-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V3nFUEZLZUOewzzNbzZU6ELimeTQcChbmKFBe85OVPZGG3RvsBaXKJ/KpljC4wnJ c+fSJv1THGJZkz5+TvUR+w== 0000357019-96-000018.txt : 19960401 0000357019-96-000018.hdr.sgml : 19960401 ACCESSION NUMBER: 0000357019-96-000018 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GATX CAPITAL CORP CENTRAL INDEX KEY: 0000357019 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 941661392 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08319 FILM NUMBER: 96541409 BUSINESS ADDRESS: STREET 1: FOUR EMBARCADERO CTR SUITE 2200 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4159553200 FORMER COMPANY: FORMER CONFORMED NAME: GATX LEASING CORP DATE OF NAME CHANGE: 19900405 10-K405 1 10K MAIN UNITED STATES 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 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ---- SECURITIES EXCHANGE ACT OF 1934 For the Year Ended Commission File Number December 31, 1995 1-8319 GATX CAPITAL CORPORATION Incorporated in the IRS Employer Identification Number State of Delaware 94-1661392 Four Embarcadero Center San Francisco, CA 94111 (415) 955-3200 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ----- All Common Stock of Registrant is held by GATX Financial Services, Inc. (A wholly-owned subsidiary of GATX Corporation). As of March 15, 1996, Registrant has outstanding 1,031,250 shares of $1 par value Common Stock. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) and (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K - ------------ ----------------------- Registration Statement on Form S-1 Part IV Item 14(a)3 filed with the Commission on December 23, 1981 (file No. 2-75467) Amendment No. 1 to Form S-1 filed Part IV Item 14(a)3 with the Commission on February 23, 1982 Amendment No. 2 to Form S-1 filed Part IV Item 14(a)3 with the Commission on March 2, 1982 Form 10-K for the Year Ended Part IV Item 14(a)3 December 31, 1982 filed with the Commission on March 28, 1983 Form 10-K for the Year Ended Part IV Item 14(a)3 December 31, 1990 filed with the Commission on March 30, 1991 Form 10-K for the Year Ended Part IV Item 14(a)3 December 31, 1992 filed with the Commission on March 31, 1993 Form 10-K for the Year Ended Part IV Item 14(a)3 December 31, 1994 filed with the Commission on March 27, 1995 PART I Item 1. Business - --------------------- The principal business of GATX Capital Corporation and subsidiaries (the "Company") is to provide and arrange secured equipment and other financing, usually in the form of leases and loans. The Company actively manages its existing portfolio of investments as well as managing portfolios owned by other institutional investors. GATX Capital Corporation is a wholly-owned subsidiary of GATX Corporation. Item 2. Properties - ---------------------- The Company leases all of its office space and owns no materially important physical properties other than those related directly to its investment portfolio. The Company's principal offices are rented under a twelve year lease expiring in 2003. Item 3. Legal Proceedings - --------------------------------- There are no material legal proceedings pending to which the Company is a party, other than routine litigation in the normal course of business of the Company. The Company believes that the outcome of any lawsuit or claim which is pending or threatened will not have a material adverse effect on its financial condition or operations. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- Omitted under provisions of the reduced disclosure format. PART II Item 5. Market for the Registrant's Common Stock and Related - ------------------------------------------------------------- Stockholder Matters - ------------------- Not applicable. All common stock of the Registrant is held by GATX Financial Services, Inc. (a wholly-owned subsidiary of GATX Corporation). Information regarding dividends is shown on the consolidated statements of income and reinvested earnings which are included in Item 8. Item 6. Selected Financial Data - -------------------------------- Omitted under provisions of the reduced disclosure format. Item 7. Management's Discussion and Analysis of Financial Condition - -------------------------------------------------------------------- and Results of Operations - ------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS (dollars in thousands) ASSET CONCENTRATION 1995 1994 ---- ---- Aircraft 39% 45% Rail 18% 22% Warehouse and Production 12% 7% Information Technology 10% 3% Marine 7% 7% Golf 4% 5% Other 10% 11% OVERVIEW GATX Capital Corporation and its subsidiaries (GATX Capital or the Company) provide and arrange secured equipment and other financing, usually in the form of leases and loans. GATX Capital actively manages its existing portfolio of investments as well as managing portfolios owned by other institutional investors. In 1995, the commercial finance industry continued to be highly competitive, resulting in lower yields for investors in new lease transactions. The abundant supply of lessor financing also contributed to increased competition in the secondary market (the purchase of existing leases or lease portfolios) and in operating leasing, traditional areas of strength for GATX Capital. Looking forward, GATX Capital continues to see a highly competitive market for most new lease transactions. As in the recent past, GATX Capital intends to focus on those niches of the market or individual transactions where we have a competitive advantage. In aircraft, GATX Capital is encouraged by the improved financial performance of airlines worldwide. The airlines' restraint in placing orders for new aircraft, combined with renewed growth in passenger traffic and the retirement of older aircraft, should increase demand for leased aircraft. Lease rates, particularly for newer, fuel-efficient, narrow-body aircraft are beginning to trend upward. The Air Group will continue to maintain a worldwide presence in aircraft finance, particularly in the operating leasing of narrow-body aircraft. Our strategy for new investments will be, wherever possible, to find institutional partners so as to reduce risk, and earn fees and residual shares from managing our partners' investments. Like other lessors of rail equipment over the last several years, GATX Capital has benefited from very favorable market conditions. Railroads' increased efficiency and corresponding increase in freight traffic, and the tight supply of railcars and locomotives, has contributed to an attractive supply-demand relationship for leased rail equipment. In 1995, the industry experienced some isolated softness in demand and lease rates for certain railcar types. Nevertheless, the year-end utilization of GATX Capital's operating lease fleet was approximately 94% for railcars and 96% for locomotives, and the outlook for this segment of the business remains positive. The Rail Group's primary focus will be North America, although it will continue to pursue attractive opportunities in other parts of the world. GATX Capital is looking to generate significant growth and opportunity from the Technology Group. With the acquisition of Sun Financial Group, Inc. (Sun Financial) in late 1995, and through its other affiliates in this area, GATX Capital believes it is well positioned to provide financing and related asset management services to the information technology market. This market is the largest and fastest growing segment of the leasing industry and has evolved into a core business of GATX Capital. We continue to foresee growing demand for leased technology equipment, particularly in the client/server segment, as businesses continue their evolution from mainframes to client/server architecture. GATX Capital believes that successful lessors in this area will be those who can best bundle equipment financing with value-added asset management services. RESULTS OF OPERATIONS NET INCOME of $32.6 million in 1995 exceeded net income in 1994 by $7.7 million. The increase in earned income is primarily due to higher gains and fees from asset remarketing, coupled with increased income from joint ventures. These were partially offset by lower income from leases and loans. The increase in total expenses results from higher interest expense and selling, general and administrative costs. The acquisition of 80% of Sun Financial did not have a material impact on the Company's net income in 1995. The increase in net income between 1993 and 1994 was primarily due to increased lease and interest income and a lower provision for losses, offset by lower gains on sale of assets and higher operating lease expenses. LEASE INCOME continues to reflect the results of increasing amounts invested in equipment placed on operating leases, both on and off the balance sheet, over the last few years. However, operating lease income in 1995 is slightly lower than in 1994 because four older wide-body aircraft which had been generating $8.0 million per year of operating lease income were returned in early 1995. One of these aircraft was sold in 1995 and the remaining three are currently held for sale or lease. The operating lease portfolio generated $21.8 million more income in 1994 than in 1993. Approximately $7.2 million of this increase was due to an acquisition of a large railcar portfolio which generated a full year's income in 1994 but only six months of income in 1993. GAINS from asset sales are primarily realized from the remarketing of assets in response to market opportunities and at the end of a lease. The amount of income from this activity fluctuates between periods. FEE INCOME is generated from managing and remarketing assets on behalf of others and from providing broker services. The Company's remarketing fees are generally performance-based and can fluctuate significantly depending on market conditions and the timing of lease maturities. FEE INCOME (dollars in thousands) 1993 1994 1995 ----- ----- ----- Service and Management $3,620 $3,748 $4,182 Remarketing 262 2,883 9,390 Broker 3,993 2,290 4,187 Other 805 1,190 1,267 INTEREST INCOME primarily corresponds to the level of investment in secured loans and movements in interest rates, but is also affected by other infrequent or nonrecurring events. Income in 1994 is higher than 1995 due to early loan repayments which generated $2.4 million of interest income from prepayment premiums, and an additional $3.0 million of interest, which had not been accrued due to its uncertain nature, was realized from a real estate loan and an investment in purchased notes. JOINT VENTURE income has been increasing, as the Company continues to focus on partnering with other investors. The Company's aircraft leasing joint venture generated more lease income in 1995 than in 1994, partly because certain aircraft earned higher than normal rents for a short time during the year, coupled with the impact of higher interest rates on variable rate leases. In addition, joint venture income in 1995 included $3.1 million from the final disposition of a real estate investment. JOINT VENTURE INCOME (dollars in thousands) 1993 1994 1995 ----- ----- ----- Aircraft joint ventures $5,896 $7,502 $11,329 Technology joint ventures 3,000 2,330 3,216 Rail joint ventures - 204 1,172 Other joint ventures - - 2,877 INTEREST EXPENSE increased between 1994 and 1995 as a result of an overall increase in the Company's average debt balance related to portfolio growth and higher interest rates. OPERATING LEASE EXPENSE in 1994 includes accelerated depreciation on aircraft of $4.2 million; and during 1995 growth in off-balance sheet financing resulted in an increase in operating lease rent expense. Operating lease rent expense increased $6.5 million between 1993 and 1994 because of a large sale leaseback of railcars in late 1993. OPERATING LEASE EXPENSE (dollars in thousands) 1993 1994 1995 ----- ----- ----- Depreciation $26,026 $33,262 $28,420 Rent expense 6,162 12,669 17,110 Other 3,088 4,692 4,894 SELLING, GENERAL AND ADMINISTRATIVE COSTS increased between 1994 and 1995 mainly due to higher human resource and other administrative costs resulting from increased business activity. THE PROVISION FOR LOSSES ON INVESTMENTS, which remained relatively constant between 1994 and 1995, is based on the current estimate of reserve needs. BALANCE SHEET ACQUISITION. Late in 1995, the Company acquired 80% of the stock of Sun Financial, a technology-focused finance company, for a $26.0 million note, payable over four years. Assets with a book value of $134.2 million were acquired and liabilities of $126.7 million were assumed in the transaction. THE ALLOWANCE FOR LOSSES ON INVESTMENTS in proportion to the level of investments, including off-balance sheet assets and after deducting nonleveraged lease nonrecourse debt, has remained relatively stable over the last three years. The increase in the dollar balance corresponds to growth in the portfolio. ALLOWANCE FOR LOSSES (dollars in thousands): 1993 1994 1995 ----- ----- ----- Allowance for losses as a percentage of total investments 6.7% 6.2% 6.5% Loss reserve balance $88,200 $82,200 $92,500 CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES In 1995, the Company generated cash from operations and portfolio proceeds of $288.8 million, had net borrowings of $76.9 million, and received $47.0 million from sale leasebacks. This cash was used to invest in $385.9 million of leased equipment, loans and other, and to pay $16.2 million in dividends. Historically, dividends have been paid on the Company's common stock at the rate of 50% of net income. CASH FROM OPERATING ACTIVITIES in 1995 decreased primarily as a result of the $48.0 million payment made in early 1995 related to the return of four older wide-body aircraft. Also, more cash was used to pay interest, selling general and administrative costs, and operating lease rent expense, as discussed in the results of operations section. Cash from operating activities was higher in 1994 compared to the prior year primarily due to the change in the Company's lease portfolio mix. Cash from operating leases, net of lease rent expense, represented $15.3 million of the increase in cash from operations. Cash from loan interest increased $7.4 million. The remaining $17.0 million increase between 1994 and 1993 is primarily due to changes in certain assets and liabilities, which can vary between periods depending on timing of fundings and payments made to GATX Corporation. CASH FROM INVESTING ACTIVITIES was relatively unchanged between 1994 and 1995. Cash from recovery of investments was higher, reflecting higher proceeds from sales of assets. New investment volume was also higher as this cash was reinvested in new leases, loans and other investments. 1995 INVESTMENT VOLUME 1995 ---- Aircraft 32% Rail 22% Warehouse and Production 17% Information Technology 9% Golf 6% Marine 3% Other 11% The decrease in net cash from investing activities between 1993 and 1994 is due to a higher level of investment in new transactions, net of sale leaseback transactions, and less cash recovery of investments. Total 1993 investments included the purchase of a significant rail operating lease fleet which was subsequently sold and leased back from the purchaser, the proceeds of which are shown as proceeds from sales of other assets. Recovery of investments decreased between 1994 and 1993 as a result of lower proceeds from sales of assets, including real estate, offset by higher principal repayments on loans. Loan principal received in 1994 included prepayments of two golf loans with total principal balances of $41.8 million. LIQUIDITY AND CAPITAL RESOURCES. The Company has approved unfunded transactions totaling $325.0 million as of December 31, 1995. Once approved for funding, a transaction may not be completed for various reasons, or the investment may be shared with partners or sold. Of the total approved at year-end, the Company expects to fund $256.0 million; including $144.0 million in 1996, and the remaining $112.0 million thereafter. The Company expects to fund a portion of future growth through issuance of medium-term notes, commercial paper, and bankers' acceptances. The commercial paper and bankers' acceptances are backed by credit agreements from a syndicate of domestic and international commercial banks. The Company had unused capacity under these agreements of $137.6 million at December 31, 1995. In addition, the Company has a $300.0 million shelf registration for Series C medium-term notes, under which $225.0 million has been issued as of December 31, 1995, and has registered the issuance of an additional $300.0 million of Series D medium-term notes. The Company has no firm commitments for the purchase of notes that it may issue from the unused portions of these shelf registration statements. Certain lease transactions are financed by obtaining nonrecourse loans equal to the present value of the rental stream. The interest rates used to discount the rentals are based on the credit quality of the lessee and the size and term of the lease. The Company uses a wide variety of nonrecourse lenders to ensure adequate and reliable access to the credit markets. The Company ensures a stable margin over its cost of funds by managing the relationship of its fixed and floating rate lease and loan investments to its fixed and floating rate borrowing. In order to meet this objective, derivative financial instruments, primarily interest rate swaps, are used to modify the interest characteristics of the Company's debt. The Company manages the credit risk of counterparties by dealing only with institutions that it considers financially sound and by avoiding concentrations of risk with a single counterparty. Fluctuations in interest rates may impact earnings, either negatively or positively, depending on the Company's net floating rate asset or debt position. At December 31, 1995, the Company had $10.5 million more floating rate assets than floating rate debt. Total debt financing and stockholder's equity both increased to bring the Company's debt to equity ratio from 2.58:1 in 1994 to 2.78:1 in 1995. GATX Capital can borrow an additional $436.3 million and still meet the 4:1 leverage ratio defined in its credit agreements. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- REPORT OF INDEPENDENT AUDITORS Board of Directors GATX Capital Corporation We have audited the consolidated financial statements of GATX Capital Corporation (a wholly-owned subsidiary of GATX Corporation) and subsidiaries listed in the accompanying index to financial statements (Item 14(a)). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 listed in the accompanying index to financial statements (Item 14(a)) present fairly, in all material respects, the consolidated financial position of GATX Capital Corporation and subsidiaries at December 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Francisco, California January 23, 1996 GATX CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS Year ended December 31, (in thousands) 1995 1994 1993 - -------------------------------------- --------- --------- --------- EARNED INCOME Leases $139,712 $143,639 $125,457 Gain on sale of assets 33,123 21,444 44,434 Fees 19,026 10,111 8,680 Interest 23,179 27,085 19,666 Investment in joint ventures 18,594 9,242 8,383 Other 2,875 4,511 5,777 --------- --------- -------- 236,509 216,032 212,397 --------- --------- --------- EXPENSES Interest 68,396 62,744 65,358 Operating leases 50,424 50,621 35,277 Selling, general & administrative 43,517 39,296 37,458 Provision for losses on investments 18,000 19,000 29,000 Other 828 735 2,418 --------- --------- --------- 181,165 172,396 169,511 --------- --------- --------- Income before income taxes 55,344 43,636 42,886 Provision for income taxes 22,740 18,785 21,361 --------- --------- --------- NET INCOME 32,604 24,851 21,525 --------- --------- --------- Reinvested earnings at beginning of year 146,036 133,570 123,771 Dividends paid to stockholder (16,240) (12,385) (11,726) --------- --------- --------- REINVESTED EARNINGS AT END OF YEAR $162,400 $146,036 $133,570 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED BALANCE SHEETS As of December 31, (in thousands) 1995 1994 - ------------------------------------------- ----------- ----------- ASSETS Cash and cash equivalents $ 19,905 $ 9,407 Investments: Direct financing leases 406,950 245,441 Leveraged leases 220,407 252,651 Operating lease equipment-net of depreciation 315,707 295,273 Secured loans 239,873 231,225 Investment in joint ventures 205,292 202,367 Assets held for sale or lease 28,230 24,320 Other investments 77,604 20,373 Investment in future residuals 23,223 13,157 Allowance for losses on investments (92,489) (82,206) ----------- ----------- Total investments 1,424,797 1,202,601 Due from GATX Corporation 44,337 42,515 Other assets 29,344 15,067 ----------- ----------- TOTAL ASSETS $1,518,383 $1,269,590 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Accrued interest $ 15,053 $ 14,987 Accounts payable and other liabilities 80,045 108,635 Debt financing: Commercial paper and bankers' acceptances 130,600 124,834 Notes payable 54,883 14,021 Obligations under capital leases 15,802 19,431 Senior term notes 679,600 613,600 ----------- ----------- Total debt financing 880,885 771,886 Nonrecourse obligations 193,446 55,270 Deferred income 4,392 4,185 Deferred income taxes 27,562 15,390 Stockholder's equity: Convertible preferred stock, par value $1.00 1,027 1,027 Authorized - 4,000,000 shares Issued and outstanding - 1,027,050 shares in both years Common stock, par value $1.00 1,031 1,031 Authorized - 2,000,000 shares Issued and outstanding - 1,031,250 shares in both years Additional paid-in capital -convertible preferred stock 123,973 123,973 -common stock 27,929 27,929 Reinvested earnings 162,400 146,036 Foreign currency translation adjustment 640 (759) ----------- ----------- Total stockholder's equity 317,000 299,237 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,518,383 $1,269,590 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, (in thousands) 1995 1994 1993 - -------------------------------------- --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 32,604 $ 24,851 $ 21,525 Reconciliation to net cash provided by operating activities: Provision for losses on investments 18,000 19,000 29,000 Depreciation expense 27,360 33,341 29,052 Provision for deferred income taxes 15,065 6,673 6,826 Gain on sale of assets (33,123) (21,444) (44,434) Joint venture income (18,594) (9,242) (8,383) Changes in assets and liabilities: Accrued interest, accounts payable, and other liabilities (40,219) 61,836 6,254 Due from GATX Corporation (1,822) 123 (6,984) Deferred income (205) (48,072) 1,474 Other - net 8,220 (6) (6,994) --------- --------- --------- Net cash flows provided by operating activities 7,286 67,060 27,336 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in leased equipment, net of nonrecourse borrowings for leveraged leases (256,137) (161,341) (215,974) Loans extended to borrowers (84,050) (101,500) (39,390) Other investments (45,751) (16,285) (46,199) --------- --------- --------- Total investments (385,938) (279,126) (301,563) --------- --------- --------- Lease rents received, net of earned income and leveraged lease nonrecourse debt service 51,960 24,234 33,893 Loan principal received 56,042 88,415 53,903 Proceeds from sale of assets 139,338 75,697 101,429 Proceeds from disposition of real estate 2,020 10,475 31,963 Joint venture investment recovery 32,116 23,564 24,603 --------- --------- --------- Recovery of investments 281,476 222,385 245,791 --------- --------- --------- Proceeds from sales of other assets 46,975 - 90,604 --------- --------- --------- Net cash flows (used in) provided by investing activities (57,487) (56,741) 34,832 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 13,425 16,920 (76,156) Proceeds from issuance of long-term debt 170,000 55,000 120,000 Repayment of long-term debt (104,000) (66,250) (91,347) Dividends paid to stockholder (16,240) (12,385) (11,726) Other financing activities (2,486) (7,147) (2,816) --------- --------- --------- Net cash flows provided by (used in) financing activities 60,699 (13,862) (62,045) Net increase (decrease) in cash and cash equivalents 10,498 (3,543) 123 Cash and cash equivalents at beginning of the year 9,407 12,950 12,827 --------- --------- --------- CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 19,905 $ 9,407 $ 12,950 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid to parent $ 13,473 $ 15,557 $ 25,707 Interest paid $ 68,645 $ 61,918 $ 65,861 The accompanying notes are an integral part of these consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) SIGNIFICANT ACCOUNTING POLICIES BUSINESS GATX Capital Corporation and its subsidiaries (the "Company") provide and arrange secured equipment and other financing, usually in the form of leases and loans. The Company actively manages its existing portfolio of investments as well as managing portfolios owned by other institutional investors. GATX Capital Corporation is a wholly-owned subsidiary of GATX Corporation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company after elimination of intercompany accounts and transactions. Investments in minority-owned or non-controlled affiliated companies are accounted for using the equity method. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. LEASE AND LOAN ORIGINATION COSTS Initial direct costs for originated direct financing and leveraged leases (collectively, financing leases) are capitalized and amortized as an adjustment of yield over the term of the lease. For operating leases, initial direct costs are deferred and amortized on a straight-line basis over the lease term. Loan origination fees are netted with loan costs, and are deferred and recognized over the term of the loan as an adjustment to interest income. RESIDUAL VALUES Residual values of leased equipment are estimated at the inception of the lease. The Company reviews these values at least annually. Declines, which are other than temporary, in estimated residual values for financing leases are recognized as an immediate charge to income. Declines, which are other than temporary, in estimated residual values for operating leases are recognized as adjustments to depreciation expense over the shorter of the useful life of the asset or the remaining term of the lease. GOODWILL The excess of cost over the fair value of the net assets of businesses acquired is classified as goodwill and is included in other assets on the balance sheet. Goodwill is amortized on a straight-line basis over periods ranging from 10 to 25 years. The Company continually evaluates the existence of goodwill impairment on the basis of the recoverability of goodwill from projected undiscounted net cash flows of the related business. DEFERRED INCOME Deferred income primarily represents income related to operating leases, where the Company is the lessee, for which the earnings process has not been completed. The income is recognized on a straight-line basis over the terms of the operating leases. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements as well as revenues and expenses during the reporting period. Actual results, when ultimately realized, could differ from those estimates. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires the recording of impairment losses on long-lived assets used in operations when indicators of impairment are present and when the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The statement also requires that assets held for disposal be carried at the lower of the carrying amount or fair value less cost to sell. Depreciation on these assets is discontinued. For this purpose, management must commit to a plan to sell or abandon the asset and it must be actively marketed for sale in the near future. Generally, assets classified herein as "held for sale or lease" are being marketed for re-lease, as well as sale, and will not be considered as "assets to be disposed of" under the FAS 121 criteria. Those instances where assets are "held for sale" are not material to these financial statements. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. INVESTMENTS DIRECT FINANCING LEASES The Company's investment in direct financing leases includes lease contracts receivable plus the estimated residual value of the equipment at the lease termination date, less unearned income. Lease contracts receivable includes the total rent to be received over the term of the lease reduced by rent already collected. Initial unearned income is the amount by which the lease contract receivable plus the estimated residual value exceeds the initial investment in the leased equipment at lease inception. The remaining unearned income is amortized to lease income over the lease term in a manner which produces a constant rate of return on the net investment in the lease. The components of the Company's investment in direct financing leases are as follows: At December 31, 1995 1994 - -------------------------- --------- --------- Lease contracts receivable $451,489 $289,565 Estimated residual value 103,301 82,940 Unearned income (147,840) (127,064) --------- --------- Net investment $406,950 $245,441 ========= ========= LEVERAGED LEASES Financing leases, which are financed principally with nonrecourse borrowings at lease inception and which meet certain criteria, are accounted for as leveraged leases. Leveraged lease contracts receivable are stated net of the related nonrecourse debt service, which includes unpaid principal and aggregate remaining interest on such debt. Unearned income represents the excess of anticipated cash flows (including estimated residual values and after taking into account the related debt service) over the Company's investment in the lease. The components of the Company's net investment in leveraged leases are as follows: At December 31, 1995 1994 - --------------------------------- --------- --------- Lease contracts receivable $356,330 $547,961 Nonrecourse debt service (157,771) (301,259) --------- --------- Net receivable 198,559 246,702 Estimated residual value 130,391 157,736 Unearned income (108,543) (151,787) --------- --------- Investment in leveraged leases 220,407 252,651 Deferred taxes arising from leveraged leases (54,180) (63,610) --------- --------- Net investment $166,227 $189,041 ========= ========= OPERATING LEASES Leases that do not qualify as direct finance or leveraged leases are accounted for as operating leases. Most rental income is reported on a straight-line basis over the term of the lease. Rental income on certain leases is based on equipment usage and is recognized when received. Usage rents in 1995 totaled $3.1 million. Equipment subject to operating leases is stated at cost less accumulated depreciation plus accrued rent and is generally depreciated using the straight-line method. Aircraft and rail equipment are depreciated over their useful lives, while other equipment is generally depreciated over the term of the lease. Estimated useful lives are 25 to 30 years for aircraft, 37.5 years for railcars, and 27.5 years for locomotives. Depreciation expense of $27.4 million, $33.3 million and $26.0 million is included in operating lease expense for 1995, 1994 and 1993, respectively. Major classes of equipment on operating leases are as follows: At December 31, 1995 1994 - ------------------------ --------- --------- Aircraft $217,065 $239,200 Rail equipment 92,448 69,933 Other 46,873 25,945 --------- --------- Total cost 356,386 335,078 Accumulated depreciation (49,557) (47,791) --------- --------- Net book value 306,829 287,287 Accrued rent and other 8,878 7,986 --------- --------- Net investment $315,707 $295,273 ========= ========= EARNED INCOME FROM LEASES The sources of earned income from leases are as follows: At December 31, 1995 1994 1993 - ----------------------- --------- --------- --------- Direct financing leases $ 31,491 $ 28,612 $ 32,510 Leveraged leases 25,013 25,894 25,606 Operating leases 83,208 89,133 67,341 --------- --------- --------- Total earned income $139,712 $143,639 $125,457 ========= ========= ========= The tax expense related to leveraged lease income was $9.4 million, $9.3 million and $10.0 million in 1995, 1994 and 1993, respectively. SECURED LOANS Investments in secured loans are stated at the principal amount outstanding plus accrued interest. The loans are collateralized by equipment, golf courses, or real estate. A loan is classified as impaired when it is probable, based on normal portfolio review procedures, that the Company will be unable to collect all amounts due under the loan agreement. Most loans in the portfolio are collateral dependent and, if impaired, are measured using the fair value of the collateral. If the measure of the impaired loan is less than the recorded investment in the loan, an adjustment to the allowance for losses on investments is made. Significant changes in the fair value of the collateral, subsequent to the initial measure of impairment, are reflected as adjustments to the allowance for losses on investments. The average balance of impaired loans was $14.3 million, $8.7 million and $24.3 million in 1995, 1994 and 1993, respectively. The types of loans in the Company's portfolio are as follows: At December 31, 1995 1994 - --------------- --------- --------- Commercial $137,248 $105,550 Golf courses 73,835 71,924 Real estate 28,790 53,751 --------- --------- Net investment $239,873 $231,225 ========= ========= Impaired loans $ 23,800 $ 4,700 ========= ========= FUTURE LEASE AND LOAN RECEIVABLES As of December 31, 1995, financing lease receivables (net of nonrecourse debt service related to leveraged leases), minimum future rentals under operating leases and secured loan principal by year due are as follows: Financing Operating Lease Lease Loan Year Due Receivables Receivables Principal - -------- ----------- ----------- --------- 1996 $152,546 $ 73,492 $ 39,847 1997 118,551 61,163 28,403 1998 85,985 54,267 23,159 1999 67,133 44,070 21,933 2000 59,838 29,529 7,474 After 2000 165,995 76,006 119,057 --------- --------- --------- Total $650,048 $338,527 $239,873 ========= ========= ========= INVESTMENT IN JOINT VENTURES Investments in joint ventures include aircraft leasing, rail equipment leasing, information technology sales, services and equipment leasing, and asset residual guarantee ventures. These joint ventures are accounted for using the equity method, as dictated by the Company's effective ownership interest and/or level of management control. Original investments are recorded at cost and are adjusted by the Company's share of undistributed earnings or losses and reduced by cash distributions. Unaudited combined and condensed information for affiliated companies, which are accounted for using the equity method, is shown below on a 100% basis. The Company makes certain adjustments to pre-tax income as reported by some of the joint ventures prior to the Company's calculation of its share of that pre-tax income in order to provide consistency with the Company's accounting policies. The information shown below has been restated to reflect these adjustments. Pre-tax income has been increased by $34.2 million, $27.3 million and $20.8 million in 1995, 1994 and 1993, respectively, to reverse interest expense recognized on loans to a joint venture from its partners; the Company records these loans as equity contributions. The partner loan balances of $457.0 million, $472.2 million and $482.3 million at December 31, 1995, 1994 and 1993, respectively, have been reclassified from long-term liabilities to partners' equity. This results in a difference between the carrying value of the Company's investment in the joint venture and the Company's equity in the underlying net assets as reported by the joint venture. Pre-tax income is presented because the majority of the joint ventures are partnerships which do not provide for income taxes on their separate financial statements. Consistent with the Company's unclassified balance sheet, the joint venture balance sheets are unclassified as to current and non-current assets. Year ended December 31, 1995 1994 1993 - ----------------------- ----------- ----------- ----------- Revenues $ 292,989 $ 282,352 $ 224,179 Pre-tax income 51,517 41,510 17,241 Total assets 1,310,062 1,257,794 1,161,123 Long-term liabilities 442,514 441,625 382,207 Total liabilities 585,532 558,679 481,846 Equity 724,530 699,115 679,277 ASSETS HELD FOR SALE OR LEASE Assets held for sale or lease consist of equipment which has been repossessed or returned by the lessee after normal lease maturity, and real estate upon which the Company foreclosed when the debtors owning the property were unable to discharge their obligations or which has been recorded as an in-substance foreclosure. Upon foreclosure, properties are recorded at the lower of their then carrying amount or fair market value. Generally, depreciation is recorded on a straight-line basis for aircraft available for sale or lease which are held for more than six months. The major classes of assets held for sale or lease are as follows: At December 31, 1995 1994 - --------------- -------- -------- Aircraft $22,552 $10,057 Rail 8,092 - Real estate 4,687 16,945 Other 1,520 3,375 --------- --------- Total cost 36,851 30,377 Accumulated depreciation (8,621) (6,057) --------- --------- Net investment $28,230 $24,320 ========= ========= OTHER INVESTMENTS Progress payments largely consist of payments made toward the construction of steel production equipment. Interest capitalized on progress payments was $1.6 million in 1995. In a 1995 noncash transaction, the Company reacquired a majority interest in a cogeneration facility which was formerly accounted for using the equity method. The investment balance is fully consolidated at December 31, 1995. The balance at December 31, 1995 is net of $9.2 million of accumulated depreciation. The facility is financed by a nonrecourse obligation having a balance of $37.7 million at December 31, 1995. The components of other investments are as follows: At December 31, 1995 1994 - --------------------------- --------- --------- Progress payments and other $ 31,934 $ 3,750 Cogeneration facility 31,100 - Real estate development 14,570 16,623 --------- --------- Total investment $ 77,604 $ 20,373 ========= ========= INVESTMENT IN FUTURE RESIDUALS Investment in future residuals primarily consists of purchased interests in the residual values of equipment leased by others. In general, purchased residual interests are recorded at cost. The difference between initial cost and realized value is recognized upon disposition. ALLOWANCE FOR LOSSES ON INVESTMENTS The Company maintains an allowance for losses on investments through periodic provisions. The purpose of the allowance is to provide for credit and collateral losses which are inherent in the investment portfolio. The allowance is at a level deemed adequate by management considering an assessment of overall risks and probable losses in the portfolio as a whole and a review of historical experience. It is the Company's policy to charge off amounts which, in the opinion of management, are not recoverable from obligors or the disposition of collateral. The Company reviews the recoverability of all investments, both on and off the balance sheet, at least annually. Factors considered include a customer's payment history and financial position, and the value of the underlying collateral determined by reference to internal and external equipment knowledge and resources. Activity within the allowance for losses on investments is as follows: Year ended December 31, 1995 1994 1993 - ----------------------- -------- -------- --------- Beginning balance $82,206 $88,193 $101,323 Provision 18,000 19,000 29,000 Charges to allowance (11,734) (27,480) (44,180) Recoveries and other 4,017 2,493 2,050 -------- -------- --------- Balance at end of year $92,489 $82,206 $ 88,193 ======== ======== ========= ACQUISITION On November 9, 1995, the Company entered into an agreement to purchase the stock of Sun Financial Group, Inc. (Sun Financial), a technology-focused finance company, for a $26.0 million note, payable over four years. The agreement calls for the exchange of 80% of Sun Financial's stock on November 9, 1995, with the remaining 20% of the shares to be exchanged on December 31, 1999. The Company may be required to make an additional payment in 1999, contingent upon certain financial measures. The seller remains an executive officer of the company. The acquisition, including any payment with respect to the remaining 20% made in the future, is being accounted for using the purchase method. Assets with a book value of $134.2 million were acquired and liabilities of $126.7 million were assumed in this noncash transaction. Sun Financial's results of operations for the two months ended December 31, 1995 are fully consolidated in the Company's financial statements. The minority interest is not material and is included in other liabilities in the accompanying balance sheet. Unaudited pro forma consolidated earned income for the Company, including Sun Financial, as if the acquisition of Sun Financial had occurred at the beginning of 1995 and 1994 is $269.7 million and $248.1 million, respectively. Pro forma consolidated net income including the results for Sun Financial is not materially different from consolidated net income. DEBT AND CAPITAL LEASE FINANCING SHORT-TERM BORROWING At December 31, 1995, the Company has commitments under its credit agreements with a group of banks for revolving credit loans aggregating up to $282.5 million. The credit agreements contain various covenants which include, among other factors, minimum net worth, restrictions on dividends and requirements to maintain certain financial ratios. At December 31, 1995, these covenants limit the Company's ability to transfer net assets to its parent to no more than $107.4 million. The revolving commitments are available for borrowing, repaying and reborrowing at any time and contain various pricing options. The Company pays a facility fee on one facility and a commitment fee on the unused commitment of the other facility, but is not obligated to maintain compensating balances. At December 31, 1995, $137.6 million of the commitments in excess of amounts backing commercial paper and bankers' acceptances are available and unused. The Company obtains short-term financing by issuance of commercial paper and bankers' acceptances through its dealers in the United States and Canada, and from notes payable to banks. At December 31, 1995 these borrowings, which total $185.5 million, are backed by or are under the principal credit agreements. The weighted average interest rate at the end of the period was 6.20% and 6.23% as of December 31, 1995 and 1994, respectively. Notes payable include $26.0 million due to the seller of Sun Financial, who remains an executive officer of the Company. At December 31, 1995 1994 - ---------------------------------------------- ----------- ----------- VARIABLE RATE Medium-Term Notes due 1996-1999 $ 40,000 $ 60,000 Senior Bank Note due 1995 - 10,000 ----------- ----------- Subtotal - variable rate 40,000 70,000 ----------- ----------- FIXED RATE 5.45% - 10.20% Medium-Term Notes due 1996-2005 539,600 443,600 9.375% Senior Notes due 1997 50,000 50,000 10% Senior Note due 1996 50,000 50,000 ----------- ----------- Subtotal - fixed rate 639,600 543,600 ----------- ----------- Total senior term notes $ 679,600 $ 613,600 =========== =========== Interest on variable rate senior term notes is calculated using the LIBOR. The Company has significant amounts of floating rate lease and loan investments, giving rise to market risks from changes in interest rates. Derivative financial instruments are used to reduce those risks. The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt from a fixed to a floating basis. These agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is calculated based on the notional amounts and a widely used floating rate index (LIBOR). It is accrued as interest rates change and is recognized as an adjustment to interest expense related to the debt. As a result of interest rate swaps, interest expense was higher by $0.9 million in 1995 and was reduced by $2.2 million and $3.1 million in 1994 and 1993, respectively. The related amount payable to or receivable from counterparties is included in accrued interest.The fair values of the swap agreements are not recognized in the financial statements. The total notional principal of all interest rate swaps as of December 31, 1995 was $235.0 million, with termination dates ranging from 1996 to 2005. NONRECOURSE OBLIGATIONS Nonrecourse obligations consist primarily of debt collateralized by the assignment of leases and a security interest in the underlying equipment, a cogeneration facility, and real estate projects. The carrying amount of this collateral at December 31, 1995 is $227.9 million. The nonrecourse obligation associated with one aircraft will become recourse to the Company to the extent of the then remaining debt balance in 2002 when a balloon payment of $7.3 million is due. Nonrecourse obligations include the following: At December 31, 1995 1994 - ------------------------------- --------- --------- VARIABLE RATE Notes due 2002 $ 43,066 $ 39,378 Notes due 2000 3,285 3,535 Other 6,282 5,908 --------- --------- Subtotal - variable rate 52,633 48,821 --------- --------- FIXED RATE 5.10%-11.08% Notes due 1996 - 2000 103,139 - 8.17% Note due 2013 37,674 - 8.25% Note due 1996 - 6,449 --------- --------- Subtotal - fixed rate 140,813 6,449 --------- --------- Total nonrecourse obligations $193,446 $ 55,270 ========= ========= Interest on variable rate nonrecourse obligations is calculated using the Prime rate or LIBOR. MATURITIES Maturities of debt financings, obligations under capital leases and nonrecourse obligations are presented in the following table. Imputed interest on capital leases totaled $4.5 million at December 31, 1995. This table assumes that the commercial paper, notes payable and bankers' acceptances are retired by the unused revolving commitments. Converted Obligations Total Revolving Senior Under Capital Debt Nonrecourse Year Due Credit Loans Term Notes Leases Financing Obligations - ---------- ------------ ---------- ------------- --------- ----------- 1996 $ - $105,000 $ 3,627 $108,627 $ 47,814 1997 - 105,000 2,067 107,067 36,963 1998 185,483 85,000 1,378 271,861 24,198 1999 - 83,600 1,477 85,077 15,630 2000 - 79,000 1,660 80,660 12,653 After 2000 - 222,000 5,593 227,593 56,188 --------- --------- ---------- --------- --------- Total $185,483 $679,600 $ 15,802 $880,885 $193,446 ========= ========= ========== ========= ========= OBLIGATIONS UNDER CAPITAL LEASES Obligations under capital leases consist of equipment subject to capital lease financing which has been subleased. Such subleases are classified as direct financing leases having carrying values of $15.9 million and $18.9 million at December 31, 1995 and 1994, respectively. Minimum future lease payments receivable under the subleases aggregate $20.7 million receivable over a period ending in 2003. The obligations under capital leases and the related subleases have the same term and call for fixed rental payments. The Company has purchase and renewal options under the leases which allow it to accommodate similar options exercisable by sublessees. OPERATING LEASE OBLIGATIONS The Company is a lessee under certain aircraft, rail equipment, and office leases which are classified as operating leases. Total rental expense was $20.5 million, $16.1 million and $9.8 million in 1995, 1994 and 1993, respectively. The aircraft and rail equipment under these leases have been subleased, generating lease income of $23.8 million, $17.4 million and $12.8 million in 1995, 1994 and 1993, respectively. During 1995, the Company entered into a transaction for the sale leaseback of an aircraft. The net book value of the aircraft is not shown on the balance sheet. Future rentals payable by the Company through 2019 and sublease receivables under noncancellable operating leases through 2008 are as follows: Obligations Operating Year Due Under Sublease Lease Receivables - ---------- -------------- ----------------- 1996 $ 20,591 $ 22,263 1997 19,973 19,880 1998 20,079 18,108 1999 20,200 17,295 2000 23,175 10,948 After 2000 200,327 58,717 --------- --------- Total $304,345 $147,211 ========= ========= CAPITAL STOCK As of December 31, 1995 and 1994, all issued common and preferred stock of the Company was held by GATX Corporation. The preferred stock is convertible to common stock on a one-for-one basis and is redeemable for $100 per share, at the option of the issuer. Dividends on preferred stock are payable on a share-for-share basis at the same rate per share as common stock when and as declared by the board of directors. INCOME TAXES GATX Corporation files a consolidated federal income tax return which includes the Company. Under an intercompany tax agreement, the parent reimburses the Company to the extent the Company's operating losses and investment tax credits are utilized in the consolidated federal return. Should the Company generate taxable income, the agreement provides for payment by the Company of any resulting additional federal tax liability incurred by GATX Corporation. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has recorded these differences in its deferred tax accounts, intercompany accounts receivable, and equity accounts. In exchange for cash payments, GATX Corporation has assumed a portion of GATX Capital's deferred tax liability. GATX Corporation recontributed these amounts through the purchase of Convertible Preferred Stock, currently outstanding, over the period from 1975 to 1985. In addition, GATX Capital has an account receivable of $46.1 million from GATX Corporation resulting from the reassumption of a portion of these deferred taxes through December 31, 1994. Offsetting this receivable is $1.8 million due to GATX Corporation which consists of amounts owed for dividends, overhead, and taxes pursuant to the intercompany tax agreement. Significant components of the Company's deferred tax liabilities and assets are as follows: At December 31, 1995 1994 - ----------------------------------- --------- --------- DEFERRED TAX LIABILITIES Leveraged leases $ 50,762 $ 63,610 Other leases 79,360 51,158 Investment in joint ventures 22,684 15,505 Alternative minimum tax adjustment 2,839 1,318 Other 12,259 3,388 --------- --------- Total deferred tax liabilities $167,904 $134,979 --------- --------- DEFERRED TAX ASSETS Allowance for losses on investments $ 36,279 $ 32,245 Loans 9,653 2,488 Other 15,469 5,915 --------- --------- Total deferred tax assets 61,401 40,648 --------- --------- Net deferred tax liabilities $106,503 $ 94,331 ========= ========= TAX ACCOUNT BALANCES Deferred income tax liabilities $ 27,562 $ 15,390 Preferred stock and related additional paid-in capital 125,000 125,000 Due from GATX Corporation (46,059) (46,059) --------- --------- Net deferred tax liabilities $106,503 $ 94,331 ========= ========= The provision for income taxes consists of the following: Year ended December 31, 1995 1994 1993 - ----------------------- -------- -------- -------- CURRENT Federal $ 7,389 $11,436 $12,245 State and local 1,513 (44) 405 Foreign (1,227) 719 1,885 -------- -------- -------- Total current 7,675 12,111 14,535 -------- -------- -------- DEFERRED Federal 10,515 2,684 4,579 State and local 2,175 2,778 2,176 Foreign 2,375 1,212 71 -------- -------- -------- Total deferred 15,065 6,674 6,826 -------- -------- -------- Total provision for income taxes $22,740 $18,785 $21,361 ======== ======== ======== A reconciliation between the federal statutory tax rate and the Company's effective tax rate is shown below: Year ended December 31, 1995 1994 1993 - ----------------------------------- -------- -------- -------- Federal statutory income tax rate 35.0% 35.0% 35.0% State tax provision, net of federal tax benefit 4.1% 4.1% 3.9% Impact of federal tax rate increase - - 3.7% Sale of consolidated subsidiary - - 1.3% Other 2.0% 3.9% 5.9% -------- -------- -------- Effective tax rate 41.1% 43.0% 49.8% ======== ======== ======== Income before income taxes from foreign operations was $2.5 million, $1.8 million and $3.0 million in 1995, 1994 and 1993, respectively. Federal income taxes have not been provided on the undistributed earnings of foreign subsidiaries and affiliates which the Company intends to permanently reinvest in these foreign operations. The cumulative amount of such earnings was $14.3 million at December 31, 1995. FOREIGN OPERATIONS The Company provides or arranges equipment financing for non-affiliated entities both inside and outside the United States. In the following table, export income pertains to revenue generated by domestic operations through transactions with customers in foreign countries. Some of these transactions are denominated in foreign currencies. Information designated as foreign in the following table pertains to operations that are located outside of the United States. Year ended December 31, 1995 1994 1993 - ----------------------- ----------- ----------- ----------- EARNED INCOME Domestic $ 191,343 $ 179,709 $ 171,047 Export 28,537 26,436 29,866 Foreign 17,591 10,505 11,851 Eliminations (962) (618) (367) ----------- ----------- ----------- $ 236,509 $ 216,032 $ 212,397 =========== =========== =========== NET INCOME United States $ 24,246 $ 20,596 $ 16,590 Foreign 8,306 4,192 4,929 Eliminations 52 63 6 ----------- ----------- ----------- $ 32,604 $ 24,851 $ 21,525 =========== =========== =========== TOTAL ASSETS United States $1,318,020 $1,038,762 $1,050,117 Foreign 207,779 236,828 213,169 Eliminations (7,416) (6,000) (6,688) ----------- ----------- ----------- $1,518,383 $1,269,590 $1,256,598 =========== =========== =========== The Company has entered into currency swap agreements to protect itself from the risk that the eventual dollar net cash in-flow from foreign denominated investments will be adversely affected by changes in exchange rates. The currency swaps exchange U.S. borrowings of $31.2 million for liabilities of $42.3 million Canadian dollars, with termination dates ranging from 2001 to 2003. RETIREMENT BENEFITS The Company, exclusive of Sun Financial, participates in the GATX Corporation Non-Contributory Pension Plan for Salaried Employees (the "Plan"), a defined benefit pension plan with GATX Corporation covering substantially all employees. Sun Financial employees participate in a 401(k) retirement plan. Pension cost for each GATX subsidiary included in the Plan is determined by independent actuaries. However, accumulated Plan obligation information, Plan assets and the components of net periodic pension costs pertaining to each subsidiary have not been separately determined. Contributions to the Plan made by the Company through GATX Corporation and pension expense allocated to the Company are not material to these financial statements. In addition to pension benefits, the Company provides other postretirement benefits, including limited health care and life insurance benefits, for certain retired employees who meet established criteria. Most domestic employees, exclusive of Sun Financial employees, are eligible if they retire from the Company with immediate pension benefits under the Plan. The net periodic cost and accrued liability are not material to these financial statements. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK At December 31, 1995, the Company's investment portfolio consists of 39% commercial jet aircraft, 18% rail equipment, 13% warehouse and production equipment, 10% information technology equipment, 7% marine equipment, 4% golf courses, and 9% other equipment. The portfolio is made up of approximately 800 financing contracts with 600 customers. The Company's backlog was $325.0 million and $191.6 million, at December 31, 1995 and 1994, respectively. The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and financial guarantees. Such instruments involve, to varying degrees, elements of credit and market risk which are not recognized in the consolidated balance sheets. The contractual amounts of the instruments are shown below: At December 31, 1995 1994 - ------------------------- -------- ------- Guarantees $131,144 $99,094 Stand-by loan commitments $ - $ 5,800 Guarantees are commitments issued by the Company to guarantee the value of an asset at the end of the lease, or to guarantee performance of an affiliate to a third party. These commitments have fixed expiration dates ranging from 1996 to 2015. Since many of the assets on lease are expected to retain their value, the total amount guaranteed does not necessarily represent future cash requirements. The Company uses essentially the same credit policies in making commitments and conditional obligations as it does for funded transactions. All investments are subject to normal credit policies, collateral requirements and senior management review. For example, lease provisions require lessees to meet certain standards for maintenance and return conditions, and provide for repossession upon default. Loans are generally secured by equipment or real estate, and may involve guarantees or other assets as collateral. All commitments having off-balance sheet risk are reviewed at least annually for potential exposure using the same criteria discussed in the Allowance for Losses on Investments footnote, and the allowance is adjusted accordingly. FAIR VALUE OF FINANCIAL INSTRUMENTS Generally accepted accounting principles require disclosure of the estimated fair value of the Company's financial instruments, excluding lease transactions accounted for under SFAS 13. Fair value is a subjective and imprecise measurement that is based on assumptions and market data. The use of different market assumptions and valuation methodologies may have a material effect on the estimated fair value amounts. Accordingly, management cannot provide assurance that the fair values presented are indicative of the amounts that the Company could realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: SHORT-TERM FINANCIAL INSTRUMENTS The carrying amounts included on the balance sheet approximate fair value because of the short maturity of these instruments. This approach applies to cash and cash equivalents, accrued interest, accounts payable, commercial paper, and bankers' acceptances. SECURED LOANS The fair values of the fixed rate loans are estimated using discounted cash flow analysis, at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The fair values of the variable rate secured loans are assumed to be equal to their carrying values. SENIOR NOTES AND NONRECOURSE OBLIGATIONS The fair value of fixed rate senior notes and nonrecourse obligations was estimated performing a discounted cash flow calculation using the note term and market interest rate for each note based on the Company's current incremental borrowing rates for similar borrowing arrangements. The fair values of variable rate senior notes and nonrecourse obligations are assumed to be equal to their carrying values. INTEREST RATE AND CURRENCY SWAPS The fair value of the interest rate and currency swaps is estimated by discounting the fixed cash flows received under each swap using the rate at which the Company could enter into new swaps of similar remaining maturities. The carrying amount shown on the table below represents the amount of accrued interest payable or receivable at the end of the period. The fair value represents the accrued amount plus the amount that the Company would have to pay or would receive in the current market to unwind the swaps. OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS It is not practicable to estimate the fair value of the Company's other off-balance sheet financial instruments because there are few active markets for these transactions, and the Company is unable at this time to estimate fair value without incurring excessive costs. SUMMARY OF FAIR VALUES The following table presents the fair values of only those financial instruments required to be presented by generally accepted accounting principles. Proceeds from senior term notes are invested in a variety of activities, including both financial instruments shown in this table, as well as leases and joint venture investments, for which fair value disclosures are not required. Carrying Fair At December 31, 1995 Amount Value - ----------------------- --------- --------- ASSETS Secured Loans $239,873 $252,443 LIABILITIES Senior term notes $679,600 $726,700 Nonrecourse obligations $193,446 $199,797 Interest rate swaps $ 103 $ (964) Carrying Fair At December 31, 1994 Amount Value - ----------------------- --------- --------- ASSETS Secured Loans $231,225 $221,239 LIABILITIES Senior term notes $613,600 $614,600 Nonrecourse obligations $ 55,270 $ 55,298 Interest rate swaps $ (76) $ 10,454 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure - -------------------- None. PART III Item 10(a). Directors of the Registrant - ---------------------------------------- Name Office Held Since Age - ------- -------------- -------- ----- James J. Glasser Chairman of the Board 1971 61 Joseph C. Lane President, Chief Executive Officer and Director 1994 42 David B. Anderson Director 1996 54 Alan C. Coe Executive Vice President and Director 1994 44 Jesse V. Crews Executive Vice President Chief Investment Officer, and Director 1994 43 David M. Edwards Director 1990 44 Frederick L. Hatton Executive Vice President and Director 1984 53 Ronald H. Zech Director 1984 52 Item 10(b). Executive Officers of the Registrant - ------------------------------------------------- Name Office Held Since Age - ------- -------------- -------- ----- Joseph C. Lane President, Chief Executive Officer and Director 1994 42 Alan C. Coe Executive Vice President and Director 1994 44 Jesse V. Crews Executive Vice President, Chief Investment Officer, and Director 1994 43 Frederick L. Hatton Executive Vice President and Director 1984 53 Cal C. Harling Senior Vice President and Managing Director- Technology Group 1994 47 Glenn L. Hickerson Senior Vice President and President-Air Group 1995 58 Kathryn G. Jackson Senior Vice President and Managing Director-Corporate Finance 1995 40 Robert J. Sammis Senior Vice President- Corporate Development 1993 49 Michael E. Cromar Vice President and Chief Financial Officer 1994 48 Thomas C. Nord Vice President, General Counsel, and Secretary 1980 55 Valerie C. Williams Vice President-Human Resources 1989 51 George R. Prince Vice President and Treasurer 1983 51 Curt F. Glenn Principal Accounting Officer, Vice President,and Controller 1992 41 JOSEPH C. LANE, President, Chief Executive Officer and Director since 1994. Mr. Lane joined the Company in 1979 as a Financial Analyst and has served as District Manager, Regional Manager, Vice President, Senior Vice President and Executive Vice President. Mr. Lane was formerly Vice President-Corporate Finance for Rotan Mosle Investment Bankers (two years) and a member of the Yale University Development Faculty (three years). Mr. Lane currently serves as a Director of the Equipment Leasing Association Board. He received a BA from Yale University in 1975. ALAN C. COE, Executive Vice President and Director since 1994. Mr. Coe joined the Company in 1977 as a Financial Analyst and has held a variety of positions both domestically and internationally. Prior to 1977, Mr. Coe served as an officer in the United States Air Force (four years) and as Vice President-Corporate Finance - with Rotan Mosle in Houston, Texas (three years). Mr. Coe received a BA from Southern Methodist University in 1973 and his MBA from Golden Gate University in 1976. JESSE V. CREWS, Executive Vice President, Chief Investment Officer and Director since 1995. Mr. Crews joined the Company in 1977 as a Financial Analyst and had a variety of positions, including Regional Manager of the Singapore (two years) and New Orleans/Houston (five years) offices before returning to San Francisco in 1985. He has been broadly responsible for the development of new business investment opportunities for the Company's own portfolio since 1986 and as head of the Corporate Finance Group from 1990 to 1994. Mr. Crews received a BA from Yale and an MBA from the University of Virginia. FREDERICK L. HATTON, Executive Vice President and Director since 1984. Mr. Hatton joined the Company in 1983 as Senior Vice President and President of GATX Air. He is currently responsible for GATX Airlog. Prior to 1983, he served as Vice President Marketing for two years, and Executive Vice President for four years with International Air Service Company (IASCO). Prior to IASCO, Mr. Hatton served in a number of managerial capacities for Flying Tiger Lines. He received a BS from Yale University in 1964, an MS in aerospace management from the University of Southern California in 1971, and an MBA from the Wharton School in 1972. Mr. Hatton served as a U.S. Marine Corps fighter pilot from 1964 to 1970 including a tour in Vietnam. CAL C. HARLING, Senior Vice President-Technology Group since 1994. Mr. Harling joined the Company in 1987 as Vice President, Technology Financing. Prior to 1987 Mr.Harling was an independent consultant for two years. Mr. Harling worked for Decimus Corporation, a subsidiary of BankAmerica Corporation, for ten years starting in 1975. While at Decimus Mr. Harling held various positions including Vice President of Vendor Operating Leasing, Vice President of Portfolio Management, and other management positions in systems development. Mr. Harling received a BS from California State University, Sacramento in 1973. GLENN L. HICKERSON, Senior Vice President and Executive Vice President Marketing of the Air Group 1990 through 1995. President-Air Group since 1995. Prior to joining the Company, he was President/Managing Director of GPA Asia Pacific (1989-1990) and Vice President-Commercial Marketing and Sales at Douglas Aircraft Company (1983-1989). Mr. Hickerson served the Lockheed California Company from 1976 through 1983, the last four years as Vice President-Marketing and Sales-International. Prior to 1976 he served as Group Vice President-Travel Division with Marriott Corporation (four years), President, Universal Airlines (five years) and Secretary-Treasurer, Douglas Finance Corporation (five years). Mr. Hickerson received a BS from Claremont McKenna College and an MBA from New York University. KATHRYN G. JACKSON, Senior Vice President and Managing Director-Corporate Finance since 1995. She joined the Company in 1981 as Financial Analyst, and transferred to the Chicago regional office in 1982 serving as District Manager, Vice President and Managing Director. From 1987 to 1994, she was employed by D'Accord Financial Services as a Managing Director, member of the Executive Committee and ultimately served as President, Chairman and Chief Executive Officer for one year. Ms. Jackson holds a BA from Stanford University and an MBA from Northwestern University. ROBERT J. SAMMIS, Senior Vice President-Corporate Development since 1993. Mr. Sammis joined the Company in 1975 as Associate Counsel. He has served as a Senior Vice President in charge of Equipment Management and as Managing Director, International. Mr. Sammis is a Fulbright scholar and, in that capacity, taught law at the University of Los Andes, Bogota, Columbia. Prior to joining the Company, he was with Pillsbury, Madison & Sutro as Associate Counsel. Mr. Sammis received a BA from the University of California and a JD from the University of Michigan. MICHAEL E. CROMAR, Vice President and Chief Financial Officer since October 1994. Prior to joining the Company, Mr. Cromar was Vice President, Treasurer and Chief Financial Officer at The Harper Group, Inc., a San Francisco based international logistics services company from December 1992 to October 1994. From September 1988 through August 1992 he served S.A. Louis-Dreyfus & Cie., principally as Senior Vice President, Finance and Information, for Gearbulk Ltd. an industrial bulk shipping joint venture in Bergen, Norway. From 1982 to 1988 he was corporate controller and a director of information technology for American President Companies, Ltd. From 1975, he held a variety of financial management positions with Natomas Co., an energy resources company. Mr. Cromar began his career with Touche Ross & Co. where he was a Certified Public Accountant. He received a BS degree in Business Administration in 1972 from the University of Utah and was an infantry officer in the U.S. Army, including service in Vietnam. THOMAS C. NORD, Vice President, General Counsel and Secretary since 1980. Mr. Nord joined the Company as Associate Counsel in 1977 and became Assistant General Counsel in 1978. Prior to 1977, Mr. Nord served as Counsel for Charter New York Leasing, an affiliate of Irving Trust Company (three years), and as an Associate in the New York law firm of Seward and Kissel (five years). Mr. Nord received a BA from Northwestern University in 1962 and a JD from the University of North Carolina in 1969. VALERIE C. WILLIAMS, Vice President-Human Resources since 1989. Prior to joining the Company, Ms. Williams was President of VC Williams & Associates, a human resources consulting firm; was Director, Corporate Compensation and Incentives at Carson Pirie Scott & Co. and Senior Consultant, Compensation with A.S. Hansen, Inc. Ms. Williams received her MBA from Lake Forest College in 1980. GEORGE R. PRINCE, Vice President and Treasurer since 1983. Mr. Prince joined the Company in 1981 as Assistant Vice President-Corporate Development. In 1983, he was promoted to Vice President and Treasurer. Prior to 1981, Mr. Prince was Vice President for Continental Bank. Mr. Prince received his BS in 1966 from Cornell University and MBA in 1968 from Michigan State. CURT F. GLENN, Principal Accounting Officer, Vice President & Controller since 1992. Mr. Glenn joined the Company in 1980 as Assistant Tax Manager, was appointed Tax Manager in 1985 and elected Vice President in 1989. Prior to joining the Company, Mr. Glenn was a Senior Tax Analyst at GATX Corporation (two years) and a Senior Tax Accountant with Trans Union Corporation (four years). Mr. Glenn received a B.S. in Accounting from DePaul University in 1977. Mr. Glenn is currently Chairman of the Federal Tax Committee of the Equipment Leasing Association of America. Items 11, 12 & 13 - ---------------------- Omitted under provisions of the reduced disclosure format. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------- (a) 1. Financial statements The following consolidated financial statements of GATX Capital Corporation are included in Item 8. Consolidated Statements of Income and Reinvested Earnings Years Ended December 31, 1995, 1994 and 1993 Consolidated Balance Sheets As of December 31, 1995 and 1994 Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements 2. Financial statement schedules All financial statement schedules have been omitted because they are not applicable or because required information is provided in the financial statements, including the notes thereto, which are included in Item 8. 3. Exhibits Required by Item 601 of Regulation S-K Exhibit Number -------------- 3(a) Restated Certificate of Incorporation of the Company.(6) 3(b) By-laws of the Company.(1) 4(d) Term Loan Agreement between the Company and a Bank dated December 26, 1990.(2) 10(a) Office Leases, Four Embarcadero Center, dated October 1, 1990 and June 1, 1991, between the Company and Four Embarcadero Center Venture.(2) 10(b) Tax Operating Agreement dated January 1, 1983 between GATX Corporation and the Company.(3) 10(c) Credit Agreement among the Company, the Subsidiaries listed in Schedule II thereto, the Banks listed on the signature pages thereto, and Chase Manhattan Bank, as agent for the Banks, dated December 14, 1992.(4) 10(d) Amendment No. 1, dated December 1, 1994, to Credit Agreement referred to in 10(c). (5) 10(e) Credit Agreement among the Company, its two subsidiaries operating in Canada, and the Bank of Montreal, dated December 14, 1992.(4) 10(f) First Amendment, dated June 20, 1993 to Credit Agreement referred to in 10(e).(5) 10(g) Second Amendment, dated June 14, 1994, to Credit Agreement referred to in 10(e).(5) 10(h) Third Amendment, dated December 1, 1994, to Credit Agreement referred to in 10(e).(5) 12 Ratio of Earnings to Fixed Charges (6) 23 Consent of Independent Auditors.(6) 27 Financial Data Schedule.(6) 99 Listing of Medium Term Notes.(6) The Registrant agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Registrant the authorized principal amount of which does not exceed 10% of the total assets of Registrant. (1) Incorporated by reference to Registration Statement on Form S-1, as amended, (file number 2-75467) filed with the Commission on December 23, 1981, page II-4. (2) Incorporated by reference to Form 10-K filed with the Commission on March 30, 1991. (3) Incorporated by reference to Form 10-K filed with the Commission on March 28, 1983. (4) Incorporated by reference to Form 10-K filed with the Commission on March 31, 1993. (5) Incorporated by reference to Form 10-K filed with the Commission on March 27, 1995. (6) Submitted to the Securities and Exchange Commission with the electronic filing of this document. Item 14(b). Reports on Form 8-K - ----------------------------------------- Report on Form 8-K dated October 31, 1995 was filed December 7, 1995 reporting the Company's agreement, effective October 31, 1995, to acquire over the next four years all of the outstanding stock of Sun Financial Group, Inc., a technology-focused finance company based in Tampa, Florida. Item 14(d). Separate Financial Statements of Subsidiaries not Consolidated - -------------------------------------------------------------------------- and Fifty Percent or Less Owned Persons - ---------------------------------------- GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. Combined Financial Statements Years ended December 31, 1995, 1994 and 1993 CONTENTS Report of Independent Auditors Combined Financial Statements Combined Balance Sheets Combined Statements of Operations Combined Statements of Stockholders' and Members' Equity Combined Statements of Cash Flows Notes to Combined Financial Statements Report of Independent Auditors To Members of GATX/CL Air Leasing Cooperative Association and the Board of Management and Stockholders of GATX/CL Air N.V.: We have audited the accompanying combined balance sheets of GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. at December 31, 1995 and 1994, and the related combined statements of operations, stockholders' and members' equity(deficit), and cash flows for each of the three years for the period ended December 31, 1995. These financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. at December 31, 1995 and 1994, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Moret Ernst & Young Accountants Curacao, March 19, 1996 GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. Combined Balance Sheet (In Thousands) December 31 1995 1994 ----------- ----------- Assets Cash and cash equivalents $ 31,803 $ 29,778 Accounts receivable - Manager 11,176 11,338 Investments: Equipment on operating leases, net of accumulated depreciation of $99,831 in 1995 and $71,025 in 1994 579,174 681,214 Direct financing leases 81,730 90,074 Assets held for lease 71,984 - Aircraft delivery progress payments 18,414 16,062 ----------- ----------- 751,302 787,350 Other assets, net of accumulated amortization of $2,796 in 1995 and $2,375 in 1994 4,745 5,165 ----------- ----------- Total assets $ 799,026 $ 833,631 =========== =========== Liabilities & equity Liabilities: Accounts payable and accrued liabilities $ 1,474 $ 1,186 Accrued interest 3,373 3,326 Lessee deposits 46,018 46,382 Capital lease obligation 49,232 54,002 Nonrecourse obligations 98,886 108,077 Loans from members 456,997 472,234 ----------- ----------- Total liabilities 655,980 685,207 Equity(deficit): Association 143,096 148,505 Air N.V. (36) (74) Intercompany eliminations (14) (7) ----------- ----------- Total equity 143,046 148,424 ----------- ----------- Total liabilities and equity $ 799,026 $ 833,631 =========== =========== See accompanying notes. GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. Combined Statement of Operations (In Thousands) Year ended December 31 1995 1994 1993 ----------- ------------ ------------ Income Lease $ 79,255 $ 65,363 $ 56,311 Interest 2,723 1,889 1,244 Other 3,681 8 234 ----------- ------------ ------------ 85,659 67,260 57,789 ----------- ------------ ------------ Expenses Interest 47,413 39,662 33,009 Depreciation 28,806 24,662 22,771 Management fee 2,360 1,903 1,746 Guarantee fees 1,032 1,095 (629) Other 2,515 2,202 1,717 ----------- ------------ ------------ 82,126 69,524 58,614 ----------- ------------ ------------ Net income(loss) $ 3,533 $ (2,264) $ (825) =========== ============ ============ See accompanying notes. GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. Combined Statement of Stockholders' and Members' Equity (In Thousands) Air N.V. Association ------------------------------------------ ------------------------------ Equity adjustment Accumulated from foreign Share deficit/ currency Initial Additional Combined Capital earnings translation Total Members Members Total Elim Total ------- ----------- ------------ ----- ------- ---------- -------- ---- -------- Balances at December 31, 1992 $ 44 (277) 9 (224) 78,143 53,258 131,401 - 131,177 Members' capital contributions: Initial - - - - 19,118 12,746 31,864 - 31,864 Premium - - - - 797 796 1,593 - 1,593 Distributions to members - - - - (3,722) (2,482) (6,204) - (6,204) Net loss - 10 - 10 (504) (334) (838) 3 (825) ------- ----------- ------------ ----- ------- ---------- -------- ---- -------- Balances at December 31, 1993 44 (267) 9 (214) 93,832 63,984 157,816 3 157,605 Distributions to members - - - - (4,151) (2,766) (6,917) - (6,917) Net income (loss) - 140 - 140 (1,435) (959) (2,394) (10) (2,264) ------- ----------- ------------ ----- ------- ---------- -------- ---- -------- Balances at December 31, 1994 44 (127) 9 (74) 88,246 60,259 148,505 (7) 148,424 Distributions to members - - - - (5,347) (3,564) (8,911) - (8,911) Net income - 38 - 38 2,101 1,401 3,502 (7) 3,533 ------- ----------- ------------ ----- ------- ---------- -------- ---- -------- Balances at December 31, 1995 $ 44 (89) 9 (36) 85,000 58,096 143,096 (14) 143,046 ======= =========== ============ ===== ======= ========== ======== ==== ========
See accompanying notes. GATX/CL Air Leasing Cooperative Association and GATX/CL Air N.V. Combined Statement of Cash Flows (In Thousands) Year Ended December 31 1995 1994 1993 --------- --------- --------- OPERATING ACTIVITIES Net income(loss) $ 3,533 $ (2,264) $ (825) Reconciliation to net cash provided by operating activities: Depreciation 28,806 24,662 22,771 Amortization 423 487 726 Interest expense added to member loans 703 1,935 1,258 Changes in operating assets and liabilities: Receivables 451 6,058 (3,946) Accrued interest and other payables 42 (2,488) 2,314 Lessee deposits (364) 4,303 11,155 Other - net 862 (114) 57 --------- --------- --------- Net cash flows provided by operating activities 34,456 32,579 33,510 --------- --------- --------- INVESTING ACTIVITIES Investment in leased equipment - (2,975) (126,223) Investment in progress payments (1,024) - (2,023) --------- --------- --------- Total investments (1,024) (2,975) (128,246) Lease rents received, net of earned income 9,757 4,820 5,059 --------- --------- --------- Net cash flows provided by (used in) investing activities 8,733 1,845 (123,187) --------- --------- --------- FINANCING ACTIVITIES Proceeds from issuance of member loans - - 129,818 Capital contributions from members - - 33,457 Repayment of nonrecourse obligations (9,191) (8,750) (8,014) Repayment of member loans (18,292) (12,932) (43,158) Repayment of capital lease obligation (4,770) (4,415) (4,087) Distributions to members (8,911) (6,917) (6,204) --------- --------- --------- Net cash flows(used in) provided by financing activities (41,164) (33,014) 101,812 --------- --------- --------- Net increase in cash and cash equivalents 2,025 1,410 12,135 Cash and cash equivalents at beginning of year 29,778 28,368 16,233 --------- --------- --------- Cash and cash equivalents at December 31 $ 31,803 $ 29,778 $ 28,368 ========= ========= ========= SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $ 45,606 $ 42,452 $ 30,370 Taxes paid $ 77 $ 34 $ 11 See accompanying notes. 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF REPORTING The accompanying combined financial statements are prepared in accordance with accounting principles generally accepted in the United States and are presented in U.S. dollars. ORGANIZATION GATX/CL Air Leasing Cooperative Association (the Association) was formed in September 1990 as a Cooperative Vereniging under the laws of the Netherlands Antilles to engage in the acquisition and lease of aircraft for use in international commercial routes. The Initial Members of the Association, each having a 30% share, are GATX Capital Corporation (GATX) through its wholly owned subsidiary, GATX Air Antilles, Inc. (GATX Air), and Credit Lyonnais (CL), a bank organized under the laws of France. Additional Members are four financial institutions, each having a 10% share. The initial term of the Association shall expire on December 31, 2009. GATX/CL Air N.V. (Air N.V.) was incorporated as a limited-liability corporation on July 11, 1989 under the laws of the Netherlands as a holding and leasing company. The authorized share capital of Air N.V. is 500,000 Dutch guilders. It is divided into 5,000 shares of 100 Dutch guilders each. Each shareholder of Air N.V. is a member of the Association and holds shares in Air N.V. in proportion to its interest in the Association. CL is the Managing Director and Co-Manager of the Association. Oyens Trust B.V. (an affiliate of CL through December 22, 1995) is a Managing Director and administrative manager of Air N.V. GATX is the manager of the Association and a Managing Director of Air N.V. BASIS OF COMBINATION The accompanying financial statements combine the assets, liabilities, equity, results of operations and cash flows of the Association and Air N.V. (collectively, the Companies) in recognition of their common ownership and control. All significant intercompany transactions and accounts have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with a maturity of three months or less when purchased. OPERATING LEASES Leases that do not qualify as direct financing leases are accounted for as operating leases. Equipment subject to operating leases is stated at cost less accumulated depreciation plus accrued rent. The Companies' policy is to depreciate the equipment in a systematic and rational manner over its estimated useful life, generally ranging from 25 to 30 years. Changes in the expected holding period result in an increase or decrease in the rate of depreciation over the remaining life of the equipment. During 1995, additional depreciation in the amount of $3.6 million was recorded to reflect a reduction in the expected holding period of certain equipment. The Companies review the carrying value of equipment on operating leases at least annually. If the review indicates that such values have been permanently impaired, the carrying value is reduced accordingly. Management believes that no such impairment has occurred through the date of these financial statements. DIRECT FINANCING LEASES The Companies' investment in direct financing leases includes lease contracts receivable plus the estimated unguaranteed residual value of the equipment at the lease termination date, less unearned income. Lease contracts receivable includes the total rent to be received over the life of the lease reduced by rent collected. Initial unearned income is the amount by which the lease contract receivable plus the estimated residual exceeds the initial investment in the leased equipment at lease inception. Unearned income is amortized to produce a level yield over the lease term. The residual value of equipment under direct financing leases is the estimated amount to be received by the Companies from the disposition of equipment upon expiration of the lease. Management reviews residual value estimates at least annually. If the review results in a lower estimate than had been previously established and the decline is judged to be other than temporary, the accounting for the transaction is revised using the new estimate, and the resulting reduction in the net investment is recognized as an expense in the period in which the change is made. The Companies have had no such revisions to their residual value estimates. ASSETS HELD FOR LEASE Assets held for lease consist of aircraft which has been returned by the lessee. Depreciation continues under the Companies' normal depreciation policy. AIRCRAFT DELIVERY PROGRESS PAYMENTS Payments made toward contracts for the future delivery of aircraft under construction are recorded at cost, including capitalized interest, and are classified as progress payments. CREDIT RISK The Companies' customers are concentrated in the commercial airline industry. All investments are subject to normal credit policies, collateral requirements and senior management review. Lease provisions require lessees to meet certain standards for maintenance and return conditions, and provide for repossession upon default. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements as well as revenues and expenses during the reporting period. Actual results, when ultimately realized, could differ from those estimates. NEW ACCOUNTING STANDARD In March 1995, the Financial Accounting Standards Board issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires the recording of impairment losses on long-lived assets used in operations when indicators of impairment are present and when the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The statement also requires that assets held for disposal be carried at the lower of the carrying amount or fair value less cost to sell. For this purpose, management must commit to a plan to sell or abandon the asset and it must be actively marketed for sale in the near future. There are no assets held for disposal as of December 31, 1995. The Companies will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. 2. ASSOCIATION CAPITAL CONTRIBUTIONS, LOANS AND ALLOCATION OF INCOME, LOSSES AND CASH DISTRIBUTIONS CAPITAL CONTRIBUTIONS Each Initial Member and each Additional Member are committed to contribute to the equity of the Association amounts aggregating up to each member's Equity Commitment (Initial Contributions). Such Equity Commitments aggregate $120,000,000 for the Initial Members and $80,000,000 for the Additional Members. Amounts contributed to the Association under this commitment through December 31, 1995 aggregated approximately $171,315,000 and represent each member's Equity Contribution. Each member's pro-rata share of such Equity Contributions represents its Venture Share of the Association. Each Additional Member is also required to make Premium Contributions at the time the Initial Contributions are paid. A portion of the Premium Contributions are then reallocated to the Initial Members. Premium Contributions contributed to the Association through December 31, 1995 aggregated approximately $8,566,000. EXPOSURE CAP Members are only committed to contribute to the Association a maximum of equity contributions (excluding Premium Contributions) and loans aggregating $300,000,000 and $100,000,000 for each Initial Member and each Additional Member, respectively (Exposure Cap) for a total of $1,000,000,000. Also, Premium Contributions which may be required by the Additional Members may not exceed $2,500,000 for each Additional Member. The amount of unused and available equity and loan contributions from the Members at December 31, 1995 is $197,290,000. ALLOCATION OF INCOME AND LOSSES Income and losses are allocated to each member according to its Venture Share. ALLOCATIONS OF CASH FLOW Available cash flow, as defined by the Cooperative Agreement, will be distributed to the members, and shall be allocated in part as a Contingent Return to all members and in part as a Contingent Management Fee to the Initial Members (Note 11). Upon liquidation of the Association, remaining net assets of the Association will be distributed among the members in proportion to their respective Investment Share, as defined by the Cooperative Agreement. 3. OPERATING LEASES The Companies lease aircraft and related equipment to South American, North American, European and Asian commercial airlines under operating leases. Earned income from operating leases in 1995, 1994, and 1993 was $71,973,000, $58,954,000, and $50,910,000, respectively. Earned income was increased (decreased), due to the change in interest rates by $7,586,000, $3,420,000, and $(2,753,000) in 1995, 1994, and 1993, respectively. The Companies project future rentals on variable leases by using the interest rate in effect at lease inceptions. Future rentals are subject to fluctuations with the increase and decrease in the interest rate. As of December 31, 1995, future rentals under operating leases are due as follows (in thousands): YEAR DUE -------- 1996 $ 52,824 1997 25,175 1998 13,698 1999 10,138 2000 7,468 -------- $109,303 ======== 4. DIRECT FINANCING LEASES The Association leases aircraft and related equipment to a South American commercial airline under direct financing leases with initial terms of 12 years. Earned income from direct financing leases in 1995, 1994, and 1993 was $7,282,000, $6,409,000, and $5,401,000, respectively. Earned income includes a reduction of variable rentals of $1,933,000, $3,553,000, and $5,144,000 for 1995, 1994, and 1993, respectively. The components of the Association's net investment in direct financing leases are as follows (in thousands): YEAR ENDED DECEMBER 31, 1995 1994 - -------------------------------------- --------- --------- Lease contracts receivable $ 82,972 $100,532 Estimated unguaranteed residual values 30,700 30,700 Less: Unearned income (31,942) (41,158) --------- --------- Investment in direct financing leases $ 81,730 $ 90,074 ========= ========= The Companies project future rental commitments on variable rent leases by using the interest rate in effect at lease inceptions. Future rentals are subject to fluctuation with the increase and decrease in interest rates. As of December 31, 1995, minimum lease payments to be received are as follows (in thousands): YEAR DUE -------- 1996 $16,625 1997 15,959 1998 15,959 1999 15,959 2000 15,959 Thereafter 2,511 ------- $82,972 ======= 5. LESSEE DEPOSITS Lessee deposits consist of security deposits and maintenance reserves including accrued interest. At December 31, 1995 and 1994, security deposits are $6,089,000 and $5,894,000, respectively, and maintenance reserves are $35,649,000 and $37,289,000, respectively. Lessee deposits are paid by the lessee prior to the inception of the lease and are refundable to the lessee based on the terms of the various leases. Maintenance reserves are charged to lessees based upon usage of the leased aircraft. Such amounts will be reimbursed to the lessee as required maintenance is performed. Interest due to lessees is accrued on the outstanding security deposits and maintenance reserves at rates ranging from 5.8750% to 6.9375% (based on 30-day LIBOR). Accrued interest payable on lessee deposits at December 31, 1995 and 1994 aggregated $4,280,000 and $3,200,000, respectively. 6. CAPITAL LEASE OBLIGATION In November 1991, the Association sold delivery positions for the two aircraft delivering that month to a third party and leased back the aircraft for a term of ten years. No gain or loss was recognized on the sale-leaseback. The terms of the agreement require capital lease treatment by the Association. The aircraft secure third party financing obtained by the lessor. This financing is recourse to the Members in their respective ownership shares. As of December 31, 1995, future minimum lease payments on the capital lease obligation are as follows (in thousands): Year due -------- 1996 $ 8,937 1997 8,937 1998 8,937 1999 7,123 2000 6,586 Thereafter 25,370 ---------- Total minimum lease payments 65,890 Amount representing interest (calculated at 7.9% at lease inception) (16,658) ---------- Present value of minimum lease payments including $5,154 of current maturities $ 49,232 ========== The capital lease obligation was reduced in 1991 by amounts which the Association irrevocably placed in a trust to be used solely for the satisfaction of the obligation, and the minimum lease payments shown above are net of payments to be made by the trust. The balance of this trust account at December 31, 1995 is $17,533,000. The Association has entered into an interest rate swap to manage interest rate exposure by effectively converting the capital lease obligation from a fixed rate to a floating rate borrowing. The Association receives or pays interest on a notional principal amount of $47,271,000 at December 31, 1995 based on the difference between a nominal rate of 9.07% and the 180-day LIBOR. No actual borrowing or lending is involved. The swap agreement terminates in 2001. The differential to be paid or received is accrued as interest rates change and is recognized currently as an adjustment to interest expense related to the debt. The aircraft subject to capital lease financing were subleased to a commercial airline on four-year operating leases commencing in March 1992. Such subleases are classified as operating leases. The carrying value of the underlying aircraft subject to the operating leases is $68,046,000 and $70,833,000 at December 31, 1995 and 1994, respectively. Depreciation expense of $2,744,000, $2,753,000, and $2,753,000 was recorded in 1995, 1994, and 1993, respectively. Minimum future rentals to be received under noncancelable subleases aggregate $9,234,000 receivable over a period ending in 1997. Such rentals are included in the minimum future rentals under operating leases disclosed in Note 3. 7. NONRECOURSE OBLIGATIONS Nonrecourse obligations are secured by the underlying leases and leased assets. In the event of lessee default, the lenders have recourse only to the pledged equipment and the obligation is nonrecourse to the general credit of the Association. The Companies' investment in such leases at December 31, 1995 and 1994 (net of the related outstanding debt principal of $98,886,000 and $108,077,000, respectively, included in nonrecourse obligations) is $43,314,000 and $46,270,000, respectively. Nonrecourse obligations bear interest based on the 90- to 180-day LIBOR. Nonrecourse obligations include the following (in thousands): YEAR ENDED DECEMBER 31, 1995 1994 - ----------------------------------- ------- -------- Variable Rate Note maturing in 2001 $58,502 $ 63,738 Variable Rate Note maturing in 2000 40,384 44,339 ------- -------- $98,886 $108,077 ======= ======== As of December 31, 1995, future principal payments on nonrecourse obligations are as follows (in thousands): YEAR DUE - -------- 1996 $ 9,636 1997 10,668 1998 11,639 1999 12,693 2000 13,864 Thereafter 40,386 -------- $ 98,886 ======== 8.LOANS FROM MEMBERS At December 31, 1995 and 1994, loans from members bearing interest at rates from 150 to 294 basis points over the 30-to-180-day LIBOR, aggregated $456,997,000 and $472,234,000 respectively, with accrued interest payable aggregating $1,151,000 and $1,204,000 respectively. Such borrowings are collateralized by the aircraft delivery progress payments and leased assets, subject to priority liens. The future principal payments on loans from members as of December 31, 1995 are based upon leases and approved amortization schedules then in existence. Re-lease of the aircraft upon termination of the current leases will extend the term of the loans. As of December 31 1995, future principal payments on loans from members are due as follows (in thousands): YEAR DUE - -------- 1996 $ 155,346 1997 132,645 1998 7,886 1999 31,766 2000 53,197 Thereafter 76,157 --------- $ 456,997 ========= Interest on loans from members for 1995, 1994, and 1993 is as follows (in thousands): Year ended December 31, 1995 1994 1993 - ------------------------------ -------- -------- -------- Interest costs incurred $ 34,220 $ 27,336 $ 22,100 Accrued interest payable added to loans from members 2,030 2,864 2,596 Interest paid to members 34,273 28,778 17,346 The Association has entered into an interest rate swap to manage interest rate exposure by effectively converting a member loan from a floating rate to a fixed rate borrowing. The Association receives or pays interest on a notional principal amount of $64,236,000 and $67,496,000 at December 31, 1995 and 1994, respectively, based on the difference between a 10.47% fixed rate and the 90-day LIBOR. The differential to be paid or received is accrued as interest rates change and is recognized currently as an adjustment to interest expense related to the debt. No actual borrowing or lending is involved. The swap agreement terminates in 2002. 9. AIRCRAFT DELIVERY PROGRESS PAYMENTS AND COMMITMENTS Interest cost incurred during 1995, 1994, and 1993 aggregated $48,741,000, $40,591,000, and $34,347,000, respectively of which $1,328,000, $929,000, and $1,338,000, respectively, was capitalized into progress payments. At December 31, 1995, remaining obligations to vendors under aircraft delivery positions aggregated $69,693,000. Obligations under delivery positions, for which the final payments upon delivery of the aircraft are subject to escalation clauses, are estimated to be paid in each of the subsequent years ended December 31, as follows (in thousands): Estimated payments due upon expected Fixed delivery date Year ended December 31, obligations of aircraft Total - ----------------------- ----------- ------------- -------- 1996 $ 3,193 $ - $ 3,193 1997 - 66,500 66,500 -------- -------- -------- $ 3,193 $ 66,500 $ 69,693 ======== ======== ======== 10. OTHER INCOME AND EXPENSE ITEMS Pursuant to Article 1, paragraph 1(a), of the Netherlands Antilles National Profit Tax Ordinance of 1940, the Association is subject to Netherlands Antilles profit tax. An advance tax ruling has been obtained from the Netherlands Antilles tax authorities in order to determine the tax position of the Association. Based on this tax ruling, $96,000, $131,000, and $96,000 have been recorded as an estimate for profit taxes in 1995, 1994, and 1993, respectively. The Air N.V. is subject to Netherlands corporate income tax. An advance tax ruling has been obtained from the Netherlands tax authorities in order to determine the tax position of the Air N.V. Based on this tax ruling, $41,000, $43,000, and $43,000 have been recorded as an estimate for corporate income taxes in 1995, 1994, and 1993, respectively. No temporary differences exist between the computation of the tax liability for book and tax purposes which would give rise to deferred income taxes. In 1995, the Association recognized $3,619,000 from the sale of certain ownership rights in a foreign tax jurisdiction. The Companies account for the benefits from transactions which are, in substance, sales of tax benefits through tax leases, as income in the period completed. 11. RELATED PARTY TRANSACTIONS The Companies had related-party transactions as follows: MANAGEMENT OF THE ASSOCIATION AND AIR N.V. Pursuant to the Association Agreement and a Management Agreement, both dated September 4, 1990, between the Association and GATX as Manager and CL as Co- Manager, GATX and CL are to manage, lease and administer the Association property, among other duties, for an initial term of five years. As consideration for the performance of their duties under the Management Agreement, the Manager and Co-Manager jointly receive a monthly management fee. The management fee is calculated for each leased item of equipment and is based upon the amount by which the sum of rents, interest and loan or commitment fees received by the Association exceed an assumed rate of interest paid with respect to each leased asset (the Management Fee). A Contingent Management fee will be paid to the Initial Members after the repayment of all principal and interest on any third-party debt, member loans, and member contributions and member returns, as defined by the Cooperative Agreement. However, minimum fees paid to the Manager and Co-Manager will not be less than $1,200,000 per year. The Association also reimburses the Manager and Co-Manager for costs as allowed in the Management Agreement. GATX and Oyens Trust B.V., are the Managing Directors of Air N.V. They receive no consideration for performance of their management duties. The Association and Air N.V. are charged administrative fees by Oyens Trust N.V. (Curacao) and Oyens Trust B.V., respectively. Both Oyens Trust N.V. and Oyens Trust B.V. were affiliates at CL until December 22, 1995. Cash on hand at December 31, 1995 and 1994 is on deposit with CL or its affiliates. Amounts owed to GATX and CL at December 31, 1995, 1994, and 1993, management fees incurred and costs reimbursed for each of the years in the period ended December 31 are as follows (in thousands): For the year ended December 31, 1995 ------------------------------------ Amount receivable (payable) at Reimbursed December 31, Costs Expense Income 1995 ---------------------------------- ----------- GATX: Management fee $ - $ 1,912 $ - $(1,356) Maintenance reserves and accrued interest - - 685 12,578 Insurance and lessee buyer furnished equipment 62 - - (110) Guarantee fees - 274 - 64 -------- -------- -------- -------- 62 2,186 685 11,176 CL (and affiliated companies): Management fee - 448 - (288) Other Members' guarantee fees - 758 - (174) -------- -------- -------- -------- Totals $ 62 $ 3,392 $ 685 $10,714 ======== ======== ======== ======== For the year ended December 31, 1994 ------------------------------------ Amount receivable (payable) at Reimbursed December 31, Costs Expense Income 1994 ---------------------------------- ----------- GATX: Management fee $ - $ 1,531 $ - $ (907) Security deposits and accrued interest - - 7 - Maintenance reserves and accrued interest - - 529 12,006 Insurance and lessee buyer furnished equipment 537 - - 312 Guarantee fees - 295 - (73) -------- -------- -------- -------- 537 1,826 536 11,338 CL (and affiliated companies): Management fee - 372 - (198) Security deposits and accrued interest - - 13 - -------- -------- -------- -------- - 372 13 (198) Other Members' guarantee fees - 689 - (243) -------- -------- -------- -------- Totals $ 537 $ 2,887 $ 549 $10,987 ======== ======== ======== ======== For the year ended December 31, 1993 ------------------------------------ Amount receivable (payable) at Reimbursed December 31, Costs Expense Income 1993 ---------------------------------- ----------- GATX: Management fee $ - $ 1,400 $ - $ (673) Security deposits and accrued interest - - 45 1,413 Maintenance reserves and accrued interest - - 400 13,912 Insurance and lessee buyer furnished equipment 2,846 - - 527 Guarantee fees - (218) - (74) -------- -------- -------- -------- 2,846 1,182 445 15,105 CL (and affiliated companies): Management fee - 346 - (147) Security deposits and accrued interest - - 79 2,512 -------- -------- -------- -------- - 346 79 2,365 Other Members' guarantee fees - (506) - (175) -------- -------- -------- -------- Totals $ 2,846 $ 1,022 $ 524 $17,295 ======== ======== ======== ======== 12. FAIR VALUE OF FINANCIAL INSTRUMENTS Generally accepted accounting principles require disclosure of the estimated fair value of the Companies' financial instruments, excluding lease transactions accounted for under SFAS 13. Fair value is a subjective and imprecise measurement that is based on assumptions and market data. The use of different market assumptions and valuation methodologies may have a material effect on the estimated fair value amounts. Accordingly, management cannot provide assurance that the fair values presented are indicative of the amounts that the Companies could realize in a current market exchange. SHORT-TERM FINANCIAL INSTRUMENTS The carrying amounts included on the balance sheet approximate fair value because of the short maturity of these instruments. This assumption applies to cash and cash equivalents, accounts receivable, accrued interest, and accounts payable, accrued liabilities, and lease deposits. NONRECOURSE OBLIGATIONS The carrying amount of variable nonrecourse obligations of $98,886,000 and $108,077,000 at December 31, 1995 and 1994, respectively, approximates their fair values. MEMBER LOANS All loans from members are variable rate loans at both December 31, 1995 and 1994. The carrying amount of variable rate loans from members of $456,997,000 and $472,234,000 at December 31, 1995 and 1994, respectively, approximates their fair value. INTEREST RATE SWAPS The fair value of the interest rate swaps is estimated by discounting the fixed cash flows received under each swap using the rate at which the Companies could enter into new swaps of similar remaining maturities. The carrying amounts of $222,000 and $301,000 represent the amount of accrued interest receivable at December 31, 1995 and 1994. The fair values of $3,823,000 and $1,475,000 which are liabilities and represent the accrued amount plus the amount that the Companies would have to pay in the current market to unwind the swaps. 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. GATX CAPITAL CORPORATION - ------------------------- (Registrant) By /s/ Joseph C. Lane - ------------------------------ Joseph C. Lane President, Chief Executive Officer, and Director March 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. By /s/ Joseph C. Lane By /s/ Michael E. Cromar ------------------ --------------------- Joseph C. Lane Michael E. Cromar President, Chief Executive Officer, Vice President and and Director Chief Financial Officer Dated: March 28, 1996 Dated: March 28, 1996 By /s/ Curt F. Glenn By /s/ David M. Edwards ----------------- --------------------- Curt F. Glenn David M. Edwards Principal Accounting Officer, Director Vice President & Controller Dated: March 28, 1996 Dated: March 28, 1996 By /s/ Jesse V. Crews By /s/ Alan C. Coe ------------------ --------------------- Jesse V. Crews Alan C.Coe Executive Vice President, Chief Executive Vice President Investment Officer, and Director and Director Dated: March 28, 1996 Dated: March 28, 1996 EX-3 2 RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF GATX CAPITAL CORPORATION Pursuant to Section 245 of the General Corporation Law of the State of Delaware, the undersigned, being Vice President and General Counsel, of GATX Capital Corporation (the "Corporation"), hereby certifies: FIRST: The name of the Corporation is GATX CAPITAL CORPORATION, formerly GATX LEASING CORPORATION and the name under which the Corporation was originally incorporated is GATX/BOOTHE CORPORATION. The date of filing of its original Certificate of Incorporation with the Secretary of State was January 9, 1968. SECOND: This Restated Certificate of Incorporation restates and integrates the Certificate of Incorporation of this Corporation and does not further amend the provisions of this Corporation's Certificate of Incorporation as previously amended and there is no discrepancy between such Certificate of Incorporation as amended and this Restated Certificate of Incorporation. THIRD: This Restated Certificate of Incorporation was duly adopted by unanimous written consent of the board of directors of the Corporation in accordance with the applicable provisions of Section 245 of the General Corporation Law of the State of Delaware. FOURTH: The text of the Certificate of Incorporation is set forth in full to read as follows: "RESTATED CERTIFICATE OF INCORPORATION OF GATX CAPITAL CORPORATION" FIRST: The name of the Corporation is GATX CAPITAL CORPORATION (the "Corporation"). SECOND: The address of its registered office in the State of Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: THE aggregate number of shares of stock which the Corporation shall have authority to issue is Six Million (6,000,000). Four Million (4,000,000) shares of such stock shall be common stock, with a One Dollar ($1.00) par value per share ("Common Stock"), amounting in the aggregate to Four Million Dollars ($4,000,000). Two Million (2,000,00) shares of such stock shall be preferred stock, with a One Dollar ($1.00) par value per share, amounting in the aggregate to Two Million Dollars ($2,000,000). The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof are as follows: (a)VOTING OF COMMON STOCK. At all elections of directors of the Corporation, each holder of shares of Common Stock of the Corporation shall be entitled to cast as many votes as shall equal the number of shares of Common Stock he or it holds on the applicable record date. (b)PREFERRED STOCK. The voting powers, designations, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions of all shares are as follows: 1.DESIGNATION AND NUMBER. Two Million (2,000,000) shares of the Corporation's preferred stock, with a One Dollar ($1.00) par value, are hereby designated "Series A Convertible Preferred Stock"("Series A Stock"). 2.DIVIDENDS. The holders of the Series A Stock shall be entitled to receive cumulative cash dividends of the Corporation simultaneously and on a share for share basis at the same rate per share with the Common Stock of the Corporation, when and as such dividends are declared by the Board of Directors; PROVIDED, HOWEVER, that such dividends shall only be payable out of funds legally available for the payment of dividends, to shareholders of record on the respective dates, not exceeding fifty days preceding such dividend payment dates, fixed for the purpose by the Board of Directors in advance of payment of each particular dividend. Dividends shall accrue on each such share of Series A Stock from the date of its original issuance. If such dividend shall not have been paid on or declared and set apart for all Series A Stock at the time outstanding, the deficiency shall be fully paid on or declared and set apart for such Series A Stock before any dividends shall be paid on or declared or set apart for the Corporation's Common Stock, or on any other securities of the Corporation junior to the Series A Stock. Accumulated unpaid dividends shall not bear interest. 3.CONVERSION RIGHTS. All persons who or which own of record the issued and outstanding shares of Series A Stock (for purposes of this Article Fourth, collectively, the "Holders") shall have conversion rights as follows: (A)CONVERSION. Each share of Series A Stock shall be convertible, at the option of the Holder thereof, at any time after the date of issuance of such share, at the principal office of the Corporation or any transfer agent for the Series A Stock, into one fully paid and non-assessable share of Common Stock. The number of shares of Common Stock into which each share of Series A Stock may be converted is hereinafter referred to as the "Conversion Rate." (B) MANNER OF CONVERSION. Before any Holder of Series A Stock shall be entitled to convert the same into shares of Common Stock, such Holder shall surrender the certificate or certificates therefor, duly endorsed for transfer to the Corporation, at the principal office of the Corporation or of any transfer agent for the Series A Stock and shall give written notice to the Corporation at such office that he or it elects to convert the same and shall state therein the name or names in which such Holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such Holder of Series A Stock, or to such Holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which such Holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (C)ADJUSTMENT FOR COMBINATIONS OF CONSOLIDATIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time after the original issuance of Common Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, or other securities or rights (hereinafter referred to as "Common Stock Equivalents") convertible into or entitling the holder thereof to receive additional shares of Common Stock without payment of any consideration by such holder for such Common Stock Equivalents or the additional shares of Common Stock, then, and in each such event, the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable in payment of such dividend or distribution or upon conversion or exercise of such Common Stock Equivalents shall be deemed to be issued and outstanding as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date. In each such event the Conversion Rate shall be increased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Rate by a fraction, (i)the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance on the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution or upon conversion or exercise of such Common Stock Equivalent; and (ii)the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; PROVIDED, HOWEVER, (w) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Rate shall be computed accordingly as of the close of business on such record date and thereafter the Conversion Rate shall be adjusted pursuant to this Paragraph(b)(3)(C) of this Article Fourth as of the date of actual payment of such dividends or distributions; (x) if such Common Stock Equivalents provide, with the passage of time or otherwise, for any decrease in the number of shares of Common Stock issuable upon conversion or exercise thereof (or upon the occurrence of a record date with respect thereto), upon any such decrease becoming effective, the Conversion Rate shall be recomputed to reflect such decrease insofar as it affects the rights of conversion or exercise of the Common Stock Equivalents then outstanding; (y) upon the expiration of any rights or conversion or exercise under any unexercised Common Stock Equivalents, the Conversion Rate computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if the only additional shares of Common Stock issued were the shares of such stock, if any, actually issued upon the conversion or exercise of such Common Stock Equivalents; and (z) in the case of Common Stock Equivalents which expire by their terms not more than sixty days after the date of issuance thereof, no adjustment of the Conversion Rate shall be made until the expiration or exercise of all such Common Stock Equivalents whereupon such adjustment shall be made in the manner provided in Clause (y) above. (D)Anything in the foregoing paragraph to the contrary notwithstanding, no shares of Common Stock shall be issued to any Holder, and no conversion shall be deemed to have taken place, unless and until such Holder shall have executed an agreement, in form and substance reasonably satisfactory to counsel to the Corporation, to the effect that (i) such shares of Common Stock are being acquired for investment and not with a view to the distribution thereof; and (ii) that such shares of Common Stock may not be sold or otherwise transferred unless, in the opinion of counsel for the Corporation, such sale or transfer would not violate or cause the Corporation to violate, any then-applicable federal or state securities laws. 4.LIQUIDATION, DISSOLUTION OR WINDING-UP PREFERENCE. (A)In the event of any liquidation, dissolution or winding-up of the Corporation, either voluntary or involuntary, the Holders of the Series A Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation (whether capital or surplus) to the holders of the Common Stock by reason of their ownership thereof but after provision has been made for payment of all indebtedness of the Corporation, the amount of One Hundred Dollars ($100) per share for each share of Series A Stock then held by them and, in addition, an amount equal to all declared but unpaid dividends on the Series A Stock held by them. If upon the occurrence of such event, such assets distributed among the Holders shall be insufficient to permit the payment to such Holders of the full aforesaid preferential amounts, then the entire assets, or proceeds thereof, of the Corporation legally available for distribution shall be distributed ratably among the Holders in proportion to the full preferential amount each such Holder is otherwise entitled to receive. (B)A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, shall not be deemed to be a liquidation, dissolution or winding-up within the meaning of this Paragraph (b)(4)(B) of this Article Fourth. FIFTH: The Corporation shall have perpetual existence. SIXTH: All corporate powers of the Corporation shall be exercised by the Board of Directors except as otherwise provided herein or by law. In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized: (a)BYLAWS. To alter, amend or repeal the Bylaws or adopt new bylaws of the Corporation; (b)VOTING FOR SALE ASSETS. When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called upon such notice as is required by statute, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or poverty including shares of stock in, or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and in the best interests of the Corporation; (c)RESERVES. To fix, abolish, determine and vary from time to time the amount or amounts to be set apart as reserves; (d)MORTGAGES. To authorize and cause to be executed mortgages and liens, with or without limit as to amount, upon the real or personal property of the Corporation; (e)INSPECTION OF BOOKS. From time to time to determine whether and to what extent, at what time and place, and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of any stockholder; and no stockholder shall have any right to inspect any account or book or document of the Corporation except as conferred by stature or bylaw or as authorized by resolution of the stockholders or Board of Directors; (f)DIRECTORS' COMPENSATION. To authorize the payment of compensation to the directors for services to the Corporation, including fees for attendance at meetings of the Board of Directors or of any committee thereof or salaries for serving as such directors or committee members, and to determine the amount of such compensation; (g)PROFIT PLANS; INSURANCE. From time to time to formulate, establish, promote and carry out, and to amend, alter, change, revise, recall, repeal or abolish, a plan or plans for the participation by all or any of the employees, including directors and officers, of the Corporation, or of any corporation, company, association, trust or organization in which or in the welfare of which the Corporation has any interest, and those actively engaged in the conduct of the Corporation's business, in the profits, gains or business of the Corporation or of any branch or division thereof, as part of the Corporation's legitimate expenses, or for the furnishing to such employees, directors, officers or persons, or any of them, at the Corporation's expense, of medical services, insurance against accident, sickness or death, pensions during old age, disability or unemployment, education, housing, social services, recreation or other similar aids for their relief or general welfare, in such manner and upon such terms and conditions as the Board of Directors shall determine; (h)GUARANTY OF CORPORATION. To authorize the guaranty by the Corporation of securities, evidences of indebtedness and obligations of other persons, firms, association and corporations; and (i)Amendment of this Restated Certificate of Incorporation. To amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. SEVENTH: Any corporate action upon which a vote of stockholders is required or permitted may be taken with the written consent of stockholders having not less than fifty percent (50%) of all of the stock entitled to vote upon the action if a meeting were held; PROVIDED, HOWEVER, that in no case shall the written consent be by holders having less than the minimum percentage of the vote required by statute for the proposed corporate action and provided that prompt notice be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. EIGHTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation." IN WITNESS WHEREOF, GATX CAPITAL CORPORATION has caused this certificate to be signed by Thomas C. Nord, its Vice President and General Counsel, and attested and sealed by Marty M. Linne, its Assistant Secretary, as of the 29th day of December, 1995. GATX CAPITAL CORPORATION By: /s/ Thomas C. Nord ------------------------ Thomas C. Nord Vice President and General Counsel (Corporate Seal) ATTEST: By: /s/ Marty M. Linne --------------------- Marty M. Linne Assistant Secretary EX-12 3 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 - ------------ GATX Capital Corporation Ratio of Earnings to Fixed Charges Year Ended December 31, 1995 (in thousands) 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Fixed Charges: Interest on indebtedness and amortization of debt discount and expense $68,396 $62,744 $65,454 $71,889 $71,374 Capitalized interest 1,601 292 279 731 2,549 Portion of rents representing interest factor (assumed to approximate 33%) 6,574 5,120 3,012 2,440 1,346 -------- -------- -------- ------- -------- Total fixed charges 76,571 68,158 68,745 75,060 75,269 ======== ======== ======== ======= ======== Earnings available for fixed charges: Net income (loss) 32,604 24,851 21,525 (7,197) 28,485 Add (deduct): Income taxes (benefit) 22,740 18,785 21,361 (9,849) 22,549 Cumulative effect of accounting changes - - - (9,456) - Equity in net earnings of joint ventures, net of dividends received 13,522 14,322 16,222 40,161 7,109 Fixed charges (excluding capitalized interest) 74,970 67,864 68,466 74,329 72,720 -------- -------- -------- ------- -------- Total earnings available for fixed charges $143,836 $125,822 $127,574 $87,988 $130,863 ======== ======== ======== ======= ======== Ratio of earnings to fixed charges 1.88 1.85 1.86 1.17 1.74 ======== ======== ======== ======== ======== EX-23 4 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 - Consent of Independent Auditors We consent to the incorporation by reference in Registration Statements No.33-6910 on Form S-3 filed July 7, 1986 (as amended by Amendment No. 1 filed December 19, 1986, Amendment No. 2 filed January 7, 1987, Amendment No. 3 filed December 23, 1987, and Amendment No. 4 filed August 9, 1989), No. 33-30300 on Form S-3 filed August 2, 1989, No. 33-40327 on Form S-3 filed May 2, 1991, and No. 33-64474 on Form S-3 filed June 17, 1993 , and No.35-65053 on Form S-3 filed January 5, 1996 of GATX Capital Corporation of our report dated January 23, 1996, with respect to the consolidated financial statements of GATX Capital Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1995. ERNST & YOUNG LLP San Francisco, California March 28, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS 1000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 19,905 0 867,230 92,489 28,230 0 315,707 0 1,518,383 0 888,848 0 1,027 1,031 314,942 1,518,383 0 236,509 0 0 94,769 18,000 68,396 55,344 22,740 0 0 0 0 32,604 0 0 CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 406,950, LEVERAGED LEASE RECEIVABLES OF 220,407, AND SECURED LOANS OF 239,873. CONSISTS OF ASSETS HELD FOR SALE GATX CAPITAL HAS AN UNCLASSIFIED BALANCE SHEET CONSISTS OF COST OF EQUIPMENT LEASED TO OTHERS UNDER OPERATING LEASES, NET OF DEPRECIATION. CONSISTS OF SENIOR TERM NOTES OF 679,600, OBLIGATIONS UNDER CAPITAL LEASES OF 15,802 AND NONRECOURSE OBLIGATIONS OF 193,446. PAR VALUE ONLY CONSISTS OF RETAINED EARNINGS OF 162,400, ADDITIONAL PAID-IN CAPITAL OF 151,902 AND TRANSLATION ADJUSTMENT OF 640. CONSISTS OF OPERATING LEASE EXPENSE OF 50,424, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OF 43,517, AND OTHER EXPENSES OF 828.
EX-99 6 MEDIUM TERM NOTES EXHIBIT 99 - ---------- MEDIUM TERM NOTES AMOUNT MATURITY RATE ----------- -------- ----- FIXED: $10,000,000 03/11/96 9.68 $ 5,000,000 01/30/98 10.00 $ 2,000,000 02/25/98 9.76 $ 7,000,000 03/10/98 10.00 $10,000,000 03/16/98 10.00 $ 2,000,000 03/19/98 10.00 $ 6,000,000 03/19/98 10.00 $ 5,000,000 03/20/98 9.93 $10,000,000 04/01/98 10.00 $ 5,000,000 03/22/99 9.90 $16,000,000 04/15/99 9.90 $ 4,000,000 05/10/00 10.20 $ 5,000,000 03/21/01 10.00 $ 5,000,000 03/22/01 10.00 $20,000,000 04/11/01 10.00 $32,600,000 05/05/99 9.85 $30,000,000 03/18/96 5.45 $15,000,000 03/22/96 5.48 $25,000,000 01/15/97 7.90 $10,000,000 05/05/97 8.20 $ 5,000,000 03/10/98 8.67 $13,000,000 04/30/98 6.12 $ 5,000,000 05/07/98 6.11 $ 5,000,000 10/15/98 8.78 $10,000,000 11/15/99 6.38 $17,000,000 07/26/00 6.21 $10,000,000 10/11/00 6.50 $ 2,000,000 10/30/00 9.28 $ 6,000,000 11/15/00 9.12 $10,000,000 10/08/01 9.13 $ 2,000,000 10/08/01 9.05 $10,000,000 01/10/02 9.50 $15,000,000 01/10/02 9.50 $20,000,000 06/03/03 7.20 $10,000,000 06/09/98 6.15 $30,000,000 06/09/00 6.44 $10,000,000 12/05/00 6.17 $10,000,000 06/09/01 6.54 $15,000,000 12/05/01 6.27 $ 5,000,000 04/04/02 7.46 $15,000,000 05/17/02 7.17 $15,000,000 05/17/02 7.17 $15,000,000 12/16/02 6.36 $ 5,000,000 04/14/04 7.92 $ 5,000,000 04/14/04 7.92 $25,000,000 10/13/05 6.86 $15,000,000 11/30/05 6.69 $10,000,000 11/30/05 6.69 FLOATING: $20,000,000 04/07/97 $20,000,000 02/16/99 -----END PRIVACY-ENHANCED MESSAGE-----