<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
June 30, 2000 1-8319
[GATX CAPITAL 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 August 11, 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
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Lease income $106,048 $ 74,727 $213,525 $ 147,926
Equity earnings from investment
in joint ventures 25,325 13,993 44,203 27,441
Interest 13,977 8,770 24,420 17,150
Gain on sale of assets 9,127 22,566 18,413 40,698
Gain on sale of securities 8,611 3,593 22,621 8,202
Fees 5,079 5,097 9,806 13,886
Other 3,192 2,178 4,715 3,356
-------- --------- -------- ---------
171,359 130,924 337,703 258,659
-------- --------- -------- ---------
EXPENSES:
Operating leases 61,682 40,737 123,689 80,255
Interest 41,488 27,272 79,649 55,229
Selling, general & administrative 31,231 27,535 57,030 49,885
Provision for losses on investments 2,000 2,750 4,000 5,499
Other 1,342 1,191 2,528 2,342
-------- --------- -------- ---------
137,743 99,485 266,896 193,210
-------- --------- -------- ---------
Income from continuing operations
before income taxes 33,616 31,439 70,807 65,449
Provision for income taxes 13,539 12,512 27,969 26,262
-------- --------- -------- ---------
INCOME FROM CONTINUING OPERATIONS 20,077 18,927 42,838 39,187
DISCONTINUED OPERATIONS:
Loss from discontinued operations,
net of income taxes -- (2,327) -- (4,642)
Gain from sale of discontinued operations,
net of income tax benefits of $1,853 -- 2,137 -- 2,137
-------- --------- -------- ---------
NET INCOME $ 20,077 $ 18,737 $ 42,838 $ 36,682
======== ========= ======== =========
</TABLE>
1
<PAGE> 3
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 39,018 $ 45,817
Investments:
Direct financing leases 549,314 477,739
Leveraged leases 206,664 170,066
Operating lease equipment-net of depreciation 1,083,611 960,123
Secured loans 505,013 358,001
Investment in joint ventures 768,649 667,648
Assets held for sale or lease 27,543 36,993
Other investments 190,612 197,096
Investment in future residuals 5,667 14,538
Allowance for losses on investments (103,332) (109,771)
----------- -----------
Net investments 3,233,741 2,772,433
----------- -----------
Due from Parent 36,437 46,705
Other assets 107,363 76,736
----------- -----------
TOTAL ASSETS $ 3,416,559 $ 2,941,691
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 18,543 $ 17,366
Accounts payable and other liabilities 140,494 147,797
Debt financing:
Commercial paper and bankers' acceptances 251,309 128,927
Notes payable 103,192 5,454
Obligations under capital leases 7,133 7,253
Senior term notes 1,726,000 1,625,000
----------- -----------
Total debt financing 2,087,634 1,766,634
----------- -----------
Nonrecourse obligations 452,707 397,849
Deferred income 17,356 10,714
Deferred income taxes 173,568 143,560
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 63,960 28,960
Accumulated other comprehensive income 37,252 27,661
Retained earnings 300,045 276,150
----------- -----------
Total stockholder's equity 526,257 457,771
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,416,559 $ 2,941,691
=========== ===========
</TABLE>
2
<PAGE> 4
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,838 $ 36,682
Reconciliation of net income to net cash flows
provided by operating activities:
Provision for losses on investments 4,000 5,499
Depreciation expense 104,068 60,418
Provision for deferred income taxes 29,929 26,698
Gain on sale of assets (18,413) (40,698)
Gain on sale of discontinued operations -- (2,137)
Joint venture income, net of cash dividends (25,896) (16,653)
Changes in assets and liabilities:
Other assets (32,377) (44)
Due from Parent 10,268 (9,432)
Accrued interest, accounts payable and other liabilities (11,544) (16,837)
Deferred income 6,642 8,403
Other - net 4,301 8,022
--------- ---------
Net cash flows provided by operating activities 113,816 59,921
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (291,603) (183,656)
Loans extended to borrowers (216,502) (131,551)
Other investments (224,111) (93,961)
--------- ---------
Total investments (732,216) (409,168)
--------- ---------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 66,439 90,231
Loan principal received 63,371 25,458
Proceeds from sale of assets 45,109 142,785
Joint venture investment recovery 44,767 3,594
--------- ---------
Recovery of investments 219,686 262,068
--------- ---------
Net cash flows used in investing activities (512,530) (147,100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior term notes 150,000 125,000
Proceeds from nonrecourse obligations 570,775 61,675
Proceeds from capital lease obligation 1,910 --
Proceeds from additional paid-in capital 35,000 --
Net increase in short-term borrowings 220,120 68,180
Repayment of senior term notes (49,000) (88,600)
Repayment of capital lease obligations (2,030) (1,752)
Repayment of nonrecourse obligations (515,917) (79,775)
Dividends paid to stockholder (18,943) (15,372)
--------- ---------
Net cash flows provided by financing activities 391,915 69,356
--------- ---------
Net decrease in cash and cash equivalents (6,799) (17,823)
Cash and cash equivalents at beginning of period 45,817 67,975
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39,018 $ 50,152
========= =========
</TABLE>
3
<PAGE> 5
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 20,077 $ 18,737 $ 42,838 $ 36,682
Other comprehensive gain (loss), net of tax:
Foreign currency translation adjustment 2,120 (924) 237 (481)
Unrealized gain (loss) on securities, net of
reclassification adjustments (a) (6,322) 12,025 9,354 10,572
-------- -------- -------- --------
Other comprehensive gain (loss) (4,202) 11,101 9,591 10,091
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 15,875 $ 29,838 $ 52,429 $ 46,773
======== ======== ======== ========
(a) Reclassification adjustments:
Unrealized gain (loss) on securities $ (1,089) $ 14,624 $ 23,102 $ 15,557
Less - Reclassification adjustment for gains
realized included in net income (5,233) (2,599) (13,748) (4,985)
-------- -------- -------- --------
Net unrealized gain (loss) on securities $ (6,322) $ 12,025 $ 9,354 $ 10,572
======== ======== ======== ========
</TABLE>
4
<PAGE> 6
GATX CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of GATX Capital
Corporation and its subsidiaries (the "Company"), which is an active
investor in a wide variety of asset-based financing. The Company's
consolidated balance sheet at December 31, 1999 was derived from the
audited financial statements at that date.
The unaudited interim consolidated financial statements and related
unaudited financial information in the footnotes have been prepared in
accordance with accounting principles generally accepted in the United
States and the rules and regulations of the Securities and Exchange
Commission (the "SEC") for interim financial statements. Such interim
financial statements reflect all adjustments consisting of normal recurring
adjustments which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company and the results
of its operations and its cash flows for the interim periods. These
consolidated financial statements should be read in conjunction with the
Company's financial statements and the notes thereto contained in the
Annual Report on Form 10-K for the year ended December 31, 1999. The nature
of the Company's business is such that the results of any interim period
may not be indicative of the results to be expected for the entire year.
All significant intercompany transactions and balances have been
eliminated. Certain reclassifications have been made to prior year
financial statements to conform to the current presentation.
2. CONTINGENCIES
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.
3. ASSET AND LIABILITY MANAGEMENT
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.
5
<PAGE> 7
PART I. FINANCIAL INFORMATION, CONTINUED
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, and SFAS No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an
amendment 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 June 30, 2000, was $20.1
million, up $1.3 million from the same period last year. Net income earned
during the six months ended June 30, 2000, was $42.8 million, up $6.2 million
from the same period last year.
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 three and six-month
periods ended June 30, 1999.
Revenues
Investment income, which includes lease income, equity earnings from investments
in joint ventures, and interest, increased $47.9 million and $89.6 million
during the three and six-month periods ended June 30, 2000, respectively,
compared to the same periods in 1999. This increase in revenue is consistent
with the increase in average investment balances of approximately $940 million
and $859 million during the corresponding three and six-month periods in 2000
compared to 1999.
Gain on sale of assets, which arise from the sale of the Company's investments
other than marketable securities, were $9.1 million and $22.6 million for the
second quarter of 2000 and 1999, respectively, and $18.4 million and $40.7
million for the six months ended June 30, 2000 and 1999, respectively.
Gain on sale of securities, which arise from the sale of stocks, increased $5.0
million and $14.4 million during the three and six-month periods ended June 30,
2000, respectively, compared to the corresponding periods in 1999. The Company
generally obtains its stocks upon exercise of warrants received in connection
with financing non-public, start-up companies. Prior to sale, these stocks and
warrants are included in Other Assets on the balance sheet.
Fees include income from providing remarketing services to third parties,
proceeds from the sale of non-owned assets in which the Company has a residual
share, and income from providing lease-related services and management. Fee
income 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. Fees were $5.1 million for
the second quarter of both 2000 and 1999, and $9.8 million and $13.9 million for
the six months ended June 30, 2000 and 1999, respectively.
6
<PAGE> 8
Expenses
Operating lease expense includes depreciation of operating lease equipment and
rent expense on off-balance sheet financing. Operating lease expense was $61.7
million and $123.7 million for the three and six-month periods ended June 30,
2000, compared to $40.7 million and $80.3 million for the same periods in 1999.
This increase is consistent with approximately $489 million and $465 million
increases in average operating lease balances in the second quarter and first
six months of 2000, respectively, compared to the same periods last year.
Interest expense increased $14.2 million and $24.4 million during the three and
six-month periods ended June 30, 2000, respectively, compared to the same
periods last year, corresponding to $777 million and $698 million increases in
related average debt balances, incurred to fund increasing new investments.
Selling, general and administrative expenses were $3.7 million and $7.1 million
higher during the three and six-month periods ended June 30, 2000, respectively,
compared to the same periods last year. This was due to higher human resources
and other administrative expenses associated with an overall increase in
business activity.
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 six months ended June 30, 2000, the
Company used cash generated from operations, recovery of investments, short-term
borrowings, and proceeds from the issuance of senior term notes, to fund $732.2
million of new investments and to repay $49.0 million of senior term notes.
At June 30, 2000, $150 million of debt securities have been issued from a $1,015
million Series G shelf registration, $59 million of unused capacity remains
under the Company's commercial paper and bankers' acceptances credit agreements,
and $9 million remains under a stand-alone bank facility maintained by one of
the Company's subsidiaries.
The Company's recourse debt to equity ratio increased to 4.0:1 at June 30, 2000
from 3.9:1 at December 31, 1999, due to a $321 million increase in recourse
borrowings offset by a $35 million capital injection from GATX Corporation
(Parent) in June 2000. At June 30, 2000, the Company could borrow an additional
$857 million and still meet the 4.5:1 leverage ratio defined in its bank credit
agreements.
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 June 30, 2000, the Company had approved unfunded transactions totaling
approximately $1.5 billion, approximately $398 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.
7
<PAGE> 9
FORWARD-LOOKING INFORMATION
This quarterly report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements include
statements regarding intent, belief or current expectations of the Company and
its management. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," anticipate,"
"believe," estimate," "predict," "potential," or "continue," the negative of
such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. Shareholders and
prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve a number of risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements.
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 and six months
ended June 30, 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
August 14, 2000
8
