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
June 30, 1997 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 August 6, 1997, 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,
1997 1996 1997 1996
------- ------- -------- ---------
(Unaudited) (Unaudited)
REVENUES:
Investment and asset management $ 94,508 $76,356 $205,643 $ 141,789
Tech equipment sales and service 54,551 - 93,803 -
-------- ------- -------- ---------
149,059 76,356 299,446 141,789
-------- ------- -------- ---------
EXPENSES:
Interest 22,444 20,374 44,485 39,825
Operating leases 28,522 17,973 55,967 32,619
Cost of technology equipment
sales & service 44,571 - 76,534 -
Selling, general & administrative 26,532 14,694 52,680 26,778
Provision for losses on investments 3,775 3,501 6,025 6,501
Other 1,307 1,506 3,294 2,288
-------- -------- -------- ---------
127,151 58,048 238,985 108,011
-------- -------- -------- ---------
Income before income taxes 21,908 18,308 60,461 33,778
-------- -------- -------- ---------
INCOME TAXES:
Current income taxes 8,000 6,833 22,084 12,606
Deferred income taxes 873 653 2,403 1,145
-------- -------- -------- ---------
8,873 7,486 24,487 13,751
-------- -------- -------- ---------
NET INCOME 13,035 10,822 35,974 20,027
Reinvested earnings at
beginning of period 202,712 167,262 185,686 162,400
Dividends paid to stockholder (6,196) (5,587) (12,109) (9,930)
-------- -------- -------- ---------
REINVESTED EARNINGS AT END OF PERIOD $ 209,551 $ 172,497 $ 209,551 $ 172,497
========= ========= ========== =========
1
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 18,517 $ 18,482
Investments:
Direct financing leases 476,869 461,757
Leveraged leases 175,177 257,039
Operating lease equipment-
net of depreciation 473,658 429,880
Secured loans 204,068 222,602
Investment in joint ventures 384,309 308,934
Assets held for sale or lease 9,669 12,393
Other investments 50,612 65,506
Investment in future residuals 20,480 21,457
Allowance for losses on investments (121,059) (114,096)
----------- ------------
Total investments 1,673,783 1,665,472
----------- ------------
Due from GATX Corporation 22,681 45,147
Other assets 136,393 119,528
----------- -----------
TOTAL ASSETS $ 1,851,374 $ 1,848,629
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 11,662 $ 15,821
Accounts payable and other liabilities 137,695 138,660
Debt financing:
Commercial paper and bankers' acceptances 123,897 13,772
Notes Payable 38,608 63,114
Obligations under capital leases 10,182 12,429
Senior term notes 805,600 935,600
------------ ----------
Total debt financing 978,287 1,024,915
------------ ----------
Nonrecourse obligations 298,365 268,044
Deferred income 5,935 5,786
Deferred income taxes 54,140 51,726
Stockholder's equity:
Convertible preferred stock, par value $1, 125,000 125,000
and additional paid-in capital
Common stock, par value $1, and
and additional paid-in capital 28,960 28,960
Reinvested earnings 209,551 185,686
Foreign currency translation adjustment (3,433) (1,543)
Unrealized gain on equity securities 5,212 5,574
------------- ----------
Total stockholders equity 365,290 343,677
------------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,851,374 $ 1,848,629
============== ===========
2
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1997 1996
---------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,974 $ 20,027
Reconciliation to net cash provided by operating activities:
Provision for losses on investments 6,025 6,501
Depreciation expense 35,936 17,526
Provision for deferred income taxes 2,403 1,145
Gain on sale of assets (40,908) (18,102)
Changes in assets and liabilities:
Due from GATX Corporation 22,466 5,904
Accrued interest, accounts payable
and other liabilities (5,124) (7,008)
Deferred income 149 1,701
Other - net (17,249) (974)
---------- --------
Net cash flows provided by operating activities 39,672 26,720
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (156,225) (196,817)
Loans extended to borrowers (14,864) (100,251)
Other investments (94,835) (67,645)
---------- ---------
Total investments (265,924) (364,713)
---------- ---------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 60,143 55,998
Loan principal received 34,472 18,348
Proceeds from sale of assets 129,075 52,293
Joint venture investment recovery, net of earned income 18,479 2,343
---------- ---------
Recovery of investments 242,169 128,982
----------- ---------
Net cash flows used in investing activities (23,755) (235,731)
=========== =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 97,619 132,603
Proceeds from issuance of long-term debt - 168,000
Proceeds from nonrecourse obligations 83,725 50,949
Repayment of long-term debt (130,000) (105,000)
Repayment of nonrecourse obligations (52,869) (27,603)
Dividends paid to stockholder (12,109) (9,930)
Other financing activities (2,248) (2,987)
----------- ---------
Net cash flows (used in) provided by financing activities (15,882) (206,032)
----------- ---------
Net increase (decrease) in cash and cash equivalents 35 (2,979)
Cash and cash equivalents at beginning of period 18,482 19,905
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,517 $ 16,926
========== ==========
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
1. The consolidated balance sheet of GATX Capital Corporation and its
subsidiaries ("the Company") at December 31, 1996 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, 1997 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. While the amounts claimed 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
<PAGE>
PART I. FINANCIAL INFORMATION, continued
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
Net income earned during the second quarter and during the six months ended June
30, 1997, exceeded net income earned during the corresponding periods in the
prior year by $2.2 million (20%) and $15.9 million (80%), respectively. The
increases during both periods are due primarily to higher investment and asset
management income related to asset remarketing and fees earned from arranging
financing transactions.
Investment and Asset Management
- --------------------------------
The Company invests in a wide variety of assets and generates income by
financing equipment (through lease, loan and joint venture investments), from
the remarketing of assets, and from fees generated by managing the investment
portfolios of others and from brokering or arranging financing transactions.
Investment and asset management revenue increased as a result of increases in
asset remarketing income and fees from arranging financing transactions, as well
as higher investment balances. Although historically a significant contributor
to income, asset remarketing opportunities, which are realized at lease end or
in response to specific market conditions, do not occur evenly between periods
and the income they generate can fluctuate significantly depending on market
conditions. Similarly, transaction fees do not occur evenly between periods.
Higher investment balances during 1997, including those funded with off-balance
sheet financing and those of Centron (which was acquired in October 1996), also
contributed to the increase in investment and asset management revenue, as well
as to higher operating lease expense.
Technology Equipment Sales and Service
- ----------------------------------------
With the October 1996 acquisition of the 50% of Centron, which it did not
already own, the Company expanded its technology equipment sales and service
business. Centron is a technology solutions provider that offers products,
technical service and financial services required for building corporate
information networks. The sales and technical services offered by Centron are
included in this segment of the business. Lease and other financing alternatives
offered by Centron are included in the investment and asset management business
segment.
Higher average borrowings (to fund new investments and from the consolidation of
Centron) resulted in interest expense being higher than last year.
Selling, general and administrative costs increased over 1996, due primarily to
higher human resource and other administrative costs resulting from increased
business activity, including the impact of the acquisition of Centron.
The allowance for losses increased during the first six months of 1997 as a
result of a $6.0 million provision for losses and $1.4 million in recoveries of
previously written off investments. There were no significant write-downs during
this period. At June 30, 1997, the allowance for losses is 7% of investments,
including off-balance sheet assets and after deducting nonleveraged lease
nonrecourse debt.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Floating rate debt financing represented 22.7% of the Company's capital
structure at June 30, 1997. These borrowings support investments tied to LIBOR
and other 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, 1997, the Company had $38.7 million more
floating rate debt than floating rate assets.
At June 30, 1997, the Company had approved unfunded transactions totaling
approximately $135.5 million, including approximately $95.1 million expected to
fund during the remainder of 1997. 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 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 stream. During the six months ended June 30, 1997, the Company
used the cash generated from operations, from investing activities and from
short-term borrowings to repay $130 million of debt financing. At June 30, 1997,
the Company had a $300 million shelf registration for Series D medium term
notes, of which $32 million was available, and had unused capacity under its
commercial paper and bankers' acceptances credit agreements of $146.1 million.
Two of the Company's subsidiaries maintain various stand-alone bank facilities
which had unused capacity aggregating $52.2 million as of June 30, 1997.
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
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) The Company filed a current report on Form 8-K on June 10, 1997,
under Item 5., Other Events.
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 12, 1997
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 BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 18,517
<SECURITIES> 0
<RECEIVABLES> 856,114 <F1>
<ALLOWANCES> 121,059
<INVENTORY> 46,403 <F2>
<CURRENT-ASSETS> 0 <F4>
<PP&E> 473,658 <F3>
<DEPRECIATION> 0 <F3>
<TOTAL-ASSETS> 1,851,374
<CURRENT-LIABILITIES> 0 <F4>
<BONDS> 1,114,147 <F5>
<COMMON> 1,031 <F6>
0
1,027 <F6>
<OTHER-SE> 363,232 <F7>
<TOTAL-LIABILITY-AND-EQUITY> 1,851,374
<SALES> 93,803
<TOTAL-REVENUES> 299,446
<CGS> 76,534
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 111,941 <F8>
<LOSS-PROVISION> 6,025
<INTEREST-EXPENSE> 44,485
<INCOME-PRETAX> 60,461
<INCOME-TAX> 24,487
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,974
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 476,869, LEVERAGED LEASE
RECEIVABLES OF 175,177, AND SECURED LOANS OF 204,068.
<F2> CONSISTS OF ASSETS HELD FOR SALE OR LEASE OF 9,669 AND TECHNOLOGY EQUIPMENT
INVENTORY OF 36,734.
<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 805,600, OBLIGATIONS UNDER
CAPITAL LEASES OF 10,182, AND NONRECOURSE OBLIGATIONS OF 298,365.
<F6> PAR VALUE ONLY.
<F7> CONSISTS OF RETAINED EARNINGS OF 209,551, ADDITIONAL PAID-IN CAPITAL
OF 151,902, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX
OF 5,212 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (3,433).
<F8> CONSISTS OF OPERATING LEASE EXPENSE OF 55,967, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES OF 52,680, AND OTHER EXPENSES OF 3,294.
</FN>
</TABLE>
