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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
June 30, 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 24,376,378 shares of common stock outstanding as of July
31, 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 Six Months Ended
June 30 June 30
------------------ -----------------
1997 1996 1997 1996
----- ------ ------- ------
Gross income ................................. $ 434.7 $ 337.8 $ 829.3 $ 641.4
Costs and expenses
Operating expenses ........................ 218.4 165.7 401.7 315.7
Interest .................................. 55.3 49.1 106.8 93.0
Provision for depreciation and amortization 62.3 48.1 122.4 92.6
Provision for possible losses ............. 3.9 4.0 6.1 7.0
Selling, general and administrative ....... 56.7 41.6 109.7 73.5
------- ------- ------- ------
396.6 308.5 746.7 581.8
------- ------- ------- ------
Income before income taxes and equity
in net earnings of affiliated companies ... 38.1 29.3 82.6 59.6
Income taxes ................................. 15.3 11.4 34.5 23.5
------- ------- ------- ------
Income before equity in net earnings
of affiliated companies ................... 22.8 17.9 48.1 36.1
Equity in net earnings of affiliated companies 7.4 7.8 13.3 14.3
------- ------- ------- ------
Net income $ 30.2 $ 25.7 $ 61.4 $ 50.4
======= ======= ======= ======
Per common share:
Net income ................................ $ 1.23 $ 1.09 $ 2.57 $ 2.14
Net income, assuming full dilution ........ 1.21 1.05 2.47 2.06
Dividends declared ........................ .46 .43 .92 .86
<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 six months ended June 30, 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
June 30 December 31
1997 1996
-------- -----------
(Unaudited)
Cash and cash equivalents ................ $ 33.3 $ 46.2
Receivables
Trade accounts ...................... 104.7 130.1
Finance leases ...................... 693.0 761.3
Secured loans ....................... 204.1 222.6
Less - Allowance for possible losses (128.1) (121.1)
-------- -------
873.7 992.9
Operating lease assets and facilities
Railcars and support facilities ..... 2,558.3 2,436.5
Tank storage terminals and pipelines 1,392.2 1,377.8
Great Lakes vessels ................. 199.3 199.3
Operating lease investments and other 659.5 605.6
-------- --------
4,809.3 4,619.2
Less - Allowance for depreciation ... (1,845.4) (1,772.8)
-------- --------
2,963.9 2,846.4
Investments in affiliated companies ...... 537.1 464.2
Other assets ............................. 421.9 400.5
-------- --------
TOTAL ASSETS ............................. $4,829.9 $4,750.2
======== ========
-2-
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
June 30 December 31
1997 1996
------- -----------
(Unaudited)
Accounts payable ............................ $ 285.1 $ 312.6
Accrued expenses ............................ 69.2 51.7
Debt
Short-term debt ........................ 489.5 243.8
Long-term debt ......................... 2,259.7 2,436.9
Capital lease obligations .............. 218.1 227.2
-------- --------
2,967.3 2,907.9
Deferred income taxes ....................... 341.7 339.2
Other deferred items ........................ 359.8 363.9
-------- --------
Total liabilities and deferred items 4,023.1 3,975.3
Shareholders' equity
Preferred Stock ........................ -- 3.4
Common Stock ........................... 16.9 14.4
Additional capital ..................... 332.5 329.0
Reinvested earnings .................... 498.3 463.7
Cumulative unrealized equity adjustments 5.9 11.4
-------- --------
853.6 821.9
Less - Cost of common shares in treasury (46.8) (47.0)
-------- --------
Total shareholders' equity ......... 806.8 774.9
-------- --------
TOTAL LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDERS' EQUITY ............... $4,829.9 $4,750.2
======== ========
-3-
GATX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
In Millions
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
OPERATING ACTIVITIES
Net income ........................................ $ 30.2 $ 25.7 $ 61.4 $ 50.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Realized gain on disposition of leased
equipment ............................ (14.4) (12.1) (40.5) (19.3)
Provision for depreciation and amortization 62.3 48.1 122.4 92.6
Provision for possible losses ............. 3.9 4.0 6.1 7.0
Deferred income taxes ..................... 4.5 .4 3.1 4.0
Net change in trade receivables, inventories,
accounts payable and accrued expenses ......... (4.1) (6.6) 14.9 (9.2)
Other ............................................. (17.2) (10.1) (45.1) (26.0)
------ ------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..... 65.2 49.4 122.3 99.5
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (81.8) (141.0) (177.1) (260.6)
Additions to equipment on lease,
net of nonrecourse financing .................. (105.2) (124.4) (156.2) (196.8)
Secured loans extended ............................ (12.4) (81.0) (14.9) (100.3)
Investments in affiliated companies ............... (58.1) (16.7) (72.1) (33.0)
Progress payments and other ....................... (6.4) (14.9) (24.4) (37.2)
------ ------ ------ ------
Capital additions and portfolio investments ... (263.9) (378.0) (444.7) (627.9)
Portfolio proceeds:
From disposition of leased equipment .......... 40.2 27.5 128.9 52.3
From return of investment ..................... 53.9 34.2 126.4 86.2
------ ------ ------ ------
Total portfolio proceeds ................... 94.1 61.7 255.3 138.5
Proceeds from other asset dispositions ............ 1.7 6.4 3.5 7.3
------ ------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES .......... (168.1) (309.9) (185.9) (482.1)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .......... 43.2 118.6 83.7 319.0
Repayment of long-term debt ....................... (89.2) (75.6) (259.5) (201.1)
Net increase in short-term debt ................... 149.9 231.9 259.9 293.1
Repayment of capital lease obligations ............ (3.2) (2.5) (9.4) (8.5)
Issuance of Common Stock and other ................ (.2) .6 2.9 1.2
Cash dividends .................................... (14.2) (12.0) (26.9) (24.0)
------ ------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..... 86.3 261.0 50.7 379.7
------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .................... $(16.6) $ .5 $(12.9) $ (2.9)
====== ====== ====== ======
-4-
MANAGEMENT'S DISCUSSION OF OPERATIONS
COMPARISON OF FIRST SIX MONTHS OF 1997 TO FIRST SIX MONTHS OF 1996
GENERAL
GATX Corporation's net income for the first six months of 1997 was $61 million
or $2.57 per common share compared to net income of $50 million or $2.14 per
common share for the first six months of 1996. On a fully diluted basis,
earnings per share were $2.47 compared to fully diluted earnings of $2.06 for
the 1996 period. Due to record asset remarketing income at Financial Services in
the first half of 1997, it is expected that earnings will be lower in the second
half of the year.
Gross income increased by 29% while net income increased by 22% 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 Great Lakes Shipping segment (American Steamship) also
posted asset remarketing income by partnering with Financial Services in a
third-party vessel transaction. Results for the first six months of 1997 reflect
Transportation's mid-1996 acquisition of the remaining interest in its Canadian
subsidiary, CGTX, Inc. Gross income for the first six months 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 results at GATX's terminals and pipelines
segment (Terminals) where a difficult petroleum storage market has continued to
cause pricing pressure. 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 $122 million of cash flow, an increase of $23
million from the first six months of 1996. The $21 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.
On June 16, 1997, GATX completed the redemption of its $3.875 Cumulative
Convertible Preferred Stock ("Preferred"). The outstanding Preferred (3,390,880
shares) was either converted to Common Stock at a conversion rate of 1.1494
shares of Common Stock per convertible Preferred share or redeemed at a price of
$51.6576 per share (including accrued dividends). The conversion of 3,371,706
preferred shares resulted in issuing 3,875,127 shares of common, and the
remaining preferred shares were redeemed.
Capital additions and portfolio investments for the first six months totaled
$445 million, a decrease of $183 million from the first six months of 1996.
Financial Services' portfolio investments for the first six months of $267
million were $100 million less than the prior year. Portfolio investments in
both the primary and secondary markets are opportunistic in nature and therefore
do not fall evenly from period to period. Transportation invested $144 million
in its railcar fleet versus $171 million in last year's first six months.
Terminals' capital spending of $31 million was $55 million less than last year,
which included $31 million attributable to the now completed Central Florida
Pipeline expansion project. Full year capital additions are forecasted 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 1996. These
projections may change significantly depending on market conditions and
opportunities to acquire portfolios of desirable assets. It is anticipated that
capital additions and portfolio investments will be funded with both internally
generated funds and GATX's available external sources.
-5-
GATX, through its subsidiaries, had available unused uncommitted lines of credit
of $413 million at June 30, 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 certificates have
been issued; no notes were issued during the first six months. 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. These risks and
uncertainties include, but are not limited to, unanticipated changes to the
aircraft, petroleum, chemical, and steel industries.
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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Six Months Ended
(In Millions) June 30
------------------
1997 1996 Change
------ ------ ----------------
Gross Income $234.9 $196.4 $ 38.5 20%
Net Income $ 36.5 $ 32.8 $ 3.7 11%
- --------------------------------------------------------------------------------
Transportation's gross income for the first six months 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 2,100 more cars on lease as well as higher overall average lease
rates. About 74,300 tank and freight cars were on lease throughout North America
at the end of the first half of the year, including 8,900 cars in Canada. With a
total fleet of 79,000 railcars, utilization ended the first half at 94%, up from
slightly under 93% at June 30, 1996.
Net income increased 11% from the first six months 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 six months 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 railcars are financed
with debt and, therefore, CGTX asset ownership costs are recorded as
depreciation and interest. For the first six months of 1996, the operating
results of CGTX were recorded as equity in net earnings of affiliates, whereas
in 1997 CGTX's revenues and costs were fully consolidated.
-6-
FINANCIAL SERVICES
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Six Months Ended
(In Millions) June 30
------------------
1997 1996 Change
------ ------ ----------------
Gross Income $286.8 $132.6 $154.2 116%
Net Income $ 36.0 $ 20.0 $ 16.0 80%
- --------------------------------------------------------------------------------
Gross income at Financial Services of $287 million increased $154 million from
the first half of 1996 due to technology equipment sales, higher asset
remarketing income, and increased lease volume. Of the $154 million increase,
$94 million is due to technology equipment sales, primarily from Centron, one of
Financial Services' technology subsidiaries. No comparable technology equipment
revenue was recorded for the first half of 1996 as the remaining interest in
Centron was acquired in late 1996. Asset remarketing income includes both asset
disposition gains and residual sharing fees. Pretax asset disposition gains were
$41 million for the first six months of 1997 compared to $18 million for the
first six months of 1996. Residual sharing fees of $12 million increased $10
million over the prior year's first half. Asset remarketing income does not
occur evenly period to period, and it is expected that Financial Services'
results for the first half of 1997 will exceed the second half.
Net income for the first six months was a record $36 million, a $16 million
increase over the comparable 1996 period due to the increased gross income,
partially offset by increased cost of equipment sales, SG&A, operating lease
expenses, and interest expense. The provision for possible losses of $6 million
decreased $1 million from the prior year. The loss reserve at June 30, 1997 was
$121 million compared to $114 million at December 31, 1996, resulting largely
from the year-to-date provision.
TERMINALS AND PIPELINES
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Six Months Ended
(In Millions) June 30
------------------
1997 1996 Change
------ ------ ----------------
Gross Income $146.2 $145.8 $ .4 -
Net Income $ 1.1 $ 9.3 $(8.2) (88)%
- --------------------------------------------------------------------------------
Terminals' gross income for the first half of 1997 is essentially unchanged from
the comparable 1996 period. Low petroleum inventory levels have created a
supply-demand imbalance, substantially weakening the petroleum bulk liquid
storage market. This imbalance continues to cause pricing pressure for petroleum
storage services. Chemical storage revenue approximates the prior year while
pipeline revenues increased compared to the first half of 1996. Throughput of
petroleum and chemical products was 347 million barrels for the first six months
of 1997 compared to 344 million barrels for the same period in 1996. Capacity
utilization at wholly-owned facilities was 91% at June 30, 1997 versus 86% a
year ago.
-7-
Terminals net income for the first six months of 1997 was $1 million, a
significant decrease from last year's $9 million. Included in the 1997 results
is $3.5 million (pretax) of costs for transformation initiatives as Terminals
continues its rationalization process and evaluation of its markets and
facilities. On a constant revenue base, asset ownership costs (depreciation and
interest) were almost $7 million over the first half of 1996 reflecting the full
impact of business expansion and facilities improvements in the prior year.
Equity earnings were $5.5 million, $.5 million lower than the first half of
1996, primarily due to lower earnings from a Japanese joint venture.
LOGISTICS AND WAREHOUSING
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Six Months Ended
(In Millions) June 30
------------------
1997 1996 Change
------ ------ ----------------
Gross Income $127.4 $138.9 $(11.5) (8)%
Net Incom $ .1 $ .4 $ (.3) (75)%
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GATX Logistics' gross income of $127 million decreased 8% from the first six
months of 1996 reflecting slower production periods by certain customers,
non-renewing customers, and fewer secondary public warehousing locations.
Logistics reported net income of $.1 million for the first six months compared
with $.4 million for the same period in 1996. The results are primarily
attributable to the same reasons that revenue decreased.
GREAT LAKES SHIPPING
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Six Months Ended
(In Millions) June 30
------------------
1997 1996 Change
------ ------ ----------------
Gross Income $ 31.4 $ 27.9 $ 3.5 13%
Net Income $ 3.7 $ 1.5 $ 2.2 147%
- --------------------------------------------------------------------------------
American Steamship's gross income for the first six months of 1997 was 13% over
the comparable prior year period largely due to the gain from a third-party
vessel financing and remarketing transaction, which was partnered with Financial
Services. Customer demand for American Steamship's primary cargoes (iron ore,
coal, and limestone) remains strong and weather conditions have been favorable
compared to the same period in 1996.
American Steamship's net income for the first six months of 1997 was $3.7
million compared to $1.5 million for the prior year period driven by the
third-party vessel transaction, strong customer demand, and favorable weather
conditions.
-8-
COMPARISON OF SECOND QUARTER 1997 TO
SECOND QUARTER 1996
GENERAL
For the second quarter of 1997 net income was $30 million or $1.23 per share as
compared to $26 million or $1.09 per share for the second quarter of 1996.
GROSS INCOME
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(In Millions) Three Months Ended
June 30
------------------
Business Segment 1997 1996 Change
- ---------------------------------- ------ ------ ----------------
Railcar Leasing and Management $118.7 $99.2 $19.5 20%
Financial Services 142.4 70.8 71.6 101
Terminals and Pipelines 75.7 73.0 2.7 4
Logistics and Warehousing 65.3 68.7 (3.4) (5)
Great Lakes Shipping 30.5 26.6 3.9 15
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NET INCOME
- --------------------------------------------------------------------------------
(In Millions) Three Months Ended
June 30
------------------
Business Segment 1997 1996 Change
- ---------------------------------- ----- ------ ----------------
Railcar Leasing and Management $18.5 $17.1 $ 1.4 8%
Financial Services 13.1 10.8 2.3 21
Terminals and Pipelines 2.5 4.6 (2.1) (46)
Logistics and Warehousing .5 .1 .4 400
Great Lakes Shipping 3.3 1.3 2.0 154
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Increases and decreases in gross income and net income between these quarters
for all segments were principally due to the same reasons as discussed
previously in relation to the six-month periods.
-9-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
A Final Judgement has been entered by the U.S. District Court for the Northern
District of Illinois in favor of General American Transportation Corporation in
the previously reported matter of General American Transportation Corporation v.
Cryo-Trans, Incorporated (Case No. 91 C 1305). A Petition for Writ of Certiorari
filed on behalf of Cryo-Trans, Incorporated was denied by the United States
Supreme Court.
-10-
Item 6. Exhibits and Reports on Form 8-K. Page
(a) 11A Statement regarding computation of earnings per share. 13
11B Statement regarding computation of earnings per share assuming
full dilution. 14
27 Financial Data Schedule for GATX Corporation for the quarter ended
June 30, 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 June 10, 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.
-11-
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: August 13, 1997
-12-
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 Six Months
Ended June 30 Ended June 30
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
Average number of shares of
Common Stock outstanding ............................ 21.4 20.2 20.9 20.2
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 .................................. .4 .3 .4 .3
------ ------ ----- -----
Total shares .......................................... 21.8 20.5 21.3 20.5
====== ====== ===== ======
Net income ............................................ $ 30.2 $ 25.7 $ 61.4 $ 50.4
Deduct - Dividends paid and accrued on
preferred stock .................................. 3.3 3.3 6.6 6.6
------ ------ ------ ------
Net income, as adjusted ............................... $ 26.9 $ 22.4 $ 54.8 $ 43.8
====== ====== ====== ======
Net income per share .................................. $ 1.23 $ 1.09 $ 2.57 $ 2.14
====== ====== ====== ======
<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 $.03 and $.02 per share for each of the
quarters ended June 30, 1997 and June 30, 1996, respectively. 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>
-13-
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 Six Months
Ended June 30 Ended June 30
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
Average number of shares used to compute
primary earnings per share .................... 21.8 20.5 21.3 20.5
Common Stock issuable upon assumed conversion
of Preferred Stock ........................... 3.1 4.0 3.5 4.0
------ ------ ------ ------
Total shares ...................................... 24.9 24.5 24.8 24.5
====== ====== ====== ======
Net income, as adjusted per primary computation ... $ 26.9 $ 22.4 $ 54.8 $ 43.8
Add - Dividends paid and accrued on preferred stock 3.3 3.3 6.6 6.6
------ ------ ------ ------
Net income, as adjusted ........................... $ 30.2 $ 25.7 $ 61.4 $ 50.4
====== ====== ====== ======
Net income per share, assuming full dilution....... $ 1.21 $ 1.05 $ 2.47 $ 2.06
====== ====== ====== ======
<FN>
Note: See discussion of FAS 128 effect on Exhibit 11A.
</FN>
-14-
EXHIBITS FILED WITH DOCUMENT
(a) 11A Statement regarding computation of earnings per share.
11B Statement regarding computation of earnings per share assuming
full dilution.
27 Financial Data Schedule for GATX Corporation for the quarter ended
June 30, 1997. Submitted to the SEC along with the electronic
submission of this Quarterly Report on Form 10-Q.