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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, 1998 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 24,591,020 shares of common stock outstanding as of
April 30, 1998.
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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
------------------
1998 1997
---- ----
Gross income ........................................ $ 408.9 $ 394.6
Costs and expenses
Operating expenses ........................ 182.9 183.3
Interest .................................. 58.4 51.5
Provision for depreciation and amortization 62.0 60.1
Provision for possible losses ............. 2.6 2.2
Selling, general and administrative ....... 55.5 53.0
---- ----
361.4 350.1
----- -----
Income before income taxes and equity in
net earnings of affiliated companies ...... 47.5 44.5
Income taxes ........................................ 20.4 19.2
---- ----
Income before equity in net earnings of affiliated
companies ................................. 27.1 25.3
Equity in net earnings of affiliated companies ...... 10.3 5.9
---- ---
Net income .......................................... $ 37.4 $ 31.2
======== ========
Per common share:
Net income ................................ $ 1.52 $ 1.37
Net income, assuming dilution ............. 1.48 1.27
Dividends declared ........................ .50 .46
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 three months ended March 31, 1998 are not
necessarily indicative of the results that may be achieved for the entire year
ending December 31, 1998.
1
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Millions
ASSETS
March 31 December 31
1998 1997
-------- -----------
(Unaudited)
Cash and cash equivalents ..................... $ 106.0 $ 77.8
Receivables
Trade accounts ...................... 114.7 161.9
Finance leases ...................... 674.8 877.0
Secured loans ....................... 372.4 180.3
Less - Allowance for possible losses (130.5) (128.5)
------ ------
1,031.4 1,090.7
Operating lease assets and facilities
Railcars and support facilities ..... 2,591.0 2,501.7
Tank storage terminals and pipelines 1,127.8 1,128.9
Great Lakes vessels ................. 202.3 199.4
Operating lease investments and other 680.2 704.4
----- -----
4,601.3 4,534.4
Less - Allowance for depreciation ... (1,867.3) (1,823.9)
-------- --------
2,734.0 2,710.5
Investments in affiliated companies ........... 705.3 707.4
Other assets .................................. 370.2 361.4
----- -----
TOTAL ASSETS .................................. $ 4,946.9 $ 4,947.8
========== ==========
2
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
March 31 December 31
1998 1997
-------- -----------
(Unaudited)
Accounts payable ................................. $ 279.7 $ 354.7
Accrued expenses ................................. 80.0 58.0
Debt
Short-term debt ........................ 444.3 392.5
Recourse long-term debt ................ 2,235.0 2,277.5
Nonrecourse long-term debt ............. 368.6 329.8
Capital lease obligations .............. 205.7 212.1
----- -----
3,253.6 3,211.9
Deferred income taxes ............................ 306.2 297.6
Other deferred items ............................. 342.8 370.2
----- -----
Total liabilities and deferred items ... 4,262.3 4,292.4
Shareholders' equity
Common Stock ........................... 17.1 17.0
Additional capital ..................... 343.7 339.7
Reinvested earnings .................... 388.5 363.4
Accumulated other comprehensive income . (17.9) (17.9)
----- -----
731.4 702.2
Less - Cost of common shares in treasury (46.8) (46.8)
----- -----
Total shareholders' equity ........ 684.6 655.4
----- -----
TOTAL LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDERS' EQUITY ............... $ 4,946.9 $ 4,947.8
========== ==========
3
GATX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
In Millions
Three Months Ended
March 31
------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net income .................................................. $ 37.4 $ 31.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Realized gain on disposition of leased equipment (26.1) (26.1)
Provision for depreciation and amortization ..... 62.0 60.1
Provision for possible losses ................... 2.6 2.2
Deferred income taxes ........................... 9.5 (1.4)
Net change in trade receivables, inventories,
accounts payable and accrued expenses ............... (29.5) 19.0
Other ....................................................... (2.3) (27.9)
---- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 53.6 57.1
INVESTING ACTIVITIES
Additions to operating lease assets and facilities .......... (112.5) (95.3)
Additions to equipment on lease, net of nonrecourse financing
for leveraged leases ................................ (71.0) (51.0)
Secured loans extended ...................................... (28.7) (2.5)
Investments in affiliated companies ......................... (16.5) (14.0)
Progress payments and other ................................. (2.3) (18.0)
---- -----
Capital additions and portfolio investments ......... (231.0) (180.8)
Portfolio proceeds:
From disposition of leased equipment ................ 100.4 88.7
From return of investment ........................... 67.0 72.5
---- ----
Total portfolio proceeds ........................ 167.4 161.2
Proceeds from other asset dispositions ...................... 5.2 1.8
--- ---
NET CASH USED IN INVESTING ACTIVITIES ............... (58.4) (17.8)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................... 68.3 40.5
Repayment of long-term debt ................................. (94.6) (170.3)
Net increase in short-term debt ............................. 74.0 110.0
Repayment of capital lease obligations ...................... (6.4) (6.2)
Issuance of common stock under employee benefit programs .... 4.0 3.1
Cash dividends .............................................. (12.3) (12.7)
----- -----
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ........................... 33.0 (35.6)
---- -----
NET INCREASE IN CASH AND
CASH EQUIVALENTS ................................ $ 28.2 $ 3.7
======== ========
4
GATX CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
In Millions
Accumulated
Other
Common Additional Reinvested Comprehensive Treasury
Stock Capital Earnings Income (a) Stock Total
Beginning Balance 1/1/98 $ 17.0 $339.7 $363.4 $(17.9) $(46.8) $655.4
Comprehensive Income:
Net income 37.4 37.4
Other comprehensive income
Foreign currency translation
adjustment (0.4) (0.4)
Unrealized gain on securities,
net of reclassification
adjustments (b) 0.4 0.4
-----
Comprehensive income 37.4
----
Common stock issued 0.1 4.0 4.1
Dividends declared (12.3) (12.3)
------ ------ ------ ------ ------ ------
Ending Balance 3/31/98 $ 17.1 $343.7 $388.5 $(17.9) $(46.8) $684.6
====== ====== ====== ====== ====== ======
<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) Reclassification Adjustments:
Unrealized gains on securities $ 1.1
Less: Reclassification adjustments for gains realized included in net income (0.7)
-----
Net unrealized gains on securities $ 0.4
=====
</FN>
5
GATX CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
In Millions
Accumulated
Other
Common Preferred Additional Reinvested Comprehensive Treasury
Stock Stock Capital Earnings Income (a) Stock Total
Beginning Balance 1/1/97 $ 14.4 $ 3.4 $329.0 $463.7 $ 11.4 $ (47.0) $774.9
Comprehensive Income:
Net income 31.2 31.2
Other comprehensive income
Foreign currency transla-
tion adjustment (6.8) (6.8)
Unrealized loss on securi-
ties, net of reclassifica-
tion adjustments (b) (1.9) (1.9)
-----
Comprehensive income 22.5
----
Common stock issued 0.1 2.9 0.2 3.2
Dividends declared (12.7) (12.7)
------ ---- ------ ------ ----- ------ ------
Ending Balance 3/31/97 $ 14.5 $3.4 $331.9 $482.2 $ 2.7 $(46.8) $787.9
====== ==== ====== ====== ===== ====== ======
<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) Reclassification Adjustments:
Unrealized loss on securities $(1.7)
Less: Reclassification adjustments for gains realized included in net income (.2)
-----
Net unrealized loss on securities $(1.9)
=====
</FN>
6
MANAGEMENT'S DISCUSSION OF OPERATIONS
COMPARISON OF FIRST THREE MONTHS OF 1998
TO FIRST THREE MONTHS OF 1997
GENERAL
GATX Corporation's net income for the first quarter of 1998 was $37 million
compared to $31 million for the first quarter of 1997. Earnings per share on a
diluted basis increased 17% to $1.48 from $1.27 for the prior year quarter.
Gross income of $409 million increased by $14 million from the prior year
quarter, while net income was $6 million higher. Transportation benefitted from
more railcars on lease and higher rental rates while GATX Capital reported
strong contributions from aircraft and rail remarketing opportunities. Results
at Terminals increased due to favorable petroleum market conditions and higher
equity earnings from affiliates, and the restructuring undertaken in the fourth
quarter of 1997.
Net cash provided by operating activities for the first quarter of 1998 was $54
million, a $4 million decrease from last year's quarter, due to the timing of
working capital requirements. All cash received from asset dispositions,
including gain and return of principal, are included in investing activities as
portfolio proceeds.
Capital additions and portfolio investments for the quarter totaled $231
million, an increase of $50 million from the first quarter of 1997.
Transportation invested $100 million in its railcar fleet and facilities, an
increase of $18 million from the first quarter of 1997; the number of new and
existing railcars acquired was 1,700 compared to 1,300 last year. Terminals'
capital additions of $8 million were comparable with the prior year quarter.
Portfolio investments at Financial Services for the quarter of $118 million were
$32 million higher than the prior year primarily due to rail and technology
opportunities. Full year capital spending is expected to be about $400 million,
while portfolio investments are anticipated to approximate $800 million, both
similar to last year's levels. 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.
GATX, through its subsidiaries, had unused committed lines of credit of $440
million at March 31, 1998. Neither General American Transportation Corporation
(GATC) nor GATX Capital issued any recourse medium-term notes during the first
quarter; financing needs were met by cash flow from operations and short-term
debt. GATC has a $650 million shelf registration, under which $100 million of
notes and $236 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.
At the April 24, 1998, GATX Annual Shareholders' Meeting, shareholders approved
an increase in the authorized common shares from 60 million to 120 million,
which will allow GATX to effect a two-for-one stock split. The split will be
effected as a stock dividend payable June 1, 1998, to shareholders of record on
May 11, 1998.
7
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 in the
markets served by GATX such as the petroleum, chemical, rail, air, and
technology 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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Three Months Ended
(In Millions) March 31
------------------
1998 1997 Change
---- ---- --------------
Gross Income $ 125.7 $ 116.2 $ 9.5 8%
Net Income $ 19.4 $ 18.0 $ 1.4 8%
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Transportation's gross income for the first three months of 1998 increased 8%
from the comparable prior year quarter attributable to a larger active fleet and
higher overall lease rates. Approximately 78,900 tank and freight cars were on
lease throughout North America at March 31, 1998, compared to 73,900 railcars a
year ago. With a total North American fleet of 82,200 railcars, utilization
ended the period at 96%, up from 94% a year ago.
Net income increased 8% from the first quarter of 1997 primarily due to the same
reasons that revenues increased. While all major cost areas (asset ownership,
repairs, and SG&A) increased, the cost increases were proportional to the
increase in revenue. Because most of the recent years' U.S. railcar additions
have been financed using sale-leasebacks, those asset ownership costs are
included as operating lease expense (a component of operating expenses), whereas
Canadian railcars are financed with debt and, therefore, those asset ownership
costs are recorded as depreciation and interest expense.
FINANCIAL SERVICES (GATX CAPITAL)
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Three Months Ended
(In Millions) March 31
------------------
1998 1997 Change
---- ---- -----------------
Gross Income $ 147.9 $ 144.4 $ 3.5 2 %
Net Income $ 21.6 $ 22.9 $ (1.3) (6)%
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8
Gross income at GATX Capital of $148 million increased $4 million from the prior
year quarter due to higher lease income offset by lower asset remarketing income
and technology equipment sales. Asset remarketing income includes both equipment
disposition gains and residual sharing fees. Pretax disposition gains of $25
million were equal to last year's quarter, while residual sharing fees decreased
$6 million. Asset remarketing income does not occur evenly from period to
period.
Net income of $22 million decreased $1 million from last year's record quarter,
in part due to the lower residual sharing fees.
TERMINALS AND PIPELINES
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Three Months Ended
(In Millions) March 31
------------------
1998 1997 Change
---- ---- ----------------
Gross Income $ 70.0 $ 70.5 $ (.5) (1)%
Net Income (Loss) $ 4.3 $ (1.4) $ 5.7 --
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Although Terminals' gross income for the first three months of 1998 approximates
the prior year quarter, 1997's revenues include those related to the Norco
facility that was sold in September 1997. On a comparable facility basis, gross
income for the current quarter increased by 4% over the prior year primarily due
to petroleum activity. In the petroleum market, an inventory build-up provided
some opportunities for Terminals' storage services. However, it is doubtful that
the industry trend to reduce inventory levels is being reversed. Chemical and
pipeline revenues for the current quarter are in-line with the prior year
quarter. Throughput of petroleum and chemical products was 150 million barrels
for the first quarter of 1998, up modestly from 147 million barrels (excluding
Norco) for the same quarter last year. Capacity utilization at wholly-owned
facilities was 94% at March 31, 1998, versus 92% (excluding Norco) a year ago.
Terminals' net income for the first quarter of 1998 of $4.3 million, an increase
of $5.7 million from last year, was due to improved operating conditions,
one-time transformation costs incurred during the prior year quarter, and the
impact of the restructuring program implemented in the fourth quarter of 1997.
Equity earnings were $3.5 million, $1.3 million greater than the first quarter
of 1997, reflecting improved utilization at domestic and several international
affiliates.
LOGISTICS AND WAREHOUSING
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Three Months Ended
(In Millions) March 31
------------------
1998 1997 Change
---- ---- ---------------
Gross Income $ 61.5 $ 62.1 $ (.6) (1)%
Net Income (Loss) $ .4 $ (.4) $ .8 --
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9
GATX Logistics' gross income of $62 million was comparable to the first three
months of 1997. Revenues from newly-signed contracts and higher volumes and
improved rates with certain customers were offset by lower volumes at other
major customers. Further, the strategy to exit certain secondary markets has
affected revenues by reducing leasable square footage over 5% from a year ago.
Net income increased by $.8 million from the prior year quarter as a result of
replacing certain less profitable secondary market revenues with higher margin
business, lower empty space costs, the impact of the restructuring program taken
in the fourth quarter of 1997, and a real estate commission earned for
facilitating the sale of a customer's warehouse.
GREAT LAKES SHIPPING
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Three Months Ended
(In Millions) March 31
------------------
1998 1997 Change
---- ---- -----------------
Gross Income $ 1.9 $ .9 $ 1.0 111%
Net Income $ .7 $ .4 $ .3 75 %
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American Steamship Company traditionally does not begin operations until late in
the first quarter due to ice on the Great Lakes. The relatively mild winter
enabled American Steamship Company to begin the 1998 shipping season earlier in
the first quarter resulting in both higher revenues and earnings compared to a
year ago.
10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) GATX's Annual Meeting of Stockholders was held on April 24, 1998.
(b) Matters voted upon at the meeting were:
Number of Shares Voted
For Withheld
--- --------
1. Election of Directors.
James M. Denny 21,356,103 88,421
Richard Fairbanks 21,356,683 87,841
William C. Foote 21,357,920 86,604
Deborah M. Fretz 21,356,828 87,696
Richard A. Giesen 21,352,323 92,201
Miles L. Marsh 21,357,451 87,073
Charles Marshall 21,346,293 98,231
Michael E. Murphy 21,352,342 92,182
Ronald H. Zech 21,355,549 88,975
2. Ratification of appointment of Ernst & 21,364,500 For
Young LLP as independent auditors 50,782 Against
for Fiscal 1998. 29,242 Abstentions
3. Ratification to amend GATX 20,173,422 For
Corporation's 1995 Long-Term Incentive 1,147,537 Against
Compensation Plan. 123,565 Abstentions
4. Ratification to amend GATX's 20,944,933 For
Certificate of Incorporation. 430,142 Against
69,449 Abstentions
There were no broker non-votes with respect to the election of the
directors or the ratification of appointment of independent auditors.
Item 6. Exhibits and Reports on Form 8-K. Page
(a) 10A Amendment to the GATX Corporation 1995 Long-Term
Incentive Compensation Plan adopted on March 6, 1998,
incorporated by reference to pages 19 through 24 of
the GATX Proxy Statement dated March 17, 1998, file
number 1-2328.
11A Statement regarding computation of earnings per share. 14
11
11B Statement regarding computation of earnings per share
(diluted). 15
27.1 Financial Data Schedule for GATX Corporation for the
quarter ended March 31, 1998. Submitted to the SEC
along with the electronic submission of this Quarterly
Report on Form 10-Q.
27.2 Restated Financial Data Schedule for the year to date
periods ended March 31, 1997, June 30, 1997,
September 30, 1997 and March 31, 1996.
27.3 Restated Financial Data Schedule for the year to date
periods ended June 30, 1996, September 30, 1996,
December 31, 1996 and December 31, 1995.
(b) No reports on Form 8-K were filed during the reporting
period.
12
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
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer)
Date: May 13, 1998
13
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
March 31
------------------
1998 1997
------- -------
Average number of shares of common stock outstanding 24.5 20.3
Net income ......................................... $ 37.4 $ 31.2
Deduct - Dividends paid and accrued on
preferred stock ........................... -- 3.3
----- -----
Net income, as adjusted ............................ $ 37.4 $ 27.9
======= =======
Basic net income per share ......................... $ 1.52 $ 1.37
======== ========
Note: 1997 amounts 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.
14
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
March 31
------------------
1998 1997
------ ------
Average number of shares used to
compute basic earnings per share ......................................... 24.5 20.3
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 .......................... .6 .3
Common stock issuable upon assumed
conversion of preferred stock ............................................ .1 4.0
------ ------
Total shares ................................................................... 25.2 24.6
====== ======
Net income, as adjusted per basic computation .................................. $ 37.4 $ 27.9
Add - Dividends paid and accrued on preferred stock ............................ -- 3.3
------- -----
Net income, as adjusted ........................................................ $ 37.4 $ 31.2
======== ======
Diluted net income per share ................................................... $ 1.48 $ 1.27
========= =======
Note: See discussion of FAS 128 on Exhibit 11A.
15
EXHIBITS FILED WITH DOCUMENT
11A Statement regarding computation of earnings per share.
11B Statement regarding computation of earnings per share
(diluted).
27.1 Financial Data Schedule for GATX Corporation for the quarter
ended March 31, 1998. Submitted to the SEC along with the
electronic submission of this Quarterly Report on Form 10-Q.
27.2 Restated Financial Data Schedule for the year to date periods
ended March 31, 1997, June 30, 1997, September 30, 1997 and
March 31, 1996.
27.3 Restated Financial Data Schedule for the year to date periods
ended June 30, 1996, September 30, 1996, December 31, 1996
and December 31, 1995.