
$507.6 $386.6 $344.5
====== ====== ======
Operating income (loss):
Europe...................................... $ 6.6 $ 3.2 $ 2.8
Other....................................... 3.6 (4.6) (1.1)
------ ------ ------
$ 10.2 $ (1.4) $ 1.7
====== ====== ======
Identifiable assets:
Europe...................................... $147.2 $119.7 $112.3
Other....................................... 101.2 90.0 72.7
------ ------ ------
$248.4 $209.7 $185.0
====== ====== ======
Tangible identifiable assets:
Europe...................................... $140.9 $113.1 $107.3
Other....................................... 85.2 73.4 56.1
------ ------ ------
$226.1 $186.5 $163.4
====== ====== ======
Foreign operations' revenues were 29%, 22% and 24% of consolidated revenues
in 1994, 1993 and 1992, respectively. Foreign operations' operating income
(loss) were negatively impacted for all years due to economies of scale and
start-up losses in expansion markets. Aggregate start-up losses in expansion
markets were ($6.7) million, ($8.6) million and ($4.1) million in 1994, 1993 and
1992, respectively, as Anixter continues to penetrate new markets in Europe,
Asia and Latin America.
39
40
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,
---------------- ---------------- ---------------- ----------------
1994 1993 1994 1993 1994 1993 1994 1993
------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues--Anixter.................. $362.8 $298.4 $422.9 $328.1 $456.3 $342.4 $490.6 $359.7
--ANTEC................... N/A 94.7 N/A 109.9 N/A 112.4 N/A 110.6
------ ------ ------ ------ ------ ------ ------ ------
Consolidated revenues.............. $362.8 $393.1 $422.9 $438.0 $456.3 $454.8 $490.6 $470.3
====== ====== ====== ====== ====== ====== ====== ======
Operating income (loss)--Anixter... $ 14.8 $ 12.0 $ 17.7 $ 13.9 $ 21.1 $ 14.4 $ 21.2 $ 14.7
--ANTEC..... N/A 4.7 N/A 5.4 N/A 5.9 N/A 6.4
--All
other....... (1.1) (1.8) (1.0) (1.8) (1.2) (1.5) (1.7) (4.1)
------ ------ ------ ------ ------ ------ ------ ------
Consolidated operating income...... $ 13.7 $ 14.9 $ 16.7 $ 17.5 $ 19.9 $ 18.8 $ 19.5 $ 17.0
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) from continuing
operations before income
taxes(a)......................... $ 3.6 $ (.9) $ 26.8 $ (.4) $ 17.0 $ 79.1 $ 22.6 $(21.7)
Income (loss) from continuing
operations....................... 2.7 (1.8) 16.8 (1.7) 10.7 47.3 16.0 (15.0)
Income (loss) before extraordinary
items(b)......................... 1.8 (5.1) 16.4 (3.1) 215.7 40.5 13.0 (17.5)
Net income (loss)(c)............... $ 1.8 $ (5.1) $ 16.4 $ (3.1) $215.7 $ 29.6 $ 13.0 $(22.6)
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) per common and common
equivalent share:
Continuing operations............ $ .08 $ (.12) $ .51 $ (.11) $ .34 $ 1.56 $ .52 $ (.45)
Before extraordinary items....... $ .05 $ (.23) $ .50 $ (.16) $ 6.87 $ 1.33 $ .43 $ (.53)
Net income (loss)................ $ .05 $ (.23) $ .50 $ (.16) $ 6.87 $ .97 $ .43 $ (.69)
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) per common and common
equivalent share--assuming full
dilution:
Continuing operations............ $ .08 $ (.12) $ .51 $ (.11) $ .34 $ 1.40 $ .52 $ (.45)
Before extraordinary items....... $ .05 $ (.23) $ .50 $ (.16) $ 6.87 $ 1.20 $ .43 $ (.53)
Net income (loss)................ $ .05 $ (.23) $ .50 $ (.16) $ 6.87 $ .88 $ .43 $ (.69)
====== ====== ====== ====== ====== ====== ====== ======
- ---------------
(a) Continuing operations in the second quarter of 1994 include a $48.2 million
pre-tax gain on the ANTEC Offering. Continuing operations in the fourth
quarter of 1994 include a $10.8 million pre-tax gain relating to ANTEC's
issuance of common stock in connection with an acquisition in November 1994.
Continuing operations in the third quarter of 1993 principally include an
$84.5 million pre-tax gain on the ANTEC Initial Offering and a $6.4 million
pre-tax net gain on other investments offset by a pre-tax loss of
approximately $19.1 million relating to the liquidation of the Company's
equity investment in Q-TEL (see Note 4 of the Notes to the Consolidated
Financial Statements). Continuing operations in the second quarter of 1994
and the fourth quarter of 1993 include pre-tax charges of $34.4 million and
$25.0 million, respectively, associated with the write-down of the Company's
marketable equity securities.
(b) Discontinued operations in 1994 include a $202.0 million pre-tax gain on the
sale of the rail car leasing business (see Note 3 of the Notes to the
Consolidated Financial Statements).
(c) The extraordinary items in 1993 reflect a pre-tax loss of ($26.2) million on
the early extinguishment of the Company's subordinated and senior debt (see
Note 5 of the Notes to the Consolidated Financial Statements).
40
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
See Registrant's Proxy Statement for the 1995 Annual Meeting of
Stockholders--"Election of Directors" and "Section 16(a) Reporting
Delinquencies."
ITEM 11. EXECUTIVE COMPENSATION.
See Registrant's Proxy Statement for the 1995 Annual Meeting of
Stockholders--"Executive Compensation," "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 1995 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 1995 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.
Itel filed a Report on Form 8-K relating to Item 2, Disposition of
Assets, to describe Itel's agreement to sell 99.5% of Itel's remaining
interests in Itel's fleet of rail cars to SCAP Associates, L.L.C. for
$35 million in cash and $169.5 million in notes receivable.
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.................................................. 18
Consolidated Balance Sheets at December 31, 1994 and 1993....................... 19
Consolidated Statements of Operations for the years ended December 31, 1994,
1993 and 1992................................................................. 21
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992................................................................. 23
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1993 and 1992........................................................... 25
Notes to the Consolidated Financial Statements.................................. 26
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, 1994, 1993 and
1992, except as noted:
PAGE
----
I. Condensed financial information of Registrant............................... 46
II. Valuation and qualifying accounts and reserves.............................. 49
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
----- ----------------------- --------
(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 Amended and Restated Credit Agreement, dated March 11, 1994, among
Anixter Inc., Chemical Bank, as Agent, and the other banks named
therein. (Incorporated by reference from Itel Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
Exhibit 4.2.) .......................................................
(10) Material contracts.+
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 Management Incentive Plan, dated February 9,
1995.................................................................
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.)................................................
42
43
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* 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.)...................................
10.11* 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.).................
10.12* (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).).....................
10.13* 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.)........................
43
44
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- ---------------------- -------
10.14* 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.)........................
10.15* 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.).................
10.16* 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.)...................................
10.17* 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.)..............................................................
10.18* (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. (Incorporated by reference from Itel Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
Exhibit 10.20(b).)...................................................
* (c) Agreement, dated January 27, 1994, with Rod F. Dammeyer.
(Incorporated by reference from Itel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, Exhibit
10.20(c).)...........................................................
* (d) Agreement, dated February 9, 1995, with Rod F. Dammeyer..........
10.19* 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.).............
10.20* 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.)...................................
10.21 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.).................................................
10.22 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.).............................................
10.23 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.).................................................
10.24 Purchase Agreement dated as of June 23, 1994 among Itel Corporation,
Itel Rail Holdings Corporation and SCAP Associates, L.L.C.
(Incorporated by reference from Itel Corporation's Current Report on
Form 8-K, November 7, 1994, Exhibit 2.1).............................
10.25* Form of Consulting Agreement with Don Civgin and John P. McNicholas
Jr...................................................................
(21) Subsidiaries of the Registrant.
21.1 List of Subsidiaries of the Registrant...............................
44
45
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
----- ---------------------------------------------------------------------------
(23) Consents of experts and counsel.
23.1 Consent of Ernst & Young LLP.........................................
(24) Power of attorney.
24.1 Power of Attorney executed by Bernard F. Brennan, Robert E. Fowler,
Jr., F. Philip Handy, Harold Haynes, Jerome Jacobson, Melvyn N.
Klein, John R. Petty, John A. Pigott, Sheli Rosenberg, Stuart M.
Sloan and Samuel Zell................................................
(27) Financial data schedule.
27.1 Financial data schedule..............................................
(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-- Condensed financial information of Registrant........................ 46
Schedule II-- Valuation and qualifying accounts and reserves....................... 49
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.
45
46
ITEL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ITEL CORPORATION (PARENT COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
---------------------
1994 1993
-------- --------
ASSETS
Current assets:
Cash and equivalents................................................ $ 2,600 $ 800
Accounts receivable................................................. 700 300
Amounts currently due from affiliates, net.......................... 98,500 101,700
Other assets........................................................ 200 1,500
-------- --------
Total current assets................................... 102,000 104,300
Property (net)........................................................ -- 100
Deferred tax asset, net............................................... -- 136,900
Investment in ANTEC................................................... 69,400 84,100
Investment in and advances to subsidiaries............................ 361,000 276,100
Marketable equity securities available-for-sale....................... 64,500 126,400
Other assets.......................................................... 1,800 4,100
-------- --------
$598,700 $732,000
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses, due currently.................. $ 41,900 $ 37,300
Long-term debt........................................................ -- 288,500
Income taxes, net, primarily deferred................................. 11,700 --
Other liabilities..................................................... 1,200 900
-------- --------
Total liabilities...................................... 54,800 326,700
Stockholders' equity:
Common stock........................................................ 29,400 33,000
Capital surplus..................................................... 262,500 383,500
Retained earnings................................................... 269,300 22,400
Cumulative translation adjustments.................................. (10,100) (9,900)
-------- --------
551,100 429,000
Unrealized losses on marketable equity securities available for sale
(net of related deferred income tax benefit)..................... (7,200) (23,700)
-------- --------
Total stockholders' equity............................. 543,900 405,300
-------- --------
$598,700 $732,000
======== ========
46
47
ITEL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ITEL CORPORATION (PARENT COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
-------- -------- ---------
Revenues:
Interest and investment income, including intercompany..... $ 6,200 $ 15,600 $ --
Other (expenses) income:
Corporate interest......................................... (14,900) (65,200) (127,900)
General and administrative................................. (4,700) (9,300) (8,600)
Gain on ANTEC Offerings.................................... 59,000 84,500 --
Marketable equity securities losses, principally
write-downs............................................. (39,600) (25,000) (25,000)
-------- -------- ---------
(200) (15,000) (161,500)
-------- -------- ---------
Income (loss) from operations before income taxes and equity
in earnings of subsidiaries................................ 6,000 600 (161,500)
Income tax benefit........................................... 9,100 3,300 57,100
Equity in earnings of subsidiaries........................... 231,800 10,900 9,400
-------- -------- ---------
Income (loss) before extraordinary items..................... 246,900 14,800 (95,000)
Extraordinary items (net of related income taxes)............ -- (16,000) (9,300)
-------- -------- ---------
Net income (loss)............................................ $246,900 $ (1,200) $(104,300)
======== ======== =========
47
48
ITEL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ITEL CORPORATION (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
Operating activities:
Income (loss) before extraordinary items................. $ 246,900 $ 14,800 $ (95,000)
Adjustments to reconcile income (loss) before
extraordinary items to net cash used by operating
activities:
Depreciation.......................................... -- 400 300
Income tax benefit.................................... (9,100) (3,300) (57,100)
Gain on ANTEC common stock issuances.................. (59,000) (84,500) --
Marketable equity securities losses, principally
write-downs......................................... 39,600 25,000 25,000
Equity in earnings of subsidiaries.................... (231,800) (10,900) (9,400)
Non-cash financing expense............................ 1,900 4,200 6,900
Change in other operating items....................... (18,200) (27,000) 12,800
--------- --------- ---------
Net cash used by operating activities............ (29,600) (81,300) (116,500)
Investing activities:
Sales of securities...................................... 47,800 3,700 800
Proceeds from ANTEC Offerings............................ 82,800 67,000 --
Redemption of ANTEC preferred stock...................... -- 30,000 --
Net dividends from (capital contributions to)
subsidiaries.......................................... 219,700 150,300 (37,500)
Loans from subsidiaries, net............................. 108,000 95,200 808,000
Other, net............................................... -- 13,700 (4,500)
--------- --------- ---------
Net investing activities......................... 458,300 359,900 766,800
--------- --------- ---------
Net cash provided before financing activities.............. 428,700 278,600 650,300
Financing activities:
Borrowings............................................... 200,000 93,400 --
Reductions in borrowings................................. (496,600) (391,300) (548,300)
Purchases of treasury stock.............................. (138,900) (300) (114,300)
Preferred stock dividend payments........................ -- (2,900) (5,700)
Proceeds from issuance of common stock................... 8,600 21,100 21,300
Other, net............................................... -- (1,400) --
--------- --------- ---------
Net financing activities......................... (426,900) (281,400) (647,000)
--------- --------- ---------
Cash provided (used)....................................... 1,800 (2,800) 3,300
Cash and equivalents at beginning of year.................. 800 3,600 300
--------- --------- ---------
Cash and equivalents at end of year........................ $ 2,600 $ 800 $ 3,600
========= ========= =========
48
49
ITEL CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
BALANCE ADDITIONS
AT ------------------- BALANCE
BEGINNING CHARGED AT
OF CHARGED TO END OF
THE TO OTHER THE
DESCRIPTION PERIOD INCOME ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------- ------- ------- -------- -------- -------
Year ended December 31, 1994:
Allowance for doubtful accounts(a)....... $ 6,200 $ 5,100 $ 600 $ (5,900) $ 6,000
Unrealized losses on marketable equity
securities available-for-sale(b)...... $36,600 -- 8,900 (34,400) $11,100
Allowance for deferred tax asset......... $30,100 (17,600) -- -- $12,500
Year ended December 31, 1993:
Allowance for doubtful accounts.......... $ 4,600 5,500 2,300 (6,200) $ 6,200
Unrealized losses on marketable equity
securities available-for-sale(b)...... $74,400 -- (12,800) (25,000) $36,600
Allowance for deferred tax asset(c)...... $33,100 -- -- (3,000) $30,100
Year ended December 31, 1992:
Allowance for doubtful accounts.......... $ 3,800 4,700 500 (4,400) $ 4,600
Unrealized losses on marketable equity
securities available-for-sale(b)...... $72,500 -- 26,900 (25,000) $74,400
Allowance for deferred tax asset(c)...... $36,800 -- -- (3,700) $33,100
- ---------------
(a) The deconsolidation of ANTEC resulted in a $1.4 million deduction in
allowance for doubtful accounts in 1994.
(b) In 1994, 1993 and 1992, the Company wrote down its investment in marketable
equity securities by $34.4 million, $25.0 million and $25.0 million,
respectively.
(c) 1993 and prior amounts have been reclassified to conform to the 1994
presentation in the consolidated financial statements.
49
50
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 20TH DAY OF MARCH, 1995.
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 20, 1995
- ---------------------------------------------
Rod F. Dammeyer
Senior Vice President--Finance
DENNIS J. LETHAM (Chief Financial Officer) March 20, 1995
- ---------------------------------------------
Dennis J. Letham
Vice President--Controller
JOHN P. MCNICHOLAS, JR. (Chief Accounting Officer) March 20, 1995
- ---------------------------------------------
John P. McNicholas, Jr.
BERNARD F. BRENNAN* Director March 20, 1995
- ---------------------------------------------
Bernard F. Brennan
ROD F. DAMMEYER Director March 20, 1995
- ---------------------------------------------
Rod F. Dammeyer
ROBERT E. FOWLER, JR.* Director March 20, 1995
- ---------------------------------------------
Robert E. Fowler, Jr.
F. PHILIP HANDY* Director March 20, 1995
- ---------------------------------------------
F. Philip Handy
HAROLD HAYNES* Director March 20, 1995
- ---------------------------------------------
Harold Haynes
JEROME JACOBSON* Director March 20, 1995
- ---------------------------------------------
Jerome Jacobson
MELVYN N. KLEIN* Director March 20, 1995
- ---------------------------------------------
Melvyn N. Klein
JOHN R. PETTY* Director March 20, 1995
- ---------------------------------------------
John R. Petty
JOHN A. PIGOTT* Director March 20, 1995
- ---------------------------------------------
John A. Pigott
SHELI ROSENBERG* Director March 20, 1995
- ---------------------------------------------
Sheli Rosenberg
STUART M. SLOAN* Director March 20, 1995
- ---------------------------------------------
Stuart M. Sloan
SAMUEL ZELL* Director March 20, 1995
- ---------------------------------------------
Samuel Zell
*BY JAMES E. KNOX
- ---------------------------------------------
James E. Knox (Attorney in fact)
James E. Knox, as attorney in fact for each
person indicated.
50