-----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, LdPFdwxtB2HcbCumtoCHRtuVkmiTs5rUMrXPj9iZPN3SoIb97gsmMAO/Xf5JIkTn iIF9WLJaoA3q22gtLSzS3A== 0000357019-99-000009.txt : 19990514 0000357019-99-000009.hdr.sgml : 19990514 ACCESSION NUMBER: 0000357019-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: 99620389 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, 1999 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 10, 1999, 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 (unaudited, in thousands) Three Months Ended March 31, 1999 1998 --------- --------- (Unaudited) REVENUES: Lease income $ 72,744 $ 69,307 Technology equipment sales and service 36,748 34,374 Gain on sale of assets 18,132 25,040 Equity earnings from investment in joint ventures 13,448 10,355 Interest 8,380 7,170 Fees 8,788 9,076 Other 5,804 2,514 ------------ ----------- 164,044 157,836 ------------ ----------- EXPENSES: Operating leases 39,548 32,999 Cost of technology equipment sales and service 31,477 27,274 Selling, general & administrative 29,771 27,716 Interest 28,526 29,869 Provision for losses on investments 2,749 2,250 Other 1,151 726 ------------ ----------- 133,222 120,834 ------------ ----------- Income before income taxes 30,822 37,002 Provision for income taxes 12,877 15,437 ------------ ----------- NET INCOME $ 17,945 $ 21,565 ============ =========== 1 GATX CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 1999 1998 ---------- ------------ (Unaudited) ASSETS: Cash and cash equivalents $ 69,288 $ 67,975 Investments: Direct financing leases 523,608 537,897 Leveraged leases 138,102 133,380 Operating lease equipment- net of depreciation 560,551 547,221 Secured loans 273,347 241,567 Investment in joint ventures 594,625 570,255 Assets held for sale or lease 33,290 26,286 Other investments 78,575 84,856 Investment in future residuals 17,370 18,706 Allowance for losses on investments (132,005) (129,278) ------------ ------------ Net investments 2,087,463 2,030,890 ------------ ------------ Due from Parent 33,817 37,816 Other assets 130,832 139,001 ------------- ------------ TOTAL ASSETS $ 2,321,400 $ 2,275,682 ============= ============ LIABILITIES AND STOCKHOLDER'S EQUITY: Accrued interest $ 27,228 $ 13,634 Accounts payable and other liabilities 112,945 150,504 Debt financing: Commercial paper and bankers' acceptances 118,300 128,329 Notes payable 31,043 25,847 Obligations under capital leases 8,730 8,781 Senior term notes 1,146,600 1,076,600 ------------- ----------- Total debt financing 1,304,673 1,239,557 ------------- ----------- Nonrecourse obligations 362,760 381,390 Deferred income 18,683 9,702 Deferred income taxes 89,535 83,754 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 Accumulated other comprehensive income (238) 772 Reinvested earnings 251,854 242,409 ------------- ----------- Total stockholder's equity 405,576 397,141 ------------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,321,400 $ 2,275,682 ============= =========== 2 GATX CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended March 31, 1999 1998 ---------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,945 $ 21,565 Reconciliation of net income to net cash flows provided by operating activities: Provision for losses on investments 2,749 2,250 Depreciation and amortization expense 29,932 24,094 Provision for deferred income taxes 7,729 8,129 Gain on sale of assets (18,132) (25,040) Joint venture income, net of cash dividends (8,100) (6,197) Changes in assets and liabilities: Other assets 6,512 24,837 Due from Parent 3,999 5,679 Accrued interest, accounts payable and (23,965) (37,929) other liabilities Deferred income 8,981 (4,893) Other - net 9,371 (2,378) ------------ ----------- Net cash flows provided by operating activities 37,021 10,117 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in leased equipment, net of nonrecourse borrowings for leveraged leases (88,643) (71,009) Loans extended to borrowers (74,638) (28,741) Other investments (51,793) (18,588) ------------ ----------- Total investments (215,074) (118,338) ------------ ----------- Lease rents received, net of earned income and leveraged lease nonrecourse debt service 54,070 36,477 Loan principal received 13,529 10,275 Proceeds from sale of assets 71,880 100,376 Joint venture investment recovery 1,901 16,250 ------------- ----------- Recovery of investments 141,380 163,378 ------------- ----------- Net cash flows (used in) provided by investing activities (73,694) 45,040 ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of senior term notes 100,000 - Proceeds from nonrecourse obligations 19,828 68,279 Repayment of senior term notes (30,000) (46,000) Repayment of nonrecourse obligations (38,458) (29,532) Net decrease in short-term borrowings (4,833) (17,011) Dividends paid to Parent (8,500) (6,650) Other financing activities (51) 485 ------------ ----------- Net cash flows provided by (used in) financing activities 37,986 (30,429) ------------ ----------- Net increase in cash and cash equivalents 1,313 24,728 Cash and cash equivalents at beginning of period 67,975 61,990 ------------ ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 69,288 $ 86,718 ============ ========== 3 GATX CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited, in thousands) Three Months Ended March 31, 1999 1998 ---------- ---------- Net income $ 17,945 $ 21,565 Foreign currency translation adjustment 443 11 Unrealized gain (loss) on securities, net of reclassification adjustments (a) (1,453) 434 ---------- ---------- Other comprehensive loss (1,010) 445 ---------- ---------- COMPREHENSIVE INCOME $ 16,935 $ 22,010 ========== ========== (a) Reclassification adjustments: Unrealized gain on securities $ 933 $ 1,134 Less - Reclassification adjustment for gains realized included in net income (2,386) (700) ---------- ---------- Net unrealized (loss) gain on securities $ (1,453) $ 434 ========== ========== 4 PART I. FINANCIAL INFORMATION Item 1. Financial Statements, continued NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 1. The consolidated balance sheet of GATX Capital Corporation and its subsidiaries (the "Company") at December 31, 1998 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, 1999 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. The Company is a party to litigation relating to the conversion of ten 747 aircraft from passenger to freighter configuration by an affiliate of the Company. While the amounts claimed in this matter and other matters are substantial, 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. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"), which is required to be adopted in years beginning after June 15, 1999. The Company, which utilizes fundamental derivatives to hedge changes in interest rates and foreign currencies, expects to adopt SFAS No. 133 effective January 1, 2000. This new accounting standard will require that all derivatives be recorded on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Management is currently assessing the impact that the adoption of SFAS No. 133 will have on the Company's financial position, results of operations, and cash flows. 5 PART I. FINANCIAL INFORMATION, continued Item 2. Management's Discussion and Analysis RESULTS OF OPERATIONS Overview - --------- The Company engages in two main activities: 1) asset-based investment and finance, and 2) value-added reselling of technology equipment and services. Revenue from asset-based investment and finance activities is generated from financing equipment (either for the Company's own account or through partnerships and joint ventures), from the remarketing of assets, from managing the equipment - related investment portfolios of others, and from brokering or arranging asset financing transactions. Net income earned during the three months ended March 31, 1999, was $17.9 million, down $3.6 million from the same period last year. Revenues - -------- Investment income, which includes lease income, equity earnings from investments in joint ventures, interest and other income, increased $11.0 million during the three-month period ended March 31, 1999, compared to the same period in 1998. Revenue generated from higher investment balances during 1999 was the primary reason for this increase. Investments at March 31, 1999, were approximately $73.3 million higher than the same period last year. In addition, other income of $5.8 million for the first quarter 1999 was $3.3 million greater than during the same period in 1998. This is primarily attributable to sales of stock which were derived from warrants received during the financing of non-public, start-up companies. Asset remarketing income includes gains on the sale of the Company's investment assets, fees generated from providing remarketing services for third parties, and from the sale of non-owned assets in which the Company has a residual share. Fee income from asset remarketing services is generally performance-based. Although not necessarily consistent from year to year, asset remarketing income is a core component of the Company's business and has historically been a significant contributor to income. Asset remarketing income totaled $23.3 million for the first quarter of 1999 compared to $30.9 million for the same period in 1998. Gains on sales of Company investment assets were $18.1 million and $25.0 million for first quarter 1999 and 1998, respectively. Residual sharing fees were $5.2 million and $5.9 million for the first quarter 1999 and 1998, respectively. Technology equipment sales and service revenue was $2.4 million higher during the quarter than during the first quarter of 1998, while cost of sales and services was $4.2 million higher. Gross margin for the first quarter of 1999 was $5.3 million, or $1.8 million lower than the first quarter of 1998 primarily due to market conditions for legacy network protocol equipment. Expenses - -------- Operating lease expense includes depreciation of operating lease equipment and rent expense on off-balance sheet financing. Operating lease expense was $39.5 million during the first quarter of 1999 compared to $33.0 million during the same period last year. The increase in operating lease expense is due to higher depreciation expense resulting from; (1) increased operating lease investments, and (2) shorter average depreciable lives due to changes in investment mix. Lower interest rates and lower average debt balances resulted in a decrease in interest expense for first quarter 1999 compared to 1998. Selling, general and administrative expenses were higher in the first quarter of 1999 than during the first quarter of 1998 due to higher human resources and other administrative expenses associated with increased investment and asset management business activity. 6 CASH FLOW, 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, 1999, the Company used cash generated from operations to repay $30.0 million of senior term notes. Cash generated from the recovery of investments and proceeds from the issuance of senior term notes were used to fund $215.1 million of new investments. At March 31, 1999, the Company had borrowing capacity consisting of $62.0 million remaining under its Series E shelf registration, $191.7 million of unused capacity under its commercial paper and bankers' acceptances credit agreements, and $45.9 million remaining under stand-alone bank facilities maintained by two of the Company's subsidiaries. During 1999, primarily as a result of issuing senior term notes, total debt financing increased. This increase, partially offset by an increase in equity, caused the Company's debt to equity ratio to increase to 3.2:1 at March 31, 1999 from 3.1:1 at December 31, 1998. At March 31, 1999, the Company could borrow an additional $703.4 million and still meet the 4.5:1 leverage ratio defined in its bank credit agreements. The Company maintains the proceeds from the sale of certain assets in a trust with a qualified intermediary pending the identification and acquisition of qualified replacement assets in order to affect a like-kind exchange for federal income tax purposes. The amounts in trust are classified as cash and cash equivalents in the accompanying balance sheet. The amount in trust at March 31, 1999 and December 31, 1998 was $29.2 million. The Company's capital structure includes both fixed and floating rate debt. The Company ensures a stable margin over its cost of funds by managing the relationship of its fixed and floating rate investments to its fixed and floating rate borrowings. At March 31, 1999, the Company had approved unfunded transactions totaling approximately $419.0 million, including approximately $157.5 million expected to fund during the remainder of 1999. Once approved for funding, a transaction may not be completed for various reasons, or the investment may be shared with partners or sold. YEAR 2000 DISCLOSURE The Company continues to address what is commonly referred to as the Year 2000 problem. The Company has completed the assessment phase of reviewing its critical information systems for Year 2000 compliance. The Company's enterprise-wide information system has been certified Year 2000 compliant by the manufacturer and the Company has performed testing on the system. Other less critical information systems have been reviewed and corrective action is being taken as necessary. These projects should be completed by mid-year 1999. The Company also is reviewing its operating assets to determine any significant exposure to time-sensitive controls which may be embedded in the equipment. These exposures are being assessed on an ongoing basis. The Company is inquiring of customers to ensure that their systems are or will be Year 2000 compliant. Where considered appropriate, the Company is working directly with third parties to test or remediate affected systems. The Company also interacts electronically with certain external entities but has no means of ensuring that they will be Year 2000 ready. Additionally, the Company has been inquiring of key vendors in an effort to establish the ability of the provider to deliver products or services on a timely basis in the year 2000. Today, the Company is not aware of any third party with a Year 2000 issue that would materially impact the Company's results of operations. 7 The Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner and to minimize the Company's exposure. If these steps were not taken, or are not completed in a timely manner, the Year 2000 issue could have a significant impact on the operations of the Company. The project is estimated to be completed during 1999, which is prior to any anticipated impact on its operating systems. Based on the progress and results of the Year 2000 project thus far, the Company believes that the Year 2000 issue should not pose significant operational problems. However, in the event that the Company's efforts have not addressed all potential systems problems, a contingency plan is being developed to enable business operations to continue. This contingency plan involves reducing the scope and duration of any disruptions by having sufficient personnel and other resources in place to permit a timely response. The total Year 2000 project cost is estimated to be immaterial to the Company's results of operations. 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. 8 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, 1999. 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/ Jack F. Jenkins-Stark ------------------------- Jack F. Jenkins-Stark Senior Vice President and Chief Financial Officer /s/ Delphine M. Regalia ----------------------- Delphine M. Regalia Principal Accounting Officer and Controller May 12, 1999 9 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-31-1999 JAN-01-1999 MAR-31-1999 69,288 0 935,057 132,005 51,477 0 560,551 0 2,321,400 0 1,518,090 1,031 0 1,027 403,518 2,321,400 36,748 164,044 31,477 0 70,470 2,749 28,526 30,822 12,877 0 0 0 0 17,945 0 0 CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 523,608, LEVERAGED LEASE RECEIVABLES OF 138,102, AND SECURED LOANS OF 273,347. CONSISTS OF ASSETS HELD FOR SALE OR LEASE OF 33,290 AND TECHNOLOGY EQUIPMENT INVENTORY OF 18,187. 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 1,146,600, OBLIGATIONS UNDER CAPITAL LEASES OF 8,730, AND NONRECOURSE OBLIGATIONS OF 362,760. PAR VALUE ONLY. CONSISTS OF RETAINED EARNINGS OF 251,854 , ADDITIONAL PAID-IN CAPITAL OF 151,902, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX OF 5,170 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (5,408). CONSISTS OF OPERATING LEASE EXPENSE OF 39,548, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OF 29,771, AND OTHER EXPENSES OF 1,151.
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