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
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
--- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
June 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 July 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
EARNED INCOME:
Leases $ 48,064 $ 32,740 $ 91,667 $ 67,111
Gain on sale of assets 11,329 14,199 18,102 24,088
Fees 2,546 2,819 5,642 10,153
Interest 6,615 6,420 12,575 12,349
Investment in joint ventures 5,176 4,073 8,864 7,185
Other 2,626 881 4,939 1,339
-------- -------- -------- --------
76,356 61,132 141,789 122,225
-------- -------- -------- --------
EXPENSES:
Interest 20,374 16,623 39,825 33,068
Operating leases 17,973 11,309 32,619 23,283
Selling, general and
administrative 14,694 10,713 26,778 20,313
Provision for losses on
investments 3,501 3,000 6,501 9,000
Other 1,506 150 2,288 314
-------- -------- -------- --------
58,048 41,795 108,011 85,978
-------- -------- -------- --------
Income before income taxes 18,308 19,337 33,778 36,247
-------- -------- -------- --------
Income taxes:
Current income taxes 6,833 7,145 12,606 13,437
Deferred income taxes 653 686 1,145 1,243
-------- -------- -------- --------
7,486 7,831 13,751 14,680
-------- -------- -------- --------
NET INCOME 10,822 11,506 20,027 21,567
Reinvested earnings at
beginning of period 167,262 152,321 162,400 146,036
Dividends paid to
stockholder (5,587) (3,776) (9,930) (7,552)
-------- -------- -------- --------
REINVESTED EARNINGS
AT END OF PERIOD $172,497 $160,051 $172,497 $160,051
======== ======== ======== ========
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in Thousands)
June 30, December 31,
1996 1995
---------- ----------
(Unaudited)
ASSETS
Cash and cash equivalents $ 16,926 $ 19,905
Investments:
Direct financing leases 438,543 406,950
Leveraged leases 209,268 220,407
Operating lease equipment -
net of depreciation 391,847 315,707
Secured loans 305,039 239,873
Investment in joint ventures 271,692 205,292
Assets held for sale or lease 15,100 28,230
Other investments 105,940 77,604
Investment in future residuals 21,716 23,223
Allowance for losses on investments (105,351) (92,489)
---------- ---------
Total investments 1,653,794 1,424,797
Due from GATX Corporation 38,433 44,337
Other assets 31,187 29,344
---------- ----------
TOTAL ASSETS $1,740,340 $1,518,383
========== ==========
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in Thousands)
June 30, December 31,
1996 1995
---------- ----------
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued interest $ 14,144 $ 15,053
Accounts payable and other liabilities 73,946 80,045
Debt financing:
Commercial paper and bankers acceptances 202,986 130,600
Notes payable 103,100 54,883
Obligations under capital leases 13,162 15,802
Senior term notes 742,600 679,600
---------- ---------
Total debt financing 1,061,848 880,885
Nonrecourse obligations 216,925 193,446
Deferred income 6,093 4,392
Deferred income taxes 34,968 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 172,497 162,400
Unrealized gains on marketable
equity securities, net of tax 6,645 -
Foreign currency translation adjustment (686) 640
---------- ----------
Total common stockholder's equity 207,416 192,000
---------- ----------
Total stockholder's equity 332,416 317,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,740,340 $1,518,383
========== ==========
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in Thousands)
Six Months Ended
June 30,
1996 1995
-------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $20,027 $ 21,567
Reconciliation to net cash provided by
operating activities:
Provision for losses on investments 6,501 9,000
Depreciation expense 15,861 13,820
Provision for deferred income taxes 1,145 1,243
Gain on sale of assets (18,102) (24,088)
Joint venture income (8,864) (7,185)
Changes in assets and liabilities:
Due from GATX Corporation 5,904 3,274
Accrued interest, accounts payable
and other liabilities (7,008) (54,325)
Deferred income 1,701 49
Other - net 691 2,638
-------- --------
Net cash flows provided by (used in)
operating activities 17,856 (34,007)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (196,817) (124,027)
Loans extended to borrowers (100,251) (45,557)
Other investments (67,645) (17,398)
-------- --------
Total investments (364,713) (186,982)
-------- --------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 55,998 33,783
Loan principal received 18,348 34,093
Proceeds from sale of assets 52,293 114,522
Joint venture investment recovery 11,207 10,273
-------- --------
Recovery of investments 137,846 192,671
-------- --------
Net cash flows (used in) provided by
investing activities (226,867) 5,689
-------- --------
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (continued)
(in Thousands)
Six Months Ended
June 30,
1996 1995
-------- --------
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in short-term borrowings 132,603 25,690
Proceeds from issuance of long-term debt 168,000 80,000
Proceeds from nonrecourse obligations 50,949 7,664
Repayment of long-term debt (105,000) (63,000)
Repayment of nonrecourse obligation (27,603) (1,741)
Dividends paid to stockholder (9,930) (7,552)
Other financing activities (2,987) (2,411)
-------- --------
Net cash flows provided by
financing activities 206,032 38,650
-------- --------
Net (decrease) increase in cash and
cash equivalents (2,979) 10,332
Cash and cash equivalents
at the beginning of the period 19,905 9,407
-------- --------
Cash and cash equivalents
at the end of the period $ 16,926 $ 19,739
======== ========
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six-month period ended
June 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.
<PAGE>
PART I. FINANCIAL INFORMATION, CONTINUED
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
The decrease in net income for the second quarter and six months ended June 30,
1996 compared to the corresponding periods in the prior years was due to the
lower levels of both fee income and gain on the sale of assets. The decreases
in these items, which vary significantly from period to period, were partially
offset by higher income from leasing and lending activities and, for the six
month period of 1996, a reduced provision for losses on investment.
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 second quarter or the first six 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 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.
The allowance for losses increased during the first six months of 1996 as a
result of a $6.5 million provision for losses and $9.1 million in recoveries of
previously written off investments, offset by $3.0 million in write-downs. At
June 30, 1996 the allowance for losses is 6.3% of investments, including off-
balance sheet assets and after deducting nonleveraged lease nonrecourse debt.
<PAGE>
PART I. FINANCIAL INFORMATION, CONTINUED
ITEM 2. Management's Discussion and Analysis, Continued
LIQUIDITY AND CAPITAL RESOURCES
Floating rate debt financing represented 34.7% of the Company's capital
structure at June 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 June 30, 1996, the Company had $41.3 million more
floating rate debt than floating rate assets.
At June 30, 1996, the Company had approved unfunded transactions totaling
$512.84 million. 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 June 30, 1996, the Company expects to fund
$494.08 million; including $115.8 million in 1996, and the remaining $378.28
million thereafter, primarily for investment in new narrow body aircraft.
The Company generates cash from operations and from portfolio proceeds and has
certain facilities for borrowing. At June 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 $74.0 million as of June 30, 1996.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On July 11, 1996, GATX/Airlog Company ("Airlog"), a California general
partnership of which a Company subsidiary 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). The complaint requests that the court enter a
judgment declaring that neither the Company nor Airlog has any liability to
Evergreen as a result of the issuance of Airworthiness Directive 96-01-03
(the "AD") by the Federal Aviation Administration (the "FAA") in January,
1996. The effect of the AD is to significantly reduce the amount of freight
that three B747 aircraft owned by Evergreen may carry. Evergreen has not
flown these aircraft since the first quarter of 1996.
Between 1988 and 1990, these three aircraft, along with a fourth no longer
owned by Evergreen, were modified from passenger to freight service by
subcontractors of Airlog, with Evergreen's knowledge and consent, pursuant to
contracts between Airlog and Evergreen, or one of its affiliates. These four
aircraft are part of a group of ten aircraft that were modified by
subcontractors of Airlog pursuant to a design approved by the FAA at the time
the modifications were made and are subject to the AD. The three Evergreen
aircraft were flown as a part of its fleet for more than five years, and the
seven other modified aircraft were flown by Evergreen and other operators for
significant periods. The Company guaranteed certain of Airlog's contractual
obligations to Evergreen. The Company did not issue guarantees with respect to
Airlog's obligations to any of Airlog's other customers for these airplanes.
None of Airlog's customers, other than Evergreen, has made a claim as a result
of the issuance of the AD. Consistent with its ongoing product support,
Airlog continues to pursue, with the apparent cooperation of the four operators
of the ten modified aircraft, solutions to the FAA's concerns raised in the AD.
Evergreen filed an answer and counterclaim on August 1, 1996. In its
counterclaim, Evergreen asserted that Airlog and the Company are liable to
Evergreen under a number of theories in connection with the application of the
AD to the three aircraft it currently owns. Those theories are breach of
warranty, fraud and intentional misrepresentation, negligent misrepresentation,
and nondisclosure of known facts. Evergreen seeks declaratory relief and
damages (i) of a minimum of $32,000 per day in out-of-service costs per
airplane, totaling $15.8 million as of July 25, 1996, (ii) of at least $1.6
million in maintenance and engineering expenses as of March, 1996, and (iii)
for the alleged potentially irreparable injury to Evergreen's relations with
its customers, its creditors and its employees, as well as its alleged access
to the currently favorable capital markets. The alleged damages in (iii)
above were not quantified in the counterclaim, but Evergreen alleged in a
demand letter sent prior to the filing of the complaint, and which was attached
to the counterclaim, that those damages may exceed one billion dollars. The
counterclaim also seeks exemplary and punitive damages in an unspecified
amount.
While the results of any litigation are impossible to predict with certainty,
the Company believes that Evergreen's claims are without merit and that the
Company and Airlog have adequate defenses thereto.
<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 six months
ended June 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
August 6, 1996
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,296
<SECURITIES> 0
<RECEIVABLES> 952,850<F1>
<ALLOWANCES> 105,351
<INVENTORY> 15,100<F2>
<CURRENT-ASSETS> 0<F4>
<PP&E> 391,847<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 1,740,340
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 972,687<F5>
<COMMON> 1,031<F6>
0
1,027<F6>
<OTHER-SE> 330,358<F7>
<TOTAL-LIABILITY-AND-EQUITY> 1,740,340
<SALES> 0
<TOTAL-REVENUES> 141,789
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,907<F8>
<LOSS-PROVISION> 6,501
<INTEREST-EXPENSE> 39,825
<INCOME-PRETAX> 33,778
<INCOME-TAX> 13,751
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,027
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 438,543, LEVERAGED LEASE
RECEIVABLES OF 209,268, AND SECURED LOANS OF 305,039.
<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 742,600, OBLIGATIONS UNDER
CAPITAL LEASES OF 13,162, AND NONRECOURSE OBLIGATIONS OF 216,925.
<F6>PAR VALUE ONLY.
<F7>CONSISTS OF RETAINED EARNINGS OF 172,497, ADDITIONAL PAID-IN CAPITAL
OF 151,902 ,UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX
OF 6,645 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (686).
<F8>CONSISTS OF OPERATING LEASE EXPENSE OF 32,619 AND OTHER EXPENSES OF
2,288.
</FN>
</TABLE>
