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
September 30, 1996 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 October 31, 1996, 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.
<PAGE>
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
EARNED INCOME:
Leases ...................... $ 48,146 $ 32,601 $ 139,813 $ 99,712
Gain on sale of assets ...... 7,645 5,112 25,747 29,200
Fees ........................ 15,711 4,414 21,353 14,567
Interest .................... 10,448 5,348 23,023 17,697
Investment in joint ventures 7,014 7,728 15,878 14,913
Other ....................... 4,691 682 9,630 2,021
--------- --------- --------- ---------
93,655 55,885 235,444 178,110
--------- --------- --------- ---------
EXPENSES:
Interest .................... 22,716 16,920 62,541 49,988
Operating leases ............ 19,785 11,529 52,404 34,812
Selling, general and
administrative ............ 15,030 9,676 41,808 29,989
Provision for losses
on investments ............ 3,000 3,000 9,501 12,000
Other ....................... 997 191 3,285 505
--------- --------- --------- ---------
61,528 41,316 169,539 127,294
--------- --------- --------- ---------
Income before income taxes .. 32,127 14,569 65,905 50,816
--------- --------- --------- ---------
INCOME TAXES:
Current income taxes ........ 10,203 2,769 22,809 16,206
Deferred income taxes ....... 2,863 4,158 4,008 5,401
--------- --------- --------- ---------
13,066 6,927 26,817 21,607
--------- --------- --------- ---------
NET INCOME .................. 19,061 7,642 39,088 29,209
Reinvested earnings at
beginning of period ....... 172,497 160,051 162,400 146,036
Dividends paid to stockholder (6,305) (4,099) (16,235) (11,651)
REINVESTED EARNINGS
AT END OF PERIOD ......... $ 185,253 $ 163,594 $ 185,253 $ 163,594
========= ========= ========= =========
1
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in Thousands)
September 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS:
Cash and cash equivalents .................... $ 73,476 $ 19,905
Investments:
Direct financing leases ................... 441,106 406,950
Leveraged leases .......................... 205,816 220,407
Operating lease equipment
- net of depreciation ................... 389,216 315,707
Secured loans ............................. 220,179 239,873
Investment in joint ventures .............. 275,772 205,292
Assets held for sale or lease ............. 14,792 28,230
Other investments ......................... 76,728 77,604
Investment in future residuals ............ 20,963 23,223
Allowance for losses on investments ....... (107,543) (92,489)
----------- -----------
Total investments .................. 1,537,029 1,424,797
Due from GATX Corporation .................... 36,959 44,337
Other assets ................................. 34,581 29,344
----------- -----------
TOTAL ASSETS ................................. $ 1,682,045 $ 1,518,383
=========== ===========
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest ............................. $ 19,143 $ 15,053
Accounts payable and other liabilities ....... 115,303 80,045
Debt financing:
Commercial paper and bankers acceptances .. 109,550 130,600
Notes payable ............................. 86,709 54,883
Obligations under capital leases .......... 12,357 15,802
Senior term notes ......................... 735,600 679,600
----------- -----------
Total debt financing ............... 944,216 880,885
Nonrecourse obligations ...................... 214,314 193,446
Deferred income .............................. 5,148 4,392
Deferred income taxes ........................ 38,783 27,562
Stockholder's equity:
Convertible preferred stock:
Par value $1.00 ........................ 1,027 1,027
Additional paid-in capital ............. 123,973 123,973
----------- -----------
Total preferred stockholder's equity 125,000 125,000
Common Stock:
Par value $1.00 ........................ 1,031 1,031
Additional paid-in capital ............. 27,929 27,929
Reinvested earnings ....................... 185,253 162,400
Unrealized gains on marketable
equity securities, net of tax ........ 6,190 -
Foreign currency translation adjustment ... (265) 640
----------- -----------
Total common stockholder's equity 220,138 192,000
----------- -----------
Total stockholder's equity ...... 345,138 317,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ... $ 1,682,045 $ 1,518,383
=========== ===========
2
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in Thousands)
Nine Months Ended
September 30,
1996 1995
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 39,088 $ 29,209
Reconciliation to net cash provided by
operating activities:
Provision for losses on investments ........... 9,501 12,000
Depreciation expense .......................... 27,357 20,655
Provision for deferred income taxes ........... 4,008 5,401
Gain on sale of assets ........................ (25,747) (29,200)
Joint venture income .......................... (15,878) (14,913)
Changes in assets and liabilities:
Due from GATX Corporation .................. 7,378 1,195
Accrued interest, accounts payable
and other liabilities ................... 39,348 (56,377)
Deferred income ............................ 756 (69)
Other - net ................................... 67 (7,355)
--------- ---------
Net cash flows provided by (used in)
operating activities ........................... 85,878 (39,454)
--------- ---------
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (268,512) (179,506)
Loans extended to borrowers ...................... (108,738) (58,244)
Other investments ................................ (81,742) (32,649)
--------- ---------
Total investments ............................. (458,992) (270,399)
--------- ---------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service . 81,693 40,640
Loan principal received .......................... 115,978 41,857
Proceeds from sale of assets ..................... 66,175 125,050
Proceeds from sale of other assets ............... 63,807 -
Joint venture investment recovery ................ 19,549 18,887
--------- ---------
Recovery of investments ....................... 347,202 226,434
--------- ---------
Net cash flows used in investing activities ..... (111,790) (43,965)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings ............ 22,776 87,652
Proceeds from issuance of long-term debt ......... 168,000 80,000
Proceeds from nonrecourse obligations ............ 68,413 8,209
Repayment of long-term debt ...................... (112,000) (78,000)
Repayment of nonrecourse obligation .............. (47,679) (2,690)
Dividends paid to stockholder .................... (16,235) (11,651)
Other financing activities ....................... (3,792) (3,397)
--------- ---------
Net cash flows provided by financing activities .. 79,483 80,123
--------- ---------
Net increase (decrease) in cash
and cash equivalents ........................... 53,571 (3,296)
Cash and cash equivalents at
beginning of period ............................ 19,905 9,407
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ... $ 73,476 $ 6,111
========= =========
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
1. The consolidated balance sheet of GATX Capital Corporation and its
subsidiaries ("the Company") at December 31, 1995 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 nine-month period ended September 30, 1996 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, from time to time, in various litigation
matters. While the amounts claimed are substantial and the ultimate
liability with respect to such litigation and claims cannot be
determined at this time, it is the opinion of management that any such
liability to be paid by the Company is not likely to be material to the
Company's consolidated financial position or results of operations.
4
<PAGE>
PART I. FINANCIAL INFORMATION, continued
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
The increase in net income for the quarter ended September 30, 1996, compared to
the corresponding period in the prior year, was primarily due to fee income
related to asset remarketing. Net income for the nine months ended September 30,
1996, compared to the corresponding period in the prior year, increased due to
higher earned income from leasing and lending activities, partially offset by an
increase in interest, operating lease, and selling, general and administrative
expenses.
Late in 1995, the Company acquired 80% of the stock of Sun Financial Group,
Inc., which had the effect of increasing lease income, operating lease expense,
interest expense and selling, general and administrative expenses, but had
minimal effect on net income for the third quarter or the first nine months of
1996.
New investment in leased assets, including assets funded with off-balance sheet
financing, had the effect of increasing lease income and operating lease rent
expense. Interest income increased in the third quarter due to two loan
prepayments and related fees. Interest expense increased due to higher
outstanding debt balances associated with portfolio growth, partially offset by
lower interest rates. Increased spending in support of continued business
growth, primarily in the area of human resources, resulted in an increase in
selling, general and administrative expense.
Gains from sales of assets are realized at lease end and in response to market
opportunities, and do not occur evenly between periods. The Company's
remarketing fees are generally performance-based and can fluctuate significantly
depending on market conditions and the timing of lease maturities. Fourth
quarter income from asset remarketing is expected to be lower than the third
quarter.
The allowance for losses increased during the first nine months of 1996 as a
result of a $9.5 million provision for losses and $9.1 million in recoveries of
previously written off investments, offset by $3.7 million in write-downs. At
September 30, 1996 the allowance for losses is 6.5% of investments, including
off-balance sheet assets and after deducting nonleveraged lease nonrecourse
debt.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Floating rate debt financing represented 29.5% of the Company's capital
structure at September 30, 1996. These borrowings support leases and loans tied
to LIBOR or similar rates. Fluctuations in interest rates may impact earnings,
either negatively or positively, depending on the Company's net floating rate
asset or debt position. At September 30, 1996, the Company had $31.6 million
more floating rate debt than floating rate assets.
At September 30, 1996, the Company had approved unfunded transactions totaling
$586.4 million; including $127.8 million expected to fund in 1996, and the
remaining $458.6 million thereafter, primarily for investment in new narrow-body
aircraft. Once approved for funding, a transaction may not be completed for
various reasons, or the investment may be shared with partners or sold. The
Company generates cash from operations and from portfolio proceeds and has
certain facilities for borrowing. At September 30, 1996, the Company had a
$300.0 million shelf registration for Series D medium term notes, of which $68.0
million had been issued. The Company also had unused capacity under its credit
agreements of $167.6 million as of September 30, 1996.
5
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has previously disclosed that in July 1996, GATX/Airlog Company
("Airlog"), a California general partnership of which a subsidiary of the
Company is a partner, and the Company filed a complaint for Declaratory Judgment
against Evergreen International Airlines, Inc. ("Evergreen") in the United
States District Court for the Northern District of California (No. C 96-2494)
seeking a declaration that neither the Company nor Airlog has any liability to
Evergreen as a result of the issuance of Airworthiness Directive 96-01-03 (the
"Airworthiness Directive") by the Federal Aviation Administration (the "FAA").
The effect of the Airworthiness Directive is to reduce significantly the amount
of freight that three of Evergreen's B747 aircraft, modified from passenger to
freight service by subcontractors of Airlog pursuant to contracts between Airlog
and Evergreen or one of its affiliates, may carry. Evergreen filed an answer and
counterclaim on August 1, 1996, asserting that Airlog and the Company are liable
to it under a number of legal theories in connection with the application of the
AD to the three aircraft. In an initial disclosure statement dated October 29,
1996, and served on Airlog and the Company pursuant to applicable discovery
rules in this litigation, Evergreen alleges to have suffered damages which it
has calculated as follows: (i) out-of-service costs amounting to approximately
$16.2 million as of October 15, 1996; (ii) denial of access to currently
favorable capital markets, resulting in an alleged inability to issue shares in
an inital public offering with a value of as much as $1.8 billion; (iii) lost
flight revenues and profits amounting to approximately $25.8 million; (iv) lost
business opportunities and profits attributable to Evergreen's diminished 747
fleet capacity (which Evergreen has not quantified, but has indicated is subject
to further calculation); and (v) maintenance costs in responding to the
Airworthiness Directive (and to related airworthiness directives issued by the
FAA) of approximately $1.6 million as of March 1996.
While the results of any litigation are impossible to predict with certainty,
the Company believes that Evergreen's claims are without merit, and that it and
Airlog have adquate defenses thereto.
Item 5. Other Information
On October 25, 1996, the Company acquired the remaining 50% ownership interest
in Centron DPL Company, Inc. Centron, based in Eden Prairie, Minnesota, is a
leading network solutions provider and value added reseller with annual revenue
approaching $200 million.
6
<PAGE>
PART II. OTHER INFORMATION, continued
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 nine months ended
September 30, 1996.
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
Vice President and
Chief Financial Officer
/s/ Curt F. Glenn
- -----------------
Curt F. Glenn
Principal Accounting Officer,
Vice President and Controller
<PAGE>
November 14, 1996
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 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.
<MULTIPLIER> 1000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 73,746
<SECURITIES> 0
<RECEIVABLES> 867,101<F1>
<ALLOWANCES> 107,543
<INVENTORY> 14,792<F2>
<CURRENT-ASSETS> 0<F4>
<PP&E> 389,216<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 1,682,045
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 962,271<F5>
<COMMON> 1,031<F6>
0
1,027<F6>
<OTHER-SE> 343,080<F7>
<TOTAL-LIABILITY-AND-EQUITY> 1,682,045
<SALES> 0
<TOTAL-REVENUES> 235,444
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 97,497<F8>
<LOSS-PROVISION> 9,501
<INTEREST-EXPENSE> 62,541
<INCOME-PRETAX> 65,905
<INCOME-TAX> 26,817
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,088
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 441,106, LEVERAGED LEASE
RECEIVABLES OF 205,816, AND SECURED LOANS OF 220,179.
<F2>CONSISTS OF ASSETS HELD FOR SALE OR LEASE.
<F3>CONSISTS OF COST OF EQUIPMENT LEASED TO OTHERS UNDER OPERATING LEASES,
NET OF DEPRECIATION.
<F4>GATX CAPITAL CORPORATION HAS AN UNCLASSIFIED BALANCE SHEET.
<F5>CONSISTS OF SENIOR TERM NOTES OF 735,600, OBLIGATIONS UNDER
CAPITAL LEASES OF 12,357, AND NONRECOURSE OBLIGATIONS OF 214,314.
<F6>PAR VALUE ONLY.
<F7>CONSISTS OF RETAINED EARNINGS OF 185,253, ADDITIONAL PAID-IN CAPITAL OF
151,902 ,UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX OF 6,190
AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (265).
<F8>CONSISTS OF OPERATING
LEASE EXPENSE OF 52,404, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OF 41,808,
AND OTHER EXPENSES OF 3,285.
</FN>
<PAGE>
</TABLE>
