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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2328
GATX Corporation
Incorporated in the IRS Employer Identification Number
State of New York 36-1124040
500 West Monroe Street
Chicago, Illinois 60661-3676
(312) 621-6200
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class or series on which registered
- ----------------------------- -----------------------
Common Stock New York Stock Exchange
Chicago Stock Exchange
London Stock Exchange
$2.50 Cumulative Convertible Preferred Stock, New York Stock Exchange
Series A Chicago Stock Exchange
$2.50 Cumulative Convertible Preferred Stock, New York Stock Exchange
Series B Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x/
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
As of March 6, 1998, 24,558,983 common shares were outstanding, and the
aggregate market value of the common shares (based upon the March 6, 1998
closing price of these shares on the New York Stock Exchange) of GATX
Corporation held by nonaffiliates was approximately $1,846.5 million.
Documents Incorporated by Reference
Portions of the GATX Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated by reference into Parts I and II. Portions of
GATX's proxy statement dated March 17, 1998 are incorporated by reference into
Part III.
PART I
Item 1. Business
GATX Corporation is a holding company whose subsidiaries engage in the leasing
and management of railroad tank cars and specialized freight cars; provide
equipment and capital asset financing and related services; own and operate tank
storage terminals, pipelines and related facilities; engage in Great Lakes
shipping; and provide distribution and logistics support services and
warehousing facilities. Information concerning financial data of business
segments and the basis for grouping products or services is contained in Exhibit
13, GATX Annual Report to Shareholders for the year ended December 31, 1997 on
page 29 and pages 34 through 37, which is incorporated herein by reference (page
references are to the Annual Report to Shareholders).
Industry Segments
Railcar Leasing and Management
The Railcar Leasing and Management segment (Transportation), headquartered in
Chicago, Illinois, is principally engaged in leasing specialized railcars,
primarily tank cars, under full service leases. As of December 31, 1997, its
North American fleet consisted of approximately 81,100 railcars, including
62,900 tank cars and 18,200 specialized freight cars, including conventional and
Airslide(TM) covered hopper cars. In addition to roughly 70,700 railcars in the
United States, Transportation has approximately 9,200 railcars in its Canadian
fleet and 1,200 railcars in its Mexican fleet. Transportation has upgraded its
fleet over time by adding new larger capacity cars and retiring older smaller
capacity cars. Transportation's railcars have a useful life of approximately 30
to 33 years. The average age of the railcars in Transportation's fleet is
approximately 16 years.
The following table sets forth the car types comprising Transportation's North
American fleet.
Year Ended December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Tank cars 62,900 60,400 53,900 50,700 48,000
Freight, covered hopper,
and plastic pellet cars 18,200 17,100 11,000 9,100 7,800
------ ------ ------ ------ ------
North American fleet 81,100 77,500 64,900 59,800 55,800
====== ====== ====== ====== ======
In addition to the North American fleet, Transportation's investments in
affiliates result in ownership interests in other fleets. During 1997
Transportation purchased a 40% interest in KVG Kesselwagen Vermietgesellschaft
mbH ("KVG"), a German and Austrian-based tank car and specialty railcar leasing
company that owns and operates approximately 9,400 railcars in Europe, to
complement its existing 12 1/2% interest in European-based AAE Cargo.
Transportation's customers use its railcars to ship over 700 different
commodities, primarily chemicals, petroleum, and food products. For 1997,
approximately 51% of railcar leasing revenue was attributable to shipments of
chemical products, 20% to petroleum products, and 16% to food products. Many of
these products require cars with special features; Transportation offers a wide
variety of sizes and types of cars to meet these needs. Transportation leases
railcars to over 700 customers, including major chemical, oil, food and
agricultural companies. No single customer accounts for more than 4% of total
railcar leasing revenue.
Transportation typically leases new railcars to its customers for a term of five
years or longer, whereas renewals or leases of existing cars are typically for
periods ranging from less than a year to seven years with an average lease term
of about three years. The utilization rate of Transportation's railcars as of
December 31, 1997 was approximately 96%.
Under its full service leases, Transportation maintains and services its
railcars, pays ad valorem taxes, and provides many ancillary services. Through
its GATX Conductor web site, for example, Transportation provides customers with
timely analysis and performance statistics about their leased cars to enhance
and maximize the utilization of this equipment. Transportation also maintains a
network of major service centers consisting of four domestic, three Canadian and
one Mexican facility. To supplement the eight major service centers,
Transportation utilizes a fleet of mobile trucks and also utilizes independent
third-party repair shops.
Transportation purchases most of its new railcars from Trinity Industries, Inc.
(Trinity), a Dallas-based metal products manufacturer, under a contract entered
into in 1984 and extended from time to time thereafter, most recently in 1992.
Transportation anticipates that through this contract it will continue to be
able to satisfy its customers' new car lease requirements. Transportation's
engineering staff provides Trinity with design criteria and equipment
specifications, and works with Trinity's engineers to develop new technology
where needed in order to upgrade or improve car performance or in response to
regulatory requirements.
The full-service railcar leasing industry is comprised of Transportation, Union
Tank Car Company, General Electric Railcar Services Corporation, Shippers Car
Line division of ACF Industries, Incorporated, Procor Limited, and many smaller
companies.
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Of the approximately 218,000 tank cars owned and leased in the United States at
December 31, 1997, Transportation had approximately 57,000. Principal
competitive factors include price, service and availability.
Financial Services
GATX Financial Services, through its principal subsidiary, GATX Capital,
provides asset-based financing, sells and services technology equipment,
structures transactions for investment by other lessors, and manages lease
portfolios for third parties. Asset-based financing is provided primarily to the
aircraft, rail, technology, and marine industries. These financings, which are
held within GATX Capital's own portfolio and through partnerships with
coinvestors, are structured as leases and secured loans, and frequently include
interests in the asset's residual value. Centron and Sun Financial, two of GATX
Capital's subsidiaries, sell, service, and finance information technology
equipment. For its transaction structuring and portfolio management services,
Capital receives fees at the time the transaction is completed, an asset is
remarketed, and/or on an ongoing basis.
GATX Capital competes with captive leasing companies, leasing subsidiaries of
commercial banks, independent leasing companies, lease brokers, investment
bankers, and financing arms of equipment manufacturers. In addition to its San
Francisco home office, Capital has 4 domestic and 11 foreign offices.
At December 31, 1997, GATX Capital's asset concentrations within its $2.2
billion portfolio were:
Aircraft 26%
Rail 25%
Technology 16%
Marine 8%
Other 25%
Terminals and Pipelines
GATX Terminals Corporation (Terminals) is engaged in the storage, handling and
intermodal transfer of petroleum and chemical commodities at key points in the
bulk liquid distribution chain. All of its terminals are located near major
distribution and transportation points and most are capable of receiving and
shipping bulk liquids by ship, rail, barge and truck. Many of the terminals also
are linked with major interstate pipelines. In addition to storing, handling and
transferring bulk liquids, Terminals provides blending and testing services at
most of its facilities. Terminals, headquartered in Chicago, Illinois, owns and
operates 23 terminals in 10 states, and seven terminals in the United Kingdom.
Terminals also has joint venture interests in 14 international facilities.
Additionally, Terminals owns or holds interests in four refined product pipeline
systems.
As of December 31, 1997, Terminals had a total storage capacity of 68 million
barrels. This includes 48 million barrels of bulk liquid storage capacity in the
United States, 8 million barrels in the United Kingdom, and an equity interest
in another 12 million barrels of storage capacity in Europe, Mexico and the Far
East. Terminals' smallest bulk liquid facility has a storage capacity of 95,000
barrels while its largest facility, located in Pasadena, Texas, has a capacity
of over 12 million barrels. Capacity utilization at Terminals' wholly-owned
facilities averaged 91% during 1997; throughput, or deliveries to customers, for
the year was 639 million barrels.
In 1997, a strategic decision was made to sell or close the Staten Island
terminal and the seven storage facilities which make up GATX Terminals Limited
in the United Kingdom. The decision included analyses of the related customer
base, industry served, and profitability outlook related to each facility. The
Staten Island terminal serves the petroleum market while the United Kingdom
facilities serve both the petroleum and chemical markets in approximately the
same proportion. Other smaller facilities are also being evaluated for possible
sale or closure.
For 1997, 54% of Terminals' revenue was derived from petroleum storage, 23% from
chemical storage, 22% from pipelines, and 1% from other products. Demand for
Terminals' facilities depends in part upon demand for petroleum and chemical
products and is also affected by refinery output, foreign imports, availability
of other storage facilities, and the expansion of its customers into new
geographical markets.
Terminals serves over 450 customers, including major oil and chemical companies
as well as trading firms and larger independent refiners. No single customer
accounts for more than 6% of Terminals' revenue. Customer service contracts are
both short term and long term.
Terminals along with two Dutch companies, Pakhoed N.V. and Van Ommeren N.V., are
the three major international public terminaling companies. Pakhoed carries out
its operations under the name Paktank. (On March 2, 1998, Pakhoed and Van
Ommeren announced a proposed merger (VOPAK), subject to approval by the European
Commission.) The domestic public terminaling industry consists of Terminals,
Paktank Corporation, International-Matex Tank Terminals (a joint venture in
which Van Ommeren participates), and many smaller independent terminaling
companies. In addition to public terminaling companies, oil and chemical
companies also have significant storage capacity and compete with Terminals in a
number of markets. Terminals' pipelines compete with rail, trucks and other
pipelines for movement of liquid petroleum products. Principal competitive
factors include price, location relative to distribution facilities, and
service.
-2-
Logistics and Warehousing
GATX Logistics, Inc. is one of the largest third-party providers of distribution
and logistics support services and warehousing facilities in the United States.
Headquartered in Jacksonville, Florida, GATX Logistics operates 106 facilities
covering approximately 21 million square feet of warehousing space in North
America with utilization of 95% at the end of 1997. Value- adding services are
strategically the most important benefit GATX Logistics provides. Examples of
these services are integrated logistics solutions, information management,
just-in-time delivery systems, packaging, sub-assembly, freight management and
returns management.
GATX Logistics continued implementing its strategy of providing integrated
logistics solutions to an expanding customer base while steadily reducing its
role in lower margin, public warehousing business. As a result, during 1997 the
value of certain past acquisitions involved in public warehousing was written
down to better reflect the economics of that industry sector.
GATX Logistics serves over 400 customers, many of which are Fortune 1000
companies. Most customers are manufacturers, but the customer base also includes
retailers. In the warehousing sector, GATX Logistics competes primarily with
in-house or private operations and with other national operators as well as
multi-regional and local operators. In providing transportation and logistics
services, GATX Logistics competes with the major trucking companies and
providers of specialized distribution services.
GATX Logistics' revenue source by industry served during 1997 was 37% automotive
/ industrial equipment, 14% consumer products, 14% grocery, 10% electronics and
computers, 8% consumer durables, 4% chemical, 4% industrial products, and 9%
other. No single customer accounts for more than 11% of Logistics' revenue.
Great Lakes Shipping
American Steamship Company (ASC), with the largest carrying capacity of the
domestic Great Lakes vessel fleets, provides modern and efficient waterborne
transportation of dry bulk materials to the integrated steel, electric utility
and construction industries. ASC's fleet is entirely comprised of self-unloading
vessels which do not require shoreside assistance to discharge cargo. ASC's
eleven vessels range in size from 635 feet to 1,000 feet, transport cargoes from
17,000 net tons up to 70,000 net tons depending on vessel size, and can unload
at speeds from 2,800 net tons per hour up to 10,000 net tons per hour. Great
Lakes vessels are not subject to the severe rusting condition typical of salt
water vessels. As a result, ASC's vessels have expected lives of 50 to 75 years.
In 1997, ASC carried 26.4 million tons of cargo. ASC primarily transported iron
ore, coal, and limestone aggregate. Other commodities transported include sand,
salt, potash, gypsum, grain, marble chips and slag. ASC's revenue source by
industry served during 1997 was 46% steel, 24% construction, 23% power
generation, and 7% other. No single customer accounts for more than 24% of ASC's
revenue.
ASC competes with three other U.S. flag Great Lakes commercial fleets, which
include U.S.S. Great Lakes Fleet, Inc., Oglebay Norton Company, and Interlake
Steamship, and with steel companies which operate captive fleets. Great Lakes
shipping is the only major activity of GATX which consumes substantial
quantities of petroleum products; fuel for these operations is presently in
adequate supply. Competition is based primarily on service and price. ASC is
headquartered in Williamsville, New York, and has one regional office.
Trademarks, Patents and Research Activities
- -------------------------------------------
Patents, trademarks, licenses, and research and development activities are not
material to these businesses taken as a whole.
Seasonal Nature of Business
- ---------------------------
Great Lakes shipping is seasonal due to the effects of winter weather
conditions. However, seasonality is not considered significant to the operations
of GATX and its subsidiaries taken as a whole.
Customer Base
- -------------
GATX and its subsidiaries are not dependent upon a single customer or a few
customers. The loss of any one customer would not have a material adverse effect
on any segment or GATX as a whole.
Employees
- ---------
GATX and its subsidiaries have approximately 6,000 active employees, of whom 20%
are hourly employees covered by union contracts.
Environmental Matters
- ---------------------
-3-
Certain operations of GATX's subsidiaries (collectively GATX) present potential
environmental risks principally through the transportation or storage of various
commodities. Recognizing that some risk to the environment is intrinsic to its
operations, GATX is committed to protecting the environment as well as complying
with applicable environmental protection laws and regulations. GATX, as well as
its competitors, is subject to extensive regulation under federal, state and
local environmental laws which have the effect of increasing the costs and
potentially the liabilities associated with the conduct of its operations. In
addition, GATX's foreign operations are subject to environmental laws in effect
in each respective jurisdiction.
GATX's policy is to monitor and actively address environmental concerns in a
responsible manner. GATX has received notices from the U.S. Environmental
Protection Agency (EPA) that it is a potentially responsible party (PRP) for
study and clean-up costs at 12 sites under the requirements of the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund) and the National Resource Damage Assessment. Under these Statutes
and comparable state laws, GATX may be required to share in the cost to clean-up
various contaminated sites identified by the EPA and other agencies. In all
instances, GATX is one of a number of financially responsible PRPs and has been
identified as contributing only a small percentage of the contamination at each
of the sites. Due to various factors such as the required level of remediation
and participation in clean-up efforts by others, GATX's total clean-up costs at
these sites cannot be predicted with certainty; however, GATX's best estimates
for remediation and restoration of these sites have been determined and are
included in its environmental reserves.
Future environmental costs are indeterminable due to unknowns such as the
magnitude of possible contamination, the timing and extent of the corrective
actions that may be required, the determination of the company's liability in
proportion to other responsible parties, and the extent to which such costs are
recoverable from third parties including insurers. Also, GATX may incur
additional costs relating to facilities and sites where past operations followed
practices and procedures that were considered acceptable at the time but in the
future may require investigation and/or remedial work to ensure adequate
protection to the environment under current or future standards. If future laws
and regulations contain more stringent requirements than presently anticipated,
expenditures may be higher than the estimates, forecasts, and assessments of
potential environmental costs provided below. However, these costs are expected
to be at least equal to the current level of expenditures. In addition, GATX has
provided indemnities for environmental issues to the buyers of three divested
companies for which GATX believes it has adequate reserves.
GATX's environmental reserve at the end of 1997 was $75 million and reflects
GATX's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $11 million in 1997 and $12 million in 1996.
Expenditures charged to the reserve amounted to $14 million and $18 million in
1997 and 1996, respectively.
In 1997, GATX made capital expenditures of $13 million for environmental and
regulatory compliance compared to $17 million in 1996. These projects included
marine vapor recovery systems, discharge prevention compliance, waste water
systems, impervious dikes, tank modifications for emissions control, and tank
car cleaning systems. Environmental projects authorized or planned would require
capital expenditures of approximately $14 million in 1998. GATX anticipates it
will make annual expenditures at approximately the same level over each of the
next three years.
-4-
Item 2. Properties
- -------------------
Information regarding the location and general character of certain properties
of GATX is included in Item 1, Business, of this document and in Exhibit 13,
GATX Annual Report to Shareholders for the year ended December 31, 1997 on page
67, GATX Location of Operations (page reference is to the Annual Report to
Shareholders). The major portion of Terminals' land is owned; the balance,
including some of its dock facilities, is leased. Most of the warehouses
operated by GATX Logistics are leased; the others are managed for third parties.
Item 3. Legal Proceedings
- --------------------------
A Final Judgment 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 case involving an alleged
patent infringement by GATC in the construction and use of its ArcticarTM
cryogenically cooled railcar. A Petition for Writ of Certiorari filed on behalf
of Cryo-Trans, Incorporated was denied by the United States Supreme Court.
On July 11, 1996, GATX/Airlog Company ("Airlog"), a California general
partnership of which a subsidiary of GATX Capital Corporation (a wholly-owned
subsidiary of GATX Corporation) ("Capital") is a partner, and Capital filed a
complaint for Declaratory Judgment against Evergreen International Airlines,
Inc., ("Evergreen") in the United States District Court for the Northern
District of California (No. C96-2494) seeking a declaration that neither Capital
nor Airlog has any liability to Evergreen as a result of the issuance of
Airworthiness Directive 96-01-03 (the "Airworthiness Directive") by the Federal
Aviation Administration (the "FAA") in January 1996. The effect of the
Airworthiness Directive is to reduce significantly the amount of freight that
three of Evergreen's B747 aircraft may carry.
Between 1988 and 1990, these three aircraft, along with a fourth no longer owned
by Evergreen, were modified from passenger to freight configuration by
subcontractors of Airlog, with Evergreen's knowledge and consent, pursuant to
contracts between Airlog and Evergreen or one of its affiliates. These four
aircraft are part of a group of ten B747 aircraft (the "Affected Aircraft") that
were modified by subcontractors of Airlog under authority of Supplemental Type
Certificates issued by the FAA pursuant to a design approved by the FAA at the
time the modifications were made, and which are subject to the Airworthiness
Directive (the "STCs"). The three Evergreen aircraft were flown as part of its
fleet for more than five years, and the seven other Affected Aircraft were flown
by Evergreen and the three other operators for significant periods. Capital
guaranteed certain of Airlog's obligations to Evergreen. Capital did not issue
guarantees with respect to Airlog's obligations to any of Airlog's other
customers for the Affected Aircraft.
Evergreen filed an answer and counterclaim on August 1, 1996 asserting that
Airlog and Capital are liable to it under a number of legal theories in
connection with the application of the Airworthiness Directive to its three
aircraft. In an initial disclosure statement dated October 29, 1996, and served
on Airlog and Capital pursuant to applicable discovery rules, Evergreen alleged
damages which it calculated as follows: (i) out-of-service costs amounting to
approximately $16.2 million as of October 15, 1996; (ii) denial of access to
then currently favorable capital markets, resulting in an alleged inability to
issue shares in an initial public offering with a value of as much as $1.8
billion; (iii) lost flight revenues and profits amounting to approximately $25.8
million; (iv) lost business opportunities and profits attributable to
Evergreen's diminished 747 fleet capacity (which Evergreen did not quantify, but
indicated is subject to further calculation); and maintenance costs in
responding to the Airworthiness Directive (and to related airworthiness
directives issued by the FAA) of approximately $1.6 million as of March 1996.
The counterclaim also seeks exemplary and punitive damages in an unspecified
amount. In its November 7, 1997 Subsequent Case Management Statement, Evergreen
claims that it seeks recovery for out-of-pocket losses, lost revenues, lost
profits, lost business opportunities, maintenance work, repair costs and capital
losses in an amount that exceeds $145 million.
Airlog and Capital filed a motion seeking partial summary judgment as to four of
Evergreen's counterclaims. Airlog and Capital alleged that three counterclaims,
each for breach of warranty, are barred by the California Commercial Code's
four-year statute of repose, and that a fourth counterclaim, seeking recovery
for negligent misrepresentation is barred by the "economic loss doctrine" which
prevents contracting parties from attempting to use tort law to avoid liability
limitations they agreed to in their contracts. On June 5, 1997, the Court ruled
on the Motion For Partial Summary Judgment. The Court granted the motion as to
Evergreen's counterclaim that alleged Airlog breached its warranty under the
Purchase Agreement pursuant to which Airlog sold one of the converted aircraft
to Evergreen, and denied the motion as to Evergreen's counterclaim that Airlog
breached its warranty under the Modification Agreements pursuant to which Airlog
manufactured and installed freighter conversion kits with respect to two other
aircraft owned by Evergreen. The Court ruled that the Purchase Agreement was a
contract for the sale of goods and that claims thereunder were barred by the
four year statute of limitations under the California Commercial Code (the
"Code"). The Court ruled that the Modification Agreements were contracts of
services not governed by the Code, and that any applicable statute of
limitations did not begin to run until Evergreen had, or should have had,
knowledge of the alleged breach. The Court also denied the motion with respect
to Evergreen's counterclaim in which it alleged that Airlog negligently
misrepresented certain facts which purportedly induced Evergreen to enter into
the Purchase and Modification Agreements. The Court's ruling bars Evergreen from
recovering under its claim for breach of warranty under the Purchase Agreement,
and permits Evergreen (subject to reconsideration or appeal) to proceed with its
claim for breach of warranty under the Modification Agreements and its claim of
negligent misrepresentation. The ruling does not represent a decision that
Evergreen is entitled to prevail on those claims. Airlog and Capital have other
defenses to those claims which they are vigorously asserting.
-5-
On January 31, 1997, American International Airways, Inc. ("AIA") filed a
complaint in the United States District Court for the Northern District of
California (C97-0378) against Airlog, Capital, Airlog Management Corp., and
others asserting that Airlog and Capital are liable to it under a number of
legal theories in connection with the application of the Airworthiness Directive
to two Affected Aircraft owned by AIA. These aircraft were modified by
subcontractors of Airlog in 1992 and 1994 with AIA's knowledge and consent, and
are two of the ten Affected Aircraft. The Complaint seeks damages (to be trebled
under one count of the complaint) of an unspecified amount relating to lost
revenues, lost profits, denied access to capital markets, repair costs,
disruption of its business plan, lost business opportunities, maintenance and
engineering costs, and other additional consequential, direct, incidental and
related damages. The Complaint asks in the alternative for a recision of AIA's
agreements with Airlog and a return of amounts paid, and for injunctive relief
directing that Airlog, and certain individual defendants, properly staff and
manage the correction of the alleged deficiencies that caused the FAA to issue
the Airworthiness Directive. AIA filed a Joint Case Management Statement and
Proposed Order specifying the damages it has allegedly suffered as a result of
the application of the Airworthiness Directive to the two Affected Aircraft it
owns. In that pleading, AIA alleges that it sustained damages of $43,787,954
through May 31, 1997, and further alleges that it continues to accrue loss of
use damages of at least $1,800,000 per month until the aircraft are operational.
On June 4, 1997, Tower Air, Inc. ("Tower") filed an action in the Supreme Court
of the State of New York, County of New York (Index No. 97/602851) against
Capital, Airlog, an officer of Capital and others with respect to one Affected
Aircraft it leased and subsequently purchased from a trust for the benefit of an
affiliate of Airlog in December 1994. This action asserts causes of action in
fraud and deceit, negligent misrepresentation, breach of contract, negligence
and seeks damages in excess of $25 million together with interest, costs,
attorneys' fees and punitive damages.
General Electric Capital Corporation and a subsidiary thereof (collectively,
"GECC"), Airlog, GATX Corporation and Capital entered into a Tolling Agreement
dated December 17, 1996 and amended in April 1997 and January 1998. The Tolling
Agreement relates to certain causes of action under a number of legal theories
arising out of the modification of three Affected Aircraft from passenger to
freighter configuration. These aircraft were modified by subcontractors of
Airlog in 1991 with GECC's knowledge and consent. Under the Tolling Agreement,
as amended, the parties have agreed that any defenses of expiration of the
statute of limitations or statue of repose or laches applicable to the causes of
action asserted by GECC are tolled up to and including July 6, 1998.
On February 25, 1998 The Bank of New York ("BNY") filed an action, as beneficial
owner of an Affected Aircraft, in the United States District Court for the
Northern District of California (No. C98-0385 WHO). This aircraft was originally
converted by Airlog for Evergreen. This action seeks declaratory relief and
asserts claims for breach of contract, intentional misrepresentation,
nondisclosure of known facts, negligence, negligent misrepresentation and unfair
competition. The suit alleges damages of a minimum of $262,000 per month in lost
rent and storage costs, unspecified maintenance and related expenses, diminution
in the value of its aircraft by well in excess of $10 million plus the costs of
aircraft inspection and modifications to comply with the Airworthiness
Directive, "Anticipated to be in the millions of dollars." Claims for interest,
injunctive relief, restitution and attorneys' fees are also included.
Airlog and Capital have filed an action in the United States District Court for
the Northern District of California against Pemco Aeroplex, Inc. (C97-2484WHO),
a contractor for Airlog which obtained the STCs and modified certain of the
Affected Aircraft. The Complaint in this action alleges causes of action for
fraudulent and negligent misrepresentation, breach of contract, professional
negligence, implied and equitable indemnity and contribution. This action seeks
a judgment awarding the plaintiffs any and all damages, costs and expenses in
connection with the resolution of the concerns of the FAA as expressed in the
Airworthiness Directive or relating to it, repairing the Affected Aircraft,
defending against the litigation involving the plaintiffs arising from the
Affected Aircraft, paying any judgments against plaintiffs that may be entered
in said litigation and attorneys' fees incurred by the plaintiffs in connection
with defending said litigation.
On December 18, 1997, Airlog filed a claim under the Federal Tort Claims Act
against the FAA for negligence in connection with the FAA's participation in the
design and manufacture of the Affected Aircraft in the amount of $6,204,065.
This amount represents, as at December 18, 1997, the expenses incurred by Airlog
in responding to the Airworthiness Directive and legal fees and costs incurred
in defending the litigation described above. Airlog reserved its right to
increase the amount of its claim in the future. On January 29, 1998, the FAA
rejected Airlog's claim. While disappointing, the FAA's rejection of Airlog's
claim was a procedural requirement to initiating litigation against the Agency.
Under the applicable statute Airlog has six months in which to file an action
against the FAA.
On February 10, 1998, the FAA issued a letter to Airlog that approves a number
of Airlog generated Service Bulletins which, when collectively performed on an
Affected Aircraft, permit an operator of such aircraft to achieve revenue
service, but at payloads less than the original certified payload.
Consistent with its ongoing product support, Airlog continues to pursue, with
the apparent cooperation of each of the four operators of the Affected Aircraft,
including Evergreen, GECC and AIA, solutions to the FAA's remaining concerns
raised in the Airworthiness Directive. While the results of any litigation are
impossible to predict with certainty, the Company believes that each of the
foregoing claims are without merit, and that Capital and Airlog have adequate
defenses thereto.
Various lawsuits have been filed in the Superior Court for the State of
California, County of San Bernardino, and served upon
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GATX Terminals, Calnev Pipe Line Company, or another GATX subsidiary seeking an
unspecified amount of damages arising out of the May 1989 explosion in San
Bernardino, California. All of those suits have all been resolved except for:
Aguilar, et al, v. Calnev Pipe Line Company, et al, filed February 1990 in the
County of Los Angeles (No. 0751026); Pearson v. Calnev Pipe Line Company, et al,
filed May 1990 in the County of San Bernardino (No. 256206); Davis v. Calnev
Pipe Line Company, et al, filed May 1990 (No. 256207). As Terminals' insurance
carriers have assumed the defense of these lawsuits without a reservation of
rights and have paid all of the settlements entered into between the parties to
date, GATX believes that the likelihood of a material adverse effect on GATX's
consolidated financial position or results of operations is remote.
-7-
In September 1997, judgment was entered against General American Transportation
Corporation ("GATC"), its wholly owned subsidiary, GATX Terminals Corporation
("GTC") and seven other defendants not related to GATX for compensatory damages
of approximately $1.9 million plus interest from the date of the incident to
twenty individuals in a class action law suit filed in the Civil District Court
for the Parish of Orleans, LA, In Re New Orleans Train Car Leakage Fire Incident
(No. 87-16374). The judgment allocated responsibility for twenty percent of the
compensatory damages to GATC and ten percent to GTC. The judgment also provided
for punitive damages of $3.4 billion in the aggregate against five of the nine
named defendants, including $190 million against GTC. The litigation arose out
of an incident which began on September 9, 1987, when butadiene leaked from a
tank car owned by GATC and caught fire. The incident resulted in no deaths or
significant injuries and only minimal property damage, but caused the overnight
evacuation of a number of residents from the immediate area.
On October 31, 1997, the Louisiana Supreme Court ruled that the trial Court
erred in rendering a judgment awarding damages prior to rendering a judgment
adjudicating all liability issues in the case. Accordingly, it vacated the trial
Court's September 1997 judgment which had awarded both compensatory and punitive
damages, and remanded the case back to the trial Court for further proceedings
not inconsistent with its ruling. The plaintiffs have filed a motion asking that
the trial Court refrain from signing a judgment until all remaining 8,000 claims
are tried. The defendants have filed motions asking the Court (1) to enter a
judgment on liability as to compensatory damages and as to the conduct of the
defendants giving rise to punitive damages, and (2) to vacate the verdict
awarding punitive damages. If a judgment is entered as suggested by the
defendants, the Company will be in a position to seek appropriate judicial
review of the liability determinations made to date and of the finding as to the
conduct on which punitive damages were based. The Company will evaluate any
further ruling of the trial Court, and if appropriate ask the Court for post
judgment relief. If necessary, the Company will appeal any judgment against it.
Although more than 8,000 claims have been made, the Company believes that the
damages, if any, that may be awarded to the remaining claimants should average
substantially less than those awarded to the initial twenty plaintiffs. The
Company also believes that the award of compensatory damages to the twenty
plaintiffs was excessive, and that the punitive damages judgment as to GTC was
unwarranted and excessive.
GATX and its subsidiaries are engaged in various matters of litigation including
but not limited to those matters described above, and have a number of
unresolved claims pending, including proceedings under governmental laws and
regulations related to environmental matters. While the amounts claimed are
substantial and the ultimate liability with respect to such litigation and
claims cannot be determined at this time, it is the opinion of management that
damages, if any, required to be paid by GATX and its subsidiaries in the
discharge of such liability are not likely to be material to GATX's consolidated
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
-8-
Executive Officers of the Registrant
- ------------------------------------
Pursuant to General Instruction G(3), the following information regarding
executive officers is included in Part I in lieu of inclusion in the GATX Proxy
Statement:
Office
Held
Name Office Held Since Age
Ronald H. Zech Chairman, President and Chief Executive 1996 54
Officer
David M. Edwards Vice President, Finance and 1994 46
Chief Financial Officer
David B. Anderson Vice President, Corporate Development, 1995 56
General Counsel and Secretary
William L. Chambers Vice President, Human Resources 1993 60
Gail L. Duddy Vice President, Compensation and 1997 45
Benefits
Ralph L. O'Hara Controller and Chief Accounting Officer 1986 53
Brian A. Kenney Vice President and Treasurer 1997 38
Officers are elected annually by the Board of Directors. Previously, Mr. Zech
was President of GATX Financial Services from 1985 to 1994. In 1994 Mr. Zech was
elected as President and Chief Operating Officer of GATX. On January 1, 1996, he
was elected as Chief Executive Officer and on April 26, 1996, Chairman. Mr.
Edwards was Senior Vice President - Finance and Administration of GATX Financial
Services from 1990 to 1994. Mr. Anderson was Vice President, Corporate
Development, General Counsel and Secretary of Inland Steel Industries from 1986
until 1995. Concurrently, he served as President of Inland Engineered Materials
Corporation. Mr. Chambers was engaged in human resource consulting from 1991
until 1993. Ms. Duddy joined GATX in 1992 as Director of Compensation and in
1995 also assumed responsibility for the benefits function. Prior to coming to
GATX, Ms. Duddy served as a Senior Compensation Consultant at William M. Mercer,
Inc. Mr. Kenney was Managing Director, Corporate Finance and Banking, for AMR
Corporation from 1990-1995.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
- --------------------------------------------------------------------------------
Information required by this item is contained in Exhibit 13, GATX Annual Report
to Shareholders for the year ended December 31, 1997 on page 61, which is
incorporated herein by reference (page reference is to the Annual Report to
Shareholders).
Item 6. Selected Financial Data
- --------------------------------
Information required by this item is contained in Exhibit 13, GATX Annual Report
to Shareholders for the year ended December 31, 1997, on pages 62 and 63, which
is incorporated herein by reference (page references are to the Annual Report to
Shareholders).
-9-
Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Information required by this item is contained in Item 1, Business, section of
this document and in Exhibit 13, GATX Annual Report to Shareholders for the year
ended December 31, 1997, the management discussion and analysis of 1997 compared
to 1996 on pages 31, 32, 33, 39, 41, 43 and 44, the financial data of business
segments on pages 34 through 37, and the management discussion and analysis of
1996 compared to 1995 on pages 64, 65, and 66, which is incorporated herein by
reference (page references are to the Annual Report to Shareholders).
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The following consolidated financial statements of GATX Corporation, included in
Exhibit 13, GATX Annual Report to Shareholders for the year ended December 31,
1997, which is incorporated herein by reference (page references are to the
Annual Report to Shareholders):
Statements of Consolidated Operations and Reinvested Earnings -- Years ended
December 31, 1997, 1996 and 1995 on page 38.
Consolidated Balance Sheets -- December 31, 1997 and 1996, on page 40.
Statements of Consolidated Cash Flows -- Years ended December 31, 1997, 1996
and 1995, on page 42.
Notes to Consolidated Financial Statements on pages 46 through 60.
Quarterly results of operations are contained in Exhibit 13, GATX Annual Report
to Shareholders for the year ended December 31, 1997 on page 61, which is
incorporated herein by reference (page reference is to the Annual Report to
Shareholders).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information required by this item regarding directors is contained in sections
entitled "Nominees For Directors" and "Additional Information Concerning
Nominees" in the GATX Proxy Statement dated March 17, 1998, which sections are
incorporated herein by reference. Information regarding officers is included at
the end of Part I.
Item 11. Executive Compensation
- --------------------------------
Information required by this item regarding executive compensation is contained
in sections entitled "Compensation of Directors" and "Compensation of Executive
Officers" in the GATX Proxy Statement dated March 17, 1998, which sections are
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information required by this item regarding the Company's Common Stock is
contained in sections entitled "Nominees For Directors," "Security Ownership of
Management" and "Beneficial Ownership of Common Stock" in the GATX Proxy
Statement dated March 17, 1998, which sections are incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
None.
PART IV
Item 14. Financial Statement Schedules, Reports on Form 8-K and Exhibits.
- --------------------------------------------------------------------------
(a) 1. -Financial Statements
The following consolidated financial statements of GATX
Corporation included in the Annual Report to Shareholders
for the year ended December 31, 1997, are filed in
response to Item 8:
-10-
Statements of Consolidated Operations and Reinvested
Earnings -- Years ended December 31, 1997, 1996 and
1995
Consolidated Balance Sheets -- December 31, 1997 and 1996
Statements of Consolidated Cash Flows -- Years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. -Financial Statement Schedules: Page
Schedule I Condensed Financial
Information of Registrant........18
Schedule II Valuation and Qualifying Accounts....22
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and, therefore, have
been omitted.
(b) Report on Form 8-K
GATX filed a report on Form 8-K on December 8, 1997, under Item
5., Other Events.
(c) Exhibit Index
Exhibit
Number Exhibit Description Page
3A. Restated Certificate of Incorporation of GATX Corporation, as
amended, incorporated by reference to GATX's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, file
number 1-2328.
3B. By-Laws of GATX Corporation, as amended and restated as of
July 29, 1994, incorporated by reference to GATX's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994, file number 1-2328.
-11-
Exhibit
Number Exhibit Description Page
10A. GATX Corporation 1985 Long Term Incentive Compensation Plan,
as amended, and restated as of April 27, 1990, incorporated by
reference to GATX's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, file No. 1-2328. Amendment to
said Plan effective as of April 1, 1991, incorporated by
reference to GATX's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, file number 1-2328; Sixth
Amendment to said Plan effective January 31,1997, incorporated
by reference to GATX's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, file number 1-2328.
10B. GATX Corporation 1995 Long Term Incentive Compensation Plan,
incorporated by reference to GATX's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995, file
number 1-2328. First Amendment of said Plan effective as of
January 31, 1997 submitted to the SEC on Form 10-K for the
fiscal year ended December 31, 1996, file number 1-2328.
Second Amendment of said Plan effective as of December 5, 1997
submitted to the SEC along with the electronic transmission of
this Annual Report on Form 10-K.
10C. GATX Corporation Deferred Fee Plan for Directors, as Amended
and Restated as of October 25, 1996, incorporated by reference
to GATX's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, file number 1-2328.
10D. 1984 Executive Deferred Income Plan Participation Agreement
between GATX Corporation and participating directors and
executive officers dated September 1, 1984, as amended,
incorporated by reference to GATX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, file number
1-2328.
10E. 1985 Executive Deferred Income Plan Participation Agreement
between GATX Corporation and participating directors and
executive officers dated July 1, 1985, as amended,
incorporated by reference to GATX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, file number
1-2328.
10F. 1987 Executive Deferred Income Plan Participation Agreement
between GATX Corporation and participating directors and
executive officers dated December 31, 1986, as amended,
incorporated by reference to GATX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, file number
1-2328.
10G. Amendment to Executive Deferred Income Plan Participation
Agreements between GATX and certain participating directors and
participating executive officers entered into as of January 1,
1990, incorporated by reference to GATX's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, file number
1-2328.
-12-
Exhibit
Number Exhibit Description Page
10H. Retirement Supplement to Executive Deferred Income Plan
Participation Agreements entered into as of January 23, 1990,
between GATX and certain participating directors incorporated
by reference to GATX's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, file number 1-2328 and
between GATX and certain other participating directors
incorporated by reference to GATX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, file number
1-2328.
10I. Amendment to Executive Deferred Income Plan Participation
Agreements between GATX and participating executive officers
entered into as of April 23, 1993, incorporated by reference to
GATX's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, file number 1-2328.
10J. Directors' Deferred Stock Plan approved on July 26,1996,
effective as of April 26, 1996, Summary of Plan incorporated by
reference to GATX's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996, file number 1-2328.
10K. Agreement for Continued Employment Following Change of Control
or Disposition of a Subsidiary between GATX Corporation and
certain executive officers dated as of January 1, 1998,
submitted to the SEC along with the electronic submission of
this Report on Form 10-K.
10L. Letter Agreement dated August 17, 1993 between William Chambers
and GATX, incorporated by reference to GATX's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1995, file
number 1-2328.
10M. Letter Agreement dated May 31, 1995 between David B. Anderson
and GATX, incorporated by reference to GATX's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, file
number 1-2328.
10N. Arrangements between James J. Glasser and GATX associated with
Mr. Glasser's retirement from GATX as described on page 11 in
the Section of the GATX Proxy Statement dated March 13, 1996
entitled "Termination of Employment and Change of Control
Arrangements" are incorporated herein by reference thereto,
file number 1-2328.
11A. Statement regarding computation of per share earnings. 23
11B. Statement regarding computation of per share earnings
(assuming dilution) 24
12. Statement regarding computation of ratios of earnings
to combined fixed charges and preferred stock dividends. 25
-13-
Exhibit
Number Exhibit Description Page
13. Annual Report to Shareholders for the year ended December 31,
1997, pages 29 - 70, with respect to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, file number
1-2328. Submitted to the SEC along with the electronic
submission of this Report on Form 10-K.
21. Subsidiaries of the Registrant. 26
23. Consent of Independent Auditors. 27
24. Powers of Attorney with respect to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, file number
1-2328. Submitted to the SEC along with the electronic
submission of this Report on Form 10-K.
27. Financial Data Schedule for GATX Corporation for the fiscal
year ended December 31, 1997, file number 1-2328. Submitted to
the SEC along with the electronic submission of this Report on
Form 10-K.
99A. Undertakings to the GATX Corporation Salaried Employees
Retirement Savings Plan, incorporated by reference to GATX's
Annual Report on Form 10-K for the fiscal year ended December
31, 1982, file number 1-2328.
99B. Undertakings to the GATX Corporation 1995 Long Term Incentive
Plan for the fiscal year ended December 31, 1995, file number
1-2328, incorporated by reference to GATX's Annual Report on
Form 10-K for the year ended December 31, 1995.
99C. Undertakings to the GATX Logistics Inc. 401(k) Cash
Accumulation Plan incorporated by reference to the Form S-8
Registration Statement filed with the SEC on June 19,1996,
Registration No.33-06315.
99D. Undertakings to the Centron DPL Company, Inc. Profit Sharing
Plan Plan incorporated by reference to the Form S-8
Registration Statement filed with the SEC on December 23, 1997,
Registration No.33-43113.
-14-
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
and Board of Directors
GATX Corporation
We have audited the consolidated financial statements and related schedules of
GATX Corporation and subsidiaries listed in Item 14 (a)(1) and (2) of the Annual
Report on Form 10-K of GATX Corporation for the year ended December 31, 1997.
These financial statements and related schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and related schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and related schedules.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GATX
Corporation and subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
January 27, 1998
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/Ronald H. Zech
-----------------
Ronald H. Zech
Chairman, President and
Chief Executive Officer
March 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/Ronald H. Zech
-----------------
Ronald H. Zech Chairman, President and
March 19, 1998 Chief Executive Officer
/s/David M. Edwards
-------------------
David M. Edwards Vice President Finance and
March 19, 1998 Chief Financial Officer
/s/Ralph L. O'Hara
------------------
Ralph L. O'Hara Controller and
March 19, 1998 Chief Accounting Officer
James M. Denny Director By /s/David B. Anderson
---------------------------
Richard Fairbanks Director David B. Anderson
William C. Foote Director (Attorney in Fact)
Deborah M. Fretz Director
Richard A. Giesen Director
Miles L. Marsh Director
Charles Marshall Director
Michael E. Murphy Director
Date: March 19, 1998
-16-
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GATX CORPORATION
(PARENT COMPANY)
STATEMENTS OF OPERATIONS
(In Millions)
Year Ended December 31
------------------------------------------
1997 1996 1995
----- ------ -----
Gross income (loss) $ 1.4 $ (1.3) $ (1.0)
Costs and expenses
Interest 31.7 30.6 31.7
Provision for depreciation 1.0 1.0 .8
Selling, general and administrative 21.2 16.0 20.4
------- ------- --------
53.9 47.6 52.9
------- ------- --------
Loss before income taxes and share of net (loss)
income of subsidiaries (52.5) (48.9) (53.9)
Income tax benefit (18.2) (17.7) (21.3)
------- ------- --------
Loss before share of net (loss) income
of subsidiaries (34.3) (31.2) (32.6)
Share of net (loss) income of subsidiaries (16.6) 133.9 133.4
------- ------- -------
Net (loss) income $(50.9) $102.7 $100.8
====== ====== ======
-18-
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)
GATX CORPORATION
(PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(In Millions)
Year Ended December 31
---------------------------------------------
1997 1996 1995
-------- -------- ---------
OPERATING ACTIVITIES
Net (loss) income $ (50.9) $ 102.7 $ 100.8
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Provision for depreciation 1.0 1.0 .8
Deferred income tax benefit (7.9) (6.8) (10.8)
Share of net (loss) income of subsidiaries
less dividends received 112.6 (60.3) (61.0)
Other (includes working capital) (3.5) (23.5) (4.3)
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 51.3 13.1 25.5
INVESTING ACTIVITIES
Additions to operating lease assets and facilities - (1.8) (.9)
-------- -------- --------
NET CASH USED IN
INVESTING ACTIVITIES - (1.8) (.9)
FINANCING ACTIVITIES
Issuance of Common Stock under
employee benefit programs and other 12.4 3.1 5.5
Cash dividends to shareholders (49.4) (48.0) (45.3)
Advances (to) from subsidiaries (13.4) 33.4 14.5
-------- -------- --------
NET CASH USED IN
FINANCING ACTIVITIES (50.4) (11.5) (25.3)
-------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS $ .9 $ (.2) $ (.7)
========= ========= ==========
-19-
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)
GATX CORPORATION
(PARENT COMPANY)
BALANCE SHEETS
(In Millions)
ASSETS
December 31
----------------------
1997 1996
---------- ----------
Cash and cash equivalents $ 1.1 $ .2
Operating lease assets and facilities 11.0 10.9
Less - Allowance for depreciation (4.4) (3.4)
---------- ---------
6.6 7.5
Investment in subsidiaries 1,141.4 1,283.3
Other assets 13.9 22.0
TOTAL ASSETS $ 1,163.0 $ 1,313.0
========== ==========
-20-
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
December 31
----------------------
1997 1996
---------- ----------
Accounts payable and accrued expenses $ 10.2 $ 16.6
Due to subsidiaries 478.7 492.1
Other deferred items 18.7 29.4
---------- ----------
Total liabilities and deferred items 507.6 538.1
Shareholders' equity:
Preferred Stock - 3.4
Common Stock 17.0 14.4
Additional capital 339.7 329.0
Reinvested earnings 363.4 463.7
Cumulative unrealized equity adjustments (17.9) 11.4
---------- ----------
702.2 821.9
Less - Cost of shares in treasury (46.8) (47.0)
---------- ----------
Total shareholders' equity 655.4 774.9
---------- ----------
TOTAL LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDERS' EQUITY $ 1,163.0 $ 1,313.0
========== ==========
-21-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GATX CORPORATION AND SUBSIDIARIES
(In Millions)
- --------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. COL. D COL. E COL. F
- --------------------------------------------------------------------------------------------------------------------------
Additions
DESCRIPTION Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts- Deductions- at End
of Period Expenses Describe Describe of Period
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997:
Allowance for possible
losses - Note A $ 121.1 $ 11.1 $ 3.3 (B) $ (7.0) (C) $ 128.5
Year ended December 31, 1996:
Allowance for possible
losses - Note A $ 100.0 $ 12.5 $ 15.5 (B) $ (6.9) (C) $ 121.1
Year ended December 31, 1995:
Allowance for possible
losses - Note A $ 89.6 $ 18.4 $ 5.2 (B) $ (13.2) (C) $ 100.0
Note A - Deducted from asset accounts.
Note B - Represents principally recovery of amounts previously written off.
Note C - Represents principally reductions in asset values charged off or transferred to claims and uncollectible amounts.
-22-
EXHIBIT 11A
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET (LOSS) INCOME PER SHARE OF
COMMON STOCK
(In Millions, Except Per Share Amounts)
Year Ended December 31
---------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Average number of shares
of Common Stock outstanding 22.5 20.2 20.0 19.9 19.6
Net (loss) income $ (50.9) $ 102.7 $ 100.8 $ 91.5 $ 72.7
Deduct - Dividends paid and
accrued on Preferred Stock 6.7 13.2 13.2 13.3 13.3
-------- --------- --------- -------- --------
Net (loss) income, as adjusted $ (57.6) $ 89.5 $ 87.6 $ 78.2 $ 59.4
======== ========= ========= ======== ========
Net (loss) income per share $ (2.55) $ 4.43 $ 4.38 $ 3.94 $ 3.03
======== ========= ========= ======== ========
-23-
EXHIBIT 11B
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET (LOSS) INCOME PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS ASSUMING DILUTION
(PRINCIPALLY CONVERSION OF ALL OUTSTANDING PREFERRED STOCK)
(In Millions, Except Per Share Amounts)
Year Ended December 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Average number of shares used to
compute basic earnings per share 22.5 20.2 20.0 19.9 19.6
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 .3 *
Common Stock issuable upon assumed
conversion of Preferred Stock * 4.0 4.0 4.0 *
------- ------- ------- ------ ------
Total 22.5 24.5 24.4 24.2 19.6
======= ======= ======= ====== ======
Net (loss) income as adjusted
per basic computation $(57.6) $ 89.5 $ 87.6 $ 78.2 $ 59.4
Add - Dividends paid and
accrued on Preferred Stock * 13.2 13.2 13.3 *
------ ------- ------- ------ ------
Net (loss) income, as adjusted $(57.6) $ 102.7 $ 100.8 $ 91.5 $ 59.4
====== ======= ======= ====== ======
Net (loss) income per share,
assuming dilution $(2.55) $ 4.20 $ 4.14 $ 3.79 $ 3.03
====== ======= ======= ====== ======
* Exercise of options and conversion of Preferred Stock is excluded from
computation of diluted earnings because of antidilutive effects.
Additional diluted computation (1)
Average number of shares used to
compute basic earnings per share 22.5 19.6
Common stock issuable upon assumed
conversion of Preferred Stock, and
stock option exercises 2.3 4.3
------- ------
24.8 23.9
====== ======
Net (loss) income as adjusted
per basic computation $ (57.6) $ 59.4
Add - Dividends paid and accrued
on Preferred Stock 6.7 13.3
------- ------
$ (50.9) $ 72.7
======= ======
Net (loss) income per share,
assuming dilution $ (2.05) $ 3.04
======= ======
(1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary
to paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result.
-24-
EXHIBIT 12
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In Millions Except For Ratios)
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Earnings available for fixed charges:
Net (loss) income $ (50.9) $ 102.7 $ 100.8 $ 91.5 $ 72.7
Add:
Income taxes (benefit) expense (5.5) 54.4 47.6 48.8 51.4
Equity in net earnings of affiliated companies,
net of distributions received 40.7 8.0 6.5 3.7 8.0
Interest on indebtedness and amortization
of debt discount and expense 222.4 202.8 170.1 148.2 151.8
Amortization of capitalized interest 1.4 3.7 1.1 1.1 1.1
Portion of rents representative of
interest factor (deemed to be one-third) 62.2 56.7 43.9 37.9 31.4
-------- -------- -------- -------- --------
Total earnings available for fixed charges $ 270.3 $ 428.3 $ 370.0 $ 331.2 $ 316.4
======== ======== ======== ======== ========
Preferred dividend requirements $ 6.7 $ 13.2 $ 13.2 $ 13.3 $ 13.3
Ratio to convert preferred
dividends to pretax basis (A) 107% 173% 169% 171% 197%
-------- -------- -------- -------- --------
Preferred dividend factor on pretax basis 7.2 22.8 22.3 22.7 26.2
Fixed charges:
Interest on indebtedness and amortization
of debt discount and expense 222.4 202.8 170.1 148.2 151.8
Capitalized interest 2.5 6.8 6.2 3.0 2.7
Portion of rents representative of interest
factor (deemed to be one-third) 62.2 56.7 43.9 37.9 31.4
-------- -------- -------- -------- --------
Combined fixed charges and
preferred stock dividends $ 294.3 $ 289.1 $ 242.5 $ 211.8 $ 212.1
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends (B) .92x (C) 1.48x 1.53x 1.56x 1.49x
(A) To adjust preferred dividends to a pretax basis, (loss) income before
income taxes and equity in net earnings of affiliated companies is
divided by (loss) income before equity in net earnings of affiliated
companies.
(B) The ratios of earnings to combined fixed charges and preferred stock
dividends represent the number of times "fixed charges and preferred
stock dividends" were covered by "earnings." "Fixed charges and preferred
stock dividends" consist of interest on outstanding debt and capitalized
interest, one-third (the proportion deemed representative of the interest
factor) of rentals, amortization of debt discount and expense, and
dividends on preferred stock adjusted to a pretax basis. "Earnings"
consist of consolidated net (loss) income before income taxes and fixed
charges, less equity in net earnings of affiliated companies, net of
distributions received.
(C) In 1997, net loss included restructuring charges of $162.8 million.
Excluding the charges, the "ratio of earnings to combined fixed charges
and preferred stock dividends" was 1.66x. See Note P - Restructuring
Charges on page 60 of the Company's 1997 Annual Report to Shareholders.
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries included in GATX's consolidated
financial statements (excluding a number of subsidiaries which, considered in
the aggregate, would not constitute a significant subsidiary), and the state of
incorporation of each:
General American Transportation Corporation (New York)--includes 4 domestic
subsidiaries, 4 foreign subsidiaries and interests in 2 foreign affiliates,
Business Segment--Railcar Leasing and Management
GATX Financial Services, Inc. (Delaware) -- 64 domestic subsidiaries (which
includes GATX Capital Corporation), 13 foreign subsidiaries, interests in
6 domestic affiliates and 5 foreign affiliates, Business Segment--
Financial Services
GATX Terminals Corporation (Delaware)--3 domestic subsidiaries, 3 foreign
subsidiaries, an interest in 1 domestic affiliate and 13 foreign
affiliates, Business Segment--Terminals and Pipelines
GATX Logistics, Inc. (Florida) --7 domestic subsidiaries and 2 foreign
subsidiaries and an interest in 1 foreign affiliate, Business Segment--
Logistics and Warehousing
American Steamship Company (New York)--12 domestic subsidiaries, Business
Segment--Great Lakes Shipping
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following: (i) Registration
Statement No. 2-92404 on Form S-8, filed July 26, 1984; (ii) Registration
Statement No. 2-96593 on Form S-8, filed March 22, 1985; (iii) Registration
Statement No. 33-38790 on Form S-8 filed February 1, 1991; (iv) Registration
Statement No. 33-41007 on Form S-8 filed June 7, 1991; (v) Registration
Statement No. 33-61183 on Form S-8 filed July 20, 1995; (vi) Registration
Statement No. 33-06315 on Form S-8 filed June 19, 1996; and (vii) Registration
Statement No. 33-43113 on Form S-8 filed December 23, 1997 of GATX Corporation,
of our report dated January 27, 1998 with respect to the consolidated financial
statements and schedules of GATX Corporation included and/or incorporated by
reference in the Annual Report on Form 10-K for the year ended December 31,
1997.
ERNST & YOUNG LLP
Chicago, Illinois
March 16, 1998
-27-
EXHIBITS FILED WITH DOCUMENT
10B. GATX Corporation 1995 Long Term Incentive Compensation Plan,
incorporated by reference to GATX's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995, file
number 1-2328. First Amendment of said Plan effective as of
January 31, 1997 submitted to the SEC on Form 10-K for the
fiscal year ended December 31, 1996, file number 1-2328.
Second Amendment of said Plan effective as of December 5, 1997
submitted to the SEC along with the electronic transmission of
this Annual Report on Form 10-K.
10K. Agreement for Continued Employment Following Change of Control
or Disposition of a Subsidiary between GATX Corporation and
certain executive officers dated as of January 1, 1998,
submitted to the SEC along with the electronic submission of
this Report on Form 10-K.
11A. Statement regarding computation of per share earnings.
11B. Statement regarding computation of per share earnings
(assuming dilution)
12. Statement regarding computation of ratios of earnings
to combined fixed charges and preferred stock dividends.
13. Annual Report to Shareholders for the year ended December 31,
1997, pages 29 - 70, with respect to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, file number
1-2328. Submitted to the SEC along with the electronic
submission of this Report on Form 10-K.
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
24. Powers of Attorney with respect to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, file number
1-2328. Submitted to the SEC along with the electronic
submission of this Report on Form 10-K.
27. Financial Data Schedule for GATX Corporation for the fiscal
year ended December 31, 1997, file number 1-2328. Submitted to
the SEC along with the electronic submission of this Report on
Form 10-K.