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, 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 November 7, 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- ---------
(Unaudited) (Unaudited)
REVENUES:
Investment and asset management $ 107,350 $ 93,655 $ 312,993 $ 235,444
Technology equipment sales and service 43,885 - 137,688 -
-------- ------- -------- ---------
151,235 93,655 450,681 235,444
-------- ------- -------- ---------
EXPENSES:
Interest 23,335 22,716 67,820 62,541
Operating leases 29,790 19,785 85,757 52,404
Cost of technology equipment
sales & service 37,200 - 113,734 -
Selling, general & administrative 33,554 15,030 86,234 41,808
Provision for losses on investments 3,506 3,000 9,531 9,501
Other 4,074 997 7,368 3,285
-------- -------- -------- ---------
131,459 61,528 370,444 169,539
-------- -------- -------- ---------
Income before income taxes 19,776 32,127 80,237 65,905
-------- -------- -------- ---------
INCOME TAXES:
Current income taxes 13,859 10,203 35,943 22,809
Deferred income taxes (5,846) 2,863 (3,443) 4,008
-------- -------- -------- ---------
8,013 13,066 32,500 26,817
-------- -------- -------- ---------
NET INCOME 11,763 19,061 47,737 39,088
Reinvested earnings at
beginning of period 209,551 172,497 185,686 162,400
Dividends paid to stockholder (7,929) (6,305) (20,038) (16,235)
-------- -------- -------- ---------
REINVESTED EARNINGS AT END OF PERIOD $ 213,385 $ 185,253 $ 213,385 $ 185,253
========= ========= ========== =========
1
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 55,134 $ 18,482
Investments:
Direct financing leases 669,552 461,757
Leveraged leases 173,449 257,039
Operating lease equipment-
net of depreciation 479,681 429,880
Secured loans 200,880 222,602
Investment in joint ventures 379,022 308,934
Assets held for sale or lease 7,973 12,393
Other investments 60,357 65,506
Investment in future residuals 20,490 21,457
Allowance for losses on investments (124,931) (114,096)
----------- ------------
Total investments 1,866,473 1,665,472
----------- ------------
Due from GATX Corporation 15,376 45,147
Other assets 133,266 119,528
----------- -----------
TOTAL ASSETS $ 2,070,249 $ 1,848,629
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 22,249 $ 15,821
Accounts payable and other liabilities 140,300 138,660
Debt financing:
Commercial paper and bankers' acceptances 218,900 13,772
Notes payable 131,603 63,114
Obligations under capital leases 10,157 12,429
Senior term notes 805,600 935,600
------------ ----------
Total debt financing 1,166,260 1,024,915
------------ ----------
Nonrecourse obligations 316,300 268,044
Deferred income 6,542 5,786
Deferred income taxes 48,775 51,726
Stockholder's equity:
Convertible preferred stock, par value $1,
and additional paid-in capital 125,000 125,000
Common stock, par value $1, and
and additional paid-in capital 28,960 28,960
Reinvested earnings 213,385 185,686
Foreign currency translation adjustment (3,613) (1,543)
Unrealized gain on equity securities 6,091 5,574
------------- ----------
Total stockholder's equity 369,823 343,677
------------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,070,249 $ 1,848,629
============= ===========
2
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
1997 1996
---------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 47,737 $ 39,088
Reconciliation to net cash provided by operating activities:
Provision for losses on investments 9,531 9,501
Depreciation expense 56,448 29,781
Provision for deferred income taxes (benefits) (3,443) 4,008
Gain on sale of assets (63,792) (25,747)
Changes in assets and liabilities:
Due from GATX Corporation 29,771 7,378
Accrued interest, accounts payable
and other liabilities 8,068 39,348
Deferred income 756 756
Other - net (18,881) (2,357)
---------- --------
Net cash flows provided by operating activities 66,195 101,756
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (438,825) (268,512)
Loans extended to borrowers (28,628) (108,738)
Other investments (110,536) (81,742)
---------- ---------
Total investments (577,989) (458,992)
---------- ---------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 82,463 81,693
Loan principal received 51,424 115,978
Proceeds from sale of assets 201,931 129,982
Joint venture investment recovery, net of earned income 30,531 3,671
---------- ---------
Recovery of investments 366,349 331,324
----------- ---------
Net cash flows used in investing activities (211,640) (127,668)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 285,617 22,776
Proceeds from issuance of long-term debt - 168,000
Proceeds from nonrecourse obligations 130,095 68,413
Repayment of long-term debt (130,000) (112,000)
Repayment of nonrecourse obligations (81,304) (47,679)
Dividends paid to stockholder (20,038) (16,235)
Other financing activities (2,273) (3,792)
----------- ---------
Net cash flows provided by financing activities 182,097 79,483
----------- ---------
Net increase in cash and cash equivalents 36,652 53,571
Cash and cash equivalents at beginning of period 18,482 19,905
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 55,134 $ 73,476
========== ==========
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
nine-month period ended September 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 nine months ended September 30, 1997 exceeded net
income earned during the corresponding period in the prior year by $8.6 million,
primarily due to an increase in revenue related to the remarketing of assets.
Net income earned during the three months ended September 30, 1997 was $7.3
million less than in the same period in 1996 mainly due to historically strong
results in the third quarter of 1996 and one-time expenses incurred by the
Company during the third quarter of 1997 in connection with two significant
events: the acquisition of the 20% of Sun Financial Group, Inc. not already
owned by the Company and the purchase of a portfolio of leased assets owned by
Pitney Bowes Credit Corporation. The Pitney Bowes transaction is described in
more detail in Item 5. below.
Overview
- ---------
The Company engages in two main activities: (1) it is actively involved in
asset-based investment and generates income by financing equipment (through
lease, loan and joint venture investments); from the remarketing of assets; from
managing the equipment related investment portfolios of others; and from
brokering or arranging asset financing transactions, and (2) it provides a wide
range of technology services enabling its customers to acquire, construct and
finance information networks. The Company's technology solutions business was
significantly expanded with the October 1996 acquisition of the 50% of Centron
which it did not already own. Sales and service revenue related to technology
solutions is included in the technology equipment sales and service revenue
line. Revenue earned from financing alternatives related to technology solutions
is included in the investment and asset management revenue line. Centron's
financial results were consolidated in the Company's financial statements
subsequent to the October 1996 acquisition.
Revenues
- ---------
Investment and asset management revenue increased $13.7 million and $77.5
million during the three and nine-month periods ended September 30, 1997,
respectively, compared to the same periods in 1996. Revenue generated from
higher average investment balances during 1997, including those funded with
off-balance sheet financing, was the most significant contributor to this
increase. Increases in asset remarketing income also contributed to the increase
in investment and asset management revenue. Asset remarketing income was $2.5
million (11%) and $34.9 million (83%) greater during the three and nine-months
ended September 30, 1997 than in 1996's comparable periods, respectively.
Although asset remarketing income, which includes gains on the sales of the
Company's owned assets and fee income generated from providing remarketing
services for third parties, has historically been a significant contributor to
income, asset remarketing opportunities are realized at lease end or in response
to specific market conditions and the income they generate can fluctuate
significantly depending on market conditions.
Technology equipment sales and service revenue were primarily generated by
Centron and were not consolidated in the Company's financial statements until
October 1996.
Expenses
- ---------
Higher average borrowings (to fund new investments and from the acquisition of
Centron) resulted in interest expense being higher than last year. Continued
growth in the Company's operating lease portfolio resulted in an increase in
operating lease expense, which includes depreciation expense and rent expense
from off-balance sheet financing.
The increase in selling, general and administrative costs is primarily due to
the impact of the acquisition of Centron and one-time expenses related to the
acquisition of the 20% of Sun Financial Group, Inc. not already owned by the
Company and the Pitney Bowes transaction.
The allowance for losses increased during the first nine months of 1997 as a
result of a $9.5 million provision for losses and $1.8 million in recoveries of
previously written off investments. There were no significant write-downs during
this period. At September 30, 1997, the allowance for losses is 6.5% of
investments, including off-balance sheet assets and after deducting nonleveraged
lease nonrecourse debt.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 streams. During the nine months ended September 30, 1997, the
Company used cash generated from operations, from investing activities and from
short-term borrowings to repay $130 million of medium-term notes. During the
third quarter of 1997, the Company filed a $532 million shelf registration for
debt securities, of which the entire amount was available on September 30, 1997.
Amounts remaining under the Company's Series D medium term note registration
statement were incorporated into this new registration statement and the Series
D registration statement was retired. At September 30, 1997 the Company had
unused capacity under its commercial paper and bankers' acceptances credit
agreements of $41.1 million. Two of the Company's subsidiaries maintain various
stand-alone bank facilities which had unused capacity aggregating $48.8 million
as of September 30, 1997.
On September 30, 1997 the Company funded approximately $193 million of the
Pitney Bowes acquisition (see Item 5. below) with proceeds from commercial paper
and other short term borrowings. In October 1997, the Company borrowed $350
million under its $532 million shelf registration and used the proceeds, in
part, to repay the commercial paper and other short-term borrowings that were
used to fund this purchase. The remainder of the proceeds were used to fund
additional portions of the Pitney Bowes acquisition in early November 1997.
During the third quarter of 1997 the Company sold certain assets and has placed
the proceeds from such sales (approximately $33 million) in trust with a
qualified intermediary pending the identification and acquisition of qualified
replacement assets in order to effect a like-kind exchange for federal income
tax purposes. The amounts in trust are classified as cash and cash equivalents
in the accompanying balance sheet.
The Company's capital structure includes both fixed and floating rate debt. The
Company ensures a stable margin over its cost of funds by approximately matching
its fixed and floating rate investments to its fixed and floating rate
borrowings.
At September 30, 1997, the Company had approved unfunded transactions totaling
approximately $390 million, including approximately $325 million expected to
fund during the fourth quarter. Of the expected fourth quarter funding amount,
approximately $260 million relates to the acquisition of the Pitney Bowes
portfolio (of which approximately $174 million funded in early November, as
discussed above). Once approved for funding, a transaction may not be completed
for various reasons, or the investment may be shared with partners or sold.
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 5. Other Information
On August 21, 1997, the Company announced that it had entered into agreements to
invest in a $1.2 billion portfolio of leased assets owned by Pitney Bowes Credit
Corporation ("PBCC"), a wholly-owned subsidiary of Pitney Bowes Inc. The
Company's investment will total approximately $460 million in cash, for which it
will receive assets valued by the Company at approximately $280 million and a
fifty percent interest in a joint venture with PBCC that will own assets valued
by the Company at approximately $895 million.
The Company's investment will be effected through a series of closings, all of
which are expected to occur prior to December 31, 1997. The first closing took
place on September 30, 1997, when the Company paid PBCC approximately $193
million for assets acquired. The second closing took place in early November
1997, at which time the Company purchased approximately $174 million of assets
from PBCC.
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 August 27, 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/ A. Douglas Shattuck
-----------------------
A. Douglas Shattuck
Principal Accounting Officer,
and Corporate Controller
November 13, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 55,134
<SECURITIES> 0
<RECEIVABLES> 1,043,881 <F1>
<ALLOWANCES> 124,931
<INVENTORY> 40,661 <F2>
<CURRENT-ASSETS> 0 <F4>
<PP&E> 479,681 <F3>
<DEPRECIATION> 0 <F3>
<TOTAL-ASSETS> 2,070,249
<CURRENT-LIABILITIES> 0 <F4>
<BONDS> 1,132,057 <F5>
<COMMON> 1,031 <F6>
0
1,027 <F6>
<OTHER-SE> 367,765 <F7>
<TOTAL-LIABILITY-AND-EQUITY> 2,070,249
<SALES> 137,688
<TOTAL-REVENUES> 450,681
<CGS> 113,734
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 179,359 <F8>
<LOSS-PROVISION> 9,531
<INTEREST-EXPENSE> 67,820
<INCOME-PRETAX> 80,237
<INCOME-TAX> 32,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,737
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 669,552, LEVERAGED LEASE
RECEIVABLES OF 173,449, AND SECURED LOANS OF 200,880.
<F2> CONSISTS OF ASSETS HELD FOR SALE OR LEASE OF 7,973 AND TECHNOLOGY EQUIPMENT
INVENTORY OF 32,688.
<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 10,157, AND NONRECOURSE OBLIGATIONS OF 316,300.
<F6> PAR VALUE ONLY.
<F7> CONSISTS OF RETAINED EARNINGS OF 213,385, ADDITIONAL PAID-IN CAPITAL
OF 151,902, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX
OF 6,091 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (3,613).
<F8> CONSISTS OF OPERATING LEASE EXPENSE OF 85,757, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES OF 86,234, AND OTHER EXPENSES OF 7,368.
</FN>
</TABLE>
