-----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, Fh6SE+dlT9rLZkwnMnwBooycM7iA23kcp6VAysZSTPvv9VbSkrkvk8QXCCd/q8ht asL2hbeWayMMzOOfxsiQQw== 0000357019-98-000005.txt : 19980515 0000357019-98-000005.hdr.sgml : 19980515 ACCESSION NUMBER: 0000357019-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GATX CAPITAL CORP CENTRAL INDEX KEY: 0000357019 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 941661392 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08319 FILM NUMBER: 98620122 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended Commission File Number March 31, 1998 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 May 12, 1998, Registrant has outstanding 1,031,250 shares of $1 par value Common Stock. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. PART I. FINANCIAL INFORMATION Item 1. Financial Statements GATX CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS (in thousands) Three Months Ended March 31, 1998 1997 --------- --------- (Unaudited) REVENUES: Investment and asset management $ 123,462 $ 111,135 Technology equipment sales and service 34,374 39,252 ------------ ----------- 157,836 150,387 ------------ ----------- EXPENSES: Interest 29,869 22,041 Operating leases 32,999 27,445 Cost of technology equipment sales and service 27,274 31,963 Selling, general & administrative 27,716 26,148 Provision for losses on investments 2,250 2,250 Other 726 1,987 ------------ ----------- 120,834 111,834 ------------ ----------- Income before income taxes 37,002 38,553 Provision for income taxes 15,437 15,613 ------------ ----------- NET INCOME 21,565 22,940 Reinvested earnings at beginning of period 212,750 185,686 Dividends paid to stockholder (6,650) (5,914) ------------ ----------- REINVESTED EARNINGS AT END OF PERIOD $ 227,665 $ 202,712 ============ =========== 1 GATX CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 1998 1997 ---------- ---------- (Unaudited) ASSETS: Cash and cash equivalents $ 86,718 $ 61,990 Investments: Direct financing leases 474,147 666,524 Leveraged leases 161,082 170,555 Operating lease equipment- net of depreciation 501,765 524,523 Secured loans 372,414 180,331 Investment in joint ventures 548,084 549,596 Assets held for sale or lease 13,178 15,398 Other investments 56,131 52,690 Investment in future residuals 19,338 19,693 Allowance for losses on investments (123,789) (121,576) ------------ ----------- Total investments 2,022,350 2,057,734 ------------ ----------- Due from GATX Corporation 30,225 35,904 Other assets 135,003 161,515 ------------ ----------- TOTAL ASSETS $ 2,274,296 $ 2,317,143 ============ =========== LIABILITIES AND STOCKHOLDER'S EQUITY: Accrued interest $ 29,265 $ 16,070 Accounts payable and other liabilities 116,701 167,825 Debt financing: Commercial paper and bankers' acceptances 115,900 127,832 Notes payable 69,082 74,161 Obligations under capital leases 10,239 9,754 Senior term notes 1,109,600 1,155,600 ------------ ----------- Total debt financing 1,304,821 1,367,347 ------------ ----------- Nonrecourse obligations 368,567 329,820 Deferred income 8,663 13,556 Deferred income taxes 63,994 55,600 Stockholder's equity: Convertible preferred stock, par value $1, 125,000 125,000 and additional paid-in capital Common stock, par value $1, and additional paid-in capital 28,960 28,960 Reinvested earnings 227,665 212,750 Accumulated other comprehensive income: Foreign currency translation adjustment (4,393) (4,404) Unrealized gain on available-for-sale securities 5,053 4,619 ------------ ----------- Total accumulated other comprehensive income 660 215 ------------ ----------- Total stockholder's equity 382,285 366,925 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,274,296 $ 2,317,143 ============ =========== 2 GATX CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended March 31, 1998 1997 ---------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 21,565 $ 22,940 Reconciliation to net cash provided by operating activities: Provision for losses on investments 2,250 2,250 Depreciation expense 23,409 17,528 Provision for deferred income taxes 8,129 1,529 Gain on sale of assets (25,040) (25,489) Changes in assets and liabilities: Other assets 25,827 (11,278) Due from GATX Corporation 5,679 19,786 Accrued interest, accounts payable and (37,929) (15,471) other liabilities Deferred income (4,893) 752 Other - net (2,527) 3,828 ------------ ---------- Net cash flows provided by operating activities 16,470 16,375 ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in leased equipment, net of nonrecourse borrowings for leveraged leases (71,009) (51,045) Loans extended to borrowers (28,741) (2,529) Other investments (18,588) (32,326) ------------ ----------- Total investments (118,338) (85,900) ------------ ----------- Lease rents received, net of earned income and leveraged lease nonrecourse debt service 36,477 31,483 Loan principal received 10,275 33,246 Proceeds from sale of assets 100,384 88,731 Joint venture investment recovery, net of earned income 9,889 1,750 ------------ ----------- Recovery of investments 157,025 155,210 ------------ ----------- Net cash flows provided by investing activities 38,687 69,310 ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in short-term borrowings (17,011) 17,015 Proceeds from nonrecourse obligations 68,279 39,658 Repayment of long-term debt (46,000) (100,000) Repayment of nonrecourse obligations (29,532) (25,742) Dividends paid to stockholder (6,650) (5,914) Other financing activities 485 (806) ------------ ----------- Net cash flows used in financing activities (30,429) (75,789) ------------ ----------- Net increase in cash and cash equivalents 24,728 9,896 Cash and cash equivalents at beginning of period 61,990 18,482 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 86,718 $ 28,378 ============ =========== 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements, continued NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 1. The consolidated balance sheet of GATX Capital Corporation and its subsidiaries ("the Company") at December 31, 1997 was derived from the audited financial statements at that date. All other consolidated financial statements are unaudited and include all adjustments, consisting only of normal recurring items, which management considers necessary for a fair statement of the consolidated results of operations and financial position for and as of the end of the indicated periods. Operating results for the three-month period ended March 31, 1998 are not necessarily indicative of the results that may be achieved for the entire year. 2. Certain prior year amounts have been reclassified to conform to current presentation. 3. The Company is engaged in various matters of litigation and has unresolved claims pending. In one matter, the Company, through an affiliate, is the subject of both litigation and unasserted claims related to the conversion of certain aircraft from passenger to freighter configuration. While the amounts claimed in this matter and other matters are substantial and the ultimate liability with respect to such claims cannot be determined at this time, it is the opinion of management that damages, if any, required to be paid by the Company in the discharge of such liability are not likely to be material to the Company's financial position or results of operations. 4. As of January 1, 1998, the Company adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or stockholder's equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in stockholder's equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. During the first quarter of 1998 and 1997, respectively, total comprehensive income amounted to $22,010,000 and $18,710,000. 4 PART I. FINANCIAL INFORMATION, continued Item 2. Management's Discussion and Analysis RESULTS OF OPERATIONS Net income earned during the three months ended March 31, 1998 was $21.6 million, approaching GATX Capital's record first quarter 1997 results of $22.9 million. Asset remarketing income was a significant contributor to both quarters' strong results, but was approximately $6.0 million (16%) lower in the first quarter of 1998. An increase in income from investments (other than gains on sales) partially offset the decrease in asset remarketing income during the quarter. Overview - --------- The Company engages in two main activities: (1) it is actively involved in asset-based investment and generates income by financing equipment (through lease, loan and joint venture investments); by remarketing assets; by managing the equipment related investment portfolios of others; and by brokering or arranging asset financing transactions, all of which are intertwined and (2) it provides a wide range of technology services enabling its customers to acquire, construct and finance information networks. Sales and service revenue related to the Company's technology solutions business is included in the technology equipment sales and service revenue line. Revenue earned from financing alternatives related to technology solutions is included in the investment and asset management revenue line. Revenues - -------- Investment and asset management revenue increased $12.3 million during the three-month period ended March 31, 1998, compared to the same period in 1997. Revenue generated from higher average investment balances during 1998 was the most significant contributor to this increase. Average investments during the quarter were almost 25% higher than during the same period in 1997. The increase in revenue from investments (other than from gains on sales) was partially offset by a decrease in asset remarketing income. As mentioned above, asset remarketing income was $6.0 million (16%) lower during the three months ended March 31, 1998 than during the same period in 1997. Although asset remarketing income, which includes gains on sales of Company owned assets and fee income generated from providing remarketing services to third parties, has historically been a significant contributor to income, asset remarketing opportunities are realized at lease end or in response to specific market conditions and the income they generate can fluctuate significantly depending on market conditions. Technology equipment sales and service revenue was $4.9 million lower during the quarter than during the first quarter of 1997, primarily due to market conditions for certain products. The information technology business, particularly the market for communications network technology, is experiencing and will continue to experience a rapid pace of change which will have a significant effect on the demand for products. 1998's first quarter was primarily affected by the demand for IBM legacy network protocol equipment. While the Company's strategy includes adding products for a broader range of network protocols, much of its historical sales base was in these IBM related products. This decrease in revenue is almost entirely offset by a corresponding decrease in the cost of technology equipment sales and services. 5 Expenses - -------- Higher average borrowings (to fund new investments) resulted in interest expense being higher than last year. Continued growth in the Company's operating lease portfolio resulted in an increase in operating lease expense, which includes depreciation expense and rent expense related to off-balance sheet financing. The allowance for losses increased $2.2 million during the first three months of 1998 primarily as a result of a $2.3 million provision for losses. There were no significant recoveries or write-downs during the period. At March 31, 1998, the allowance for losses is 6.2% of investments, including off-balance sheet assets and after deducting nonleveraged lease nonrecourse debt. LIQUIDITY AND CAPITAL RESOURCES The Company generates cash from operations and from portfolio proceeds and has certain facilities for borrowing. In addition, certain lease transactions are financed by obtaining nonrecourse loans equal to the present value of some or all of the rental streams. During the three months ended March 31, 1998, the Company used cash generated from operations and from portfolio proceeds to repay $46.0 million of senior term notes and invest in $118.3 million of new investments. At March 31, 1998 the Company had borrowing capacity consisting of $182.0 million remaining under its Series E shelf registration, $154.1 million of unused capacity under its commercial paper and bankers' acceptances credit agreements, and $31.0 million remaining under stand-alone bank facilities maintained by two of the Company's subsidiaries. During the quarter the Company placed the proceeds from certain asset sales (approximately $55.1 million) in trust with qualified intermediaries pending the identification and acquisition of qualified replacement assets in order to affect like-kind exchanges for federal income tax purposes. Also during the quarter, the Company withdrew approximately $33.8 million of proceeds from 1997 sales previously deposited with a qualified intermediary because qualified replacement assets were not identified. At March 31, 1998 approximately $57.9 million is held in trust and is classified as cash and cash equivalents in the accompanying balance sheet. During the quarter the Company financed the sale of approximately $173.3 million of direct financing leases resulting in a recharacterization of the Company's investment as secured loans. The loans are due in 1998. No gain or loss will be recognized on the sale until the loans are repaid. The Company's capital structure includes both fixed and floating rate debt. The Company ensures a stable margin over its cost of funds by approximately matching its fixed and floating rate investments to its fixed and floating rate borrowings. At March 31, 1998, the Company had approved unfunded transactions totaling approximately $253.7 million, including approximately $146.1 million expected to fund during the remainder of 1998. Once approved for funding, a transaction may not be completed for various reasons, or the investment may be shared with partners or sold. FORWARD LOOKING STATEMENTS Certain statements in the Management's Discussion and Analysis constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, and could cause actual results to differ materially from those projected. 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27. Financial Data Schedule (b) The Company filed no reports on Form 8-K during the three months ended March 31, 1998. Signatures - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GATX CAPITAL CORPORATION /s/ Michael E. Cromar --------------------- Michael E. Cromar Senior Vice President and Chief Financial Officer /s/ A. Douglas Shattuck ----------------------- A. Douglas Shattuck Principal Accounting Officer and Corporate Controller May 14, 1998 7 EX-27 2
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 BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS DEC-31-1997 JAN-01-1998 MAR-31-1998 86,718 0 1,007,643 123,789 46,753 0 501,765 0 2,274,296 0 1,488,406 1,031 0 1,027 380,227 2,274,296 34,374 157,836 27,274 0 61,441 2,250 29,869 37,002 15,437 0 0 0 0 21,565 0 0 CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 474,147, LEVERAGED LEASE RECEIVABLES OF 161,082, AND SECURED LOANS OF 372,414. CONSISTS OF ASSETS HELD FOR SALE OR LEASE OF 13,178 AND TECHNOLOGY EQUIPMENT INVENTORY OF 33,575. CONSISTS OF COST OF EQUIPMENT LEASED TO OTHERS UNDER OPERATING LEASES, NET OF DEPRECIATION. GATX CAPITAL CORPORATION HAS AN UNCLASSIFIED BALANCE SHEET. CONSISTS OF SENIOR TERM NOTES OF 1,109,600, OBLIGATIONS UNDER CAPITAL LEASES OF 10,239, AND NONRECOURSE OBLIGATIONS OF 368,567. PAR VALUE ONLY. CONSISTS OF RETAINED EARNINGS OF 227,665 , ADDITIONAL PAID-IN CAPITAL OF 151,902, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX OF 5,053 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (4,393). CONSISTS OF OPERATING LEASE EXPENSE OF 32,999, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OF 27,716, AND OTHER EXPENSES OF 726.
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