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, 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 May 5, 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
March 31,
1997 1996
--------- ---------
(Unaudited)
REVENUES:
Investment and asset management $ 111,135 $ 65,433
Technology equipment sales and service 39,252 -
------------ -----------
150,387 65,433
------------ -----------
EXPENSES:
Interest 22,041 19,451
Operating leases 27,445 14,646
Cost of technology equipment sales and service 31,963 -
Selling, general & administrative 26,148 12,084
Provision for losses on investments 2,250 3,000
Other 1,987 782
------------ -----------
111,834 49,963
------------ -----------
Income before income taxes 38,553 15,470
------------ -----------
INCOME TAXES:
Current income taxes 14,084 5,773
Deferred income taxes 1,529 492
------------ -----------
15,613 6,265
------------ -----------
NET INCOME 22,940 9,205
Reinvested earnings at beginning of period 185,686 162,400
Dividends paid to stockholder (5,914) (4,343)
------------ -----------
REINVESTED EARNINGS AT END OF PERIOD $ 202,712 $ 167,262
============ ===========
-1-
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
---------- ----------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 28,378 $ 18,482
Investments:
Direct financing leases 453,645 461,757
Leveraged leases 209,005 257,039
Operating lease equipment-
net of depreciation 425,237 429,880
Secured loans 192,961 222,602
Investment in joint ventures 318,985 308,934
Assets held for sale or lease 10,254 12,393
Other investments 67,334 65,506
Investment in future residuals 20,879 21,457
Allowance for losses on investments (117,509) (114,096)
------------ -----------
Total investments 1,580,791 1,665,472
------------ -----------
Due from GATX Corporation 25,361 45,147
Other assets 130,220 119,528
------------ -----------
TOTAL ASSETS $ 1,764,750 $ 1,848,629
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 21,776 $ 15,821
Accounts payable and other liabilities 117,234 138,660
Debt financing:
Commercial paper and bankers acceptances 28,916 13,772
Notes payable 52,985 63,114
Obligations under capital leases 11,624 12,429
Senior term notes 835,600 935,600
------------ -----------
Total debt financing 929,125 1,024,915
------------ -----------
Nonrecourse obligations 281,287 268,044
Deferred income 6,538 5,786
Deferred income taxes 52,317 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
additional paid-in capital 28,960 28,960
Reinvested earnings 202,712 185,686
Foreign currency translation adjustment (3,919) (1,543)
Unrealized gain on equity securities 3,720 5,574
------------ -----------
Total stockholder's equity 356,473 343,677
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,764,750 $ 1,848,629
============ ===========
- 2 -
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
1997 1996
---------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,940 $ 9,205
Reconciliation to net cash provided by operating
activities:
Provision for losses on investments 2,250 3,000
Depreciation expense 17,528 8,364
Provision for deferred income taxes 1,529 492
Gain on sale of assets (25,489) (6,773)
Changes in assets and liabilities:
Due from GATX Corporation 19,786 8,724
Accrued interest, accounts payable and (15,471) (12,917)
other liabilities
Deferred income 752 270
Other - net (7,450) 5,627
------------ ----------
Net cash flows provided by operating activities 16,375 15,992
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (51,045) (72,392)
Loans extended to borrowers (2,529) (19,295)
Other investments (32,326) (37,233)
------------ -----------
Total investments (85,900) (128,920)
------------ -----------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 31,483 35,462
Loan principal received 33,246 11,328
Proceeds from sale of assets 88,731 24,788
Joint venture investment recovery, net of earned
income 1,750 1,337
------------ -----------
Recovery of investments 155,210 72,915
------------ -----------
Net cash flows provided by (used in) 69,310 (56,005)
investing activities ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 17,015 62,207
Proceeds from issuance of long-term debt - 78,500
Proceeds from nonrecourse obligations 39,658 21,616
Repayment of long-term debt (100,000) (105,000)
Repayment of nonrecourse obligations (25,742) (14,273)
Dividends paid to stockholder (5,914) (4,343)
Other financing activities (806) (1,058)
------------ -----------
Net cash flows (used in) provided by (75,789) 37,649
financing activities ------------ -----------
Net increase (decrease) in cash
and cash equivalents 9,896 (2,364)
Cash and cash equivalents at beginning of period 18,482 19,905
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $28,378 $ 17,541
============ ===========
- 3 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three-month period ended March 31,1997 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 for 1997's first quarter exceeded 1996's first quarter by $13.7
million, or 149%, due primarily to higher investment and asset management income
related to asset remarketing.
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 $45.7 million over the first
quarter of 1996. The primary reason for this increase is income from asset
remarketing, which increased $28.7 million. Because asset remarketing
opportunities are realized at lease end or in response to specific market
conditions, they do not occur evenly between periods and can fluctuate
significantly depending on market conditions. Higher investment balances during
1997's first quarter, including those funded with off-balance sheet financing
and those of Centron DPL (which was acquired in October 1996), contributed to
the remainder of the increase in investment earnings as well as to higher
operating lease expense.
Technology Equipment Sales and Service
- ----------------------------------------
With the October 1996 acquisition of the 50% of Centron DPL which it did not
already own, the Company entered the 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 technology equipment
inventory) and the consolidation of Centron DPL 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 DPL.
The allowance for losses increased during the first three months of 1997 as a
result of a $2.3 million provision for losses and $1.1 million in recoveries of
previously written off investments. There were no significant write-downs during
the first quarter. At March 31, 1997 the allowance for losses is 7.2% of
investments, including off-balance sheet assets and after deducting nonleveraged
lease nonrecourse debt.
LIQUIDITY AND CAPITAL RESOURCES
Floating rate debt financing represented 19.9% of the Company's capital
structure at March 31, 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 March 31, 1997, the Company had $43.1 million more
floating rate assets than floating rate debt.
At March 31, 1997, the Company had approved and unfunded transactions totaling
approximately $180.4 million, including approximately $162.5 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. During the first quarter of 1997 the Company
used the cash generated from operations and portfolio proceeds to repay over
$100 million of debt financing. At March 31, 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 credit agreements of $274
million.
-5-
<PAGE>
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has previously reported various lawsuits filed by and against it and
GATX/Airlog Company ("Airlog"), a general partnership of which a Company
subsidiary is a partner, arising out of the issuance of Airworthiness Directive
96-01-03 by the Federal Aviation Administration in January 1996 (the
"Airworthiness Directive"). On January 2, 1997, the Company and Airlog filed a
Motion for Partial Summary Judgment with respect to certain of the counterclaims
filed by Evergreen International Airlines, Inc. ("Evergreen") in the Declaratory
Judgment action brought by the Company and Airlog in the United States District
Court for the Northern District of California (No. C96-2494). The Motion for
Partial Summary Judgment is brought on the grounds that (1) the contracts at
issue in the litigation are governed by the California Commercial Code (the
"Code"), (2) Evergreen's contract counterclaims are barred by the four-year
statute of repose established by the Code, and (3) Evergreen's negligent
misrepresentation counterclaim is barred by the economic loss doctrine under
California law. The court has held oral argument on the motion and has taken it
under advisement.
The previously reported action filed by General Electric Capital Corporation and
a subsidiary thereof (hereinafter collectively "GECC"), against the Company,
Airlog and certain other companies, has been dismissed, without prejudice. These
parties and GATX Corporation entered into a tolling agreement dated December 17,
1996 and amended in April 1997. Under the tolling agreement as amended, the
parties thereto have agreed that any defenses of expiration of the statute of
limitations or statute of repose or laches applicable to the causes of action
asserted by GECC are tolled, up to and including January 8, 1998.
PART II. OTHER INFORMATION, continued
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 January 23, 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
May 12, 1997
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 28,378
<SECURITIES> 0
<RECEIVABLES> 855,611<F1>
<ALLOWANCES> 117,509
<INVENTORY> 43,890<F2>
<CURRENT-ASSETS> 0<F4>
<PP&E> 425,237<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 1,764,750
<CURRENT-LIABILITIES> 0<F4>
<BONDS> 1,128,511<F5>
0
1,027<F6>
<COMMON> 1,031<F6>
<OTHER-SE> 354,415<F7>
<TOTAL-LIABILITY-AND-EQUITY> 1,764,750
<SALES> 39,252
<TOTAL-REVENUES> 150,387
<CGS> 31,963
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 55,580<F8>
<LOSS-PROVISION> 2,250
<INTEREST-EXPENSE> 22,041
<INCOME-PRETAX> 38,553
<INCOME-TAX> 15,613
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,940
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 453,645, LEVERAGED LEASE
RECEIVABLES OF 209,005, AND SECURED LOANS OF 192,961.
<F2>CONSISTS OF ASSETS HELD FOR SALE OR LEASE OF 10,254 AND TECHNOLOGY EQUIPMENT
INVENTORY OF 33,636.
<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 835,600, OBLIGATIONS UNDER CAPITAL LEASES
OF 11,624, AND NONRECOURSE OBLIGATIONS OF 281,287.
<F6> PAR VALUE ONLY.
<F7> CONSISTS OF RETAINED EARNINGS OF 202,712, ADDITIONAL PAID-IN CAPITAL OF
151,502, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX OF
3,720 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (3,919).
<F8> CONSISTS OF OPERATING LEASE EXPENSE OF 27,445, SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES OF 26,148, AND OTHER EXPENSES OF 1,987.
</FN>
</TABLE>
