UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended Commission File Number
December 31, 1998 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 March 30, 1999, Registrant has outstanding 1,031,250 shares of $1 par
value Common Stock.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
1
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DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
Annual Report to Stockholder for Part II Items 7 & 8
Fiscal Year ended December 31, 1998
(the "Annual Report")
Registration Statement on Form S-1 Part IV Item 14(a)3
filed with the Commission on
December 23, 1981 (file No. 2-75467)
Amendment No. 1 to Form S-1 filed Part IV Item 14(a)3
with the Commission on
February 23, 1982
Amendment No. 2 to Form S-1 filed Part IV Item 14(a)3
with the Commission on March 2, 1982
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1982 filed with the
Commission on March 28, 1983
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1990 filed with the
Commission on March 30, 1991
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1992 filed with the
Commission on March 31, 1993
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1994 filed with the
Commission on March 27, 1995
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1995 filed with the
Commission on March 28, 1996
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PART I
Item 1. Business
- -----------------
GATX Capital Corporation and its subsidiaries (the "Company") provides
asset-based financing, structures transactions for investment by other lessors,
and manages lease portfolios for third parties. Asset-based financing is
provided primarily to the aircraft, rail, technology, warehouse, production, and
marine industries. These financings, which are held within the Company's own
portfolio and through partnerships with coinvestors, are structured as leases
and secured loans, and frequently include interests in the asset's residual
value. For its transaction structuring and portfolio management services, the
Company receives fees at the time the transaction is completed, an asset is
remarketed, and/or on an ongoing basis. The Company also sells technology
equipment and provides technical services on the equipment it sells.
The Company competes with captive leasing companies, leasing subsidiaries of
commercial banks, independent leasing companies, lease brokers, investment
bankers, and financing arms of equipment manufacturers.
Information concerning financial data of business segments is contained in
Exhibit 13, GATX Capital Corporation Annual Report to Shareholders for the year
ended December 31, 1998 on page 58, which is incorporated herein by reference
(page reference is to the Annual Report to Stockholder).
Item 2. Properties
- -------------------
The Company leases all of its office space and owns no materially important
physical properties other than those related directly to its investment
portfolio. The Company's principal offices are rented under a twelve year lease
expiring in 2003.
Item 3. Legal Proceedings
- --------------------------
The Company is a party to actions arising from the issuance by the Federal
Aviation Administration (the "FAA") in January 1996 of Airworthiness Directive
96-01-03 (the "AD"). The AD has the effect of significantly reducing the amount
of freight that ten 747 aircraft may carry. These aircraft (the "Affected
Aircraft") were modified from passenger to freighter configuration by
GATX/Airlog Company ("Airlog"), a California general partnership. A subsidiary
of the Company, GATX Aircraft Corporation, is a partner in Airlog. The
modifications were carried out between 1988 and 1994 by subcontractors of Airlog
under authority of Supplemental Type Certificates ("STCs") issued by the FAA in
1987 pursuant to a design approved by the FAA. In the AD, the FAA stated that
the STCs were issued "in error".
On July 11, 1996, Airlog 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. C95-2494) with
respect to three Affected Aircraft seeking a declaration that neither Airlog nor
the Company has any liability to Evergreen as a result of the issuance of the
AD. 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 its three aircraft. In an initial
disclosure statement, Evergreen alleged damages which it calculated as follows:
(i) out-of-service costs amounting to approximately $16.2 million as of October
15, 1996; (ii) denial of access to then currently favorable capital markets,
resulting in an alleged inability to issue shares in an initial 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 did not quantify, but indicated is subject to further calculation);
and maintenance costs in responding to the AD (and to related airworthiness
directives issued by the FAA) of approximately $1.6 million as of March 1996.
The counterclaim also seeks exemplary and punitive damages in an unspecified
amount. In a subsequent case management statement, Evergreen claims that it
seeks recovery for out-of-pocket losses, lost revenues, lost profits, lost
business opportunities, maintenance work, repair costs and capital losses in an
amount that exceeds $145 million.
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On June 5, 1997, the Court ruled on Airlog's previously filed motion for partial
summary judgment. The Court ruled that the Purchase Agreement covering one
Evergreen aircraft was a contract for the sale of goods, and that claims
thereunder were barred by the four-year statute of limitations under the
California Commercial Code (the "Code"); but that the Modification Agreements
covering two aircraft owned by Evergreen were contracts of services not governed
by the Code, and that any applicable statute of limitations did not begin to run
until Evergreen had, or should have had, knowledge of the alleged breach. The
Court also denied Airlog's motion for Summary Judgment with respect to
Evergreen's counterclaim in which it alleged that Airlog negligently
misrepresented certain facts, which purportedly induced Evergreen to enter into
the Purchase and Modification Agreements. The Court's ruling bars Evergreen from
recovering under its claim for breach of warranty under the Purchase Agreement,
and permits Evergreen (subject to reconsideration or appeal) to proceed with its
claim for breach of warranty under the Modification Agreements and its claim of
negligent misrepresentation. The ruling does not represent a decision that
Evergreen is entitled to prevail on those claims. Airlog and the Company have
other defenses to those claims, which they are vigorously asserting.
On December 27, 1998, Evergreen filed a motion for partial summary judgment
regarding two Affected Aircraft, seeking to have the Court adjudicate whether
Airlog breached its warranty under the Modification Agreements and whether
Airlog may enforce against Evergreen the damage disclaimers and limitations in
the Modification Agreements. Evergreen also seeks a ruling from the Court that
it is entitled to judgment against the Company, in addition to Airlog, for
Airlog's alleged breach of the warranty in the Modification Agreement covering
one of the Affected Aircraft. A hearing on this motion is currently scheduled
for May 13, 1999.
On January 31, 1997, American International Airways, Inc. ("AIA") filed a
complaint in the United States District Court for the Northern District of
California (C97-0378) against Airlog, the Company, Airlog Management Corp., and
others 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 two Affected
Aircraft owned by AIA. The Complaint seeks damages (to be trebled under one
count of the complaint) of an unspecified amount relating to lost revenues, lost
profits, denied access to capital markets, repair costs, disruption of its
business plan, lost business opportunities, maintenance and engineering costs,
and other additional consequential, direct, incidental and related damages. The
Complaint asks in the alternative for a rescission of AIA's agreements with
Airlog, a return of amounts paid, and for injunctive relief directing that
Airlog, and certain individual defendants, properly staff and manage the
correction of the alleged deficiencies that caused the FAA to issue the AD. In a
joint case management statement and proposed order, AIA alleges that it
sustained damages of $43.8 million through May 31, 1997, and further alleges
that it will continue to accrue loss of use damages of at least $1.8 million per
month until the aircraft are operational.
On June 4, 1997, Tower Air, Inc. filed an action in the Supreme Court of the
State of New York, County of New York (Index No. 97/602851) against the Company,
Airlog, an officer of the Company and others with respect to one Affected
Aircraft it leased and subsequently purchased from a trust for the benefit of an
affiliate of Airlog in December 1994. This action asserts causes of action
including fraud and deceit, negligent misrepresentation, breach of contract and
negligence and seeks damages in excess of $25 million together with interest,
costs, attorneys' fees, and punitive damages.
4
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On February 25, 1998, The Bank of New York filed an action, as beneficial owner
of an Affected Aircraft, in the United States District Court for the Northern
District of California (No. C98-0385) against Airlog, the Company and others.
This aircraft was originally converted by Airlog for Evergreen. This action
seeks declaratory relief and asserts claims for breach of contract, intentional
misrepresentation, nondisclosure of known facts, negligence, negligent
misrepresentation, and unfair competition. The suit alleges damages of a minimum
of $262,000 per month in lost rent and storage costs, unspecified maintenance
and related expenses, diminution in the value of its aircraft by well in excess
of $10 million plus the costs of aircraft inspection and modifications to comply
with the AD, "Anticipated to be in the millions of dollars." Claims for
interest, injunctive relief, restitution and attorneys' fees are also included.
On June 15, 1998, General Electric Capital and PALC II, Inc. (collectively
"GECC") filed a complaint in the United States District Court for the Northern
District of California (C98-2387) against Airlog, the Company, and others with
respect to three Affected Aircraft. These aircraft were modified in 1991 and
1992. In the action GECC asserts that the defendants are liable to it under a
number of legal theories in connection with the application of the AD to the
three aircraft owned by GECC. The complaint seeks unspecified damages (to be
trebled under one count of the complaint), loss of rental income, cost of repair
and loss of value of the aircraft, repair of the aircraft, punitive damages and
costs of suit (including attorneys' fees).
Airlog, the Company, and others have filed an action in the United States
District Court for the Northern District of California against Pemco Aeroplex,
Inc. (C97-2484WHO), a contractor for Airlog which obtained the STCs and modified
certain of the Affected Aircraft, alleging causes of action for fraudulent and
negligent misrepresentation, breach of contract, professional negligence,
implied and equitable indemnity, and contribution. This action seeks a judgment
awarding the plaintiffs any and all damages, costs and expenses in connection
with the resolution of the concerns of the FAA as expressed in the AD or
relating to it, repairing the Affected Aircraft, defending against the
litigation involving the plaintiffs arising from the Affected Aircraft, paying
any judgments against plaintiffs that may be entered in said litigation and
attorneys' fees incurred by the plaintiffs in connection with defending said
litigation.
On July 24, 1998, Airlog filed an action in United States District Court for the
Western District of Washington against the United States of America (C98-1029).
This action is to recover losses suffered by Airlog as a result of the alleged
negligence of the FAA in the development and approval of the design to convert
the Affected Aircraft from passenger to freighter configuration. The complaint
seeks damages in excess of $8.3 million representing the expenses incurred by
Airlog in responding to the AD and legal fees and costs incurred by Airlog in
defending the litigation described above.
On January 25, 1999, the FAA issued a letter to Airlog stating that satisfactory
accomplishment of a number of Airlog generated Service Bulletins on an Affected
Aircraft would remove the limitations of the AD. On or about February 26, 1999
the first Affected Aircraft, owned by Evergreen, returned to revenue service.
While the results of any litigation are impossible to predict with certainty,
the Company believes that each of the foregoing claims against it is without
merit, and that the Company and Airlog have adequate defenses thereto.
In addition to those matters set forth above, the Company is involved in various
matters of litigation (including those matters set forth above) 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.
5
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Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Omitted under provisions of the reduced disclosure format.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
- --------------------------------------------------------------------------------
Not applicable. All common stock of the Registrant is held by GATX Financial
Services, Inc. (a wholly-owned subsidiary of GATX Corporation). Information
regarding dividends is shown on the consolidated statements of income which are
included in Item 8.
Item 6. Selected Financial Data
- -------------------------------
Omitted under provisions of the reduced disclosure format.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Incorporated herein by reference to the Annual Report, pages 30-38, included as
Exhibit 13 of this document.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Incorporated herein by reference to the Annual Report, page 37, included as
Exhibit 13 of this document.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The following consolidated financial statements of GATX Capital Corporation,
included in the Annual Report(Exhibit 13), are incorporated herein by reference
(page references are to the Annual Report):
Consolidated Statements of Income
for years ended December 31, 1998,
1997, and 1996 Page 39
Consolidated Balance Sheets
As of December 31, 1998 and 1997 Page 40
Consolidated Statements of Cash Flows for
years ended December 31, 1998, 1997, and 1996 Page 41
Consolidated Statements of Changes in Stockholder's Equity
As of December 31, 1998, 1997, and 1996 Page 42
Notes to Consolidated Financial Statements Pages 43 - 62
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Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
PART III
Item 10(a). Directors of the Registrant
- ----------------------------------------
Name Office Held Since Age
- ----------------------------------------------------------------------------
Ronald H. Zech Chairman of the Board 1984 55
Jesse V. Crews President, Chief Executive
Officer and Director 1994 46
David B. Anderson Director 1996 57
Alan C. Coe Executive Vice President
and Director 1994 47
David M. Edwards Director 1990 47
Kathyrn G. Jackson Executive Vice President
and Director 1997 43
Item 10(b). Executive Officers of the Registrant
- -------------------------------------------------
Name Office Held Since Age
- -----------------------------------------------------------------------------
Jesse V. Crews President, Chief Executive
Officer and Director 1994 46
Alan C. Coe Executive Vice President
and Director 1994 47
Kathyrn G. Jackson Executive Vice President
and Director 1997 43
Cal C. Harling Executive Vice President -
GATX Technology Services 1994 50
Robert J. Sammis Executive Vice President 1993 52
Jack F. Jenkins-Stark Senior Vice President and Chief
Financial Officer 1998 48
Scott A. Spicer Senior Vice President -
Chief Investment Officer 1998 49
Thomas C. Nord Vice President, General
Counsel, and Secretary 1980 58
James F. Earl Senior Vice President - Rail 1997 42
Tracie Oliver Vice President - Human
Resources 1998 53
Delphine M. Regalia Vice President and Controller 1998 42
Richard M. Tinnon Vice President and Treasurer 1996 35
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JESSE V. CREWS, President, Chief Executive Officer and Director since October
1998. Mr. Crews joined the Company in 1977 as a Financial Analyst and held a
variety of positions, including Regional Manager of the Singapore (two years)
and New Orleans/Houston (five years) offices before returning to San Francisco
in 1985. He has been broadly responsible for the development of new business
investment opportunities for the Company's own portfolio since 1986 and as head
of the Corporate Finance Group from 1990 to 1994. He served as Chief Investment
Officer from 1995 to 1998 and was elected Executive Vice President and Director
in 1994. Mr. Crews received a BA from Yale and an MBA from the University of
Virginia.
ALAN C. COE, Executive Vice President and Director since 1994. Mr. Coe joined
the Company in 1977 as a Financial Analyst and has held a variety of positions
both domestically and internationally. Mr. Coe is currently responsible for the
activities of the Company's Air Group. Prior to 1977, Mr. Coe served as an
officer in the United States Air Force (four years) and as Vice
President-Corporate Finance - with Rotan Mosle in Houston, Texas (three years).
Mr. Coe received a BA from Southern Methodist University in 1973 and his MBA
from Golden Gate University in 1976.
KATHRYN G. JACKSON, Executive Vice President and Director since 1997. Ms.
Jackson manages the Company's Diversified Finance Group. She joined the Company
in 1981 as Financial Analyst, and transferred to the Chicago regional office in
1982 serving as District Manager, Vice President and Managing Director. From
1987 to 1994, she was employed by D'Accord Financial Services as a Managing
Director, member of the Executive Committee and ultimately served as President,
Chairman and Chief Executive Officer. Ms. Jackson graduated Phi Beta Kappa from
Stanford University and holds an MBA from Northwestern University.
CAL C. HARLING, Executive Vice President - GATX Technology Services since 1997.
Mr. Harling joined the Company in 1987 as Vice President, Technology Financing.
Prior to 1987 Mr. Harling was an independent consultant for two years. Mr.
Harling worked for Decimus Corporation, a subsidiary of Bank America
Corporation, for ten years starting in 1975. While at Decimus Mr. Harling held
various positions including Vice President of Vendor Operating Leasing, Vice
President of Portfolio Management, and other management positions in systems
development. Mr. Harling received a BS from California State University,
Sacramento in 1973.
ROBERT J. SAMMIS, Executive Vice President. Mr. Sammis joined the Company in
1975 as Associate Counsel. He has served as a Senior Vice President in charge of
Equipment Management and as Managing Director, International and Senior Vice
President, Corporate Development. Mr. Sammis is a Fulbright scholar and, in that
capacity, taught law at the University of Los Andes, Bogota, Colombia. Prior to
joining the Company, he was with Pillsbury Madison & Sutro as Associate Counsel.
Mr. Sammis received a BA from the University of California and a JD from the
University of Michigan.
JACK F. JENKINS-STARK, Senior Vice President and Chief Financial Officer since
December 1998. Mr. Jenkins-Stark joined the Company in 1998 as Senior Vice
President - Finance. Most recently he was Senior Vice President of PG&E, and
President and CEO of PG&E Gas Transmission Company. He previously served as
PG&E's Vice President - Finance and Treasurer. In that position he led all
aspects of the corporation's financial activities. Mr. Jenkins-Stark received a
BA and MA in Economics from the University of California, Santa Barbara and an
MBA from the University of California, Berkeley.
8
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SCOTT A. SPICER, Senior Vice President - Chief Investment Officer since December
1998. Since joining the Company in 1979, Mr. Spicer has held several positions
in credit and administration management, most recently as the head of the credit
function. He is currently responsible for building the portfolio with high
risk-adjusted returns while maintaining appropriate diversification. He spent
three years in the early 1980's in the Singapore office with full management
responsibility for credit evaluation and administration of the Singapore and
Malaysian portfolios. Prior to joining the Company, Mr. Spicer served as
assistant credit manager for Equico Lessors, Inc. (three years) and as credit
manager for a consumer finance company (three years). He earned a BA in Business
Administration-Finance from the University of Northern Colorado.
THOMAS C. NORD, Vice President, General Counsel and Secretary since 1980. Mr.
Nord joined the Company as Associate Counsel in 1977 and became Assistant
General Counsel in 1978. Prior to 1977, Mr. Nord served as Counsel for Irving
Trust Company (three years) and as an Associate in the New York law firm of
Seward & Kissel (five years). Mr. Nord received a BA from Northwestern
University in 1962 and a JD from the University of North Carolina in 1969.
JAMES F. EARL, Senior Vice President - Rail and Director since 1997. Mr. Earl
joined the Company in 1988 as Director-Short Line Financing. He has held a
series of increasingly responsible positions within the Company's Rail Group,
including Director-Business Development and Vice President-Freight Car
Marketing. In his current position he is responsible for the overall operations,
marketing and growth of the Company's rail businesses, as well as directing the
Company's international rail activities. Prior to joining the Company, Jim
served as Director-Service and Equipment Planning with Soo Line Railroad, and
with Southern Pacific Railroad as a Terminal Superintendent, Assistant Terminal
Superintendent and Assistant Trainmaster. Jim received his BSBA from Washington
University in St. Louis and his MBA from the University of Pennsylvania's
Wharton School.
TRACIE OLIVER, Vice President - Human Resources since August 1998. Ms. Oliver
joined the Company in 1996 as Director, Human Resources. She was initially
responsible for recruiting, employee relations and administrative operations.
She is currently responsible for all Human Resource functions at the home
office, as well as other domestic and international locations. Prior to the
Company, Ms. Oliver held a variety of positions in Human Resources at several
financial services organizations, engineering and retail companies and most
recently headed up the Human Resource function at an animation and film studio.
She holds a BS degree and a teaching credential from California State University
at San Diego.
DELPHINE M. REGALIA, Vice President and Controller since July 1998. Prior to
the Company, she most recently served as Director of Finance and Operations for
Pillsbury Madison & Sutro, an international law firm. Ms. Regalia received her
BS from Santa Clara University in 1978 and her MBA in 1980 from the University
of California, Berkeley.
RICHARD M. TINNON, Vice President and Treasurer since 1996. Mr. Tinnon joined
the Company in 1987 as a Senior Financial Analyst. He has also served as an
Associate Director of GATX Realty, Director of Financial Planning and Analysis,
Assistant Treasurer, and Assistant to the President. Prior to joining the
Company, Mr. Tinnon worked for Touche Ross & Co. Mr. Tinnon received his BA from
Michigan State University in 1985 and his MBA in 1990 from the University of
California, Berkeley.
9
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Items 11, 12 & 13
- -----------------
Omitted under provisions of the reduced disclosure format.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) 1. Financial statements
The following consolidated financial statements of GATX Capital Corporation
included in the Annual Report to Stockholder for the year ended December 31,
1998, are filed in response to Item 8:
Consolidated Statements of Income for the
years ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets
As of December 31, 1998 and 1997
Consolidated Statements of Cash Flows for
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholder's Equity
As of December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
2. Financial statement schedules
All financial statement schedules have been omitted because they are not
applicable or because required information is provided in the financial
statements, including the notes thereto, which are included in Item 8.
10
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3. Exhibits Required by Item 601 of Regulation S-K
Exhibit Number
--------------
3(a) Restated Certificate of Incorporation of the Company.(6)
3(b) By-laws of the Company.(1)
4(d) Term Loan Agreement between the Company and a Bank dated
December 26, 1990.(2)
10(a) Office Leases, Four Embarcadero Center, dated October 1, 1990
and June 1, 1991, between the Company and
Four Embarcadero Center Venture.(2)
10(b) Tax Operating Agreement dated January 1, 1983 between GATX
Corporation and the Company.(3)
10(c) Credit Agreement among the Company, the Banks listed on
Schedule I thereto and Chase Manhattan Bank, as agent for the
Banks, dated July 1, 1998.(8)
10(d) Credit Agreement among the Company, its two subsidiaries
operating in Canada, and the Bank of Montreal, dated
December 14, 1992.(4)
10(e) First Amendment, dated June 20, 1993 to Credit Agreement
referred to in 10(d).(5)
10(f) Second Amendment, dated June 14, 1994, to Credit
Agreement referred to in 10(d).(5)
10(g) Third Amendment, dated December 1, 1994, to Credit Agreement
referred to in 10(d).(5)
12 Ratio of Earnings to Fixed Charges (7)
13 Annual Report to Shareholder, pages 30-63. (7)
23 Consent of Independent Auditors.(7)
27 Financial Data Schedule.(7)
The Registrant agrees to furnish to the Commission upon request a copy of each
instrument with respect to issues of long-term debt of the Registrant the
authorized principal amount of which does not exceed 10% of the total assets of
Registrant.
(1) Incorporated by reference to Registration Statement on Form S-1, as
amended, (file number 2-75467) filed with the Commission on
December 23, 1981, page II-4.
(2) Incorporated by reference to Form 10-K filed with the Commission
on March 30, 1991.
(3) Incorporated by reference to Form 10-K filed with the Commission
on March 28, 1983.
(4) Incorporated by reference to Form 10-K filed with the Commission
on March 31, 1993.
(5) Incorporated by reference to Form 10-K filed with the Commission
on March 27, 1995.
(6) Incorporated by reference to Form 10-K filed with the Commission
on March 28, 1996.
(7) Submitted to the Securities and Exchange Commission with the
electronic filing of this document.
(8) Incorporated by reference to Form 10Q filed with the Commission
on November 16, 1998.
11
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Item 14(b). Reports on Form 8-K
- --------------------------------
Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By /s/ Jesse V. Crews
-----------------------
Jesse V. Crews
President, Chief Executive Officer
and Director
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
By /s/ Jesse V. Crews By /s/ Jack F. Jenkins-Stark
- -- ------------------ -- -------------------------
Jesse V. Crews Jack F. Jenkins-Stark
President, Chief Executive Officer Senior Vice President and
and Director Chief Financial Officer
Dated: March 31, 1999 Dated: March 31, 1999
By /s/ Delphine M. Regalia By /s/ David M. Edwards
- -- ----------------------- -- --------------------
Delphine M. Regalia David M. Edwards
Principal Accounting Officer Director
and Controller
Dated: March 31, 1999 Dated: March 31, 1999
By /s/ Kathryn G. Jackson By /s/ Alan C. Coe
- -- ---------------------- -- ---------------
Kathryn G. Jackson Alan C. Coe
Executive Vice President Executive Vice President
and Director and Director
Dated: March 31, 1999 Dated: March 31, 1999
12
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
GATX Capital Corporation
We have audited the accompanying consolidated financial statements of GATX
Capital Corporation (a wholly-owned subsidiary of GATX Corporation) and
subsidiaries listed in the accompanying index to financial statements
(Item 14(a)). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 14(a)) present fairly, in all material respects, the
consolidated financial position of GATX Capital Corporation and subsidiaries
at December 31, 1998 and 1997 and the consolidated results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
January 22, 1999
13
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Exhibit 12
GATX Capital Corporation
Ratio of Earnings to Fixed Charges
(in thousands)
Year Ended December 31, 1998 1997 1996 1995 1994
----- ---- ---- ---- ----
Fixed Charges:
Interest on indebtedness
and amortization of debt
discount and expense $114,575 $96,800 $86,106 $68,396 $62,744
Capitalized interest 2,064 1,575 3,074 1,601 292
Portion of rents
representing interest
factor (assumed to
approximate 33%) 14,516 13,703 10,849 6,574 5,122
-------- -------- ------- ------- -------
Total fixed charges $131,155 $112,078 $100,029 $76,571 $68,158
======== ======== ======== ======= =======
Earnings available for
fixed charges:
Net income $59,317 $53,564 $45,855 $32,604 $24,851
Add:
Income taxes 50,524 36,628 32,636 22,740 18,785
Equity in net earnings of
joint ventures, net of
dividends received 6,159 39,031 8,740 13,522 14,322
Fixed charges (excluding
capitalized interest) 129,091 110,503 96,955 74,970 67,864
-------- -------- ------ ------ ------
Total earnings available
for fixed charges $245,091 $239,726 $184,186 $143,836 $125,822
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 1.87 2.14 1.84 1.88 1.85
======== ======== ======== ======== ========
14
<PAGE>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
- --------
GATX Capital Corporation and its subsidiaries (the "Company") engage in two main
activities: 1) asset-based investment and finance, and 2) value-added reselling
of technology equipment and services. Revenue from asset-based investment and
finance activities is generated from financing equipment (either for the
Company's own account or through partnerships and joint ventures), from the
remarketing of assets, from managing the equipment-related investment portfolios
of others, and from brokering or arranging asset financing transactions.
While the financial management of the Company is organized into two segments,
the Company's asset-based investment and finance activities encompass marketing
and equipment expertise in four categories: diversified finance (including
marine, production and manufacturing equipment), commercial aircraft, rail, and
technology. The majority of the Company's direct financing and financial
structuring activities are centered in diversified finance. Commercial aircraft
and rail focus on growing and managing highly utilized operating lease fleets.
Technology activities include both financing technology equipment and the
value-added reselling of technology equipment and services.
At the end of 1998 and 1997 the Company's investment portfolio by major
equipment type was as follows:
Investment Portfolio
Stacked pie charts presenting the following:
As of December 31, 1998 1997
- ------------------ ---- ----
Commercial Aircraft 28% 26%
Rail 19% 25%
Technology 21% 15%
Diversified Finance 32% 34%
In the first half of 1998, the domestic diversified asset financing markets in
which the Company participates remained extremely competitive. By the second
half of the year, a number of factors had shifted causing a notable increase in
the Company's overall competitiveness. Contraction in the lease investor
marketplace led by consolidation among U.S. and overseas commercial banks and
finance companies, the widening of debt spreads in the latter part of the year,
and the virtual elimination of the high-yield debt market all served to increase
the range of attractive, traditional investment opportunities available to the
Company.
In 1998, the Company successfully broadened its traditional strategy of
partnering to include risk-sharing alliances with key participants in the inland
marine, corporate aircraft and timberland markets. The investment platforms
established with these "knowledge" partners are expected to fuel meaningful
additional growth in the future. The Company also expanded its long-time
participation in the venture lease and loan arena, and committed to selective
participation in equity-linked and high-yield debt markets. The Company
continued to pursue the secondary market purchase of lease portfolios and also
focused its efforts on the development of wide-ranging monetization and
partnership financing solutions for owners of assets deemed attractive by the
Company.
15
<PAGE>
Commercial aircraft, on balance, remained a strong investment option throughout
1998, except in Asia where some carriers continue to experience difficulties in
the markets they serve. The Company has very little exposure in the Asian region
and has, in fact, found attractive new investment opportunities as a direct
result of the weakened financial situation in that region. The Company and its
partners continue to add single aisle passenger aircraft to the portfolio. The
operating lease fleet consists principally of Airbus Industrie A320 and A321 and
Boeing 737-300 and 757 aircraft. These aircraft have a deep user base making
them highly desirable leasing assets with proven lease values. Furthermore, the
Company expanded its presence in the commercial aircraft market with two
important actions in 1998. The Company acquired a 50% interest in Rolls Royce
& Partners Finance Ltd. which owns and leases a portfolio of 90 spare aircraft
engines. The Company also formed a joint venture with Flightlease, the leasing
affiliate of SAirGroup, the parent company of SwissAir Ltd. and a number of
other airlines and related businesses. Both of these affiliations are also
expected to provide meaningful growth in the future.
The domestic and international rail equipment marketplaces showed continued
strength during 1998. In North America, the market is characterized by steady
demand for new equipment and active competition among leasing companies and
financial institutions. The railroad service problems that plagued the U.S.
railroads during 1997 have largely subsided. Generally, the demand for leased
locomotives was strong during the past year, and most freight car types
experienced solid demand. The year-end utilization of the Company's operating
lease fleet was above 97% for both rail cars and locomotives. The Company's
primary focus will continue to be North America, although the Company expects
significant growth in its international rail investment activities as well. In
particular, the Company has negotiated an increased ownership interest in AAE
Cargo, the leading European general purpose freight car leasing company. In
addition, the Company expects continuing growth in the United Kingdom through
its GL Railease activities in partnership with the Lombard Asset Finance Group.
The Company is actively involved in the technology sector through technology
leasing and value-added reselling of equipment and services. The Company's
technology leasing activities include a wide range of PC, networking and
telecommunications equipment. During the year, the Company expanded its
telecommunications leasing activities by forming a joint venture which will
finance telecommunications infrastructure to build out national and regional
networks. The Company continues to believe that its technology leasing
activities will provide substantial opportunities for future growth.
The Company's technology value-added reselling activities were significantly
expanded with the October 1996 acquisition of the 50% of Centron DPL Company,
Inc. ("Centron") which it did not already own. Centron has historically been
concentrated in legacy network protocol equipment. During 1998 these activities
were adversely affected by the decline in demand for this type of equipment. See
additional discussion in the Technology Equipment Sales and Service and
Impairment Loss section below.
RESULTS OF OPERATIONS
- ---------------------
Net income grew 10.7% to a record high of $59.3 million, generating a 23.1%
return on common equity. The growth in net income was primarily due to increases
in income from investments and asset remarketing, partially offset by losses
from the Company's technology value-added reselling activities. Net income in
1997 exceeded 1996's net income primarily as a result of increases in income
from asset remarketing and from brokering and arranging financing transactions.
New investments in 1998 of $851.1 million nearly equaled 1997's record of $862.4
million.
The Company uses its financial structuring, asset management and investment
banking skills to generate investment-related income in three primary ways: (1)
managing its investments while under contract, (2) selling or remarketing its
assets at the end of the contract term or when market opportunities arise and
(3) generating fees from third parties by serving as a resource for similar
transactions.
16
<PAGE>
Investment Income
Investment income was $359.0 million and $308.2 million in 1998 and 1997,
respectively. Depending on the type of investment, related revenues are recorded
as lease income, interest income, equity earnings from investments in joint
ventures or other income. Total average investments, before the allowance for
losses, were approximately $274.2 million (15%) greater in 1998 compared to
1997. Total average investments increased 14% during 1997 to a year-end balance
of $2.2 billion. Revenues from investments are offset by interest expense on
borrowings used to fund new investments and operating lease expense, which
includes depreciation of operating lease equipment and rent expense on
off-balance sheet financing, and other expense.
New investments in leased assets, including those funded with off-balance sheet
financing, contributed to the increases in lease income and operating lease
expense. The $22.4 million increase in lease income is attributable to higher
average lease balances. The increase in operating lease expense of $21.1 million
is due to higher depreciation expense resulting from increased investments and
shorter average depreciable lives resulting from changes in investment mix.
Lease income in 1997 was $49.8 million higher than 1996 due to higher average
investments. Operating lease expense increased $40.8 million in 1997 due to a
full year of Centron expenses versus two months in 1996 and increased average
operating lease investment excluding Centron.
Interest income was $10.8 million higher in 1998 compared to 1997 due to higher
average loan balances outstanding during the year. Interest income in 1997 was
lower than in 1996 by $5.1 million due to higher pre-payment penalties recorded
in 1996 as a result of loan prepayments.
During the first quarter of 1998, the Company financed the sale of approximately
$173.3 million of its direct financing lease portfolio resulting in a
recharacterization of the investment as secured loans until the loans were
repaid during the third quarter. This transaction also contributed to the
changes in lease and interest income during the year. The $17.9 million increase
in equity earnings from investment in joint ventures during 1998 and the $5.5
million increase in 1997 were due to the Company's continued focus on partnering
with other investors. The Company entered into six new joint ventures in 1998
and three new joint ventures in 1997, in addition to making additional
investments in existing joint ventures.
The $17.9 million increase in interest expense in 1998 is primarily a result of
a higher average debt balance related to funding the higher average investment
balance. The increase in interest expense of $10.7 million in 1997 was also due
to a full year of Centron interest expense versus two months in 1996 and an
overall increase in the Company's average debt balance related to portfolio
growth.
Asset Remarketing
Asset remarketing income includes gains on the sale of the Company's investment
assets and fees generated from providing remarketing services for third parties
and from the sale of non-owned assets in which the Company has a residual share.
Fee income from asset remarketing services is generally performance-based.
Although not necessarily consistent from year to year, asset remarketing income
is a core component of the Company's business and has historically been a
significant contributor to income.
Bar graph presenting the following (in millions):
Gains on Residual
Year ended December 31, sale sharing fees Total
- ---------------------- -------- ------------ -----
1989 $35.6 $1.1 $36.7
1990 48.6 1.5 50.1
1991 52.2 1.8 54.0
1992 22.3 1.7 24.0
1993 44.4 0.3 44.7
1994 21.4 2.9 24.3
1995 33.1 9.4 42.5
1996 35.5 21.5 57.0
1997 68.9 14.3 83.2
1998 69.4 23.0 92.4
17
<PAGE>
Asset remarketing income totaled $92.4 million in 1998 and $83.2 million in
1997. Gains on sale of Company investment assets were $69.4 million and $68.9
million in 1998 and 1997, respectively. Residual sharing fees were $23.0 million
and $14.3 million in 1998 and 1997, respectively. Asset remarketing income for
1998 and 1997 highlights the Company's ability to capitalize on market
opportunities by selling assets at other than their lease termination and to
realize the value of assets by arbitraging between the end user equipment
markets and the financial markets.
Portfolio Management and Transaction Services
In addition to earning fees for asset remarketing services, the Company also
generates fees from managing leased asset portfolios for institutional
investors, from managing the majority of the partnerships in which the Company
invests, and from brokering or arranging transactions. As with asset remarketing
fees, transaction fees may not occur evenly between periods. Portfolio
management and transaction services fee income was $15.8 million and $15.1
million in 1998 and 1997, respectively.
Technology Equipment Sales and Service and Impairment Loss
During 1998, technology equipment sales and service activities of Centron were
adversely affected by a decline in demand for legacy network protocol equipment,
resulting in a decrease in revenue of $31.4 million in 1998 compared to 1997.
However, as a result of the type of equipment and services sold, the gross
margin percentage increased slightly since the decrease in revenue was more than
offset by a decrease in cost of technology equipment sales and service. The
Company does not expect 1998's level of gross margins to continue. The increase
in technology equipment sales and service revenue and related cost during 1997
is a combination of a full year of revenues in 1997 versus two months in 1996
and the 1997 growth of this portion of the Company's business.
During the year, the Company determined that demand for legacy network protocol
equipment was weakening and changes in the market for networking technology
equipment and services in general was reducing margins in the resale business by
changing the mix of equipment to higher volumes of lower priced equipment. In
response to these changes, the Company is considering various options including
selling all or a portion of Centron's value-added reselling business or
continuing to operate the business with a strategic partner who can better
leverage the Company's existing position. In recognition of the basic changes in
operations and the resulting operating losses in 1998, the Company evaluated, in
accordance with generally accepted accounting principles, the value-added
reselling assets of Centron for impairment. This evaluation indicated that it
was not probable that the goodwill balance associated with the value-added
reselling activities was recoverable through future operations or sale of these
assets. Based on this assessment, the Company recognized a fourth quarter
impairment loss of $6.0 million eliminating the remaining goodwill associated
with the 1996 acquisition of Centron's value-added reselling activities.
Selling, General and Administrative
Selling, general and administrative expenses include costs incurred to support
the Company's operations. Selling, general and administrative expenses were
slightly lower in 1998 than in 1997 primarily as a result of one-time expenses
which occurred in 1997 related to 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. Offsetting these
non-recurring 1997 expenses were higher human resource and other administrative
expenses associated with 1) increased investment and asset management business
activity, and 2) costs incurred to support the technology equipment sales and
service infrastructure. During 1998, the Company took steps to more closely
align the size and nature of the technology equipment sales and service
infrastructure with current market conditions which will reduce future costs.
Selling, general and administrative expenses increased in 1997 due primarily to
the one-time expenses noted above, and higher human resource and other
administrative costs resulting from a growth in business activity, including
expansion of the technology business.
18
<PAGE>
Provision For Losses on Investments
The provision for losses on investments is derived from the Company's estimate
of losses inherent in the portfolio based on a review of credit, collateral and
market risks. The allowance for losses on investments increased $7.7 million in
1998 as a result of an $11.0 million provision for losses and $5.0 million of
recoveries of previously written off investments, offset by $8.3 million of
write-offs. At December 31, 1998, the allowance for losses on investments was
6.3% of investments, including off-balance sheet assets and after deducting
nonrecourse debt, and is at an appropriate level given the current quality of
the investment portfolio. This compares with 5.8% of investments as of December
31, 1997.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------
NEW INVESTMENT
Bar graph presenting the following (in millions):
Year ended December 31, 1998 1997 1996
- ----------------------- ------- ------- -------
New investment $851.0 $862.4 $656.7
The Company generates cash from operations and portfolio proceeds and has
certain facilities for borrowing. During 1998 the Company invested $851.1
million in new investments, nearing the 1997 record of $862.4 million. This new
investment was funded with $51.6 million of nonrecourse debt borrowings and a
portion of the $963.0 million of cash generated from the recovery of investments
and from operations. Cash generated from the recovery of investments and from
operations was also used to reduce senior term notes by $79.0 million and notes
payable by $47.8 million. In addition, the Company paid $29.7 million of
dividends in 1998. Historically, dividends have been paid on the Company's
common stock at the rate of 50% of net income.
As of December 31, 1998, the Company had the following borrowing capacity:
$181.7 million of unused capacity under its commercial paper and bankers'
acceptance credit agreements and $64.6 million of remaining capacity under
various stand-alone bank facilities maintained by two of the Company's
subsidiaries. The Company's commercial paper and bankers' acceptances are backed
by credit agreements from a syndicate of domestic and international commercial
banks. The Company also has the capacity to issue $162.0 million of notes under
its Series E shelf registration. The Company's senior unsecured notes are rated
BBB+ by Standard and Poor's and Baa2 by Moody's Investors Service.
Certain lease transactions are financed by obtaining nonrecourse loans equal to
the present value of some or all of the rental stream. The interest rates used
to discount the rentals are based on the credit quality of the lessee and the
size and term of the lease. The Company uses a wide variety of nonrecourse
lenders to ensure adequate and reliable access to the credit markets.
During 1998, primarily as a result of net repayments of notes payable and senior
term notes, total debt financing decreased. This decrease, combined with an
increase in equity, caused the Company's debt to equity ratio to decrease to
3.1:1 at year-end 1998 from 3.7:1 at year-end 1997. At December 31, 1998, the
Company could borrow an additional $735.7 million and still meet the 4.5:1
leverage ratio defined in its bank credit agreements.
During 1998 and 1997, the Company placed the proceeds from the sale of certain
assets in trust with a qualified intermediary pending the identification and
acquisition of qualified replacement assets in order to affect 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. Amounts in trust at
December 31, 1998 and December 31, 1997 were $29.2 million and $35.7 million,
respectively.
As of December 31, 1998, the Company has approved unfunded transactions totaling
$466.5 million, of which $209.4 million is expected to fund in 1999 and the
remaining $257.1 million thereafter. Once approved for funding, a transaction
may not be completed for various reasons, or the investment may be shared with
partners or sold.
19
<PAGE>
The Company's capital structure includes both fixed and floating rate debt. The
Company ensures a stable margin over its cost of funds by managing the
relationship of its fixed and floating rate lease and loan investments to its
fixed and floating rate borrowings. In order to meet this objective, derivative
financial instruments, primarily interest rate swaps, are used to modify the
interest characteristics of the Company's debt. The Company manages the credit
risk of counterparties by dealing only with institutions it considers
financially sound and by avoiding concentrations of risk with a single
counterparty.
MARKET RISK DISCLOSURE
- ----------------------
The Company, like most other companies, is exposed to certain market risks,
including changes in interest rates and changes in currency exchange rates. To
manage these risks, the Company, pursuant to pre-established and pre-authorized
policies, may enter into certain derivative transactions, predominantly interest
rate swaps and foreign currency hedges.
These interest rate swaps and other derivative instruments are entered into for
hedging purposes only. The Company does not hold or issue derivative financial
instruments for speculative purposes.
The Company's interest expense is affected by changes in interest rates as a
result of its use of variable rate debt instruments, including commercial paper
and other floating rate debt. Based on the Company's variable rate debt at
December 31, 1998, if market rates were to increase by a hypothetical 50 basis
points, interest expense would increase by approximately $1.6 million in 1999.
The Company seeks to minimize the impact of foreign currency fluctuations by
hedging transactional exposures with foreign currency hedges. Based on 1998's
reported earnings, changes in certain currency exchange rates would be
immaterial to the Company's reported earnings in 1999.
The interpretation and analysis of the results from the hypothetical changes to
interest rates and currency exchange rates should not be considered in
isolation; changes, such as these, would typically have corresponding offsetting
changes. Offsetting effects are present, for example, to the extent that
floating rate debt is associated with floating rate assets.
YEAR 2000 DISCLOSURE
- --------------------
The Company continues to address what is commonly referred to as the Year 2000
problem. The Company has completed the assessment phase of reviewing its
critical information systems for Year 2000 compliance. The Company's
enterprise-wide information system has been certified Year 2000 compliant by the
manufacturer and the Company has performed testing on the system. Other less
critical information systems have been reviewed and corrective action is being
taken as necessary. These projects should be completed by mid-year 1999.
The Company also is reviewing its operating assets to determine any significant
exposure to time-sensitive controls which may be embedded in the equipment.
These exposures are being assessed on an ongoing basis.
The Company is inquiring of customers to ensure that their systems are or will
be Year 2000 compliant. Where considered appropriate, the Company is working
directly with such third parties to test or remediate such systems. The Company
also interacts electronically with certain external entities but has no means of
ensuring that they will be Year 2000 ready. Additionally, the Company has been
inquiring of key vendors in an effort to establish the ability of the provider
to deliver product or services on a timely basis in the year 2000. Today, the
Company is not aware of any third party with a Year 2000 issue that would
materially impact the Company's results of operations.
20
<PAGE>
The Company believes it has an effective program in place to resolve the Year
2000 issue in a timely manner and to minimize the Company's exposure. If these
steps were not taken, or are not completed in a timely manner, the Year 2000
issue could have a significant impact on the operations of the Company. The
project is estimated to be completed during 1999, which is prior to any
anticipated impact on its operating systems. Based on the progress and results
of the Year 2000 project thus far, the Company believes that the Year 2000 issue
should not pose significant operational problems. However, in the event that the
Company's efforts have not addressed all potential systems problems, a
contingency plan is being developed to enable business operations to continue.
This contingency plan involves reducing the scope and duration of any
disruptions by having sufficient personnel and other resources in place to
permit a timely response. The total Year 2000 project cost is estimated to be
immaterial to the Company's results of operations.
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, including those discussed elsewhere in this report,
that could cause actual results to differ materially from those projected.
21
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
Year ended December 31, 1998 1997 1996
-------- -------- --------
REVENUES:
Lease income $ 267,966 $ 245,523 $ 195,745
Technology equipment sales and service 175,402 206,802 36,286
Gain on sale of assets 69,423 68,899 35,533
Equity earnings from investment in
joint ventures 45,850 27,909 22,411
Fees 38,832 29,371 31,840
Interest 34,110 23,271 28,374
Other 11,064 11,508 10,174
--------- -------- --------
642,647 613,283 360,363
--------- -------- --------
EXPENSES:
Operating leases 139,160 118,096 77,289
Cost of technology equipment sales and service 137,477 169,826 32,991
Selling, general & administrative 118,083 118,849 68,298
Interest 114,575 96,800 86,106
Provision for losses on investments 11,029 11,033 12,744
Impairment loss 6,000 - -
Other 6,482 8,487 4,444
--------- -------- --------
532,806 523,091 281,872
--------- -------- --------
Income before income taxes 109,841 90,192 78,491
Provision for income taxes 50,524 36,628 32,636
--------- -------- --------
NET INCOME $ 59,317 $ 53,564 $ 45,855
========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
1998 1997
-------------- ----------------
ASSETS:
Cash and cash equivalents $ 67,975 $ 61,990
Investments:
Direct financing leases 537,897 666,524
Leveraged leases 133,380 170,555
Operating lease equipment-
net of depreciation 547,221 524,523
Secured loans 241,567 180,331
Investment in joint ventures 570,255 549,596
Assets held for sale or lease 26,286 15,398
Other investments 84,856 52,690
Investment in future residuals 18,706 19,693
Allowance for losses on investments (129,278) (121,576)
--------------- ----------------
Net investments 2,030,890 2,057,734
--------------- ----------------
Due from Parent 37,816 35,904
Other assets 139,001 161,515
--------------- ----------------
TOTAL ASSETS $ 2,275,682 $ 2,317,143
=============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 13,634 $ 16,070
Accounts payable and other liabilities 150,504 167,825
Debt financing:
Commercial paper and bankers' acceptances 128,329 127,832
Notes payable 25,847 74,161
Obligations under capital leases 8,781 9,754
Senior term notes 1,076,600 1,155,600
---------------- ----------------
Total debt financing 1,239,557 1,367,347
---------------- ----------------
Nonrecourse obligations 381,390 329,820
Deferred income 9,702 13,556
Deferred income taxes 83,754 55,600
Stockholder's equity:
Convertible preferred stock, par value $1,
and additional paid-in capital 125,000 125,000
Authorized--4,000,000 shares
Issued and outstanding--1,027,050 shares in both years
Common stock, par value $1, and
additional paid-in capital 28,960 28,960
Authorized--2,000,000 shares
Issued and outstanding--1,031,250 shares in both years
Accumulated other comprehensive income 772 215
Reinvested earnings 242,409 212,750
---------------- ----------------
Total stockholder's equity 397,141 366,925
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,275,682 $ 2,317,143
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31, 1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59,317 $ 53,564 $ 45,855
Reconciliation of net income to net cash
flows provided by operating activities:
Provision for losses on investments 11,029 11,033 12,744
Depreciation expense 99,928 79,381 44,579
Provision for deferred income taxes 19,339 10,323 18,932
Gain on sale of assets (69,423) (68,899) (35,533)
Impairment loss 6,000 - -
Changes in assets and liabilities:
Other assets 23,475 (40,678) (12,613)
Due from Parent (1,912) 9,243 (810)
Accrued interest, accounts payable
and other liabilities (19,757) 29,414 29,951
Deferred income (3,854) 7,770 1,394
Other - net (1,187) (7,364) 18,265
---------- ----------- -----------
Net cash flows provided by operating activities 122,955 83,787 122,764
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (507,996) (536,388) (376,276)
Loans extended to borrowers (161,633) (35,126) (117,052)
Other investments (181,482) (290,916) (163,334)
------------ ----------- -----------
Total investments (851,111) (862,430) (656,662)
------------ ----------- -----------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 148,842 110,023 100,350
Loan principal received 326,193 62,377 121,952
Proceeds from sale of assets 248,425 218,493 164,169
Joint venture investment recovery,
net of earned income 116,559 39,031 8,740
------------ ----------- -----------
Recovery of investments 840,019 429,924 395,211
------------ ----------- -----------
Net cash flows used in investing activities (11,092) (432,506) (261,451)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net(decrease) increase in short-term borrowings (47,817) 139,107 (133,014)
Proceeds from issuance of senior term notes 20,000 350,000 368,000
Proceeds from nonrecourse obligations 204,098 179,409 109,328
Repayment of senior term notes (99,000) (130,000) (112,000)
Repayment of nonrecourse obligations (152,528) (117,113) (68,665)
Dividends paid to Parent (29,658) (26,500) (22,569)
Other financing activities (973) (2,676) (3,816)
---------- ----------- -----------
Net cash flows (used in) provided by
financing activities (105,878) 392,227 137,264
--------- ----------- -----------
Net increase(decrease) in cash
and cash equivalents 5,985 43,508 (1,423)
Cash and cash equivalents at beginning of period 61,990 18,482 19,905
--------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,975 $ 61,990 $ 18,482
========= =========== ============
24
<PAGE>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Income taxes paid to Parent $ 23,800 $ 17,720 $ 14,402
========== ========== ===========
Interest paid $119,075 $ 98,126 $ 88,560
Interest capitalized (2,064) (1,575) (3,074)
------------ ---------- -----------
Net interest paid $117,011 $ 96,551 $ 85,486
============ =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in thousands)
Accumulated
Other
Preferred Common Additional Reinvested Comprehensive
Stock Stock Capital Earnings Income Total
_________ ______ __________ __________ ____________ ________
Balance,
January 1, 1996 $ 1,027 $ 1,031 $ 151,902 $ 162,400 $ 640 $317,000
Comprehensive income:
Net income 45,855 45,855
Other Comprehensive income:
Foreign currency translation (2,183) (2,183)
Unrealized gain/loss on securities:
Unrealized holding gains
arising during period 7,388
Less: reclassification adjustment
for gains realized in net income (1,814)
___________
Net unrealized gains 5,574 5,574
___________ ________
Comprehensive income 3,391 49,246
Dividends paid on common stock (22,569) (22,569)
_________ ______ __________ __________ ___________ ________
Balance,
December 31, 1996 1,027 1,031 151,902 185,686 4,031 343,677
Comprehensive income:
Net income 53,564 53,564
Other Comprehensive income:
Foreign currency translation (2,861) (2,861)
Unrealized gain/loss on securities:
Unrealized holding gains
arising during period 408
Less: reclassification adjustment
for gains realized in net income (1,363)
___________
Net unrealized gains (955) (955)
___________ ________
Comprehensive income (3,816) 49,748
Dividends paid on common stock (26,500) (26,500)
________ ________ _________ __________ __________ _________
Balance,
December 31, 1997 1,027 1,031 151,902 212,750 215 366,925
Comprehensive income:
Net Income 59,317 59,317
Other Comprehensive income:
Foreign currency translation (1,447) (1,447)
Unrealized gain/loss on securities:
Unrealized holding gains
arising during period 2,818
Less: reclassification adjustment
for gains realized in net income (814)
__________
Net unrealized gains 2,004 2,004
__________ __________
Comprehensive income 557 59,874
Dividends paid on common stock (29,658) (29,658)
________ ________ _________ __________ __________ __________
Balance,
December 31, 1998 $ 1,027 $ 1,031 $ 151,902 $ 242,409 $ 772 $ 397,141
======= ======== ========== ========== ========== ==========
(A) The beginning balance of accumulated other comprehensive income at January
1, 1996 included a cumulative foreign currency translation adjustment of $0.6
million.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
- ------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------
The consolidated financial statements of GATX Capital Corporation and its
subsidiaries (the "Company") are prepared in accordance with generally accepted
accounting principles and prevailing practices of the leasing industry. The
following is a summary of significant accounting and reporting policies used in
preparing the consolidated financial statements.
BUSINESS
The Company actively invests in a wide variety of asset-based financing. These
investments are made through a variety of financing instruments, primarily
leases and loans, either for the Company's own account or through partnerships
and joint ventures. The Company actively manages its existing portfolio of
investments as well as the majority of the joint ventures and partnerships in
which it participates. Additionally, the Company manages investment portfolios
and arranges secured financing for others. The Company also sells computer
network technology equipment and provides technical service on the equipment it
sells. The Company is a wholly-owned subsidiary of GATX Corporation (the
"Parent").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company after
elimination of intercompany accounts and transactions. Investments in
minority-owned or non-controlled affiliated companies are accounted for using
the equity method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
LEASE AND LOAN ORIGINATION COSTS
Initial direct costs for originated direct financing and leveraged leases are
capitalized and amortized as an adjustment of yield over the term of the lease.
For operating leases, initial direct costs are deferred and amortized on a
straight-line basis over the lease term. Loan origination fees are netted with
loan costs, and are deferred and recognized over the term of the loan as an
adjustment to interest income.
RESIDUAL VALUES
Residual values of leased equipment are estimated at the inception of the lease.
The Company reviews these estimates at least annually. Declines in estimated
residual values for financing leases are recognized as an immediate charge to
income. Declines in estimated residual values for operating leases are
recognized as adjustments to depreciation expense over the shorter of the
remaining useful life of the asset or the remaining lease term.
27
<PAGE>
TECHNOLOGY EQUIPMENT INVENTORY
Technology equipment inventory, which is included in other assets on the
consolidated balance sheet, consists of new and used computer equipment
purchased from manufacturers and is stated at the lower of cost or market.
GOODWILL
The excess of cost over the fair value of the net assets of businesses acquired
is classified as goodwill and is included in other assets on the consolidated
balance sheet. Goodwill is amortized on a straight-line basis over periods
ranging from 10 to 25 years. The Company continually evaluates the carrying
value of goodwill for possible impairment.
EQUITY SECURITIES
The Company receives stock warrants of investee companies as consideration for
certain investments. These warrants, as well as common stock obtained by
exercising these warrants, are classified as available-for-sale and are carried
at fair value when such securities are marketable. Fair value of the stock
warrants is estimated based on the market price of the underlying security; no
cost is allocated to these warrants. Fair value of the common stock is estimated
based on its market price. Changes to the fair value of these securities are
reflected in accumulated other comprehensive income until realized.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate and currency swap agreements to manage its
exposure to interest rate and currency exchange rate risk on existing or
anticipated transactions. These derivative financial instruments are
specifically identified with the instruments creating the interest and currency
risk and qualify for hedge accounting. Interest rate differentials to be paid or
received as a result of the interest rate swap agreements are accrued and
recognized as an adjustment to interest expense and net amounts paid or received
under the currency swap agreements are recognized over the term of the contract
as an adjustment to the hedged investment. The fair values of these hedge
contracts are not recognized in the financial statements.
ACQUISITIONS
The Company acquired a 50% interest in Rolls-Royce and Partners Finance Ltd.
("RRPF") in December 1998 for approximately $61.0 million. RRPF owns and leases
a portfolio of spare aircraft engines. The Company recorded $17.0 million of
goodwill which is being amortized on a straight-line basis over 20 years.
In September 1997, the Company paid $9.0 million to acquire the remaining 20% of
Sun Financial Group, Inc. ("Sun Financial"). The Company also paid additional
performance-related compensation to key employees of Sun Financial upon
acquisition. Goodwill of approximately $3.9 million was recorded in connection
with the acquisition of the remaining 20% and is being amortized on a
straight-line basis over the remaining ten year life of the original acquisition
goodwill.
In October 1996, the Company purchased the 50% of Centron DPL Company,Inc.
("Centron") which it did not already own for approximately $22.8 million.
Centron is a technology solutions provider that offers products, technical
services and financial services required for building corporate information
networks. The acquisition was accounted for using the purchase method and
resulted in approximately $11.7 million of goodwill which, net of impairment
recognized, is being amortized on a straight-line basis over ten years.
Unaudited pro forma consolidated revenue of the Company, including Centron, as
if the acquisition of Centron had occurred at the beginning of 1996 is $520.5
million. Pro forma consolidated net income including the results of Centron is
$48.9 million for 1996.
28
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures about contingent assets and liabilities at the date of the financial
statements as well as revenues and expenses during the reporting period. Actual
results, when ultimately realized, could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"),
which is required to be adopted in years beginning after June 15, 1999. The
Company, which utilizes fundamental derivatives to hedge changes in interest
rates and foreign currencies, expects to adopt SFAS No. 133 effective January 1,
2000. This new accounting standard will require that all derivatives be recorded
on the balance sheet at fair value. If the derivative is a hedge, depending on
the nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in the fair value of the hedged assets, liabilities,
or firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Management is currently assessing the impact that the adoption of SFAS No. 133
will have on the Company's financial position, results of operations, and cash
flows.
INVESTMENTS
- -----------
DIRECT FINANCING LEASES
The Company's investment in direct financing leases includes lease contracts
receivable, plus the estimated residual value of the equipment at the lease
termination date less unearned income. Lease contracts receivable includes the
total rent to be received over the term of the lease reduced by rent already
collected. Initial unearned income is the amount by which the lease contract
receivable plus the estimated residual value exceeds the initial investment in
the leased equipment at lease inception. Unearned income is amortized to lease
income over the lease term in a manner which produces a constant rate of return
on the net investment in the lease.
The components of the Company's investment in direct financing leases are as
follows:
At December 31, 1998 1997
----------------- ----------------
Lease contracts receivable $ 588,945 $ 650,544
Estimated residual value 107,204 261,730
Unearned income (158,252) (245,750)
----------------- ----------------
Net investment $ 537,897 $ 666,524
================= ================
29
<PAGE>
LEVERAGED LEASES
Financing leases, which are financed principally with nonrecourse borrowings at
lease inception and which meet certain criteria, are accounted for as leveraged
leases. Leveraged lease contracts receivable are stated net of the related
nonrecourse debt service, which includes unpaid principal and aggregate
remaining interest on such debt. Unearned income represents the excess of
anticipated cash flows (including estimated residual values and after taking
into account the related debt service) over the Company's investment in the
lease.
The components of the Company's net investment in leveraged leases are as
follows:
At December 31, 1998 1997
------------------ -------------------
Lease contracts receivable $ 689,772 $ 276,469
Nonrecourse debt service (547,194) (169,045)
------------------ -------------------
Net receivable 142,578 107,424
Estimated residual value 72,401 122,194
Unearned income (81,599) (59,063)
------------------ -------------------
Investment in leveraged leases 133,380 170,555
Deferred taxes arising from
leveraged leases (29,506) (42,466)
------------------ -------------------
Net investment $ 103,874 $ 128,089
================== ===================
OPERATING LEASES
Leases that do not qualify as direct financing or leveraged leases are accounted
for as operating leases. Most rental income is reported on a straight-line basis
over the term of the lease. Rental income on certain leases is based on
equipment usage and is recognized when received. Usage rents totaled $1.5
million, $2.8 million, and $1.9 million in 1998, 1997, and 1996, respectively.
Equipment subject to operating leases is stated at cost less accumulated
depreciation plus accrued rent and is generally depreciated using the
straight-line method to an estimated residual value. Aircraft and rail equipment
typically are depreciated over their useful lives, while other equipment is
generally depreciated over the term of the lease. Estimated useful lives are up
to 25 years for aircraft, 37.5 years for rail cars, and 27.5 years for
locomotives. Depreciation expense of $94.1 million, $74.5 million, and $41.4
million is included in operating lease expense for 1998, 1997, and 1996,
respectively.
Major classes of equipment on operating leases are as follows:
At December 31, 1998 1997
---------------- -----------------
Commercial aircraft $ 193,261 $ 183,464
Rail 132,492 146,764
Technology 271,279 197,104
Other 108,801 104,639
---------------- -----------------
Total cost 705,833 631,971
Accumulated depreciation (169,636) (119,153)
---------------- -----------------
Net book value 536,197 512,818
Accrued rent and other 11,024 11,705
---------------- -----------------
Net investment $ 547,221 $ 524,523
================ =================
30
<PAGE>
SECURED LOANS
Investments in secured loans are stated at the principal amount outstanding plus
accrued interest. The loans are collateralized by equipment, golf courses, or
real estate. A loan is classified as impaired when it is probable, based on
normal portfolio review procedures, that the Company will be unable to collect
all amounts due under the loan agreement. Most loans in the portfolio are
collateral dependent and, if impaired, are measured using the fair value of the
collateral. Significant changes in the fair value of the collateral are charged
off against the allowance for losses on investments. Interest income is not
recognized on impaired loans until the outstanding principal is recovered. The
average balance of impaired loans was $8.1 million, $19.3 million, and $26.7
million in 1998, 1997, and 1996, respectively.
The types of loans in the Company's portfolio are as follows:
At December 31, 1998 1997
--------------- ---------------
Equipment $ 204,968 $ 123,521
Golf courses 36,599 53,959
Real estate - 2,851
--------------- ---------------
Total investment $ 241,567 $ 180,331
--------------- ---------------
Impaired loans (included in total) $ 7,092 $ 9,028
=============== ===============
FUTURE LEASE AND LOAN RECEIVABLES
As of December 31, 1998, financing lease receivables (net of nonrecourse debt
service related to leveraged leases), minimum future rentals under operating
leases and secured loan principal by year due are as follows:
Financing Operating
Lease Lease Loan
Year Due Principal Receivables Receivables
----------------- ------------------ -----------------
1999 $ 227,235 $ 177,116 $ 69,765
2000 140,914 122,509 29,735
2001 93,412 70,048 25,411
2002 56,239 40,638 29,328
2003 39,810 31,142 59,052
After 2003 173,913 109,253 28,276
----------------- ------------------ -----------------
Total $ 731,523 $ 550,706 $ 241,567
================= ================== =================
31
<PAGE>
INVESTMENT IN JOINT VENTURES
The Company has made investments in joint ventures that provide 1) lease
financing in a wide range of industries including commercial aircraft, rail
equipment, and information technology equipment, and 2) asset residual value
guarantees in both the U.S. and foreign markets. These joint ventures are
accounted for using the equity method, as dictated by the Company's effective
ownership interest and/or level of management control. Original investments are
recorded at cost and are adjusted by the Company's share of undistributed
earnings, losses, additional cash investments and cash distributions.
Aggregate unaudited combined and condensed financial information for the
Company's joint ventures is shown below. Pre-tax income is presented because the
majority of the joint ventures are partnerships which do not provide for income
taxes in their separate financial statements. Also, consistent with the
Company's unclassified balance sheet, the aggregate joint venture balance sheet
amounts are also presented unclassified. For purposes of preparing the
disclosure below, the Company makes certain conforming adjustments to some of
the pre-tax income amounts reported by the joint ventures. First, the Company
makes certain conforming adjustments to some of the pre-tax income amounts
reported by the joint ventures prior to the Company's calculation of its share
of that pre-tax income. Also, pre-tax income has been increased by $46.8
million, $41.0 million, and $30.8 million in 1998, 1997, and 1996, respectively,
to reverse interest expense recognized by joint ventures on loans from the
Company. Finally, since the Company records these loans as equity contributions
in the joint ventures, loan balances of $703.2 million, $730.2 million, and
$527.9 million at December 31, 1998, 1997, and 1996, respectively, have been
reclassified from indebtedness to equity. This last adjustment results in a
difference between the carrying value of the Company's investment in the joint
venture and the Company's equity in the underlying net assets as reported by the
joint venture. This information shown below has been restated to reflect these
adjustments.
Year ended December 31, 1998 1997 1996
---------------- ---------------- ----------------
Revenues $ 415,265 $ 311,929 $ 175,973
Pre-tax income 113,151 72,728 47,247
Total assets 3,586,607 2,642,460 1,651,495
Indebtedness 1,844,339 645,605 643,909
Total liabilities 2,024,536 1,161,724 719,446
Equity 1,562,071 1,480,736 932,049
ASSETS HELD FOR SALE OR LEASE
Assets held for sale or lease consist of equipment which the Company has used
for investment purposes that has been repossessed or returned by the lessee
after normal lease maturity, and real estate and golf courses upon which the
Company foreclosed. These assets are recorded at the lower of their then
carrying amount or fair value and are being remarketed for release or sale in
the normal course of business.
The major classes of assets held for sale or lease are as follows:
At December 31, 1998 1997
--------------- ---------------
Real estate and golf courses $ 13,575 $ 12,666
Aircraft 6,230 -
Rail 5,547 2,216
Other 934 516
--------------- ---------------
Net investment $ 26,286 $ 15,398
=============== ===============
32
<PAGE>
OTHER INVESTMENTS
The components of other investments are as follows:
At December 31, 1998 1997
--------------- ---------------
Progress payments $ 33,032 $ 4,608
Cogeneration facility 25,256 27,068
Real estate development 10,923 13,414
Equity securities 11,123 7,600
Other 4,522 -
--------------- ---------------
Total other investments $ 84,856 $ 52,690
=============== ===============
Progress payments include amounts paid, including capitalized interest, toward
the construction of aircraft and steel production equipment at December 31,
1998 and toward the construction of steel production equipment at December 31,
1997.
INVESTMENT IN FUTURE RESIDUALS
Investment in future residuals consists primarily of purchased interests in the
residual values of equipment leased by others. In general, purchased residual
interests are recorded at cost. The difference between initial cost and realized
value is recognized upon disposition.
ALLOWANCE FOR LOSSES ON INVESTMENTS
The purpose of the allowance is to provide for credit and collateral losses
which are inherent in the investment portfolio. The allowance is at a level
deemed adequate by management considering an assessment of overall risks and
probable losses in the portfolio as a whole and a review of historical
experience. It is the Company's policy to charge off amounts which, in the
opinion of management, are not recoverable from obligors or the disposition of
collateral. The Company reviews the recoverability of all investments. Factors
considered include a customer's payment history and financial position, and the
value of the underlying collateral determined by reference to internal and
external equipment knowledge and resources.
Activity within the allowance for losses on investments is as follows:
At December 31, 1998 1997 1996
----------- ----------- ----------
Beginning balance $ 121,576 $114,096 $ 92,489
Provision 11,029 11,033 12,744
Charges to allowance (8,305) (6,250) (5,025)
Recoveries and other 4,978 2,697 13,888
------------ ------------ -----------
Balance at end of year $ 129,278 $ 121,576 $ 114,096
============ ============ ===========
33
<PAGE>
OTHER ASSETS
Other assets consists of the following:
At December 31, 1998 1997
-------------- ---------------
Trade and other receivables $ 56,792 $ 70,277
Technology equipment inventory 24,360 41,534
Goodwill,net 29,363 22,402
Other 28,486 27,302
--------------- ---------------
Total other assets $ 139,001 $ 161,515
=============== ===============
Trade and other receivables consist primarily of trade accounts receivable
related to the Company's technology equipment sales and service segment.
DEBT AND CAPITAL LEASE FINANCING
- --------------------------------
SHORT-TERM BORROWING
At December 31, 1998, the Company has commitments under its credit agreements
with a group of banks for revolving credit loans aggregating up to $310.0
million. These credit agreements contain various covenants which include, among
other factors, minimum net worth, restrictions on dividends and requirements to
maintain certain financial ratios. At December 31, 1998, these covenants limit
the Company's ability to transfer net assets to its parent to no more than
$199.0 million. While the commitments are available for borrowing, repaying and
reborrowing at any time, they are used primarily as undrawn facilities and serve
to support the Company's issuance of commercial paper in the U.S. and bankers'
acceptances in Canada. At December 31, 1998, the Company had $128.3 million of
commercial paper and bankers' acceptances outstanding, leaving $181.7 million
available. The Company has $25.8 million of notes payable outstanding at
December 31, 1998. In addition, Sun Financial and Centron have bank commitments
totaling $87.5 million at December 31, 1998 to finance their operations, of
which $64.6 million was available. The weighted average interest rate of
short-term borrowings at the end of the period was 6.28% and 6.24% as of
December 31, 1998 and 1997, respectively.
SENIOR TERM NOTES
At December 31, 1998 1997
--------------- ---------------
Variable rate note due 1999 $ 20,000 $ 20,000
Fixed rate notes, 5.56%-10.20% 1,056,600 1,135,600
due 1999-2007
--------------- ---------------
Total senior term notes $ 1,076,600 $ 1,155,600
=============== ===============
34
<PAGE>
Interest on variable rate senior term notes is calculated at LIBOR plus 0.4%.
The weighted average interest rate of senior term notes at the end of the period
was 7.8% and 8.4% as of December 31, 1998 and 1997, respectively.
The Company has significant amounts of floating rate lease and loan investments,
potentially giving rise to market risks associated with changing interest rates.
The Company mitigates these risks by attempting to approximately match its
floating rate assets with floating rate liabilities. Derivative financial
instruments are a useful tool in matching the portfolio and in otherwise
reducing the Company's exposure to interest rate risk. Interest rate swap
agreements are used to modify the underlying interest characteristic of the
Company's outstanding debt, either from a fixed to a floating basis, or from
floating to fixed. These agreements involve the receipt (or payment) of fixed
rate amounts in exchange for floating rate interest payments (receipts) over the
life of the agreement without an exchange of the underlying principal amount.
The differential to be paid or received is calculated based on the notional
amounts and LIBOR. It is accrued as interest rates change and is recognized as
an adjustment to interest expense related to the debt. As a result of interest
rate swaps, interest expense was reduced by $0.7 million in 1998, was reduced by
$0.4 million in 1997, and was higher by $0.8 million in 1996. The related amount
payable to or receivable from counterparties is included in accrued interest.
The fair values of the swap agreements are not recognized in the financial
statements. The total notional principal of all interest rate swaps as of
December 31, 1998 was $198.8 million, with termination dates ranging from 1999
to 2006.
NONRECOURSE OBLIGATIONS
Nonrecourse obligations consist primarily of debt collateralized by the
assignment of leases and a security interest in the underlying asset. The
carrying amount of this collateral at December 31, 1998 is $444.0 million. The
nonrecourse obligation associated with one aircraft will become recourse to the
Company to the extent of the then remaining debt balance in 2002 when a balloon
payment of $7.3 million is due.
Nonrecourse obligations include the following:
At December 31, 1998 1997
----------------- ------------------
Variable rate, due 2000-2002 $ 37,502 $ 44,606
Fixed Rate, 5.40%-9.75%,
due 1999-2013 343,888 285,214
----------------- ------------------
Total nonrecourse obligations $ 381,390 $ 329,820
================= ==================
Interest on variable rate nonrecourse obligations is calculated using the prime
rate or LIBOR plus 1.3%. The weighted average interest rate on variable rate
nonrecourse obligations was 6.9% and 8.8% at December 31, 1998 and 1997,
respectively.
OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of equipment subject to capital lease
financing which has been subleased. Such subleases are classified as direct
financing leases having carrying values of $8.6 million and $9.9 million at
December 31, 1998 and 1997, respectively. Minimum future lease payments
receivable under the subleases aggregate $10.5 million receivable over a period
ending in 2003. The obligations under capital leases and the related subleases
have the same terms and call for fixed rental payments. The Company has purchase
and renewal options under the leases which allow it to accommodate similar
options exercisable by sublessees.
35
<PAGE>
MATURITIES
Maturities of debt financings, obligations under capital leases and nonrecourse
obligations, assuming commercial paper, notes payable, and bankers' acceptances
are retired by the unused revolving commitments are as follows:
Obligations
Obligations
Converted Under Total Total
Revolving Senior Capital Debt Nonrecourse
Year Due Credit Loans Term Notes Leases Financing Obligations
-------------- ----------- ----------- --------- -----------
1999 $ 25,847 $ 98,600 $ 1,528 $ 125,975 $ 148,364
2000 - 319,000 1,660 320,660 108,744
2001 128,329 110,000 1,832 240,161 50,578
2002 - 79,000 1,974 80,974 31,857
2003 - 41,500 1,787 43,287 9,559
After 2003 - 428,500 - 428,500 32,288
-------------- ----------- ----------- --------- -----------
Total $ 154,176 $ 1,076,600 $ 8,781 $1,239,557 $ 381,390
============== =========== =========== ========= ===========
Imputed interest on capital leases totaled $1.7 million at December 31, 1998.
STOCKHOLDER'S EQUITY
As of December 31, 1998 and 1997, all issued common and preferred stock of the
Company was held by the Parent. The preferred stock is convertible to common
stock on a one-for-one basis at the option of the holder. Dividends on preferred
stock are payable on a share-for-share basis at the same rate per share as
common stock when and as declared by the board of directors.
IMPAIRMENT LOSS
The Company identified two indicators of possible impairment related to
Centron's value-added reselling business in 1998: 1) the net operating loss
reported by Centron for the year ended December 31, 1998, and 2) several
fundamental changes in the value-added reselling market which were expected to
present operating challenges in the future. Based on these factors, the Company
analyzed, in accordance with SFAS 121, Accounting for the Impairment of
Long-Lived Assets, the realizability of Centron's long term assets.
Based on the Company's assessment of Centron's expected undiscounted cash flows
as well as preliminary expectations as to sales proceeds were it to sell all or
a portion of Centron, the Company concluded that the tangible long term assets
of Centron had not been impaired. However, the Company's analysis indicated that
recovery of the unamortized goodwill related to Centron's value-added reselling
business was not probable either through sale or future operations. Futhermore,
given the fundamental changes in Centron's market, the Company determined that
the unamortized goodwill had no future value and accordingly, recorded a
non-cash, pre-tax impairment loss of $6.0 million in the fourth quarter of 1998.
OPERATING LEASE OBLIGATIONS
The Company is a lessee under certain equipment and facility leases which are
classified as operating leases. Total rental expense was $42.9 million, $41.5
million, and $34.0 million in 1998, 1997, and 1996, respectively. The equipment
under these leases has been subleased, generating operating lease income of
$43.5 million, $42.7 million, and $38.3 million in 1998, 1997, and 1996,
respectively.
36
<PAGE>
Future rentals payable by the Company through 2021 and sublease receivables
under noncancelable operating leases through 2013 are as follows:
Lease Operating
Year Due Obligations Lease Receivables
- ----------- ------------------- --------------------
1999 $ 41,913 $ 45,269
2000 39,146 34,459
2001 29,908 25,928
2002 27,998 19,188
2003 29,139 18,919
After 2003 253,033 96,137
------------------- --------------------
Total $ 421,137 $ 239,900
=================== ====================
INCOME TAXES
The Parent files a consolidated federal income tax return which includes the
Company. Under an intercompany tax agreement, the Company pays to (receives
from) the Parent reimbursements to the extent the Company's taxable income
(losses) and tax credits are utilized in the consolidated federal return.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has recorded
these differences in its deferred tax accounts, intercompany accounts
receivable, and equity accounts. In exchange for cash payments, the Parent has
assumed a portion of the Company's deferred tax liability. The Parent
recontributed these amounts through the purchase of Convertible Preferred Stock,
currently outstanding, over the period from 1975 to 1985. In addition, the
Company has an account receivable of $46.1 million from the Parent resulting
from the reassumption of a portion of these deferred taxes through December 31,
1994. Offsetting this receivable is $8.3 million due to the Parent which
consists of amounts owed for dividends, overhead, and taxes pursuant to the
intercompany tax agreement.
In connection with the Company's 1998 acquisition of a 50% interest in RRPF, a
net deferred income tax liability of $8.8 million was recorded in accordance
with SFAS 109, Accounting for Income Taxes.
37
<PAGE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
At December 31, 1998 1997
--------------- --------------
DEFERRED TAX LIABILITIES
Leveraged leases $ 29,506 $ 42,466
Other leases 94,685 91,486
Investment in joint ventures 68,974 37,453
Alternative minimum tax adjustment 27,855 19,483
Other 17,606 11,743
--------------- --------------
Total deferred tax liabilities 238,626 202,631
--------------- --------------
DEFERRED TAX ASSETS
Allowance for losses on investments 50,709 47,688
Loans 25,222 11,699
Other - 8,703
--------------- --------------
Total deferred tax assets 75,931 68,090
--------------- --------------
Net deferred tax liabilities $ 162,695 $ 134,541
=============== ==============
TAX ACCOUNT BALANCES
Deferred income tax liabilities $ 83,754 $ 55,600
Preferred stock and related
additional paid-in capital 125,000 125,000
Due from the Parent (46,059) (46,059)
--------------- --------------
Net deferred tax liabilities $ 162,695 $ 134,541
=============== ==============
The provision for income taxes consists of the following:
Year Ended December 31, 1998 1997 1996
--------------- -------------- ---------------
CURRENT
Federal $ 28,331 $ 26,086 $ 13,276
State and local 2,239 206 371
Foreign 615 13 57
--------------- -------------- ----------------
Total current 31,185 26,305 13,704
--------------- -------------- ---------------
DEFERRED
Federal 10,999 3,069 12,730
State and local 5,553 5,571 4,301
Foreign 2,787 1,683 1,901
--------------- -------------- ---------------
Total deferred 19,339 10,323 18,932
--------------- -------------- ---------------
Total provision for income taxes $ 50,524 $ 36,628 $ 32,636
=============== ============== ===============
38
<PAGE>
A reconciliation between the federal statutory tax rate and the Company's
effective tax rate is shown below:
Year Ended December 31, 1998 1997 1996
--------------- -------------- ----------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State tax provision, net
of federal tax benefit 4.1% 4.1% 4.1%
Impairment loss 5.5% - -
Other 1.4% 1.5% 2.5%
--------------- -------------- ----------------
Effective tax rate 46.0% 40.6% 41.6%
=============== ============== ================
The tax expense related to leveraged lease income was $5.2 million, $6.6 million
and $8.6 million in 1998, 1997 and 1996, respectively.
Income before income taxes from foreign operations was $0.8 million, $3.0
million and $4.7 million in 1998, 1997 and 1996, respectively.
Federal income taxes have not been provided on the undistributed earnings of
foreign subsidiaries and affiliates which the Company intends to permanently
reinvest in these foreign operations. The cumulative amount of such earnings was
$24.5 million at December 31, 1998. It is not practicable to estimate the tax
liability, if any, related to these earnings.
FOREIGN OPERATIONS
The Company provides or arranges equipment financing for non-affiliated entities
both inside and outside the United States. In the following table, export income
pertains to revenue generated by domestic operations through transactions with
customers in foreign countries. Some of these transactions are denominated in
foreign currencies. Information designated as foreign in the following table
pertains to operations that are located outside of the United States.
Year Ended December 31, 1998 1997 1996
--------------- ---------------- ----------------
REVENUES
Domestic $ 518,986 $ 508,042 $ 306,896
Export 43,864 39,251 28,750
Foreign 81,400 67,129 25,902
Eliminations (1,603) (1,139) (1,185)
--------------- ---------------- ----------------
$ 642,647 $ 613,283 $ 360,363
=============== ================ ================
NET INCOME
United States $ 49,948 $ 43,070 $ 37,261
Foreign 9,369 10,494 8,594
--------------- ---------------- ----------------
$ 59,317 $ 53,564 $ 45,855
=============== ================ ================
TOTAL ASSETS
United States $ 1,981,226 $ 2,046,424 $ 1,613,390
Foreign 370,165 281,665 244,729
Eliminations (75,709) (10,946) (9,490)
--------------- ---------------- ----------------
$ 2,275,682 $ 2,317,143 $ 1,848,629
=============== ================ ================
39
<PAGE>
The Company has entered into currency swap agreements to protect itself from the
risk that the eventual dollar net cash in-flow from foreign denominated
investments will be adversely affected by changes in exchange rates. The
currency swaps exchange U.S. borrowings of $27.6 million for liabilities of
$38.7 million Canadian dollars, with termination dates ranging from 2001 to
2003.
BUSINESS SEGMENTS
The Company adopted SFAS 131, Disclosures about Segments of an Enterprise and
Related Information, on January 1, 1998. The Company operates in two business
segments, as defined by SFAS 131. These segments are: Investment and Asset
Management, which includes the Company's lease, loan and joint venture
investments as well as fee generation and asset management activities; and
Technology Equipment Sales and Service, which includes the sales and service of
computer network technology equipment, provided primarily by Centron.
The following presents significant financial information related to the
Company's two business segments:
Technology
Investment Equipment
and Asset Sales and
Management Service Total
--------------------------------------------
1998
Revenue $ 467,245 $ 175,402 $ 642,647
Pre tax income 123,158 (13,317) 109,841
Identifiable assets 2,190,841 84,841 2,275,682
Capital expenditures 851,111 - 851,111
Depreciation and amortization 101,265 9,560 110,825
Interest expense 110,187 4,388 114,575
Provision for income taxes 51,267 (743) 50,524
1997
Revenue $ 406,481 $ 206,802 $ 613,283
Pre tax income 90,290 (98) 90,192
Identifiable assets 2,209,140 108,003 2,317,143
Capital expenditures 862,430 - 862,430
Depreciation and amortization 79,312 2,496 81,808
Interest expense 94,305 2,495 96,800
Provision for income taxes 36,366 262 36,628
1996
Revenue $ 324,077 $ 36,286 $ 360,363
Pre tax income 77,600 891 78,491
Identifiable assets 1,778,699 69,930 1,848,629
Capital expenditures 656,662 - 656,662
Depreciation and amortization 44,395 184 44,579
Interest expense 85,836 270 86,106
Provision for income taxes 32,286 350 32,636
40
<PAGE>
RETIREMENT BENEFITS
The Company, exclusive of Sun Financial and Centron, participates in the
Parent's Non-Contributory Pension Plan for Salaried Employees (the "Plan"), a
defined benefit pension plan covering substantially all employees. Sun Financial
and Centron employees participate in a 401(k) retirement plan. Independent
actuaries determine pension cost for each of the Parent's subsidiaries included
in the Plan. However, accumulated Plan obligation information, Plan assets and
the components of net periodic pension costs pertaining to each subsidiary have
not been separately determined. Contributions to the Plan made by the Company
through the Parent and pension expense allocated to the Company are not material
to these financial statements.
In addition to pension benefits, the Company provides other postretirement
benefits, including limited health care and life insurance benefits, for certain
retired employees who meet established criteria. Most domestic employees,
exclusive of Sun Financial and Centron employees, are eligible if they retire
from the Company with immediate pension benefits under the Plan. The net
periodic cost and accrued liability are not material to these financial
statements.
COMMITMENTS, CONTINGENCIES AND CONCENTRATION OF CREDIT RISK
At December 31, 1998, the Company's investment portfolio, including off-balance
sheet assets, consists of 28% commercial aircraft, 19% rail equipment, 21%
information technology equipment, 6% warehouse and production equipment, 8%
marine equipment, and 18% other equipment.
The Company's backlog was $466.5 million (unaudited) and $259.2 million
(unaudited), at December 31, 1998 and 1997, respectively. Backlog represents
planned future investment at year-end, a portion of which is subject to firm
purchase commitments.
The Company is a party to financial guarantees with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
affiliates. Guarantees are commitments issued by the Company to (1) guarantee
performance of an affiliate to a third party, generally in the form of lease and
loan payment guarantees, or (2) guarantee the value of an asset at the end of a
lease. Similar to the Company's on-balance sheet investments, these guarantees
involve, to varying degrees, elements of credit and market risk which are not
recognized in the consolidated balance sheets. Accordingly, the Company uses the
same credit and market evaluation practices when making commitments and
conditional obligations as it does for funded transactions. All commitments
having off-balance sheet risk are reviewed at least annually for potential
exposure using the same criteria discussed in the Allowance for Losses on
Investments footnote, and the allowance is adjusted accordingly.
Lease and loan payment guarantees generally involve guaranteeing repayment of
the financing required to acquire assets being leased by affiliates to third
parties, and are in lieu of the Company making direct equity investments in the
affiliate. The Company knows of no event of default which would require it to
satisfy these guarantees and expects that the affiliated entities will generate
sufficient cash flow to satisfy the related lease and loan obligations. At
December 31, 1998, the Company had guaranteed $129.3 million of such
obligations, having fixed expiration dates ranging from 1999 through 2016. The
Company earns fees for providing certain of these guarantees and recognizes the
income as earned.
41
<PAGE>
Asset value guarantees represent the Company's commitment to a third party that
an asset or group of assets will be worth a specified amount at the end of a
lease term. In addition to asset value guarantees, the Company also guarantees
minimum lease receipts to third party lessors. The Company issues these
guarantees either on its own in the normal course of business or through joint
venture affiliates which have the sole business purpose of guaranteeing asset
values. The Company follows the same practices as it does for its funded
transactions when evaluating the amount to guarantee. Based on known and
expected market conditions, management does not believe that the asset value
guarantees will result in any adverse financial impact to the Company. At
December 31, 1998, the Company had guaranteed $83.9 million of asset value.
These guarantees have expiration dates ranging from 1999 through 2015. Fees are
earned for providing these asset value guarantees in the form of an initial fee
(which is amortized into income over the guarantee period) and by sharing in any
proceeds received upon disposition of the asset in excess of the amount
guaranteed (which is recorded when earned).
The Company is engaged in various matters of litigation and has unresolved
claims pending. In one matter, the Company, through an affiliate, is the subject
of both litigation and unasserted claims related to the conversion of certain
aircraft from passenger to freighter configuration. While the amounts claimed in
this matter and other matters are substantial, 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosure of the estimated
fair value of the Company's financial instruments, excluding lease transactions
accounted for under SFAS 13, Accounting for Leases. Fair value is a subjective
and imprecise measurement that is based on assumptions and market data.
The use of different market assumptions and valuation methodologies may have a
material effect on the estimated fair value amounts. Accordingly, management
cannot provide assurance that the fair values presented are indicative of the
amounts that the Company could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
SHORT-TERM FINANCIAL INSTRUMENTS
The carrying amounts included in the consolidated balance sheets approximate
fair value because of the short maturity of these instruments. This approach
applies to cash and cash equivalents, accrued interest, accounts payable,
commercial paper, and bankers' acceptances.
SECURED LOANS
The fair values of the fixed rate loans are estimated using discounted cash flow
analysis at interest rates currently offered for loans with similar terms to
borrowers of similar credit quality. The fair values of the variable rate
secured loans are assumed to be equal to their carrying values.
42
<PAGE>
SENIOR TERM NOTES AND NONRECOURSE OBLIGATIONS
The fair value of fixed rate senior term notes and nonrecourse obligations are
estimated by discounting future contractual cash flows using the market interest
rate for each note based on the Company's current incremental borrowing rates
for similar borrowing arrangements. The fair values of variable rate senior term
notes and nonrecourse obligations are assumed to be equal to their carrying
values.
INTEREST RATE AND CURRENCY SWAPS
The fair value of the interest rate and currency swaps are estimated by
discounting the fixed cash flows received under each swap using the rate at
which the Company could enter into new swaps of similar remaining maturities.
The carrying amount shown on the table below represents the amount of accrued
interest payable or receivable at the end of the period.
OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
It is not practicable to estimate the fair value of the Company's other
off-balance sheet financial instruments because there are few active markets for
these transactions, and the Company is unable at this time to estimate fair
value without incurring excessive costs.
SUMMARY OF FAIR VALUES
The following table presents the fair values of only those financial instruments
required to be presented by generally accepted accounting principles. Proceeds
from senior term notes are invested in a variety of activities, including both
financial instruments shown in this table, as well as leases and joint venture
investments, for which fair value disclosures are not required.
Carrying Fair
At December 31, 1998 Amount Value
------------------- -------------------
ASSETS
Secured loans $ 241,567 $ 238,276
LIABILITIES
Senior term notes 1,076,600 1,105,887
Nonrecourse obligations 381,390 361,529
Interest rate and currency swaps 164 (9,578)
Carrying Fair
At December 31, 1997 Amount Value
------------------- -------------------
ASSETS
Secured loans $ 180,331 $ 183,641
LIABILITIES
Senior term notes 1,155,600 1,176,527
Nonrecourse obligations 329,820 333,293
Interest rate and currency swaps (4) 1,269
43
<PAGE>
Exhibit 23 - Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements No.
33-6910 on Form S-3 filed July 7, 1986 (as amended by Amendment No. 1 filed
December 19, 1986, Amendment No. 2 filed January 7, 1987, Amendment No. 3 filed
December 23, 1987, and Amendment No. 4 filed August 9, 1989), No. 33-30300 on
Form S-3 filed August 2, 1989, No. 33-40327 on Form S-3 filed May 2, 1991, No.
33-64474 on Form S-3 filed June 17, 1993, No. 33-65053 on Form S-3 filed January
5, 1996 and No. 333-34879 on Form S-3 filed August 29, 1997 (as amended by
Amendment No. 1 filed October 16, 1997) of GATX Capital Corporation of our
report dated January 22, 1999, with respect to the consolidated financial
statements of GATX Capital Corporation incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1998.
ERNST & YOUNG LLP
San Francisco, California
March 26, 1999
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 67,975
<SECURITIES> 0
<RECEIVABLES> 912,844 <F1>
<ALLOWANCES> 129,278
<INVENTORY> 52,556 <F2>
<CURRENT-ASSETS> 0 <F4>
<PP&E> 547,221 <F3>
<DEPRECIATION> 0 <F3>
<TOTAL-ASSETS> 2,275,682
<CURRENT-LIABILITIES> 0 <F4>
<BONDS> 1,466,771 <F5>
<COMMON> 1,031 <F6>
0
1,027 <F6>
<OTHER-SE> 395,083 <F7>
<TOTAL-LIABILITY-AND-EQUITY> 2,275,682
<SALES> 175,402
<TOTAL-REVENUES> 642,647
<CGS> 137,477
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 269,725 <F8>
<LOSS-PROVISION> 11,029
<INTEREST-EXPENSE> 114,575
<INCOME-PRETAX> 109,841
<INCOME-TAX> 50,524
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,317
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 537,897, LEVERAGED LEASE
RECEIVABLES OF 133,380, AND SECURED LOANS OF 241,567.
<F2> CONSISTS OF ASSETS HELD FOR SALE OR LEASE OF 26,286 AND TECHNOLOGY EQUIP-
MENT INVENTORY OF 26,270.
<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 1,076,600, OBLIGATIONS UNDER
CAPITAL LEASES OF 8,781, AND NONRECOURSE OBLIGATIONS OF 381,390.
<F6> PAR VALUE ONLY.
<F7> CONSISTS OF RETAINED EARNINGS OF 242,409, ADDITIONAL PAID-IN CAPITAL OF
151,902, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX OF
4,619, FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (4,404)AND OTHER COMPREHENSIVE
INCOME OF 557.
<F8> CONSISTS OF OPERATING LEASE EXPENSE OF 139,160, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES OF 118,083, IMPAIRMENT LOSS OF 6,000 AND OTHER EXPENSES
OF 6,482.
</FN>
</TABLE>
