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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
March 31, 1997 1-2328
GATX Corporation
Incorporated in the IRS Employer Identification No.
State of New York 36-1124040
500 West Monroe Street
Chicago, Illinois 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 20,421,256 shares of common stock outstanding as of
April 30, 1997.
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PART I--FINANCIAL INFORMATION
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
In Millions, Except Per Share Amounts
Three Months Ended
March 31
------------------
1997 1996
---- ----
Gross income ........................................... $ 394.6 $ 303.6
Costs and expenses
Operating expenses ................................ 183.3 150.0
Interest .......................................... 51.5 43.9
Provision for depreciation and amortization ....... 60.1 44.5
Provision for possible losses ..................... 2.2 3.0
Selling, general and administrative ............... 53.0 31.9
------- -------
350.1 273.3
------- -------
Income before income taxes and equity in
net earnings of affiliated companies .............. 44.5 30.3
Income taxes ........................................... 19.2 12.1
------- -------
Income before equity in net earnings of affiliated
companies ......................................... 25.3 18.2
Equity in net earnings of affiliated companies ......... 5.9 6.5
------- -------
Net income ............................................. $ 31.2 $ 24.7
======= =======
Per common share:
Net income ........................................ $ 1.35 $ 1.05
Net income, assuming full dilution ................ 1.27 1.01
Dividends declared ................................ .46 .43
<FN>
Note - The consolidated balance sheet at December 31, 1996 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 three months ended March 31, 1997 are not
necessarily indicative of the results that may be achieved for the entire year
ending December 31, 1997.
</FN>
1
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Millions
ASSETS
March 31 December 31
1997 1996
-------- -----------
(Unaudited)
Cash and cash equivalents .......................... $ 49.9 $ 46.2
Receivables
Trade accounts ................................ 101.4 130.1
Finance leases ................................ 704.6 761.3
Secured loans ................................. 193.0 222.6
Less - Allowance for possible losses .......... (124.4) (121.1)
-------- --------
874.6 992.9
Operating lease assets and facilities
Railcars and support facilities ............... 2,506.1 2,436.5
Tank storage terminals and pipelines .......... 1,374.5 1,377.8
Great Lakes vessels ........................... 199.3 199.3
Operating lease investments and other ......... 604.8 605.6
-------- --------
4,684.7 4,619.2
Less - Allowance for depreciation ............. (1,806.8) (1,772.8)
-------- --------
2,877.9 2,846.4
Investments in affiliated companies ................ 474.3 464.2
Other assets ....................................... 433.0 400.5
-------- --------
TOTAL ASSETS ....................................... $4,709.7 $4,750.2
======== ========
2
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
March 31 December 31
1997 1996
--------- -----------
(Unaudited)
Accounts payable ................................... $ 274.6 $ 312.6
Accrued expenses ................................... 78.1 51.7
Debt
Short-term debt ............................... 349.3 243.8
Long-term debt ................................ 2,300.1 2,436.9
Capital lease obligations ..................... 221.0 227.2
-------- --------
2,870.4 2,907.9
Deferred income taxes .............................. 336.4 339.2
Other deferred items ............................... 362.3 363.9
-------- --------
Total liabilities and deferred items ...... 3,921.8 3,975.3
Shareholders' equity
Preferred Stock ............................... 3.4 3.4
Common Stock .................................. 14.5 14.4
Additional capital ............................ 331.9 329.0
Reinvested earnings ........................... 482.2 463.7
Cumulative unrealized equity adjustments ...... 2.7 11.4
-------- --------
834.7 821.9
Less - Cost of common shares in treasury ...... (46.8) (47.0)
-------- --------
Total shareholders' equity ................ 787.9 774.9
-------- --------
TOTAL LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDERS' EQUITY ...................... $4,709.7 $4,750.2
======== ========
3
GATX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
In Millions
Three Months Ended
March 31
-----------------
1997 1996
------ -----
OPERATING ACTIVITIES
Net income .................................................. $ 31.2 $ 24.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Realized gain on disposition of leased equipment .. (26.1) (7.2)
Provision for depreciation and amortization ....... 60.1 44.5
Provision for possible losses ..................... 2.2 3.0
Deferred income taxes ............................. (1.4) 3.6
Net change in trade receivables, inventories,
accounts payable and accrued expenses ................. 19.0 (2.6)
Other ....................................................... (27.9) (15.9)
------ ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .............................. 57.1 50.1
INVESTING ACTIVITIES
Additions to operating lease assets and facilities .......... (95.3) (119.6)
Additions to equipment on lease, net of nonrecourse financing
for leveraged leases .................................. (51.0) (72.4)
Secured loans extended ...................................... (2.5) (19.3)
Investments in affiliated companies ......................... (14.0) (16.3)
Progress payments and other ................................. (18.0) (22.3)
------ ------
Capital additions and portfolio investments ........... (180.8) (249.9)
Portfolio proceeds:
From disposition of leased equipment .................. 88.7 24.8
From return of investment ............................. 72.5 52.0
------ ------
Total portfolio proceeds .......................... 161.2 76.8
Proceeds from other asset dispositions ...................... 1.8 .9
------ ------
NET CASH (USED IN) INVESTING ACTIVITIES ............... (17.8) (172.2)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................... 40.5 200.4
Repayment of long-term debt ................................. (170.3) (125.5)
Net increase in short-term debt ............................. 110.0 61.2
Repayment of capital lease obligations ...................... (6.2) (6.0)
Issuance of common stock under employee benefit programs .... 3.1 .6
Cash dividends .............................................. (12.7) (12.0)
------ ------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ............................. (35.6) 118.7
------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................. $ 3.7 $ (3.4)
====== ======
4
MANAGEMENT'S DISCUSSION OF OPERATIONS
COMPARISON OF FIRST THREE MONTHS OF 1997
TO FIRST THREE MONTHS OF 1996
GENERAL
GATX Corporation's net income for the first quarter of 1997 was $31 million or
$1.35 per common share compared to net income of $25 million or $1.05 per common
share for the first quarter of 1996. On a fully diluted basis, earnings per
share were $1.27 compared to fully diluted earnings of $1.01 per share for the
1996 period. Due to record asset remarketing income at Financial Services, it is
expected that this will be GATX's highest quarter for 1997.
Gross income increased by 30% while net income increased by 26% as a result of
strong asset remarketing gains (Financial Services) as well as growth in the
leased railcar fleet and incremental income from Canadian operations
(Transportation). The 1997 first quarter results reflect Transportation's
mid-1996 acquisition of the remaining interest in its Canadian subsidiary, CGTX,
Inc. Gross income for the first quarter of 1997 also increased due to equipment
sales at Financial Services' Centron subsidiary; the remaining 50% interest in
Centron was acquired in late October 1996. These increases were partially offset
by lower revenues at GATX's terminals and pipelines segment (Terminals). In
addition, corporate expense was higher in 1997 primarily due to the reversal of
a $2.6 million after-tax litigation reserve in 1996.
Operating activities provided $57 million of cash flow, an increase of $7
million from the 1996 first quarter. The $19 million increase in realized gains
on disposition of leased equipment effectively decreased cash from operating
activities as the full amount of proceeds was included in investing activities
as portfolio proceeds.
Capital additions and portfolio investments for the quarter totaled $181
million, a decrease of $69 million from the 1996 first quarter. Portfolio
investments for the quarter at Financial Services of $86 million were
$44 million less than the prior year. Transportation invested $83 million in
its railcar fleet versus $80 million in last year's first quarter. Terminals'
capital spending of $11 million was $26 million less than last year as the
1996 first quarter included $20 million attributable to the now completed
Central Florida Pipeline expansion project. Full year capital spending is
forecast to be approximately $400 million compared to the $527 million expended
in 1996, which included the acquisition of CGTX. Portfolio investments are
projected to approximate $550 million compared to the $659 million expended in
1997. These projections may change significantly depending on market conditions
and opportunities to acquire portfolios of desirable assets. It is
anticipated that capital expenditures and portfolio investments will be
funded by both internally generated funds and GATX's available external
financing sources.
GATX, through its subsidiaries, had available unused committed lines of credit
of $500 million at March 31, 1997. General American Transportation
Corporation (GATC) has a $650 million shelf registration for pass through
trust certificates and debt securities, under which $207 million of pass
through trust certificates have been issued; no notes were issued during the
quarter. GATX Capital has a $300 million shelf registration, under which
$268 million of medium-term notes have been issued; GATX Capital did not issue
any medium-term notes during the quarter.
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
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.
5
RESULTS OF OPERATIONS
Following is a discussion of the operating results of GATX's business segments:
RAILCAR LEASING AND MANAGEMENT (TRANSPORTATION)
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Three Months Ended
(In Millions) March 31
------------------
1997 1996 Change
---- ----- ----------------
Gross Income $116.2 $ 97.2 $ 19.0 20%
Net Income $ 18.0 $ 15.7 $ 2.3 15%
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Transportation's gross income for the first quarter of 1997 increased 20% from
the comparable prior year period. The consolidation of CGTX accounted for $14
million of the increase, with the remaining revenue increase primarily due to
approximately 2,400 more cars on lease as well as higher overall average lease
rates. About 73,900 tank and freight railcars were on lease throughout North
America at quarter end, including 8,900 cars in Canada. With a total fleet of
78,700 railcars, utilization ended the quarter at 94%, up from about 93% at
March 31, 1996. For the first three months, almost 1,300 new and existing
railcars were acquired, roughly comparable to the first quarter of 1996.
Net income increased 15% from the first quarter of 1996 primarily due to the
same reasons that revenues increased. While all major cost areas (asset
ownership, repairs, and SG&A) increased, total costs as a percentage of revenue
were approximately the same as for the first quarter of 1996. Because the
majority of U.S. railcar additions have been financed using sale-leasebacks
in recent years, those asset ownership costs are included as operating lease
expense (a component of operating expenses), whereas CGTX's railcars are
financed with debt and, therefore, CGTX asset ownership costs are recorded as
depreciation and interest. For the first quarter of 1996, the operating
results for CGTX were recorded as equity in net earnings of affiliates, whereas
for the first quarter of 1997, CGTX's revenues and costs were fully
consolidated.
FINANCIAL SERVICES
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Three Months Ended
(In Millions) March 31
-------------------
1997 1996 Change
----- ---- ------------------
Gross Income $144.4 $ 61.8 $ 82.6 134%
Net Income $ 22.9 $ 9.2 $ 13.7 149%
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6
Gross income at Financial Services of $144 million increased $83 million from
the prior year quarter due to higher asset remarketing income, new lease and
loan volume, and the acquisition of Centron in late 1996. Asset remarketing
income includes both asset disposition gains and residual sharing fees. Pretax
disposition gains were $25 million for the first quarter of 1997 compared to $7
million for the first quarter of 1996. Fee income of $14 million increased $11
million over the prior year's quarter as a result of residual sharing fees
related to the sale of assets from its managed portfolio. Asset remarketing
income does not occur evenly period to period, and it is expected that this will
be Financial Services' highest quarter for 1997.
Net income was a record $23 million, a $14 million increase over the 1996 first
quarter due to the increased gross income, partially offset by increased
interest, SG&A, and operating lease expenses. The provision for possible losses
of $2 million decreased $1 million from the prior year. The loss reserve at
March 31, 1997, was $118 million compared to $114 million at December 31, 1996,
reflecting the year-to-date provision and recoveries.
TERMINALS AND PIPELINES
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Three Months Ended
(In Millions) March 31
-------------------
1997 1996 Change
----- ----- -----------------
Gross Income $ 70.5 $ 72.8 $ (2.3) (3)%
Net Income (Loss) $ (1.4) $ 4.7 $ (6.1) (130)%
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Terminals' 1997 first quarter gross income declined 3% from the year ago period.
Petroleum storage pricing pressures have continued from last year. Low petroleum
inventory levels have created a supply-demand imbalance, substantially weakening
the petroleum bulk liquid storage market. While the petroleum storage market has
been and continues to be difficult, chemical storage revenue has remained
more steady, and Terminals' pipelines reported a revenue increase as
compared to the first quarter of 1996. Throughput of petroleum and chemical
products at Terminals' facilities was 165 million barrels compared to
169 million barrels for the first three months of 1996. Capacity utilization at
wholly-owned facilities was 89% at the end of the quarter versus 85% a year ago.
Terminals reported a $1.4 million loss for the quarter, a significant decrease
from last year's $4.7 million profit. Included in first quarter 1997 results is
$1.8 million (pretax) of costs for transformation initiatives as Terminals
continues its rationalization process and evaluation of its markets and
facilities. Asset ownership costs (depreciation and interest) were approximately
$4 million over the prior year's quarter reflecting the full impact of business
expansion and facilities improvements in the prior year. Due to the decrease in
revenues, asset ownership costs now represent a higher percentage of revenues.
Equity in net earnings of affiliated companies were $2.2 million, $.6 million
lower than the first quarter of 1996, primarily due to lower earnings from
several international joint ventures.
7
LOGISTICS AND WAREHOUSING
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Three Months Ended
(In Millions) March 31
------------------
1997 1996 Change
----- ---- ------------------
Gross Income $ 62.1 $ 70.2 $ (8.1) (12)%
Net Income (Loss) $ (.4) $ .3 $ (.7) (233)%
- --------------------------------------------------------------------------------
GATX Logistics' gross income of $62 million decreased 12% from the first three
months of 1996 reflecting lower volumes for certain customers and an increase in
empty space. Though strong performances continued with selected existing
customers, replacing lost business has been slower than anticipated.
Logistics reported a net loss of $(.4) million, compared to a profit of
$.3 million in the prior year first quarter. The results were primarily
attributable to reduced volumes and lost business due to changes in certain
customers' outsourcing philosophies and distribution channels.
GREAT LAKES SHIPPING
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Three Months Ended
(In Millions) March 31
------------------
1997 1996 Change
---- ---- -----------------
Gross Income $ .9 $ 1.3 $ (.4) (31)%
Net Income $ .4 $ .2 $ .2 100 %
- --------------------------------------------------------------------------------
American Steamship does not begin operations until late in the first quarter due
to ice on the Great Lakes. For this year's first quarter, American Steamship had
earnings of $.4 million compared to earnings of $.2 million a year ago. This
slight increase was primarily due to less severe ice and weather conditions
compared to the first quarter of 1996.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has previously reported various lawsuits filed by and against its
wholly owned subsidiary, GATX Capital Corporation ("Capital") and GATX/Airlog
Company ("Airlog"), a general partnership of which a subsidiary of Capital is a
partner, arising out of the issuance of Airworthiness Directive 96-01-03 issued
by the Federal Aviation Administration in January 1996 (the "Airworthiness
Directive"). On January 2, 1997, Capital and Airlog filed a Motion for Partial
Summary Judgment with respect to certain of the counterclaims filed by Evergreen
International Airlines, Inc. ("Evergreen") in the Declaratory Judgment action
brought by Capital and Airlog in the United States District Court for the
Northern District of California (No. C96-2494). The Motion for Partial Summary
Judgment was brought on the grounds that (1) the contracts at issue in the
litigation are governed by the California Commercial Code (the "Code"), (2)
Evergreen's contract counterclaims are barred by the four-year statute of repose
established by the Code, and (3) Evergreen's negligent misrepresentation
counterclaim is barred by the economic loss doctrine under California law. The
court has held oral argument on the motion and has taken it under advisement.
The previously reported action filed by General Electric Capital Corporation and
a subsidiary thereof (hereinafter collectively "GECC"), against Airlog, Capital
and certain other companies, has been dismissed, without prejudice. These
parties and the Company entered into a tolling agreement dated December 17, 1996
and amended in April 1997. Under the tolling agreement as amended, the parties
thereto have agreed that any defenses of expiration of the statute of
limitations or statute of repose or laches applicable to the causes of action
asserted by GECC are tolled, up to and including January 8, 1998.
9
Item 4. Submission of Matters to a Vote of Security Holders
(a) GATX's Annual Meeting of Stockholders was held on April 25, 1997.
(b) Matters voted upon at the meeting were:
Number of Shares Voted
----------------------
For Withheld
--------- --------
1. Election of Directors
James M. Denny 20,232,363 111,960
Richard Fairbanks 20,218,675 125,648
William C. Foote 20,212,664 131,659
Deborah M. Fretz 20,211,557 132,766
Richard A. Giesen 20,215,234 129,089
Miles L. Marsh 20,222,764 121,559
Charles Marshall 20,228,067 116,256
Michael E. Murphy 20,236,189 108,134
Ronald H. Zech 20,232,549 111,774
2. Ratification of appointment of Ernst & 20,264,389 For
Young LLP as independent auditors 33,011 Against
for Fiscal 1997. 46,922 Abstentions
3. Shareholder proposal relating to change 4,510,729 For
of control agreements. 11,857,148 Against
384,051 Abstentions
3,592,395 Non-vote
There were no broker non-votes with respect to the election of the
directors or the appointment of independent auditors.
Item 6. Exhibits and Reports on Form 8-K. Page
----
(a)11A Statement regarding computation of earnings per share. 12
11B Statement regarding computation of earnings per
share (full dilution). 13
27 Financial Data Schedule for GATX Corporation for the quarter
ended March 31, 1997. Submitted to the SEC along with the
electronic submission of this Quarterly Report on Form 10-Q.
(b) Report on Form 8-K dated January 24, 1997 with respect to
certain litigation filed against GATX/Airlog, a California
general partnership of which GATX Capital Corporation is a
partner, and GATX Capital Corporation.
10
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 CORPORATION
(Registrant)
/s/ David M. Edwards
------------------------
David M. Edwards
Vice President Finance and
Chief Financial Officer
(Duly Authorized Officer)
Date: May 9, 1997
11
Exhibit 11A
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS
In Millions, Except Per Share Amounts
Three Months Ended
March 31
----------------
1997 1996
------ ------
Average number of shares of common stock outstanding ........................... 20.3 20.1
Shares issuable upon assumed exercise of stock options, reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options .............................................. .3 .4
------ ------
Total shares ................................................................... 20.6 20.5
====== ======
Net income ..................................................................... $ 31.2 $ 24.7
Deduct - Dividends paid and accrued on
preferred stock ............................................................ 3.3 3.3
------ ------
Net income, as adjusted ........................................................ $ 27.9 $ 21.4
====== ======
Net income per share ........................................................... $ 1.35 $ 1.05
====== ======
<FN>
Note: In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (FAS 128), Earnings per Share, which is required to
be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. In addition to changes in the
computation, the terms "primary" and "fully diluted" earnings per share
will be replaced with the terms "basic" and "diluted," respectively.
Under the new requirements for calculating primary/basic earnings
per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase in primary/basic earnings
per share of approximately $.02 per share for each of the quarters
ended March 31, 1997 and March 31, 1996. The impact of FAS 128 on the
calculation of fully diluted/diluted earnings per share for these
quarters is expected to result in no change.
</FN>
12
Exhibit 11B
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS
ASSUMING FULL DILUTION
In Millions, Except Per Share Amounts
Three Months Ended
March 31
----------------
1997 1996
------ ------
Average number of shares used to
compute primary earnings per share .......... 20.6 20.5
Common stock issuable upon assumed
conversion of preferred stock ............... 4.0 4.0
------ ------
Total shares ...................................... 24.6 24.5
====== ======
Net income, as adjusted per primary computation ... $ 27.9 $ 21.4
Add - Dividends paid and accrued on preferred stock 3.3 3.3
------ ------
Net income, as adjusted ........................... $ 31.2 $ 24.7
====== ======
Net income per share, assuming full dilution ...... $ 1.27 $ 1.01
====== ======
<FN>
Note: See discussion of FAS 128 effect on Exhibit 11A.
</FN>
13
EXHIBITS FILED WITH DOCUMENT
(a)11A Statement regarding computation of earnings per share.
11B Statement regarding computation of earnings per
share (full dilution).
27 Financial Data Schedule for GATX Corporation for the quarter
ended March 31, 1997. Submitted to the SEC along with the
electronic submission of this Quarterly Report on Form 10-Q.