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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
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
March 31, 1998 2-54754
General American Transportation Corporation
Incorporated in the IRS Employer Identification No.
State of New York 36-2827991
500 West Monroe Street
Chicago, Illinois 60661-3676
(312) 621-6200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Registrant had 1,000 shares of common stock outstanding (all owned by GATX
Corporation) as of April 30, 1998.
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<PAGE>
<TABLE>
<CAPTION>
PART I--FINANCIAL INFORMATION
GENERAL AMERICAN TRANSPORTATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
In Millions
Three Months Ended
March 31
-------------------------
1998 1997
-------- -------
<S> <C> <C>
Gross income........................................... $202.6 $194.0
Costs and expenses
Operating expenses................................. 88.7 84.1
Interest........................................... 28.3 29.3
Provision for depreciation and amortization........ 35.2 38.0
Selling, general and administrative................ 18.8 18.6
------- -------
171.0 170.0
------- -------
Income before income taxes and equity in net
earnings of affiliated companies................... 31.6 24.0
Income taxes........................................... 11.9 9.7
------- -------
Income before equity in net earnings of
affiliated companies................................ 19.7 14.3
Equity in net earnings of affiliated
companies.......................................... 4.0 2.3
------- -------
Net income............................................. $ 23.7 $ 16.6
======= =======
<FN>
Note - The consolidated balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date. All other consolidated financial
statements are unaudited but 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 the respective
periods. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be achieved for the entire year
ending December 31, 1998.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
GENERAL AMERICAN TRANSPORTATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Millions
ASSETS
March 31 December 31
1998 1997
--------- -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents.......................... $ 17.4 $ 14.0
Trade receivables - net............................ 36.5 52.7
Operating lease assets and facilities:
Railcars and support facilities.............. 2,591.0 2,480.5
Tank storage terminals and pipelines......... 1,127.8 1,128.9
--------- ---------
3,718.8 3,609.4
Less - Allowance for depreciation.................. (1,633.6) (1,593.8)
--------- ---------
2,085.2 2015.6
Due from GATX Corporation.......................... 395.7 392.1
Investments in affiliated companies................ 203.6 200.1
Other assets....................................... 145.9 153.7
---------- ----------
TOTAL ASSETS....................................... $ 2,884.3 $ 2,828.2
========= =========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDER'S EQUITY
March 31 December 31
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Accounts payable.................................... $ 118.0 $ 140.5
Accrued expenses.................................... 45.8 44.7
Debt
Short-term debt............................... 259.4 190.5
Long-term debt................................ 1,124.1 1,120.5
Capital lease obligations..................... 94.7 100.2
---------- ---------
1,478.2 1,411.2
Deferred income taxes............................... 328.2 315.7
Other deferred items................................ 238.4 251.4
---------- --------
Total liabilities and deferred items.......... 2,208.6 2,163.5
Shareholder's equity
Common Stock - par value $1 per share;
1,000 shares authorized, issued and
outstanding (owned by GATX Corporation).. - -
Additional capital............................ 335.0 335.0
Reinvested earnings........................... 358.6 347.2
Accumulated other comprehensive income........ (17.9) (17.5)
--------- --------
Total shareholder's equity............... 675.7 664.7
--------- --------
TOTAL LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDER'S EQUITY...................... $ 2,884.3 $ 2,828.2
========= =========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GENERAL AMERICAN TRANSPORTATION CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
In Millions
Three Months Ended
March 31
------------------
1998 1997
----- ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 23.7 $ 16.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization.. 35.2 38.0
Deferred income taxes........................ 6.3 1.0
Other (includes working capital)..................... (9.2) 5.3
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 56.0 60.9
INVESTING ACTIVITIES
Additions to operating lease assets and facilities
Railcars and support facilities................... (100.1) (82.6)
Tank storage terminals and pipelines.............. (8.3) (10.7)
Investments in affiliated companies and other........ - .7
------- -------
Capital additions................................. (108.4) (92.6)
Proceeds from asset dispositions..................... 5.0 1.7
------- -------
NET CASH USED IN INVESTING ACTIVITIES................ (103.4) (90.9)
FINANCING ACTIVITIES
Repayment of long-term debt and other................ (19.0) (48.4)
Net increase in short-term debt...................... 91.0 97.6
Repayment of capital lease obligations............... (5.3) (4.1)
Cash dividends paid to GATX Corporation.............. (12.3) (10.0)
Net increase in amount due from GATX Corporation..... (3.6) ( 7.6)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 50.8 27.5
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................................... $ 3.4 $ (2.5)
======= =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GENERAL AMERICAN TRANSPORTATION CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1998
In Millions
Accumulated
Other
Common Additional Reinvested Comprehensive
Stock Capital Earnings Income (a) Total
------ ---------- --------- ----------- -----
<S> <C> <C> <C> <C> <C>
Beginning Balance 1/1/98 $ - $335.0 $347.2 $ (17.5) $664.7
Comprehensive Income
Net income 23.7 23.7
Other comprehensive income
Foreign currency translation
adjustment (0.4) (0.4)
-------
Comprehensive income 23.3
-------
Dividends declared (12.3) (12.3)
------- ------ ------ ------- -------
Ending Balance 3/31/98 $ - $335.0 $358.6 $ (17.9) $675.7
======= ====== ====== ======= =======
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1997
In Millions
<S> <C> <C> <C> <C> <C>
Beginning Balance 1/1/97 $ - $335.0 $431.4 $ 7.9 $774.3
Comprehensive Income
Net income 16.6 16.6
Other comprehensive income
Foreign currency translation
adjustment (4.4) (4.4)
-------
Comprehensive income 12.2
-------
Dividends declared (10.0) (10.0)
------- ------- ------- -------- -------
Ending Balance 3/31/97 $ - $335.0 $438.0 $ 3.5 $776.5
======= ======= ======= ======== =======
<FN>
(a) The beginning balance of accumulated other comprehensive income consists
solely of foreign currency translation adjustment for both years.
</FN>
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION OF OPERATIONS
COMPARISON OF FIRST THREE MONTHS OF 1998
TO FIRST THREE MONTHS OF 1997
GENERAL
General American Transportation Corporation's (GATC) net income for the first
quarter of 1998 was $24 million compared to $17 million for the first quarter of
1997. While Transportation benefitted from more railcars on lease and higher
rental rates, Terminals improved due to favorable petroleum market conditions,
higher equity earnings from affiliates, and lower depreciation following the
restructuring charge taken in the fourth quarter of 1997.
Net cash provided by operating activities for the first quarter of 1998 was $56
million, a decrease of $5 million from the comparable prior year quarter. The
decrease includes the changes in working capital.
Capital additions for the quarter totaled $108 million, $16 million higher than
the first quarter of 1997. Transportation invested $100 million in its railcar
fleet and facilities, an increase of $18 million from the first quarter of 1997;
the number of new and existing railcars acquired was 1,700 compared to 1,300
last year. Terminals' capital additions of $8 million were in line with the
prior year quarter. Full year capital spending is expected to be about $400
million, in line with last year. It is anticipated that capital expenditures
will be funded by both internally generated cash flow and GATC's external
recourse and nonrecourse financing sources.
GATC had unused committed lines of credit of $255 million at March 31, 1998.
Under a $650 million shelf registration for debt securities and pass-through
certificates, $100 million of notes and $236 million of pass through
certificates have been issued as of the end of the first quarter of 1998; no
notes were issued during the quarter.
Management's discussion includes statements which may constitute forward-looking
statements made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. This information may involve risks and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. 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 that could
cause actual results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, unanticipated changes in the
markets served by GATC such as the petroleum, chemical, and rail industries.
6
<PAGE>
RESULTS OF OPERATIONS
Following is a discussion of the operating results of GATC's business segments:
RAILCAR LEASING AND MANAGEMENT (TRANSPORTATION)
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Three Months Ended
(In Millions) March 31
-----------------------
1998 1997 Change
-------- -------- -----------------
Gross Income $125.7 $116.2 $ 9.5 8%
Net Income $ 19.4 $ 18.0 $ 1.4 8%
- --------------------------------------------------------------------------------
Transportation's gross income for the first three months of 1998 increased 8%
from the comparable prior year quarter attributable to a larger active fleet and
higher overall lease rates. Approximately 78,900 tank and freight cars were on
lease throughout North America at March 31, 1998, compared to 73,900 railcars a
year ago. With a total North American fleet of 82,200 railcars, utilization
ended the period at 96%, up from 94% a year ago.
Net income increased 8% from the first quarter of 1997 primarily due to the same
reasons that revenues increased. While all major cost areas (asset ownership,
repairs, and SG&A) increased, the cost increases were proportional to the
increase in revenue. Because most of the recent years' U.S. railcar additions
have been financed using sale-leasebacks, those asset ownership costs are
included as operating lease expense (a component of operating expenses), whereas
Canadian railcars are financed with debt and, therefore, those asset ownership
costs are recorded as depreciation and interest expense.
7
<PAGE>
TERMINALS AND PIPELINES
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Three Months Ended
(In Millions) March 31
------------------
1998 1997 Change
----- ---- -----------------
Gross Income $ 70.0 $ 70.5 $ (.5) (1)%
Net Income (Loss) $ 4.3 $ (1.4) $ 5.7 -
- --------------------------------------------------------------------------------
Although Terminals' gross income for the first three months of 1998 approximates
the prior year quarter, 1997's revenues include those related to the Norco
facility that was sold in September 1997. On a comparable facility basis, gross
income for the current quarter increased by 4% over the prior year primarily due
to petroleum activity. In the petroleum market, an inventory build-up provided
some opportunities for Terminals' storage services. However, it is doubtful that
the industry trend to reduce inventory levels is being reversed. Chemical and
pipeline revenues for the current quarter are in-line with the prior year
quarter. Throughput of petroleum and chemical products was 150 million barrels
for the first quarter of 1998, up modestly from 147 million barrels (excluding
Norco) for the same quarter last year. Capacity utilization at wholly-owned
facilities was 94% at March 31, 1998, versus 92% (excluding Norco) a year ago.
Terminals' net income for the first quarter of 1998 of $4.3 million, an increase
of $5.7 million from last year, was due to improved operating conditions,
one-time transformation costs incurred during the prior year quarter, and the
impact of the restructuring program implemented in the fourth quarter of 1997.
Equity earnings were $3.5 million, $1.3 million greater than the first quarter
of 1997, reflecting improved utilization at domestic and several international
affiliates.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. Page
(a) 12 Statement regarding computation of ratios of earnings to fixed
charges. 11
27 Financial Data Schedule for GATC for the quarter ended March 31,
1998 submitted to the SEC along with the electronic submission of
this Quarterly Report on Form 10-Q.
Any instrument defining the rights of security holders with
respect to nonregistered long-term debt not being filed on the
basis that the amount of securities authorized does not exceed 10
percent of the total assets of the company and subsidiaries on a
consolidated basis will be furnished to the Commission upon
request.
(b) No reports on Form 8-K were filed during the reporting period.
9
<PAGE>
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.
GENERAL AMERICAN TRANSPORTATION CORPORATION
(Registrant)
/s/D. Ward Fuller
---------------------
D. Ward Fuller
President, Chief Executive Officer
and Director
(Duly Authorized Officer)
/s/Donald J. Schaffer
------------------------
Donald J. Schaffer
Vice President, Finance and Chief
Financial Officer
Date: May 13, 1998
10
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
GENERAL AMERICAN TRANSPORTATION CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
In Millions, Except For Ratios
Three Months Year Ended
Ended March 31 December 31
1998 1997 1997
----- ----- -----------
(Unaudited)
<S> <C> <C> <C>
Earnings available for fixed charges:
Net income (loss)........................................... $ 23.7 $ 16.6 $ (41.2)
Add (deduct):
Income taxes (benefit)................................. 11.9 9.7 (20.7)
Equity in net earnings of affiliated
companies, net of distributions received........... (4.0) (1.5) (9.0)
Interest on indebtedness and amortization
of debt discount and expense....................... 28.3 29.3 118.4
Amortization of capitalized interest................... .3 .3 1.4
Portion of rents representative of interest
factor (deemed to be one-third).................... 7.7 6.8 30.0
------- ------- -------
Total earnings available for fixed charges..................... $ 67.9 $ 61.2 $78.9
====== ====== =======
Fixed charges:
Interest on indebtedness and amortization
of debt discount and expense........................... $ 28.3 $ 29.3 $ 118.4
Capitalized interest........................................ .3 .2 .9
Portion of rents representative of interest
factor (deemed to be one-third)........................ 7.7 6.8 30.0
------ ------ ------
Total fixed charges............................................ $ 36.3 $ 36.3 $149.3
====== ====== ======
Ratio of earnings to fixed charges(A).......................... 1.87x 1.69x .53x(B)
<FN>
(A) The ratio of earnings to fixed charges represents the number of times
"fixed charges" are covered by "earnings." "Fixed charges" consist of
interest on outstanding debt and capitalized interest, one-third (the
proportion deemed representative of the interest factor) of rentals,
and amortization of debt discount and expense. "Earnings" consist of
consolidated net income before income taxes and fixed charges, less
equity in net earnings of affiliated companies, net of distributions
received.
(B) In 1997, net loss included restructuring charges of $123.8 million.
Excluding the charges, the "ratio of earnings to fixed charges" was
1.77x.
</FN>
</TABLE>
11
<PAGE>
EXHIBITS FILED WITH DOCUMENT
(a) 12 Statement regarding computation of ratios of earnings to fixed
charges.
27 Financial Data Schedule for GATC for the quarter ended March 31,
1998 submitted to the SEC along with the electronic submission of
this Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit 12
GENERAL AMERICAN TRANSPORTATION CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
In Millions, Except For Ratios
Three Months Year Ended
Ended March 31 December 31
1998 1997 1997
----- ----- -----------
(Unaudited)
<S> <C> <C> <C>
Earnings available for fixed charges:
Net income (loss)........................................... $ 23.7 $ 16.6 $ (41.2)
Add (deduct):
Income taxes (benefit)................................. 11.9 9.7 (20.7)
Equity in net earnings of affiliated
companies, net of distributions received........... (4.0) (1.5) (9.0)
Interest on indebtedness and amortization
of debt discount and expense....................... 28.3 29.3 118.4
Amortization of capitalized interest................... .3 .3 1.4
Portion of rents representative of interest
factor (deemed to be one-third).................... 7.7 6.8 30.0
------- ------- -------
Total earnings available for fixed charges..................... $ 67.9 $ 61.2 $78.9
====== ====== =======
Fixed charges:
Interest on indebtedness and amortization
of debt discount and expense........................... $ 28.3 $ 29.3 $ 118.4
Capitalized interest........................................ .3 .2 .9
Portion of rents representative of interest
factor (deemed to be one-third)........................ 7.7 6.8 30.0
------ ------ ------
Total fixed charges............................................ $ 36.3 $ 36.3 $149.3
====== ====== ======
Ratio of earnings to fixed charges(A).......................... 1.87x 1.69x .53x(B)
<FN>
(A) The ratio of earnings to fixed charges represents the number of times
"fixed charges" are covered by "earnings." "Fixed charges" consist of
interest on outstanding debt and capitalized interest, one-third (the
proportion deemed representative of the interest factor) of rentals,
and amortization of debt discount and expense. "Earnings" consist of
consolidated net income before income taxes and fixed charges, less
equity in net earnings of affiliated companies, net of distributions
received.
(B) In 1997, net loss included restructuring charges of $123.8 million.
Excluding the charges, the "ratio of earnings to fixed charges" was
1.77x.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Income Statement of GATC and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 42
<ALLOWANCES> 5
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 3719
<DEPRECIATION> 1634
<TOTAL-ASSETS> 2884
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 1219 <F2>
0
0
<COMMON> 0
<OTHER-SE> 676
<TOTAL-LIABILITY-AND-EQUITY> 2884
<SALES> 0
<TOTAL-REVENUES> 203
<CGS> 0
<TOTAL-COSTS> 89 <F3>
<OTHER-EXPENSES> 35 <F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 32 <F5>
<INCOME-TAX> 12
<INCOME-CONTINUING> 24
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Not applicable because GATC has an unclassified balance sheet.
<F2> This value consists of two components: Long-term Debt of 1,124 million
and Capital Lease Obligations of 95 million. Short-term Debt is not
included in this calculation.
<F3> This value represents Operating Expenses on the Consolidated Income
Statement.
<F4> This value consists of the Provision for Depreciation and Amortization on
the Consolidated Income Statement.
<F5> This value represents Income Before Income Taxes and Equity in Net
Earnings of Affiliates.
</FN>
</TABLE>
