<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
March 31, 2000 1-8319
[GATX LOGO]
GATX CAPITAL CORPORATION
Incorporated in the IRS Employer Identification Number
State of Delaware 94-1661392
Four Embarcadero Center
San Francisco, CA 94111
(415) 955-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
All Common Stock of Registrant is held by GATX Financial Services, Inc.
(a wholly-owned subsidiary of GATX Corporation).
As of May 10, 2000, Registrant has outstanding 1,031,250 shares of $1 par value
Common Stock.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) and
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 999
--------- ----------
(Unaudited)
REVENUES:
<S> <C> <C>
Lease income $ 107,477 $ 72,744
Equity earnings from investment in joint ventures 18,878 13,448
Other 15,533 5,697
Interest 10,443 8,380
Gain on sale of assets 9,286 18,132
Fees 4,727 8,788
---------- ----------
166,344 127,189
---------- ----------
EXPENSES:
Operating leases 62,007 39,548
Interest 38,161 27,957
Selling, general & administrative 25,799 21,774
Provision for losses on investments 2,000 2,749
Other 1,186 1,151
---------- ----------
129,153 93,179
---------- ----------
Income from continuing operations before income taxes 37,191 34,010
Provision for income taxes 14,430 13,750
---------- ----------
INCOME FROM CONTINUING OPERATIONS 22,761 20,260
DISCONTINUED OPERATIONS:
Loss from discontinued operations (net of $873 tax benefit) - (2,315)
---------- ---------
NET INCOME $ 22,761 $ 17,945
========== =========
</TABLE>
1
<PAGE> 3
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 61,647 $ 45,817
Investments:
Direct financing leases 494,360 477,739
Leveraged leases 193,484 170,066
Operating lease equipment-
net of depreciation 1,023,137 960,123
Secured loans 426,224 358,001
Investment in joint ventures 717,361 667,648
Assets held for sale or lease 31,944 36,993
Other investments 203,045 197,096
Investment in future residuals 13,048 14,538
Allowance for losses on investments (106,465) (109,771)
----------- -----------
Total investments 2,996,138 2,772,433
----------- -----------
Due from Parent 67,976 46,705
Other assets 84,040 76,736
----------- -----------
TOTAL ASSETS $ 3,209,801 $ 2,941,691
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 38,141 $ 17,366
Accounts payable and other liabilities 114,084 147,797
Debt financing:
Commercial paper and bankers' acceptances 264,959 128,927
Notes payable 5,635 5,454
Obligations under capital leases 9,163 7,253
Senior term notes 1,620,000 1,625,000
----------- -----------
Total debt financing 1,899,757 1,766,634
----------- -----------
Nonrecourse obligations 468,365 397,849
Deferred income 12,908 10,714
Deferred income taxes 191,647 143,560
Stockholder's equity:
Convertible preferred stock, par value $1,
and additional paid-in capital 125,000 125,000
Common stock, par value $1, and
additional paid-in capital 28,960 28,960
Accumulated other comprehensive income 41,454 27,661
Retained earnings 289,485 276,150
----------- -----------
Total stockholder's equity 484,899 457,771
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,209,801 $ 2,941,691
=========== ===========
</TABLE>
2
<PAGE> 4
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,761 $ 17,945
Reconciliation of net income to net cash flows
provided by operating activities:
Provision for losses on investments 2,000 2,749
Depreciation expense 52,294 29,235
Provision for deferred income taxes 39,887 7,729
Gain on sale of assets (9,286) (18,132)
Joint venture income, net of cash dividends (12,413) (8,100)
Changes in assets and liabilities:
Other assets (7,645) 12,693
Due from Parent (21,271) 3,999
Accrued interest, accounts payable and other liabilities (13,688) (23,965)
Deferred income 2,194 8,981
Other - net (6,748) 3,887
---------- ---------
Net cash flows provided by operating activities 48,085 37,021
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (155,944) (88,643)
Loans extended to borrowers (113,942) (74,638)
Other investments (55,795) (51,793)
---------- ---------
Total investments (325,681) (215,074)
---------- ---------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 33,519 54,070
Loan principal received 41,645 13,529
Proceeds from sale of assets 12,026 71,880
Joint venture investment recovery 12,023 1,901
---------- ---------
Recovery of investments 99,213 141,380
---------- ---------
Net cash flows used in investing activities (226,468) (73,694)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior term notes - 100,000
Proceeds from nonrecourse obligations 121,657 19,828
Proceeds from capital lease obligation 1,910 -
Repayment of senior term notes (5,000) (30,000)
Repayment of capital lease obligations - (51)
Repayment of nonrecourse obligations (51,141) (38,458)
Net increase (decrease) in short-term borrowings 136,213 (4,833)
Dividends paid to stockholder (9,426) (8,500)
---------- ---------
Net cash flows provided by financing activities 194,213 37,986
---------- ---------
Net increase in cash and cash equivalents 15,830 1,313
Cash and cash equivalents at beginning of period 45,817 67,975
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,647 $ 69,288
========== =========
</TABLE>
3
<PAGE> 5
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net income $ 22,761 $ 17,945
Other comprehensive gain (loss), net of tax:
Foreign currency translation adjustment (1,883) 443
Unrealized gain (loss) on securities, net of
reclassification adjustments (a) 15,677 (1,453)
-------- --------
Other comprehensive gain (loss) 13,794 (1,010)
-------- --------
COMPREHENSIVE INCOME $ 36,555 $ 16,935
======== ========
(a) Reclassification adjustments:
Unrealized gain on securities $ 24,192 $ 933
Less - Reclassification adjustment for gains
realized included in net income (8,515) (2,386)
-------- --------
Net unrealized gain (loss) on securities $ 15,677 $ (1,453)
======== ========
</TABLE>
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. The consolidated balance sheet of GATX Capital Corporation and its
subsidiaries (the "Company") at December 31, 1999 was derived from the
audited financial statements at that date. All other consolidated
financial statements are unaudited and include all adjustments, consisting
only of normal recurring items, which management considers necessary for a
fair statement of the consolidated results of operations and financial
position for and as of the end of the indicated periods. Operating results
for the three-month period ended March 31, 2000 are not necessarily
indicative of the results that may be achieved for the entire year.
2. Certain prior year amounts have been reclassified to conform to current
presentation.
3. The Company is engaged in various matters of litigation and has unresolved
claims pending. In one matter, the Company, through an affiliate, is the
subject of litigation related to the conversion of certain aircraft from
passenger to freighter configuration. While the amounts claimed in this
matter and other matters are substantial, and the ultimate liability with
respect to such claims cannot be determined at this time, management
believes that damages, if any, required to be paid by the Company in the
discharge of such liability could be material to the results of operations
for a given quarter or year, but are not likely to be material to the
Company's consolidated financial position.
4. The Company uses interest rate and currency swap agreements, and forward
sale agreements, as hedges that manage the exposure to interest rate,
market rate, and currency exchange rate risk on existing and anticipated
transactions. To qualify for hedge accounting, the derivative instrument
must be identified with and reduce the risk arising from a specific
transaction. Interest income or expense on interest rate swaps is accrued
and recorded as an adjustment to the interest income or expense related to
the hedged item. Realized and unrealized gains on currency swaps are
deferred and included in the measurement of the hedged investment over the
term of the contract. Fair value changes arising from forward sale
agreements are deferred in the investment section of the balance sheet and
recognized in other comprehensive income in stockholder's equity in
conjunction with the designated hedged item.
The Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended by SFAS No.
137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, is
required to be adopted in years beginning after June 15, 2000. The Company
is in the process of assessing the impact that adoption of SFAS No. 133
will have on its financial position and results of operations.
5
<PAGE> 7
PART I. FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Overview
The Company is a diversified international financial services company. Revenues
arise from providing asset-based financing for transportation, industrial and
information technology equipment, financing venture-backed and high-technology
companies, managing assets for outside parties, and providing transaction
structuring, residual guarantees and asset remarketing services.
Net income earned during the three months ended March 31, 2000, was $22.8
million, up $4.8 million from the same period last year.
Revenues
Investment income, which includes lease income, equity earnings from investments
in joint ventures, and interest, increased $42.2 million during the three-month
period ended March 31, 2000, compared to the same period in 1999. This increase
in revenue corresponds to an approximately $803 million increase in investment
balances in the first quarter of 2000 compared to the same period last year.
In addition, other income of $15.5 million for the first quarter 2000 was $9.8
million greater than during the same period in 1999, primarily due to sales of
stocks and warrants received from financing non-public, start-up companies.
Asset remarketing income includes gains on the sale of the Company's investment
assets, fees for providing remarketing services to third parties, and proceeds
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, and
although not necessarily consistent from year to year, represents a core
component of the Company's business and a historically significant component of
total income. Asset remarketing income totaled $9.5 million for the first
quarter of 2000 compared to $23.3 million for the same period in 1999. Gains on
sales of Company investment assets were $9.3 million and $18.1 million for first
quarter of 2000 and 1999, respectively. Residual sharing fees were $0.2 million
and $5.2 million for the first quarter of 2000 and 1999, respectively.
The Company sold its technology equipment sales and service business segment in
June 1999; accordingly, the Company reclassified all of the segment's revenue
and expenses to income from discontinued operations for the first quarter of
1999.
Expenses
Operating lease expense includes depreciation of operating lease equipment and
rent expense on off-balance sheet financing. Operating lease expense was $62.0
million during the first quarter of 2000 compared to $39.5 million during the
same period last year, primarily due to an approximately $438 million increase
in operating lease balances in the first quarter of 2000 compared to the same
period last year.
The $10.2 million increase in interest expense corresponds to a $622 million
increase in debt balances in the first quarter of 2000 compared to the same
period last year.
Selling, general and administrative expenses were $4.0 million higher in the
first quarter of 2000 than the first quarter of 1999 due to higher human
resources and other administrative expenses associated with an overall increase
in business activity.
6
<PAGE> 8
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from operations and investment portfolios, and has
certain facilities for borrowing. In addition, certain lease transactions are
financed by obtaining nonrecourse loans equal to the present value of some or
all of the rental streams. During the three months ended March 31, 2000, the
Company used cash, $136 million of it from short-term borrowings, to fund $326
million of new investments and to repay $5 million of senior term notes.
At March 31, 2000, the Company had borrowing capacity consisting of $1,015
million remaining under its Series G shelf registration, $45 million of unused
capacity under its commercial paper and bankers' acceptances credit agreements,
and $35 million remaining under a stand-alone bank facility maintained by one
of the Company's subsidiaries.
A $561 million increase in quarterly average total debt financing in 2000
compared to the first quarter of 1999, partially offset by an increase in
equity, caused the Company's debt to equity ratio to increase to 3.9:1 at March
31, 2000 compared to 3.2:1 at March 31, 1999. At March 31, 2000, the Company
could borrow an additional $929 million and still meet the 4.5:1 leverage ratio
defined in its bank credit agreements.
In 1999, the Company maintained the proceeds from the sale of certain assets in
a 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 were classified as cash and
cash equivalents in the accompanying balance sheet. The amount in trust at March
31, 1999 was $29.2 million.
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 investments to its fixed and
floating rate borrowings.
At March 31, 2000, the Company had approved unfunded transactions totaling
approximately $2.1 billion, approximately $538 million of which is expected to
fund during the remainder of 2000. Once approved for funding, a transaction may
not be completed for various reasons, or the investment may be shared with
partners or sold.
YEAR 2000 DISCLOSURE
Throughout 1999 the Company addressed what is commonly referred to as the Year
2000 problem. As expected, the Company did not experience any significant Year
2000 problems and does not believe it has any continued exposure to Year 2000
issues.
FORWARD LOOKING STATEMENTS
Certain statements in the Management's Discussion and Analysis constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, such statements are subject to
risks and uncertainties, and could cause actual results to differ materially
from those projected.
7
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the three months ended March
31, 2000.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GATX CAPITAL CORPORATION
/s/ Curt F. Glenn
---------------------------------------
Curt F. Glenn
Senior Vice President and Chief
Financial Officer
/s/ Delphine M. Regalia
---------------------------------------
Delphine M. Regalia
Principal Accounting Officer and
Controller
May 12, 2000
8
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<S> <C>
Item
No. Description
------ -------------
27. Financial Data Schedule
</TABLE>
9
<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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 61,647
<SECURITIES> 0
<RECEIVABLES> 1,114,068<F1>
<ALLOWANCES> 106,465
<INVENTORY> 31,944
<CURRENT-ASSETS> 0<F3>
<PP&E> 1,023,137<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 3,209,801
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 2,097,528<F4>
0
1,027<F5>
<COMMON> 1,031<F5>
<OTHER-SE> 482,841<F6>
<TOTAL-LIABILITY-AND-EQUITY> 3,209,801
<SALES> 0
<TOTAL-REVENUES> 166,344
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 88,992<F7>
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 38,161
<INCOME-PRETAX> 37,191
<INCOME-TAX> 14,430
<INCOME-CONTINUING> 22,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,761
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>CONSISTS OF DIRECT FINANCE LEASE RECEIVABLES OF 494,360, LEVERAGED LEASE
RECEIVABLES OF 193,434,AND SECURED LOANS OF 426,224.
<F2>CONSISTS OF COST OF EQUIPMENT LEASED TO OTHERS UNDER OPERATING LEASES, NET OF
DEPRECIATION.
<F3>GATX CAPITAL CORPORATION HAS AN UNCLASSIFIED BALANCE SHEET.
<F4>CONSISTS OF SENIOR TERM NOTES OF 1,620,000, OBLIGATIONS UNDER CAPITAL LEASES OF
9,163, AND NONRECOURSE OBLIGATIONS OF 468,365.
<F5>PAR VALUE ONLY.
<F6>CONSISTS OF RETAINED EARNINGS OF 289,485, ADDITIONAL PAID-IN CAPITAL OF
151,902, UNREALIZED GAINS ON MARKETABLE EQUITY SECURITIES, NET OF TAX OF
50,642 AND FOREIGN CURRENCY TRANSLATION ADJUSTMENT OF (9,188).
<F7>CONSISTS OF OPERATING LEASE EXPENSE OF 62,007, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES OF 25,799, AND OTHER EXPENSES OF 1,186.
</FN>
</TABLE>
