<PAGE> 1
================================================================================
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
JUNE 30, 2000 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 47,500,109 SHARES OF COMMON STOCK OUTSTANDING AS OF JULY 31,
2000.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
GROSS INCOME
Lease, interest and financing services $ 317.5 $ 283.9 $ 607.7 $ 536.2
Other (expense) income (1.1) 32.3 (2.3) 68.7
------- ------- ------- -------
REVENUES 316.4 316.2 605.4 604.9
Share of affiliates' earnings 26.1 14.9 46.1 29.3
------- ------- ------- -------
TOTAL GROSS INCOME 342.5 331.1 651.5 634.2
OWNERSHIP COSTS
Depreciation and amortization 79.4 58.5 158.8 113.4
Interest 59.4 44.3 113.4 86.4
Operating lease expense 42.7 37.7 82.7 75.6
------- ------- ------- -------
TOTAL OWNERSHIP COSTS 181.5 140.5 354.9 275.4
OTHER COSTS AND EXPENSES
Operating expenses 52.0 82.2 82.8 152.0
Selling, general and administrative 51.3 54.5 92.6 97.2
Provision for possible losses 2.0 2.8 4.0 5.5
------- ------- ------- -------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 55.7 51.1 117.2 104.1
INCOME TAXES 23.3 18.5 47.2 39.9
------- ------- ------- -------
INCOME FROM CONTINUING
OPERATIONS 32.4 32.6 70.0 64.2
DISCONTINUED OPERATIONS (2):
Operating results 4.4 5.5 7.4 13.1
Gain on sale of portion of segment 4.7 -- 4.7 --
------- ------- ------- -------
NET INCOME $ 41.5 $ 38.1 $ 82.1 $ 77.3
======= ======= ======= =======
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
------------------ ---------------
<S> <C> <C> <C> <C>
PER COMMON SHARE
Basic net income per share
Income from continuing operations $ .68 $ .66 $1.46 $1.29
Income from discontinued operations .19 .11 .25 .27
----- ----- ----- -----
Total .87 .77 1.71 1.56
Diluted net income per share
Income from continuing operations .67 .64 1.43 1.27
Income from discontinued operations .19 .11 .25 .26
----- ----- ----- -----
Total .86 .75 1.68 1.53
Dividends paid $ .30 $.275 $ .60 $ .55
</TABLE>
(1) The consolidated balance sheet at December 31, 1999 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 six months
ended June 30, 2000 are not necessarily indicative of the results that may
be achieved for the entire year ending December 31, 2000. Certain amounts
in 1999 have been reclassified to conform to the current presentation.
(2) Discontinued operations - Operating results for the former Integrated
Solutions Group segment are shown net of taxes of $2.3, $4.6, $4.4, and
$10.9, respectively, for the four periods displayed. Gain on sale reflects
the sale of 81% of GATX Logistics, Inc. and is stated net of income tax
benefit of $5.7 million.
2
<PAGE> 4
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
-------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 104.8 $ 102.5
RECEIVABLES
Trade accounts 116.5 153.6
Finance leases 747.7 645.7
Secured loans 505.0 358.0
Less - Allowance for possible losses (108.9) (115.7)
-------- --------
1,260.3 1,041.6
OPERATING LEASE ASSETS AND FACILITIES
Railcars and service facilities 2,627.6 2,698.7
Tank storage terminals and pipelines 1,478.9 1,221.7
Operating lease investments and other 1,463.8 1,404.5
-------- --------
5,570.3 5,324.9
Less - Allowance for depreciation (2,104.1) (2,042.9)
-------- --------
3,466.2 3,282.0
INVESTMENTS IN AFFILIATED COMPANIES 963.5 957.3
OTHER ASSETS 472.3 483.4
-------- --------
$6,267.1 $5,866.8
======== ========
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
-------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 334.8 $ 372.3
ACCRUED EXPENSES 62.0 65.8
DEBT
Short-term 606.5 377.4
Long-term:
Recourse 2,899.9 2,785.7
Nonrecourse 518.0 463.8
Capital lease obligations 170.5 183.1
-------- --------
4,194.9 3,810.0
DEFERRED INCOME TAXES 520.5 457.2
OTHER DEFERRED ITEMS 317.5 325.5
-------- --------
TOTAL LIABILITIES AND DEFERRED ITEMS 5,429.7 5,030.8
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 34.6 34.5
Additional capital 343.9 338.7
Reinvested earnings 596.4 543.0
Accumulated other comprehensive (loss) income (9.6) 1.2
-------- --------
965.3 917.4
Less - Cost of common shares in treasury (127.9) (81.4)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 837.4 836.0
-------- --------
$6,267.1 $5,866.8
======== ========
</TABLE>
4
<PAGE> 6
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
---------------- ----------------
2000 1999 2000 1999
------- ------- ------ -------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 41.5 $ 38.1 $ 82.1 $ 77.3
Adjustments to reconcile net income
to net cash provided by operating activities:
Realized gains on remarketing of leased equipment (10.0) (28.7) (19.8) (46.9)
Depreciation and amortization 95.0 72.2 191.0 140.7
Provision for possible losses 2.2 2.9 4.4 5.5
Deferred income taxes 10.2 26.0 43.2 43.3
Net change in trade receivables, inventories,
accounts payable and accrued expenses 12.9 (13.5) (37.5) (62.5)
Other (34.1) (39.4) (58.7) (30.4)
------ ------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 117.7 57.6 204.7 127.0
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (166.1) (115.7) (362.8) (217.2)
Portfolio lease investments, net of nonrecourse financing
for leveraged leases (135.7) (95.1) (291.6) (183.7)
Secured loans extended (102.6) (57.0) (216.5) (131.6)
Investments in affiliated companies (74.3) (28.2) (127.7) (95.8)
Other investments and progress payments (97.0) (13.9) (105.6) (23.9)
------ ------ ------ ------
Capital additions and portfolio investments (575.7) (309.9) (1,104.2) (652.2)
Portfolio proceeds:
From remarketing of leased equipment 33.1 70.3 45.1 142.8
From return of investment 88.1 50.4 175.3 119.9
------ ------ ------ ------
Total portfolio proceeds 121.2 120.7 220.4 262.7
Proceeds from other asset sales 363.0 8.8 381.2 52.0
------ ------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (91.5) (180.4) (502.6) (337.5)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 659.1 186.9 780.8 306.7
Repayment of long-term debt (552.4) (140.9) (611.6) (270.1)
Net (decrease) increase in short-term debt (126.7) 122.8 203.7 237.9
Other receipts (advances) 7.3 (43.9) 7.3 (43.9)
Repayment of capital lease obligations (3.5) (3.1) (10.1) (10.8)
(Repurchase) issuance of common stock and other (14.7) 1.9 (41.2) 5.2
Cash dividends (14.2) (13.6) (28.7) (27.2)
------ ------ ------ ------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (45.1) 110.1 300.2 197.8
------ ------ ------ ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $(18.9) $(12.7) $ 2.3 $(12.7)
====== ====== ====== ======
</TABLE>
5
<PAGE> 7
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 41.5 $ 38.1 $ 82.1 $ 77.3
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment (7.5) 3.1 (20.2) 1.8
Unrealized (loss) gain on securities, net of
reclassification adjustments (a) (6.3) 12.0 9.4 10.6
------- ------- ------- -------
Other comprehensive (loss) income (13.8) 15.1 (10.8) 12.4
------- ------- ------- -------
COMPREHENSIVE INCOME $ 27.7 $ 53.2 $ 71.3 $ 89.7
======= ======= ======= =======
(a) Reclassification adjustments:
Unrealized (loss) gain on securities $ (1.1) $ 13.3 $ 23.1 $ 14.2
Less - Reclassification adjustment for gains
realized included in net income (5.2) (1.3) (13.7) (3.6)
------- ------- ------- -------
Net unrealized (loss) gain on securities $ (6.3) $ 12.0 $ 9.4 $ 10.6
======= ======= ======= =======
</TABLE>
6
<PAGE> 8
GATX CORPORATION AND SUBSIDIARIES
FINANCIAL DATA OF BUSINESS SEGMENTS FOR CONTINUING OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FINANCIAL CORPORATE
GATX RAIL SERVICES AND OTHER INTERSEGMENT TOTAL
--------- --------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------
PROFITABILITY
Revenues $ 144.3 $ 173.2 $ .4 $ (1.5) $ 316.4
Share of affiliates' earnings .8 25.3 - - 26.1
---------------------------------------------------------------------
Gross income 145.1 198.5 .4 (1.5) 342.5
Interest expense 13.8 43.6 2.5 (.5) 59.4
Depreciation and amortization 24.5 53.9 .4 .6 79.4
Income (loss) from continuing
operations before taxes 29.0 35.4 (8.5) (.2) 55.7
Income (loss) from continuing
operations 17.9 21.1 (6.5) (.1) 32.4
FINANCIAL POSITION
Debt 737.2 2,628.1 98.7 (5.9) 3,458.1
Equity 337.0 432.5 (40.5) (3.0) 726.0
Investments in affiliated companies 92.8 768.6 (.2) - 861.2
Identifiable assets 1,624.0 3,575.3 44.2 (64.1) 5,179.4
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 45.9 65.9 (11.7) - 100.1
Portfolio proceeds - 121.2 - - 121.2
---------------------------------------------------------------------
Total cash provided (used) 45.9 187.1 (11.7) - 221.3
Capital additions and portfolio
investments 143.3 421.1 (.1) - 564.3
----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------
PROFITABILITY
Revenues $ 141.1 $ 177.7 $ .1 $ (2.7) $ 316.2
Share of affiliates' earnings .9 14.0 - - 14.9
---------------------------------------------------------------------
Gross income 142.0 191.7 .1 (2.7) 331.1
Interest expense 13.1 29.8 1.8 (.4) 44.3
Depreciation and amortization 24.9 32.6 .2 .8 58.5
Income (loss) from continuing
operations before taxes 27.9 31.4 (6.9) (1.3) 51.1
Income (loss) from continuing
operations 17.5 20.8 (4.8) (.9) 32.6
FINANCIAL POSITION AT DECEMBER 31, 1999
Debt 831.0 2,255.3 67.6 (8.8) 3,145.1
Equity 327.5 362.8 (65.9) (5.0) 619.4
Investments in affiliated companies 91.3 665.5 .7 - 757.5
Identifiable assets 1,693.8 3,088.9 29.8 (112.1) 4,700.4
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 45.3 17.8 (17.0) - 46.1
Portfolio proceeds - 120.7 - - 120.7
---------------------------------------------------------------------
Total cash provided (used) 45.3 138.5 (17.0) - 166.8
Capital additions and portfolio
investments 101.3 196.7 .5 - 298.5
----------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 9
GATX CORPORATION AND SUBSIDIARIES
FINANCIAL DATA OF BUSINESS SEGMENTS FOR CONTINUING OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
FINANCIAL CORPORATE
GATX RAIL SERVICES AND OTHER INTERSEGMENT TOTAL
--------- --------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
PROFITABILITY
Revenues $ 284.5 $ 323.2 $ .6 $ (2.9) $ 605.4
Share of affiliates' earnings 1.9 44.2 - - 46.1
---------------------------------------------------------------------
Gross income 286.4 367.4 .6 (2.9) 651.5
Interest expense 28.5 81.8 4.1 (1.0) 113.4
Depreciation and amortization 50.3 106.4 .8 1.3 158.8
Income (loss) from continuing
operations before taxes 58.3 72.8 (13.8) (.1) 117.2
Income (loss) from continuing
operations 36.4 44.0 (10.3) (.1) 70.0
FINANCIAL POSITION
Debt 737.2 2,628.1 98.7 (5.9) 3,458.1
Equity 337.0 432.5 (40.5) (3.0) 726.0
Investments in affiliated companies 92.8 768.6 (.2) - 861.2
Identifiable assets 1,624.0 3,575.3 44.2 (64.1) 5,179.4
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 99.2 114.3 (20.4) - 193.1
Portfolio proceeds - 220.4 - - 220.4
---------------------------------------------------------------------
Total cash provided (used) 99.2 334.7 (20.4) - 413.5
Capital additions and portfolio
investments 274.7 747.7 .2 - 1,022.6
-----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
PROFITABILITY
Revenues $ 278.7 $ 329.1 $ .7 $ (3.6) $ 604.9
Share of affiliates' earnings 1.8 27.5 - - 29.3
---------------------------------------------------------------------
Gross income 280.5 356.6 .7 (3.6) 634.2
Interest expense 25.5 58.3 3.4 (.8) 86.4
Depreciation and amortization 49.3 62.5 .6 1.0 113.4
Income (loss) from continuing
operations before taxes 55.8 61.8 (12.3) (1.2) 104.1
Income (loss) from continuing
operations 35.0 38.4 (8.3) (.9) 64.2
FINANCIAL POSITION AT DECEMBER 31, 1999
Debt 831.0 2,255.3 67.6 (8.8) 3,145.1
Equity 327.5 362.8 (65.9) (5.0) 619.4
Investments in affiliated companies 91.3 665.5 .7 - 757.5
Identifiable assets 1,693.8 3,088.9 29.8 (112.1) 4,700.4
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 87.4 49.6 (24.5) - 112.5
Portfolio proceeds - 262.7 - - 262.7
---------------------------------------------------------------------
Total cash provided (used) 87.4 312.3 (24.5) - 375.2
Capital additions and portfolio
investments 203.5 412.2 1.3 - 617.0
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FIRST SIX MONTHS OF 2000
TO FIRST SIX MONTHS OF 1999
GATX Corporation's net income for the first six months of 2000 was $82 million,
a 6% increase from the $77 million for the same period in 1999. Earnings per
share on a diluted basis increased to $1.68 from $1.53 for the 1999 period.
On July 11, 2000, GATX Corporation announced its intention to sell GATX
Terminals Corporation, a wholly owned subsidiary of GATX Rail Corporation and a
member of the Integrated Solutions Group. Additionally, in the second quarter
GATX Corporation divested 81% of GATX Logistics, Inc., also a member of the
Integrated Solutions Group. As a result of these actions, operating results for
the Integrated Solutions Group have been segregated as discontinued operations
in the consolidated statements of income. Current period results from
discontinued operations include a $5 million gain related to the sale of GATX
Logistics, Inc. Prior year results of operations have been restated to reflect
the current year's presentation of the Integrated Solutions Group as a
discontinued operation.
RESULTS OF CONTINUING OPERATIONS
GATX Corporation's gross income from continuing operations of $652 million was
$17 million higher than the prior year. Net income from continuing operations
for the first six months of 2000 was $70 million compared to $64 million for the
first six months of 1999. Diluted earnings per share from continuing operations
increased 13% to $1.43 from $1.27 for the prior year period.
GATX RAIL
GATX Rail's gross income for the first six months of 2000 increased slightly
over the prior year period due to a larger active fleet. Approximately 85,200
tank and freight cars were on lease throughout North America at June 30, 2000,
compared to 82,300 railcars a year ago. The revenue increase associated with a
larger active fleet was partially offset by lower average rental rates.
Growth in the active domestic fleet and rental rates has been slowed by industry
factors. Consolidation among major chemical customers has led to fleet
rationalization, and railroads have improved efficiency following a period of
merger-related congestion. These factors are expected to continue affecting car
demand and lease rates during the second half of the year. Due to the current
market conditions, GATX Rail's utilization decreased to 93% as of June 30, 2000
from 94% at the end of prior year period, reflecting an increase in the number
of idle railcars.
The increase in net income for the six-month period was driven by a larger
active fleet and lower operating and SG&A costs offset by the slower
introduction into the market of recently acquired new railcars and more
competitive lease rates.
9
<PAGE> 11
FINANCIAL SERVICES
Financial Services' gross income increased 3% from the prior year period.
Comparisons between periods are affected by the sale of the value-added
technology equipment sales and service business (VAR) in June 1999. Excluding
VAR, gross income increased 29% over the prior year primarily due to an increase
in lease income generated from a larger lease portfolio and an increase in the
share of affiliates' earnings. The increase in lease income was predominately
driven by growth in the technology portfolio. Asset remarketing income decreased
$31 million from the prior year period but was partially offset by a $14 million
increase in gains from stock sales. Asset remarketing income includes both gains
from asset sales and residual sharing fees. Asset remarketing income and gains
from the sale of stock do not occur evenly from period to period.
Net income of $44 million increased 15% from last year as a result of higher
lease income and increases in share of affiliates' earnings and gains from the
sale of stock. These increases were partially offset by higher ownership costs
associated with increased investment activity.
CORPORATE AND OTHER
Corporate and Other net expense was $10 million for the first six months of
2000, compared with $8 million for the prior year period. The increase in net
expense is largely due to lower insurance proceeds partially offset by a
favorable settlement of an environmental claim.
RESULTS OF DISCONTINUED OPERATIONS
The Integrated Solutions Group segment is comprised of GATX Terminals
Corporation (Terminals), GATX Logistics, Inc. (Logistics), and minor business
development efforts. On May 31, 2000, GATX Corporation sold 81% of its interest
in Logistics. In addition, on July 11, 2000 GATX Corporation announced its
intention to sell Terminals. As a result of these actions, the Integrated
Solutions Group segment is no longer considered to be an ongoing operation, and
its results have been segregated as discontinued operations in the accompanying
consolidated statements of income.
Operating results for the first six months of 2000 were $7 million, down $6
million from the prior year period. Strong results in the domestic terminal and
pipeline business were offset largely by losses incurred in the now sold
warehousing business, a nonrecurring gain recognized last year on the sale of
rights along the Central Florida Pipeline, higher business development costs,
and lower affiliate contribution from Olympic Pipeline Company (Olympic).
The sale of 81% of GATX's interest in Logistics generated a $5 million gain
primarily related to tax benefits.
Terminals owns 25.1% of the common shares of Olympic Pipeline Company. On
June 10, 1999, a pipeline rupture and explosion occurred on one of the pipelines
owned by Olympic. The affected section of the pipeline is not expected to resume
operations until next year. Several lawsuits have been filed against Olympic and
its operator. Subsequent to the end of the quarter, Terminals entered into an
agreement to sell its interest in Olympic. The consummation of the transaction
is subject to several contingencies, including the expiration of the
Hart-Scott-Rodino waiting period.
10
<PAGE> 12
CASH FLOW AND LIQUIDITY
Net cash provided by operating activities for the first six months of 2000 was
$205 million, a $78 million increase from last year's period, due to higher
depreciation taken in the current year, the timing of working capital
requirements and lower asset remarketing gains. All cash received from asset
dispositions, including gain and return of principal, is included in investing
activities as portfolio proceeds or other asset sales.
Portfolio proceeds decreased $42 million from the comparable 1999 period. The
decrease in proceeds from the remarketing of leased equipment was partially
offset by an increase in the return of investment, including an increase in loan
principal receipts and the return of capital distributions from joint venture
investments. Proceeds from other asset sales of $381 million increased $329
million from last year's period and include the proceeds from the sale-leaseback
of railcars at GATX Rail and the sale of GATX Logistics, Inc.
Capital additions and portfolio investments for the first six months of 2000
totaled $1.1 billion, an increase of $452 million from the first six months of
1999. GATX Rail invested $275 million, a $71 million increase from the six-month
period of 1999, in its railcar fleet, facilities, and international affiliates.
This increase reflects an investment in approximately 1,100 additional railcars
as compared with the prior year period. Portfolio investments at Financial
Services of $748 million were $336 million higher than the prior year and
primarily reflect investments in air and technology assets and joint ventures.
Future capital additions and portfolio investments are dependent on market
conditions and opportunities to acquire desirable assets. Railcar additions at
GATX Rail are not anticipated to continue at the same rate for the remaining
six-month period of 2000 because of current market conditions. Internally
generated cash flow and GATX's external financing sources will be used to fund
future capital additions and portfolio investments.
Cash provided by financing activities increased $102 million due to the high
level of current period capital additions and portfolio investments. During the
six-month period, $781 million of long-term debt was issued and $612 million of
long-term debt obligations were repaid. Short-term debt increased $204 million.
The increase in short-term debt and long-term debt primarily reflects activity
at Financial Services. The decrease in capital lease obligations is partially
attributable to the absence of GATX Logistics at June 30, 2000, which had a $7
million balance at year-end. During 2000, GATX used $46 million to repurchase
1.4 million common shares to substantially complete the company's stock
repurchase program announced in 1999.
GATX, through its subsidiaries, had unused committed lines of credit of $337
million at June 30, 2000. GATX Rail Corporation (GRC) issued $30 million of
medium-term notes and $30 million of long-term money market lines during the
first six months of 2000. GATX Capital issued $150 million of medium-term notes
and $571 million in nonrecourse debt during the first six months of 2000.
Additional financing needs were met by cash flow from operations, portfolio
proceeds, proceeds from other asset sales that included two sale-leaseback
financings and short-term debt. GRC has a $650 million shelf registration for
pass-through certificates and debt securities of which $477 million has been
issued through June 30, 2000. GATX Capital has a shelf registration for
$1.015 billion of which $150 million has been issued.
11
<PAGE> 13
Other Matters
The Financial Accounting Standards Board issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS No. 133) in June 1998.
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.
GATX utilizes fundamental derivatives to hedge changes in interest rates and
foreign currencies. In July 1999, Statement No. 137 was issued which deferred
the effective date of SFAS No. 133 for one year. SFAS No. 133 is now required to
be adopted in years beginning after June 15, 2000. In June 2000, Statement No.
138 was issued which amended the accounting and reporting standards of SFAS No.
133 for certain derivative instruments and hedging activities. Management is
currently assessing the effect that the adoption of SFAS No. 133 will have on
the company's financial position, results of operations, and cash flows. GATX
expects to adopt SFAS No. 133, as amended, effective January 1, 2001.
Management's discussion includes statements that 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
uncertainties 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
uncertainties include, but are not limited to, unanticipated changes in the
markets served by GATX such as the rail, air, technology, petroleum, chemical
and steel industries.
COMPARISON OF SECOND QUARTER 2000
TO SECOND QUARTER 1999
Second quarter consolidated net income was $42 million or $.86 per share on a
diluted basis compared to $38 million or $.75 per share on a diluted basis in
the prior year period. For the second quarter of 2000 net income from continuing
operations was $32 million or $.67 per share, on a diluted basis, as compared to
$33 million or $.64 per share for the second quarter of 1999. Earnings per share
was favorably affected by the repurchase of common stock.
Increases and decreases in gross income and net income (loss) between second
quarter 2000 and second quarter 1999 for continuing operations and discontinued
operations were principally due to the reasons described above in relation to
the six-month period.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Calnev Pipe Line Company, a wholly owned subsidiary of GATX Terminals
Corporation, was served with ten Notices of Violation by the Mojave Desert Air
Quality Management District with respect to alleged violations of the California
Health and Safety Code relating to air quality compliance at the terminal
located in Daggett, California. The civil penalties assessed under the Notices
of Violation are less than $300,000 in the aggregate.
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 relating 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 could be material to the results of operations for a
given quarter or year but are not likely to be material to GATX's consolidated
financial position.
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<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
(a) 11A Computation of Basic Net Income Per Share of Common Stock. 15
11B Computation of Diluted Net Income Per Share of Common Stock. 16
27 Financial Data Schedule for GATX Corporation for the quarter
ended June 30, 2000. Submitted to the SEC along with the
electronic submission of this Quarterly Report on Form 10-Q.
(b) Form 8-K filed on July 12, 2000 reporting GATX Corporation's intention
to sell GATX Terminals Corporation, its wholly owned subsidiary
specializing in the storage and distribution of bulk petroleum and
chemical products.
</TABLE>
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/ Brian A. Kenney
-------------------------
Brian A. Kenney
Vice President and
Chief Financial Officer
(Duly Authorized Officer)
Date: August 14, 2000
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