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
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
September 30, 1998 1-2328
GATX Corporation
Incorporated in the IRS Employer Identification No.
State of New York 36-1124040
500 West Monroe Street
Chicago, IL 60661-3676
(312) 621-6200
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No ____
Registrant had 49,260,565 shares of common stock outstanding as of
October 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
GATX CORPORATION AND SUBSIDIARIES
__________
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
In Millions, Except Per Share Amounts
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Gross income....................................... $459.5 $430.9 $1,306.0 $1,260.2
Costs and expenses
Operating expenses............................. 219.7 212.2 612.7 613.9
Interest....................................... 60.3 56.3 179.8 163.1
Provision for depreciation and amortization.... 65.4 62.8 192.8 185.2
Provision for possible losses.................. 3.4 3.5 11.2 9.6
Selling, general and administrative............ 61.7 63.9 177.5 173.6
---------------- -------------- -------------- ---------------
410.5 398.7 1,174.0 1,145.4
---------------- -------------- -------------- ---------------
Income before income taxes and equity
in net earnings of affiliated companies........ 49.0 32.2 132.0 114.8
Income taxes....................................... 20.8 13.0 57.3 47.5
---------------- -------------- -------------- ---------------
Income before equity in net earnings of
affiliated companies........................... 28.2 19.2 74.7 67.3
Equity in net earnings of affiliated companies..... 9.9 8.8 31.6 22.1
---------------- -------------- -------------- ---------------
Net income......................................... $ 38.1 $ 28.0 $ 106.3 $ 89.4
================ ============== ============== ===============
Per common share data:
Net income, basic.............................. $ .78 $ .57 $ 2.16 $ 1.88
Net income, diluted............................ $ .76 $ .56 $ 2.11 $ 1.80
Dividends declared............................. $ .25 $ .23 $ .75 $ .69
<FN>
Note - The consolidated balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date. All other consolidated financial
statements are unaudited but 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 the respective
periods. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be achieved for the entire year
ending December 31,1998.
</FN>
</TABLE>
1
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<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
_____
CONSOLIDATED BALANCE SHEETS
In Millions
ASSETS
September 30 December 31
1998 1997
-------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents.............................. $ 64.9 $ 77.8
Receivables
Trade accounts..................................... 157.8 161.9
Finance leases..................................... 669.6 877.0
Secured loans...................................... 257.1 180.3
Less - Allowance for possible losses............... (129.4) (128.5)
-------------------- -------------------
955.1 1,090.7
Operating lease assets and facilities
Railcars and support facilities.................... 2,508.3 2,501.7
Tank storage terminals and pipelines............... 1,154.5 1,128.9
Great Lakes vessels................................ 202.6 199.4
Operating lease investments and other.............. 692.0 704.4
-------------------- -------------------
4,557.4 4,534.4
Less - Allowance for depreciation.................. (1,908.4) (1,823.9)
-------------------- -------------------
2,649.0 2,710.5
Investments in affiliated companies.................... 718.3 707.4
Other assets........................................... 397.9 361.4
-------------------- -------------------
TOTAL ASSETS........................................... $4,785.2 $4,947.8
==================== ===================
</TABLE>
2
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<TABLE>
<CAPTION>
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
September 30 December 31
1998 1997
-------------------- -------------------
(Unaudited)
<S> <C> <C>
Accounts payable....................................... $ 322.7 $ 354.7
Accrued expenses....................................... 97.3 58.0
Debt
Short-term debt.................................... 230.7 392.5
Recourse long-term debt............................ 2,186.0 2,277.5
Nonrecourse long-term debt......................... 369.9 329.8
Capital lease obligations.......................... 203.0 212.1
-------------------- -------------------
2,989.6 3,211.9
Deferred income taxes.................................. 317.2 297.6
Other deferred items................................... 343.7 370.2
-------------------- -------------------
Total liabilities and deferred items............ 4,070.5 4,292.4
Shareholders' equity
Preferred Stock.................................... - -
Common Stock....................................... 17.1 17.0
Additional capital................................. 346.2 339.7
Reinvested earnings................................ 432.8 363.4
Accumulated other comprehensive income............. (34.6) (17.9)
-------------------- -------------------
761.5 702.2
Less - Cost of common shares in treasury........... (46.8) (46.8)
-------------------- -------------------
Total shareholders' equity..................... 714.7 655.4
-------------------- -------------------
TOTAL LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS'
EQUITY $4,785.2 $4,947.8
==================== ===================
</TABLE>
3
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<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
______
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998
In Millions
Accumulated
Other
Preferred Common Additional Reinvested Comprehensive Treasury
Stock Stock Capital Earnings Income (a) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance 7/1/98 $ - $17.1 $344.8 $407.0 $ (28.1) $ (46.8) $694.0
Comprehensive income:
Net income 38.1 38.1
Other comprehensive
income
Foreign currency
translation adjustment (6.6) (6.6)
Unrealized gain on
securities, net (b) .1 .1
----------
Comprehensive income 31.6
----------
Common stock issued 1.4 1.4
Dividends declared (12.3) (12.3)
------------ ------------ -------------- -------------- ------------------- ------------ ----------
Ending balance 9/30/98 $ - $17.1 $346.2 $432.8 $ (34.6) $ (46.8) $714.7
============ ============ ============== ============== =================== ============ ==========
<FN>
(a) The beginning balance of accumulated other comprehensive income at
July 1, 1998 included a cumulative foreign currency translation adjustment
of $(32.1) million and unrealized gains on securities of $4.0 million.
(b) Unrealized gain on securities $ .2
Less: Reclassification adjustments
for gains realized included
in net income (.1)
---
Net unrealized gain on securities $ .1
====
</FN>
</TABLE>
4
<PAGE>
GATX CORPORATION AND SUBSIDIARIES
______
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1997
In Millions
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Common Additional Reinvested Comprehensive Treasury
Stock Stock Capital Earnings Income (a) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance 7/1/97 $ - $16.9 $332.5 $498.3 $ 5.9 $ (46.8) $806.8
Comprehensive income:
Net income 28.0 28.0
Other comprehensive
income
Foreign currency
translation adjustment (1.6) (1.6)
Unrealized gain on
securities, net (b) .9 .9
----------
Comprehensive income 27.3
----------
Common stock issued .1 4.7 4.8
Dividends declared (11.3) (11.3)
------------ ------------ -------------- -------------- ------------------- ------------ ----------
Ending balance 9/30/97 $ - $17.0 $337.2 $515.0 $ 5.2 $ (46.8) $827.6
============ ============ ============== ============== =================== ============ ==========
<FN>
(a) The beginning balance of accumulated other comprehensive income at
July 1, 1997 included a cumulative foreign currency translation adjustment
of $.7 million and unrealized gains on securities of $5.2 million.
(b) Unrealized gain on securities $1.4
Less: Reclassification adjustments
for gains realized included
in net income (.5)
---
Net unrealized gain on securities $ .9
=====
</FN>
</TABLE>
5
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<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
______
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
In Millions
Accumulated
Other
Preferred Common Additional Reinvested Comprehensive Treasury
Stock Stock Capital Earnings Income (a) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance 1/1/98 $ - $17.0 $339.7 $363.4 $ (17.9) $ (46.8) $655.4
Comprehensive income:
Net income 106.3 106.3
Other comprehensive
income
Foreign currency
translation adjustment (16.2) (16.2)
Unrealized loss on
securities, net (b) (.5) (.5)
----------
Comprehensive income 89.6
----------
Common stock issued 0.1 6.5 6.6
Dividends declared (36.9) (36.9)
------------ ------------ -------------- -------------- ------------------- ------------ ----------
Ending balance 9/30/98 $ - $17.1 $346.2 $432.8 $ (34.6) $ (46.8) $714.7
============ ============ ============== ============== =================== ============ ==========
<FN>
(a) The beginning balance of accumulated other comprehensive income at
January 1, 1998 included a cumulative foreign currency translation
adjustment of $(22.5) million and unrealized gains on securities of
$4.6 million.
(b) Unrealized loss on securities $(.2)
Less: Reclassification adjustments
for gains realized included
in net income (.3)
---
Net unrealized loss on securities $ (.5)
=====
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
______
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
In Millions
Accumulated
Other
Preferred Common Additional Reinvested Comprehensive Treasury
Stock Stock Capital Earnings Income (a) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance 1/1/97 $ 3.4 $14.4 $329.0 $463.7 $ 11.4 $ (47.0) $774.9
Comprehensive income:
Net income 89.4 89.4
Other comprehensive
income
Foreign currency
translation adjustments (6.7) (6.7)
Unrealized gain on
securities, net (b) .5 .5
----------
Comprehensive income 83.2
----------
Common Stock issued .2 10.6 .2 11.0
Conversion of preferred stock (3.4) 2.4 (2.4) (3.4)
Dividends declared (38.1) (38.1)
------------ ------------ -------------- -------------- ------------------- ------------ ----------
Ending balance 9/30/97 $ - $17.0 $337.2 $515.0 $ 5.2 $ (46.8) $827.6
============ ============ ============== ============== =================== ============ ==========
<FN>
(a) The beginning balance of accumulated other comprehensive income at
January 1, 1997 included a cumulative foreign currency translation
adjustment of $5.8 million and unrealized gains on securities of
$5.6 million.
(b) Unrealized gain on securities $1.2
Less: Reclassification adjustments
for gains realized included
in net income (.7)
---
Net unrealized gain on securities $ .5
=====
</FN>
</TABLE>
7
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<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
_________
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
In Millions
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 38.1 $ 28.0 $106.3 $ 89.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Realized gain on remarketing of leased equipment (27.2) (24.2) (55.7) (64.7)
Provision for depreciation and amortization 65.4 62.8 192.8 185.2
Provision for possible losses 3.4 3.5 11.2 9.6
Deferred income taxes 10.1 (3.9) 25.5 (0.8)
Net change in trade receivables, inventories, accounts
payable and accrued expenses 30.9 11.4 (7.5) 26.3
Other (26.4) (2.6) (60.0) (47.7)
------------- ------------ ----------- -------------
Net cash provided by operating activities 94.3 75.0 212.6 197.3
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (110.2) (90.9) (343.3) (268.0)
Portfolio lease investments, net of nonrecourse
financing (120.8) (282.6) (256.8) (438.8)
Secured loans extended (28.8) (13.7) (134.8) (28.6)
Investments in affiliated companies (17.4) (7.2) (71.6) (79.3)
Progress payments and other (10.9) (10.6) (24.4) (35.0)
------------- ------------ ----------- -------------
Capital additions and portfolio investments (288.1) (405.0) (830.9) (849.7)
Portfolio proceeds:
From remarketing of leased equipment 33.3 73.0 144.4 201.9
From return of investment 292.7 58.3 483.3 184.7
------------- ------------ ----------- -------------
Total portfolio proceeds 326.0 131.3 627.7 386.6
Proceeds from other asset dispositions 215.6 171.0 231.3 174.5
------------- ------------ ----------- -------------
Net cash provided by (used in ) investing activities 253.5 (102.7) 28.1 (288.6)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 78.8 46.4 188.6 130.1
Repayment of long-term debt (75.6) (52.0) (258.9) (311.5)
Net (decrease) increase in short-term debt (405.6) 83.1 (138.9) 343.0
Repayment of capital lease obligations (5.8) (4.4) (14.1) (13.8)
Issuance of Common Stock and other 1.5 5.0 6.6 7.8
Cash dividends (12.3) (11.3) (36.9) (38.1)
------------- ------------ ----------- -------------
Net cash (used in) provided by financing activities (419.0) 66.8 (253.6) 117.5
------------- ------------ ----------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS $(71.2) $ 39.1 $ (12.9) $ 26.2
============= ============ =========== =============
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION OF OPERATIONS
COMPARISON OF FIRST NINE MONTHS OF 1998 TO FIRST NINE MONTHS OF 1997
GENERAL
GATX Corporation's (the "Company") net income for the first nine months of
1998 was a record $106.3 million, a 19% increase from the $89.4 million for the
same period in 1997. Earnings per share on a diluted basis increased to $2.11
from $1.80 for the 1997 period. Asset remarketing income at Financial Services
("GATX Capital") of $76 million (pretax) for the first three quarters of 1998
is not anticipated to continue at this historically high level during the
fourth quarter as these gains do not fall evenly from period to period.
Gross income of $1,306 million increased $46 million from the first nine months
of 1997, with Railcar Leasing and Management ("Transportation") accounting for
$28 million of the increase and GATX Capital reporting a $13 million
improvement. Transportation's active fleet grew to 81,000 railcars at
September 30, 1998, compared to 75,200 active railcars a year ago. GATX
Capital's larger asset portfolio yielded higher lease and interest income,
offset in part by lower technology equipment sales.
Year-to-date equity in net earnings of affiliates was $32 million, a $10 million
increase over last year, with the majority of the increase due to the
contribution from the Pitney Bowes as well as various air and European rail
joint ventures. Both GATX Capital's Pitney Bowes venture and Transportation's
European rail joint venture were established in the fourth quarter of 1997.
Net cash provided by operating activities of $213 million for the first three
quarters of 1998 increased $16 million from the comparable year-ago period.
Portfolio proceeds of $628 million, a $241 million increase, include GATX
Capital's sale of assets, loan principal, and lease rents received, and
distributions from joint ventures.
Capital additions and portfolio investments of $831 million decreased
$19 million from the $850 million invested for the first nine months of 1997.
GATX Capital's portfolio investments decreased $95 million as 1997's volume
included a partial funding of the Pitney Bowes portfolio acquisition, while
Transportation's capital spending increased $81 million primarily for fleet
additions. Changes at Terminals and Pipelines, Logistics and Warehousing, and
Great Lakes Shipping ("American Steamship Company") were not significant.
Full year capital spending and portfolio investments are anticipated to
approximate $1.2 billion, similar to last year's level. These projections may
change significantly depending on market conditions and opportunities to acquire
portfolios of desirable assets. Capital additions and portfolio investments
will be funded by internally generated cash flow and GATX's external recourse
and nonrecourse financing sources.
At September 30, 1998, GATX through its subsidiaries, had unused committed lines
of credit of $628 million and C$58 million. Neither General American
Transportation Corporation ("GATC") nor GATX Capital issued any recourse
long-term debt during the first nine months; financing needs were met by cash
flow from operations, short-term debt, and sale-leaseback proceeds. GATC has a
$650 million shelf registration, under which $100 million of notes and $107
million of pass-through certificates have previously been issued. GATX Capital
has a $532 million shelf registration, under which $350 million of medium-term
notes have previously been issued.
In September 1998, GATC completed a sale-leaseback of $208 million of railcars.
The lease obligations for this transaction are nonrecourse in nature in that
they rely on the underlying cash flows of the railcars.
9
<PAGE>
Year 2000 Readiness Disclosure
GATX continues to address what is commonly referred to as the Year 2000 problem.
GATX has completed an assessment of its critical information systems and is
modifying and replacing its in-house developed software as well as upgrading its
vendor-supported software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. Additionally, other less
critical information systems have been reviewed and corrective action is being
taken where indicated.
GATX also is reviewing its operating assets to determine any exposure to time-
sensitive controls which may be embedded in the equipment. These situations are
being assessed on an ongoing basis and replacement or remediation is being
undertaken where indicated.
GATX is inquiring of both customers and vendors where the Company's information
systems interface directly with third parties to ensure that the interfaces and
the third party 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, GATX 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.
GATX believes it has an effective program in place to resolve the Year 2000 is-
sue in a timely manner and to minimize the Company's exposure. If these steps
were not taken, or are not completed timely, 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, GATX believes that the Year 2000 issue should not pose significant
operational problems. The total Year 2000 project cost is estimated to be im-
material to GATX's results of operations.
Other Matters
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. GATX, which utilizes
fundamental derivatives to hedge changes in interest rates and foreign
currencies, expects to adopt the new Statement effective January 1, 2000. The
Statement will require GATX to recognize all derivatives 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 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. GATX is
reviewing the potential effect of Statement 133 on the earnings and financial
position.
As previously noted, GATX reported record results for the third quarter and
year-to-date 1998. Many economists believe that the U.S. economy is entering a
recessionary environment, but GATX's quarterly results reported herein have not
been impacted to any significant extent. However, should a recession develop,
GATX's prospective results would not be immune from the effects thereof if there
were significant changes in demand for its services or assets provided.
Management's discussion includes statements which may constitute forward-looking
statements made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. This information may involve risks and un-
certainties that could cause actual results to differ materially from the
forward-looking statements. 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 that could
cause actual results to differ materially from those projected. These risks and
10
<PAGE>
uncertainties include, but are not limited to, unanticipated changes in the
markets served by GATX such as the petroleum, chemical, rail, air, and tech-
nology industries.
RESULTS OF OPERATIONS
Following is a discussion of the operating results of GATX's business segments:
<TABLE>
<CAPTION>
RAILCAR LEASING AND MANAGEMENT (TRANSPORTATION)
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
(In Millions) September 30
---------------------------------
1998 1997 Change
----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Gross Income $383.2 $355.2 $28.0 8%
Net Income $ 59.9 $ 55.3 $ 4.6 8%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Transportation's gross income for the first nine months of 1998 increased 8%
from the comparable prior year reflecting new car additions and fleet
acquisitions. Approximately 81,000 tank and freight cars were on lease
throughout North America at September 30, 1998, compared to 75,200 railcars a
year ago. With a total North American fleet of 84,600 railcars, utilization
ended the period at 96%, up slightly from 95% a year ago.
Net income increased 8% from the first nine months of 1997 primarily due to the
same reasons that revenues increased as well as equity earnings from a European
rail joint venture established in the fourth quarter of 1997. Net income
approximated 16% of gross income, a slight improvement over the prior year.
While all major cost areas rose, as a percentage of revenue asset ownership
(depreciation, interest, and lease expenses) and fleet repair costs were
generally consistent with the prior year while selling, general and
administrative expenses were slightly higher.
<TABLE>
FINANCIAL SERVICES (GATX CAPITAL)
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
(In Millions) September 30
---------------------------------
1998 1997 Change
----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Gross Income $442.6 $429.5 $13.1 3%
Net Income $ 52.8 $ 47.7 $ 5.1 11%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross income at GATX Capital of $443 million increased $13 million from the
first nine months of 1997. Based on a larger asset portfolio, lease and
interest income increased $26 million, offset in part by a $15 million decrease
in technology equipment sales. While equipment sales were lower, margins (sales
net of related cost of sales) were modestly higher. Pretax asset remarketing
gains were $76 million compared to $77 million for the first three quarters of
1997. Asset remarketing income does not occur evenly from period to period, and
it is expected that it will not continue at the same pace for the fourth quarter
of 1998.
11
<PAGE>
Net income for the first nine months was a record $53 million, a $5 million in-
crease over the comparable 1997 period. The loss reserve at September 30, 1998
was almost $123 million, comparable with December 31, 1997.
<TABLE>
<CAPTION>
TERMINALS AND PIPELINES
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
(In Millions) September 30
---------------------------------
1998 1997 Change
----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Gross Income $215.4 $219.4 $ (4.0) (2)%
Net Income $ 13.8 $ 3.4 $ 10.4 306%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Terminals' gross income for the first nine months of 1998 was 2% lower than the
prior year primarily due to nonrecurring 1997 revenue from facilities that were
designated for sale or closure as part of last year's restructuring. On a com-
parable facility basis, revenues from ongoing operations increased by 5% as the
improved market for petroleum storage provided an opportunity for favorable pri-
cing on new contracts as well as on contract renewals. Throughput of petroleum
and chemical products, adjusted to reflect those facilities that are considered
ongoing, was approximately 430 million barrels for the first nine months of
1998, up approximately 3% from last year. Capacity utilization on the same ba-
sis as throughput was 93% at September 30, 1998, in line with a year ago.
Terminals' net income for the first nine months of 1998 was $14 million. The
increase of $10 million from last year was due to improved market conditions,
the impact of the restructuring program implemented during 1997, and non-recur-
ring operating contribution from those facilities designated for sale or
closure. Equity earnings were $9 million for the first nine months of 1998,
comparable with the prior year.
<TABLE>
<CAPTION>
LOGISTICS AND WAREHOUSING
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
(In Millions) September 30
---------------------------------
1998 1997 Change
----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Gross Income $199.8 $192.1 $ 7.7 4%
Net (Loss) Income $ (.2) $ .6 $ (.8) (133)%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
GATX Logistics' gross income of $200 million increased 4% from the first nine
months of 1997. The revenue improvement was primarily attributable to new
business as well as increasing revenues with certain customers.
Logistics reported a net loss of $(.2) million compared to net income of
$.6 million a year ago. The lower results include a $1.6 million after-tax
receivable write-off associated with a large customer that ceased operations
during the second quarter and decreased activity with certain customers. This
was somewhat offset by new business and the benefit of the restructuring program
implemented in the fourth quarter of 1997.
12
<PAGE>
<TABLE>
<CAPTION>
GREAT LAKES SHIPPING (AMERICAN STEAMSHIP COMPANY)
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
(In Millions) September 30
---------------------------------
1998 1997 Change
----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Gross Income $61.1 $62.0 $(.9) (1)%
Net Income $ 6.8 $ 7.0 $(.2) (3)%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
American Steamship Company's (ASC) gross income for the first nine months of
1998 decreased slightly from prior year, though last year included a $2 million
pretax gain from a third party vessel financing and the remarketing transaction
that was partnered with GATX Capital. Excluding last year's nonrecurring gain,
gross income increased 2%. Although year-to-date customer demand for ASC's
primary cargoes (iron ore, coal and limestone) remained stable, the third
quarter reflected the impact of the General Motors strike and decreased steel
production resulting from low cost imports, a condition that may continue into
next year.
ASC's net income for the first nine months of 1998 was $6.8 million compared to
net income of $7.0 million a year ago. Excluding last year's remarketing gain
($1.3 million after tax), net income from vessel operations increased 20% from
the prior year as contribution margin per ton carried improved and favorable
weather conditions earlier in the year enabled an efficient start of the
navigation season.
13
<PAGE>
COMPARISON OF THIRD QUARTER 1998 TO
THIRD QUARTER 1997
GENERAL
For the third quarter of 1998, net income was $38.1 million or $.76 per share
compared to $28.0 million or $.56 per share for the third quarter of 1997.
<TABLE>
<CAPTION>
GROSS INCOME
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended
(In Millions) September 30
---------------------------------
Business Segment 1998 1997 Change
- ----------------------------------------- ----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Railcar Leasing and Management $129.4 $120.3 $ 9.1 8%
Financial Services 154.7 142.7 12.0 8
Terminals and Pipelines 74.0 73.2 .8 1
Logistics and Warehousing 70.2 64.7 5.5 9
Great Lakes Shipping 29.9 30.6 (.7) (2)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended
(In Millions) September 30
---------------------------------
Business Segment 1998 1997 Change
- ----------------------------------------- ----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
Railcar Leasing and Management $20.4 $18.8 $ 1.6 9%
Financial Services 17.7 11.7 6.0 51
Terminals and Pipelines 5.2 2.3 2.9 126
Logistics and Warehousing 0.6 0.5 .1 20
Great Lakes Shipping 3.1 3.3 (.2) (6)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Increases and decreases in gross income and net income between these quarters
for all segments, except Logistics and Warehousing, were principally due to the
same reasons as discussed previously in relation to the nine-month periods. The
three month period for Logistics and Warehousing did not include the effects of
the $1.6 million after-tax write-off in the second quarter.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
General American Transportation Company ("GATC") and GATX Terminals Corporation
("Terminals"), each subsidiaries of GATX Corporation ("the Company"), are two of
nine defendants in the matter of In re New Orleans Train Car leakage Fire
Litigation (No. 87-16374, Civil District Court for the Parish of Orleans), a
class action lawsuit arising out of a September 1987 tank car fire in the City
of New Orleans. The fire was caused by a leak of butadiene from a railcar owned
by GATC. The fire resulted in no deaths or significant injuries, and only minor
property damage, but did result in the overnight evacuation of a number of
residents from the surrounding area. Immediately after the fire a number of
lawsuits (representing approximately 8,000 claims) were brought against a number
of defendants, including GATC and its wholly-owned subsidiary, Terminals. The
suits were ultimately consolidated into a class action brought in the Civil
District Court in the Parish of Orleans (the "Trial Court"). A trial of the
claims of twenty of the plaintiffs resulted in a jury verdict in September 1997
which awarded the twenty plaintiffs approximately $1.9 million in compensatory
damages plus interest from the date of the accident. In addition, the jury
awarded punitive damages totaling $3.4 billion against five of the nine
defendants, including $190 million as to Terminals. Subsequently, the Louisiana
Supreme Court granted an application for a writ filed by one of the defendants,
CSX Transportation, Inc. ("CSX"), and on October 31, 1997, rendered an opinion
that a judgment incorporating the amount of punitive damages could not be
entered until all liability issues relating to all 8,000 class members have
been adjudicated. Having vacated the entire judgment in the process, the
Louisiana Supreme Court thus effectively precluded the defendants from seeking
immediate post-trial review of the finding of liability for punitive and
compensatory damages. Accordingly, the defendants filed a motion asking that
the Trial Court enter a judgment only on liability, and without reference to the
amount of damages, thereby permitting the defendants to seek review of the
compensatory and punitive liability findings but not the amount of damages.
In response to the defendants' motion, on June 18, 1998, the Trial Court entered
a judgment (a) finding each of the defendants responsible for compensatory
damages to the members of the plaintiff class in the specified percentages in
the jury verdict, including twenty percent as to GATC and ten percent to
Terminals, but without specifying the quantum of damages; and (b) finding five
of the defendants, including Terminals, liable for punitive damages in favor of
the plaintiff class. The Trial Court designated the judgment to be final and
appealable. On June 25, 1998, the defendants filed post judgment motions
seeking a new trial or alternatively seeking to overturn the finding of punitive
liability for lack of sufficient evidence. The motions were argued and taken
under advisement. The Trial Court has not yet released any ruling. Once that
ruling is released, GATC and Terminals will evaluate the need for appeal. The
defendants also moved the Trial Court to enter judgment on the compensatory
damages awarded by the jury to the twenty selected plaintiffs. By oral ruling
on July 17, 1998, the trial court denied the defendants' motion. The defendants
filed a writ application with the Fourth Circuit Court of Appeals (the "Fourth
Circuit") on August 17, 1998 requesting that the Fourth Circuit order the Trial
Court to enter judgment on the twenty compensatory damage verdicts. The writ
application was denied without comment on October 16, 1998. The defendants have
filed a writ of application with the Louisiana Supreme Court requesting the
court to clarify that its grant of CSX's writ application to vacate the punitive
damages judgments was not intended to preclude the entry of judgment on the
compensatory damages verdict.
Pursuant to a motion filed on behalf of the plaintiffs, the Trial Court also
ordered the commencement of trials of the claims of other members of the class.
The Defendants filed a writ application with the Fourth Circuit arguing that
additional trials should not start until exhaustion of appeals from the judgment
entered by the Trial Court. That writ was denied; a similar writ application has
been filed with the Louisiana Supreme Court.
15
<PAGE>
During a hearing conducted on September 17, 1998 the Trial Court reaffirmed its
intention to commence additional trials and directed that the plaintiffs and
defendants provide written submissions as to a new case management order which
will control the next trial or series of trials. The Trial Court will initially
address the number of plaintiffs who will appear at each trial and the means of
their selection. At this time it has not been determined when trials will
commence, which parties will be involved, or whether the trial will involve
issues of fault or only issues of causation and damages.
The Company believes that the compensatory damages awarded to the twenty
plaintiffs are excessive, and intends to pursue post-judgment review of the
awards, and if necessary, vigorous appeals of any final judgment. The Company
also believes that the punitive liability judgment is unsupported by law and
evidence. Accordingly, Terminals intends to pursue vigorous appeals of the
punitive damages liability judgment if it survives post-judgment review. In
addition, the Company further believes that the punitive damages awards rendered
by the jury are clearly excessive. If a judgment on the award against Terminals
is entered by the trial court, Terminals intends to pursue post-judgment review
in the Trial Court, and if necessary, vigorous appeal of that judgment as well.
Although more than 8,000 claims have been made, the Company believes that the
damages, if any, that are awarded to the remaining plaintiffs, whether by the
trial or appellate courts, will, on average, be substantially less than the
damages awarded to the twenty plaintiffs whose claims have been tried.
GATX and its subsidiaries are engaged in various matters of litigation including
but not limited to those matters described above and have a number of unresolved
claims pending, including proceedings under governmental laws and regulations
related to environmental matters. While the amounts claimed are substantial and
the ultimate liability with respect to such litigation and claims cannot be
determined at this time, it is the opinion of management that damages, if any,
required to be paid by GATX and its subsidiaries in the discharge of such
liability are not likely to be material to GATX's consolidated financial
position or results of operations.
Item 6. Exhibits and Reports on Form 8-K Page
(a) 11A Statement regarding computation of
basic earnings per share. 18
11B Statement regarding computation of
diluted earnings per share. 19
27 Financial Data Schedule for GATX Corporation
for the quarter ended September 30, 1998.
Submitted to the SEC along with the electronic
submission of this Quarterly Report on Form 10-Q.
(b) Form 8-K filed on July 30, 1998 reporting
adoption on July 24, 1998 of a shareholder
rights plan and an advance notice amendment
to the Company's By-Laws.
16
<PAGE>
SIGNATURE
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 CORPORATION
(Registrant)
/s/ David M. Edwards
--------------------------------------------------------------
David M. Edwards
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer)
Date: November 13, 1998
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11A
Exhibit 11A
GATX CORPORATION AND SUBSIDIARIES
______
COMPUTATION OF BASIC NET INCOME PER SHARE OF COMMON STOCK
In Millions, Except Per Share Amounts
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Average number of shares of common stock
outstanding........................................... 49.2 48.8 49.1 43.9
Net income................................................ $38.1 $28.0 $106.3 $89.4
Deduct - Dividends paid and accrued on
preferred stock....................................... - - - 6.6
---------- ---------- ----------- ----------
Net income, as adjusted................................... $38.1 $28.0 $106.3 $82.8
========== ========== =========== ==========
Basic net income per share................................ $ .78 $ .57 $ 2.16 $ 1.88
========== ========== =========== ==========
<FN>
Note: Amounts for 1997 have been restated to reflect Financial Accounting
Standards Board Statement No.128 (FAS 128), Earnings Per Share, which
was required to be adopted on December 31, 1997, and the 2-for-1 stock
split effected in June 1998.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11B
Exhibit 11B
GATX CORPORATION AND SUBSIDIARIES
_________
COMPUTATION OF DILUTED NET INCOME PER SHARE OF COMMON STOCK
In Millions, Except Per Share Amounts
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Average number of shares used to compute
basic earnings per share....................... 49.2 48.8 49.1 43.9
Shares issuable upon assumed exercise of stock
options reduced by the number of shares
which could have been purchased with the
proceeds from the exercise of the stock options
1.2 1.0 1.2 .8
Common Stock issuable upon assumed
conversion of Preferred Stock.................. .1 .1 .1 4.8
---------------- -------------- -------------- ---------------
Total shares....................................... 50.5 49.9 50.4 49.5
================ ============== ============== ===============
Net income, as adjusted per basic
computation.................................... $38.1 $28.0 $106.3 $82.8
Add - Dividends paid and accrued on
Preferred Stock................................ - - - 6.6
---------------- -------------- -------------- ---------------
Net income, as adjusted............................ $38.1 $28.0 $106.3 $89.4
================ ============== ============== ===============
Diluted net income per share....................... $ .76 $ .56 $ 2.11 $1.80
================ ============== ============== ===============
<FN>
Note: See discussion of FAS 128 and stock split on Exhibit 11A.
</FN>
</TABLE>
19
<PAGE>
EXHIBITS FILED WITH DOCUMENT
11A Statement regarding computation of
basic earnings per share.
11B Statement regarding computation of
diluted earnings per share.
27 Financial Data Schedule for GATX Corporation
for the quarter ended September 30, 1998.
Submitted to the SEC along with the electronic
submission of this Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
_________
COMPUTATION OF BASIC NET INCOME PER SHARE OF COMMON STOCK
In Millions, Except Per Share Amounts
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Average number of shares of common stock
outstanding........................................... 49.2 48.8 49.1 43.9
Net income................................................ $38.1 $28.0 $106.3 $89.4
Deduct - Dividends paid and accrued on
preferred stock....................................... - - - 6.6
---------- ---------- ----------- ----------
Net income, as adjusted................................... $38.1 $28.0 $106.3 $82.8
========== ========== =========== ==========
Basic net income per share................................ $ .78 $ .57 $ 2.16 $ 1.88
========== ========== =========== ==========
<FN>
Note: Amounts for 1997 have been restated to reflect Financial Accounting
Standards Board Statement No.128 (FAS 128), Earnings Per Share, which
was required to be adopted on December 31, 1997, and the 2-for-1 stock
split effected in June 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
GATX CORPORATION AND SUBSIDIARIES
_________
COMPUTATION OF DILUTED NET INCOME PER SHARE OF COMMON STOCK
In Millions, Except Per Share Amounts
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Average number of shares used to compute
basic earnings per share....................... 49.2 48.8 49.1 43.9
Shares issuable upon assumed exercise of stock
options reduced by the number of shares
which could have been purchased with the
proceeds from the exercise of the stock options
1.2 1.0 1.2 .8
Common Stock issuable upon assumed
conversion of Preferred Stock.................. .1 .1 .1 4.8
---------------- -------------- -------------- ---------------
Total shares....................................... 50.5 49.9 50.4 49.5
================ ============== ============== ===============
Net income, as adjusted per basic
computation.................................... $38.1 $28.0 $106.3 $82.8
Add - Dividends paid and accrued on
Preferred Stock................................ - - - 6.6
---------------- -------------- -------------- ---------------
Net income, as adjusted............................ $38.1 $28.0 $106.3 $89.4
================ ============== ============== ===============
Diluted net income per share....................... $ .76 $ .56 $ 2.11 $1.80
================ ============== ============== ===============
<FN>
Note: See discussion of FAS 128 and stock split on Exhibit 11A.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Balance Sheet and Consolidate Income Statement of GATX
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 1084
<ALLOWANCES> 129<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 4557
<DEPRECIATION> 1908
<TOTAL-ASSETS> 4785
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 2759<F3>
0
0
<COMMON> 17
<OTHER-SE> 698
<TOTAL-LIABILITY-AND-EQUITY> 4785
<SALES> 0
<TOTAL-REVENUES> 1306
<CGS> 0
<TOTAL-COSTS> 613<F4>
<OTHER-EXPENSES> 193<F5>
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 132<F6>
<INCOME-TAX> 57
<INCOME-CONTINUING> 106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.11
<FN>
<F1>Receivables consist of three components: Trade Accounts of 158 million,
Finance Leases of 669 million, and Secured Loans of 257 million.
<F2>Not applicable because GATX has an unclassified balance sheet.
<F3>Bonds consist of three components: Recourse Long-term debt of 2,186
million, Nonrecourse long-term debt of 370 million and Capital lease obligations
of 203 million.
<F4>This value represents operating expenses on the Consolidated Income State-
ment.
<F5>This value represents the provision for depreciation and amortization on
the Consolidated Income Statement.
<F6>This value represent income before income taxes and equity in earnings of
affiliates.
</FN>
</TABLE>
